[G.R. No. 138334. August 25, 2003]
She insisted that the British Pageant was merely a
ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT
OF APPEALS and CARAVAN TRAVEL & TOURS
INTERNATIONAL, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted
the services of respondent Caravan Travel and Tours
International, Inc. to arrange and facilitate her booking,
ticketing and accommodation in a tour dubbed Jewels of
Europe. The package tour included the countries of
England, Holland, Germany, Austria, Liechstenstein,
Switzerland and France at a total cost of P74,322.70.
Petitioner was given a 5% discount on the amount,
which included airfare, and the booking fee was also
waived because petitioners niece, Meriam Menor, was
respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts
residence on June 12, 1991 a Wednesday to deliver
petitioners travel documents and plane tickets.
Petitioner, in turn, gave Menor the full payment for the
package tour. Menor then told her to be at the Ninoy
Aquino International Airport (NAIA) on Saturday, two
hours before her flight on board British Airways.
Without checking her travel documents, petitioner went
to NAIA on Saturday, June 15, 1991, to take the flight for
the first leg of her journey from Manila to Hongkong. To
petitioners dismay, she discovered that the flight she
was supposed to take had already departed the previous
day. She learned that her plane ticket was for the flight
scheduled on June 14, 1991. She thus called up Menor
to complain.
Subsequently, Menor prevailed upon petitioner to take
another tour the British Pageant which included England,
Scotland and Wales in its itinerary. For this tour
package, petitioner was asked anew to pay US$785.00
or P20,881.00 (at the then prevailing exchange rate of
P26.60). She gave respondent US$300 or P7,980.00 as
partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded
from respondent the reimbursement of P61,421.70,
representing the difference between the sum she paid
for Jewels of Europe and the amount she owed
respondent for the British Pageant tour. Despite several
demands, respondent company refused to reimburse the
amount, contending that the same was non-
refundable.[1] Petitioner was thus constrained to file a
complaint against respondent for breach of contract of
carriage and damages, which was docketed as Civil
Case No. 92-133 and raffled to Branch 59 of the
Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to
join Jewels of Europe was due to respondents fault since
it did not clearly indicate the departure date on the plane
ticket. Respondent was also negligent in informing her of
the wrong flight schedule through its employee Menor.
substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the
sum paid for the latter.
For its part, respondent company, through its Operations
Manager, Concepcion Chipeco, denied responsibility for
petitioners failure to join the first tour. Chipeco insisted
that petitioner was informed of the correct departure
date, which was clearly and legibly printed on the plane
ticket. The travel documents were given to petitioner two
days ahead of the scheduled trip. Petitioner had only
herself to blame for missing the flight, as she did not
bother to read or confirm her flight schedule as printed
on the ticket.
Respondent explained that it can no longer reimburse
the amount paid for Jewels of Europe, considering that
the same had already been remitted to its principal in
Singapore, Lotus Travel Ltd., which had already billed
the same even if petitioner did not join the tour. Lotus
European tour organizer, Insight International Tours Ltd.,
determines the cost of a package tour based on a
minimum number of projected participants. For this
reason, it is accepted industry practice to disallow refund
for individuals who failed to take a booked tour.[3]
Lastly, respondent maintained that the British Pageant
was not a substitute for the package tour that petitioner
missed. This tour was independently procured by
petitioner after realizing that she made a mistake in
missing her flight for Jewels of Europe. Petitioner was
allowed to make a partial payment of only US$300.00 for
the second tour because her niece was then an
employee of the travel agency. Consequently,
respondent prayed that petitioner be ordered to pay the
balance of P12,901.00 for the British Pageant package
tour.
After due proceedings, the trial court rendered a
decision,[4] the dispositive part of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the
plaintiff the amount of Fifty Three Thousand Nine
Hundred Eighty Nine Pesos and Forty Three Centavos
(P53,989.43) with legal interest thereon at the rate of
twelve percent (12%) per annum starting January 16,
1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount
of Five Thousand (P5,000.00) Pesos as and for
reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of
merit; and
4. With costs against the defendant.
1
SO ORDERED.[5]
The trial court held that respondent was negligent in
erroneously advising petitioner of her departure date
through its employee, Menor, who was not presented as
witness to rebut petitioners testimony. However,
petitioner should have verified the exact date and time of
departure by looking at her ticket and should have
simply not relied on Menors verbal representation. The
trial court thus declared that petitioner was guilty of
contributory negligence and accordingly, deducted 10%
from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which
likewise found both parties to be at fault. However, the
appellate court held that petitioner is more negligent than
respondent because as a lawyer and well-traveled
person, she should have known better than to simply
rely on what was told to her. This being so, she is not
entitled to any form of damages. Petitioner also forfeited
her right to the Jewels of Europe tour and must therefore
pay respondent the balance of the price for the British
Pageant tour. The dispositive portion of the judgment
appealed from reads as follows:
WHEREFORE, premises considered, the decision of the
Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby
ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00,
representing the balance of the price of the British
Pageant Package Tour, the same to earn legal interest
at the rate of SIX PERCENT (6%) per annum, to be
computed from the time the counterclaim was filed until
the finality of this decision. After this decision becomes
final and executory, the rate of TWELVE PERCENT
(12%) interest per annum shall be additionally imposed
on the total obligation until payment thereof is satisfied.
The award of attorneys fees is DELETED. Costs against
the plaintiff-appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration,[7]
petitioner filed the instant petition under Rule 45 on the
following grounds:
I another since its covenant with its customers is simply to
It is respectfully submitted that the Honorable Court of
Appeals committed a reversible error in reversing and
setting aside the decision of the trial court by ruling that
the petitioner is not entitled to a refund of the cost of
unavailed Jewels of Europe tour she being equally, if not
more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to
observe utmost care and extra-ordinary diligence which
is higher in degree than the ordinary diligence required
of the passenger. Thus, even if the petitioner and private
respondent were both negligent, the petitioner cannot be
considered to be equally, or worse, more guilty than the
private respondent. At best, petitioners negligence is
only contributory while the private respondent [is guilty]
of gross negligence making the principle of pari delicto
inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling
that the Jewels of Europe tour was not indivisible and
the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the
petitioner the consequential damages due her as a result
of breach of contract of carriage.[8]
Petitioner contends that respondent did not observe the
standard of care required of a common carrier when it
informed her wrongly of the flight schedule. She could
not be deemed more negligent than respondent since
the latter is required by law to exercise extraordinary
diligence in the fulfillment of its obligation. If she were
negligent at all, the same is merely contributory and not
the proximate cause of the damage she suffered. Her
loss could only be attributed to respondent as it was the
direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is
one whereby a certain person or association of persons
obligate themselves to transport persons, things, or
news from one place to another for a fixed price.[9] Such
person or association of persons are regarded as
carriers and are classified as private or special carriers
and common or public carriers.[10] A common carrier is
defined under Article 1732 of the Civil Code as persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation,
offering their services to the public.
It is obvious from the above definition that respondent is
not an entity engaged in the business of transporting
either passengers or goods and is therefore, neither a
private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to
make travel arrangements in their behalf. Respondents
services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking
customers for tours.
While petitioner concededly bought her plane ticket
through the efforts of respondent company, this does not
mean that the latter ipso facto is a common carrier. At
most, respondent acted merely as an agent of the
airline, with whom petitioner ultimately contracted for her
carriage to Europe. Respondents obligation to petitioner
in this regard was simply to see to it that petitioner was
properly booked with the airline for the appointed date
2
and time. Her transport to the place of destination,
meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with
respondent is the latters service of arranging and
facilitating petitioners booking, ticketing and
accommodation in the package tour. In contrast, the
object of a contract of carriage is the transportation of
passengers or goods. It is in this sense that the contract
between the parties in this case was an ordinary one for
services and not one of carriage. Petitioners submission
is premised on a wrong assumption.
The nature of the contractual relation between petitioner
and respondent is determinative of the degree of care
required in the performance of the latters obligation
under the contract. For reasons of public policy, a
common carrier in a contract of carriage is bound by law
to carry passengers as far as human care and foresight
can provide using the utmost diligence of very cautious
persons and with due regard for all the
circumstances.[11] As earlier stated, however,
respondent is not a common carrier but a travel agency.
It is thus not bound under the law to observe
extraordinary diligence in the performance of its
obligation, as petitioner claims.
Since the contract between the parties is an ordinary
one for services, the standard of care required of
respondent is that of a good father of a family under
Article 1173 of the Civil Code.[12] This connotes
reasonable care consistent with that which an ordinarily
prudent person would have observed when confronted
with a similar situation. The test to determine whether
negligence attended the performance of an obligation is:
did the defendant in doing the alleged negligent act use
that reasonable care and caution which an ordinarily
prudent person would have used in the same situation?
If not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent
when she allegedly informed petitioner of the wrong day
of departure. Petitioners testimony was accepted as
indubitable evidence of Menors alleged negligent act
since respondent did not call Menor to the witness stand
to refute the allegation. The lower court applied the
presumption under Rule 131, Section 3 (e)[14] of the
Rules of Court that evidence willfully suppressed would
be adverse if produced and thus considered petitioners
uncontradicted testimony to be sufficient proof of her
claim.
On the other hand, respondent has consistently denied
that Menor was negligent and maintains that petitioners
assertion is belied by the evidence on record. The date
and time of departure was legibly written on the plane
ticket and the travel papers were delivered two days in
advance precisely so that petitioner could prepare for the
trip. It performed all its obligations to enable petitioner to
join the tour and exercised due diligence in its dealings
with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to
rebut petitioners testimony could not give rise to an
inference unfavorable to the former. Menor was already
working in France at the time of the filing of the
complaint,[15] thereby making it physically impossible for
respondent to present her as a witness. Then too, even
if it were possible for respondent to secure Menors
testimony, the presumption under Rule 131, Section 3(e)
would still not apply. The opportunity and possibility for
obtaining Menors testimony belonged to both parties,
considering that Menor was not just respondents
employee, but also petitioners niece. It was thus error for
the lower court to invoke the presumption that
respondent willfully suppressed evidence under Rule
131, Section 3(e). Said presumption would logically be
inoperative if the evidence is not intentionally omitted but
is simply unavailable, or when the same could have
been obtained by both parties.[16]
In sum, we do not agree with the finding of the lower
court that Menors negligence concurred with the
negligence of petitioner and resultantly caused damage
to the latter. Menors negligence was not sufficiently
proved, considering that the only evidence presented on
this score was petitioners uncorroborated narration of
the events. It is well-settled that the party alleging a fact
has the burden of proving it and a mere allegation
cannot take the place of evidence.[17] If the plaintiff,
upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner facts upon
which he bases his claim, the defendant is under no
obligation to prove his exception or defense.[18]
Contrary to petitioners claim, the evidence on record
shows that respondent exercised due diligence in
performing its obligations under the contract and
followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the
plane ticket[19] issued to petitioner clearly reflected the
departure date and time, contrary to petitioners
contention. The travel documents, consisting of the tour
itinerary, vouchers and instructions, were likewise
delivered to petitioner two days prior to the trip.
Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the
plane tickets. It arranged petitioners hotel
accommodation as well as food, land transfers and
sightseeing excursions, in accordance with its avowed
undertaking.
Therefore, it is clear that respondent performed its
prestation under the contract as well as everything else
that was essential to book petitioner for the tour. Had
petitioner exercised due diligence in the conduct of her
affairs, there would have been no reason for her to miss
the flight. Needless to say, after the travel papers were
delivered to petitioner, it became incumbent upon her to
take ordinary care of her concerns. This undoubtedly
would require that she at least read the documents in
3
order to assure herself of the important details regarding
the trip.

The negligence of the obligor in the performance of the

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

The lower court declared that respondents employee

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

In the case at bar, the evidence on record shows that

respondent company performed its duty diligently and
did not commit any contractual breach. Hence, petitioner
cannot recover and must bear her own damage.

WHEREFORE, the instant petition is DENIED for lack of

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

SO ORDERED.

4
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
5
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
6
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)
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.

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

7
[G.R. No. 125948. December 29, 1998]
FIRST PHILIPPINE INDUSTRIAL CORPORATION,
petitioner, vs. COURT OF APPEALS, HONORABLE
PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as
City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari assails the Decision
of the Court of Appeals dated November 29, 1995, in
CA-G.R. SP No. 36801, affirming the decision of the
Regional Trial Court of Batangas City, Branch 84, in Civil
Case No. 4293, which dismissed petitioners' complaint
for a business tax refund imposed by the City of
Batangas.
Petitioner is a grantee of a pipeline concession under
Republic Act No. 387, as amended, to contract, install
and operate oil pipelines. The original pipeline
concession was granted in 1967[1] and renewed by the
Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a
mayor's permit with the Office of the Mayor of Batangas
City. However, before the mayor's permit could be
issued, the respondent City Treasurer required petitioner
to pay a local tax based on its gross receipts for the
fiscal year 1993 pursuant to the Local Government
Code.[3] The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04
payable in four installments based on the gross receipts
for products pumped at GPS-1 for the fiscal year 1993
which amounted to P181,681,151.00. In order not to
hamper its operations, petitioner paid the tax under
protest in the amount of P239,019.01 for the first quarter
of 1993.
On January 20, 1994, petitioner filed a letter-protest
addressed to the respondent City Treasurer, the
pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline
operator with a government concession granted under
the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan
Terminals. As such, our Company is exempt from paying
tax on gross receipts under Section 133 of the Local
Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included
in the enumeration of contractors under Section 131,
Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax 'on contractors
and other independent contractors' under Section 143,
Paragraph (e) of the Local Government Code does not
include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized
as a mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition
of fees and charges on business to such amounts as
may be commensurate to the cost of regulation,
inspection, and licensing. Hence, assuming arguendo
that FPIC is liable for the license fee, the imposition
thereof based on gross receipts is violative of the
aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the
cost of regulation, inspection and licensing. The fee is
already a revenue raising measure, and not a mere
regulatory imposition."[4]
On March 8, 1994, the respondent City Treasurer denied
the protest contending that petitioner cannot be
considered engaged in transportation business, thus it
cannot claim exemption under Section 133 (j) of the
Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial
Court of Batangas City a complaint[6] for tax refund with
prayer for a writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in
her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2)
the authority of cities to impose and collect a tax on the
gross receipts of "contractors and independent
contractors" under Sec. 141 (e) and 151 does not
include the authority to collect such taxes on
transportation contractors for, as defined under Sec. 131
(h), the term "contractors" excludes transportation
contractors; and, (3) the City Treasurer illegally and
erroneously imposed and collected the said tax, thus
meriting the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that
petitioner cannot be exempt from taxes under Section
133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons
engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that
pipelines are not included in the term "common carrier"
which refers solely to ordinary carriers such as trucks,
trains, ships and the like. Respondents further posit that
the term "common carrier" under the said code pertains
to the mode or manner by which a product is delivered to
its destination.[8]
On October 3, 1994, the trial court rendered a decision
dismissing the complaint, ruling in this wise:
"xxx Plaintiff is either a contractor or other independent
contractor.
xxx the exemption to tax claimed by the plaintiff has
become unclear. It is a rule that tax exemptions are to be
strictly construed against the taxpayer, taxes being the
lifeblood of the government. Exemption may therefore be
granted only by clear and unequivocal provisions of law.
8
"Plaintiff claims that it is a grantee of a pipeline
concession under Republic Act 387, (Exhibit A) whose
concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor
the deed of concession grant any tax exemption upon
the plaintiff.
"Even the Local Government Code imposes a tax on
franchise holders under Sec. 137 of the Local Tax Code.
Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j)
encompasses only common carriers so as not to
overburden the riding public or commuters with taxes.
Plaintiff is not a common carrier, but a special carrier
extending its services and facilities to a single specific or
"special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to
give more and effective local autonomy to local
governments than the previous enactments, to make
them economically and financially viable to serve the
people and discharge their functions with a concomitant
obligation to accept certain devolution of powers, x x x
So, consistent with this policy even franchise grantees
are taxed (Sec. 137) and contractors are also taxed
under Sec. 143 (e) and 151 of the Code."[9]
Petitioner assailed the aforesaid decision before this
Court via a petition for review. On February 27, 1995, we
referred the case to the respondent Court of Appeals for
consideration and adjudication.[10] On November 29,
1995, the respondent court rendered a decision[11]
affirming the trial court's dismissal of petitioner's
complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due
course in a Resolution dated November 11, 1996.[13]
Petitioner moved for a reconsideration which was
granted by this Court in a Resolution[14] of January 20,
1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals
erred in holding that (1) the petitioner is not a common
carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the
law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who
holds himself out to the public as engaged in the
business of transporting persons or property from place
to place, for compensation, offering his services to the
public generally.
Article 1732 of the Civil Code defines a "common carrier"
as "any person, corporation, firm or association engaged
in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation,
offering their services to the public."
The test for determining whether a party is a common
carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of
goods for person generally as a business and not as a
casual occupation;
2. He must undertake to carry goods of the kind to which
his business is confined;
3. He must undertake to carry by the method by which
his business is conducted and over his established
roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there
is no doubt that petitioner is a common carrier. It is
engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to employ
its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited
clientele does not exclude it from the definition of a
common carrier. In De Guzman vs. Court of Appeals[16]
we ruled that:
"The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local
idiom, as a 'sideline'). Article 1732 x x x avoids making
any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the
'general public,' i.e., the general community or
population, and one who offers services or solicits
business only from a narrow segment of the general
population. We think that Article 1877 deliberately
refrained from making such distinctions.
So understood, the concept of 'common carrier' under
Article 1732 may be seen to coincide neatly with the
notion of 'public service,' under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers
set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for
general business purposes, any common carrier,
9
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.' "(Underscoring Supplied)
Also, respondent's argument that the term "common
carrier" as used in Section 133 (j) of the Local
Government Code refers only to common carriers
transporting goods and passengers through moving
vehicles or vessels either by land, sea or water, is
erroneous.
As correctly pointed out by petitioner, the definition of
"common carriers" in the Civil Code makes no distinction
as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of
the passengers or goods should be by motor vehicle. In
fact, in the United States, oil pipe line operators are
considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act
387), petitioner is considered a "common carrier." Thus,
Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. -
A pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for
transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a
public utility. Pertinent portion of Article 7 thereof
provides:
"that everything relating to the exploration for and
exploitation of petroleum x x and everything relating to
the manufacture, refining, storage, or transportation by
special methods of petroleum, is hereby declared to be a
public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the
petitioner a "common carrier." In BIR Ruling No. 069-83,
it declared:
"x x x since [petitioner] is a pipeline concessionaire that
is engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No.
387 x x x. Such being the case, it is not subject to
withholding tax prescribed by Revenue Regulations No.
13-78, as amended."
From the foregoing disquisition, there is no doubt that
petitioner is a "common carrier" and, therefore, exempt
from the business tax as provided for in Section 133 (j),
of the Local Government Code, to wit:
"Section 133. Common Limitations on the Taxing
Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not
extend to the levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by
air, land or water, except as provided in this Code."
The deliberations conducted in the House of
Representatives on the Local Government Code of 1991
are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1.
It states : "SEC.121 [now Sec. 131]. Common
Limitations on the Taxing Powers of Local Government
Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the
business of transportation. This appears to be one of
those being deemed to be exempted from the taxing
powers of the local government units. May we know the
reason why the transportation business is being
excluded from the taxing powers of the local government
units?
MR. JAVIER (E.). Mr. Speaker, there is an exception
contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may
not impose taxes on the business of transportation,
except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to
page 98 of Book II, one can see there that provinces
have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1
percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be
subject to tax by the province. That is the exception, Mr.
Speaker.
What we want to guard against here, Mr. Speaker, is the
imposition of taxes by local government units on the
carrier business. Local government units may impose
taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called
10
"common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under
Section 125 [now Sec. 137] that a province may impose
this tax at a specific rate.

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

Speaker. x x x[18]

It is clear that the legislative intent in excluding from the

taxing power of the local government unit the imposition
of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common

carrier's tax on its gross sales/earnings under the
National Internal Revenue Code.[19] To tax petitioner
again on its gross receipts in its transportation of
petroleum business would defeat the purpose of the
Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The

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

SO ORDERED.

11
[G.R. No. 148496. March 19, 2002]
VIRGINES CALVO doing business under the name and
style TRANSORIENT CONTAINER TERMINAL
SERVICES, INC., petitioner, vs. UCPB GENERAL
INSURANCE CO., INC. (formerly Allied Guarantee Ins.
Co., Inc.) respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,[1] dated May
31, 2001, of the Court of Appeals, affirming the
decision[2] of the Regional Trial Court, Makati City,
Branch 148, which ordered petitioner to pay respondent,
as subrogee, the amount of P93,112.00 with legal
interest, representing the value of damaged cargo
handled by petitioner, 25% thereof as attorneys fees,
and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient
Container Terminal Services, Inc. (TCTSI), a sole
proprietorship customs broker. At the time material to
this case, petitioner entered into a contract with San
Miguel Corporation (SMC) for the transfer of 114 reels of
semi-chemical fluting paper and 124 reels of kraft liner
board from the Port Area in Manila to SMCs warehouse
at the Tabacalera Compound, Romualdez St., Ermita,
Manila. The cargo was insured by respondent UCPB
General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in
30 metal vans, arrived in Manila on board M/V
Hayakawa Maru and, after 24 hours, were unloaded
from the vessel to the custody of the arrastre operator,
Manila Port Services, Inc. From July 23 to July 25, 1990,
petitioner, pursuant to her contract with SMC, withdrew
the cargo from the arrastre operator and delivered it to
SMCs warehouse in Ermita, Manila. On July 25, 1990,
the goods were inspected by Marine Cargo Surveyors,
who found that 15 reels of the semi-chemical fluting
paper were wet/stained/torn and 3 reels of kraft liner
board were likewise torn. The damage was placed at
P93,112.00.
SMC collected payment from respondent UCPB under
its insurance contract for the aforementioned amount. In
turn, respondent, as subrogee of SMC, brought suit
against petitioner in the Regional Trial Court, Branch
148, Makati City, which, on December 20, 1995,
rendered judgment finding petitioner liable to respondent
for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes
sustained damage while in the custody of defendants.
Evidence such as the Warehouse Entry Slip (Exh. E);
the Damage Report (Exh. F) with entries appearing
therein, classified as TED and TSN, which the claims
processor, Ms. Agrifina De Luna, claimed to be tearrage
at the end and tearrage at the middle of the subject
damaged cargoes respectively, coupled with the Marine
Cargo Survey Report (Exh. H - H-4-A) confirms the fact
of the damaged condition of the subject cargoes. The
surveyor[s] report (Exh. H-4-A) in particular, which
provides among others that:
. . . we opine that damages sustained by shipment is
attributable to improper handling in transit presumably
whilst in the custody of the broker . . . .
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough
to sustain [her] defense that [she is] are not liable.
Defendant by reason of the nature of [her] business
should have devised ways and means in order to
prevent the damage to the cargoes which it is under
obligation to take custody of and to forthwith deliver to
the consignee. Defendant did not present any evidence
on what precaution [she] performed to prevent [the] said
incident, hence the presumption is that the moment the
defendant accepts the cargo [she] shall perform such
extraordinary diligence because of the nature of the
cargo.
....
Generally speaking under Article 1735 of the Civil Code,
if the goods are proved to have been lost, destroyed or
deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they
prove that they have observed the extraordinary
diligence required by law. The burden of the plaintiff,
therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the carrier to prove
that he has exercised the extraordinary diligence
required by law. Thus, it has been held that the mere
proof of delivery of goods in good order to a carrier, and
of their arrival at the place of destination in bad order,
makes out a prima facie case against the carrier, so that
if no explanation is given as to how the injury occurred,
the carrier must be held responsible. It is incumbent
upon the carrier to prove that the loss was due to
accident or some other circumstances inconsistent with
its liability. (cited in Commercial Laws of the Philippines
by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman
and at the same time a common carrier is supposed [to]
exercise [the] extraordinary diligence required by law,
hence the extraordinary responsibility lasts from the time
the goods are unconditionally placed in the possession
of and received by the carrier for transportation until the
same are delivered actually or constructively by the
carrier to the consignee or to the person who has the
right to receive the same.[3]
Accordingly, the trial court ordered petitioner to pay the
following amounts
12
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyers fee;
3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on
appeal. Hence this petition for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR [IN] DECIDING THE CASE
NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY
MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR IN CLASSIFYING THE
PETITIONER AS A COMMON CARRIER AND NOT AS
PRIVATE OR SPECIAL CARRIER WHO DID NOT
HOLD ITS SERVICES TO THE PUBLIC.[5]
It will be convenient to deal with these contentions in the
inverse order, for if petitioner is not a common carrier,
although both the trial court and the Court of Appeals
held otherwise, then she is indeed not liable beyond
what ordinary diligence in the vigilance over the goods
transported by her, would require.[6] Consequently, any
damage to the cargo she agrees to transport cannot be
presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the
trial court and the Court of Appeals, she is not a
common carrier but a private carrier because, as a
customs broker and warehouseman, she does not
indiscriminately hold her services out to the public but
only offers the same to select parties with whom she
may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of
Appeals,[7] the Court dismissed a similar contention and
held the party to be a common carrier, thus
The Civil Code defines common carriers in the following
terms:
Article 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or
goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one
whose principal business activity is the carrying of
persons or goods or both, and one who does such
carrying only as an ancillary activity . . . Article 1732 also
carefully avoids making any distinction between a
person or enterprise offering transportation service on a
regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the
general community or population, and one who offers
services or solicits business only from a narrow segment
of the general population. We think that Article 1732
deliberately refrained from making such distinctions.
So understood, the concept of common carrier under
Article 1732 may be seen to coincide neatly with the
notion of public service, under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers
set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, public service includes:
x x x every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for
general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its
classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant,
canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire
or wireless broadcasting stations and other similar public
services. x x x [8]
There is greater reason for holding petitioner to be a
common carrier because the transportation of goods is
an integral part of her business. To uphold petitioners
contention would be to deprive those with whom she
contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry
goods for her customers, as already noted, is part and
parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code
provides:
Common carriers, from the nature of their business and
for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by
them, according to all the circumstances of each case. . .
.
In Compania Maritima v. Court of Appeals,[9] the
meaning of extraordinary diligence in the vigilance over
goods was explained thus:
The extraordinary diligence in the vigilance over the
goods tendered for shipment requires the common
carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires
common carriers to render service with the greatest skill
13
and foresight and to use all reasonable means to
ascertain the nature and characteristic of goods
tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their
nature requires.
In the case at bar, petitioner denies liability for the
damage to the cargo. She claims that the spoilage or
wettage took place while the goods were in the custody
of either the carrying vessel M/V Hayakawa Maru, which
transported the cargo to Manila, or the arrastre operator,
to whom the goods were unloaded and who allegedly
kept them in open air for nine days from July 14 to July
23, 1998 notwithstanding the fact that some of the
containers were deformed, cracked, or otherwise
damaged, as noted in the Marine Survey Report (Exh.
H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door
distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right
portion
TOLU-213674-3 - wood flooring we[t] and/or with signs
of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel
partly detached loosened.[10]
In addition, petitioner claims that Marine Cargo Surveyor
Ernesto Tolentino testified that he has no personal
knowledge on whether the container vans were first
stored in petitioners warehouse prior to their delivery to
the consignee. She likewise claims that after
withdrawing the container vans from the arrastre
operator, her driver, Ricardo Nazarro, immediately
delivered the cargo to SMCs warehouse in Ermita,
Manila, which is a mere thirty-minute drive from the Port
Area where the cargo came from. Thus, the damage to
the cargo could not have taken place while these were in
her custody.[11]
Contrary to petitioners assertion, the Survey Report
(Exh. H) of the Marine Cargo Surveyors indicates that
when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean
Equipment Interchange Report (EIR) and, when
petitioners employees withdrew the cargo from the
arrastre operator, they did so without exception or
protest either with regard to the condition of container
vans or their contents. The Survey Report pertinently
reads
Details of Discharge:
Shipment, provided with our protective supervision was
noted discharged ex vessel to dock of Pier #13 South
Harbor, Manila on 14 July 1990, containerized onto 30 x
20 secure metal vans, covered by clean EIRs. Except for
slight dents and paint scratches on side and roof panels,
these containers were deemed to have [been] received
in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30 x 20 cargo
containers was [withdrawn] by Transorient Container
Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees
storage warehouse located at Tabacalera Compound,
Romualdez Street, Ermita, Manila from July 23/25,
1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment
was discharged from the vessel to the arrastre, Marina
Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports
(EIRs). Had there been any damage to the shipment,
there would have been a report to that effect made by
the arrastre operator. The cargoes were withdrawn by
the defendant-appellant from the arrastre still in good
order and condition as the same were received by the
former without exception, that is, without any report of
damage or loss. Surely, if the container vans were
deformed, cracked, distorted or dented, the defendant-
appellant would report it immediately to the consignee or
make an exception on the delivery receipt or note the
same in the Warehouse Entry Slip (WES). None of these
took place. To put it simply, the defendant-appellant
received the shipment in good order and condition and
delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred
while it was in the possession of the defendant-
appellant. Whenever the thing is lost (or damaged) in the
possession of the debtor (or obligor), it shall be
presumed that the loss (or damage) was due to his fault,
unless there is proof to the contrary. No proof was
proffered to rebut this legal presumption and the
presumption of negligence attached to a common carrier
in case of loss or damage to the goods.[13]
Anent petitioners insistence that the cargo could not
have been damaged while in her custody as she
immediately delivered the containers to SMCs
compound, suffice it to say that to prove the exercise of
extraordinary diligence, petitioner must do more than
merely show the possibility that some other party could
be responsible for the damage. It must prove that it used
all reasonable means to ascertain the nature and
characteristic of goods tendered for [transport] and that
[it] exercise[d] due care in the handling [thereof].
Petitioner failed to do this.
14
Nor is there basis to exempt petitioner from liability
under Art. 1734(4), which provides

Common carriers are responsible for the loss,

destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:

....

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

or in the containers.

....

For this provision to apply, the rule is that if the improper

packing or, in this case, the defect/s in the container,
is/are known to the carrier or his employees or apparent
upon ordinary observation, but he nevertheless accepts
the same without protest or exception notwithstanding
such condition, he is not relieved of liability for damage
resulting therefrom.[14] In this case, petitioner accepted
the cargo without exception despite the apparent defects
in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary
diligence in the carriage of goods in this case or that she
is exempt from liability, the presumption of negligence as
provided under Art. 1735[15] holds.

WHEREFORE, the decision of the Court of Appeals,

dated May 31, 2001, is AFFIRMED.

SO ORDERED.

15
[G.R. No. 112287. December 12, 1997]
NATIONAL STEEL CORPORATION, petitioner, vs.
COURT OF APPEALS AND VLASONS SHIPPING,
INC., respondents.
[G.R. No. 112350. December 12, 1997]
VLASONS SHIPPING, INC., petitioner, vs. COURT OF
APPEALS AND NATIONAL STEEL CORPORATION,
respondents.
DECISION
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the
seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for
demurrage and attorneys fees. The Court also reiterates
the well-known rule that findings of facts of trial courts,
when affirmed by the Court of Appeals, are binding on
this Court.
The Case
Before us are two separate petitions for review filed by
National Steel Corporation (NSC) and Vlasons Shipping,
Inc. (VSI), both of which assail the August 12, 1993
Decision of the Court of Appeals. [1] The Court of
Appeals modified the decision of the Regional Trial
Court of Pasig, Metro Manila, Branch 163 in Civil Case
No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of
defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering plaintiff
to pay the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and
P88,000.00 as demurrage with interest at the legal rate
on both amounts from April 7, 1976 until the same shall
have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of
P100,000.00; and
3. Cost of suit.
SO ORDERED. [2]
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision
appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for
attorneys fees and expenses of litigation. Except as thus
modified, the decision is AFFIRMED. There is no
pronouncement as to costs.
SO ORDERED. [3]
The Facts
The MV Vlasons I is a vessel which renders tramping
service and, as such, does not transport cargo or
shipment for the general public. Its services are available
only to specific persons who enter into a special contract
of charter party with its owner. It is undisputed that the
ship is a private carrier. And it is in this capacity that its
owner, Vlasons Shipping, Inc., entered into a contract of
affreightment or contract of voyage charter hire with
National Steel Corporation.
The facts as found by Respondent Court of Appeals are
as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation
(NSC) as Charterer and defendant Vlasons Shipping,
Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit B; also Exhibit 1) whereby NSC
hired VSIs vessel, the MV VLASONS I to make one (1)
voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila, under the
following terms and conditions, viz:
1. x x x x x x.
2. Cargo: Full cargo of steel products of not less than
2,500 MT, 10% more or less at Masters option.
3. x x x x x x
4. Freight/Payment: P30.00 /metric ton, FIOST basis.
Payment upon presentation of Bill of Lading within fifteen
(15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
(Weather Working Day of 24 consecutive hours,
Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must
insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of
the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI
C/P [sic] or other internationally recognized Charter
Party Agreement shall form part of this Contract.
xxxxxxxxx
The terms F.I.O.S.T. which is used in the shipping
business is a standard provision in the NANYOZAI
Charter Party which stands for Freight In and Out
including Stevedoring and Trading, which means that the
handling, loading and unloading of the cargoes are the
responsibility of the Charterer. Under Paragraph 5 of the
NANYOZAI Charter Party, it states, Charterers to load,
16
stow and discharge the cargo free of risk and expenses
to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners
shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy
and properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which
cargo is carried, fit and safe for its reception, carriage
and preservation. Owners shall not be liable for loss of
or damage of the cargo arising or resulting from:
unseaworthiness unless caused by want of due diligence
on the part of the owners to make the vessel seaworthy,
and to secure that the vessel is properly manned,
equipped and supplied and to make the holds and all
other parts of the vessel in which cargo is carried, fit and
safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other
navigable waters; xxx; wastage in bulk or weight or any
other loss or damage arising from inherent defect,
quality or vice of the cargo; insufficiency of packing; xxx;
latent defects not discoverable by due diligence; any
other cause arising without the actual fault or privity of
Owners or without the fault of the agents or servants of
owners.
Paragraph 12 of said NANYOZAI Charter Party also
provides that (o)wners shall not be responsible for split,
chafing and/or any damage unless caused by the
negligence or default of the master and crew.
(2) On August 6, 7 and 8, 1974, in accordance with the
Contract of Voyage Charter Hire, the MV VLASONS I
loaded at plaintiffs pier at Iligan City, the NSCs shipment
of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages with a total weight of
about 2,481.19 metric tons for carriage to Manila. The
shipment was placed in the three (3) hatches of the ship.
Chief Mate Gonzalo Sabando, acting as agent of the
vessel[,] acknowledged receipt of the cargo on board
and signed the corresponding bill of lading, B.L.P.P. No.
0233 (Exhibit D) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North
Harbor, Manila, on August 12, 1974. The following day,
August 13, 1974, when the vessels three (3) hatches
containing the shipment were opened by plaintiffs
agents, nearly all the skids of tinplates and hot rolled
sheets were allegedly found to be wet and rusty. The
cargo was discharged and unloaded by stevedores hired
by the Charterer. Unloading was completed only on
August 24, 1974 after incurring a delay of eleven (11)
days due to the heavy rain which interrupted the
unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting
and rusting, NSC called for a survey of the shipment by
the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975
(Exhibit G), MASCO made a report of its ocular
inspection conducted on the cargo, both while it was still
on board the vessel and later at the NDC warehouse in
Pureza St., Sta. Mesa, Manila where the cargo was
taken and stored. MASCO reported that it found wetting
and rusting of the packages of hot rolled sheets and
metal covers of the tinplates; that tarpaulin hatch covers
were noted torn at various extents; that container/metal
casings of the skids were rusting all over. MASCO
ventured the opinion that rusting of the tinplates was
caused by contact with SEA WATER sustained while still
on board the vessel as a consequence of the heavy
weather and rough seas encountered while en route to
destination (Exhibit F). It was also reported that
MASCOs surveyors drew at random samples of bad
order packing materials of the tinplates and delivered the
same to the M.I.T. Testing Laboratories for analysis. On
August 31, 1974, the M.I.T. Testing Laboratories issued
Report No. 1770 (Exhibit I) which in part, states, The
analysis of bad order samples of packing materials xxx
shows that wetting was caused by contact with SEA
WATER.
(5) On September 6, 1974, on the basis of the aforesaid
Report No. 1770, plaintiff filed with the defendant its
claim for damages suffered due to the downgrading of
the damaged tinplates in the amount of P941,145.18.
Then on October 3, 1974, plaintiff formally demanded
payment of said claim but defendant VSI refused and
failed to pay. Plaintiff filed its complaint against
defendant on April 21, 1976 which was docketed as Civil
Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained
losses in the aforesaid amount of P941,145.18 as a
result of the act, neglect and default of the master and
crew in the management of the vessel as well as the
want of due diligence on the part of the defendant to
make the vessel seaworthy and to make the holds and
all other parts of the vessel in which the cargo was
carried, fit and safe for its reception, carriage and
preservation -- all in violation of defendants undertaking
under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the
alleged damage claiming that the MV VLASONS I was
seaworthy in all respects for the carriage of plaintiffs
cargo; that said vessel was not a common carrier
inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in
the course of the voyage from Iligan City to Manila, the
MV VLASONS I encountered very rough seas, strong
winds and adverse weather condition, causing strong
winds and big waves to continuously pound against the
vessel and seawater to overflow on its deck and hatch
covers; that under the Contract of Voyage Charter Hire,
defendant shall not be responsible for losses/damages
except on proven willful negligence of the officers of the
vessel, that the officers of said MV VLASONS I
exercised due diligence and proper seamanship and
were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of
the cargo was on FIOST terms which means that the
vessel was free of risk and expense in connection with
the loading and discharging of the cargo; that the
17
damage, if any, was due to the inherent defect, quality or
vice of the cargo or to the insufficient packing thereof or
to latent defect of the cargo not discoverable by due
diligence or to any other cause arising without the actual
fault or privity of defendant and without the fault of the
agents or servants of defendant; consequently,
defendant is not liable; that the stevedores of plaintiff
who discharged the cargo in Manila were negligent and
did not exercise due care in the discharge of the cargo;
and that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to
plaintiffs warehouse after discharge from the vessel; and
that plaintiffs claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat
marks on the edges of the tinplates were magnified and
considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and
obligations under the Voyage Charter Hire Contract and
had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by
defendant of its obligations under the Voyage Charter
Hire Contract, plaintiff failed and refused to pay the
agreed charter hire of P75,000.00 despite demands
made by defendant;
(b) That under their Voyage Charter Hire Contract,
plaintiff had agreed to pay defendant the sum of
P8,000.00 per day for demurrage. The vessel was on
demurrage for eleven (11) days in Manila waiting for
plaintiff to discharge its cargo from the vessel. Thus,
plaintiff was liable to pay defendant demurrage in the
total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against
defendant, plaintiff should be ordered to pay defendant
attorneys fees and all expenses of litigation in the
amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial
court came out with the following findings which were set
forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry
engaged in the tramping service and is available for hire
only under special contracts of charter party as in this
particular case.
(b) That for purposes of the voyage covered by the
Contract of Voyage Charter Hire (Exh. 1), the MV
VLASONS I was covered by the required seaworthiness
certificates including the Certification of Classification
issued by an international classification society, the
NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License
from the Board of Transportation (Exh. 5); International
Loadline Certificate from the Philippine Coast Guard
(Exh. 6); Cargo Ship Safety Equipment Certificate also
from the Philippine Coast Guard (Exh. 7); Ship Radio
Station License (Exh. 8); Certificate of Inspection by the
Philippine Coast Guard (Exh. 12); and Certificate of
Approval for Conversion issued by the Bureau of
Customs (Exh. 9). That being a vessel engaged in both
overseas and coastwise trade, the MV VLASONS I has
a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the
voyage called for by the Contract of Voyage Charter
Hire, the MV VLASONS I underwent drydocking in Cebu
and was thoroughly inspected by the Philippine Coast
Guard. In fact, subject voyage was the vessels first
voyage after the drydocking. The evidence shows that
the MV VLASONS I was seaworthy and properly
manned, equipped and supplied when it undertook the
voyage. It had all the required certificates of
seaworthiness.
(d) The cargo/shipment was securely stowed in three (3)
hatches of the ship. The hatch openings were covered
by hatchboards which were in turn covered by two or
double tarpaulins. The hatch covers were water tight.
Furthermore, under the hatchboards were steel beams
to give support.
(e) The claim of the plaintiff that defendant violated the
contract of carriage is not supported by evidence. The
provisions of the Civil Code on common carriers
pursuant to which there exists a presumption of
negligence in case of loss or damage to the cargo are
not applicable. As to the damage to the tinplates which
was allegedly due to the wetting and rusting thereof,
there is unrebutted testimony of witness Vicente
Angliongto that tinplates sweat by themselves when
packed even without being in contract (sic) with water
from outside especially when the weather is bad or
raining. The rust caused by sweat or moisture on the
tinplates may be considered as a loss or damage but
then, defendant cannot be held liable for it pursuant to
Article 1734 of the Civil Case which exempts the carrier
from responsibility for loss or damage arising from the
character of the goods x x x. All the 1,769 skids of the
tinplates could not have been damaged by water as
claimed by plaintiff. It was shown as claimed by plaintiff
that the tinplates themselves were wrapped in kraft
paper lining and corrugated cardboards could not be
affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the
cargo of tinplates were negligent in not closing the hatch
openings of the MV VLASONS I when rains occurred
during the discharging of the cargo thus allowing
rainwater to enter the hatches. It was proven that the
stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy
for them to resume work when the rains stopped by just
removing the tent or canvas. Because of this improper
covering of the hatches by the stevedores during the
discharging and unloading operations which were
interrupted by rains, rainwater drifted into the cargo
through the hatch openings. Pursuant to paragraph 5 of
the NANYOSAI [sic] Charter Party which was expressly
made part of the Contract of Voyage Charter Hire, the
loading, stowing and discharging of the cargo is the sole
responsibility of the plaintiff charterer and defendant
18
carrier has no liability for whatever damage may occur or
maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered
rough seas and bad weather while en route from Iligan
City to Manila causing sea water to splash on the ships
deck on account of which the master of the vessel (Mr.
Antonio C. Dumlao) filed a Marine Protest on August 13,
1974 (Exh. 15) which can be invoked by defendant as a
force majeure that would exempt the defendant from
liability.
(h) Plaintiff did not comply with the requirement
prescribed in paragraph 9 of the Voyage Charter Hire
contract that it was to insure the cargo because it did
not. Had plaintiff complied with the requirement, then it
could have recovered its loss or damage from the
insurer. Plaintiff also violated the charter party contract
when it loaded not only steel products, i.e. steel bars,
angular bars and the like but also tinplates and hot rolled
sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo
at a lower freight rate.
(I) As regards defendants counterclaim, the contract of
voyage charter hire under paragraph 4 thereof, fixed the
freight at P30.00 per metric ton payable to defendant
carrier upon presentation of the bill of lading within
fifteen (15) days. Plaintiff has not paid the total freight
due of P75,000.00 despite demands. The evidence also
showed that the plaintiff was required and bound under
paragraph 7 of the same Voyage Charter Hire contract
to pay demurrage of P8,000.00 per day of delay in the
unloading of the cargoes. The delay amounted to eleven
(11) days thereby making plaintiff liable to pay defendant
for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals,
NSC alleged six errors:
I 3. Whether or not a charterers failure to insure its cargo
The trial court erred in finding that the MV VLASONS I
was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence
of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs
tinplates was due to the inherent nature or character of
the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired
by NSC were negligent in the unloading of NSCs
shipment.
IV
The trial court erred in exempting VSI from liability on the
ground of force majeure.
V
The trial court erred in finding that NSC violated the
contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight,
demurrage and attorneys fees, to VSI.[4]
As earlier stated, the Court of Appeals modified the
decision of the trial court by reducing the demurrage
from P88,000.00 to P44,000.00 and deleting the award
of attorneys fees and expenses of litigation. NSC and
VSI filed separate motions for reconsideration. In a
Resolution[5] dated October 20, 1993, the appellate
court denied both motions. Undaunted, NSC and VSI
filed their respective petitions for review before this
Court. On motion of VSI, the Court ordered on February
14, 1994 the consolidation of these petitions.[6]
The Issues
In its petition[7] and memorandum,[8] NSC raises the
following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for
demurrage due to cargo unloading delays caused by
weather interruption;
2. Whether or not the alleged seaworthiness certificates
(Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12) were admissible in
evidence and constituted evidence of the vessels
seaworthiness at the beginning of the voyages; and
exempts the shipowner from liability for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-
worthy;
2. Whether or not vessels officers and crew were
negligent in handling and caring for NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat
during the voyage and, hence, rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and
caused the wetting[/]rusting of NSCs tinplates.
In its separate petition, [9] VSI submits for the
consideration of this Court the following alleged errors of
the CA:
19
A. The respondent Court of Appeals committed an error
of law in reducing the award of demurrage from
P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error
of law in deleting the award of P100,000 for attorneys
fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues
in its memorandum: [10]
I. Whether or not the provisions of the Civil Code of the
Philippines on common carriers pursuant to which there
exist[s] a presumption of negligence against the
common carrier in case of loss or damage to the cargo
are applicable to a private carrier.
II. Whether or not the terms and conditions of the
Contract of Voyage Charter Hire, including the Nanyozai
Charter, are valid and binding on both contracting
parties.
The foregoing issues raised by the parties will be
discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.
The Courts Ruling
The Court affirms the assailed Decision of the Court of
Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI
contracted with NSC as a common carrier or as a private
carrier. The resolution of this preliminary question
determines the law, standard of diligence and burden of
proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier
as persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation,
offering their services to the public. It has been held that
the true test of a common carrier is the carriage of
passengers or goods, provided it has space, for all who
opt to avail themselves of its transportation service for a
fee. [11] A carrier which does not qualify under the
above test is deemed a private carrier. Generally, private
carriage is undertaken by special agreement and the
carrier does not hold himself out to carry goods for the
general public. The most typical, although not the only
form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the
shipowner, obtains the use and service of all or some
part of a ship for a period of time or a voyage or
voyages. [12]
In the instant case, it is undisputed that VSI did not offer
its services to the general public. As found by the
Regional Trial Court, it carried passengers or goods only
for those it chose under a special contract of charter
party. [13] As correctly concluded by the Court of
Appeals, the MV Vlasons I was not a common but a
private carrier. [14] Consequently, the rights and
obligations of VSI and NSC, including their respective
liability for damage to the cargo, are determined
primarily by stipulations in their contract of private
carriage or charter party. [15] Recently, in Valenzuela
Hardwood and Industrial Supply, Inc., vs. Court of
Appeals and Seven Brothers Shipping Corporation, [16]
the Court ruled:
x x x in a contract of private carriage, the parties may
freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract
involving a common carrier, private carriage does not
involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied
to a ship transporting commercial goods as a private
carrier. Consequently, the public policy embodied therein
is not contravened by stipulations in a charter party that
lessen or remove the protection given by law in contracts
involving common carriers.[17]
Extent of VSIs Responsibility and Liability Over NSCs
Cargo
It is clear from the parties Contract of Voyage Charter
Hire, dated July 17, 1974, that VSI shall not be
responsible for losses except on proven willful
negligence of the officers of the vessel. The NANYOZAI
Charter Party, which was incorporated in the parties
contract of transportation, further provided that the
shipowner shall not be liable for loss of or damage to the
cargo arising or resulting from unseaworthiness, unless
the same was caused by its lack of due diligence to
make the vessel seaworthy or to ensure that the same
was properly manned, equipped and supplied, and to
make the holds and all other parts of the vessel in which
cargo [was] carried, fit and safe for its reception, carriage
and preservation. [18] The NANYOZAI Charter Party
also provided that [o]wners shall not be responsible for
split, chafing and/or any damage unless caused by the
negligence or default of the master or crew.[19]
Burden of Proof
In view of the aforementioned contractual stipulations,
NSC must prove that the damage to its shipment was
caused by VSIs willful negligence or failure to exercise
due diligence in making MV Vlasons I seaworthy and fit
for holding, carrying and safekeeping the cargo.
Ineluctably, the burden of proof was placed on NSC by
the parties agreement.
20
This view finds further support in the Code of Commerce
which pertinently provides:
Art. 361. Merchandise shall be transported at the risk
and venture of the shipper, if the contrary has not been
expressly stipulated.
Therefore, the damage and impairment suffered by the
goods during the transportation, due to fortuitous event,
force majeure, or the nature and inherent defect of the
things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for
damages arising from the cause mentioned in the
preceding article if proofs against him show that they
occurred on account of his negligence or his omission to
take the precautions usually adopted by careful persons,
unless the shipper committed fraud in the bill of lading,
making him to believe that the goods were of a class or
quality different from what they really were.
Because the MV Vlasons I was a private carrier, the
shipowners obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil
Code which, as a general rule, places the prima facie
presumption of negligence on a common carrier. It is a
hornbook doctrine that:
In an action against a private carrier for loss of, or injury
to, cargo, the burden is on the plaintiff to prove that the
carrier was negligent or unseaworthy, and the fact that
the goods were lost or damaged while in the carriers
custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but
undertakes only to exercise due care in the protection of
the goods committed to its care, the burden of proving
negligence or a breach of that duty rests on plaintiff and
proof of loss of, or damage to, cargo while in the carriers
possession does not cast on it the burden of proving
proper care and diligence on its part or that the loss
occurred from an excepted cause in the contract or bill of
lading. However, in discharging the burden of proof,
plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action
against a bailee, and since the carrier is in a better
position to know the cause of the loss and that it was not
one involving its liability, the law requires that it come
forward with the information available to it, and its failure
to do so warrants an inference or presumption of its
liability. However, such inferences and presumptions,
while they may affect the burden of coming forward with
evidence, do not alter the burden of proof which remains
on plaintiff, and, where the carrier comes forward with
evidence explaining the loss or damage, the burden of
going forward with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of
seaworthiness, the burden of proving a breach thereof
and that such breach was the proximate cause of the
damage rests on plaintiff, and proof that the goods were
lost or damaged while in the carriers possession does
not cast on it the burden of proving seaworthiness. x x x
Where the contract of carriage exempts the carrier from
liability for unseaworthiness not discoverable by due
diligence, the carrier has the preliminary burden of
proving the exercise of due diligence to make the vessel
seaworthy. [20]
In the instant case, the Court of Appeals correctly found
that NSC has not taken the correct position in relation to
the question of who has the burden of proof. Thus, in its
brief (pp. 10-11), after citing Clause 10 and Clause 12 of
the NANYOZAI Charter Party (incidentally plaintiff-
appellants [NSCs] interpretation of Clause 12 is not even
correct), it argues that a careful examination of the
evidence will show that VSI miserably failed to comply
with any of these obligations as if defendant-appellee
[VSI] had the burden of proof.[21]
First Issue: Questions of Fact
Based on the foregoing, the determination of the
following factual questions is manifestly relevant: (1)
whether VSI exercised due diligence in making MV
Vlasons I seaworthy for the intended purpose under the
charter party; (2) whether the damage to the cargo
should be attributed to the willful negligence of the
officers and crew of the vessel or of the stevedores hired
by NSC; and (3) whether the rusting of the tinplates was
caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided
by the trial court, which had the firsthand opportunity to
hear the parties conflicting claims and to carefully weigh
their respective evidence. The findings of the trial court
were subsequently affirmed by the Court of Appeals.
Where the factual findings of both the trial court and the
Court of Appeals coincide, the same are binding on this
Court. [22] We stress that, subject to some exceptional
instances, [23] only questions of law -- not questions of
fact -- may be raised before this Court in a petition for
review under Rule 45 of the Rules of Court. After a
thorough review of the case at bar, we find no reason to
disturb the lower courts factual findings, as indeed NSC
has not successfully proven the application of any of the
aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due
diligence to make the ship seaworthy and fit for the
carriage of NSCs cargo of steel and tinplates. This is
shown by the fact that it was drydocked and inspected
by the Philippine Coast Guard before it proceeded to
Iligan City for its voyage to Manila under the contract of
voyage charter hire. [24] The vessels voyage from Iligan
to Manila was the vessels first voyage after drydocking.
The Philippine Coast Guard Station in Cebu cleared it as
seaworthy, fitted and equipped; it met all requirements
for trading as cargo vessel. [25] The Court of Appeals
itself sustained the conclusion of the trial court that MV
21
Vlasons I was seaworthy. We find no reason to modify or
reverse this finding of both the trial and the appellate
courts.
Who Were Negligent: Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that
the damage to the cargo was caused by the negligence
of the officers and the crew of MV Vlasons I in making
their vessel seaworthy and fit for the carriage of
tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV
Vlasons I had used an old and torn tarpaulin or canvas
to cover the hatches through which the cargo was
loaded into the cargo hold of the ship. It faults the Court
of Appeals for failing to consider such claim as an
uncontroverted fact [26] and denies that MV Vlasons I
was equipped with new canvas covers in tandem with
the old ones as indicated in the Marine Protest xxx. [27]
We disagree.
The records sufficiently support VSIs contention that the
ship used the old tarpaulin, only in addition to the new
one used primarily to make the ships hatches watertight.
The foregoing are clear from the marine protest of the
master of the MV Vlasons I, Antonio C. Dumlao, and the
deposition of the ships boatswain, Jose Pascua. The
salient portions of said marine protest read:
x x x That the M/V VLASONS I departed Iligan City or or
about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before
departure, the vessel was rigged, fully equipped and
cleared by the authorities; that on or about August 9,
1974, while in the vicinity of the western part of Negros
and Panay, we encountered very rough seas and strong
winds and Manila office was advised by telegram of the
adverse weather conditions encountered; that in the
morning of August 10, 1974, the weather condition
changed to worse and strong winds and big waves
continued pounding the vessel at her port side causing
sea water to overflow on deck andhatch (sic) covers and
which caused the first layer of the canvass covering to
give way while the new canvass covering still holding on;
That the weather condition improved when we reached
Dumali Point protected by Mindoro; that we re-secured
the canvass covering back to position; that in the
afternoon of August 10, 1974, while entering Maricaban
Passage, we were again exposed to moderate seas and
heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big
waves which caused the same canvass to give way and
leaving the new canvass holding on;
xxx xxx xxx [28]
And the relevant portions of Jose Pascuas deposition
are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was
secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little
canvas flowing over the sides and we place[d] a flat bar
over the canvas on the side of the hatches and then we
place[d] a stopper so that the canvas could not be
removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The
length and the width of the hatch opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the
hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other
material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening
covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the
opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch
board. How many pieces of wood are put on top?
A: Plenty, sir, because there are several pieces on top of
the hatch beam.
22
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is
the canvas cover. How many canvas covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the
crew of the MV Vlasons I was further demonstrated by
the fact that, despite encountering rough weather twice,
the new tarpaulin did not give way and the ships hatches
and cargo holds remained waterproof. As aptly stated by
the Court of Appeals, xxx we find no reason not to
sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was
seaworthy when it undertook the voyage on August 8,
1974 carrying on board thereof plaintiff-appellants
shipment of 1,677 skids of tinplates and 92 packages of
hot rolled sheets or a total of 1,769 packages from NSCs
pier in Iligan City arriving safely at North Harbor, Port
Area, Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show
negligence on the part of the officers and the crew of MV
Vlasons I. On the contrary, the records reveal that it was
the stevedores of NSC who were negligent in unloading
the cargo from the ship.
The stevedores employed only a tent-like material to
cover the hatches when strong rains occasioned by a
passing typhoon disrupted the unloading of the cargo.
This tent-like covering, however, was clearly inadequate
for keeping rain and seawater away from the hatches of
the ship. Vicente Angliongto, an officer of VSI, testified
thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979,
you stated on August 14 you went on board the vessel
upon notice from the National Steel Corporation in order
to conduct the inspection of the cargo. During the course
of the investigation, did you chance to see the
discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of
the tinplates already discharged on the pier but majority
of the tinplates were inside the hall, all the hatches were
opened.
Q: In connection with these cargoes which were
unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked.
This particular matter . . . the transcript of stenographic
notes shows the same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this
is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the
weather?
A: A base of canvas was used as cover on top of the tin
plates, and tents were built at the opening of the
hatches.
Q: You also stated that the hatches were already
opened and that there were tents constructed at the
opening of the hatches to protect the cargo from the rain.
Now, will you describe [to] the Court the tents
constructed.
A: The tents are just a base of canvas which look like a
tent of an Indian camp raise[d] high at the middle with
the whole side separated down to the hatch, the size of
the hatch and it is soaks [sic] at the middle because of
those weather and this can be used only to temporarily
protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of
covering tents proper?
A: No, sir, at the time they were discharging the cargo,
there was a typhoon passing by and the hatch tent was
not good enough to hold all of it to prevent the water
soaking through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic],
did you see in fact the water enter and soak into the
canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the
National Steel Corporation [of] the procedure adopted by
23
its stevedores in discharging the cargo particularly in this
tent covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the
attention of the stevedores but the stevedores did not
mind at all, so, I called the attention of the representative
of the National Steel but nothing was done, just the
same. Finally, I wrote a letter to them. [31]
NSC attempts to discredit the testimony of Angliongto by
questioning his failure to complain immediately about the
stevedores negligence on the first day of unloading,
pointing out that he wrote his letter to petitioner only
seven days later. [32] The Court is not persuaded.
Angliongtos candid answer in his aforequoted testimony
satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores,
then the NSCs representative, about the negligent and
defective procedure adopted in unloading the cargo.
This series of actions constitutes a reasonable response
in accord with common sense and ordinary human
experience. Vicente Angliongto could not be blamed for
calling the stevedores attention first and then the NSCs
representative on location before formally informing NSC
of the negligence he had observed, because he was not
responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern
for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task
to unload the cargo.
We see no reason to reverse the trial and the appellate
courts findings and conclusions on this point, viz:
In the THIRD assigned error, [NSC] claims that the trial
court erred in finding that the stevedores hired by NSC
were negligent in the unloading of NSCs shipment. We
do not think so. Such negligence according to the trial
court is evident in the stevedores hired by [NSC], not
closing the hatch of MV VLASONS I when rains
occurred during the discharging of the cargo thus
allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was
proven that the stevedores merely set up temporary
tents or canvas to cover the hatch openings when it
rained during the unloading operations so that it would
be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has
also been shown that on August 20, 1974, VSI President
Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging
the cargo on rainy days and the improper closing of the
hatches which allowed continuous heavy rain water to
leak through and drip to the tinplates covers and
[Vicente Angliongto] also suggesting that due to four (4)
days continuos rains with strong winds that the hatches
be totally closed down and covered with canvas and the
hatch tents lowered. (Exh 13). This letter was received
by [NSC] on 22 August 1974 while discharging
operations were still going on (Exhibit 13-A). [33]
The fact that NSC actually accepted and proceeded to
remove the cargo from the ship during unfavorable
weather will not make VSI liable for any damage caused
thereby. In passing, it may be noted that the NSC may
seek indemnification, subject to the laws on prescription,
from the stevedoring company at fault in the discharge
operations. A stevedore company engaged in
discharging cargo xxx has the duty to load the cargo xxx
in a prudent manner, and it is liable for injury to, or loss
of, cargo caused by its negligence xxx and where the
officers and members and crew of the vessel do nothing
and have no responsibility in the discharge of cargo by
stevedores xxx the vessel is not liable for loss of, or
damage to, the cargo caused by the negligence of the
stevedores xxx [34] as in the instant case.
Do Tinplates Sweat?
The trial court relied on the testimony of Vicente
Angliongto in finding that xxx tinplates sweat by
themselves when packed even without being in contact
with water from outside especially when the weather is
bad or raining xxx. [35] The Court of Appeals affirmed
the trial courts finding.
A discussion of this issue appears inconsequential and
unnecessary. As previously discussed, the damage to
the tinplates was occasioned not by airborne moisture
but by contact with rain and seawater which the
stevedores negligently allowed to seep in during the
unloading.
Second Issue: Effect of NSCs Failure to Insure the
Cargo
The obligation of NSC to insure the cargo stipulated in
the Contract of Voyage Charter Hire is totally separate
and distinct from the contractual or statutory
responsibility that may be incurred by VSI for damage to
the cargo caused by the willful negligence of the officers
and the crew of MV Vlasons I. Clearly, therefore, NSCs
failure to insure the cargo will not affect its right, as
owner and real party in interest, to file an action against
VSI for damages caused by the latters willful negligence.
We do not find anything in the charter party that would
make the liability of VSI for damage to the cargo
contingent on or affected in any manner by NSCs
obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates Proving
Seaworthiness
NSCs contention that MV Vlasons I was not seaworthy is
anchored on the alleged inadmissibility of the certificates
of seaworthiness offered in evidence by VSI. The said
certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard
at Cebu
2. Certificate of Inspection from the Philippine Coast
Guard
24

3. International Load Line Certificate from the Philippine
Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the
Bureau of Customs. [36]
NSC argues that the certificates are hearsay for not
having been presented in accordance with the Rules of
Court. It points out that Exhibits 3, 4 and 11 allegedly are
not written records or acts of public officers; while
Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by
official publications or certified true copies as required by
Sections 25 and 26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court
rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are
inadmissible, for they have not been properly offered as
evidence. Exhibits 3 and 4 are certificates issued by
private parties, but they have not been proven by one
who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best
evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a
well-settled exception to the hearsay rule per Section 44
of Rule 130 of the Rules of Court, which provides that
(e)ntries in official records made in the performance of a
duty by a public officer of the Philippines, or by a person
in the performance of a duty specially enjoined by law,
are prima facie evidence of the facts therein stated. [38]
Exhibit 11 is an original certificate of the Philippine Coast
Guard in Cebu issued by Lieutenant Junior Grade Noli
C. Flores to the effect that the vessel VLASONS I was
drydocked x x x and PCG Inspectors were sent on board
for inspection x x x. After completion of drydocking and
duly inspected by PCG Inspectors, the vessel VLASONS
I, a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo
vessel was cleared by the Philippine Coast Guard and
sailed for Cebu Port on July 10, 1974. (sic) NSCs claim,
therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the
burden of proving that MV Vlasons I was not seaworthy.
As observed earlier, the vessel was a private carrier and,
as such, it did not have the obligation of a common
carrier to show that it was seaworthy. Indeed, NSC
glaringly failed to discharge its duty of proving the willful
negligence of VSI in making the ship seaworthy resulting
in damage to its cargo. Assailing the genuineness of the
certificate of seaworthiness is not sufficient proof that the
vessel was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than
2,500 MT, 10% more or less at Masters option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per
WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day.
[39]
The Court defined demurrage in its strict sense as the
compensation provided for in the contract of
affreightment for the detention of the vessel beyond the
laytime or that period of time agreed on for loading and
unloading of cargo. [40] It is given to compensate the
shipowner for the nonuse of the vessel. On the other
hand, the following is well-settled:
Laytime runs according to the particular clause of the
charter party. x x x If laytime is expressed in running
days, this means days when the ship would be run
continuously, and holidays are not excepted. A
qualification of weather permitting excepts only those
days when bad weather reasonably prevents the work
contemplated. [41]
In this case, the contract of voyage charter hire provided
for a four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and
holidays included. [42] The running of laytime was thus
made subject to the weather, and would cease to run in
the event unfavorable weather interfered with the
unloading of cargo. [43] Consequently, NSC may not be
held liable for demurrage as the four-day laytime allowed
it did not lapse, having been tolled by unfavorable
weather condition in view of the WWDSHINC
qualification agreed upon by the parties. Clearly, it was
error for the trial court and the Court of Appeals to have
found and affirmed respectively that NSC incurred
eleven days of delay in unloading the cargo. The trial
court arrived at this erroneous finding by subtracting
from the twelve days, specifically August 13, 1974 to
August 24, 1974, the only day of unloading unhampered
by unfavorable weather or rain which was August 22,
1974. Based on our previous discussion, such finding is
a reversible error. As mentioned, the respondent
appellate court also erred in ruling that NSC was liable to
VSI for demurrage, even if it reduced the amount by half.
Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion
of the award of attorneys fees. We disagree. While VSI
was compelled to litigate to protect its rights, such fact
by itself will not justify an award of attorneys fees under
Article 2208 of the Civil Code when x x x no sufficient
showing of bad faith would be reflected in a partys
persistence in a case other than an erroneous conviction
of the righteousness of his cause x x x. [44] Moreover,
25
attorneys fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable
to the latter, as this is tantamount to imposing a premium
on ones right to litigate or seek judicial redress of
legitimate grievances. [45]

Epilogue

At bottom, this appeal really hinges on a factual issue:

when, how and who caused the damage to the cargo?
Ranged against NSC are two formidable truths. First,
both lower courts found that such damage was brought
about during the unloading process when rain and
seawater seeped through the cargo due to the fault or
negligence of the stevedores employed by it. Basic is the
rule that factual findings of the trial court, when affirmed
by the Court of Appeals, are binding on the Supreme
Court. Although there are settled exceptions, NSC has
not satisfactorily shown that this case is one of them.
Second, the agreement between the parties -- the
Contract of Voyage Charter Hire -- placed the burden of
proof for such loss or damage upon the shipper, not
upon the shipowner. Such stipulation, while
disadvantageous to NSC, is valid because the parties
entered into a contract of private charter, not one of
common carriage. Basic too is the doctrine that courts
cannot relieve a party from the effects of a private
contract freely entered into, on the ground that it is
allegedly one-sided or unfair to the plaintiff. The charter
party is a normal commercial contract and its stipulations
are agreed upon in consideration of many factors, not
the least of which is the transport price which is
determined not only by the actual costs but also by the
risks and burdens assumed by the shipper in regard to
possible loss or damage to the cargo. In recognition of
such factors, the parties even stipulated that the shipper
should insure the cargo to protect itself from the risks it
undertook under the charter party. That NSC failed or
neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such
failure or neglect.

WHEREFORE, premises considered, the instant

consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the demurrage
awarded to VSI is deleted. No pronouncement as to
costs.

SO ORDERED.

26
[G.R. No. 131621. September 28, 1999]
LOADSTAR SHIPPING CO., INC., petitioner, vs.
COURT OF APPEALS and THE MANILA INSURANCE
CO., INC., respondents.
DECISION
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter
LOADSTAR), in this petition for review on certiorari
under Rule 45 of the 1997 Rules of Civil Procedure,
seeks to reverse and set aside the following: (a) the 30
January 1997 decision[1] of the Court of Appeals in CA-
G.R. CV No. 36401, which affirmed the decision of 4
October 1991[2] of the Regional Trial Court of Manila,
Branch 16, in Civil Case No. 85-29110, ordering
LOADSTAR to pay private respondent Manila Insurance
Co. (hereafter MIC) the amount of P6,067,178, with legal
interest from the filing of the complaint until fully paid,
P8,000 as attorneys fees, and the costs of the suit; and
(b) its resolution of 19 November 1997,[3] denying
LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board
its M/V Cherokee (hereafter, the vessel) the following
goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and
others; and
c) 49 bundles of mouldings R & W (3) Apitong
Bolidenized.
The goods, amounting to P6,067,178, were insured for
the same amount with MIC against various risks
including TOTAL LOSS BY TOTAL LOSS OF THE
VESSEL. The vessel, in turn, was insured by Prudential
Guarantee & Assurance, Inc. (hereafter PGAI) for P4
million. On 20 November 1984, on its way to Manila from
the port of Nasipit, Agusan del Norte, the vessel, along
with its cargo, sank off Limasawa Island. As a result of
the total loss of its shipment, the consignee made a
claim with LOADSTAR which, however, ignored the
same. As the insurer, MIC paid P6,075,000 to the
insured in full settlement of its claim, and the latter
executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against
LOADSTAR and PGAI, alleging that the sinking of the
vessel was due to the fault and negligence of
LOADSTAR and its employees. It also prayed that PGAI
be ordered to pay the insurance proceeds from the loss
of the vessel directly to MIC, said amount to be deducted
from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss
of the shippers goods and claimed that the sinking of its
vessel was due to force majeure. PGAI, on the other
hand, averred that MIC had no cause of action against it,
LOADSTAR being the party insured. In any event, PGAI
was later dropped as a party defendant after it paid the
insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered
judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the Court of Appeals, which,
however, agreed with the trial court and affirmed its
decision in toto.
In dismissing LOADSTARs appeal, the appellate court
made the following observations:
1) LOADSTAR cannot be considered a private carrier on
the sole ground that there was a single shipper on that
fateful voyage. The court noted that the charter of the
vessel was limited to the ship, but LOADSTAR retained
control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not
the Civil Code, which should be applied in determining
the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was
undermanned on the day of the voyage. If it had been
seaworthy, it could have withstood the natural and
inevitable action of the sea on 20 November 1984, when
the condition of the sea was moderate. The vessel sank,
not because of force majeure, but because it was not
seaworthy. LOADSTARS allegation that the sinking was
probably due to the convergence of the winds, as stated
by a PAGASA expert, was not duly proven at the trial.
The limited liability rule, therefore, is not applicable
considering that, in this case, there was an actual finding
of negligence on the part of the carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the
Bill of Lading do not apply because said provisions bind
only the shipper/consignee and the carrier. When MIC
paid the shipper for the goods insured, it was subrogated
to the latters rights as against the carrier, LOADSTAR.[6]
5) There was a clear breach of the contract of carriage
when the shippers goods never reached their
destination. LOADSTARs defense of diligence of a good
father of a family in the training and selection of its crew
is unavailing because this is not a proper or complete
defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been
judicially construed to mean that when goods are
delivered on board a ship in good order and condition,
and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner
to both allege and prove that the goods were damaged
by reason of some fact which legally exempts him from
liability. Transportation of the merchandise at the risk
and venture of the shipper means that the latter bears
the risk of loss or deterioration of his goods arising from
fortuitous events, force majeure, or the inherent nature
and defects of the goods, but not those caused by the
27
presumed negligence or fault of the carrier, unless
otherwise proved.[7]
The errors assigned by LOADSTAR boil down to a
determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary
diligence in these premises?
Regarding the first issue, LOADSTAR submits that the
vessel was a private carrier because it was not issued a
certificate of public convenience, it did not have a regular
trip or schedule nor a fixed route, and there was only
one shipper, one consignee for a special cargo.
In refutation, MIC argues that the issue as to the
classification of the M/V Cherokee was not timely raised
below; hence, it is barred by estoppel. While it is true
that the vessel had on board only the cargo of wood
products for delivery to one consignee, it was also
carrying passengers as part of its regular business.
Moreover, the bills of lading in this case made no
mention of any charter party but only a statement that
the vessel was a general cargo carrier. Neither was
there any special arrangement between LOADSTAR and
the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular
type of cargo for one shipper is not sufficient to convert
the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as
a private carrier, it cannot be presumed to have been
negligent, and the burden of proving otherwise devolved
upon MIC.[8]
LOADSTAR also maintains that the vessel was
seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel
Philippines Shipyard and was duly inspected by the
maritime safety engineers of the Philippine Coast Guard,
who certified that the ship was fit to undertake a voyage.
Its crew at the time was experienced, licensed and
unquestionably competent. With all these precautions,
there could be no other conclusion except that
LOADSTAR exercised the diligence of a good father of a
family in ensuring the vessels seaworthiness.
LOADSTAR further claims that it was not responsible for
the loss of the cargo, such loss being due to force
majeure. It points out that when the vessel left Nasipit,
Agusan del Norte, on 19 November 1984, the weather
was fine until the next day when the vessel sank due to
strong waves. MICs witness, Gracelia Tapel, fully
established the existence of two typhoons, WELFRING
and YOLING, inside the Philippine area of responsibility.
In fact, on 20 November 1984, signal no. 1 was declared
over Eastern Visayas, which includes Limasawa Island.
Tapel also testified that the convergence of winds
brought about by these two typhoons strengthened wind
velocity in the area, naturally producing strong waves
and winds, in turn, causing the vessel to list and
eventually sink.
LOADSTAR goes on to argue that, being a private
carrier, any agreement limiting its liability, such as what
transpired in this case, is valid. Since the cargo was
being shipped at owners risk, LOADSTAR was not liable
for any loss or damage to the same. Therefore, the
Court of Appeals erred in holding that the provisions of
the bills of lading apply only to the shipper and the
carrier, and not to the insurer of the goods, which
conclusion runs counter to the Supreme Courts ruling in
the case of St. Paul Fire & Marine Insurance Co. v.
Macondray & Co., Inc.,[9] and National Union Fire
Insurance Company of Pittsburg v. Stolt-Nielsen Phils.,
Inc.[10]
Finally, LOADSTAR avers that MICs claim had already
prescribed, the case having been instituted beyond the
period stated in the bills of lading for instituting the same
suits based upon claims arising from shortage, damage,
or non-delivery of shipment shall be instituted within sixty
days from the accrual of the right of action. The vessel
sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was
liable, notwithstanding that the loss of the cargo was due
to force majeure, because the same concurred with
LOADSTARs fault or negligence.
Secondly, LOADSTAR did not raise the issue of
prescription in the court below; hence, the same must be
deemed waived.
Thirdly, the limited liability theory is not applicable in the
case at bar because LOADSTAR was at fault or
negligent, and because it failed to maintain a seaworthy
vessel. Authorizing the voyage notwithstanding its
knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR
is a common carrier. It is not necessary that the carrier
be issued a certificate of public convenience, and this
public character is not altered by the fact that the
carriage of the goods in question was periodic,
occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968
case of Home Insurance Co. v. American Steamship
Agencies, Inc.,[11] where this Court held that a common
carrier transporting special cargo or chartering the
vessel to a special person becomes a private carrier that
is not subject to the provisions of the Civil Code. Any
stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent is void
only if the strict policy governing common carriers is
upheld. Such policy has no force where the public at
large is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also
28
cited Valenzuela Hardwood and Industrial Supply, Inc. v.
Court of Appeals[12] and National Steel Corp. v. Court of
Appeals,[13] both of which upheld the Home Insurance
doctrine.
These cases invoked by LOADSTAR are not applicable
in the case at bar for simple reason that the factual
settings are different. The records do not disclose that
the M/V Cherokee, on the date in question, undertook to
carry a special cargo or was chartered to a special
person only. There was no charter party. The bills of
lading failed to show any special arrangement, but only a
general provision to the effect that the M/V Cherokee
was a general cargo carrier.[14] Further, the bare fact
that the vessel was carrying a particular type of cargo for
one shipper, which appears to be purely coincidental, is
not reason enough to convert the vessel from a common
to a private carrier, especially where, as in this case, it
was shown that the vessel was also carrying
passengers.
Under the facts and circumstances obtaining in this
case, LOADSTAR fits the definition of a common carrier
under Article 1732 of the Civil Code. In the case of De
Guzman v. Court of Appeals,[15] the Court juxtaposed
the statutory definition of common carriers with the
peculiar circumstances of that case, viz.:
The Civil Code defines common carriers in the following
terms:
Article 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or
goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one
whose principal business activity is the carrying of
persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as a
sideline. Article 1732 also carefully avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the
general public, i.e., the general community or population,
and one who offers services or solicits business only
from a narrow segment of the general population. We
think that Article 1733 deliberately refrained from making
such distinctions.
xxx
It appears to the Court that private respondent is
properly characterized as a common carrier even though
he merely back-hauled goods for other merchants from
Manila to Pangasinan, although such backhauling was
done on a periodic or occasional rather than regular or
scheduled manner, and even though private
respondents principal occupation was not the carriage of
goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their
goods; that 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.
Moving on to the second assigned error, we find that the
M/V Cherokee was not seaworthy when it embarked on
its voyage on 19 November 1984. The vessel was not
even sufficiently manned at the time. For a vessel to be
seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of
competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code.[16]
Neither do we agree with LOADSTARs argument that
the limited liability theory should be applied in this case.
The doctrine of limited liability does not apply where
there was negligence on the part of the vessel owner or
agent.[17] LOADSTAR was at fault or negligent in not
maintaining a seaworthy vessel and in having allowed its
vessel to sail despite knowledge of an approaching
typhoon. In any event, it did not sink because of any
storm that may be deemed as force majeure, inasmuch
as the wind condition in the area where it sank was
determined to be moderate. Since it was remiss in the
performance of its duties, LOADSTAR cannot hide
behind the limited liability doctrine to escape
responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred
in holding it liable for the loss of the goods, in utter
disregard of this Courts pronouncements in St. Paul Fire
29
& Marine Ins. Co. v. Macondray & Co., Inc.,[18] and Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs
National Union Fire Insurance v. Stolt-Nielsen Phils., against petitioner.
Inc.[19] It was ruled in these two cases that after paying
the claim of the insured for damages under the SO ORDERED.
insurance policy, the insurer is subrogated merely to the
rights of the assured, that is, it can recover only the
amount that may, in turn, be recovered by the latter.
Since the right of the assured in case of loss or damage
to the goods is limited or restricted by the provisions in
the bills of lading, a suit by the insurer as subrogee is
necessarily subject to the same limitations and
restrictions. We do not agree. In the first place, the
cases relied on by LOADSTAR involved a limitation on
the carriers liability to an amount fixed in the bill of lading
which the parties may enter into, provided that the same
was freely and fairly agreed upon (Articles 1749-1750).
On the other hand, the stipulation in the case at bar
effectively reduces the common carriers liability for the
loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the
carrier is not liable for any loss or damage to shipments
made at owners risk. Such stipulation is obviously null
and void for being contrary to public policy.[20] It has
been said:

Three kinds of stipulations have often been made in a

bill of lading. The first is one exempting the carrier from
any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an
unqualified limitation of such liability to an agreed
valuation. And the third is one limiting the liability of the
carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority, the
first and second kinds of stipulations are invalid as being
contrary to public policy, but the third is valid and
enforceable.[21]

Since the stipulation in question is null and void, it

follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against
the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in

this case was barred by prescription. MICs cause of
action had not yet prescribed at the time it was
concerned. Inasmuch as neither the Civil Code nor the
Code of Commerce states a specific prescriptive period
on the matter, the Carriage of Goods by Sea Act
(COGSA) which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes
sustained during transit may be applied suppletorily to
the case at bar. This one-year prescriptive period also
applies to the insurer of the good.[22] In this case, the
period for filing the action for recovery has not yet
elapsed. Moreover, a stipulation reducing the one-year
period is null and void;[23] it must, accordingly, be struck
down.

WHEREFORE, the instant petition is DENIED and the

challenged decision of 30 January 1997 of the Court of

30
[G.R. No. 147246. August 19, 2003]
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,
vs. COURT OF APPEALS and PRUDENTIAL
GUARANTEE AND ASSURANCE, INC., respondents.
DECISION
PUNO, J.:
On appeal is the Court of Appeals May 11, 2000
Decision[1] in CA-G.R. CV No. 49195 and February 21,
2001 Resolution[2] affirming with modification the April 6,
1994 Decision[3] of the Regional Trial Court of Manila
which found petitioner liable to pay private respondent
the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western
White Wheat in bulk, valued at US$423,192.35[4] was
shipped by Marubeni American Corporation of Portland,
Oregon on board the vessel M/V NEO CYMBIDIUM V-
26 for delivery to the consignee, General Milling
Corporation in Manila, evidenced by Bill of Lading No.
PTD/Man-4.[5] The shipment was insured by the private
respondent Prudential Guarantee and Assurance, Inc.
against loss or damage for P14,621,771.75 under
Marine Cargo Risk Note RN 11859/90.[6]
On July 25, 1990, the carrying vessel arrived in Manila
and the cargo was transferred to the custody of the
petitioner Asia Lighterage and Shipping, Inc. The
petitioner was contracted by the consignee as carrier to
deliver the cargo to consignee's warehouse at Bo.
Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment
was loaded on barge PSTSI III, evidenced by Lighterage
Receipt No. 0364[7] for delivery to consignee. The cargo
did not reach its destination.
It appears that on August 17, 1990, the transport of said
cargo was suspended due to a warning of an incoming
typhoon. On August 22, 1990, the petitioner proceeded
to pull the barge to Engineering Island off Baseco to
seek shelter from the approaching typhoon. PSTSI III
was tied down to other barges which arrived ahead of it
while weathering out the storm that night. A few days
after, the barge developed a list because of a hole it
sustained after hitting an unseen protuberance
underneath the water. The petitioner filed a Marine
Protest on August 28, 1990.[8] It likewise secured the
services of Gaspar Salvaging Corporation which
refloated the barge.[9] The hole was then patched with
clay and cement.
The barge was then towed to ISLOFF terminal before it
finally headed towards the consignee's wharf on
September 5, 1990. Upon reaching the Sta. Mesa
spillways, the barge again ran aground due to strong
current. To avoid the complete sinking of the barge, a
portion of the goods was transferred to three other
barges.[10]
The next day, September 6, 1990, the towing bits of the
barge broke. It sank completely, resulting in the total loss
of the remaining cargo.[11] A second Marine Protest was
filed on September 7, 1990.[12]
On September 14, 1990, a bidding was conducted to
dispose of the damaged wheat retrieved and loaded on
the three other barges.[13] The total proceeds from the
sale of the salvaged cargo was P201,379.75.[14]
On the same date, September 14, 1990, consignee sent
a claim letter to the petitioner, and another letter dated
September 18, 1990 to the private respondent for the
value of the lost cargo.
On January 30, 1991, the private respondent
indemnified the consignee in the amount of
P4,104,654.22.[15] Thereafter, as subrogee, it sought
recovery of said amount from the petitioner, but to no
avail.
On July 3, 1991, the private respondent filed a complaint
against the petitioner for recovery of the amount of
indemnity, attorney's fees and cost of suit.[16] Petitioner
filed its answer with counterclaim.[17]
The Regional Trial Court ruled in favor of the private
respondent. The dispositive portion of its Decision
states:
WHEREFORE, premises considered, judgment is
hereby rendered ordering defendant Asia Lighterage &
Shipping, Inc. liable to pay plaintiff Prudential Guarantee
& Assurance Co., Inc. the sum of P4,104,654.22 with
interest from the date complaint was filed on July 3,
1991 until fully satisfied plus 10% of the amount
awarded as and for attorney's fees. Defendant's
counterclaim is hereby DISMISSED. With costs against
defendant.[18]
Petitioner appealed to the Court of Appeals insisting that
it is not a common carrier. The appellate court affirmed
the decision of the trial court with modification. The
dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby
AFFIRMED with modification in the sense that the
salvage value of P201,379.75 shall be deducted from
the amount of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioners Motion for Reconsideration dated June 3,
2000 was likewise denied by the appellate court in a
Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following
errors allegedly committed by the appellate court,
viz:[19]
31
(1) THE COURT OF APPEALS DECIDED THE CASE A
QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT HELD THAT
PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A
QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT AFFIRMED THE
FINDING OF THE LOWER COURT A QUO THAT ON
THE BASIS OF THE PROVISIONS OF THE CIVIL
CODE APPLICABLE TO COMMON CARRIERS, THE
LOSS OF THE CARGO IS, THEREFORE, BORNE BY
THE CARRIER IN ALL CASES EXCEPT IN THE FIVE
(5) CASES ENUMERATED.
(3) THE COURT OF APPEALS DECIDED THE CASE A
QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT EFFECTIVELY
CONCLUDED THAT PETITIONER FAILED TO
EXERCISE DUE DILIGENCE AND/OR WAS
NEGLIGENT IN ITS CARE AND CUSTODY OF THE
CONSIGNEES CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether
it exercised extraordinary diligence in its care and
custody of the consignees cargo.
On the first issue, we rule that petitioner is a common
carrier.
Article 1732 of the Civil Code defines common carriers
as persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation,
offering their services to the public.
Petitioner contends that it is not a common carrier but a
private carrier. Allegedly, it has no fixed and publicly
known route, maintains no terminals, and issues no
tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry
goods unless it consents. In short, it does not hold out its
services to the general public.[20]
We disagree.
In De Guzman vs. Court of Appeals,[21] we held that the
definition of common carriers in Article 1732 of the Civil
Code makes no distinction between one whose principal
business activity is the carrying of persons or goods or
both, and one who does such carrying only as an
ancillary activity. We also did not distinguish 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.
Further, we ruled that Article 1732 does not distinguish
between a carrier offering its services to the general
public, and one who offers services or solicits business
only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner
is that of lighterage and drayage[22] and it offers its
barges to the public for carrying or transporting goods by
water for compensation. Petitioner is clearly a common
carrier. In De Guzman, supra,[23] we considered private
respondent Ernesto Cendaa to be a common carrier
even if his principal occupation was not the carriage of
goods for others, but that of buying used bottles and
scrap metal in Pangasinan and selling these items in
Manila.
We therefore hold that petitioner is a common carrier
whether its carrying of goods is done on an irregular
rather than scheduled manner, and with an only limited
clientele. A common carrier need not have fixed and
publicly known routes. Neither does it have to maintain
terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as
laid down in Bascos vs. Court of Appeals.[24] 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.[25] In the case at bar, the petitioner
admitted that it is engaged in the business of shipping
and lighterage,[26] offering its barges to the public,
despite its limited clientele for carrying or transporting
goods by water for compensation.[27]
On the second issue, we uphold the findings of the lower
courts that petitioner failed to exercise extraordinary
diligence in its care and custody of the consignees
goods.
Common carriers are bound to observe extraordinary
diligence in the vigilance over the goods transported by
them.[28] They are presumed to have been at fault or to
have acted negligently if the goods are lost, destroyed or
deteriorated.[29] To overcome the presumption of
negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must
prove that it exercised extraordinary diligence. There
are, however, exceptions to this rule. Article 1734 of the
Civil Code enumerates the instances when the
presumption of negligence does not attach:
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;
32
(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.
In the case at bar, the barge completely sank after its
towing bits broke, resulting in the total loss of its cargo.
Petitioner claims that this was caused by a typhoon,
hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the
typhoon is the proximate and only cause of the loss of
the goods, and that it has exercised due diligence
before, during and after the occurrence of the typhoon to
prevent or minimize the loss.[30] The evidence show
that, even before the towing bits of the barge broke, it
had already previously sustained damage when it hit a
sunken object while docked at the Engineering Island. It
even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel
was refloated but its hole was patched with only clay and
cement. The patch work was merely a provisional
remedy, not enough for the barge to sail safely. Thus,
when petitioner persisted to proceed with the voyage, it
recklessly exposed the cargo to further damage. A
portion of the cross-examination of Alfredo Cunanan,
cargo-surveyor of Tan-Gatue Adjustment Co., Inc.,
states:
CROSS-EXAMINATION BY ATTY. DONN LEE:[31]
xxxxxxxxx
q - Can you tell us what else transpired after that
incident?
a - After the first accident, through the initiative of the
barge owners, they tried to pull out the barge from the
place of the accident, and bring it to the anchor terminal
for safety, then after deciding if the vessel is stabilized,
they tried to pull it to the consignees warehouse, now
while on route another accident occurred, now this time
the barge totally hitting something in the course.
q - You said there was another accident, can you tell the
court the nature of the second accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if
you know what caused the sinking?
a - Mostly it was related to the first accident because
there was already a whole (sic) on the bottom part of the
barge.
xxxxxxxxx
This is not all. Petitioner still headed to the consignees
wharf despite knowledge of an incoming typhoon. During
the time that the barge was heading towards the
consignee's wharf on September 5, 1990, typhoon
Loleng has already entered the Philippine area of
responsibility.[32] A part of the testimony of Robert
Boyd, Cargo Operations Supervisor of the petitioner,
reveals:
DIRECT-EXAMINATION BY ATTY. LEE:[33]
xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be
safer to just allow the Barge to lie where she was instead
of towing it?
a - Since that time that the Barge was refloated, GMC
(General Milling Corporation, the consignee) as I have
said was in a hurry for their goods to be delivered at their
Wharf since they needed badly the wheat that was
loaded in PSTSI-3. It was needed badly by the
consignee.
q - And this is the reason why you towed the Barge as
you did?
a - Yes, sir.
xxxxxxxxx
CROSS-EXAMINATION BY ATTY. IGNACIO:[34]
xxxxxxxxx
q - And then from ISLOFF Terminal you proceeded to
the premises of the GMC? Am I correct?
a - The next day, in the morning, we hired for additional
two (2) tugboats as I have stated.
q - Despite of the threats of an incoming typhoon as you
testified a while ago?
a - It is already in an inner portion of Pasig River. The
typhoon would be coming and it would be dangerous if
we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or
no?
a - Yes.
q - And yet as a standard operating procedure of your
Company, you have to secure a sort of Certification to
determine the weather condition, am I correct?
a - Yes, sir.
q - So, more or less, you had the knowledge of the
incoming typhoon, right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
33
a - ISLOFF Terminal is far from Manila Bay and anytime
even with the typhoon if you are already inside the
vicinity or inside Pasig entrance, it is a safe place to tow
upstream.

Accordingly, the petitioner cannot invoke the occurrence

of the typhoon as force majeure to escape liability for the
loss sustained by the private respondent. Surely,
meeting a typhoon head-on falls short of due diligence
required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted
that when the towing bits of the vessel broke that caused
its sinking and the total loss of the cargo upon reaching
the Pasig River, it was no longer affected by the
typhoon. The typhoon then is not the proximate cause of
the loss of the cargo; a human factor, i.e., negligence
had intervened.

IN VIEW THEREOF, the petition is DENIED. The

Decision of the Court of Appeals in CA-G.R. CV No.
49195 dated May 11, 2000 and its Resolution dated
February 21, 2001 are hereby AFFIRMED. Costs
against petitioner.

SO ORDERED.

34
[G.R. No. 149038. April 9, 2003]
PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, petitioner, vs. PKS SHIPPING COMPANY,
respondent.
DECISION
VITUG, J.:
The petition before the Court seeks a review of the
decision of the Court of Appeals in C.A. G.R. CV No.
56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court
(RTC), Branch 65, of Makati, dismissing the complaint
for damages filed by petitioner insurance corporation
against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted
the services of respondent PKS Shipping Company
(PKS Shipping) for the shipment to Tacloban City of
seventy-five thousand (75,000) bags of cement worth
Three Million Three Hundred Seventy-Five Thousand
Pesos (P3,375,000.00). DUMC insured the goods for its
full value with petitioner Philippine American General
Insurance Company (Philamgen). The goods were
loaded aboard the dumb barge Limar I belonging to PKS
Shipping. On the evening of 22 December 1988, about
nine oclock, while Limar I was being towed by
respondents tugboat, MT Iron Eagle, the barge sank a
couple of miles off the coast of Dumagasa Point, in
Zamboanga del Sur, bringing down with it the entire
cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full
amount of the insurance. Philamgen promptly made
payment; it then sought reimbursement from PKS
Shipping of the sum paid to DUMC but the shipping
company refused to pay, prompting Philamgen to file suit
against PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the
total loss of the cargo could have been caused either by
a fortuitous event, in which case the ship owner was not
liable, or through the negligence of the captain and crew
of the vessel and that, under Article 587 of the Code of
Commerce adopting the Limited Liability Rule, the ship
owner could free itself of liability by abandoning, as it
apparently so did, the vessel with all her equipment and
earned freightage.
Philamgen interposed an appeal to the Court of Appeals
which affirmed in toto the decision of the trial court. The
appellate court ruled that evidence to establish that PKS
Shipping was a common carrier at the time it undertook
to transport the bags of cement was wanting because
the peculiar method of the shipping companys carrying
goods for others was not generally held out as a
business but as a casual occupation. It then concluded
that PKS Shipping, not being a common carrier, was not
expected to observe the stringent extraordinary diligence
required of common carriers in the care of goods. The
appellate court, moreover, found that the loss of the
goods was sufficiently established as having been due to
fortuitous event, negating any liability on the part of PKS
Shipping to the shipper.
In the instant appeal, Philamgen contends that the
appellate court has committed a patent error in ruling
that PKS Shipping is not a common carrier and that it is
not liable for the loss of the subject cargo. The fact that
respondent has a limited clientele, petitioner argues,
does not militate against respondents being a common
carrier and that the only way by which such carrier can
be held exempt for the loss of the cargo would be if the
loss were caused by natural disaster or calamity.
Petitioner avers that typhoon "APIANG" has not entered
the Philippine area of responsibility and that, even if it
did, respondent would not be exempt from liability
because its employees, particularly the tugmaster, have
failed to exercise due diligence to prevent or minimize
the loss.
PKS Shipping, in its comment, urges that the petition
should be denied because what Philamgen seeks is not
a review on points or errors of law but a review of the
undisputed factual findings of the RTC and the appellate
court. In any event, PKS Shipping points out, the
findings and conclusions of both courts find support from
the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS
Shipping boils down to the question of whether it is a
private carrier or a common carrier and, in either case, to
the other question of whether or not it has observed the
proper diligence (ordinary, if a private carrier, or
extraordinary, if a common carrier) required of it given
the circumstances.
The findings of fact made by the Court of Appeals,
particularly when such findings are consistent with those
of the trial court, may not at liberty be reviewed by this
Court in a petition for review under Rule 45 of the Rules
of Court.[1] The conclusions derived from those factual
findings, however, are not necessarily just matters of fact
as when they are so linked to, or inextricably intertwined
with, a requisite appreciation of the applicable law. In
such instances, the conclusions made could well be
raised as being appropriate issues in a petition for
review before this Court. Thus, an issue whether a
carrier is private or common on the basis of the facts
found by a trial court or the appellate court can be a valid
and reviewable question of law.
The Civil Code defines common carriers in the following
terms:
Article 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or
goods or both, by land, water, or air for compensation,
offering their services to the public.
Complementary to the codal definition is Section 13,
paragraph (b), of the Public Service Act; it defines public
service to be
35

x x x every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for
general business purposes, any common carrier,
railroad, street railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or
dock, ice plant, ice refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply
and power petroleum, sewerage system, wire or wireless
communication systems, wire or wireless broadcasting
stations and other similar public services. x x x.
(Underscoring supplied).
The prevailing doctrine on the question is that
enunciated in the leading case of De Guzman vs. Court
of Appeals.[2] Applying Article 1732 of the Code, in
conjunction with Section 13(b) of the Public Service Act,
this Court has held:
The above article makes no distinction between one
whose principal business activity is the carrying of
persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as `a
sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the
`general public, i.e., the general community or
population, and one who offers services or solicits
business only from a narrow segment of the general
population. We think that Article 1732 deliberately
refrained from making such distinctions.
So understood, the concept of `common carrier under
Article 1732 may be seen to coincide neatly with the
notion of `public service, under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers
set forth in the Civil Code.
Much of the distinction between a common or public
carrier and a private or special carrier lies in the
character of the business, such that if the undertaking is
an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to
carry the goods for the general public or to a limited
clientele, although involving the carriage of goods for a
fee,[3] the person or corporation providing such service
could very well be just a private carrier. A typical case is
that of a charter party which includes both the vessel
and its crew, such as in a bareboat or demise, where the
charterer obtains the use and service of all or some part
of a ship for a period of time or a voyage or voyages[4]
and gets the control of the vessel and its crew.[5]
Contrary to the conclusion made by the appellate court,
its factual findings indicate that PKS Shipping has
engaged itself in the business of carrying goods for
others, although for a limited clientele, undertaking to
carry such goods for a fee. The regularity of its activities
in this area indicates more than just a casual activity on
its part.[6] Neither can the concept of a common carrier
change merely because individual contracts are
executed or entered into with patrons of the carrier. Such
restrictive interpretation would make it easy for a
common carrier to escape liability by the simple
expedient of entering into those distinct agreements with
clients.
Addressing now the issue of whether or not PKS
Shipping has exercised the proper diligence demanded
of common carriers, Article 1733 of the Civil Code
requires common carriers to observe extraordinary
diligence in the vigilance over the goods they carry. In
case of loss, destruction or deterioration of goods,
common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving
otherwise rests on them.[7] The provisions of Article
1733, notwithstanding, common carriers are exempt
from liability for loss, destruction, or deterioration of the
goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
(2) Act of the public enemy in war, whether international
or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing
or in the containers; and
(5) Order or act of competent public authority.[8]
The appellate court ruled, gathered from the testimonies
and sworn marine protests of the respective vessel
masters of Limar I and MT Iron Eagle, that there was no
way by which the barges or the tugboats crew could
have prevented the sinking of Limar I. The vessel was
suddenly tossed by waves of extraordinary height of six
(6) to eight (8) feet and buffeted by strong winds of 1.5
knots resulting in the entry of water into the barges
hatches. The official Certificate of Inspection of the
barge issued by the Philippine Coastguard and the
Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the
factual findings of the appellate court.
Findings of fact of the Court of Appeals generally
conclude this Court; none of the recognized exceptions
from the rule - (1) when the factual findings of the Court
of Appeals and the trial court are contradictory; (2) when
the conclusion is a finding grounded entirely on
speculation, surmises, or conjectures; (3) when the
inference made by the Court of Appeals from its findings
36
of fact is manifestly mistaken, absurd, or impossible; (4)
when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in
making its findings, went beyond the issues of the case
and such findings are contrary to the admissions of both
appellant and appellee; (6) when the judgment of the
Court of Appeals is premised on a misapprehension of
facts; (7) when the Court of Appeals failed to notice
certain relevant facts which, if properly considered,
would justify a different conclusion; (8) when the findings
of fact are themselves conflicting; (9) when the findings
of fact are conclusions without citation of the specific
evidence on which they are based; and (10) when the
findings of fact of the Court of Appeals are premised on
the absence of evidence but such findings are
contradicted by the evidence on record would appear to
be clearly extant in this instance.

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

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

37
[G.R. No. 131166. September 30, 1999]
CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO
LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO
S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S.
GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAEZAL AND SOTERA
E. CAEZAL, respondents.
DECISION
PARDO, J.:
Is the charterer of a sea vessel liable for damages
resulting from a collision between the chartered vessel
and a passenger ship?
When MT Vector left the port of Limay, Bataan, on
December 19, 1987 carrying petroleum products of
Caltex (Philippines), Inc. (hereinafter Caltex) no one
could have guessed that it would collide with MV Doa
Paz, killing almost all the passengers and crew members
of both ships, and thus resulting in one of the countrys
worst maritime disasters.
The petition before us seeks to reverse the Court of
Appeals decision[1]holding petitioner jointly liable with
the operator of MT Vector for damages when the latter
collided with Sulpicio Lines, Inc.s passenger ship MV
Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left
Limay, Bataan, at about 8:00 p.m., enroute to Masbate,
loaded with 8,800 barrels of petroleum products shipped
by petitioner Caltex.[2] MT Vector is a tramping motor
tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel
products such as gasoline, kerosene, diesel and crude
oil. During that particular voyage, the MT Vector carried
on board gasoline and other oil products owned by
Caltex by virtue of a charter contract between them.[3]
On December 20, 1987, at about 6:30 a.m., the
passenger ship MV Doa Paz left the port of Tacloban
headed for Manila with a complement of 59 crew
members including the master and his officers, and
passengers totaling 1,493 as indicated in the Coast
Guard Clearance.[4] The MV Doa Paz is a passenger
and cargo vessel owned and operated by Sulpicio Lines,
Inc. plying the route of Manila/ Tacloban/ Catbalogan/
Manila/ Catbalogan/ Tacloban/ Manila, making trips
twice a week.
At about 10:30 p.m. of December 20, 1987, the two
vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental Mindoro.
All the crewmembers of MV Doa Paz died, while the two
survivors from MT Vector claimed that they were
sleeping at the time of the incident.
The MV Doa Paz carried an estimated 4,000
passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been
rescued from the burning waters by vessels that
responded to distress calls.[5] Among those who
perished were public school teacher Sebastian Caezal
(47 years old) and his daughter Corazon Caezal (11
years old), both unmanifested passengers but proved to
be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI
Case No. 653-87 after investigation found that the MT
Vector, its registered operator Francisco Soriano, and its
owner and actual operator Vector Shipping Corporation,
were at fault and responsible for its collision with MV
Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E.
Caezal, Sebastian Caezals wife and mother
respectively, filed with the Regional Trial Court, Branch
8, Manila, a complaint for Damages Arising from Breach
of Contract of Carriage against Sulpicio Lines, Inc.
(hereafter Sulpicio). Sulpicio, in turn, filed a third party
complaint against Francisco Soriano, Vector Shipping
Corporation and Caltex (Philippines), Inc. Sulpicio
alleged that Caltex chartered MT Vector with gross and
evident bad faith knowing fully well that MT Vector was
improperly manned, ill-equipped, unseaworthy and a
hazard to safe navigation; as a result, it rammed against
MV Doa Paz in the open sea setting MT Vectors highly
flammable cargo ablaze.
On September 15, 1992, the trial court rendered
decision dismissing the third party complaint against
petitioner. The dispositive portion reads:
WHEREFORE, judgement is hereby rendered in favor of
plaintiffs and against defendant-3rd party plaintiff
Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year
old daughter Corazon G. Caezal, including loss of future
earnings of said Sebastian, moral and exemplary
damages, attorneys fees, in the total amount of P
1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED
for want of substantiation and with costs against the 3rd
party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio
Lines, Inc., on April 15, 1997, the Court of Appeal
38
modified the trial courts ruling and included petitioner
Caltex as one of the those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment
rendered by the Regional Trial Court is hereby
MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered
to pay the heirs of Sebastian E. Caezal and Corazon
Caezal:
1. Compensatory damages for the death of Sebastian
E.Caezal and Corazon Caezal the total amount of ONE
HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned
income of Sebastian E. Caezal, in the total amount of
THREE HUNDRED SIX THOUSAND FOUR HUNDRED
EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED
THOUSAND PESOS (P 300,000.00);
4. Attorneys fees in the concept of actual damages in the
amount of FIFTY THOUSAND PESOS (P 50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex
(Phils.), Inc. are held equally liable under the third party
complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. of the above-mentioned damages, attorneys
fees and costs which the latter is adjudged to pay
plaintiffs, the same to be shared half by Vector Shipping
Co. (being the vessel at fault for the collision) and the
other half by Caltex (Phils.), Inc. (being the charterer that
negligently caused the shipping of combustible cargo
aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO
HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under
Philippine Maritime laws.
The respective rights and duties of a shipper and the
carrier depends not on whether the carrier is public or
private, but on whether the contract of carriage is a bill of
lading or equivalent shipping documents on the one
hand, or a charter party or similar contract on the
other.[9]
Petitioner and Vector entered into a contract of
affreightment, also known as a voyage charter.[10]
A charter party is a contract by which an entire ship, or
some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of
affreightment is one by which the owner of a ship or
other vessel lets the whole or part of her to a merchant
or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of
freight.[11]
A contract of affreightment may be either time charter,
wherein the leased vessel is leased to the charterer for a
fixed period of time, or voyage charter, wherein the ship
is leased for a single voyage. In both cases, the charter-
party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive
voyage, the ship owner to supply the ships store, pay for
the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand,
the charterer mans the vessel with his own people and
becomes, in effect, the owner for the voyage or service
stipulated, subject to liability for damages caused by
negligence.
If the charter is a contract of affreightment, which leaves
the general owner in possession of the ship as owner for
the voyage, the rights and the responsibilities of
ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1)
Demise or bareboat, (2) time charter, (3) voyage charter.
Does a charter party agreement turn the common carrier
into a private one? We need to answer this question in
order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert
the common carrier into a private carrier. The parties
entered into a voyage charter, which retains the
character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we
said:
It is therefore imperative that a public carrier shall remain
as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a
time-charter or voyage charter. It is only when the
charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes
private, at least insofar as the particular voyage covering
39
the charter-party is concerned. Indubitably, a ship-owner
in a time or voyage charter retains possession and
control of the ship, although her holds may, for the
moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs.
Court of Appeals:[15]
Although a charter party may transform a common
carrier into a private one, the same however is not true
in a contract of affreightment xxx
A common carrier is a person or corporation whose
regular business is to carry passengers or property for
all persons who may choose to employ and to
remunerate him.[16] MT Vector fits the definition of a
common carrier under Article 1732 of the Civil Code. In
Guzman vs. Court of Appeals,[17] we ruled:
The Civil Code defines common carriers in the following
terms:
Article 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers for
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one
whose principal business activity is the carrying of
persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as a
sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis
and one offering such services on a an occasional,
episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the
general public, i.e., the general community or population,
and one who offers services or solicits business only
from a narrow segment of the general population. We
think that Article 1733 deliberately refrained from making
such distinctions.
It appears to the Court that private respondent is
properly characterized as a common carrier even though
he merely back-hauled goods for other merchants from
Manila to Pangasinan, although such backhauling was
done on a periodic, occasional rather than regular or
scheduled manner, and even though respondents
principal occupation was not the carriage of goods for
others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that
the fee frequently fell below commercial freight rates is
not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to -
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the
seaworthiness of the ship. For a vessel to be seaworthy,
it must be adequately equipped for the voyage and
manned with a sufficient number of competent officers
and crew. The failure of a common carrier to maintain in
seaworthy condition the vessel involved in its contract of
carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the
business of common carriers. This business is
impressed with a special public duty. The public must of
necessity rely on the care and skill of common carriers in
the vigilance over the goods and safety of the
passengers, especially because with the modern
development of science and invention, transportation
has become more rapid, more complicated and
somehow more hazardous.[19] For these reasons, a
passenger or a shipper of goods is under no obligation
to conduct an inspection of the ship and its crew, the
carrier being obliged by law to impliedly warrant its
seaworthiness.
This aside, we now rule on whether Caltex is liable for
damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly
combustible fuel cargo aboard an unseaworthy vessel
such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of
inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by
Mr. Carlos Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and
certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to
transport its cargo despite these deficiencies:
1. The master of M/T Vector did not posses the required
Chief Mate license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a
Minor Patron, authorized to navigate only in bays and
rivers when the subject collision occurred in the open
sea;
3. The Chief Engineer, Filoteo Aguas, had no license to
operate the engine of the vessel;
40
4. The vessel did not have a Third Mate, a radio operator
and a lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals
relied on Articles 20 and 2176 of the Civil Code, which
provide:
Article 20. - Every person who contrary to law, willfully or
negligently causes damage to another, shall indemnify
the latter for the same.
Article 2176. - Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Article 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the
provisions of Article 1171 and 2201 paragraph 2, shall
apply.
If the law does not state the diligence which is to be
observed in the performance, that which is expected of a
good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals,[21]
we said that negligence, as commonly understood, is
conduct which naturally or reasonably creates undue risk
or harm to others. It may be the failure to observe that
degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do
something which ordinarily regulate the conduct of
human affairs, would do.
The charterer of a vessel has no obligation before
transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty
rests upon the common carrier simply for being engaged
in public service.[22] The Civil Code demands diligence
which is required by the nature of the obligation and that
which corresponds with the circumstances of the
persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector,
the liability as found by the Court of Appeals is without
basis.
The relationship between the parties in this case is
governed by special laws. Because of the implied
warranty of seaworthiness,[23] shippers of goods, when
transacting with common carriers, are not expected to
inquire into the vessels seaworthiness, genuineness of
its licenses and compliance with all maritime laws. To
demand more from shippers and hold them liable in case
of failure exhibits nothing but the futility of our maritime
laws insofar as the protection of the public in general is
concerned. By the same token, we cannot expect
passengers to inquire every time they board a common
carrier, whether the carrier possesses the necessary
papers or that all the carriers employees are qualified.
Such a practice would be an absurdity in a business
where time is always of the essence. Considering the
nature of transportation business, passengers and
shippers alike customarily presume that common
carriers possess all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands
ordinary diligence like any other shipper in shipping his
cargoes.
A cursory reading of the records convinces us that
Caltex had reasons to believe that MT Vector could
legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this
portion here containing the entries here under VESSELS
DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued
December 21, 1986, and Expires December 7, 1987, Mr.
Witness, what steps did you take regarding the
impending expiry of the C.I. or the Certificate of
Inspection No. 1290-85 during the hiring of MT Vector?
Apolinar Ng: At the time when I extended the Contract, I
did nothing because the tanker has a valid C.I. which will
expire on December 7, 1987 but on the last week of
November, I called the attention of Mr. Abalos to ensure
that the C.I. be renewed and Mr. Abalos, in turn, assured
me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-
up from Mr. Abalos, and said they were going to send
me a copy as soon as possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr.
Abalos on the first place, because of our long business
relation, we trust Mr. Abalos and the fact that the vessel
was able to sail indicates that the documents are in
order. xxx[25]
On cross examination -
Atty. Sarenas: This being the case, and this being an
admission by you, this Certificate of Inspection has
expired on December 7. Did it occur to you not to let the
vessel sail on that day because of the very approaching
date of expiration?
41

Apolinar Ng: No sir, because as I said before, the
operation Manager assured us that they were able to
secure a renewal of the Certificate of Inspection and that
they will in time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the
pending expiry of the Certificate of Inspection in the
coastwise license on December 7, 1987. What was your
assurance for the record that this document was
renewed by the MT Vector?
complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. the damages the latter is adjudged to pay
plaintiffs-appellees. The Court AFFIRMS the decision of
the Court of Appeals insofar as it orders Sulpicio Lines,
Inc. to pay the heirs of Sebastian E. Caezal and Corazon
Caezal damages as set forth therein. Third-party
defendant-appellee Vector Shipping Corporation and
Francisco Soriano are held liable to reimburse/indemnify
defendant Sulpicio Lines, Inc. whatever damages,
attorneys fees and costs the latter is adjudged to pay
plaintiffs-appellees in the case.
No costs in this instance.

Atty. Sarenas: xxx SO ORDERED.

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is a long

time business partner; secondly, those three years, they
were allowed to sail by the Coast Guard. That are some
that make me believe that they in fact were able to
secure the necessary renewal.

Q: If the Coast Guard clears a vessel to sail, what would

that mean?

Atty. Sarenas: Objection.

Court: He already answered that in the cross

examination to the effect that if it was allowed, referring
to MV Vector, to sail, where it is loaded and that it was
scheduled for a destination by the Coast Guard, it
means that it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos. That in no
case MV Vector will be allowed to sail if the Certificate of
Inspection is, indeed, not to be extended. That was his
repeated explanation to the cross-examination. So, there
is no need to clarify the same in the re-direct
examination.[27]

Caltex and Vector Shipping Corporation had been doing

business since 1985, or for about two years before the
tragic incident occurred in 1987. Past services rendered
showed no reason for Caltex to observe a higher degree
of diligence.

Clearly, as a mere voyage charterer, Caltex had the right

to presume that the ship was seaworthy as even the
Philippine Coast Guard itself was convinced of its
seaworthiness. All things considered, we find no legal
basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the

Court of Appeals decision, we limit our ruling to the
liability of Caltex alone. However, we maintain the Court
of Appeals ruling insofar as Vector is concerned .

WHEREFORE, the Court hereby GRANTS the petition

and SETS ASIDE the decision of the Court of Appeals in
CA-G. R. CV No. 39626, promulgated on April 15, 1997,
insofar as it held Caltex liable under the third party

42
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION,
petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL
INSURANCE COMPANY, respondents.
RESOLUTION
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the
Court of Appeals, dated December 17, 1993, affirming
Branch 35 of the Regional Trial Court, Manila in holding
that herein petitioner is liable to pay herein private
respondent the amount of P700,000.00, plus legal
interest thereon, another sum of P100,000.00 as
attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport
molasses from the province of Negros to Manila with
Coastwise Lighterage Corporation (Coastwise for
brevity), using the latter's dumb barges. The barges
were towed in tandem by the tugboat MT Marica, which
is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18,
one of the barges, "Coastwise 9", struck an unknown
sunken object. The forward buoyancy compartment was
damaged, and water gushed in through a hole "two
inches wide and twenty-two inches long"1 As a
consequence, the molasses at the cargo tanks were
contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales,
Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with
the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for
short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the
claim and it was PhilGen which paid the consignee, Pag-
asa Sales, Inc., the amount of P700,000.00,
representing the value of the damaged cargo of
molasses.
In turn, PhilGen then filed an action against Coastwise
Lighterage before the Regional Trial Court of Manila,
seeking to recover the amount of P700,000.00 which it
paid to Pag-asa Sales, Inc. for the latter's lost cargo.
PhilGen now claims to be subrogated to all the
contractual rights and claims which the consignee may
have against the carrier, which is presumed to have
violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen.
On Coastwise Lighterage's appeal to the Court of
Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First,
whether or not petitioner Coastwise Lighterage was
transformed into a private carrier, by virtue of the
contract of affreightment which it entered into with the
consignee, Pag-asa Sales, Inc. Corollarily, if it were in
fact transformed into a private carrier, did it exercise the
ordinary diligence to which a private carrier is in turn
bound? Second, whether or not the insurer was
subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the
consignee's goods lost while on board one of the
carrier's vessels.
On the first issue, petitioner contends that the RTC and
the Court of Appeals erred in finding that it was a
common carrier. It stresses the fact that it contracted
with Pag-asa Sales, Inc. to transport the shipment of
molasses from Negros Oriental to Manila and refers to
this contract as a "charter agreement". It then proceeds
to cite the case of Home Insurance Company vs.
American Steamship Agencies, Inc.2 wherein this Court
held: ". . . a common carrier undertaking to carry a
special cargo or chartered to a special person only
becomes a private carrier."
Petitioner's reliance on the aforementioned case is
misplaced. In its entirety, the conclusions of the court are
as follows:
Accordingly, the charter party contract is one of
affreightment over the whole vessel, rather than a
demise. As such, the liability of the shipowner for acts or
negligence of its captain and crew, would remain in the
absence of stipulation.3
The distinction between the two kinds of charter parties
(i.e. bareboat or demise and contract of affreightment) is
more clearly set out in the case of Puromines, Inc. vs.
Court of Appeals,4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for the
voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro
hac vice, subject to liability to others for damages
caused by negligence. To create a demise, the owner of
a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party)
or not a charter party at all.
On the other hand a contract of affreightment is one in
which the owner of the vessel leases part or all of its
space to haul goods for others. It is a contract for special
service to be rendered by the owner of the vessel and
under such contract the general owner retains the
possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in
43
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:
44
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.

45
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP
AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA,
respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for
private respondents.
BELLOSILLO, J.:
Does a charter-party1 between a shipowner and a
charterer transform a common carrier into a private one
as to negate the civil law presumption of negligence in
case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi
International Corporation (MITSUBISHI) of New York,
U.S.A., 9,329.7069 metric tons (M/T) of Urea 46%
fertilizer which the latter shipped in bulk on 16 June 1974
aboard the cargo vessel M/V "Sun Plum" owned by
private respondent Kyosei Kisen Kabushiki Kaisha
(KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San
Fernando, La Union, Philippines, as evidenced by Bill of
Lading No. KP-1 signed by the master of the vessel and
issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-
party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter2 was entered into between
Mitsubishi as shipper/charterer and KKKK as shipowner,
in Tokyo, Japan.3 Riders to the aforesaid charter-party
starting from par. 16 to 40 were attached to the pre-
printed agreement. Addenda Nos. 1, 2, 3 and 4 to the
charter-party were also subsequently entered into on the
18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of
her holds4 were all presumably inspected by the
charterer's representative and found fit to take a load of
urea in bulk pursuant to par. 16 of the charter-party
which reads:
16. . . . At loading port, notice of readiness to be
accomplished by certificate from National Cargo Bureau
inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive
cargo spaces. The vessel's hold to be properly swept,
cleaned and dried at the vessel's expense and the
vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences.
(emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores
hired by and under the supervision of the shipper, the
steel hatches were closed with heavy iron lids, covered
with three (3) layers of tarpaulin, then tied with steel
bonds. The hatches remained closed and tightly sealed
throughout the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July
1974, the steel pontoon hatches were opened with the
use of the vessel's boom. Petitioner unloaded the cargo
from the holds into its steelbodied dump trucks which
were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and
conditions of the charter-partly (which provided for an
F.I.O.S. clause).6 The hatches remained open
throughout the duration of the discharge.7
Each time a dump truck was filled up, its load of Urea
was covered with tarpaulin before it was transported to
the consignee's warehouse located some fifty (50)
meters from the wharf. Midway to the warehouse, the
trucks were made to pass through a weighing scale
where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area
was windy, certain portions of the route to the
warehouse were sandy and the weather was variable,
raining occasionally while the discharge was in
progress.8 The petitioner's warehouse was made of
corrugated galvanized iron (GI) sheets, with an opening
at the front where the dump trucks entered and unloaded
the fertilizer on the warehouse floor. Tarpaulins and GI
sheets were placed in-between and alongside the trucks
to contain spillages of the ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from
5 July to 18 July 1974 (except July 12th, 14th and
18th).10 A private marine and cargo surveyor, Cargo
Superintendents Company Inc. (CSCI), was hired by PPI
to determine the "outturn" of the cargo shipped, by taking
draft readings of the vessel prior to and after discharge.
11 The survey report submitted by CSCI to the
consignee (PPI) dated 19 July 1974 revealed a shortage
in the cargo of 106.726 M/T and that a portion of the
Urea fertilizer approximating 18 M/T was contaminated
with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July
1974 prepared by PPI which showed that the cargo
delivered was indeed short of 94.839 M/T and about 23
M/T were rendered unfit for commerce, having been
polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18
December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for
P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in
value of that portion said to have been contaminated
with dirt. 13
Respondent SSA explained that they were not able to
respond to the consignee's claim for payment because,
according to them, what they received was just a request
for shortlanded certificate and not a formal claim, and
that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment."
46
14 Hence, on 18 July 1975, PPI filed an action for
damages with the Court of First Instance of Manila. The
defendant carrier argued that the strict public policy
governing common carriers does not apply to them
because they have become private carriers by reason of
the provisions of the charter-party. The court a quo
however sustained the claim of the plaintiff against the
defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a
common carrier is presumed negligent in case of loss or
damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage
is to show receipt by the carrier of the goods and to
delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to
any of the causes which exempt him from liability is
shipted to the carrier, common or private he may be.
Even if the provisions of the charter-party aforequoted
are deemed valid, and the defendants considered
private carriers, it was still incumbent upon them to
prove that the shortage or contamination sustained by
the cargo is attributable to the fault or negligence on the
part of the shipper or consignee in the loading, stowing,
trimming and discharge of the cargo. This they failed to
do. By this omission, coupled with their failure to destroy
the presumption of negligence against them, the
defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the
lower court and absolved the carrier from liability for the
value of the cargo that was lost or damaged. 16 Relying
on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc.,17 the appellate court ruled
that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a
common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common
carriers which set forth a presumption of negligence do
not find application in the case at bar. Thus —
. . . In the absence of such presumption, it was
incumbent upon the plaintiff-appellee to adduce
sufficient evidence to prove the negligence of the
defendant carrier as alleged in its complaint. It is an old
and well settled rule that if the plaintiff, upon whom rests
the burden of proving his cause of action, fails to show in
a satisfactory manner the facts upon which he bases his
claim, the defendant is under no obligation to prove his
exception or defense (Moran, Commentaries on the
Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13
Phil. 202).
But, the record shows that the plaintiff-appellee dismally
failed to prove the basis of its cause of action, i.e. the
alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have
to establish defendant's negligence. Be that as it may,
contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that
defendant carrier was not negligent in performing its
obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for
review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has
no bearing on the present controversy because the issue
raised therein is the validity of a stipulation in the
charter-party delimiting the liability of the shipowner for
loss or damage to goods cause by want of due
deligence on its part or that of its manager to make the
vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code
applies only to common carriers and not to private
carriers. 19 Petitioner further argues that since the
possession and control of the vessel remain with the
shipowner, absent any stipulation to the contrary, such
shipowner should made liable for the negligence of the
captain and crew. In fine, PPI faults the appellate court
in not applying the presumption of negligence against
respondent carrier, and instead shifting the onus
probandi on the shipper to show want of due deligence
on the part of the carrier, when he was not even at hand
to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a
common carrier becomes a private carrier by reason of a
charter-party; in the negative, whether the shipowner in
the instant case was able to prove that he had exercised
that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial
decisions in commercial cases. This being so, we find it
fitting to first define important terms which are relevant to
our discussion.
A "charter-party" is defined as a contract by which an
entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; 20 a
contract of affreightment by which the owner of a ship or
other vessel lets the whole or a part of her to a merchant
or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract
of affreightment which involves the use of shipping
space on vessels leased by the owner in part or as a
whole, to carry goods for others; and, (b) charter by
demise or bareboat charter, by the terms of which the
whole vessel is let to the charterer with a transfer to him
of its entire command and possession and consequent
control over its navigation, including the master and the
crew, who are his servants. Contract of affreightment
may either be time charter, wherein the vessel is leased
to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage.
22 In both cases, the charter-party provides for the hire
of vessel only, either for a determinate period of time or
for a single or consecutive voyage, the shipowner to
supply the ship's stores, pay for the wages of the master
and the crew, and defray the expenses for the
maintenance of the ship.
47
Upon the other hand, the term "common or public
carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water
which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for
compensation as a public employment and not as a
casual occupation. The distinction between a "common
or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the
undertaking is a single transaction, not a part of the
general business or occupation, although involving the
carriage of goods for a fee, the person or corporation
offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that
common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the
vigilance over the goods they carry.25 In the case of
private carriers, however, the exercise of ordinary
diligence in the carriage of goods will suffice. Moreover,
in the case of loss, destruction or deterioration of the
goods, common carriers are presumed to have been at
fault or to have acted negligently, and the burden of
proving otherwise rests on them.26 On the contrary, no
such presumption applies to private carriers, for
whosoever alleges damage to or deterioration of the
goods carried has the onus of proving that the cause
was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary
course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When
petitioner chartered the vessel M/V "Sun Plum", the ship
captain, its officers and compliment were under the
employ of the shipowner and therefore continued to be
under its direct supervision and control. Hardly then can
we charge the charterer, a stranger to the crew and to
the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing
so. This is evident in the present case considering that
the steering of the ship, the manning of the decks, the
determination of the course of the voyage and other
technical incidents of maritime navigation were all
consigned to the officers and crew who were screened,
chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain
as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the
charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes
private, at least insofar as the particular voyage covering
the charter-party is concerned. Indubitably, a shipowner
in a time or voyage charter retains possession and
control of the ship, although her holds may, for the
moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of
Home Insurance Co. v. American Steamship Agencies,
supra, is misplaced for the reason that the meat of the
controversy therein was the validity of a stipulation in the
charter-party exempting the shipowners from liability for
loss due to the negligence of its agent, and not the
effects of a special charter on common carriers. At any
rate, the rule in the United States that a ship chartered
by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers
and /or carriage of goods by sea requires a more
exacting interpretation of admiralty laws, more
particularly, the rules governing common carriers.
We quote with approval the observations of Raoul
Colinvaux, the learned barrister-at-law 30 —
As a matter of principle, it is difficult to find a valid
distinction between cases in which a ship is used to
convey the goods of one and of several persons. Where
the ship herself is let to a charterer, so that he takes over
the charge and control of her, the case is different; the
shipowner is not then a carrier. But where her services
only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or
many. The master and the crew are in each case his
servants, the freighter in each case is usually without
any representative on board the ship; the same
opportunities for fraud or collusion occur; and the same
difficulty in discovering the truth as to what has taken
place arises . . .
In an action for recovery of damages against a common
carrier on the goods shipped, the shipper or consignee
should first prove the fact of shipment and its
consequent loss or damage while the same was in the
possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to
prove that he has exercised extraordinary diligence
required by law or that the loss, damage or deterioration
of the cargo was due to fortuitous event, or some other
circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently
overcome, by clear and convincing proof, the prima facie
presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo,
in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attache in the Philippine
Embassy in Tokyo, Japan, testified that before the
fertilizer was loaded, the four (4) hatches of the vessel
were cleaned, dried and fumigated. After completing the
loading of the cargo in bulk in the ship's holds, the steel
pontoon hatches were closed and sealed with iron lids,
then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in
transit as the weight of the steel covers made it
impossible for a person to open without the use of the
ship's boom. 32
48
It was also shown during the trial that the hull of the
vessel was in good condition, foreclosing the possibility
of spillage of the cargo into the sea or seepage of water
inside the hull of the vessel. 33 When M/V "Sun Plum"
docked at its berthing place, representatives of the
consignee boarded, and in the presence of a
representative of the shipowner, the foreman, the
stevedores, and a cargo surveyor representing CSCI,
opened the hatches and inspected the condition of the
hull of the vessel. The stevedores unloaded the cargo
under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the
respondent carrier has been efficaciously overcome by
the showing of extraordinary zeal and assiduity
exercised by the carrier in the care of the cargo. This
was confirmed by respondent appellate court thus —
. . . Be that as it may, contrary to the trial court's finding,
the record of the instant case discloses ample evidence
showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following
testimonies of plaintiff-appellee's own witnesses clearly
show absence of negligence by the defendant carrier;
that the hull of the vessel at the time of the discharge of
the cargo was sealed and nobody could open the same
except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14);
that the cover of the hatches was made of steel and it
was overlaid with tarpaulins, three layers of tarpaulins
and therefore their contents were protected from the
weather (TSN, 5 April 1978, p. 24); and, that to open
these hatches, the seals would have to be broken, all the
seals were found to be intact (TSN, 20 July 1977, pp.
15-16) (emphasis supplied).
The period during which private respondent was to
observe the degree of diligence required of it as a public
carrier began from the time the cargo was
unconditionally placed in its charge after the vessel's
holds were duly inspected and passed scrutiny by the
shipper, up to and until the vessel reached its destination
and its hull was reexamined by the consignee, but prior
to unloading. This is clear from the limitation clause
agreed upon by the parties in the Addendum to the
standard "GENCON" time charter-party which provided
for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by
the charterer, free from all risk and expense to the
carrier. 35 Moreover, a shipowner is liable for damage to
the cargo resulting from improper stowage only when the
stowing is done by stevedores employed by him, and
therefore under his control and supervision, not when
the same is done by the consignee or stevedores under
the employ of the latter. 36
Article 1734 of the New Civil Code provides that
common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the
charterer of the goods or defects in the packaging or in
the containers. The Code of Commerce also provides
that all losses and deterioration which the goods may
suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods,
shall be for the account and risk of the shipper, and that
proof of these accidents is incumbent upon the carrier.
37 The carrier, nonetheless, shall be liable for the loss
and damage resulting from the preceding causes if it is
proved, as against him, that they arose through his
negligence or by reason of his having failed to take the
precautions which usage has established among careful
persons. 38
Respondent carrier presented a witness who testified on
the characteristics of the fertilizer shipped and the
expected risks of bulk shipping. Mr. Estanislao
Chupungco, a chemical engineer working with Atlas
Fertilizer, described Urea as a chemical compound
consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water.
However, during storage, nitrogen and ammonia do not
normally evaporate even on a long voyage, provided that
the temperature inside the hull does not exceed eighty
(80) degrees centigrade. Mr. Chupungco further added
that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such
operation amounting to one percent (1%) against the bill
of lading is deemed "normal" or "tolerable." The primary
cause of these spillages is the clamped shell which does
not seal very tightly. Also, the wind tends to blow away
some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its
daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it
comes in contact with water. When Urea is drenched in
water, either fresh or saline, some of its particles
dissolve. But the salvaged portion which is in liquid form
still remains potent and usable although no longer
saleable in its original market value.
The probability of the cargo being damaged or getting
mixed or contaminated with foreign particles was made
greater by the fact that the fertilizer was transported in
"bulk," thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces
of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it
was highly improbable for sea water to seep into the
vessel's holds during the voyage since the hull of the
vessel was in good condition and her hatches were
tightly closed and firmly sealed, making the M/V "Sun
Plum" in all respects seaworthy to carry the cargo she
was chartered for. If there was loss or contamination of
the cargo, it was more likely to have occurred while the
same was being transported from the ship to the dump
trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading.
He explained that the 18 M/T of alleged "bar order
cargo" as contained in their report to PPI was just an
49
approximation or estimate made by them after the
fertilizer was discharged from the vessel and segregated
from the rest of the cargo.

The Court notes that it was in the month of July when

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

Indeed, we agree with respondent carrier that bulk

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

WHEREFORE, the petition is DISMISSED. The assailed

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

Costs against petitioner.

SO ORDERED.

50
[G.R. No. 150255. April 22, 2005]
SCHMITZ TRANSPORT & BROKERAGE
CORPORATION, petitioner, vs. TRANSPORT
VENTURE, INC., INDUSTRIAL INSURANCE
COMPANY, LTD., and BLACK SEA SHIPPING AND
DODWELL now INCHCAPE SHIPPING SERVICES,
respondents.
DECISION
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision[1] of
the Court of Appeals, as well as its Resolution[2] dated
September 28, 2001 denying the motion for
reconsideration, which affirmed that of Branch 21 of the
Regional Trial Court (RTC) of Manila in Civil Case No.
92-63132[3] holding petitioner Schmitz Transport
Brokerage Corporation (Schmitz Transport), together
with Black Sea Shipping Corporation (Black Sea),
represented by its ship agent Inchcape Shipping Inc.
(Inchcape), and Transport Venture (TVI), solidarily liable
for the loss of 37 hot rolled steel sheets in coil that were
washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore
shipped from the port of Ilyichevsk, Russia on board M/V
Alexander Saveliev (a vessel of Russian registry and
owned by Black Sea) 545 hot rolled steel sheets in coil
weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of
Manila in favor of the consignee, Little Giant Steel Pipe
Corporation (Little Giant),[4] were insured against all
risks with Industrial Insurance Company Ltd. (Industrial
Insurance) under Marine Policy No. M-91-3747-TIS.[5]
The vessel arrived at the port of Manila on October 24,
1991 and the Philippine Ports Authority (PPA) assigned
it a place of berth at the outside breakwater at the Manila
South Harbor.[6]
Schmitz Transport, whose services the consignee
engaged to secure the requisite clearances, to receive
the cargoes from the shipside, and to deliver them to its
(the consignees) warehouse at Cainta, Rizal,[7] in turn
engaged the services of TVI to send a barge and
tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVIs tugboat
Lailani towed the barge Erika V to shipside.[8]
By 7:00 p.m. also of October 26, 1991, the tugboat, after
positioning the barge alongside the vessel, left and
returned to the port terminal.[9] At 9:00 p.m., arrastre
operator Ocean Terminal Services Inc. commenced to
unload 37 of the 545 coils from the vessel unto the
barge.
By 12:30 a.m. of October 27, 1991 during which the
weather condition had become inclement due to an
approaching storm, the unloading unto the barge of the
37 coils was accomplished.[10] No tugboat pulled the
barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong
waves,[11] the crew of the barge abandoned it and
transferred to the vessel. The barge pitched and rolled
with the waves and eventually capsized, washing the 37
coils into the sea.[12] At 7:00 a.m., a tugboat finally
arrived to pull the already empty and damaged barge
back to the pier.[13]
Earnest efforts on the part of both the consignee Little
Giant and Industrial Insurance to recover the lost
cargoes proved futile.[14]
Little Giant thus filed a formal claim against Industrial
Insurance which paid it the amount of P5,246,113.11.
Little Giant thereupon executed a subrogation receipt[15]
in favor of Industrial Insurance.
Industrial Insurance later filed a complaint against
Schmitz Transport, TVI, and Black Sea through its
representative Inchcape (the defendants) before the
RTC of Manila, for the recovery of the amount it paid to
Little Giant plus adjustment fees, attorneys fees, and
litigation expenses.[16]
Industrial Insurance faulted the defendants for
undertaking the unloading of the cargoes while typhoon
signal No. 1 was raised in Metro Manila.[17]
By Decision of November 24, 1997, Branch 21 of the
RTC held all the defendants negligent for unloading the
cargoes outside of the breakwater notwithstanding the
storm signal.[18] The dispositive portion of the decision
reads:
WHEREFORE, premises considered, the Court renders
judgment in favor of the plaintiff, ordering the defendants
to pay plaintiff jointly and severally the sum of
P5,246,113.11 with interest from the date the complaint
was filed until fully satisfied, as well as the sum of
P5,000.00 representing the adjustment fee plus the sum
of 20% of the amount recoverable from the defendants
as attorneys fees plus the costs of suit. The
counterclaims and cross claims of defendants are
hereby DISMISSED for lack of [m]erit.[19]
To the trial courts decision, the defendants Schmitz
Transport and TVI filed a joint motion for reconsideration
assailing the finding that they are common carriers and
the award of excessive attorneys fees of more than
P1,000,000. And they argued that they were not
motivated by gross or evident bad faith and that the
incident was caused by a fortuitous event. [20]
By resolution of February 4, 1998, the trial court denied
the motion for reconsideration. [21]
All the defendants appealed to the Court of Appeals
which, by decision of June 27, 2001, affirmed in toto the
decision of the trial court, [22] it finding that all the
51
defendants were common carriers Black Sea and TVI for
engaging in the transport of goods and cargoes over the
seas as a regular business and not as an isolated
transaction,[23] and Schmitz Transport for entering into
a contract with Little Giant to transport the cargoes from
ship to port for a fee.[24]
In holding all the defendants solidarily liable, the
appellate court ruled that each one was essential such
that without each others contributory negligence the
incident would not have happened and so much so that
the person principally liable cannot be distinguished with
sufficient accuracy.[25]
In discrediting the defense of fortuitous event, the
appellate court held that although defendants obviously
had nothing to do with the force of nature, they however
had control of where to anchor the vessel, where
discharge will take place and even when the discharging
will commence.[26]
The defendants respective motions for reconsideration
having been denied by Resolution[27] of September 28,
2001, Schmitz Transport (hereinafter referred to as
petitioner) filed the present petition against TVI,
Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and
tugboat of TVI, it was acting for its principal, consignee
Little Giant, hence, the transportation contract was by
and between Little Giant and TVI.[28]
By Resolution of January 23, 2002, herein respondents
Industrial Insurance, Black Sea, and TVI were required
to file their respective Comments.[29]
By its Comment, Black Sea argued that the cargoes
were received by the consignee through petitioner in
good order, hence, it cannot be faulted, it having had no
control and supervision thereover.[30]
For its part, TVI maintained that it acted as a passive
party as it merely received the cargoes and transferred
them unto the barge upon the instruction of
petitioner.[31]
In issue then are:
(1) Whether the loss of the cargoes was due to a
fortuitous event, independent of any act of negligence on
the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss
may attach to Black Sea, petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil
Code absolves any party from any and all liability arising
therefrom:
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 foreseen, were inevitable.
In order, to be considered a fortuitous event, however,
(1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his
obligation, must be independent of human will; (2) it
must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen it must be
impossible to avoid; (3) the occurrence must be such as
to render it impossible for the debtor to fulfill his
obligation in any manner; and (4) the obligor must be
free from any participation in the aggravation of the
injury resulting to the creditor.[32]
[T]he principle embodied in the act of God doctrine
strictly requires that the act must be occasioned solely
by the violence of nature. Human intervention is to be
excluded from creating or entering into the cause of the
mischief. When the effect is found to be in part the result
of the participation of man, whether due to his active
intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the
rules applicable to the acts of God.[33]
The appellate court, in affirming the finding of the trial
court that human intervention in the form of contributory
negligence by all the defendants resulted to the loss of
the cargoes,[34] held that unloading outside the
breakwater, instead of inside the breakwater, while a
storm signal was up constitutes negligence.[35] It thus
concluded that the proximate cause of the loss was
Black Seas negligence in deciding to unload the cargoes
at an unsafe place and while a typhoon was
approaching.[36]
From a review of the records of the case, there is no
indication that there was greater risk in loading the
cargoes outside the breakwater. As the defendants
proffered, the weather on October 26, 1991 remained
normal with moderate sea condition such that port
operations continued and proceeded normally.[37]
The weather data report,[38] furnished and verified by
the Chief of the Climate Data Section of PAG-ASA and
marked as a common exhibit of the parties, states that
while typhoon signal No. 1 was hoisted over Metro
Manila on October 23-31, 1991, the sea condition at the
port of Manila at 5:00 p.m. - 11:00 p.m. of October 26,
1991 was moderate. It cannot, therefore, be said that the
defendants were negligent in not unloading the cargoes
upon the barge on October 26, 1991 inside the
breakwater.
That no tugboat towed back the barge to the pier after
the cargoes were completely loaded by 12:30 in the
morning[39] is, however, a material fact which the
appellate court failed to properly consider and
appreciate[40] the proximate cause of the loss of the
cargoes. Had the barge been towed back promptly to the
pier, the deteriorating sea conditions notwithstanding,
52
the loss could have been avoided. But the barge was left
floating in open sea until big waves set in at 5:30 a.m.,
causing it to sink along with the cargoes.[41] The loss
thus falls outside the act of God doctrine.
The proximate cause of the loss having been
determined, who among the parties is/are responsible
therefor?
Contrary to petitioners insistence, this Court, as did the
appellate court, finds that petitioner is a common carrier.
For it undertook to transport the cargoes from the
shipside of M/V Alexander Saveliev to the consignees
warehouse at Cainta, Rizal. As the appellate court put it,
as long as a person or corporation holds [itself] to the
public for the purpose of transporting goods as [a]
business, [it] is already considered a common carrier
regardless if [it] owns the vehicle to be used or has to
hire one.[42] That petitioner is a common carrier, the
testimony of its own Vice-President and General
Manager Noel Aro that part of the services it offers to its
clients as a brokerage firm includes the transportation of
cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you]
functions x x x as Executive Vice-President and General
Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the
brokerage and transport business of the company. I also
handle the various division heads of the company for
operation matters, and all other related functions that the
President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as
you mentioned, will you please tell the Honorable Court
if you came to know the company by the name Little
Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that
Company.
Q: And since when have you been the brokerage firm of
that company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this
Company. What work or duty did you perform in behalf
of this company?
A: We handled the releases (sic) of their cargo[es] from
the Bureau of Customs. We [are] also in-charged of the
delivery of the goods to their warehouses. We also
handled the clearances of their shipment at the Bureau
of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this
Little Giant Steel Pipe Corporation with regards to this
shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from
vessel to lighter and then the delivery of [the] cargo[es]
from lighter to BASECO then to the truck and to the
warehouse, Sir.
Q: Now, in connection with this work which you are
doing, Mr. Witness, you are supposed to perform, what
equipment do (sic) you require or did you use in order to
effect this unloading, transfer and delivery to the
warehouse?
A: Actually, we used the barges for the ship side
operations, this unloading [from] vessel to lighter, and on
this we hired or we sub-contracted with [T]ransport
Ventures, Inc. which [was] in-charged (sic) of the barges.
Also, in BASECO compound we are leasing cranes to
have the cargo unloaded from the barge to trucks, [and]
then we used trucks to deliver [the cargoes] to the
consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO
compound to the consignees warehouse?
A: We utilized of (sic) our own trucks and we have some
other contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the
Honorable Court why is it you have to contract for the
barges of Transport Ventures Incorporated in this
particular operation?
A: Firstly, we dont own any barges. That is why we hired
the services of another firm whom we know [al]ready for
quite sometime, which is Transport Ventures, Inc.
(Emphasis supplied)[43]
It is settled that under a given set of facts, a customs
broker may be regarded as a common carrier. Thus, this
Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable
Court of Appeals,[44] held:
The appellate court did not err in finding petitioner, a
customs broker, to be also a common carrier, as defined
under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to
the public.
xxx
Article 1732 does not distinguish between one whose
principal business activity is the carrying of goods and
one who does such carrying only as an ancillary activity.
The contention, therefore, of petitioner that it is not a
common carrier but a customs broker whose principal
function is to prepare the correct customs declaration
53
and proper shipping documents as required by law is
bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.[45]
And in Calvo v. UCPB General Insurance Co. Inc.,[46]
this Court held that as the transportation of goods is an
integral part of a customs broker, the customs broker is
also a common carrier. For to declare otherwise would
be to deprive those with whom [it] contracts the
protection which the law affords them notwithstanding
the fact that the obligation to carry goods for [its]
customers, is part and parcel of petitioners business.[47]
As for petitioners argument that being the agent of Little
Giant, any negligence it committed was deemed the
negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in
securing the release of the cargoes. In effecting the
transportation of the cargoes from the shipside and into
Little Giants warehouse, however, petitioner was
discharging its own personal obligation under a contact
of carriage.
Petitioner, which did not have any barge or tugboat,
engaged the services of TVI as handler[48] to provide
the barge and the tugboat. In their Service Contract,[49]
while Little Giant was named as the consignee,
petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little
Giant.[50] Little Giant did not thus automatically become
a party to the Service Contract and was not, therefore,
bound by the terms and conditions therein.
Not being a party to the service contract, Little Giant
cannot directly sue TVI based thereon but it can
maintain a cause of action for negligence.[51]
In the case of TVI, while it acted as a private carrier for
which it was under no duty to observe extraordinary
diligence, it was still required to observe ordinary
diligence to ensure the proper and careful handling, care
and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages.
ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the
provisions of articles 1171 and 2202, paragraph 2, shall
apply.
If the law or contract does not state the diligence which
is to be observed in the performance, that which is
expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily
prudent person would have used in the same situation
exercised by TVI?[52]
This Court holds not.
TVIs failure to promptly provide a tugboat did not only
increase the risk that might have been reasonably
anticipated during the shipside operation, but was the
proximate cause of the loss. A man of ordinary prudence
would not leave a heavily loaded barge floating for a
considerable number of hours, at such a precarious
time, and in the open sea, knowing that the barge does
not have any power of its own and is totally defenseless
from the ravages of the sea. That it was nighttime and,
therefore, the members of the crew of a tugboat would
be charging overtime pay did not excuse TVI from calling
for one such tugboat.
As for petitioner, for it to be relieved of liability, it should,
following Article 1739[53] of the Civil Code, prove that it
exercised due diligence to prevent or minimize the loss,
before, during and after the occurrence of the storm in
order that it may be exempted from liability for the loss of
the goods.
While petitioner sent checkers[54] and a supervisor[55]
on board the vessel to counter-check the operations of
TVI, it failed to take all available and reasonable
precautions to avoid the loss. After noting that TVI failed
to arrange for the prompt towage of the barge despite
the deteriorating sea conditions, it should have
summoned the same or another tugboat to extend help,
but it did not.
This Court holds then that petitioner and TVI are
solidarily liable[56] for the loss of the cargoes. The
following pronouncement of the Supreme Court is
instructive:
The foundation of LRTAs liability is the contract of
carriage and its obligation to indemnify the victim arises
from the breach of that contract by reason of its failure to
exercise the high diligence required of the common
carrier. In the discharge of its commitment to ensure the
safety of passengers, a carrier may choose to hire its
own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In
either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that
liability could only be for tort under the provisions of
Article 2176 and related provisions, in conjunction with
Article 2180 of the Civil Code. x x x [O]ne might ask
further, how then must the liability of the common carrier,
on one hand, and an independent contractor, on the
other hand, be described? It would be solidary. A
contractual obligation can be breached by tort and when
the same act or omission causes the injury, one resulting
in culpa contractual and the other in culpa aquiliana,
54
Article 2194 of the Civil Code can well apply. In fine, a
liability for tort may arise even under a contract, where
tort is that which breaches the contract. Stated
differently, when an act which constitutes a breach of
contract would have itself constituted the source of a
quasi-delictual liability had no contract existed between
the parties, the contract can be said to have been
breached by tort, thereby allowing the rules on tort to
apply.[57]
As for Black Sea, its duty as a common carrier extended
only from the time the goods were surrendered or
unconditionally placed in its possession and received for
transportation until they were delivered actually or
constructively to consignee Little Giant.[58]
WHEREFORE, judgment is hereby rendered ordering
petitioner Schmitz Transport & Brokerage Corporation,
and Transport Venture Incorporation jointly and severally
liable for the amount of P5,246,113.11 with the
MODIFICATION that interest at SIX PERCENT per
annum of the amount due should be computed from the
promulgation on November 24, 1997 of the decision of
the trial court.
Costs against petitioner.
SO ORDERED.

Parties to a contract of carriage may, however, agree

upon a definition of delivery that extends the services
rendered by the carrier. In the case at bar, Bill of Lading
No. 2 covering the shipment provides that delivery be
made to the port of discharge or so near thereto as she
may safely get, always afloat.[59] The delivery of the
goods to the consignee was not from pier to pier but
from the shipside of M/V Alexander Saveliev and into
barges, for which reason the consignee contracted the
services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant,
through petitioner, it had discharged its duty.[60]

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorneys fees in an amount

over P1,000,000.00 to Industrial Insurance, for lack of
factual and legal basis, this Court sets it aside. While
Industrial Insurance was compelled to litigate its rights,
such fact by itself does not justify the award of attorneys
fees under Article 2208 of the Civil Code. For no
sufficient showing of bad faith would be reflected in a
partys persistence in a case other than an erroneous
conviction of the righteousness of his cause.[61] To
award attorneys fees to a party just because the
judgment is rendered in its favor would be tantamount to
imposing a premium on ones right to litigate or seek
judicial redress of legitimate grievances.[62]

On the award of adjustment fees: The adjustment fees

and expense of divers were incurred by Industrial
Insurance in its voluntary but unsuccessful efforts to
locate and retrieve the lost cargo. They do not constitute
actual damages.[63]

As for the court a quos award of interest on the amount

claimed, the same calls for modification following the
ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals[64] that when the demand cannot be
reasonably established at the time the demand is made,
the interest shall begin to run not from the time the claim
is made judicially or extrajudicially but from the date the
judgment of the court is made (at which the time the
quantification of damages may be deemed to have been
reasonably ascertained).[65]

55
[G.R. No. 147079. December 21, 2004]
A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE
HON. COURT OF APPEALS and FGU INSURANCE
CORPORATION, respondents.
DECISION
CARPIO MORALES, J.:
Before this Court on a petition for Certiorari is the
appellate courts Decision[1] of August 10, 2000
reversing and setting aside the judgment of Branch 133,
Regional Trial Court of Makati City, in Civil Case No. 93-
76B which dismissed the complaint of respondent FGU
Insurance Corporation (FGU Insurance) against
petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on
board an aircraft of KLM Royal Dutch Airlines at
Dusseldorf, Germany oral contraceptives consisting of
86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol
tablets and 42,000 Blisters Trinordiol tablets for delivery
to Manila in favor of the consignee, Wyeth-Suaco
Laboratories, Inc.[2] The Femenal tablets were placed in
124 cartons and the Nordiol tablets were placed in 20
cartons which were packed together in one (1) LD3
aluminum container, while the Trinordial tablets were
packed in two pallets, each of which contained 30
cartons.[3]
Wyeth-Suaco insured the shipment against all risks with
FGU Insurance which issued Marine Risk Note No. 4995
pursuant to Marine Open Policy No. 138.[4]
Upon arrival of the shipment on July 11, 1992 at the
Ninoy Aquino International Airport (NAIA),[5] it was
discharged without exception[6] and delivered to the
warehouse of the Philippine Skylanders, Inc. (PSI)
located also at the NAIA for safekeeping.[7]
In order to secure the release of the cargoes from the
PSI and the Bureau of Customs, Wyeth-Suaco engaged
the services of Sanchez Brokerage which had been its
licensed broker since 1984.[8] As its customs broker,
Sanchez Brokerage calculates and pays the customs
duties, taxes and storage fees for the cargo and
thereafter delivers it to Wyeth-Suaco.[9]
On July 29, 1992, Mitzi Morales and Ernesto Mendoza,
representatives of Sanchez Brokerage, paid PSI storage
fee amounting to P8,572.35 a receipt for which, Official
Receipt No. 016992,[10] was issued. On the receipt,
another representative of Sanchez Brokerage, M.
Sison,[11] acknowledged that he received the cargoes
consisting of three pieces in good condition.[12]
Wyeth-Suaco being a regular importer, the customs
examiner did not inspect the cargoes[13] which were
thereupon stripped from the aluminum containers[14]
and loaded inside two transport vehicles hired by
Sanchez Brokerage.[15]
Among those who witnessed the release of the cargoes
from the PSI warehouse were Ruben Alonso and Tony
Akas,[16] employees of Elite Adjusters and Surveyors
Inc. (Elite Surveyors), a marine and cargo surveyor and
insurance claim adjusters firm engaged by Wyeth-Suaco
on behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were
delivered to Hizon Laboratories Inc. in Antipolo City for
quality control check.[17] The delivery receipt, bearing
No. 07037 dated July 29, 1992, indicated that the
delivery consisted of one container with 144 cartons of
Femenal and Nordiol and 1 pallet containing
Trinordiol.[18]
On July 31, 1992, Ronnie Likas, a representative of
Wyeth-Suaco, acknowledged the delivery of the cargoes
by affixing his signature on the delivery receipt.[19] Upon
inspection, however, he, together with Ruben Alonzo of
Elite Surveyors, discovered that 44 cartons containing
Femenal and Nordiol tablets were in bad order.[20] He
thus placed a note above his signature on the delivery
receipt stating that 44 cartons of oral contraceptives
were in bad order. The remaining 160 cartons of oral
contraceptives were accepted as complete and in good
order.
Ruben Alonzo thus prepared and signed, along with
Ronnie Likas, a survey report[21] dated July 31, 1992
stating that 41 cartons of Femenal tablets and 3 cartons
of Nordiol tablets were wetted (sic).[22]
The Elite Surveyors later issued Certificate No. CS-
0731-1538/92[23] attached to which was an Annexed
Schedule whereon it was indicated that prior to the
loading of the cargoes to the brokers trucks at the NAIA,
they were inspected and found to be in apparent good
condition.[24] Also noted was that at the time of delivery
to the warehouse of Hizon Laboratories Inc., slight to
heavy rains fell, which could account for the wetting of
the 44 cartons of Femenal and Nordiol tablets.[25]
On August 4, 1992, the Hizon Laboratories Inc. issued a
Destruction Report[26] confirming that 38 x 700 blister
packs of Femenal tablets, 3 x 700 blister packs of
Femenal tablets and 3 x 700 blister packs of Nordiol
tablets were heavily damaged with water and emitted
foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of
Materials Rejection[27] of 38 cartons of Femenal and 3
cartons of Nordiol on the ground that they were delivered
to Hizon Laboratories with heavy water damaged (sic)
causing the cartons to sagged (sic) emitting a foul order
and easily attracted flies.[28]
Wyeth-Suaco later demanded, by letter[29] of August 25,
1992, from Sanchez Brokerage the payment of
P191,384.25 representing the value of its loss arising
from the damaged tablets.
56
As the Sanchez Brokerage refused to heed the demand,
Wyeth-Suaco filed an insurance claim against FGU
Insurance which paid Wyeth-Suaco the amount of
P181,431.49 in settlement of its claim under Marine Risk
Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt[30] in
favor of FGU Insurance.
On demand by FGU Insurance for payment of the
amount of P181,431.49 it paid Wyeth-Suaco, Sanchez
Brokerage, by letter[31] of January 7, 1993, disclaimed
liability for the damaged goods, positing that the damage
was due to improper and insufficient export packaging;
that when the sealed containers were opened outside
the PSI warehouse, it was discovered that some of the
loose cartons were wet,[32] prompting its (Sanchez
Brokerages) representative Morales to inform the Import-
Export Assistant of Wyeth-Suaco, Ramir Calicdan, about
the condition of the cargoes but that the latter advised to
still deliver them to Hizon Laboratories where an adjuster
would assess the damage.[33]
Hence, the filing by FGU Insurance of a complaint for
damages before the Regional Trial Court of Makati City
against the Sanchez Brokerage.
The trial court, by Decision[34] of July 29, 1996,
dismissed the complaint, holding that the Survey Report
prepared by the Elite Surveyors is bereft of any
evidentiary support and a mere product of pure
guesswork.[35]
On appeal, the appellate court reversed the decision of
the trial court, it holding that the Sanchez Brokerage
engaged not only in the business of customs brokerage
but also in the transportation and delivery of the cargo of
its clients, hence, a common carrier within the context of
Article 1732 of the New Civil Code.[36]
Noting that Wyeth-Suaco adduced evidence that the
cargoes were delivered to petitioner in good order and
condition but were in a damaged state when delivered to
Wyeth-Suaco, the appellate court held that Sanchez
Brokerage is presumed negligent and upon it rested the
burden of proving that it exercised extraordinary
negligence not only in instances when negligence is
directly proven but also in those cases when the cause
of the damage is not known or unknown.[37]
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of
the Appellant is GRANTED. The Decision of the Court a
quo is REVERSED. Another Decision is hereby
rendered in favor of the Appellant and against the
Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant
the principal amount of P181, 431.49, with interest
thereupon at the rate of 6% per annum, from the date of
the Decision of the Court, until the said amount is paid in
full;
2. The Appellee is hereby ordered to pay to the
Appellant the amount of P20,000.00 as and by way of
attorneys fees; and
3. The counterclaims of the Appellee are
DISMISSED.[38]
Sanchez Brokerages Motion for Reconsideration having
been denied by the appellate courts Resolution of
December 8, 2000 which was received by petitioner on
January 5, 2001, it comes to this Court on petition for
certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court
committed grave and reversible error tantamount to
abuse of discretion when it found petitioner a common
carrier within the context of Article 1732 of the New Civil
Code.
Respondent FGU Insurance avers in its Comment that
the proper course of action which petitioner should have
taken was to file a petition for review on certiorari since
the sole office of a writ of certiorari is the correction of
errors of jurisdiction including the commission of grave
abuse of discretion amounting to lack or excess of
jurisdiction and does not include correction of the
appellate courts evaluation of the evidence and factual
findings thereon.
On the merits, respondent FGU Insurance contends that
petitioner, as a common carrier, failed to overcome the
presumption of negligence, it being documented that
petitioner withdrew from the warehouse of PSI the
subject shipment entirely in good order and
condition.[39]
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions
of the Court of Appeals in any case, i.e., regardless of
the nature of the action or proceedings involved, may be
appealed to this Court by filing a petition for review,
which would be but a continuation of the appellate
process over the original case.[40]
The Resolution of the Court of Appeals dated December
8, 2000 denying the motion for reconsideration of its
Decision of August 10, 2000 was received by petitioner
on January 5, 2001. Since petitioner failed to appeal
within 15 days or on or before January 20, 2001, the
appellate courts decision had become final and
executory. The filing by petitioner of a petition for
certiorari on March 6, 2001 cannot serve as a substitute
for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition
for certiorari, the petitioner must prove not merely
reversible error but also grave abuse of discretion
amounting to lack or excess of jurisdiction.
57

Petitioner alleges that the appellate court erred in
reversing and setting aside the decision of the trial court
based on its finding that petitioner is liable for the
damage to the cargo as a common carrier. What
petitioner is ascribing is an error of judgment, not of
jurisdiction, which is properly the subject of an ordinary
appeal.
Where the issue or question involves or affects the
wisdom or legal soundness of the decision not the
jurisdiction of the court to render said decision the same
is beyond the province of a petition for certiorari.[41] The
supervisory jurisdiction of this Court to issue a cert writ
cannot be exercised in order to review the judgment of
lower courts as to its intrinsic correctness, either upon
the law or the facts of the case.[42]
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a
customs broker, to be also a common carrier, as defined
under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to
the public.
Anacleto F. Sanchez, Jr., the Manager and Principal
Broker of Sanchez Brokerage, himself testified that the
services the firm offers include the delivery of goods to
the warehouse of the consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers,
license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be
paid in cargos, and those upon approval of the importer,
we prepare the entry together for processing and claims
from customs and finally deliver the goods to the
warehouse of the importer.[43]
Article 1732 does not distinguish between one whose
principal business activity is the carrying of goods and
one who does such carrying only as an ancillary
activity.[44] The contention, therefore, of petitioner that it
is not a common carrier but a customs broker whose
principal function is to prepare the correct customs
declaration and proper shipping documents as required
by law is bereft of merit. It suffices that petitioner
undertakes to deliver the goods for pecuniary
consideration.
In this light, petitioner as a common carrier is mandated
to observe, under Article 1733[45] of the Civil Code,
extraordinary diligence in the vigilance over the goods it
transports according to all the circumstances of each
case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to
have acted negligently, unless it proves that it observed
extraordinary diligence.[46]
The concept of extra-ordinary diligence was explained in
Compania Maritima v. Court of Appeals:[47]
The extraordinary diligence in the vigilance over the
goods tendered for shipment requires the common
carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires
common carriers to render service with the greatest skill
and foresight and to use all reasonable means to
ascertain the nature and characteristics of goods
tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their
nature requires.[48]
In the case at bar, it was established that petitioner
received the cargoes from the PSI warehouse in NAIA in
good order and condition;[49] and that upon delivery by
petitioner to Hizon Laboratories Inc., some of the
cargoes were found to be in bad order, as noted in the
Delivery Receipt[50] issued by petitioner, and as
indicated in the Survey Report of Elite Surveyors[51] and
the Destruction Report of Hizon Laboratories, Inc.[52]
In an attempt to free itself from responsibility for the
damage to the goods, petitioner posits that they were
damaged due to the fault or negligence of the shipper for
failing to properly pack them and to the inherent
characteristics of the goods[53]; and that it should not be
faulted for following the instructions of Calicdan of
Wyeth-Suaco to proceed with the delivery despite
information conveyed to the latter that some of the
cartons, on examination outside the PSI warehouse,
were found to be wet.[54]
While paragraph No. 4 of Article 1734[55] of the Civil
Code exempts a common carrier from liability if the loss
or damage is due to the character of the goods or
defects in the packing or in the containers, the rule is
that if the improper packing is known to the carrier or his
employees or is apparent upon ordinary observation, but
he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not
relieved of liability for the resulting damage.[56]
If the claim of petitioner that some of the cartons were
already damaged upon delivery to it were true, then it
should naturally have received the cargo under protest
or with reservations duly noted on the receipt issued by
PSI. But it made no such protest or reservation.[57]
Moreover, as observed by the appellate court, if indeed
petitioners employees only examined the cargoes
outside the PSI warehouse and found some to be wet,
they would certainly have gone back to PSI, showed to
the warehouseman the damage, and demanded then
58
and there for Bad Order documents or a certification
confirming the damage.[58] Or, petitioner would have
presented, as witness, the employees of the PSI from
whom Morales and Domingo took delivery of the cargo
to prove that, indeed, part of the cargoes was already
damaged when the container was allegedly opened
outside the warehouse.[59]
Petitioner goes on to posit that contrary to the report of
Elite Surveyors, no rain fell that day. Instead, it asserts
that some of the cargoes were already wet on delivery
by PSI outside the PSI warehouse but such
notwithstanding Calicdan directed Morales to proceed
with the delivery to Hizon Laboratories, Inc.
Since petitioner received all the cargoes in good order
and condition at the time they were turned over by the
PSI warehouseman, and upon their delivery to Hizon
Laboratories, Inc. a portion thereof was found to be in
bad order, it was incumbent on petitioner to prove that it
exercised extraordinary diligence in the carriage of the
goods. It did not, however. Hence, its presumed
negligence under Article 1735 of the Civil Code remains
unrebutted.
WHEREFORE, the August 10, 2000 Decision of the
Court of Appeals is hereby AFFIRMED.
Costs against petitioner.

While Calicdan testified that he received the purported SO ORDERED.

telephone call of Morales on July 29, 1992, he failed to
specifically declare what time he received the call. As to
whether the call was made at the PSI warehouse when
the shipment was stripped from the airport containers, or
when the cargoes were already in transit to Antipolo, it is
not determinable. Aside from that phone call, petitioner
admitted that it had no documentary evidence to prove
that at the time it received the cargoes, a part of it was
wet, damaged or in bad condition.[60]

The 4-page weather data furnished by PAGASA[61] on

request of Sanchez Brokerage hardly impresses, no
witness having identified it and interpreted the technical
terms thereof.

The possibility on the other hand that, as found by Hizon

Laboratories, Inc., the oral contraceptives were
damaged by rainwater while in transit to Antipolo City is
more likely then. Sanchez himself testified that in the
past, there was a similar instance when the shipment of
Wyeth-Suaco was also found to be wet by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this

nature, oral contraceptives, that arrived at the NAIA were
damaged and claimed by the Wyeth-Suaco without any
question?

WITNESS:

A: Yes sir, there was an instance that one cartoon (sic)

were wetted (sic) but Wyeth-Suaco did not claim
anything against us.

ATTY. FLORES:

Q: HOW IS IT?

WITNESS:

A: We experienced, there was a time that we

experienced that there was a cartoon (sic) wetted (sic)
up to the bottom are wet specially during rainy
season.[62]

59
LOADSTAR SHIPPING CO., INC.,
Petitioner,
- versus -
G.R. No. 157481
Present:
Quisumbing, J.,
(Chairman),
Carpio,
Carpio Morales, and
Tinga, JJ.
PIONEER ASIA INSURANCE CORP.,
Respondent.
Promulgated:
January 24, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - -x
DECISION
QUISUMBING, J.:
For review on certiorari are (1) the Decision[1] dated
October 15, 2002 and (2) the Resolution[2] dated
February 27, 2003, of the Court of Appeals in CA-G.R.
CV No. 40999, which affirmed with modification the
Decision[3] dated February 15, 1993 of the Regional
Trial Court of Manila, Branch 8 in Civil Case No. 86-
37957.
The pertinent facts are as follows:
Petitioner Loadstar Shipping Co., Inc. (Loadstar for
brevity) is the registered owner and operator of the
vessel M/V Weasel. It holds office at 1294 Romualdez
St., Paco, Manila.
On June 6, 1984, Loadstar entered into a voyage-charter
with Northern Mindanao Transport Company, Inc. for the
carriage of 65,000 bags of cement from Iligan City to
Manila. The shipper was Iligan Cement Corporation,
while the consignee in Manila was Market Developers,
Inc.
On June 24, 1984, 67,500 bags of cement were loaded
on board M/V Weasel and stowed in the cargo holds for
delivery to the consignee. The shipment was covered by
petitioners Bill of Lading[4] dated June 23, 1984.
Prior to the voyage, the consignee insured the shipment
of cement with respondent Pioneer Asia Insurance
Corporation for P1,400,000, for which respondent issued
Marine Open Policy No. MOP-006 dated September 17,
1980, covering all shipments made on or after
September 30, 1980.[5]
At 12:50 in the afternoon of June 24, 1984, M/V Weasel
left Iligan City for Manila in good weather. However, at
4:31 in the morning of June 25, 1984, Captain Vicente C.
Montera, master of M/V Weasel, ordered the vessel to
be forced aground. Consequently, the entire shipment of
cement was good as gone due to exposure to sea water.
Petitioner thus failed to deliver the goods to the
consignee in Manila.
The consignee demanded from petitioner full
reimbursement of the cost of the lost shipment.
Petitioner, however, refused to reimburse the consignee
despite repeated demands.
Nonetheless, on March 11, 1985, respondent insurance
company paid the consignee P1,400,000 plus an
additional amount of P500,000, the value of the lost
shipment of cement. In return, the consignee executed a
Loss and Subrogation Receipt in favor of respondent
concerning the latters subrogation rights against
petitioner.
Hence, on October 15, 1986, respondent filed a
complaint docketed as Civil Case No. 86-37957, against
petitioner with the Regional Trial Court of Manila, Branch
8. It alleged that: (1) the M/V Weasel was not seaworthy
at the commencement of the voyage; (2) the weather
and sea conditions then prevailing were usual and
expected for that time of the year and as such, was an
ordinary peril of the voyage for which the M/V Weasel
should have been normally able to cope with; and (3)
petitioner was negligent in the selection and supervision
of its agents and employees then manning the M/V
Weasel.
In its Answer, petitioner alleged that no fault nor
negligence could be attributed to it because it exercised
due diligence to make the ship seaworthy, as well as
properly manned and equipped. Petitioner insisted that
the failure to deliver the subject cargo to the consignee
was due to force majeure. Petitioner claimed it could not
be held liable for an act or omission not directly
attributable to it.
On February 15, 1993, the RTC rendered a Decision in
favor of respondent, to wit:
WHEREFORE, in view of the foregoing, judgment is
hereby rendered in favor of plaintiff and against
defendant Loadstar Shipping Co., Inc. ordering the latter
to pay as follows:
1. To pay plaintiff the sum of P1,900,000.00 with legal
rate of interest per annum from date of complaint until
fully paid;
2. To pay the sum equal to 25% of the claim as and
for attorneys fees and litigation expenses; and,
3. To pay the costs of suit.
IT IS SO ORDERED.[6]
The RTC reasoned that petitioner, as a common carrier,
bears the burden of proving that it exercised
extraordinary diligence in its vigilance over the goods it
transported. The trial court explained that in case of loss
or destruction of the goods, a statutory presumption
arises that the common carrier was negligent unless it
could prove that it had observed extraordinary diligence.
Petitioners defense of force majeure was found bereft of
factual basis. The RTC called attention to the PAG-ASA
report that at the time of the incident, tropical storm
Asiang had moved away from the Philippines. Further,
records showed that the sea and weather conditions in
the area of Hinubaan, Negros Occidental from 8:00 p.m.
of June 24, 1984 to 8:00 a.m. the next day were slight
and smooth. Thus, the trial court concluded that the
60
cause of the loss was not tropical storm Asiang or any
other force majeure, but gross negligence of petitioner.
Petitioner appealed to the Court of Appeals.
In its Decision dated October 15, 2002, the Court of
Appeals affirmed the RTC Decision with modification
that Loadstar shall only pay the sum of 10% of the total
claim for attorneys fees and litigation expenses. It ruled,
WHEREFORE, premises considered, the Decision dated
February 15, 1993, of the Regional Trial Court of Manila,
National Capital Judicial Region, Branch 8, in Civil Case
No. 86-37957 is hereby AFFIRMED with the
MODIFICATION that the appellant shall only pay the
sum of 10% of the total claim as and for attorneys fees
and litigation expenses. Costs against the appellant.
SO ORDERED.[7]
Petitioners Motion for Reconsideration was denied.[8]
The instant petition is anchored now on the following
assignments of error:
I Article 1732. Common carriers are persons,
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONER IS A COMMON
CARRIER UNDER ARTICLE 1732 OF THE CIVIL
CODE.
II
ASSUMING ARGUENDO THAT PETITIONER IS A
COMMON CARRIER, THE HONORABLE COURT OF
APPEALS ERRED IN HOLDING THAT THE
PROXIMATE CAUSE OF THE LOSS OF CARGO WAS
NOT A FORTUITOUS EVENT BUT WAS ALLEGEDLY
DUE TO THE FAILURE OF PETITIONER TO
EXERCISE EXTRAORDINARY DILIGENCE.
III
THE HONORABLE COURT OF APPEALS ERRED IN
AFFIRMING THE AWARD BY THE TRIAL COURT OF
ATTORNEYS FEES AND LITIGATION EXPENSES IN
FAVOR OF HEREIN RESPONDENT.[9]
On the first and second issues, petitioner contends that
at the time of the voyage the carriers voyage-charter
with the shipper converted it into a private carrier. Thus,
the presumption of negligence against common carriers
could not apply. Petitioner further avers that the
stipulation in the voyage-charter holding it free from
liability is valid and binds the respondent. In any event,
petitioner insists that it had exercised extraordinary
diligence and that the proximate cause of the loss of the
cargo was a fortuitous event.
With regard to the third issue, petitioner points out that
the award of attorneys fees and litigation expenses
appeared only in the dispositive portion of the RTC
Decision with nary a justification. Petitioner maintains
that the Court of Appeals thus erred in affirming the
award.
For its part, respondent dismisses as factual issues the
inquiry on (1) whether the loss of the cargo was due to
force majeure or due to petitioners failure to exercise
extraordinary diligence; and (2) whether respondent is
entitled to recover attorneys fees and expenses of
litigation.
Respondent further counters that the Court of Appeals
was correct when it held that petitioner was a common
carrier despite the charter of the whole vessel, since the
charter was limited to the ship only.
Prefatorily, we stress that the finding of fact by the trial
court, when affirmed by the Court of Appeals, is not
reviewable by this Court in a petition for review on
certiorari. However, the conclusions derived from such
factual finding are not necessarily pure issues of fact
when they are inextricably intertwined with the
determination of a legal issue. In such instances, the
conclusions made may be raised in a petition for review
before this Court.[10]
The threshold issues in this case are: (1) Given the
circumstances of this case, is petitioner a common or a
private carrier? and (2) In either case, did petitioner
exercise the required diligence i.e., the extraordinary
diligence of a common carrier or the ordinary diligence of
a private carrier?
Article 1732 of the Civil Code defines a common carrier
as follows:
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.
Petitioner is a corporation engaged in the business of
transporting cargo by water and for compensation,
offering its services indiscriminately to the public. Thus,
without doubt, it is a common carrier. However,
petitioner entered into a voyage-charter with the
Northern Mindanao Transport Company, Inc. Now, had
the voyage-charter converted petitioner into a private
carrier?
We think not. The voyage-charter agreement between
petitioner and Northern Mindanao Transport Company,
Inc. 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[11]
where we ruled that:
It is therefore imperative that a public carrier shall remain
as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the
charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes
private, at least insofar as the particular voyage covering
the charter-party is concerned. Indubitably, a shipowner
in a time or voyage charter retains possession and
control of the ship, although her holds may, for the
moment, be the property of the charterer.[12]
Conformably, petitioner remains a common carrier
notwithstanding the existence of the charter agreement
with the Northern Mindanao Transport Company, Inc.
since the said charter is limited to the ship only and does
not involve both the vessel and its crew. As elucidated in
Planters Products, its charter is only a voyage-charter,
not a bareboat charter.
As a common carrier, petitioner is required to observe
extraordinary diligence in the vigilance over the goods it
transports.[13] When the goods placed in its care are
lost, petitioner is presumed to have been at fault or to
have acted negligently. Petitioner therefore has the
burden of proving that it observed extraordinary
61
diligence in order to avoid responsibility for the lost dated February 27, 2003, of the Court of Appeals in CA-
cargo.[14] G.R. CV No. 40999, are AFFIRMED.
In Compania Maritima v. Court of Appeals,[15] we said: Costs against petitioner.
it is incumbent upon the common carrier to prove that SO ORDERED.
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.[16]
Article 1734 enumerates the instances when a carrier
might be exempt from liability for the loss of the goods.
These are:
(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.[17]
Petitioner claims that the loss of the goods was due to a
fortuitous event under paragraph 1. Yet, its claim is not
substantiated. On the contrary, we find supported by
evidence on record the conclusion of the trial court and
the Court of Appeals that the loss of the entire shipment
of cement was due to the gross negligence of petitioner.
Records show that in the evening of June 24, 1984, the
sea and weather conditions in the vicinity of Negros
Occidental were calm. The records reveal that petitioner
took a shortcut route, instead of the usual route, which
exposed the voyage to unexpected hazard. Petitioner
has only itself to blame for its misjudgment.
Petitioner heavily relies on Home Insurance Co. v.
American Steamship Agencies, Inc.[18] and Valenzuela
Hardwood and Industrial Supply, Inc. v. Court of
Appeals.[19] The said cases involved a private carrier,
not a common carrier. Moreover, the issue in both cases
is not the effect of a voyage-charter on a common
carrier, but the validity of a stipulation absolving the
private carrier from liability in case of loss of the cargo
attributable to the negligence of the private carrier.
Lastly, on the third issue, we find consistent with law and
prevailing jurisprudence the Court of Appeals award of
attorneys fees and expenses of litigation equivalent to
ten percent (10%) of the total claim. The contract
between the parties in this case contained a stipulation
that in case of suit, attorneys fees and expenses of
litigation shall be limited to only ten percent (10%) of the
total monetary award. Given the circumstances of this
case, we deem the said amount just and equitable.
WHEREFORE, the petition is DENIED. The assailed
Decision dated October 15, 2002 and the Resolution

62
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and
DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO.,
and DOWA FIRE & MARINE INSURANCE CO., LTD.,
respondents.
MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of
cargo insurance, arose from the same incident, the
sinking of the M/S ASIATICA when it caught fire,
resulting in the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977,
the M/S ASIATICA, a vessel operated by petitioner
Eastern Shipping Lines, Inc., (referred to hereinafter as
Petitioner Carrier) loaded at Kobe, Japan for
transportation to Manila, 5,000 pieces of calorized lance
pipes in 28 packages valued at P256,039.00 consigned
to Philippine Blooming Mills Co., Inc., and 7 cases of
spare parts valued at P92,361.75, consigned to Central
Textile Mills, Inc. Both sets of goods were insured
against marine risk for their stated value with respondent
Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same
vessel took on board 128 cartons of garment fabrics and
accessories, in two (2) containers, consigned to
Mariveles Apparel Corporation, and two cases of
surveying instruments consigned to Aman Enterprises
and General Merchandise. The 128 cartons were
insured for their stated value by respondent Nisshin Fire
& Marine Insurance Co., for US $46,583.00, and the 2
cases by respondent Dowa Fire & Marine Insurance Co.,
Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught
fire and sank, resulting in the total loss of ship and
cargo. The respective respondent Insurers paid the
corresponding marine insurance values to the
consignees concerned and were thus subrogated unto
the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance &
Surety Corporation (Development Insurance, for short),
having been subrogated unto the rights of the two
insured companies, filed suit against petitioner Carrier
for the recovery of the amounts it had paid to the insured
before the then Court of First instance of Manila, Branch
XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground
that the loss was due to an extraordinary fortuitous
event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment
in favor of Development Insurance in the amounts of
P256,039.00 and P92,361.75, respectively, with legal
interest, plus P35,000.00 as attorney's fees and costs.
Petitioner Carrier took an appeal to the then Court of
Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for
Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine
Insurance Co. NISSHIN for short), and Dowa Fire &
Marine Insurance Co., Ltd. (DOWA, for brevity), as
subrogees of the insured, filed suit against Petitioner
Carrier for the recovery of the insured value of the cargo
lost with the then Court of First Instance of Manila,
Branch 11 (Civil Case No. 116151), imputing
unseaworthiness of the ship and non-observance of
extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds
that the fire which caused the sinking of the ship is an
exempting circumstance under Section 4(2) (b) of the
Carriage of Goods by Sea Act (COGSA); and that when
the loss of fire is established, the burden of proving
negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered
judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00,
respectively, with legal interest, plus attorney's fees of
P5,000.00 and costs. On appeal by petitioner, the then
Court of Appeals on September 10, 1984, affirmed with
modification the Trial Court's judgment by decreasing the
amount recoverable by DOWA to US $1,000.00 because
of $500 per package limitation of liability under the
COGSA.
Hence, this Petition for Review on certiorari by Petitioner
Carrier.
Both Petitions were initially denied for lack of merit. G.R.
No. 69044 on January 16, 1985 by the First Division,
and G. R. No. 71478 on September 25, 1985 by the
Second Division. Upon Petitioner Carrier's Motion for
Reconsideration, however, G.R. No. 69044 was given
due course on March 25, 1985, and the parties were
required to submit their respective Memoranda, which
they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier
sought reconsideration of the Resolution denying the
63
Petition for Review and moved for its consolidation with
G.R. No. 69044, the lower-numbered case, which was
then pending resolution with the First Division. The same
was granted; the Resolution of the Second Division of
September 25, 1985 was set aside and the Petition was
given due course.
At the outset, we reject Petitioner Carrier's claim that it is
not the operator of the M/S Asiatica but merely a
charterer thereof. We note that in G.R. No. 69044,
Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in
various courts where various plaintiffs are represented
by various counsel representing various consignees or
insurance companies. The common defendant in these
cases is petitioner herein, being the operator of said
vessel. ... 1
Petitioner Carrier should be held bound to said
admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party
and binding upon it. 2 And an admission in one pleading
in one action may be received in evidence against the
pleader or his successor-in-interest on the trial of
another action to which he is a party, in favor of a party
to the latter action. 3
The threshold issues in both cases are: (1) which law
should govern — the Civil Code provisions on Common
carriers or the Carriage of Goods by Sea Act? and (2)
who has the burden of proof to show negligence of the
carrier?
On the Law Applicable
The law of the country to which the goods are to be
transported governs the liability of the common carrier in
case of their loss, destruction or deterioration. 4 As the
cargoes in question were transported from Japan to the
Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. 5 However, in all matters not
regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of
Commerce and by special laws. 6 Thus, the Carriage of
Goods by Sea Act, a special law, is suppletory to the
provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature
of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance
over goods, according to all the circumstances of each
case. 8 Common carriers are responsible for the loss,
destruction, or deterioration of the goods unless the
same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other
natural disaster or calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by
fire exempts it from liability under the phrase "natural
disaster or calamity. " However, we are of the opinion
that fire may not be considered a natural disaster or
calamity. This must be so as it arises almost invariably
from some act of man or by human means. 10 It does
not fall within the category of an act of God unless
caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or
privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an
extraordinary fortuitous event refers to leases of rural
lands where a reduction of the rent is allowed when
more than one-half of the fruits have been lost due to
such event, considering that the law adopts a protection
policy towards agriculture. 14
As the peril of the fire is not comprehended within the
exception in Article 1734, supra, Article 1735 of the Civil
Code provides that all cases than those mention in
Article 1734, the common carrier shall be presumed to
have been at fault or to have acted negligently, unless it
proves that it has observed the extraordinary deligence
required by law.
In this case, the respective Insurers. as subrogees of the
cargo shippers, have proven that the transported goods
have been lost. Petitioner Carrier has also proved that
the loss was caused by fire. The burden then is upon
Petitioner Carrier to proved that it has exercised the
extraordinary diligence required by law. In this regard,
the Trial Court, concurred in by the Appellate Court,
made the following Finding of fact:
The cargoes in question were, according to the
witnesses defendant placed in hatches No, 2 and 3 cf
the vessel, Boatswain Ernesto Pastrana noticed that
smoke was coming out from hatch No. 2 and hatch No.
3; that where the smoke was noticed, the fire was
already big; that the fire must have started twenty-four
24) our the same was noticed; that carbon dioxide was
ordered released and the crew was ordered to open the
hatch covers of No, 2 tor commencement of fire fighting
by sea water: that all of these effort were not enough to
control the fire.
Pursuant to Article 1733, common carriers are bound to
extraordinary diligence in the vigilance over the goods.
The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to
prevent the occurrence of fire at hatches numbers 2 and
3. Defendant's evidence did not likewise show he
amount of diligence made by the crew, on orders, in the
care of the cargoes. What appears is that after the
cargoes were stored in the hatches, no regular
inspection was made as to their condition during the
voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant,
in the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the
64
crew to prevent the occurrence of the fire. The
defendant, as a common carrier, is liable to the
consignees for said lack of deligence required of it under
Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it
had exercised the extraordinary diligence required by
law, Petitioner Carrier cannot escape liability for the loss
of the cargo.
And even if fire were to be considered a "natural
disaster" within the meaning of Article 1734 of the Civil
Code, it is required under Article 1739 of the same Code
that the "natural disaster" must have been the
"proximate and only cause of the loss," and that the
carrier has "exercised due diligence to prevent or
minimize the loss before, during or after the occurrence
of the disaster. " This Petitioner Carrier has also failed to
establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability
under the Carriage of Goods by Sea Act, It is provided
therein that:
Sec. 4(2). Neither the carrier nor the ship shall be
responsible for loss or damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity
of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate
Court, in effect, found, as a fact, that there was "actual
fault" of the carrier shown by "lack of diligence" in that
"when the smoke was noticed, the fire was already big;
that the fire must have started twenty-four (24) hours
before the same was noticed; " and that "after the
cargoes were stored in the hatches, no regular
inspection was made as to their condition during the
voyage." The foregoing suffices to show that the
circumstances under which the fire originated and
spread are such as to show that Petitioner Carrier or its
servants were negligent in connection therewith.
Consequently, the complete defense afforded by the
COGSA when loss results from fire is unavailing to
Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not
exceed US $500 per package as provided in section 4(5)
of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event
be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United
States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such
goods have been declared by the shipper before
shipment and inserted in bill of lading. This declaration if
embodied in the bill of lading shall be prima facie
evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of
the carrier, and the shipper another maximum amount
than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the
figure above named. In no event shall the carrier be
Liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the
limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's
liability as limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a
greater value, is binding.
It is to be noted that the Civil Code does not of itself limit
the liability of the common carrier to a fixed amount per
package although the Code expressly permits a
stipulation limiting such liability. Thus, the COGSA which
is suppletory to the provisions of the Civil Code, steps in
and supplements the Code by establishing a statutory
provision limiting the carrier's liability in the absence of a
declaration of a higher value of the goods by the shipper
in the bill of lading. The provisions of the Carriage of
Goods by.Sea Act on limited liability are as much a part
of a bill of lading as though physically in it and as much a
part thereof as though placed therein by agreement of
the parties. 16
In G.R. No. 69044, there is no stipulation in the
respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7
limiting the carrier's liability for the loss or destruction of
the goods. Nor is there a declaration of a higher value of
the goods. Hence, Petitioner Carrier's liability should not
exceed US $500 per package, or its peso equivalent, at
the time of payment of the value of the goods lost, but in
no case "more than the amount of damage actually
sustained."
The actual total loss for the 5,000 pieces of calorized
lance pipes was P256,039 (Exhibit "C"), which was
exactly the amount of the insurance coverage by
Development Insurance (Exhibit "A"), and the amount
affirmed to be paid by respondent Court. The goods
were shipped in 28 packages (Exhibit "C-2") Multiplying
28 packages by $500 would result in a product of
$14,000 which, at the current exchange rate of P20.44 to
US $1, would be P286,160, or "more than the amount of
damage actually sustained." Consequently, the
aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts
(Exhibit "I-3"), their actual value was P92,361.75 (Exhibit
"I"), which is likewise the insured value of the cargo
(Exhibit "H") and amount was affirmed to be paid by
65
respondent Court. however, multiplying seven (7) cases
by $500 per package at the present prevailing rate of
P20.44 to US $1 (US $3,500 x P20.44) would yield
P71,540 only, which is the amount that should be paid
by Petitioner Carrier for those spare parts, and not
P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of
surveying instruments are concerned, the amount
awarded to DOWA which was already reduced to $1,000
by the Appellate Court following the statutory $500
liability per package, is in order.
In respect of the shipment of 128 cartons of garment
fabrics in two (2) containers and insured with NISSHIN,
the Appellate Court also limited Petitioner Carrier's
liability to $500 per package and affirmed the award of
$46,583 to NISSHIN. it multiplied 128 cartons
(considered as COGSA packages) by $500 to arrive at
the figure of $64,000, and explained that "since this
amount is more than the insured value of the goods, that
is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less
than the maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the
two (2) containers should be considered as the shipping
unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636
F 2d 807 (1981), the consignees of tin ingots and the
shipper of floor covering brought action against the
vessel owner and operator to recover for loss of ingots
and floor covering, which had been shipped in vessel —
supplied containers. The U.S. District Court for the
Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United
States Court of Appeals, Second Division, modified and
affirmed holding that:
When what would ordinarily be considered packages are
shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping
documents, each of those units and not the container
constitutes the "package" referred to in liability limitation
provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by
Sea Act left doubt as to whether carrier-furnished
containers whose contents are disclosed should be
treated as packages, the interest in securing
international uniformity would suggest that they should
not be so treated. Carriage of Goods by Sea Act, 4(5),
46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra,
451 F 2d at 815, that treating a container as a package
is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability,
Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely escaped
criticism, there is, nonetheless, much to commend it. It
gives needed recognition to the responsibility of the
courts to construe and apply the statute as enacted,
however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's
package limitation scheme suffers from internal illness,
Congress alone must undertake the surgery. There is, in
this regard, obvious wisdom in the Ninth Circuit's
conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators,
do not warrant a distortion or artificial construction of the
statutory term "package." A ruling that these large
reusable metal pieces of transport equipment qualify as
COGSA packages — at least where, as here, they were
carrier owned and supplied — would amount to just such
a distortion.
Certainly, if the individual crates or cartons prepared by
the shipper and containing his goods can rightly be
considered "packages" standing by themselves, they do
not suddenly lose that character upon being stowed in a
carrier's container. I would liken these containers to
detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage
space into smaller, more serviceable loci. Shippers'
packages are quite literally "stowed" in the containers
utilizing stevedoring practices and materials analogous
to those employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C.
1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943
(4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and
similarly rejected the functional economics test. Judge
Kellam held that when rolls of polyester goods are
packed into cardboard cartons which are then placed in
containers, the cartons and not the containers are the
packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18
followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment
packaged by the shipper into cartons which were then
placed by the shipper into a carrier- furnished container.
The number of cartons was disclosed to the carrier in the
bill of lading. Eurygenes followed the Mitsui test and
treated the cartons, not the container, as the COGSA
packages. However, Eurygenes indicated that a carrier
could limit its liability to $500 per container if the bill of
lading failed to disclose the number of cartons or units
within the container, or if the parties indicated, in clear
and unambiguous language, an agreement to treat the
container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga
of Package Limitations and Third World Delivery
Problems by Chester D. Hooper & Keith L. Flicker,
66
published in Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the
following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight
Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly
disclosed the contents of the containers, the number of
cartons or units, as well as the nature of the goods, and
applying the ruling in the Mitsui and Eurygenes cases it
is clear that the 128 cartons, not the two (2) containers
should be considered as the shipping unit subject to the
$500 limitation of liability.
True, the evidence does not disclose whether the
containers involved herein were carrier-furnished or not.
Usually, however, containers are provided by the carrier.
19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and
carry the goods in containers if they were not so packed.
Thus, at the dorsal side of the Bill of Lading (Exhibit "A")
appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of
which is acknowledged on the face of this Bill of Lading
are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry
them in any type of container(s).
The foregoing would explain the use of the estimate
"Say: Two (2) Containers Only" in the Bill of Lading,
meaning that the goods could probably fit in two (2)
containers only. It cannot mean that the shipper had
furnished the containers for if so, "Two (2) Containers"
appearing as the first entry would have sufficed. and if
there is any ambiguity in the Bill of Lading, it is a cardinal
principle in the construction of contracts that the
interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the
obscurity. 20 This applies with even greater force in a
contract of adhesion where a contract is already
prepared and the other party merely adheres to it, like
the Bill of Lading in this case, which is draw. up by the
carrier. 21
On Alleged Denial of Opportunity to Present Deposition
of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give
it sufficient time to take the depositions of its witnesses
in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full
opportunity to present its evidence but it failed to do so.
On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27,
1979, not to mention the time from June 27, 1978, when
its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was
conducted for the last time, the defendant had more than
nine months to prepare its evidence. Its belated notice to
take deposition on written interrogatories of its witnesses
in Japan, served upon the plaintiff on August 25th, just
two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11
the that the deposition of the witnesses would be
dispensed with if by next time it had not yet been
obtained, only proves the lack of merit of the defendant's
motion for postponement, for which reason it deserves
no sympathy from the Court in that regard. The
defendant has told the Court since February 16, 1979,
that it was going to take the deposition of its witnesses in
Japan. Why did it take until August 25, 1979, or more
than six months, to prepare its written interrogatories.
Only the defendant itself is to blame for its failure to
adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its
side of the case. 23 It cannot complain now that it was
denied due process when the Trial Court rendered its
Decision on the basis of the evidence adduced. What
due process abhors is absolute lack of opportunity to be
heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees.
In both cases, respondent Court affirmed the award by
the Trial Court of attorney's fees of P35,000.00 in favor
of Development Insurance in G.R. No. 69044, and
P5,000.00 in favor of NISSHIN and DOWA in G.R. No.
71478.
Courts being vested with discretion in fixing the amount
of attorney's fees, it is believed that the amount of
P5,000.00 would be more reasonable in G.R. No. 69044.
The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is
modified in that petitioner Eastern Shipping Lines shall
pay the Development Insurance and Surety Corporation
the amount of P256,039 for the twenty-eight (28)
packages of calorized lance pipes, and P71,540 for the
seven (7) cases of spare parts, with interest at the legal
rate from the date of the filing of the complaint on June
13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby
affirmed.SO ORDERED.
67
[G.R. No. 104685. March 14, 1996]
SABENA BELGIAN WORLD AIRLINES, petitioner, vs.
HON. COURT OF APPEALS and MA. PAULA SAN
AGUSTIN, respondents.
DECISION
VITUG, J.:
The appeal before the Court involves the issue of an
airlines liability for lost luggage. The petition for review
assails the decision of the Court Appeals,[1] dated 27
February 1992, affirming an award of damages made by
the trial court in a complaint filed by private respondent
against petitioner.
The factual background of the case, narrated by the trial
court and reproduced at length by the appellate court, is
hereunder quoted:
On August 21, 1987, plaintiff was a passenger on board
Flight SN 284 of defendant airline originating from
Casablanca to Brussels, Belgium on her way back to
Manila. Plaintiff checked in her luggage which contained
her valuables, namely: jewelries valued at $2,350.00;
clothes $1,500.00; shoes/bag $150; accessories $75;
luggage itself $10.00; or a total of $4,265.00, for which
she was issued Tag No. 71423. She stayed overnight in
Brussels and her luggage was left on board Flight SN
284.
Plaintiff arrived at Manila International Airport on
September 2, 1987 and immediately submitted her Tag
No. 71423 to facilitate the release of her luggage hut the
luggage was missing. She was advised to accomplish
and submit a property Irregularity Report which she
submitted and filed on the same day.
She followed up her claim on September 14, 1987 but
the luggage remained to be missing.
On September 15, 1987, she filed her formal complaint
with the office of Ferge Massed, defendants Local
Manager, demanding immediate attention (Exh. A).
On September 30, 1987, on the occasion of plaintiffs
following up of her luggage claim, she was furnished
copies of defendants telexes with an information that the
Brussels Office of defendant found the luggage and that
they have broken the locks for identification (Exhibit B).
Plaintiff was assured by the defendant that it has notified
its Manila Office that the luggage will be shipped to
Manila on October 27, 1987. But unfortunately plaintiff
was informed that the luggage was lost for the second
time (Exhibits C and C-1).
At the time of the filling of the complaint, the luggage
with its content has not been found.
Plaintiff demanded from the defendant the money value
of the luggage and its contents amounting to $4,265.00
or its exchange value, but defendant refused to settle the
claim.
Defendant asserts in its Answer and its evidence tend to
show that while it admits that the plaintiff was a
passenger on board Flight No. SN 284 with a piece of
checked in luggage bearing Tag No. 71423, the loss of
the luggage was due to plaintiffs sole if not contributory
negligence; that she did not declare the valuable items in
her checked-in luggage at the flight counter when she
checked in for her flight from Casablanca to Brussels so
that either the representative of the defendant at the
counter would have advised her to secure an insurance
on the alleged valuable items and required her to pay
additional charges, or would have refused acceptance of
her baggage as required by the generally accepted
practices of international carriers; that Section 9(a),
Article IX of General Conditions of carriage requiring
passengers to collect their checked baggage at the
place of stopover, plaintiff neglected to claim her
baggage at the Brussels Airport; that plaintiff should
have retrieved her undeclared valuables from her
baggage at the Brussels Airport since her flight from
Brussels to Manila will still have to visit for confirmation
inasmuch as only her flight from Casablanca to Brussels
was confirmed; that defendant incorporated in all
Sabena Plane Tickets, including Sabena Ticket No.
082422-72502241 issued to plaintiff in Manila on August
21, 1987, a warning that Items of value should be carried
on your person and that some carriers assume no
liability for fragile, valuable or perishable articles and that
further information may he obtained from the carrier for
guidance; that granting without conceding that defendant
is liable, its liability is limited only to US $20.00 per kilo
due to plaintiffs failure to declare a higher value on the
contents of her checked in luggage and pay additional
charges thereon.[2]
The trial court rendered judgment ordering petitioner
Sabena Belgian World Airlines to pay private respondent
Ma. Paula San Agustin
(a) x x x US$4,265.00 or its legal exchange in Philippine
pesos;
(b) x x x P30,000.00 as moral damages;
(c) x x x P10,000.00 as exemplary damages;
(d) x x x P10,000.00 attorneys fees; and
(e) (t)he costs of the suit.[3]
Sabena appealed the decision of the Regional Trial
Court to the Court of Appeals. The appellate court, in its
decision of 27 February 1992, affirmed in toto the trial
courts judgment.
Petitioner airline company, in contending that the alleged
negligence of private respondent should be considered
the primary cause for the loss of her luggage, avers that,
despite her awareness that the flight ticket had been
confirmed only for Casablanca and Brussels, and that
her flight from Brussels to Manila had yet to be
68
confirmed, she did not retrieve the luggage upon arrival
in Brussels. Petitioner insists that private respondent,
being a seasoned international traveler, must have
likewise been familiar with the standard provisions
contained in her flight ticket that items of value are
required to be hand-carried by the passenger and that
the liability of the airline or loss, delay or damage to
baggage would be limited, in any event, to only
US$20.00 per kilo unless a higher value is declared in
advance and corresponding additional charges are paid
thereon. At the Casablanca International Airport, private
respondent, in checking in her luggage, evidently did not
declare its contents or value. Petitioner cites Section
5(c), Article IX, of the General Conditions of Carriage,
signed at Warsaw, Poland, on 02 October 1929, as
amended by the Hague Protocol of 1955, generally
observed by International carriers, stating, among other
things, that:
Passengers shall not include in his checked baggage,
and the carrier may refuse to carry as checked baggage,
fragile or perishable articles, money, jewelry, precious
metals, negotiable papers, securities or other
valuables.[4]
Fault or negligence consists in the omission of that
diligence which is demanded by the nature of an
obligation and corresponds with the circumstances of the
person, of the time, and of the place. When the source of
an obligation is derived from a contract, the mere breach
or non-fulfillment of the prestation gives rise to the
presumption of fault on the part of the obligor. This rule
is not different in the case of common carriers in the
carriage of goods which, indeed, are bound to observe
not just the due diligence of a good father of a family but
that of extraordinary care in the vigilance over the goods.
The appellate court has aptly observed:
x x x Art. 1733 of the [Civil] Code provides that from the
very nature of their business and by reasons of public
policy, common carriers are bound to observe
extraordinary diligence in the vigilance over the goods
transported by them. This extraordinary responsibility,
according to Art. 1736, lasts from the time the goods are
unconditionally placed in the possession of and received
by the carrier until they are delivered actually or
constructively to the consignee or person who has the
right to receive them. Art. 1737 states that the common
carriers duty to observe extraordinary diligence in the
vigilance over the goods transported by them remains in
full force and effect even when they are temporarily
unloaded or stored in transit. And Art. 1735 establishes
the presumption that 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 had observed extraordinary diligence as
required in Article 1733.
The only exceptions to the foregoing extraordinary
responsibility of the common carrier is when the loss,
destruction, or deterioration of the goods is due to any of
the following causes:
(1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
(2) Act of the public enemy in war, whether international
or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing
or in the containers;
(5) Order or act of competent public authority.
Not one of the above excepted causes obtains in this
case.[5]
The above rules remain basically unchanged even when
the contract is breached by tort[6] although
noncontradictory principles on quasi-delict may then be
assimilated as also forming part of the governing law.
Petitioner is not thus entirely off track when it has
likewise raised in its defense the tort doctrine of
proximate cause. Unfortunately for petitioner, however,
the doctrine cannot, in this particular instance, support
its case. Proximate cause is that which, in natural and
continuous sequence, unbroken by any efficient
intervening cause, produces injury and without which the
result would not have occurred. The exemplification by
the Court in one case[7] is simple and explicit; viz:
(T)he proximate legal cause is that acting first and
producing the injury, either immediately or by setting
other events in motion, all constituting a natural and
Continuous chain of events, each having a close causal
Connection with its immediate predecessor, the final
event in the chain immediately affecting the injury as a
natural and probable result of the cause which first
acted, under such circumstances that the person
responsible for the first event should, as an ordinarily
prudent, and intelligent person, have reasonable ground
to expect at the moment of his act or default that an
injury to some person might probably result therefrom.
It remained undisputed that private respondents luggage
was lost while it was in the custody of petitioner. It was
supposed to arrive on the same flight that private
respondent took in returning to Manila on 02 September
1987. When she discovered that the luggage was
missing, she promptly accomplished and filed a Property
Irregularity Report. She followed up her claim on 14
September 1987, and filed, on the following day, a
formal letter-complaint with petitioner. She felt relieved
when, on 23 October 1987, she was advised that her
luggage had finally been found, with its contents intact
when examined, and that she could expect it to arrive on
27 October 1987. She then waited anxiously only to be
told later that her luggage had been lost for the second
time. Thus, the appellate court, given all the facts before
it, sustained the trial court in finding petitioner ultimately
guilty of gross negligence in the handling of private
respondents luggage. The loss of said baggage not only
69
once by twice, said the appellate court, underscores the
wanton negligence and lack of care on the part of the
carrier.
The above findings, which certainly cannot be said to be
without basis, foreclose whatever rights petitioner might
have had to the possible limitation of liabilities enjoyed
by international air carriers under the Warsaw
Convention (Convention for the Unification of Certain
Rules Relating to International Carriage by Air, as
amended by the Hague Protocol of 1955, the Montreal
Agreement of 1966, the Guatemala Protocol of 1971 and
the Montreal Protocols of 1975). In Alitalia vs.
Intermediate Appellate Court,[8] now Chief Justice
Andres R. Narvasa, speaking for the Court, has
explained it well; he said:
The Warsaw Convention however denies to the carrier
availment of the provisions which exclude or limit his
liability, if the damage is caused by his wilful misconduct
or by such default on his part as, in accordance with the
law of the court seized of the case, is considered to be
equivalent to wilful misconduct, or if the damage is
(similarly) caused x x x by any agent of the carrier acting
within the scope of his employment. The Hague Protocol
amended the Warsaw Convention by removing the
provision that if the airline took all necessary steps to
avoid the damage, it could exculpate itself completely,
and declaring the stated limits of liability not applicable if
it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with
intent to cause damage or recklessly and with
knowledge that damage would probably result. The
same deletion was effected by the Montreal Agreement
of 1966, with the result that a passenger could recover
unlimited damages upon proof of wilful misconduct.
property, the Convention might successfully be pleaded
as the sole gauge to determine the carriers liability to the
passenger. Neither may the Convention be invoked to
justify the disregard of some extraordinary sort of
damage resulting to a passenger and preclude recovery
therefor beyond the limits set by said Convention. It is in
this sense that the Convention has been applied, or
ignored, depending on the peculiar facts presented by
each case.
The Court thus sees no error in the preponderant
application to the instant case by the appellate court, as
well as by the trial court, of the usual rules on the extent
of recoverable damages beyond the Warsaw limitations.
Under domestic law and jurisprudence (the Philippines
being the country of destination), the attendance of
gross negligence (given the equivalent of fraud or bad
faith) holds the common carrier liable for all damages
which can be reasonably attributed, although
unforeseen, to the non-performance of the obligation,[9]
including moral and exemplary damages.[10]
WHEREFORE, the decision appealed from is
AFFIRMED. Costs against petitioner.
SO ORDERED.

The Convention does not thus operate as an exclusive

enumeration of the instances of an airlines liability, or as
an absolute limit of the extent of that liability. Such a
proposition is not borne out by the language of the
Convention, as this Court has now, and at an earlier
time, pointed out. Moreover, slight reflection readily
leads to the conclusion that it should be deemed a limit
of liability only in those cases where the cause of the
death or injury to person, or destruction, loss or damage
to property or delay in its transport is not attributable to
or attended by any wilful misconduct, bad faith,
recklessness or otherwise improper conduct on the part
of any official or employee for which the carrier is
responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Contentions
provisions, in short, do not regulate or exclude liability for
other breaches of contract by the carrier or misconduct
of its officers and employees, or for some particular or
exceptional type of damage. Otherwise, an air carrier
would be exempt from any liability for damages in the
event of its absolute refusal, in bad faith, to comply with
a contract of carriage, which is absurd. Nor may it for a
moment be supposed that if a member of the aircraft
complement should inflict some physical injury on a
passenger, or maliciously destroy or damage the latters

70
[G.R. No. 125817. January 16, 2002]
ABELARDO LIM and ESMADITO GUNNABAN,
petitioners, vs. COURT OF APPEALS and DONATO H.
GONZALES, respondents.
DECISION
BELLOSILLO, J.:
When a passenger jeepney covered by a certificate of
public convenience is sold to another who continues to
operate it under the same certificate of public
convenience under the so-called kabit system, and in the
course thereof the vehicle meets an accident through the
fault of another vehicle, may the new owner sue for
damages against the erring vehicle? Otherwise stated,
does the new owner have any legal personality to bring
the action, or is he the real party in interest in the suit,
despite the fact that he is not the registered owner under
the certificate of public convenience?
Sometime in 1982 private respondent Donato Gonzales
purchased an Isuzu passenger jeepney from Gomercino
Vallarta, holder of a certificate of public convenience for
the operation of public utility vehicles plying the
Monumento-Bulacan route. While private respondent
Gonzales continued offering the jeepney for public
transport services he did not have the registration of the
vehicle transferred in his name nor did he secure for
himself a certificate of public convenience for its
operation. Thus Vallarta remained on record as its
registered owner and operator.
On 22 July 1990, while the jeepney was running
northbound along the North Diversion Road somewhere
in Meycauayan, Bulacan, it collided with a ten-wheeler-
truck owned by petitioner Abelardo Lim and driven by his
co-petitioner Esmadito Gunnaban. Gunnaban owned
responsibility for the accident, explaining that while he
was traveling towards Manila the truck suddenly lost its
brakes. To avoid colliding with another vehicle, he
swerved to the left until he reached the center island.
However, as the center island eventually came to an
end, he veered farther to the left until he smashed into a
Ferroza automobile, and later, into private respondent's
passenger jeepney driven by one Virgilio Gonzales. The
impact caused severe damage to both the Ferroza and
the passenger jeepney and left one (1) passenger dead
and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of
the wounded, compensated the heirs of the deceased
passenger, and had the Ferroza restored to good
condition. He also negotiated with private respondent
and offered to have the passenger jeepney repaired at
his shop. Private respondent however did not accept the
offer so Lim offered him P20,000.00, the assessment of
the damage as estimated by his chief mechanic. Again,
petitioner Lim's proposition was rejected; instead, private
respondent demanded a brand-new jeep or the amount
of P236,000.00. Lim increased his bid to P40,000.00 but
private respondent was unyielding. Under the
circumstances, negotiations had to be abandoned;
hence, the filing of the complaint for damages by private
respondent against petitioners.
In his answer Lim denied liability by contending that he
exercised due diligence in the selection and supervision
of his employees. He further asserted that as the
jeepney was registered in Vallartas name, it was Vallarta
and not private respondent who was the real party in
interest.[1] For his part, petitioner Gunnaban averred
that the accident was a fortuitous event which was
beyond his control.[2]
Meanwhile, the damaged passenger jeepney was left by
the roadside to corrode and decay. Private respondent
explained that although he wanted to take his jeepney
home he had no capability, financial or otherwise, to tow
the damaged vehicle.[3]
The main point of contention between the parties related
to the amount of damages due private respondent.
Private respondent Gonzales averred that per estimate
made by an automobile repair shop he would have to
spend P236,000.00 to restore his jeepney to its original
condition.[4] On the other hand, petitioners insisted that
they could have the vehicle repaired for P20,000.00.[5]
On 1 October 1993 the trial court upheld private
respondent's claim and awarded him P236,000.00 with
legal interest from 22 July 1990 as compensatory
damages and P30,000.00 as attorney's fees. In support
of its decision, the trial court ratiocinated that as vendee
and current owner of the passenger jeepney private
respondent stood for all intents and purposes as the real
party in interest. Even Vallarta himself supported private
respondent's assertion of interest over the jeepney for,
when he was called to testify, he dispossessed himself
of any claim or pretension on the property. Gunnaban
was found by the trial court to have caused the accident
since he panicked in the face of an emergency which
was rather palpable from his act of directing his vehicle
to a perilous streak down the fast lane of the
superhighway then across the island and ultimately to
the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for
Gunnaban's negligence was premised on his want of
diligence in supervising his employees. It was admitted
during trial that Gunnaban doubled as mechanic of the
ill-fated truck despite the fact that he was neither tutored
nor trained to handle such task.[6]
Forthwith, petitioners appealed to the Court of Appeals
which, on 17 July 1996, affirmed the decision of the trial
court. In upholding the decision of the court a quo the
appeals court concluded that while an operator under
the kabit system could not sue without joining the
registered owner of the vehicle as his principal, equity
demanded that the present case be made an
exception.[7] Hence this petition.
It is petitioners' contention that the Court of Appeals
erred in sustaining the decision of the trial court despite
71
their opposition to the well-established doctrine that an
operator of a vehicle continues to be its operator as long
as he remains the operator of record. According to
petitioners, to recognize an operator under the kabit
system as the real party in interest and to countenance
his claim for damages is utterly subversive of public
policy. Petitioners further contend that inasmuch as the
passenger jeepney was purchased by private
respondent for only P30,000.00, an award of
P236,000.00 is inconceivably large and would amount to
unjust enrichment.[8]
Petitioners' attempt to illustrate that an affirmance of the
appealed decision could be supportive of the pernicious
kabit system does not persuade. Their labored efforts to
demonstrate how the questioned rulings of the courts a
quo are diametrically opposed to the policy of the law
requiring operators of public utility vehicles to secure a
certificate of public convenience for their operation is
quite unavailing.
The kabit system is an arrangement whereby a person
who has been granted a certificate of public convenience
allows other persons who own motor vehicles to operate
them under his license, sometimes for a fee or
percentage of the earnings.[9] Although the parties to
such an agreement are not outrightly penalized by law,
the kabit system is invariably recognized as being
contrary to public policy and therefore void and
inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio[10] the Court
explained that one of the primary factors considered in
the granting of a certificate of public convenience for the
business of public transportation is the financial capacity
of the holder of the license, so that liabilities arising from
accidents may be duly compensated. The kabit system
renders illusory such purpose and, worse, may still be
availed of by the grantee to escape civil liability caused
by a negligent use of a vehicle owned by another and
operated under his license. If a registered owner is
allowed to escape liability by proving who the supposed
owner of the vehicle is, it would be easy for him to
transfer the subject vehicle to another who possesses no
property with which to respond financially for the
damage done. Thus, for the safety of passengers and
the public who may have been wronged and deceived
through the baneful kabit system, the registered owner
of the vehicle is not allowed to prove that another person
has become the owner so that he may be thereby
relieved of responsibility. Subsequent cases affirm such
basic doctrine.[11]
It would seem then that the thrust of the law in enjoining
the kabit system is not so much as to penalize the
parties but to identify the person upon whom
responsibility may be fixed in case of an accident with
the end view of protecting the riding public. The policy
therefore loses its force if the public at large is not
deceived, much less involved.
In the present case it is at once apparent that the evil
sought to be prevented in enjoining the kabit system
does not exist. First, neither of the parties to the
pernicious kabit system is being held liable for damages.
Second, the case arose from the negligence of another
vehicle in using the public road to whom no
representation, or misrepresentation, as regards the
ownership and operation of the passenger jeepney was
made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be
said that private respondent Gonzales and the registered
owner of the jeepney were in estoppel for leading the
public to believe that the jeepney belonged to the
registered owner. Third, the riding public was not
bothered nor inconvenienced at the very least by the
illegal arrangement. On the contrary, it was private
respondent himself who had been wronged and was
seeking compensation for the damage done to him.
Certainly, it would be the height of inequity to deny him
his right.
In light of the foregoing, it is evident that private
respondent has the right to proceed against petitioners
for the damage caused on his passenger jeepney as
well as on his business. Any effort then to frustrate his
claim of damages by the ingenuity with which petitioners
framed the issue should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the
sole design of the courts to provide for adequate
compensation by putting the plaintiff in the same
financial position he was in prior to the tort. It is a
fundamental principle in the law on damages that a
defendant cannot be held liable in damages for more
than the actual loss which he has inflicted and that a
plaintiff is entitled to no more than the just and adequate
compensation for the injury suffered. His recovery is, in
the absence of circumstances giving rise to an
allowance of punitive damages, limited to a fair
compensation for the harm done. The law will not put
him in a position better than where he should be in had
not the wrong happened.[12]
In the present case, petitioners insist that as the
passenger jeepney was purchased in 1982 for only
P30,000.00 to award damages considerably greater than
this amount would be improper and unjustified.
Petitioners are at best reminded that indemnification for
damages comprehends not only the value of the loss
suffered but also that of the profits which the obligee
failed to obtain. In other words, indemnification for
damages is not limited to damnum emergens or actual
loss but extends to lucrum cessans or the amount of
profit lost.[13]
Had private respondent's jeepney not met an accident it
could reasonably be expected that it would have
continued earning from the business in which it was
engaged. Private respondent avers that he derives an
average income of P300.00 per day from his passenger
jeepney and this earning was included in the award of
damages made by the trial court and upheld by the
72
appeals court. The award therefore of P236,000.00 as
compensatory damages is not beyond reason nor
speculative as it is based on a reasonable estimate of
the total damage suffered by private respondent, i.e.
damage wrought upon his jeepney and the income lost
from his transportation business. Petitioners for their part
did not offer any substantive evidence to refute the
estimate made by the courts a quo.
annum shall be computed from the time the judgment of
the lower court is made until the finality of this Decision.
If the adjudged principal and interest remain unpaid
thereafter, the interest shall be twelve percent (12%) per
annum computed from the time judgment becomes final
and executory until it is fully satisfied.
Costs against petitioners.

However, we are constrained to depart from the SO ORDERED.

conclusion of the lower courts that upon the award of
compensatory damages legal interest should be
imposed beginning 22 July 1990, i.e. the date of the
accident. Upon the provisions of Art. 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be
established with reasonable certainty." It is axiomatic
that if the suit were for damages, unliquidated and not
known until definitely ascertained, assessed and
determined by the courts after proof, interest at the rate
of six percent (6%) per annum should be from the date
the judgment of the court is made (at which time the
quantification of damages may be deemed to be
reasonably ascertained).[14]

In this case, the matter was not a liquidated obligation as

the assessment of the damage on the vehicle was
heavily debated upon by the parties with private
respondent's demand for P236,000.00 being refuted by
petitioners who argue that they could have the vehicle
repaired easily for P20,000.00. In fine, the amount due
private respondent was not a liquidated account that was
already demandable and payable.

One last word. We have observed that private

respondent left his passenger jeepney by the roadside at
the mercy of the elements. Article 2203 of the Civil Code
exhorts parties suffering from loss or injury to exercise
the diligence of a good father of a family to minimize the
damages resulting from the act or omission in question.
One who is injured then by the wrongful or negligent act
of another should exercise reasonable care and
diligence to minimize the resulting damage. Anyway, he
can recover from the wrongdoer money lost in
reasonable efforts to preserve the property injured and
for injuries incurred in attempting to prevent damage to
it.[15]

However we sadly note that in the present case

petitioners failed to offer in evidence the estimated
amount of the damage caused by private respondent's
unconcern towards the damaged vehicle. It is the burden
of petitioners to show satisfactorily not only that the
injured party could have mitigated his damages but also
the amount thereof; failing in this regard, the amount of
damages awarded cannot be proportionately reduced.

WHEREFORE, the questioned Decision awarding

private respondent Donato Gonzales P236,000.00 with
legal interest from 22 July 1990 as compensatory
damages and P30,000.00 as attorney's fees is
MODIFIED. Interest at the rate of six percent (6%) per

73
G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES, INC., petitioner,
vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE
APPELLATE COURT, NICASIO M. OCAMPO and
FRANCISCA P. GARCIA, respondents.
Manuel A. Concordia for petitioner.
Nicasio Ocampo for himself and on behalf of his
correspondents.
ESCOLIN, J.:ñé+.£ªwph!1
"Ex pacto illicito non oritur actio" [No action arises out of
an illicit bargain] is the tune-honored maxim that must be
applied to the parties in the case at bar. Having entered
into an illegal contract, neither can seek relief from the
courts, and each must bear the consequences of his
acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and
Francisca Garcia, herein private respondents, purchased
in installment from the Delta Motor Sales Corporation
five (5) Toyota Corona Standard cars to be used as
taxicabs. Since they had no franchise to operate
taxicabs, they contracted with petitioner Lita Enterprises,
Inc., through its representative, Manuel Concordia, for
the use of the latter's certificate of public convenience in
consideration of an initial payment of P1,000.00 and a
monthly rental of P200.00 per taxicab unit. To effectuate
Id agreement, the aforesaid cars were registered in the
name of petitioner Lita Enterprises, Inc, Possession,
however, remained with tile spouses Ocampo who
operated and maintained the same under the name
Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said
taxicabs driven by their employee, Emeterio Martin,
collided with a motorcycle whose driver, one Florante
Galvez, died from the head injuries sustained therefrom.
A criminal case was eventually filed against the driver
Emeterio Martin, while a civil case for damages was
instituted by Rosita Sebastian Vda. de Galvez, heir of
the victim, against Lita Enterprises, Inc., as registered
owner of the taxicab in the latter case, Civil Case No.
72067 of the Court of First Instance of Manila, petitioner
Lita Enterprises, Inc. was adjudged liable for damages in
the amount of P25,000.00 and P7,000.00 for attorney's
fees.
This decision having become final, a writ of execution
was issued. One of the vehicles of respondent spouses
with Engine No. 2R-914472 was levied upon and sold at
public auction for 12,150.00 to one Sonnie Cortez, the
highest bidder. Another car with Engine No. 2R-915036
was likewise levied upon and sold at public auction for
P8,000.00 to a certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo
decided to register his taxicabs in his name. He
requested the manager of petitioner Lita Enterprises,
Inc. to turn over the registration papers to him, but the
latter allegedly refused. Hence, he and his wife filed a
complaint against Lita Enterprises, Inc., Rosita
Sebastian Vda. de Galvez, Visayan Surety & Insurance
Co. and the Sheriff of Manila for reconveyance of motor
vehicles with damages, docketed as Civil Case No.
90988 of the Court of First Instance of Manila. Trial on
the merits ensued and on July 22, 1975, the said court
rendered a decision, the dispositive portion of which
reads: têñ.£îhqwâ£
WHEREFORE, the complaint is hereby dismissed as far
as defendants Rosita Sebastian Vda. de Galvez,
Visayan Surety & Insurance Company and the Sheriff of
Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer
the registration certificate of the three Toyota cars not
levied upon with Engine Nos. 2R-230026, 2R-688740
and 2R-585884 [Exhs. A, B, C and D] by executing a
deed of conveyance in favor of the plaintiff.
Plaintiff is, however, ordered to pay Lita Enterprises,
Inc., the rentals in arrears for the certificate of
convenience from March 1973 up to May 1973 at the
rate of P200 a month per unit for the three cars. (Annex
A, Record on Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for
reconsideration of the decision, but the same was
denied by the court a quo on October 27, 1975. (p. 121,
Ibid.)
On appeal by petitioner, docketed as CA-G.R. No.
59157-R, the Intermediate Appellate Court modified the
decision by including as part of its dispositive portion
another paragraph, to wit: têñ.£îhqwâ£
In the event the condition of the three Toyota rears will
no longer serve the purpose of the deed of conveyance
because of their deterioration, or because they are no
longer serviceable, or because they are no longer
available, then Lita Enterprises, Inc. is ordered to pay
the plaintiffs their fair market value as of July 22, 1975.
(Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having
been denied, petitioner came to Us, praying that:
têñ.£îhqwâ£
1. ...
2. ... after legal proceedings, decision be rendered
or resolution be issued, reversing, annulling or amending
the decision of public respondent so that:
74
(a) the additional paragraph added by the public
respondent to the DECISION of the lower court (CFI) be
deleted;
(b) that private respondents be declared liable to
petitioner for whatever amount the latter has paid or was
declared liable (in Civil Case No. 72067) of the Court of
First Instance of Manila to Rosita Sebastian Vda. de
Galvez, as heir of the victim Florante Galvez, who died
as a result ot the gross negligence of private
respondents' driver while driving one private
respondents' taxicabs. (p. 39, Rollo.)
Unquestionably, the parties herein operated under an
arrangement, comonly known as the "kabit system",
whereby a person who has been granted a certificate of
convenience allows another person who owns motors
vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege
conferred by the government . Abuse of this privilege by
the grantees thereof cannot be countenanced. The "kabit
system" has been Identified as one of the root causes of
the prevalence of graft and corruption in the government
transportation offices. In the words of Chief Justice
Makalintal, 1 "this is a pernicious system that cannot be
too severely condemned. It constitutes an imposition
upon the goo faith of the government.
sold or delivered, or damages for its property agreed to
be sold or delivered, or damages for its violation. The
rule has sometimes been laid down as though it was
equally universal, that where the parties are in pari
delicto, no affirmative relief of any kind will be given to
one against the other." 3 Although certain exceptions to
the rule are provided by law, We see no cogent reason
why the full force of the rule should not be applied in the
instant case.
WHEREFORE, all proceedings had in Civil Case No.
90988 entitled "Nicasio Ocampo and Francisca P.
Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al.,
Defendants" of the Court of First Instance of Manila and
CA-G.R. No. 59157-R entitled "Nicasio Ocampo and
Francisca P. Garica, Plaintiffs-Appellees, versus Lita
Enterprises, Inc., Defendant-Appellant," of the
Intermediate Appellate Court, as well as the decisions
rendered therein are hereby annuleled and set aside. No
costs.
SO ORDERED.

Although not outrightly penalized as a criminal offense,

the "kabit system" is invariably recognized as being
contrary to public policy and, therefore, void and
inexistent under Article 1409 of the Civil Code, It is a
fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them
both where it finds them. Upon this premise, it was
flagrant error on the part of both the trial and appellate
courts to have accorded the parties relief from their
predicament. Article 1412 of the Civil Code denies them
such aid. It provides:têñ.£îhqwâ£

ART. 1412. if the act in which the unlawful or

forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed;

(1) when the fault, is on the part of both contracting

parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the
other's undertaking.

The defect of inexistence of a contract is permanent and

incurable, and cannot be cured by ratification or by
prescription. As this Court said in Eugenio v. Perdido, 2
"the mere lapse of time cannot give efficacy to contracts
that are null void."

The principle of in pari delicto is well known not only in

this jurisdiction but also in the United States where
common law prevails. Under American jurisdiction, the
doctrine is stated thus: "The proposition is universal that
no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be

75
[G.R. No. 144274. September 20, 2004]
NOSTRADAMUS VILLANUEVA petitioner, vs.
PRISCILLA R. DOMINGO and LEANDRO LUIS R.
DOMINGO, respondents.
DECISION
CORONA, J.:
This is a petition to review the decision[1] of the Court of
Appeals in CA-G.R. CV No. 52203 affirming in turn the
decision of the trial court finding petitioner liable to
respondent for damages. The dispositive portion read:
WHEREFORE, the appealed decision is hereby
AFFIRMED except the award of attorneys fees including
appearance fees which is DELETED.
SO ORDERED.[2]
The facts of the case, as summarized by the Court of
Appeals, are as follows:
[Respondent] Priscilla R. Domingo is the registered
owner of a silver Mitsubishi Lancer Car model 1980
bearing plate No. NDW 781 91 with [co-respondent]
Leandro Luis R. Domingo as authorized driver.
[Petitioner] Nostradamus Villanueva was then the
registered owner of a green Mitsubishi Lancer bearing
Plate No. PHK 201 91.
On 22 October 1991 at about 9:45 in the evening,
following a green traffic light, [respondent] Priscilla
Domingos silver Lancer car with Plate No. NDW 781 91
then driven by [co-respondent] Leandro Luis R. Domingo
was cruising along the middle lane of South
Superhighway at moderate speed from north to south.
Suddenly, a green Mitsubishi Lancer with plate No. PHK
201 91 driven by Renato Dela Cruz Ocfemia darted from
Vito Cruz Street towards the South Superhighway
directly into the path of NDW 781 91 thereby hitting and
bumping its left front portion. As a result of the impact,
NDW 781 91 hit two (2) parked vehicles at the roadside,
the second hitting another parked car in front of it.
Per Traffic Accident Report prepared by Traffic
Investigator Pfc. Patrocinio N. Acido, Renato dela Cruz
Ocfemia was driving with expired license and positive for
alcoholic breath. Hence, Manila Assistant City
Prosecutor Oscar A. Pascua recommended the filing of
information for reckless imprudence resulting to (sic)
damage to property and physical injuries.
The original complaint was amended twice: first,
impleading Auto Palace Car Exchange as commercial
agent and/or buyer-seller and second, impleading Albert
Jaucian as principal defendant doing business under the
name and style of Auto Palace Car Exchange.
Except for Ocfemia, all the defendants filed separate
answers to the complaint. [Petitioner] Nostradamus
Villanueva claimed that he was no longer the owner of
the car at the time of the mishap because it was
swapped with a Pajero owned by Albert Jaucian/Auto
Palace Car Exchange. For her part, Linda Gonzales
declared that her presence at the scene of the accident
was upon the request of the actual owner of the
Mitsubishi Lancer (PHK 201 91) [Albert Jaucian] for
whom she had been working as agent/seller. On the
other hand, Auto Palace Car Exchange represented by
Albert Jaucian claimed that he was not the registered
owner of the car. Moreover, it could not be held
subsidiary liable as employer of Ocfemia because the
latter was off-duty as utility employee at the time of the
incident. Neither was Ocfemia performing a duty related
to his employment.[3]
After trial, the trial court found petitioner liable and
ordered him to pay respondent actual, moral and
exemplary damages plus appearance and attorneys
fees:
WHEREFORE, judgment is hereby rendered for the
plaintiffs, ordering Nostradamus Villanueva to pay the
amount of P99,580 as actual damages, P25,000.00 as
moral damages, P25,000.00 as exemplary damages and
attorneys fees in the amount of P10,000.00 plus
appearance fees of P500.00 per hearing with legal
interest counted from the date of judgment. In conformity
with the law on equity and in accordance with the ruling
in First Malayan Lending and Finance Corporation vs.
Court of Appeals (supra), Albert Jaucian is hereby
ordered to indemnify Nostradamus Villanueva for
whatever amount the latter is hereby ordered to pay
under the judgment.
SO ORDERED.[4]
The CA upheld the trial courts decision but deleted the
award for appearance and attorneys fees because the
justification for the grant was not stated in the body of
the decision. Thus, this petition for review which raises a
singular issue:
MAY THE REGISTERED OWNER OF A MOTOR
VEHICLE BE HELD LIABLE FOR DAMAGES ARISING
FROM A VEHICULAR ACCIDENT INVOLVING HIS
MOTOR VEHICLE WHILE BEING OPERATED BY THE
EMPLOYEE OF ITS BUYER WITHOUT THE LATTERS
CONSENT AND KNOWLEDGE?[5]
Yes.
We have consistently ruled that the registered owner of
any vehicle is directly and primarily responsible to the
public and third persons while it is being operated.[6]
The rationale behind such doctrine was explained way
back in 1957 in Erezo vs. Jepte[7]:
The principle upon which this doctrine is based is that in
dealing with vehicles registered under the Public Service
Law, the public has the right to assume or presume that
the registered owner is the actual owner thereof, for it
would be difficult for the public to enforce the actions that
they may have for injuries caused to them by the
76
vehicles being negligently operated if the public should
be required to prove who the actual owner is. How would
the public or third persons know against whom to
enforce their rights in case of subsequent transfers of
the vehicles? We do not imply by his doctrine, however,
that the registered owner may not recover whatever
amount he had paid by virtue of his liability to third
persons from the person to whom he had actually sold,
assigned or conveyed the vehicle.
Under the same principle the registered owner of any
vehicle, even if not used for a public service, should
primarily be responsible to the public or to third persons
for injuries caused the latter while the vehicle is being
driven on the highways or streets. The members of the
Court are in agreement that the defendant-appellant
should be held liable to plaintiff-appellee for the injuries
occasioned to the latter because of the negligence of the
driver, even if the defendant-appellant was no longer the
owner of the vehicle at the time of the damage because
he had previously sold it to another. What is the legal
basis for his (defendant-appellants) liability?
There is a presumption that the owner of the guilty
vehicle is the defendant-appellant as he is the registered
owner in the Motor Vehicles Office. Should he not be
allowed to prove the truth, that he had sold it to another
and thus shift the responsibility for the injury to the real
and actual owner? The defendant holds the affirmative
of this proposition; the trial court held the negative.
The Revised Motor Vehicle Law (Act No. 3992, as
amended) provides that no vehicle may be used or
operated upon any public highway unless the same is
property registered. It has been stated that the system of
licensing and the requirement that each machine must
carry a registration number, conspicuously displayed, is
one of the precautions taken to reduce the danger of
injury to pedestrians and other travelers from the
careless management of automobiles. And to furnish a
means of ascertaining the identity of persons violating
the laws and ordinances, regulating the speed and
operation of machines upon the highways (2 R.C.L.
1176). Not only are vehicles to be registered and that no
motor vehicles are to be used or operated without being
properly registered for the current year, but that dealers
in motor vehicles shall furnish thee Motor Vehicles Office
a report showing the name and address of each
purchaser of motor vehicle during the previous month
and the manufacturers serial number and motor number.
(Section 5(c), Act No. 3992, as amended.)
Registration is required not to make said registration the
operative act by which ownership in vehicles is
transferred, as in land registration cases, because the
administrative proceeding of registration does not bear
any essential relation to the contract of sale between the
parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil.
888), but to permit the use and operation of the vehicle
upon any public highway (section 5 [a], Act No. 3992, as
amended). The main aim of motor vehicle registration is
to identify the owner so that if any accident happens, or
that any damage or injury is caused by the vehicle on
the public highways, responsibility therefore can be fixed
on a definite individual, the registered owner. Instances
are numerous where vehicles running on public
highways caused accidents or injuries to pedestrians or
other vehicles without positive identification of the owner
or drivers, or with very scant means of identification. It is
to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the
determination of persons responsible for damages or
injuries caused on public highways:
One of the principal purposes of motor vehicles
legislation is identification of the vehicle and of the
operator, in case of accident; and another is that the
knowledge that means of detection are always available
may act as a deterrent from lax observance of the law
and of the rules of conservative and safe operation.
Whatever purpose there may be in these statutes, it is
subordinate at the last to the primary purpose of
rendering it certain that the violator of the law or of the
rules of safety shall not escape because of lack of
means to discover him. The purpose of the statute is
thwarted, and the displayed number becomes a share
and delusion, if courts would entertain such defenses as
that put forward by appellee in this case. No responsible
person or corporation could be held liable for the most
outrageous acts of negligence, if they should be allowed
to pace a middleman between them and the public, and
escape liability by the manner in which they recompense
servants. (King vs. Brenham Automobile Co., Inc. 145
S.W. 278, 279.)
With the above policy in mind, the question that
defendant-appellant poses is: should not the registered
owner be allowed at the trial to prove who the actual and
real owner is, and in accordance with such proof escape
or evade responsibility by and lay the same on the
person actually owning the vehicle? We hold with the
trial court that the law does not allow him to do so; the
law, with its aim and policy in mind, does not relieve him
directly of the responsibility that the law fixes and places
upon him as an incident or consequence of registration.
Were a registered owner allowed to evade responsibility
by proving who the supposed transferee or owner is, it
would be easy for him, by collusion with others or
otherwise, to escape said responsibility and transfer the
same to an indefinite person, or to one who possesses
no property with which to respond financially for the
damage or injury done. A victim of recklessness on the
public highways is usually without means to discover or
identify the person actually causing the injury or
damage. He has no means other than by a recourse to
the registration in the Motor Vehicles Office to determine
who is the owner. The protection that the law aims to
extend to him would become illusory were the registered
owner given the opportunity to escape liability by
disproving his ownership. If the policy of the law is to be
enforced and carried out, the registered owner should
not be allowed to prove the contrary to the prejudice of
the person injured, that is, to prove that a third person or
77
another has become the owner, so that he may thereby
be relieved of the responsibility to the injured person.
The above policy and application of the law may appear
quite harsh and would seem to conflict with truth and
justice. We do not think it is so. A registered owner who
has already sold or transferred a vehicle has the
recourse to a third-party complaint, in the same action
brought against him to recover for the damage or injury
done, against the vendee or transferee of the vehicle.
The inconvenience of the suit is no justification for
relieving him of liability; said inconvenience is the price
he pays for failure to comply with the registration that the
law demands and requires.
In synthesis, we hold that the registered owner, the
defendant-appellant herein, is primarily responsible for
the damage caused to the vehicle of the plaintiff-
appellee, but he (defendant-appellant) has a right to be
indemnified by the real or actual owner of the amount
that he may be required to pay as damage for the injury
caused to the plaintiff-appellant.[8]
Petitioner insists that he is not liable for damages since
the driver of the vehicle at the time of the accident was
not an authorized driver of the new (actual) owner of the
vehicle. He claims that the ruling in First Malayan
Leasing and Finance Corporation vs. CA[9] implies that
to hold the registered owner liable for damages, the
driver of the vehicle must have been authorized, allowed
and permitted by its actual owner to operate and drive it.
Thus, if the vehicle is driven without the knowledge and
consent of the actual owner, then the registered owner
cannot be held liable for damages.
He further argues that this was the underlying theory
behind Duavit vs. CA[10] wherein the court absolved the
registered owner from liability after finding that the
vehicle was virtually stolen from the owners garage by a
person who was neither authorized nor employed by the
owner. Petitioner concludes that the ruling in Duavit and
not the one in First Malayan should be applicable to him.
Petitioners argument lacks merit. Whether the driver is
authorized or not by the actual owner is irrelevant to
determining the liability of the registered owner who the
law holds primarily and directly responsible for any
accident, injury or death caused by the operation of the
vehicle in the streets and highways. To require the driver
of the vehicle to be authorized by the actual owner
before the registered owner can be held accountable is
to defeat the very purpose why motor vehicle legislations
are enacted in the first place.
Furthermore, there is nothing in First Malayan which
even remotely suggests that the driver must be
authorized before the registered owner can be held
accountable. In First Malayan, the registered owner,
First Malayan Corporation, was held liable for damages
arising from the accident even if the vehicle involved was
already owned by another party:
This Court has consistently ruled that regardless of who
the actual owner is of a motor vehicle might be, the
registered owner is the operator of the same with
respect to the public and third persons, and as such,
directly and primarily responsible for the consequences
of its operation. In contemplation of law, the
owner/operator of record is the employer of the driver,
the actual operator and employer being considered
merely as his agent (MYC-Agro-Industrial Corporation
vs. Vda. de Caldo, 132 SCRA 10, citing Vargas vs.
Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil.
949).
We believe that it is immaterial whether or not the driver
was actually employed by the operator of record. It is
even not necessary to prove who the actual owner of the
vehicle and the employer of the driver is. Granting that,
in this case, the father of the driver is the actual owner
and that he is the actual employer, following the well-
settled principle that the operator of record continues to
be the operator of the vehicle in contemplation of law, as
regards the public and third person, and as such is
responsible for the consequences incident to its
operation, we must hold and consider such owner-
operator of record as the employer, in contemplation of
law, of the driver. And, to give effect to this policy of law
as enunciated in the above cited decisions of this Court,
we must now extend the same and consider the actual
operator and employer as the agent of the operator of
record.[11]
Contrary to petitioners position, the First Malayan ruling
is applicable to him since the case involves the same set
of facts ― the registered owner had previously sold the
vehicle to someone else and was being driven by an
employee of the new (actual) owner. Duavit is
inapplicable since the vehicle there was not transferred
to another; the registered and the actual owner was one
and the same person. Besides, in Duavit, the defense of
the registered owner, Gilberto Duavit, was that the
vehicle was practically stolen from his garage by Oscar
Sabiano, as affirmed by the latter:
Defendant Sabiano, in his testimony, categorically
admitted that he took the jeep from the garage of
defendant Duavit without the consent and authority of
the latter. He testified further that Duavit even filed
charges against him for the theft of the jeep but which
Duavit did not push through as his (Sabianos) parents
apologized to Duavit on his behalf.[12]
As correctly pointed out by the CA, the Duavit ruling is
not applicable to petitioners case since the circumstance
of unauthorized use was not present. He in fact
voluntarily delivered his car to Albert Jaucian as part of
the downpayment for a vehicle he purchased from
Jaucian. Thus, he could not claim that the vehicle was
stolen from him since he voluntarily ceded possession
thereof to Jaucian. It was the latter, as the new (actual)
owner, who could have raised the defense of theft to
prove that he was not liable for the acts of his employee
78
Ocfemia. Thus, there is no reason to apply the Duavit
ruling to this case.

The ruling in First Malayan has been reiterated in BA

Finance Corporation vs. CA[13] and more recently in
Aguilar, Sr. vs. Commercial Savings Bank.[14] In BA
Finance, we held the registered owner liable even if, at
the time of the accident, the vehicle was leased by
another party and was driven by the lessees employee.
In Aguilar, the registered owner-bank answered for
damages for the accident even if the vehicle was being
driven by the Vice-President of the Bank in his private
capacity and not as an officer of the Bank, as claimed by
the Bank. We find no reason to deviate from these
decisions.

The main purpose of vehicle registration is the easy

identification of the owner who can be held responsible
for any accident, damage or injury caused by the
vehicle. Easy identification prevents inconvenience and
prejudice to a third party injured by one who is unknown
or unidentified. To allow a registered owner to escape
liability by claiming that the driver was not authorized by
the new (actual) owner results in the public detriment the
law seeks to avoid.

Finally, the issue of whether or not the driver of the

vehicle during the accident was authorized is not at all
relevant to determining the liability of the registered
owner. This must be so if we are to comply with the
rationale and principle behind the registration
requirement under the motor vehicle law.

WHEREFORE, the petition is hereby DENIED. The

January 26, 2000 decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.

79
[G.R. No. 143360. September 5, 2002]
EQUITABLE LEASING CORPORATION, petitioner, vs.
LUCITA SUYOM, MARISSA ENANO, MYRNA TAMAYO
and FELIX OLEDAN, respondents.
DECISION
PANGANIBAN, J.:
In an action based on quasi delict, the registered owner
of a motor vehicle is solidarily liable for the injuries and
damages caused by the negligence of the driver, in spite
of the fact that the vehicle may have already been the
subject of an unregistered Deed of Sale in favor of
another person. Unless registered with the Land
Transportation Office, the sale -- while valid and binding
between the parties -- does not affect third parties,
especially the victims of accidents involving the said
transport equipment. Thus, in the present case,
petitioner, which is the registered owner, is liable for the
acts of the driver employed by its former lessee who has
become the owner of that vehicle by virtue of an
unregistered Deed of Sale.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the
Rules of Court, assailing the May 12, 2000 Decision[1] of
the Court of Appeals[2] (CA) in CA-GR CV No. 55474.
The decretal portion of the Decision reads as follows:
WHEREFORE, premises considered, the instant appeal
is hereby DISMISSED for lack of merit. The assailed
decision, dated May 5, 1997, of the Regional Trial Court
of Manila, Branch 14, in Civil Case No. 95-73522, is
hereby AFFIRMED with MODIFICATION that the award
of attorneys fees is DELETED.[3]
On the other hand, in Civil Case No. 95-73522, the
Regional Trial Court (RTC) of Manila (Branch 14) had
earlier disposed in this wise:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and against the defendant Equitable
Leasing Corporation ordering said defendant to pay to
the plaintiffs the following:
A. TO MYRNA TAMAYO
1. the sum of P50,000.00 for the death of Reniel
Tamayo;
2. P50,000.00 as moral damages; and
3. P56,000.00 for the damage to the store and its
contents, and funeral expenses.
B. TO FELIX OLEDAN
1. the sum of P50,000.00 for the death of Felmarie
Oledan;
2. P50,000.00 as moral damages; and
3. P30,000.00 for medical expenses, and funeral
expenses.
C. TO MARISSA ENANO
1. P7,000.00 as actual damages
D. TO LUCITA SUYOM
1. The sum of P5,000.00 for the medical treatment of her
two sons.
The sum of P120,000.00 as and for attorneys fees.[4]
The Facts
On July 17, 1994, a Fuso Road Tractor driven by Raul
Tutor rammed into the house cum store of Myrna
Tamayo located at Pier 18, Vitas, Tondo, Manila. A
portion of the house was destroyed. Pinned to death
under the engine of the tractor were Respondent Myrna
Tamayos son, Reniel Tamayo, and Respondent Felix
Oledans daughter, Felmarie Oledan. Injured were
Respondent Oledan himself, Respondent Marissa
Enano, and two sons of Respondent Lucita Suyom.
Tutor was charged with and later convicted of reckless
imprudence resulting in multiple homicide and multiple
physical injuries in Criminal Case No. 296094-SA,
Metropolitan Trial Court of Manila, Branch 12.[5]
Upon verification with the Land Transportation Office,
respondents were furnished a copy of Official Receipt
No. 62204139[6] and Certificate of Registration No.
08262797,[7] showing that the registered owner of the
tractor was Equitable Leasing Corporation/leased to
Edwin Lim. On April 15, 1995, respondents filed against
Raul Tutor, Ecatine Corporation (Ecatine) and Equitable
Leasing Corporation (Equitable) a Complaint[8] for
damages docketed as Civil Case No. 95-73522 in the
RTC of Manila, Branch 14.
The trial court, upon motion of plaintiffs counsel, issued
an Order dropping Raul Tutor, Ecatine and Edwin Lim
from the Complaint, because they could not be located
and served with summonses.[9] On the other hand, in its
Answer with Counterclaim,[10] petitioner alleged that the
vehicle had already been sold to Ecatine and that the
former was no longer in possession and control thereof
at the time of the incident. It also claimed that Tutor was
an employee, not of Equitable, but of Ecatine.
After trial on the merits, the RTC rendered its Decision
ordering petitioner to pay actual and moral damages and
attorneys fees to respondents. It held that since the
Deed of Sale between petitioner and Ecatine had not
been registered with the Land Transportation Office
(LTO), the legal owner was still Equitable.[11] Thus,
petitioner was liable to respondents.[12]
Ruling of the Court of Appeals
80

Sustaining the RTC, the CA held that petitioner was still
to be legally deemed the owner/operator of the tractor,
even if that vehicle had been the subject of a Deed of
Sale in favor of Ecatine on December 9, 1992. The
reason cited by the CA was that the Certificate of
Registration on file with the LTO still remained in
petitioners name.[13] In order that a transfer of
ownership of a motor vehicle can bind third persons, it
must be duly recorded in the LTO.[14]
The CA likewise upheld respondents claim for moral
damages against petitioner because the appellate court
considered Tutor, the driver of the tractor, to be an agent
of the registered owner/operator.[15]
Hence, this Petition.[16]
Issues
In its Memorandum, petitioner raises the following issues
for the Courts consideration:
I
Whether or not the Court of Appeals and the trial court
gravely erred when they decided and held that petitioner
[was] liable for damages suffered by private respondents
in an action based on quasi delict for the negligent acts
of a driver who [was] not the employee of the petitioner.
II
Whether or not the Court of Appeals and the trial court
gravely erred when they awarded moral damages to
private respondents despite their failure to prove that the
injuries they suffered were brought by petitioners
wrongful act.[17]
This Courts Ruling
The Petition has no merit.
First Issue:
Liability for Wrongful Acts
Petitioner contends that it should not be held liable for
the damages sustained by respondents and that arose
from the negligence of the driver of the Fuso Road
Tractor, which it had already sold to Ecatine at the time
of the accident. Not having employed Raul Tutor, the
driver of the vehicle, it could not have controlled or
supervised him.[18]
We are not persuaded. In negligence cases, the
aggrieved party may sue the negligent party under (1)
Article 100[19] of the Revised Penal Code, for civil
liability ex delicto; or (2) under Article 2176[20] of the
Civil Code, for civil liability ex quasi delicto.[21]
Furthermore, under Article 103 of the Revised Penal
Code, employers may be held subsidiarily liable for
felonies committed by their employees in the discharge
of the latters duties.[22] This liability attaches when the
employees who are convicted of crimes committed in the
performance of their work are found to be insolvent and
are thus unable to satisfy the civil liability adjudged.[23]
On the other hand, under Article 2176 in relation to
Article 2180[24] of the Civil Code, an action predicated
on quasi delict may be instituted against the employer
for an employees act or omission. The liability for the
negligent conduct of the subordinate is direct and
primary, but is subject to the defense of due diligence in
the selection and supervision of the employee.[25] The
enforcement of the judgment against the employer for an
action based on Article 2176 does not require the
employee to be insolvent, since the liability of the former
is solidary -- the latter being statutorily considered a joint
tortfeasor.[26] To sustain a claim based on quasi delict,
the following requisites must be proven: (a) damage
suffered by the plaintiff, (b) fault or negligence of the
defendant, and (c) connection of cause and effect
between the fault or negligence of the defendant and the
damage incurred by the plaintiff.[27]
These two causes of action (ex delicto or ex quasi
delicto) may be availed of, subject to the caveat[28] that
the offended party cannot recover damages twice for the
same act or omission or under both causes.[29] Since
these two civil liabilities are distinct and independent of
each other, the failure to recover in one will not
necessarily preclude recovery in the other.[30]
In the instant case, respondents -- having failed to
recover anything in the criminal case -- elected to file a
separate civil action for damages, based on quasi delict
under Article 2176 of the Civil Code.[31] The evidence is
clear that the deaths and the injuries suffered by
respondents and their kins were due to the fault of the
driver of the Fuso tractor.
Dated June 4, 1991, the Lease Agreement[32] between
petitioner and Edwin Lim stipulated that it is the intention
of the parties to enter into a FINANCE LEASE
AGREEMENT.[33] Under such scheme, ownership of
the subject tractor was to be registered in the name of
petitioner, until the value of the vehicle has been fully
paid by Edwin Lim.[34] Further, in the Lease
Schedule,[35] the monthly rental for the tractor was
stipulated, and the term of the Lease was scheduled to
expire on December 4, 1992. After a few months, Lim
completed the payments to cover the full price of the
tractor.[36] Thus, on December 9, 1992, a Deed of
Sale[37] over the tractor was executed by petitioner in
favor of Ecatine represented by Edwin Lim. However,
the Deed was not registered with the LTO.
We hold petitioner liable for the deaths and the injuries
complained of, because it was the registered owner of
the tractor at the time of the accident on July 17,
1994.[38] The Court has consistently ruled that,
regardless of sales made of a motor vehicle, the
registered owner is the lawful operator insofar as the
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public and third persons are concerned; consequently, it
is directly and primarily responsible for the
consequences of its operation.[39] In contemplation of
law, the owner/operator of record is the employer of the
driver, the actual operator and employer being
considered as merely its agent.[40] The same principle
applies even if the registered owner of any vehicle does
not use it for public service.[41]
Since Equitable remained the registered owner of the
tractor, it could not escape primary liability for the deaths
and the injuries arising from the negligence of the
driver.[42]
The finance-lease agreement between Equitable on the
one hand and Lim or Ecatine on the other has already
been superseded by the sale. In any event, it does not
bind third persons. The rationale for this rule has been
aptly explained in Erezo v. Jepte,[43] which we quote
hereunder:
x x x. The main aim of motor vehicle registration is to
identify the owner so that if any accident happens, or
that any damage or injury is caused by the vehicle on
the public highways, responsibility therefor can be fixed
on a definite individual, the registered owner. Instances
are numerous where vehicles running on public
highways caused accidents or injuries to pedestrians or
other vehicles without positive identification of the owner
or drivers, or with very scant means of identification. It is
to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the
determination of persons responsible for damages or
injuries caused on public highways.[44]
Further, petitioners insistence on FGU Insurance Corp.
v. Court of Appeals is misplaced.[45] First, in FGU
Insurance, the registered vehicle owner, which was
engaged in a rent-a-car business, rented out the car. In
this case, the registered owner of the truck, which is
engaged in the business of financing motor vehicle
acquisitions, has actually sold the truck to Ecatine, which
in turn employed Tutor. Second, in FGU Insurance, the
registered owner of the vehicle was not held responsible
for the negligent acts of the person who rented one of its
cars, because Article 2180 of the Civil Code was not
applicable. We held that no vinculum juris as employer
and employee existed between the owner and the
driver.[46] In this case, the registered owner of the
tractor is considered under the law to be the employer of
the driver, while the actual operator is deemed to be its
agent.[47] Thus, Equitable, the registered owner of the
tractor, is -- for purposes of the law on quasi delict -- the
employer of Raul Tutor, the driver of the tractor. Ecatine,
Tutors actual employer, is deemed as merely an agent
of Equitable.[48]
True, the LTO Certificate of Registration, dated 5/31/91,
qualifies the name of the registered owner as
EQUITABLE LEASING CORPORATION/Leased to
Edwin Lim. But the lease agreement between Equitable
and Lim has been overtaken by the Deed of Sale on
December 9, 1992, between petitioner and Ecatine.
While this Deed does not affect respondents in this quasi
delict suit, it definitely binds petitioner because, unlike
them, it is a party to it.
We must stress that the failure of Equitable and/or
Ecatine to register the sale with the LTO should not
prejudice respondents, who have the legal right to rely
on the legal principle that the registered vehicle owner is
liable for the damages caused by the negligence of the
driver. Petitioner cannot hide behind its allegation that
Tutor was the employee of Ecatine. This will effectively
prevent respondents from recovering their losses on the
basis of the inaction or fault of petitioner in failing to
register the sale. The non-registration is the fault of
petitioner, which should thus face the legal
consequences thereof.
Second Issue:
Moral Damages
Petitioner further claims that it is not liable for moral
damages, because respondents failed to establish or
show the causal connection or relation between the
factual basis of their claim and their wrongful act or
omission, if any. [49]
Moral damages are not punitive in nature, but are
designed to compensate[50] and alleviate in some way
the physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury unjustly
caused a person.[51] Although incapable of pecuniary
computation, moral damages must nevertheless be
somehow proportional to and in approximation of the
suffering inflicted.[52] This is so because moral damages
are in the category of an award designed to compensate
the claimant for actual injury suffered, not to impose a
penalty on the wrongdoer.[53]
Viewed as an action for quasi delict, the present case
falls squarely within the purview of Article 2219 (2),[54]
which provides for the payment of moral damages in
cases of quasi delict.[55] Having established the liability
of petitioner as the registered owner of the vehicle,[56]
respondents have satisfactorily shown the existence of
the factual basis for the award[57] and its causal
connection to the acts of Raul Tutor, who is deemed as
petitioners employee.[58] Indeed, the damages and
injuries suffered by respondents were the proximate
result of petitioners tortious act or omission.[59]
Further, no proof of pecuniary loss is necessary in order
that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court.[60] The
evidence gives no ground for doubt that such discretion
was properly and judiciously exercised by the trial
court.[61] The award is in fact consistent with the rule
that moral damages are not intended to enrich the
injured party, but to alleviate the moral suffering
82
undergone by that party by reason of the defendants
culpable action.[62]

WHEREFORE, the Petition is DENIED and the assailed

Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

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