CONTRACT OF SALES OF GOODS

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

EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE
INSURANCE CO., LTD., respondents.



MELENCIO-HERRERA, J.:

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

The basic facts are not in controversy:

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

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

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

G.R. NO. 69044

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

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

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

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

G.R. NO. 71478

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

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

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

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

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

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

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

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

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

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

On the Law Applicable

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

On the Burden of Proof

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

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

xxx xxx xxx 9

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

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

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

On the US $500 Per Package Limitation:

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third
World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

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

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

11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this
Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier shall be
at liberty to pack and carry them in any type of container(s).

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

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

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

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

xxx xxx xxx

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

xxx xxx xxx 22

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

On the Award of Attorney's Fees:

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

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

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

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

SO ORDERED.

G.R. No. 93252 August 5, 1991

RODOLFO T. GANZON, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, respondents.

G.R. No. 93746 August 5,1991

MARY ANN RIVERA ARTIEDA, petitioner,
vs.
HON. LUIS SANTOS, in his capacity as Secretary of the Department of Local Government,
NICANOR M. PATRICIO, in his capacity as Chief, Legal Service of the Department of Local
Government and SALVADOR CABALUNA JR., respondents.

G.R. No. 95245 August 5,1991

RODOLFO T. GANZON, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, in his capacity as the
Secretary of the Department of Local Government, respondents.

Nicolas P. Sonalan for petitioner in 93252.

Romeo A. Gerochi for petitioner in 93746.

Eugenio Original for petitioner in 95245.



SARMIENTO, J.:p

The petitioners take common issue on the power of the President (acting through the Secretary
of Local Government), to suspend and/or remove local officials.

The petitioners are the Mayor of Iloilo City (G.R. Nos. 93252 and 95245) and a member of the
Sangguniang Panglunsod thereof (G.R. No. 93746), respectively.

The petitions of Mayor Ganzon originated from a series of administrative complaints, ten in
number, filed against him by various city officials sometime in 1988, on various charges, among
them, abuse of authority, oppression, grave misconduct, disgraceful and immoral conduct,
intimidation, culpable violation of the Constitution, and arbitrary detention. 1 The personalities
involved are Joceleehn Cabaluna, a clerk at the city health office; Salvador Cabaluna, her
husband; Dr. Felicidad Ortigoza, Assistant City Health Officer; Mansueto Malabor, Vice-Mayor;
Rolando Dabao, Dan Dalido, German Gonzales, Larry Ong, and Eduardo Pefia Redondo
members of the Sangguniang Panglunsod; and Pancho Erbite, a barangay tanod. The
complaints against the Mayor are set forth in the opinion of the respondent Court of Appeals. 2
We quote:

xxx xxx xxx

In her verified complaint (Annex A), Mrs. Cabaluna, a clerk assigned to the City Health, Office of
Iloilo City charged that due to political reasons, having supported the rival candidate, Mrs. Rosa
0. Caram, the petitioner City Mayor, using as an excuse the exigency of the service and the
interest of the public, pulled her out from rightful office where her qualifications are best suited
and assigned her to a work that should be the function of a non-career service employee. To
make matters worse, a utility worker in the office of the Public Services, whose duties are alien
to the complainant's duties and functions, has been detailed to take her place. The petitioner's
act are pure harassments aimed at luring her away from her permanent position or force her to
resign.

In the case of Dra. Felicidad Ortigoza, she claims that the petitioner handpicked her to perform
task not befitting her position as Assistant City Health Officer of Iloilo City; that her office was
padlocked without any explanation or justification; that her salary was withheld without cause
since April 1, 1988; that when she filed her vacation leave, she was given the run-around
treatment in the approval of her leave in connivance with Dr. Rodolfo Villegas and that she was
the object of a well-engineered trumped-up charge in an administrative complaint filed by Dr.
Rodolfo Villegas (Annex B).

On the other hand, Mansuelo Malabor is the duly elected Vice-Mayor of Iloilo City and
complainants Rolando Dabao, Dan Dalido, German Gonzales, Larry Ong and Eduardo Pefia
Pedondo are members of the Sangguniang Panglunsod of the City of Iloilo. Their complaint
arose out from the case where Councilor Larry Ong, whose key to his office was
unceremoniously and without previous notice, taken by petitioner. Without an office, Councilor
Ong had to hold office at Plaza Libertad, The Vice-Mayor and the other complainants
sympathized with him and decided to do the same. However, the petitioner, together with its
fully-armed security men, forcefully drove them away from Plaza Libertad. Councilor Ong
denounced the petitioner's actuations the following day in the radio station and decided to hold
office at the Freedom Grandstand at Iloilo City and there were so many people who gathered to
witness the incident. However, before the group could reach the area, the petitioner, together
with his security men, led the firemen using a firetruck in dozing water to the people and the
bystanders.

Another administrative case was filed by Pancho Erbite, a barangay tanod, appointed by former
mayor Rosa O. Caram. On March 13, 1988, without the benefit of charges filed against him and
no warrant of arrest was issued, Erbite was arrested and detained at the City Jail of Iloilo City
upon orders of petitioner. In jail, he was allegedly mauled by other detainees thereby causing
injuries He was released only the following day. 3

The Mayor thereafter answered 4 and the cases were shortly set for hearing. The opinion of the
Court of Appeals also set forth the succeeding events:

xxx xxx xxx

The initial hearing in the Cabaluna and Ortigoza cases were set for hearing on June 20-21,
1988 at the Regional Office of the Department of Local Government in Iloilo City. Notices,
through telegrams, were sent to the parties (Annex L) and the parties received them, including
the petitioner. The petitioner asked for a postponement before the scheduled date of hearing
and was represented by counsel, Atty. Samuel Castro. The hearing officers, Atty. Salvador
Quebral and Atty. Marino Bermudez had to come all the way from Manila for the two-day
hearings but was actually held only on June 20,1988 in view of the inability and unpreparedness
of petitioner's counsel.

The next hearings were re-set to July 25, 26, 27,1988 in the same venue-Iloilo City. Again, the
petitioner attempted to delay the proceedings and moved for a postponement under the excuse
that he had just hired his counsel. Nonetheless, the hearing officers denied the motion to
postpone, in view of the fact that the parties were notified by telegrams of the scheduled
hearings (Annex M).

In the said hearings, petitioner's counsel cross-examined the complainants and their witnesses.

Finding probable grounds and reasons, the respondent issued a preventive suspension order
on August 11, 1988 to last until October 11,1988 for a period of sixty (60) days.

Then the next investigation was set on September 21, 1988 and the petitioner again asked for a
postponement to September 26,1988. On September 26, 1988, the complainants and petitioner
were present, together with their respective counsel. The petitioner sought for a postponement
which was denied. In these hearings which were held in Mala the petitioner testified in Adm.
Case No. C-10298 and 10299.

The investigation was continued regarding the Malabor case and the complainants testified
including their witnesses.

On October 10, 1988, petitioner's counsel, Atty. Original moved for a postponement of the
October 24, 1988 hearing to November 7 to 11, 1988 which was granted. However, the motion
for change of venue as denied due to lack of funds. At the hearing on November 7, 1988, the
parties and counsel were present. Petitioner reiterated his motion to change venue and moved
for postponement anew. The counsel discussed a proposal to take the deposition of witnesses
in Iloilo City so the hearing was indefinitely postponed. However, the parties failed to come to
terms and after the parties were notified of the hearing, the investigation was set to December
13 to 15, 1988.

The petitioner sought for another postponement on the ground that his witnesses were sick or
cannot attend the investigation due to lack of transportation. The motion was denied and the
petitioner was given up to December 14, 1988 to present his evidence.

On December 14,1988, petitioner's counsel insisted on his motion for postponement and the
hearing officers gave petitioner up to December 15, 1988 to present his evidence. On
December 15, 1988, the petitioner failed to present evidence and the cases were considered
submitted for resolution.

In the meantime, a prima facie evidence was found to exist in the arbitrary detention case filed
by Pancho Erbite so the respondent ordered the petitioner's second preventive suspension
dated October 11, 1988 for another sixty (60) days. The petitioner was able to obtain a
restraining order and a writ of preliminary injunction in the Regional Trial Court, Branch 33 of
Iloilo City. The second preventive suspension was not enforced. 5

Amidst the two successive suspensions, Mayor Ganzon instituted an action for prohibition
against the respondent Secretary of Local Government (now, Interior) in the Regional Trial
Court, Iloilo City, where he succeeded in obtaining a writ of preliminary injunction. Presently, he
instituted CA-G.R. SP No. 16417, an action for prohibition, in the respondent Court of Appeals.

Meanwhile, on May 3, 1990, the respondent Secretary issued another order, preventively
suspending Mayor Ganzon for another sixty days, the third time in twenty months, and
designating meantime Vice-Mayor Mansueto Malabor as acting mayor. Undaunted, Mayor
Ganzon commenced CA-G.R. SP No. 20736 of the Court of Appeals, a petition for prohibition, 6
(Malabor it is to be noted, is one of the complainants, and hence, he is interested in seeing
Mayor Ganzon ousted.)

On September 7, 1989, the Court of Appeals rendered judgment, dismissing CA-G.R. SP No.
16417. On July 5, 1990, it likewise promulgated a decision, dismissing CA-G.R. SP No. 20736.
In a Resolution dated January 24, 1990, it issued a Resolution certifying the petition of Mary
Ann Artieda, who had been similary charged by the respondent Secretary, to this Court.

On June 26,1990, we issued a Temporary Restraining Order, barring the respondent Secretary
from implementing the suspension orders, and restraining the enforcement of the Court of
Appeals' two decisions.

In our Resolution of November 29, 1990, we consolidated all three cases. In our Resolutions of
January 15, 1991, we gave due course thereto.

Mayor Ganzon claims as a preliminary (GR No. 93252), that the Department of Local
Government in hearing the ten cases against him, had denied him due process of law and that
the respondent Secretary had been "biased, prejudicial and hostile" towards him 7 arising from
his (Mayor Ganzon's) alleged refusal to join the Laban ng Demokratikong Pilipino party 8 and
the running political rivalry they maintained in the last congressional and local elections; 9 and
his alleged refusal to operate a lottery in Iloilo City. 10 He also alleges that he requested the
Secretary to lift his suspension since it had come ninety days prior to an election (the barangay
elections of November 14, 1988), 11 notwithstanding which, the latter proceeded with the
hearing and meted out two more suspension orders of the aforementioned cases. 12 He
likewise contends that he sought to bring the cases to Iloilo City (they were held in Manila) in
order to reduce the costs of proceeding, but the Secretary rejected his request. 13 He states
that he asked for postponement on "valid and justifiable" 14 grounds, among them, that he was
suffering from a heart ailment which required confinement; that his "vital" 15 witness was also
hospitalized 16 but that the latter unduly denied his request. 17

Mayor Ganzon's primary argument (G.R. Nos. 93252 and 95245) is that the Secretary of Local
Government is devoid, in any event, of any authority to suspend and remove local officials, an
argument reiterated by the petitioner Mary Ann Rivera Artieda (G.R. No. 93746).

As to Mayor Ganzon's charges of denial of due process, the records do not show very clearly in
what manner the Mayor might have been deprived of his rights by the respondent Secretary. His
claims that he and Secretary Luis-Santos were (are) political rivals and that his "persecution"
was politically motivated are pure speculation and although the latter does not appear to have
denied these contentions (as he, Mayor Ganzon, claims), we can not take his word for it the way
we would have under less political circumstances, considering furthermore that "political feud"
has often been a good excuse in contesting complaints.

The Mayor has failed furthermore to substantiate his say-so's that Secretary Santos had
attempted to seduce him to join the administration party and to operate a lottery in Iloilo City.
Again, although the Secretary failed to rebut his allegations, we can not accept them, at face
value, much more, as judicial admissions as he would have us accept them 18 for the same
reasons above-stated and furthermore, because his say so's were never corroborated by
independent testimonies. As a responsible public official, Secretary Santos, in pursuing an
official function, is presumed to be performing his duties regularly and in the absence of contrary
evidence, no ill motive can be ascribed to him.

As to Mayor Ganzon's contention that he had requested the respondent Secretary to defer the
hearing on account of the ninety-day ban prescribed by Section 62 of Batas Blg. 337, the Court
finds the question to be moot and academic since we have in fact restrained the Secretary from
further hearing the complaints against the petitioners. 19

As to his request, finally, for postponements, the Court is afraid that he has not given any
compelling reason why we should overturn the Court of Appeals, which found no convincing
reason to overrule Secretary Santos in denying his requests. Besides, postponements are a
matter of discretion on the part of the hearing officer, and based on Mayor Ganzon's above
story, we are not convinced that the Secretary has been guilty of a grave abuse of discretion.

The Court can not say, under these circumstances, that Secretary Santos' actuations deprived
Mayor Ganzon of due process of law.

We come to the core question: Whether or not the Secretary of Local Government, as the
President's alter ego, can suspend and/or remove local officials.

It is the petitioners' argument that the 1987 Constitution 20 no longer allows the President, as
the 1935 and 1973 Constitutions did, to exercise the power of suspension and/or removal over
local officials. According to both petitioners, the Constitution is meant, first, to strengthen self-
rule by local government units and second, by deleting the phrase 21 as may be provided by
law to strip the President of the power of control over local governments. It is a view, so they
contend, that finds support in the debates of the Constitutional Commission. The provision in
question reads as follows:

Sec. 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays shall ensure that the acts of their
component units are within the scope of their prescribed powers and functions. 22

It modifies a counterpart provision appearing in the 1935 Constitution, which we quote:

Sec. 10. The President shall have control of all the executive departments, bureaus, or offices,
exercise general supervision over all Local governments as may be provided by law, and take
care that the laws be faithfully executed. 23

The petitioners submit that the deletion (of "as may be provided by law") is significant, as their
argument goes, since: (1) the power of the President is "provided by law" and (2) hence, no law
may provide for it any longer.

It is to be noted that in meting out the suspensions under question, the Secretary of Local
Government acted in consonance with the specific legal provisions of Batas Blg. 337, the Local
Government Code, we quote:

Sec. 62. Notice of Hearing. Within seven days after the complaint is filed, the Minister of local
Government, or the sanggunian concerned, as the case may be, shall require the respondent to
submit his verified answer within seven days from receipt of said complaint, and commence the
hearing and investigation of the case within ten days after receipt of such answer of the
respondent. No investigation shall be held within ninety days immediately prior to an election,
and no preventive suspension shall be imposed with the said period. If preventive suspension
has been imposed prior to the aforesaid period, the preventive suspension shall be lifted. 24

Sec. 63. Preventive Suspension. (1) Preventive suspension may be imposed by the
Minister of Local Government if the respondent is a provincial or city official, by the provincial
governor if the respondent is an elective municipal official, or by the city or municipal mayor if
the respondent is an elective barangay official.

(2) Preventive suspension may be imposed at any time after the issues are joined, when
there is reasonable ground to believe that the respondent has committed the act or acts
complained of, when the evidence of culpability is strong, when the gravity of the offense so
warrants, or when the continuance in office of the respondent could influence the witnesses or
pose a threat to the safety and integrity of the records and other evidence. In all cases,
preventive suspension shall not extend beyond sixty days after the start of said suspension.

(3) At the expiration of sixty days, the suspended official shall be deemed reinstated in office
without prejudice to the continuation of the proceedings against him until its termination.
However ' if the delay in the proceedings of the case is due to his fault, neglect or request, the
time of the delay shall not be counted in computing the time of suspension. 25

The issue, as the Court understands it, consists of three questions: (1) Did the 1987
Constitution, in deleting the phrase "as may be provided by law" intend to divest the President of
the power to investigate, suspend, discipline, and/or remove local officials? (2) Has the
Constitution repealed Sections 62 and 63 of the Local Government Code? (3) What is the
significance of the change in the constitutional language?

It is the considered opinion of the Court that notwithstanding the change in the constitutional
language, the charter did not intend to divest the legislature of its right or the President of her
prerogative as conferred by existing legislation to provide administrative sanctions against local
officials. It is our opinion that the omission (of "as may be provided by law") signifies nothing
more than to underscore local governments' autonomy from congress and to break Congress'
"control" over local government affairs. The Constitution did not, however, intend, for the sake of
local autonomy, to deprive the legislature of all authority over municipal corporations, in
particular, concerning discipline.

Autonomy does not, after all, contemplate making mini-states out of local government units, as
in the federal governments of the United States of America (or Brazil or Germany), although
Jefferson is said to have compared municipal corporations euphemistically to "small republics."
26 Autonomy, in the constitutional sense, is subject to the guiding star, though not control, of the
legislature, albeit the legislative responsibility under the Constitution and as the "supervision
clause" itself suggest-is to wean local government units from over-dependence on the central
government.

It is noteworthy that under the Charter, "local autonomy" is not instantly self-executing, but
subject to, among other things, the passage of a local government code, 27 a local tax law, 28
income distribution legislation, 29 and a national representation law, 30 and measures 31
designed to realize autonomy at the local level. It is also noteworthy that in spite of autonomy,
the Constitution places the local government under the general supervision of the Executive. It
is noteworthy finally, that the Charter allows Congress to include in the local government code
provisions for removal of local officials, which suggest that Congress may exercise removal
powers, and as the existing Local Government Code has done, delegate its exercise to the
President. Thus:

Sec. 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate among
the different local government units their powers, responsibilities and resources, and provide for
the qualifications, election, appointment and removal, term, salaries, powers and functions and
duties of local officials, and all other matters relating to the organization and operation of the
local units. 32

As hereinabove indicated, the deletion of "as may be provided by law" was meant to stress, sub
silencio, the objective of the framers to strengthen local autonomy by severing congressional
control of its affairs, as observed by the Court of Appeals, like the power of local legislation. 33
The Constitution did nothing more, however, and insofar as existing legislation authorizes the
President (through the Secretary of Local Government) to proceed against local officials
administratively, the Constitution contains no prohibition.

The petitioners are under the impression that the Constitution has left the President mere
supervisory powers, which supposedly excludes the power of investigation, and denied her
control, which allegedly embraces disciplinary authority. It is a mistaken impression because
legally, "supervision" is not incompatible with disciplinary authority as this Court has held, 34
thus:

xxx xxx xxx

It is true that in the case of Mondano vs. Silvosa, 51 Off. Gaz., No. 6 p. 2884, this Court had
occasion to discuss the scope and extent of the power of supervision by the President over local
government officials in contrast to the power of control given to him over executive officials of
our government wherein it was emphasized that the two terms, control and supervision, are two
different things which differ one from the other in meaning and extent. Thus in that case the
Court has made the following digression: "In administration law supervision means overseeing
or the power or authority of an officer to see that subordinate officers perform their duties. If the
latter fail or neglect to fulfill them the former may take such action or step as prescribed by law
to make them perform their duties. Control, on the other hand, means the power of an officer to
alter or modify or nullify of set aside what a subordinate officer had done in the performance of
his duties and to substitute the judgment of the former for that of the latter." But from this
pronouncement it cannot be reasonably inferred that the power of supervision of the President
over local government officials does not include the power of investigation when in his opinion
the good of the public service so requires, as postulated in Section 64(c) of the Revised
Administrative Code. ... 35

xxx xxx xxx

"Control" has been defined as "the power of an officer to alter or modify or nullify or set aside
what a subordinate officer had done in the performance of his duties and to substitute the
judgment of the former for test of the latter." 36 "Supervision" on the other hand means
"overseeing or the power or authority of an officer to see that subordinate officers perform their
duties. 37 As we held, 38 however, "investigating" is not inconsistent with "overseeing",
although it is a lesser power than "altering". The impression is apparently exacerbated by the
Court's pronouncements in at least three cases, Lacson v. Roque, 39 Hebron v. Reyes, 40 and
Mondano v. Silvosa, 41 and possibly, a fourth one, Pelaez v. Auditor General. 42 In Lacson, this
Court said that the President enjoyed no control powers but only supervision "as may be
provided by law," 43 a rule we reiterated in Hebron, and Mondano. In Pelaez, we stated that the
President "may not . . . suspend an elective official of a regular municipality or take any
disciplinary action against him, except on appeal from a decision of the corresponding provincial
board." 44 However, neither Lacson nor Hebron nor Mondano categorically banned the Chief
Executive from exercising acts of disciplinary authority because she did not exercise control
powers, but because no law allowed her to exercise disciplinary authority. Thus, according to
Lacson:

The contention that the President has inherent power to remove or suspend municipal officers is
without doubt not well taken. Removal and suspension of public officers are always controlled
by the particular law applicable and its proper construction subject to constitutional limitations.
45

In Hebron we stated:

Accordingly, when the procedure for the suspension of an officer is specified by law, the same
must be deemed mandatory and adhered to strictly, in the absence of express or clear provision
to the contrary-which does not et with respect to municipal officers ... 46

In Mondano, the Court held:

... The Congress has expressly and specifically lodged the provincial supervision over municipal
officials in the provincial governor who is authorized to "receive and investigate complaints
made under oath against municipal officers for neglect of duty, oppression, corruption or other
form of maladministration of office, and conviction by final judgment of any crime involving moral
turpitude." And if the charges are serious, "he shall submit written charges touching the matter
to the provincial board, furnishing a copy of such charges to the accused either personally or by
registered mail, and he may in such case suspend the officer (not being the municipal treasurer)
pending action by the board, if in his opinion the charge by one affecting the official integrity of
the officer in question." Section 86 of the Revised Administration Code adds nothing to the
power of supervision to be exercised by the Department Head over the administration of ...
municipalities ... . If it be construed that it does and such additional power is the same authority
as that vested in the Department Head by section 79(c) of the Revised Administrative Code,
then such additional power must be deemed to have been abrogated by Section 110(l), Article
VII of the Constitution. 47

xxx xxx xxx

In Pelaez, we stated that the President can not impose disciplinary measures on local officials
except on appeal from the provincial board pursuant to the Administrative Code. 48

Thus, in those case that this Court denied the President the power (to suspend/remove) it was
not because we did not think that the President can not exercise it on account of his limited
power, but because the law lodged the power elsewhere. But in those cases ii which the law
gave him the power, the Court, as in Ganzon v. Kayanan, found little difficulty in sustaining him.
49

The Court does not believe that the petitioners can rightfully point to the debates of the
Constitutional Commission to defeat the President's powers. The Court believes that the
deliberations are by themselves inconclusive, because although Commissioner Jose Nolledo
would exclude the power of removal from the President, 50 Commissioner Blas Ople would not.
51

The Court is consequently reluctant to say that the new Constitution has repealed the Local
Government Code, Batas Blg. 37. As we said, "supervision" and "removal" are not incompatible
terms and one may stand with the other notwithstanding the stronger expression of local
autonomy under the new Charter. We have indeed held that in spite of the approval of the
Charter, Batas Blg. 337 is still in force and effect. 52

As the Constitution itself declares, local autonomy means "a more responsive and accountable
local government structure instituted through a system of decentralization." 53 The Constitution
as we observed, does nothing more than to break up the monopoly of the national government
over the affairs of local governments and as put by political adherents, to "liberate the local
governments from the imperialism of Manila." Autonomy, however, is not meant to end the
relation of partnership and inter-dependence between the central administration and local
government units, or otherwise, to user in a regime of federalism. The Charter has not taken
such a radical step. Local governments, under the Constitution, are subject to regulation,
however limited, and for no other purpose than precisely, albeit paradoxically, to enhance self-
government.

As we observed in one case, 54 decentralization means devolution of national administration
but not power to the local levels. Thus:

Now, autonomy is either decentralization of administration or decentralization of power. There is
decentralization of administration when the central government delegates administrative powers
to political subdivisions in order to broaden the base of government power and in the process to
make local governments "more responsive and accountable," and "ensure their fullest
development as self-reliant communities and make them more effective partners in the pursuit
of national development and social progress." At the same time, it relieves the central
government of the burden of managing local affairs and enables it to concentrate on national
concerns. The President exercises "general supervision" over them, but only to "ensure that
local affairs are administered according to law." He has no control over their acts in the sense
that he can substitute their judgments with his own.

Decentralization of power, on the other hand, involves an abdication of political power in the
favor of local governments units declared to be autonomous, In that case, the autonomous
government is free to chart its own destiny and shape its future with minimum intervention from
central authorities. According to a constitutional author, decentralization of power amounts to
"self-immolation," since in that event, the autonomous government becomes accountable not to
the central authorities but to its constituency. 55

The successive sixty-day suspensions imposed on Mayor Rodolfo Ganzon is albeit another
matter. What bothers the Court, and what indeed looms very large, is the fact that since the
Mayor is facing ten administrative charges, the Mayor is in fact facing the possibility of 600 days
of suspension, in the event that all ten cases yield prima facie findings. The Court is not of
course tolerating misfeasance in public office (assuming that Mayor Ganzon is guilty of
misfeasance) but it is certainly another question to make him serve 600 days of suspension,
which is effectively, to suspend him out of office. As we held: 56

2. Petitioner is a duly elected municipal mayor of Lianga, Surigao del Sur. His term of office
does not expire until 1986. Were it not for this information and the suspension decreed by the
Sandiganbayan according to the Anti-Graft and Corrupt Practices Act, he would have been all
this while in the full discharge of his functions as such municipal mayor. He was elected
precisely to do so. As of October 26, 1983, he has been unable to. it is a basic assumption of
the electoral process implicit in the right of suffrage that the people are entitled to the services of
elective officials of their choice. For misfeasance or malfeasance, any of them could, of course,
be proceeded against administratively or, as in this instance, criminally. In either case, Ms
culpability must be established. Moreover, if there be a criminal action, he is entitled to the
constitutional presumption of innocence. A preventive suspension may be justified. Its
continuance, however, for an unreasonable length of time raises a due process question. For
even if thereafter he were acquitted, in the meanwhile his right to hold office had been nullified.
Clearly, there would be in such a case an injustice suffered by him. Nor is he the only victim.
There is injustice inflicted likewise on the people of Lianga They were deprived of the services
of the man they had elected to serve as mayor. In that sense, to paraphrase Justice Cardozo,
the protracted continuance of this preventive suspension had outrun the bounds of reason and
resulted in sheer oppression. A denial of due process is thus quite manifest. It is to avoid such
an unconstitutional application that the order of suspension should be lifted. 57

The plain truth is that this Court has been ill at ease with suspensions, for the above reasons,
58 and so also, because it is out of the ordinary to have a vacancy in local government. The
sole objective of a suspension, as we have held, 59 is simply "to prevent the accused from
hampering the normal cause of the investigation with his influence and authority over possible
witnesses" 60 or to keep him off "the records and other evidence. 61

It is a means, and no more, to assist prosecutors in firming up a case, if any, against an erring
local official. Under the Local Government Code, it can not exceed sixty days, 62 which is to say
that it need not be exactly sixty days long if a shorter period is otherwise sufficient, and which is
also to say that it ought to be lifted if prosecutors have achieved their purpose in a shorter span.

Suspension is not a penalty and is not unlike preventive imprisonment in which the accused is
held to insure his presence at the trial. In both cases, the accused (the respondent) enjoys a
presumption of innocence unless and until found guilty.

Suspension finally is temporary and as the Local Government Code provides, it may be
imposed for no more than sixty days. As we held, 63 a longer suspension is unjust and
unreasonable, and we might add, nothing less than tyranny.

As we observed earlier, imposing 600 days of suspension which is not a remote possibility
Mayor Ganzon is to all intents and purposes, to make him spend the rest of his term in inactivity.
It is also to make, to all intents and purposes, his suspension permanent.

It is also, in fact, to mete out punishment in spite of the fact that the Mayor's guilt has not been
proven. Worse, any absolution will be for naught because needless to say, the length of his
suspension would have, by the time he is reinstated, wiped out his tenure considerably.

The Court is not to be mistaken for obstructing the efforts of the respondent Secretary to see
that justice is done in Iloilo City, yet it is hardly any argument to inflict on Mayor Ganzon
successive suspensions when apparently, the respondent Secretary has had sufficient time to
gather the necessary evidence to build a case against the Mayor without suspending him a day
longer. What is intriguing is that the respondent Secretary has been cracking down, so to speak,
on the Mayor piecemeal apparently, to pin him down ten times the pain, when he, the
respondent Secretary, could have pursued a consolidated effort.

We reiterate that we are not precluding the President, through the Secretary of Interior from
exercising a legal power, yet we are of the opinion that the Secretary of Interior is exercising
that power oppressively, and needless to say, with a grave abuse of discretion.

The Court is aware that only the third suspension is under questions, and that any talk of future
suspensions is in fact premature. The fact remains, however, that Mayor Ganzon has been
made to serve a total of 120 days of suspension and the possibility of sixty days more is
arguably around the corner (which amounts to a violation of the Local Government Code which
brings to light a pattern of suspensions intended to suspend the Mayor the rest of his natural
tenure. The Court is simply foreclosing what appears to us as a concerted effort of the State to
perpetuate an arbitrary act.

As we said, we can not tolerate such a state of affairs.

We are therefore allowing Mayor Rodolfo Ganzon to suffer the duration of his third suspension
and lifting, for the purpose, the Temporary Restraining Order earlier issued. Insofar as the
seven remaining charges are concerned, we are urging the Department of Local Government,
upon the finality of this Decision, to undertake steps to expedite the same, subject to Mayor
Ganzon's usual remedies of appeal, judicial or administrative, or certiorari, if warranted, and
meanwhile, we are precluding the Secretary from meting out further suspensions based on
those remaining complaints, notwithstanding findings of prima facie evidence.

In resume the Court is laying down the following rules:

1. Local autonomy, under the Constitution, involves a mere decentralization of
administration, not of power, in which local officials remain accountable to the central
government in the manner the law may provide;

2. The new Constitution does not prescribe federalism;

3. The change in constitutional language (with respect to the supervision clause) was
meant but to deny legislative control over local governments; it did not exempt the latter from
legislative regulations provided regulation is consistent with the fundamental premise of
autonomy;

4. Since local governments remain accountable to the national authority, the latter may, by
law, and in the manner set forth therein, impose disciplinary action against local officials;

5. "Supervision" and "investigation" are not inconsistent terms; "investigation" does not
signify "control" (which the President does not have);

6. The petitioner, Mayor Rodolfo Ganzon. may serve the suspension so far ordered, but
may no longer be suspended for the offenses he was charged originally; provided:

a) that delays in the investigation of those charges "due to his fault, neglect or request, (the
time of the delay) shall not be counted in computing the time of suspension. [Supra, sec. 63(3)]

b) that if during, or after the expiration of, his preventive suspension, the petitioner commits
another or other crimes and abuses for which proper charges are filed against him by the
aggrieved party or parties, his previous suspension shall not be a bar to his being preventively
suspended again, if warranted under subpar. (2), Section 63 of the Local Government Code.

WHEREFORE, premises considered, the petitions are DISMISSED. The Temporary Restraining
Order issued is LIFTED. The suspensions of the petitioners are AFFIRMED, provided that the
petitioner, Mayor Rodolfo Ganzon, may not be made to serve future suspensions on account of
any of the remaining administrative charges pending against him for acts committed prior to
August 11, 1988. The Secretary of Interior is ORDERED to consolidate all such administrative
cases pending against Mayor Ganzon.

The sixty-day suspension against the petitioner, Mary Ann Rivera Artieda, is AFFIRMED. No
costs.

SO ORDERED.

[G.R. No. 148496. March 19, 2002]

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

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 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.

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.

[G.R. No. 143133. J une 5, 2002]

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and J ARDINE DAVIES
TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO., INC.,
respondent.

D E C I S I O N
PANGANIBAN, J.:

Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order
at their destination constitutes prima facie fault or negligence on the part of the carrier. If no
adequate explanation is given as to how the loss, the destruction or the deterioration of the
goods happened, the carrier shall be held liable therefor.

Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15,
1998 Decision[1] and the May 2, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR
CV No. 53571. The decretal portion of the Decision reads as follows:

WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby
REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally pay
plaintiffs-appellants the following:

1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as
actual damages, representing the value of the damaged cargo, plus interest at the legal rate
from the time of filing of the complaint on July 25, 1991, until fully paid;

2) Attorneys fees amounting to 20% of the claim; and

3) Costs of suit.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134),
which had disposed as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the
complaint, as well as defendants counterclaim.[5]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals in this wise:

On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at Hamburg,
Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila
consigned to the Philippine Steel Trading Corporation. On July 28, 1990, MN Anangel Sky
arrived at the port of Manila and, within the subsequent days, discharged the subject cargo.
Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4)
coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel
Trading Corporation declared the same as total loss.

Despite receipt of a formal demand, defendants-appellees refused to submit to the consignees
claim. Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six
& 50/100 pesos (P506,086.50), and was subrogated to the latters rights and causes of action
against defendants-appellees. Subsequently, plaintiff-appellant instituted this complaint for
recovery of the amount paid by them, to the consignee as insured.

Impugning the propriety of the suit against them, defendants-appellees imputed that the
damage and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of
the goods, or to perils, danger and accidents of the sea, or to insufficiency of packing thereof, or
to the act or omission of the shipper of the goods or their representatives. In addition thereto,
defendants-appellees argued that their liability, if there be any, should not exceed the limitations
of liability provided for in the bill of lading and other pertinent laws. Finally, defendants-
appellees averred that, in any event, they exercised due diligence and foresight required by law
to prevent any damage/loss to said shipment.[6]

Ruling of the Trial Court

The RTC dismissed the Complaint because respondent had failed to prove its claims with the
quantum of proof required by law.[7]

It likewise debunked petitioners counterclaim, because respondents suit was not manifestly
frivolous or primarily intended to harass them.[8]

Ruling of the Court of Appeals

In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of
the goods shipped, because they had failed to overcome the presumption of negligence
imposed on common carriers.

The CA further held as inadequately proven petitioners claim that the loss or the deterioration of
the goods was due to pre-shipment damage.[9] It likewise opined that the notation metal
envelopes rust stained and slightly dented placed on the Bill of Lading had not been the
proximate cause of the damage to the four (4) coils.[10]

As to the extent of petitioners liability, the CA held that the package limitation under COGSA
was not applicable, because the words L/C No. 90/02447 indicated that a higher valuation of
the cargo had been declared by the shipper. The CA, however, affirmed the award of attorneys
fees.

Hence, this Petition.[11]

Issues

In their Memorandum, petitioners raise the following issues for the Courts consideration:

I

Whether or not plaintiff by presenting only one witness who has never seen the subject
shipment and whose testimony is purely hearsay is sufficient to pave the way for the
applicability of Article 1735 of the Civil Code;

II

Whether or not the consignee/plaintiff filed the required notice of loss within the time required
by law;

III

Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-
shipment damage and to exempt herein defendants from liability;

IV

Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of COGSA is
applicable to the case at bar.[12]

In sum, the issues boil down to three:

1. Whether petitioners have overcome the presumption of negligence of a common carrier

2. Whether the notice of loss was timely filed

3. Whether the package limitation of liability is applicable

This Courts Ruling

The Petition is partly meritorious.

First Issue:
Proof of Negligence

Petitioners contend that the presumption of fault imposed on common carriers should not be
applied on the basis of the lone testimony offered by private respondent. The contention is
untenable.

Well-settled is the rule that common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence and vigilance with respect to the
safety of the goods and the passengers they transport.[13] Thus, common carriers are required
to render service with the greatest skill and foresight and to use all reason[a]ble means to
ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature requires.[14] The
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received for transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to receive them.[15]

This strict requirement is justified by the fact that, without a hand or a voice in the preparation of
such contract, the riding public enters into a contract of transportation with common carriers.[16]
Even if it wants to, it cannot submit its own stipulations for their approval.[17] Hence, it merely
adheres to the agreement prepared by them.

Owing to this high degree of diligence required of them, common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got lost
or destroyed.[18] That is, unless they prove that they exercised extraordinary diligence in
transporting the goods.[19] In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such diligence.[20]

However, the presumption of fault or negligence will not arise[21] if the loss is due to any of the
following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2)
an act of the public enemy in war, whether international or civil; (3) an act or omission of the
shipper or owner of the goods; (4) the character of the goods or defects in the packing or the
container; or (5) an order or act of competent public authority.[22] This is a closed list. If the
cause of destruction, loss or deterioration is other than the enumerated circumstances, then the
carrier is liable therefor.[23]

Corollary to the foregoing, mere proof of delivery of the goods in good order to a common
carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault
or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, the loss or the destruction of the goods happened, the transporter shall be held
responsible.[24]

That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case
at bar by a review of the records and more so by the evidence adduced by respondent.[25]

First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and
condition in Hamburg, Germany.[26]

Second, prior to the unloading of the cargo, an Inspection Report[27] prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes rust-
stained and heavily buckled, and the contents thereof exposed and rusty.

Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport Services, Inc.,
stated that the four coils were in bad order and condition. Normally, a request for a bad order
survey is made in case there is an apparent or a presumed loss or damage.[29]

Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted and tested,
the steel sheets found in bad order were wet with fresh water.

Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating Corporation and
dated October 12, 1990 -- admitted that they were aware of the condition of the four coils found
in bad order and condition.

These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers
Agency. Pertinent portions of his testimony are reproduce hereunder:

Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable
Court with what company you are connected?

A. BM Santos Checkers Agency, sir.

Q. How is BM Santos Checkers Agency related or connected with defendant Jardine Davies
Transport Services?

A. It is the company who contracts the checkers, sir.

Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your
duties and responsibilities?

A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of
cargoes.

x x x x x x x x x

Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a
Head Checker?

A. Yes, sir.

Q. And, on or about that date, do you recall having attended the discharging and inspection of
cold steel sheets in coil on board the MV/AN ANGEL SKY?

A. Yes, sir, I was there.

x x x x x x x x x

Q. Based on your inspection since you were also present at that time, will you inform this
Honorable Court the condition or the appearance of the bad order cargoes that were unloaded
from the MV/ANANGEL SKY?

ATTY. MACAMAY:

Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets
and the best evidence is the document itself, Your Honor that shows the condition of the steel
sheets.

COURT:

Let the witness answer.

A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent
on the sides.[32]

All these conclusively prove the fact of shipment in good order and condition and the
consequent damage to the four coils while in the possession of petitioner,[33] who notably failed
to explain why.[34]

Further, petitioners failed to prove that they observed the extraordinary diligence and precaution
which the law requires a common carrier to know and to follow, to avoid damage to or
destruction of the goods entrusted to it for safe carriage and delivery.[35]

True, the words metal envelopes rust stained and slightly dented were noted on the Bill of
Lading; however, there is no showing that petitioners exercised due diligence to forestall or
lessen the loss.[36] Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state would eventually
deteriorate when not properly stored while in transit.[37] Equipped with the proper knowledge of
the nature of steel sheets in coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures to avoid possible
deterioration of the cargo. But none of these measures was taken.[38] Having failed to
discharge the burden of proving that they have exercised the extraordinary diligence required by
law, petitioners cannot escape liability for the damage to the four coils.[39]

In their attempt to escape liability, petitioners further contend that they are exempted from
liability under Article 1734(4) of the Civil Code. They cite the notation metal envelopes rust
stained and slightly dented printed on the Bill of Lading as evidence that the character of the
goods or defect in the packing or the containers was the proximate cause of the damage. We
are not convinced.

From the evidence on record, it cannot be reasonably concluded that the damage to the four
coils was due to the condition noted on the Bill of Lading.[40] The aforecited exception refers to
cases when goods are lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances liable therefor, the necessary
and natural wear of goods in transport, defects in packages in which they are shipped, or the
natural propensities of animals.[41] None of these is present in the instant case.

Further, even if the fact of improper packing was known to the carrier or its crew or was
apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting
therefrom, once it accepts the goods notwithstanding such condition.[42] Thus, petitioners have
not successfully proven the application of any of the aforecited exceptions in the present
case.[43]

Second Issue:
Notice of Loss

Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act[44] (COGSA), respondent should have filed its Notice of Loss within three days from
delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent filed
its Notice of Claim only on September 18, 1990.[45]

We are not persuaded. First, the above-cited provision of COGSA provides that the notice of
claim need not be given if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an
Inspection Report[46] as to the condition of the goods was prepared and signed by
representatives of both parties.[47]

Second, as stated in the same provision, a failure to file a notice of claim within three days will
not bar recovery if it is nonetheless filed within one year.[48] This one-year prescriptive period
also applies to the shipper, the consignee, the insurer of the goods or any legal holder of the bill
of lading.[49]

In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the words of the ponente,
Chief Justice Hilario G. Davide Jr.:

Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which provides
for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during
transit--may be applied suppletorily to the case at bar.

In the present case, the cargo was discharged on July 31, 1990, while the Complaint[51] was
filed by respondent on July 25, 1991, within the one-year prescriptive period.

Third Issue:
Package Limitation

Assuming arguendo they are liable for respondents claims, petitioners contend that their liability
should be limited to US$500 per package as provided in the Bill of Lading and by Section
4(5)[52] of COGSA.[53]

On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the
value of the subject shipment was declared by petitioners beforehand, as evidenced by the
reference to and the insertion of the Letter of Credit or L/C No. 90/02447 in the said Bill of
Lading.[54]

A bill of lading serves two functions. First, it is a receipt for the goods shipped.[55] Second, it is
a contract by which three parties -- namely, the shipper, the carrier, and the consignee --
undertake specific responsibilities and assume stipulated obligations.[56] In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected and binding contract.[57]

Further, a stipulation in the bill of lading limiting to a certain sum the common carriers liability for
loss or destruction of a cargo -- unless the shipper or owner declares a greater value[58] -- is
sanctioned by law.[59] There are, however, two conditions to be satisfied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly and freely agreed upon
by the parties.[60] The rationale for, this rule is to bind the shippers by their agreement to the
value (maximum valuation) of their goods.[61]

It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to
a fixed amount per package.[62] In all matters not regulated by the Civil Code, the right and the
obligations of common carriers shall be governed by the Code of Commerce and special
laws.[63] Thus, the COGSA, which is suppletory to the provisions of the Civil Code,
supplements the latter by establishing a statutory provision limiting the carriers liability in the
absence of a shippers declaration of a higher value in the bill of lading.[64] The provisions on
limited liability are as much a part of the bill of lading as though physically in it and as though
placed there by agreement of the parties.[65]

In the case before us, there was no stipulation in the Bill of Lading[66] limiting the carriers
liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This fact
notwithstanding, the insertion of the words L/C No. 90/02447 cannot be the basis for
petitioners liability.

First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained
by the shipper for the importation of steel sheets did not effect a declaration of the value of the
goods as required by the bill.[67] That notation was made only for the convenience of the
shipper and the bank processing the Letter of Credit.[68]

Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of lading was
separate from the Other Letter of Credit arrangements. We ruled thus:

(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract of
issuance of a letter of credit between the amount of goods described in the commercial invoice
in the contract of sale and the amount allowed in the letter of credit will not affect the validity and
enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot
be expected to look beyond the documents presented to it by the seller pursuant to the letter of
credit, neither can the carrier be expected to go beyond the representations of the shipper in the
bill of lading and to verify their accuracy vis--vis the commercial invoice and the letter of credit.
Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in
the bill of lading cannot negate petitioners obligation to private respondent arising from the
contract of transportation.[70]

In the light of the foregoing, petitioners liability should be computed based on US$500 per
package and not on the per metric ton price declared in the Letter of Credit.[71] In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court[72] we explained the meaning of package:

When what would ordinarily be considered packages are shipped in a container supplied by the
carrier and the number of such units is disclosed in the shipping documents, each of those units
and not the container constitutes the package referred to in the liability limitation provision of
Carriage of Goods by Sea Act.

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading
clearly disclosed the contents of the containers, the number of units, as well as the nature of the
steel sheets, the four damaged coils should be considered as the shipping unit subject to the
US$500 limitation.

WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners
liability is reduced to US$2,000 plus interest at the legal rate of six percent from the time of the
filing of the Complaint on July 25, 1991 until the finality of this Decision, and 12 percent
thereafter until fully paid. No pronouncement as to costs.

SO ORDERED.

[G.R. No. 125524. August 25, 1999]

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

D E C I S I O N
BELLOSILLO, J.:

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

On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial
invoices were submitted to petitioner's depository bank, Consolidated Banking Corporation
(hereinafter SOLIDBANK), which paid petitioner in advance the total value of the shipment of
US$20,223.46.

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

On 25 September 1991 petitioner sought collection of the value of the shipment of
US$20,223.46 or its equivalent of P546,033.42 from respondents before the Regional Trial
Court of Manila, based on delivery of the shipment to GPC without presentation of the bills of
lading and bank guarantee.

Respondents contended that the shipment was delivered to GPC without presentation of the
bills of lading and bank guarantee per request of petitioner himself because the shipment
consisted of perishable goods. The telex dated 5 April 1989 conveying such request read -

AS PER SHPRS REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE
CNEES WITHOUT PRESENTATION OF OB/L[2] and bank guarantee since for prepaid shipt
ofrt charges already fully paid our end x x x x[3]

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

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

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

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

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

6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the
buyer/notify party, Great Prospect Company and not to the consignee, the National Bank of
Pakistan, Hongkong, without the required bills of lading and bank guarantee for the release of
the shipment issued by the consignee of the goods x x x x[10]

Even going back to an event that transpired prior to the filing of the present case or when
petitioner wrote respondent WALLEM demanding payment of the value of the cargoes,
misdelivery of the cargoes did not come into the picture -

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

At any rate, we shall dwell on petitioners submission only as a prelude to our discussion on the
imputed liability of respondents concerning the shipped goods. Article 1736 of the Civil Code
provides -

Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them, without prejudice to the provisions of article 1738.[12]

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or
constructive delivery of the cargoes to the consignee or to the person who has a right to receive
them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC was the
notify party. However, in the export invoices GPC was clearly named as buyer/importer.
Petitioner also referred to GPC as such in his demand letter to respondent WALLEM and in his
complaint before the trial court. This premise draws us to conclude that the delivery of the
cargoes to GPC as buyer/importer which, conformably with Art. 1736 had, other than the
consignee, the right to receive them[13] was proper.

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

Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the
cargoes to GPC without the bills of lading and bank guarantee. The telex instructed delivery of
various shipments to the respective consignees without need of presenting the bill of lading and
bank guarantee per the respective shippers request since for prepaid shipt ofrt charges
already fully paid. Petitioner was named therein as shipper and GPC as consignee with respect
to Bill of Lading Nos. HKG 99012 and HKG 99013. Petitioner disputes the existence of such
instruction and claims that this evidence is self-serving.

From the testimony of petitioner, we gather that he has been transacting with GPC as
buyer/importer for around two (2) or three (3) years already. When mangoes and watermelons
are in season, his shipment to GPC using the facilities of respondents is twice or thrice a week.
The goods are released to GPC. It has been the practice of petitioner to request the shipping
lines to immediately release perishable cargoes such as watermelons and fresh mangoes
through telephone calls by himself or his people. In transactions covered by a letter of credit,
bank guarantee is normally required by the shipping lines prior to releasing the goods. But for
buyers using telegraphic transfers, petitioner dispenses with the bank guarantee because the
goods are already fully paid. In his several years of business relationship with GPC and
respondents, there was not a single instance when the bill of lading was first presented before
the release of the cargoes. He admitted the existence of the telex of 3 July 1989 containing his
request to deliver the shipment to the consignee without presentation of the bill of lading[14] but
not the telex of 5 April 1989 because he could not remember having made such request.

Consider pertinent portions of petitioners testimony -

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

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

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

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

Atty. Ventura:

Q: Is that the telegraphic transfer?

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

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

A: Yes, sir.

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

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

Atty. Hernandez:

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

A: As far as telegraphic transfer is concerned.

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

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

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

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

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

A: Yes, that is the request of the shippers of the perishable goods x x x x[16]

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

A: Usually, I call up the Shipping Lines, sir x x x x[17]

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

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

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

A: Not everytime, sir.

Q: You did not make this request in writing?

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

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

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

There is no mistake that the originals of the two (2) subject Bills of Lading are still in the
possession of the Pakistani Bank. The appealed decision affirms this fact. Conformably, to
implement the said telex instruction, the delivery of the shipment must be to GPC, the notify
party or real importer/buyer of the goods and not the Pakistani Bank since the latter can very
well present the original Bills of Lading in its possession. Likewise, if it were the Pakistani Bank
to whom the cargoes were to be strictly delivered, it will no longer be proper to require a bank
guarantee as a substitute for the Bill of Lading. To construe otherwise will render meaningless
the telex instruction. After all, the cargoes consist of perishable fresh fruits and immediate
delivery thereof to the buyer/importer is essentially a factor to reckon with. Besides, GPC is
listed as one among the several consignees in the telex (Exhibit 5-B) and the instruction in the
telex was to arrange delivery of A/M shipment (not any party) to respective consignees without
presentation of OB/L and bank guarantee x x x x[19]

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

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

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13
March 1996 dismissing the complaint of petitioner Benito Macam and the counterclaims of
respondents China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as its
resolution of 5 July 1996 denying reconsideration, is AFFIRMED.

SO ORDERED.

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.:+.wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability
of the defendants, now appellants, under the bill of lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING
COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S
SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD,
(represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC.
Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was
unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. 1 The
goods were however never delivered to, nor received by, the consignee at the port of
destination Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing
rate of exchange at that time, against the former, but neither paid. Hence, the filing of the instant
suit to enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may
recoup whatever they may pay plaintiff by enforcing the judgment against third party defendant
AMCYL which had earlier been declared in default. Only the defendants appealed from said
decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature
of the bill of lading which operates both as a receipt for the goods; and more importantly, as a
contract to transport and deliver the same as stipulated therein. 2 Being a contract, it is the law
between the parties thereto 3 who are bound by its terms and conditions 4 provided that these
are not contrary to law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge
wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which
is Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port
of discharge of goods in this case, Davao, the carrier undertook to transport the goods in its
vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter,
the goods were to be transshipped by the carrier to the port of destination or "port of discharge
of goods The stipulation is plainly indicated on the face of the bill which contains the following
phrase printed below the space provided for the port of discharge from ship", thus: t.hqw

if goods are to be transshipped at port of discharge, show destination under the column for
"description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description
of contents": t.hqw

PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering
the same into the custody of AMCYL, the bonded warehouse, appellants were acting in full
accord with the contractual stipulations contained in Bill of Lading No. 18. The delivery of the
goods to AMCYL was part of appellants' duty to transship the goods from Manila to their port of
destination-Davao. The word "transship" means: t.hqw

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods
in question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18,
to wit: t.hqw

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage
occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle
to be discharged, transshipped or forwarded ... (Emphasis supplied)

and in Section 11 of the same Bill, which provides: t.hqw

Whenever the carrier or m aster may deem it advisable or in any case where the goods are
placed at carrier's disposal at or consigned to a point where the ship does not expect to load or
discharge, the carrier or master may, without notice, forward the whole or any part of the goods
before or after loading at the original port of shipment, ... This carrier, in making arrangements
for any transshipping or forwarding vessels or means of transportation not operated by this
carrier shall be considered solely the forwarding agent of the shipper and without any other
responsibility whatsoever even though the freight for the whole transport has been collected by
him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or
afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall
not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone
to whom the goods are entrusted or delivered for storage, handling or any service incidental
thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they
have discharged the same in full and good condition unto the custody of AMCYL at the port of
discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11)
in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the
carrier from liability for loss or damage to the goods when the same are not in its actual custody
has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22
SCRA 674 (1968). Said case matches the present controversy not only as to the material facts
but more importantly, as to the stipulations contained in the bill of lading concerned. As if to
underline their awesome likeness, the goods in question in both cases were destined for Davao,
but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as
the subject stipulations before Us, provides: t.hqw

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods
while the goods are not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection with all
transshipping or forwarding of the goods or the use of any means of transportation or forwarding
of goods not used or operated by the carrier, shall be considered solely the agent of the shipper
and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par.
16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public
policy, We sustained their validity 13 Applying said stipulations as the law between the parties in
the aforecited case, the Court concluded that: t.hqw

... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the
cargo is Manila, but that the same was to be transshipped beyond the port of discharge to
Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's responsibility as
a common carrier ceased the moment the goods were unloaded in Manila and in the matter of
transshipment, appellee acted merely as an agent of the shipper and consignee. ... (Emphasis
supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above
pronouncements, and in conformity with the pertinent provisions of the New Civil Code, Section
11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid stipulations
between the parties insofar as they exempt the carrier from liability for loss or damage to the
goods while the same are not in the latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported
from a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all
matters not regulated by said Code, the rights and obligations of common carriers shall be
governed by the Code of Commerce and by special laws. 16 A careful perusal of the provisions
of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to
Article 1736 thereof, which reads: t.hqw

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

Article 1738 referred to in the foregoing provision runs thus: t.hqw

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

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and
are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment
to their port of destination, and were stored in the warehouse of a third party when last seen
and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the
carrier may be relieved of the responsibility for loss or damage to the goods upon actual or
constructive delivery of the same by the carrier to the consignee, or to the person who has a
right to receive them. In sales, actual delivery has been defined as the ceding of corporeal
possession by the seller, and the actual apprehension of corporeal possession by the buyer or
by some person authorized by him to receive the goods as his representative for the purpose of
custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport
of goods when possession has been turned over to the consignee or to his duly authorized
agent and a reasonable time is given him to remove the goods. 18 The court a quo found that
there was actual delivery to the consignee through its duly authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed
between appellant and appellee in the course of the transactions that gave birth to the present
suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading 19 in
question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila.
The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with
appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of
appellant which is the moment when the subject goods are discharged in Manila, its personality
changes from that of carrier to that of agent of the consignee. Thus, the character of appellant's
possession also changes, from possession in its own name as carrier, into possession in the
name of consignee as the latter's agent. Such being the case, there was, in effect, actual
delivery of the goods from appellant as carrier to the same appellant as agent of the consignee.
Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or
damage that may befall the goods from that point onwards. This is the full import of Article 1736,
as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of
the missing goods, It is true that the transshipment of the goods, which was the object of the
agency, was not fully performed. However, appellant had commenced said performance, the
completion of which was aborted by circumstances beyond its control. An agent who carries out
the orders and instructions of the principal without being guilty of negligence, deceit or fraud,
cannot be held responsible for the failure of the principal to accomplish the object of the agency,
21 This can be gleaned from the following provisions of the New Civil Code on the obligations of
the agent: t.hqw

Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for
the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the person
appointed was notoriously incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be
judged with more or less rigor by the courts, according to whether the agency was or was not for
a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods
awaiting transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with
the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New
Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the
goods in question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is
hereby DISMISSED.

No costs.

SO ORDERED.

[G.R. NO. 121404 : May 3, 2006]

ANICETO G. SALUDO, J R., Petitioner, v. COURT OF APPEALS, HON. FERNANDO V.
GOROSPE, J R., in his capacity as Presiding J udge, Regional Trial Court of Makati,
Branch 61, and SALLY V. BELLOSILLO, Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This Petition1 seeks to annul and set aside the August 8, 1995 Resolution2 of the Court of
Appeals in CA-G.R. SP No. 36670, which dismissed the Petition3 for certiorari to annul and set
aside the November 10, 19944 and February 20, 1995 Orders5 issued by the Regional Trial
Court of Makati City, Branch 61, in Civil Case No. 88-2181. The said Orders denied petitioner
Aniceto G. Saludo, Jr.'s Motion to Suspend Proceedings in Civil Case No. 88-21816 as well as
his Motion for Reconsideration.7 rbl r l l lbrr

Petitioner prayed for the suspension of proceedings in the said civil case on the ground that to
proceed with the trial would make public the administrative case entitled Bellosillo v. The Board
of Governors of the Integrated Bar of the Philippines and Aniceto G. Saludo, Jr.8 for Gross
Professional Misconduct/Malpractice filed by herein private respondent Sally V. Bellosillo
against him and thereby violate the confidentiality rule as stated in Section 18, Rule 139-B of the
Rules of Court.9

On September 4, 1995, we issued a Temporary Restraining Order (TRO)10 to enjoin the
Regional Trial Court of Makati City, Branch 61, from proceeding with the pre-trial and trial of
Civil Case No. 88-2181, effective immediately and during the entire period that the case is
pending or until further orders.

It appears, however, that on March 31, 2006, the Court rendered judgment on the administrative
case disposing as follows:

WHEREFORE, the petition is DENIED and the assailed Resolution of the IBP Board of
Governors, dated March 30, 1996, dismissing the complaint against respondent [Aniceto G.
Saludo. Jr.] in Adm. Case No. 3297 is AFFIRMED.

SO ORDERED.11

We held therein that private respondent Bellosillo has not established a prima facie case to hold
petitioner administratively liable as her dealings with the latter, such as the alleged cash
borrowings and unwarranted solicitations, were ordinary business transactions arising from their
personal dealings, and not from an attorney-client relationship. They represent purely personal
interests and not professional misconduct.

In view of the foregoing, the present petition has been rendered moot as petitioner's prayer has
become inconsequential with the dismissal of the administrative complaint filed against him.
Thus, the trial of Civil Case No. 88-2181 must now proceed immediately.

Section 18, Rule 139-B of the Rules of Court states that "proceedings against attorneys shall be
private and confidential. However, the final order of the Supreme Court shall be published like
its decisions in other cases." The purpose of the rule is not only to enable this Court to make its
investigations free from any extraneous influence or interference, but also to protect the
personal and professional reputation of attorneys and judges from the baseless charges of
disgruntled, vindictive, and irresponsible clients and litigants; it is also to deter the press from
publishing administrative cases or portions thereto without authority. We have ruled that
malicious and unauthorized publication or verbatim reproduction of administrative complaints
against lawyers in newspapers by editors and/or reporters may be actionable.12 Such
premature publication constitutes a contempt of court, punishable by either a fine or
imprisonment or both at the discretion of the Court. The lawyer as an aggrieved party may
recover damages in a civil suit filed for the purpose;13 or may choose to waive the
confidentiality of proceedings in the disbarment case against him/her.14

Enabling the court to keep administrative investigations free of extraneous influence or
interference essentially calls for independence and impartiality of the investigating court,
commissioners, or officers. It does not, however, exclude the possibility of simultaneously
commencing a judicial case against a lawyer who is being administratively investigated.

The settled rule is that criminal and civil cases are different from administrative matters, such
that the disposition in the first two will not inevitably govern the third and vice versa.15 In
Berbano v. Barcelona,16 it was held that:

'Disciplinary proceedings against lawyers are sui generis. Neither purely civil nor purely criminal,
they do not involve a trial of an action or a suit, but are rather investigations by the Court into the
conduct of one of its officers. Not being intended to inflict punishment, [they are] in no sense a
criminal prosecution. Accordingly, there is neither a plaintiff nor a prosecutor therein. [They] may
be initiated by the Court motu propio. Public interest is [their] primary objective, and the real
question for determination is whether or not the attorney is still a fit person to be allowed the
privileges as such. Hence, in the exercise of its disciplinary powers, the Court merely calls upon
a member of the Bar to account for his actuations as an officer of the Court with the end in view
of preserving the purity of the legal profession and the proper and honest administration of
justice by purging the profession of members who by their misconduct have prove[n]
themselves no longer worthy to be entrusted with the duties and responsibilities pertaining to
the office of an attorney'.

We also emphasized in Gatchalian Promotions Talents Pool, Inc. v. Naldoza17 that:

[A] finding of guilt in the criminal case will not necessarily result in a finding of liability in the
administrative case. Conversely, respondent's acquittal does not necessarily exculpate him
administratively. In the same vein, the trial court's finding of civil liability against the respondent
will not inexorably lead to a similar finding in the administrative action before this Court. Neither
will a favorable disposition in the civil action absolve the administrative liability of the lawyer. x x
x.

Thus, the proceedings in Civil Case No. 88-2181 could continue notwithstanding the pendency
of the administrative case. In fact, we have actually ruled on administrative cases with pending
judicial proceedings related thereto.18 The fact that the charges and some pieces of evidence
to be used in both cases are similar does not necessarily amount to prejudice or deprivation of
due process to any of the parties in either case.

Petitioner also contended that the non-suspension of Civil Case No. 88-2181 while the
administrative case is being heard would unduly expose him to the public eye and ear, and
consequently cause irreparable injury to his personal and professional integrity.

Petitioner's contention lacks basis. As correctly pointed out by the Court of Appeals in CA-G.R.
SP No. 36670, petitioner can ably protect himself by timely objections to any action of the other
parties in Civil Case No. 88-2181, which refers to the administrative case against him. Besides,
to forestall the civil case from proceeding due to the pendency of the administrative case would
be unfair to the party instituting the civil case and would also unduly delay the administration of
justice.

Indeed, the success of a lawyer in his profession depends almost entirely on his reputation.
Anything which will harm his good name is to be deplored19 as a lawyer's reputation is "a plant
of tender growth, and its bloom, once lost, is not easily restored."20 The eventual dismissal
however of the administrative case, as in this case, should more than redeem and maintain
petitioner's good name.

Finally, the Court of Appeals correctly held that:

Under Section 1, Rule 21 of the Revised Rules of Court, [now Section 8, Rule 30 of the Rules of
Court21], an action may be suspended only on the ground of a possibility of a compromise. The
rule of confidentiality under Section 18 of Rule 139-B cannot be a ground for suspending the
proceedings in a civil case, unless it is patent, which is not the case here, that the civil case was
filed purposely to circumvent the said rule. As a matter of fact, the complaint in this case was
not initiated by the private respondent but by a person whom she claims to be an agent of the
petitioner. The confidentiality of administrative proceeding is not intended to place lawyers in a
privileged position with regard to civil or criminal actions against them.22

WHEREFORE, theinstant petition is DISMISSED for being moot and academic. The Temporary
Restraining Order issued on September 4, 1995 is ordered LIFTED. The Presiding Judge of the
Regional Trial Court of Makati City, Branch 61 is ORDERED to proceed hearing Civil Case No.
88-2181.

SO ORDERED.

G.R. No. 95529 August 22, 1991

MAGELLAN MANUFACTURING MARKETING CORPORATION, * petitioner,
vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, INC.
respondents.
REGALADO, J.:p

Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of
respondent Court of Appeals in CA-G.R. CV No. 18781, 1 affirming in part the decision of the
trial court, 2 the dispositive portion of which reads:

Premises considered, the decision appealed from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however, appellant is ordered to pay appellees the amount of
P52,102.45 with legal interest from date of extra-judicial demand. The award of attorney's fees
is deleted. 3

The facts as found by respondent appellate court are as follows:

On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered
into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of credit was issued to plaintiff MMMC
by the buyer. Through its president, James Cu, MMMC then contracted F.E. Zuellig, a shipping
agent, through its solicitor, one Mr. King, to ship the anahaw fans through the other appellee,
Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of
lading and that transhipment is not allowed under the letter of credit (Exh. B-1). On June 30,
1980, appellant MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of
lading which was presented to Allied Bank. The bank then credited the amount of US$23,220.00
covered by the letter of credit to appellant's account. However, when appellant's president
James Cu, went back to the bank later, he was informed that the payment was refused by the
buyer allegedly because there was no on-board bill of lading, and there was a transhipment of
goods. As a result of the refusal of the buyer to accept, upon appellant's request, the anahaw
fans were shipped back to Manila by appellees, for which the latter demanded from appellant
payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees for
damages.

In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of
136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at Manila
on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of Lading No.
MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was delivered at the port
of discharge on July 19, 1980, but was subsequently returned to Manila after the consignee
refused to accept/pay the same. 4

Elaborating on the above findings of fact of respondent court and without being disputed by
herein private respondents, petitioner additionally avers that:

When petitioner informed private respondents about what happened, the latter issued a
certificate stating that its bill of lading it issued is an on board bill of lading and that there was no
actual transhipment of the fans. According to private respondents when the goods are
transferred from one vessel to another which both belong to the same owner which was what
happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this certification
to Choju Co., Ltd., but the said company still refused to accept the goods which arrived in Japan
on July 19, 1980.

Private respondents billed petitioner in the amount of P16,342.21 for such shipment and
P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of P51,271.02.
In a letter dated March 20, 1981, private respondents gave petitioner the option of paying the
sum of P51,271.02 or to abandon the Anahaw fans to enable private respondents to sell them at
public auction to cover the cost of shipment and demurrages. Petitioner opted to abandon the
goods. However, in a letter dated June 22, 1981 private respondents demanded for payment of
P298,150.93 from petitioner which represents the freight charges from Japan to Manila,
demurrage incurred in Japan and Manila from October 22, 1980 up to May 20, 1981; and
charges for stripping the container van of the Anahaw fans on May 20, 1981.

On July 20, 1981 petitioner filed the complaint in this case praying that private respondents be
ordered to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting to
P174,150.00 and other damages like attorney's fees since private respondents are to blame for
the refusal of Choju Co., Ltd. to accept the Anahaw fans. In answer thereto the private
respondents alleged that the bill of lading clearly shows that there will be a transhipment and
that petitioner was well aware that MV (Pacific) Despatcher was only up to Hongkong where the
subject cargo will be transferred to another vessel for Japan. Private respondents also filed a
counterclaim praying that petitioner be ordered to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting to P298,150.93.

The lower court decided the case in favor of private respondents. It dismissed the complaint on
the ground that petitioner had given its consent to the contents of the bill of lading where it is
clearly indicated that there will be transhipment. The lower court also said that petitioner is liable
to pay to private respondent the freight charges from Japan to Manila and demurrages since it
was the former which ordered the reshipment of the cargo from Japan to Manila.

On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a
transhipment of the goods was affirmed but the finding that petitioner is liable for P298,150.93
was modified. It was reduced to P52,102.45 which represents the freight charges and
demurrages incurred in Japan but not for the demurrages incurred in Marta. According to the
respondent (court) the petitioner can not be held liable for the demurrages incurred in Manila
because Private respondents did not timely inform petitioner that the goods were already in
Manila in addition to the fact that private respondent had given petitioner the option of
abandoning the goods in exchange for the demurrages. 5

Petitioner, being dissatisfied with the decision of respondent court and the motion for
reconsideration thereof having been denied, invokes the Court's review powers for the
resolution of the issues as to whether or not respondent court erred (1) in affirming the decision
of the trial court which dismissed petitioner's complaint; and (2) in holding petitioner liable to
private respondents in the amount of P52,102.45. 6

I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to
take delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the
purchase price of the said export items because of violation of the terms and conditions of the
letter of credit issued in favor of the former which specified the requirement for an on board bill
of lading and the prohibition against transhipment of goods, inasmuch as the bill of lading issued
by the latter bore the notation "received for shipment" and contained an entry indicating
transhipment in Hongkong.

We find no fault on the part of private respondents. On the matter of transhipment, petitioner
maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher,
the feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered
transhipment because both vessels belong to the same shipping company, the private
respondent Orient Overseas Container Lines, Inc." 7 Petitioner emphatically goes on to say: "To
be sure, there was no actual transhipment of the Anahaw fans. The private respondents have
executed a certification to the effect that while the Anahaw fans were transferred from one
vessel to another in Hong Kong, since the two vessels belong to one and the same company
then there was no transhipment. 8

Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading
it in another," 9 or "the transfer of goods from the vessel stipulated in the contract of
affreightment to another vessel before the place of destination named in the contract has been
reached," 10 or "the transfer for further transportation from one ship or conveyance to another."
11 Clearly, either in its ordinary or its strictly legal acceptation, there is transhipment whether or
not the same person, firm or entity owns the vessels. In other words, the fact of transhipment is
not dependent upon the ownership of the transporting ships or conveyances or in the change of
carriers, as the petitioner seems to suggest, but rather on the fact of actual physical transfer of
cargo from one vessel to another.

That there was transhipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space
labeled "Transhipment," which can only mean that transhipment actually took place. 12 This fact
is further bolstered by the certification 13 issued by private respondent F.E. Zuellig, Inc. dated
July 19, 1980, although it carefully used the term "transfer" instead of transhipment.
Nonetheless, no amount of semantic juggling can mask the fact that transhipment in truth
occurred in this case.

Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans,
then there is no occasion under which the petitioner can agree to the transhipment of the
Anahaw fans because there is nothing like that to agree to" and "(i)f there is no actual
transhipment but there appears to be a transhipment in the bill of lading, then there can be no
possible reason for it but a mistake on the part of the private respondents. 14

Petitioner, in effect, is saying that since there was a mistake in documentation on the part of
private respondents, such a mistake militates against the conclusiveness of the bill of lading
insofar as it reflects the terms of the contract between the parties, as an exception to the parol
evidence rule, and would therefore permit it to explain or present evidence to vary or contradict
the terms of the written agreement, that is, the bill of lading involved herein.

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as
therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the
route, destination, and freight rates or charges, and stipulates the rights and obligations
assumed by the parties. 15 Being a contract, it is the law between the parties who are bound by
its terms and conditions provided that these are not contrary to law, morals, good customs,
public order and public policy. 16 A bill of lading usually becomes effective upon its delivery to
and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the
absence of fraud, concealment or improper conduct, known to the shipper, and he is generally
bound by his acceptance whether he reads the bill or not. 17

The holding in most jurisdictions has been that a shipper who receives a bill of lading without
objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with
the shipment is presumed to have accepted it as correctly stating the contract and to have
assented to its terms. In other words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge of the shipper and agreed
to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that
he assented to such terms. This rule applies with particular force where a shipper accepts a bill
of lading with full knowledge of its contents and acceptance under such circumstances makes it
a binding contract. 18

In the light of the series of events that transpired in the case at bar, there can be no logical
conclusion other than that the petitioner had full knowledge of, and actually consented to, the
terms and conditions of the bill of lading thereby making the same conclusive as to it, and it
cannot now be heard to deny having assented thereto. As borne out by the records, James Cu
himself, in his capacity as president of MMMC, personally received and signed the bill of lading.
On practical considerations, there is no better way to signify consent than by voluntarry signing
the document which embodies the agreement. As found by the Court of Appeals

Contrary to appellant's allegation that it did not agree to the transhipment, it could be gleaned
from the record that the appellant actually consented to the transhipment when it received the
bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly appears on the face of
the bill of lading under column "PORT OF TRANSHIPMENT" an entry "HONGKONG'
(Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and the corresponding
check in payment of the freight (Exhibit D), implying that he consented to the transhipment
(Decision, p. 6, Rollo). 19

Furthermore and particularly on the matter of whether or not there was transhipment, James Cu,
in his testimony on crossexamination, categorically stated that he knew for a fact that the
shipment was to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to
a mother vessel, the MV Oriental Researcher in this wise:

Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transhipped at
the port of Hongkong?

A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if they
should not put a transhipment in Hongkong, that's why they even stated in the certification.

xxx xxx xxx

Q In layman's language, would you agree with me that transhipment is the transfer of a cargo
from one vessel to the other?

A As a layman, yes.

Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M. V.
Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher,
(sic) you know that for a fact?

A Yes, sir. (Emphasis supplied.) 20

Under the parol evidence rule, 21 the terms of a contract are rendered conclusive upon the
parties, and evidence aliunde is not admissible to vary or contradict a complete and enforceable
agreement embodied in a document, subject to well defined exceptions which do not obtain in
this case. The parol evidence rule is based on the consideration that when the parties have
reduced their agreement on a particular matter into writing, all their previous and
contemporaneous agreements on the matter are merged therein. Accordingly, evidence of a
prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or
defeat the operation of a valid instrument. 22 The mistake contemplated as an exception to the
parol evidence rule is one which is a mistake of fact mutual to the parties. 23 Furthermore, the
rules on evidence, as amended, require that in order that parol evidence may be admitted, said
mistake must be put in issue by the pleadings, such that if not raised inceptively in the complaint
or in the answer, as the case may be, a party can not later on be permitted to introduce parol
evidence thereon. 24 Needless to say, the mistake adverted to by herein petitioner, and by its
own admission, was supposedly committed by private respondents only and was raised by the
former rather belatedly only in this instant petition. Clearly then, and for failure to comply even
only with the procedural requirements thereon, we cannot admit evidence to prove or explain
the alleged mistake in documentation imputed to private respondents by petitioner.

Petitioner further argues that assuming that there was transhipment, it cannot be deemed to
have agreed thereto even if it signed the bill of lading containing such entry because it had
made known to private respondents from the start that transhipment was prohibited under the
letter of credit and that, therefore, it had no intention to allow transhipment of the subject cargo.
In support of its stand, petitioner relies on the second paragraph of Article 1370 of the Civil
Code which states that "(i)f the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Phil.,
Inc. vs. Intermediate Appellate Court, et al. 25 that "where the literal interpretation of a contract
is contrary to the evident intention of the parties, the latter shall prevail."

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the
intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently
overlooks the first paragraph of the very article that he cites which provides that "(i)f the terms of
the contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control." In addition, Article 1371 of the same Code provides
that "(i)n order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered."

The terms of the contract as embodied in the bill of lading are clear and thus obviates the need
for any interpretation. The intention of the parties which is the carriage of the cargo under the
terms specified thereunder and the wordings of the bill of lading do not contradict each other.
The terms of the contract being conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and
signing the bill of lading and paying the freight charges, there is no doubt that petitioner must
necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill of
lading and that it intended to be bound thereby.

Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is made, is a violation of the
contract and an infringement of the right of the shipper, and subjects the carrier to liability if the
freight is lost even by a cause otherwise excepted. 26 It is highly improbable to suppose that
private respondents, having been engaged in the shipping business for so long, would be
unaware of such a custom of the trade as to have undertaken such transhipment without
petitioner's consent and unnecessarily expose themselves to a possible liability. Verily, they
could only have undertaken transhipment with the shipper's permission, as evidenced by the
signature of James Cu.

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd.
was that the bill of lading that was issued was not an on board bill of lading, in clear violation of
the terms of the letter of credit issued in favor of petitioner. On cross-examination, it was
likewise established that petitioner, through its aforesaid president, was aware of this fact, thus:

Q If the container van, the loaded container van, was transported back to South Harbor on June
27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?

A I received on June 30, 1980. I received at the same time so then I gave the check.

xxx xxx xxx

Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?

A Yes, sir.

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading
states: 'Received for shipment'only? .

A Yes, sir.

Q What did you say?

A I requested to issue me on board bill of lading.

Q When?

A In the same date of June 30.

Q What did they say?

A They said, they cannot.

xxx xxx xxx

Q Do you know the difference between a "received for shipment bill of lading" and "on board bill
of lading"?

A Yes, sir.

Q What's the difference?

A Received for shipment, you can receive the cargo even you don't ship on board, that is placed
in the warehouse; while on-board bill of lading means that is loaded on the vessel, the goods.

xxx xxx xxx

Q In other words, it was not yet on board the vessel?

A During that time, not yet.

xxx xxx xxx

Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel you
can demand an on-board bill of lading not only a received for shipment bill of lading.?

A Yes sir.

Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of
lading with an on-board bill of lading?

A Of course, instead they issue me a certification.

Q They give you a ... ?

A ... a certification that it was loaded on board on June 30.

xxx xxx xxx

Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there should
be no transhipment and that it should also get an on board bill of lading.?

A Yes sir. 27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required
that there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of
lading over any other kind of bill of lading. The buyer could not have insisted on such a
stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the
cargo that having an on board bill of lading ensured. Herein petitioner cannot feign ignorance of
the distinction between an "on board" and a "received for shipment" bill of lading, as manifested
by James Cu's testimony. It is only to be expected that those long engaged in the export
industry should be familiar with business usages and customs.

In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private
respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the
Anahaw fans were already on board MV Pacific Despatcher (which means that the bill of lading
is an on- board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for
shipment'bill of lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...." 28
What the petitioner would suggest is that said certification issued by F.E. Zuellig, Inc., dated
July 19, 1980, had the effect of converting the original "received for shipment only" bill of lading
into an "on board" bill of lading as required by the buyer and was, therefore, by substantial
compliance, not violative of the contract.

An on board bill of lading is one in which it is stated that the goods have been received on board
the vessel which is to carry the goods, whereas a received for shipment bill of lading is one in
which it is stated that the goods have been received for shipment with or without specifying the
vessel by which the goods are to be shipped. Received for shipment bills of lading are issued
whenever conditions are not normal and there is insufficiency of shipping space. 29 An on board
bill of lading is issued when the goods have been actually placed aboard the ship with every
reasonable expectation that the shipment is as good as on its way. 30 It is, therefore,
understandable that a party to a maritime contract would require an on board bill of lading
because of its apparent guaranty of certainty of shipping as well as the seaworthiness of the
vessel which is to carry the goods.

It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the
bill of lading, as originally issued, into an on board bill of lading as required by the terms of the
letter of credit issued in favor of petitioner. For one, the certification was issued only on July 19,
1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the
presentation of an on board bill of lading. Thus, even assuming that by a liberal treatment of the
certification it could have the effect of converting the received for shipment bill of lading into an
on board of bill of lading, as petitioner would have us believe, such an effect may be achieved
only as of the date of its issuance, that is, on July 19, 1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading
was presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to
operate retroactively, would render illusory the guaranty afforded by an on board bill of lading,
that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to
mention that it would indubitably be stretching the concept of substantial compliance too far.

Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion,
thus warranting a more liberal consideration in its favor to the extent of interpreting ambiguities
against private respondents as allegedly being the parties who gave rise thereto. The bill of
lading is clear on its face. There is no occasion to speak of ambiguities or obscurities
whatsoever. All of its terms and conditions are plainly worded and commonly understood by
those in the business.

It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May
20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus
giving it more than ample time to find a carrier that could comply with the requirements of
shipment under the letter of credit. It is conceded that bills of lading constitute a class of
contracts of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et
al. 31 and reiterated in Servando, et al. vs. Philippine Steam Navigation Co., 32 plane tickets as
well as bills of lading are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres, he gives his consent. The respondent court
correctly observed in the present case that "when the appellant received the bill of lading, it was
tantamount to appellant's adherence to the terms and conditions as embodied therein. 33

In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions
clearly violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness
to conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the
letter of credit, petitioner took the risk of accepting the bill of lading even if it did not conform with
the indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of
daring that such violations may be overlooked, if not disregarded, so long as the cargo is
delivered on time. Unfortunately, the risk did not pull through as hoped for. Any violation of the
terms and conditions of the letter of credit as would defeat its right to collect the proceeds
thereof was, therefore, entirely of the petitioner's making for which it must bear the
consequences. As finally averred by private respondents, and with which we agree, "... the
questions of whether or not there was a violation of the terms and conditions of the letter of
credit, or whether or not such violation was the cause or motive for the rejection by petitioner's
Japanese buyer should not affect private respondents therein since they were not privies to the
terms and conditions of petitioner's letter of credit and cannot therefore be held liable for any
violation thereof by any of the parties thereto." 34

II. Petitioner contends that respondent court erred in holding it liable to private respondents for
P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial
court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for
freight, demurrage and other charges during the time that the goods were in Japan and for its
reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the
Court of Appeals limited petitioner's liability to P52,102.45 when it ruled:

As regards the amount of P51,271.02, which represents the freight charges for the return
shipment to Manila and the demurrage charges in Japan, the same is supported by appellant's
own letter request (Exh. 2) for the return of the shipment to Manila at its (appellant's) expense,
and hence, it should be held liable therefor. The amount of P831.43 was paid to the Manila
International Port Terminal upon arrival of the shipment in Manila for appellant's account. It
should properly be charged to said appellant. 35

However, respondent court modified the trial court's decision by excluding the award for
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981.

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment
for the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every
improper detention of a vessel may be considered a demurrage. Liability for demurrage, using
the word in its strictly technical sense, exists only when expressly stipulated in the contract.
Using the term in its broader sense, damages in the nature of demurrage are recoverable for a
breach of the implied obligation to load or unload the cargo with reasonable dispatch, but only
by the party to whom the duty is owed and only against one who is a party to the shipping
contract. 36 Notice of arrival of vessels or conveyances, or of their placement for purposes of
unloading is often a condition precedent to the right to collect demurrage charges.

Private respondents, admittedly, have adopted the common practice of requiring prior notice of
arrival of the goods shipped before the shipper can be held liable for demurrage, as declared by
Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as
a witness for private respondents:

Q ... you will agree with me that before one could be charged with demurrage the shipper
should be notified of the arrival of the shipment?

A Yes sir.

Q Without such notification, there is no way by which the shipper would know (of) such arrival?

A Yes.

Q And no charges of demurrage before the arrival of the cargo?

A Yes sir. 37

Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from October up to May 1980,
arriv(al) in Manila, are concerned, We are of the view that appellant should not be made to
shoulder the same, as it was not at fault nor was it responsible for said demurrage charges.
Appellee's own witness (Mabazza) testified that while the goods arrived in Manila in October
1980, appellant was notified of said arrival only in March 1981. No explanation was given for the
delay in notifying appellant. We agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of the goods first. Without such
notification it could not- be so charged because there was no way by which it would know that
the goods had already arrived for it to take custody of them. Considering that it was only in
March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although the goods
had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be
charged for demurrage from October 1980 to March 1981. ... 38

While being satisfied with the exclusion of demurrage charges in Manila for the period from
October 22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award
of P52,102.43 in favor of private respondents, consisting of P51,271.01 as freight and
demurrage charges in Japan and P831.43 for charges paid at the Manila International Port
Termninal.

Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow
private respondents to sell the same at a public auction and to apply the proceeds thereof as
payment for the shipping and demurrage charges, it was released from liability for the sum of
P52,102.43 since such amount represents the shipping and demurrage charges from which it is
considered to have been released due to the abandonment of goods. It further argues that the
shipping and demurrage charges from which it was released by the exercise of the option to
abandon the goods in favor of private respondents could not have referred to the demurrage
charges in Manila because respondent court ruled that the same were not chargeable to
petitioner. Private respondents would rebut this contention by saying in their memorandum that
the abandonment of goods by petitioner was too late and made in bad faith. 39

On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the
fact that the shipment was made for its benefit or under its direction and, correspondingly, the
carrier is entitled to collect charges for its shipping services. This is particularly true in this case
where the reshipment of the goods was made at the instance of petitioner in its letter of August
29, 1980. 40

However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner
of the arrival of its goods from Japan and that if it wished to take delivery of the cargo it would
have to pay P51,271.02, but with the last paragraph thereof stating as follows:

Please can you advise within 15 days of receipt of this letter whether you intend to take delivery
of this shipment, as alternatively we will have to take legal proceedings in order to have the
cargo auctioned to recover the costs involved, as well as free the container which are (sic)
urgently required for export cargoes.

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the
same so that private respondents could sell them at public auction and thereafter apply the
proceeds in payment of the shipping and other charges.

Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its
decision to abandon to the goods in favor of private respondents with the specific instruction
that any excess of the proceeds over the legal costs and charges be turned over to petitioner.
Receipt of said letter was acknowledged by private respondents, as revealed by the testimony
of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination. 42

Despite petitioner's exercise of the option to abandon the cargo, however, private respondents
sent a demand letter on June 22, 1981 43 insisting that petitioner should pay the entire amount
of P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they stated that they win not
accept the abandonment of the goods and demanded that the outstanding account be settled.
The testimony of said Edwin Mabazza definitely admits and bears this out. 45

Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges.
Having given such option, especially since it was accepted by petitioner, private respondents
are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise
said option. Private respondents, in giving the option, and petitioner, in exercising that option,
are concluded by their respective actions. To allow either of them to unilaterally back out on the
offer and on the exercise of the option would be to countenance abuse of rights as an order of
the day, doing violence to the long entrenched principle of mutuality of contracts.

It will be remembered that in overland transportation, an unreasonable delay in the delivery of
transported goods is sufficient ground for the abandonment of goods. By analogy, this can also
apply to maritime transportation. Further, with much more reason can petitioner in the instant
case properly abandon the goods, not only because of the unreasonable delay in its delivery but
because of the option which was categorically granted to and exercised by it as a means of
settling its liability for the cost and expenses of reshipment. And, said choice having been duly
communicated, the same is binding upon the parties on legal and equitable considerations of
estoppel.

WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the
MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45
with legal interest granted by respondent court on private respondents' counterclaim is SET
ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to costs.

SO ORDERED.