SYNOPSIS

When LOADSTARs M/V Cherokee sank off Limasawa Island, Manila Insurance, Co., Inc., as insurer of its wood
shipment. paid the total loss thereof, then filed a complaint against LOADSTAR. The trial court ruled in favor of MIC, and the
Court of Appeals affirmed the same. Hence, this appeal with the issue: whether M/V Cherokee is a public carrier and, whether
LOADSTAR observed due diligence in the premises.
LOADSTAR is a common carrier under Art. 1732 of the Civil Code. It is not necessary that the carrier be issued a
certificate of public convenience and that the carriage of the goods was periodic or unscheduled. Further, on that fateful day, the
vessel was not chartered for a special cargo or to a special person only. It was carrying a particular type of cargo for one shipper,
but that is no reason to convert the vessel from a common to a private carrier, especially as it was also carrying passengers. On
the second issue, the Court found M/V Cherokee not seaworthy as it was not even sufficiently manned at the time. The Court
affirmed the decision of the Court of Appeals.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIERS; ELUCIDATED.- LOADSTAR is a common carrier. It
is not necessary that the carrier be issued a certificate of public convenience, and this public character is not altered by the
fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled. In the case of De Guzman
v. Court of Appeals, the Court juxtaposed the statutory definition of common carriers with the peculiar circumstances of
that case, viz: The Civil Code defines common carriers in the following terms: Article 1732. Common carriers are
persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public. The above article makes no distinction
between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such
distinctions.
2. ID.; ID.; ID.; CASE OF HOME INSURANCE CO. V. AMERICAN STEAMSHIP AGENCIES, INC. [23 SCRA 24
(1968)]; NOT APPLICABLE IN ABSENCE OF EVIDENCE THAT VESSEL WAS SPECIALLY
CHARTERED.- LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies,
Inc., where this Court held that a common carrier transporting special cargo or chartering the vessel to a special person
becomes a private carrier that is not subject to the provisions of the Civil Code. However, the records do not disclose that
the M/V Cherokee, on the date in question, undertook to carry a special cargo or was chartered to a special person only.
There was no charter party. The bills of lading failed to show any special arrangement, but only a general provision to the
effect that the M/V Cherokee was a general cargo carrier. Further, the bare fact that the vessel was carrying a
particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel
from a common to a private carrier, especially where, as in this case, it was shown that the vessel was also carrying
passengers.
3. ID.; ID.; ID.; FAILURE TO KEEP VESSEL SEAWORTHY.- M/V Cherokee was not seaworthy when it embarked on its
voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The
failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach
of its duty prescribed in Article 1755 of the Civil Code.
4. ID.; ID.; ID.; DOCTRINE OF LIMITED LIABILITY; NOT APPLICABLE WHERE THERE WAS NEGLIGENCE
ON PART OF THE VESSEL OWNER.- The doctrine of limited liability does not apply where there was negligence on
the part of the vessel owner or agent. LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in
having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any
storm that may be deemed as force majeure, inasmuch as the wind condition in the area where it sank was determined to be
moderate. Since it was remiss in the performance of its duties, LOADSTAR cannot hide behind the limited liability
doctrine to escape responsibility for the loss of the vessel and its cargo.

5. ID.; ID.; ID.; STIPULATION OF SHIPMENTS MADE AT OWNERS RISK; VOID.- The stipulation in the case at bar
effectively reduces the common carriers liability for the loss or destruction of the goods to a degree less than extraordinary
[Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments made at owners risk. Such
stipulation is obviously null and void for being contrary to public policy. It has been said: Three kinds of stipulations have
often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or damage
occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed
valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher
value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. Since the stipulation in
question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights which the latter has
against the common carrier, LOADSTAR.
6. ID.; ID.; ID.; PRESCRIPTION OF CLAIMS FOR LOSS.- MICs cause of action had not yet prescribed at the time it was
concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the
matter, the Carriage of Goods by Sea Act (COGSA) - which provides for a one-year period of limitation on claims for loss
of, or damage to, cargoes sustained during transit - may be applied suppletorily to the case at bar. This one-year prescriptive
period also applies to the insurer of the goods. In this case, the period for filing the action for recovery has not yet elapsed.
Moreover, a stipulation reducing the one-year period is null and void; it must, accordingly, be struck down.
APPEARANCES OF COUNSEL
King Capuchino Tan & Associates for petitioner.
Zapa Law Office for private respondent.

FIRST DIVISION
[G.R. No. 131621. September 28, 1999]
LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and THE MANILA INSURANCE CO.,
INC., respondents.
DECISION
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997 decision[1] of the Court
of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991 [2] of the Regional Trial Court of Manila,
Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC)
the amount of P6,067,178, with legal interest from the filing of the complaint until fully paid, P8,000 as attorneys fees, and the
costs of the suit; and (b) its resolution of 19 November 1997, [3] denying LOADSTARs motion for reconsideration of said
decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the vessel) the following goods for
shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including TOTAL
LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc.
(hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the
vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim
with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its
claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due
to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance proceeds
from the loss of the vessel directly to MIC, said amount to be deducted from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed that the sinking of its vessel
was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the
party insured. In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to
the Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on that
fateful voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR retained
control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining the
rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been seaworthy, it
could have withstood the natural and inevitable action of the sea on 20 November 1984, when the condition of
the sea was moderate. The vessel sank, not because of force majeure, but because it was not
seaworthy. LOADSTARS allegation that the sinking was probably due to the convergence of the winds, as
stated by a PAGASA expert, was not duly proven at the trial. The limited liability rule, therefore, is not
applicable considering that, in this case, there was an actual finding of negligence on the part of the carrier. [5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind
only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was subrogated
to the latters rights as against the carrier, LOADSTAR. [6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached their
destination. LOADSTARs defense of diligence of a good father of a family in the training and selection of its
crew is unavailing because this is not a proper or complete defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered on
board a ship in good order and condition, and the shipowner delivers them to the shipper in bad order and
condition, it then devolves upon the shipowner to both allege and prove that the goods were damaged by reason
of some fact which legally exempts him from liability. Transportation of the merchandise at the risk and venture
of the shipper means that the latter bears the risk of loss or deterioration of his goods arising from fortuitous
events, force majeure, or the inherent nature and defects of the goods, but not those caused by the presumed
negligence or fault of the carrier, unless otherwise proved. [7]
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?

Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued a certificate
of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only one shipper, one consignee
for a special cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee was not timely raised below; hence,
it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for delivery to one
consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of lading in this case made no
mention of any charter party but only a statement that the vessel was a general cargo carrier. Neither was there any special
arrangement between LOADSTAR and the shipper regarding the shipment of the cargo. The singular fact that the vessel was
carrying a particular type of cargo for one shipper is not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been negligent, and
the burden of proving otherwise devolved upon MIC.[8]
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the vessel
was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety engineers of the
Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the time was experienced, licensed
and unquestionably competent. With all these precautions, there could be no other conclusion except that LOADSTAR exercised
the diligence of a good father of a family in ensuring the vessels seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force majeure. It
points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the next day
when the vessel sank due to strong waves. MICs witness, Gracelia Tapel, fully established the existence of two typhoons,
WELFRING and YOLING, inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1 was
declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the convergence of winds brought about
by these two typhoons strengthened wind velocity in the area, naturally producing strong waves and winds, in turn, causing the
vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired in
this case, is valid. Since the cargo was being shipped at owners risk, LOADSTAR was not liable for any loss or damage to the
same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply only to the shipper and the
carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme Courts ruling in the case of St. Paul
Fire & Marine Insurance Co. v. Macondray & Co., Inc., [9] and National Union Fire Insurance Company of Pittsburg v. StoltNielsen Phils., Inc.[10]
Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been instituted beyond the period
stated in the bills of lading for instituting the same suits based upon claims arising from shortage, damage, or non-delivery of
shipment shall be instituted within sixty days from the accrual of the right of action. The vessel sank on 20 November 1984; yet,
the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due to force
majeure, because the same concurred with LOADSTARs fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed waived.
Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR was at fault or negligent, and
because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is
tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be issued a
certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in question was
periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies,
Inc.,[11] where this Court held that a common carrier transporting special cargo or chartering the vessel to a special person
becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the

owner from liability for loss due to the negligence of its agent is void only if the strict policy governing common carriers is
upheld. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of
a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals [12] and National Steel
Corp. v. Court of Appeals,[13] both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the factual settings are
different. The records do not disclose that the M/V Cherokee, on the date in question, undertook to carry a special cargo or was
chartered to a special person only. There was no charter party. The bills of lading failed to show any special arrangement, but
only a general provision to the effect that the M/V Cherokee was a general cargo carrier.[14] Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to
convert the vessel from a common to a private carrier, especially where, as in this case, it was shown that the vessel was also
carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Article
1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, [15] the Court juxtaposed the statutory definition of
common carriers with the peculiar circumstances of that case, viz.:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making
such distinctions.
xxx
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely backhauled goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic or occasional
rather than regular or scheduled manner, and even though private respondents principal occupation was not the carriage of goods
for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that that fee frequently
fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was
not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability
under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute
and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience,
would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with
applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well
being and property of those members of the general community who happen to deal with such carrier. The law imposes duties
and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a
common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
Moving on to the second assigned error, we find that the M/V Cherokee was not seaworthy when it embarked on its
voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. For a vessel to be seaworthy, it must
be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.[16]

Neither do we agree with LOADSTARs argument that the limited liability theory should be applied in this case. The
doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent. [17] LOADSTAR
was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an
approaching typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the
wind condition in the area where it sank was determined to be moderate. Since it was remiss in the performance of its duties,
LOADSTAR cannot hide behind the limited liability doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard of
this Courts pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc.,[18] and National Union Fire Insurance
v. Stolt-Nielsen Phils., Inc.[19] It was ruled in these two cases that after paying the claim of the insured for damages under the
insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in
turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or restricted by the
provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and
restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the carriers liability
to an amount fixed in the bill of lading which the parties may enter into, provided that the same was freely and fairly agreed upon
(Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces the common carriers liability for
the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable
for any loss or damage to shipments made at owners risk. Such stipulation is obviously null and void for being contrary to
public policy.[20] It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any and all
liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And thethird is one limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second
kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. [21]
Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights
which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MICs cause of action had not
yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during transit may be applied suppletorily to the case at
bar. This one-year prescriptive period also applies to the insurer of the good. [22] In this case, the period for filing the action for
recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is null and void; [23] it must, accordingly, be
struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of Appeals in
CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

THIRD DIVISION
[G.R. No. 102316. June 30, 1997]
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs. COURT OF APPEALS AND SEVEN
BROTHERS SHIPPING CORPORATION, respondents.
DECISION
PANGANIBAN, J.:

Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split, short-landing, breakages and any
kind of damages to the cargo [1] valid? This is the main question raised in this petition for review assailing the Decision of
Respondent Court of Appeals[2] in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the
judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff the sum of
TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal interest thereon from the
date of demand on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven Brothers Shipping
Corporation to pay plaintiff the amount of TWO MILLION PESOS (P2,000,000.00) representing the value of lost logs plus legal
interest from the date of demand on April 24, 1984 until full payment thereof; the reasonable attorneys fees in the amount
equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Companys counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven Brothers
Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. [3]
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement with
the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the formers lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and Insurance Co.,
Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffs insured
logs.
On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium and documentary stamps due on the
policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the
insurance policy it issued as of the date of the inception for non-payment of the premium due in accordance with Section 77 of
the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of
the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers
Shipping Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both defendants
shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following assignment of errors, to
wit:
A.
The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors, was not due
to fortuitous event but to the negligence of the captain in stowing and securing the logs on board, causing the iron chains to snap
and the logs to roll to the portside.

B.
The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation from logs
(sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking article 1745 of the New Civil
Code.
C.
The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the alternative and
ordering/directing it to pay plaintiff-appellee the amount of two million (P2,000,000.00) pesos representing the value of the logs
plus legal interest from date of demand until fully paid.
D.
The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee reasonable
attorneys fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit.
E.
fees.

The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for attorneys

F.

The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A.
The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and Insurance
Company, Inc. and likewise erred in not holding that he was the representative of the insurance broker Columbia Insurance
Brokers, Ltd.
B.
The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid on the
policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.
C.

The trial court erred in not applying Section 77 of the Insurance Code.

D.
The trial court erred in disregarding the receipt of payment clause attached to and forming part of the Marine Cargo
Insurance Policy No. 84/24229.
E.
The trial court in disregarding the statement of account or bill stating the amount of premium and documentary stamps
to be paid on the policy by the plaintiff-appellee.
F.
The trial court erred in disregarding the indorsement of cancellation of the policy due to non-payment of premium and
documentary stamps.
G.
The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay plaintiffappellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until the amount is fully paid,
H.
The trial court erred in not awarding to the defendant-appellant the attorneys fees alleged and proven in its
counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are liable to the
plaintiff for the latters lost logs.[4]
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and Insurance
Company (South Sea), but modified it by holding that Seven Brothers Shipping Corporation (Seven Brothers) was not liable
for the lost cargo.[5] In modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the shipping
corporation. The provisions on common carriers should not be applied where the carrier is not acting as such but as a private
carrier.

Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (Home Insurance
Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. [6]
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (Valenzuela) filed separate petitions for
review before this Court. In a Resolution dated June 2, 1995, this Court denied the petition of South Sea. [7] There the Court
found no reason to reverse the factual findings of the trial court and the Court of Appeals that Chua was indeed an authorized
agent of South Sea when he received Valenzuelas premium payment for the marine cargo insurance policy which was thus
binding on the insurer.[8]
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision which
exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuelas arguments revolve around a single issue: whether or not respondent Court (of Appeals) committed
a reversible error in upholding the validity of the stipulation in the charter party executed between the petitioner and the private
respondent exempting the latter from liability for the loss of petitioners logs arising from the negligence of its (Seven Brothers)
captain.[9]
The Courts Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the (o)wners shall not be responsible for
loss, split, short-landing, breakages and any kind of damages to the cargo. [10] The validity of this stipulation is the lis mota of
this case.
It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking of M/V
Seven Ambassadors resulting in the loss of its cargo was the snapping of the iron chains and the subsequent rolling of the logs to
the portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to fortuitous
event.[11] Likewise undisputed is the status of Private Respondent Seven Brothers as a private carrier when it contracted to
transport the cargo of Petitioner Valenzuela. Even the latter admits this in its petition. [12]
The trial court deemed the charter party stipulation void for being contrary to public policy, [13] citing Article 1745 of the
Civil Code which provides:
Art. 1745.

Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

(1)

That the goods are transported at the risk of the owner or shipper;

(2)

That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;

(3)

That the common carrier need not observe any diligence in the custody of the goods;

(4)
That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of
ordinary prudence in the vigilance over the movables transported;
(5)

That the common carrier shall not be responsible for the acts or omissions of his or its employees;

(6)
That the common carriers liability for acts committed by thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished;
(7)
That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of
Commerce[14] and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil Code,
[15]
petitioner further contends that said stipulation gives no duty or obligation to the private respondent to observe the diligence
of a good father of a family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as a private carrier in
transporting petitioners lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which were cited by
petitioner may not be applied unless expressly stipulated by the parties in their charter party. [16]
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the
charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the ship
captain. Pursuant to Article 1306[17] of the Civil Code, such stipulation is valid because it is freely entered into by the parties and
the same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is
not even a contract of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general
public cannot justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy
embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by this
Court in Home Insurance Co. vs. American Steamship Agencies, Inc. [18] In that case, the trial court similarly nullified a stipulation
identical to that involved in the present case for being contrary to public policy based on Article 1744 of the Civil Code and
Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for damages resulting from the
partial loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon, the following
well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private
carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed
valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in this case of a ship totally chartered for the use of a single
party.[19] (Underscoring supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract of
transportation with common carriers without a hand or a voice in the preparation thereof. The riding public merely adheres to the
contract; even if the public wants to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law
on common carriers extends its protective mantle against one-sided stipulations inserted in tickets, invoices or other documents
over which the riding public has no understanding or, worse, no choice. Compared to the general public, a charterer in a contract
of private carriage is not similarly situated. It can -- and in fact it usually does -- enter into a free and voluntary agreement. In
practice, the parties in a contract of private carriage can stipulate the carriers obligations and liabilities over the shipment which,
in turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for convenience and economy, may
opt to set aside the protection of the law on common carriers. When the charterer decides to exercise this option, he takes a
normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it covers only a
stipulation exempting a private carrier from liability for the negligence of his agent, but it does not apply to a stipulation
exempting a private carrier like private respondent from the negligence of his employee or servant which is the situation in this
case.[20] This contention of petitioner is bereft of merit, for it raises a distinction without any substantive difference. The case

of Home Insurance specifically dealt with the liability of the shipowner for acts or negligence of its captain and crew [21] and a
charter party stipulation which exempts the owner of the vessel from any loss or damage or delay arising from any other source,
even from the neglect or fault of the captain or crew or some other person employed by the owner on board, for whose acts the
owner would ordinarily be liable except for said paragraph. [22] Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the
Philippines[23] deserves scant consideration. The Court there categorically held that said rule was reasonable and proceeded to
apply it in the resolution of that case. Petitioner miserably failed to show such circumstances or arguments which would
necessitate a departure from a well-settled rule. Consequently, our ruling in said case remains a binding judicial precedent based
on the doctrine of stare decisis and Article 8 of the Civil Code which provides that (j)udicial decisions applying or interpreting
the laws or the Constitution shall form part of the legal system of the Philippines.
In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a stipulation exempting the owner
from liability even for the negligence of its agent is valid. [24]
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will discuss the other
arguments of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code of Commerce
which confer on petitioner the right to recover damages from the shipowner and ship agent for the acts or conduct of the captain.
[25]
We are not persuaded. Whatever rights petitioner may have under the aforementioned statutory provisions were waived when
it entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is contrary to law, public order, public
policy, morals, or good customs, or prejudicial to a person with a right recognized by law. As a general rule patrimonial rights
may be waived as opposed to rights to personality and family rights which may not be made the subject of waiver. [26] Being
patently and undoubtedly patrimonial, petitioners right conferred under said articles may be waived. This, the petitioner did by
acceding to the contractual stipulation that it is solely responsible for any damage to the cargo, thereby exempting the private
carrier from any responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage binds
petitioner and private respondent alone; it is not imbued with public policy considerations for the general public or third persons
are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles 1170 and
1173 of the Civil Code[27] which read:
Art. 1170.
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages
Art. 1173.
The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a
family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to perform. In
the instant case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for this obligation to bear the loss
was shifted to petitioner by virtue of the charter party. This shifting of responsibility, as earlier observed, is not void. The
provisions cited by petitioner are, therefore, inapplicable to the present case.

Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article 1173 of the
Civil Code which prescribes the standard of diligence to be observed in the event the law or the contract is silent. In the instant
case, Article 362 of the Code of Commerce [28] provides the standard of ordinary diligence for the carriage of goods by a
carrier. The standard of diligence under this statutory provision may, however, be modified in a contract of private carriage as the
petitioner and private respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. [29] which, in turn, quoted Juan Ysmael & Co. vs. Gabino Barreto &
Co. and argues that the public policy considerations stated there vis--vis contractual stipulations limiting the carriers liability
be applied with equal force to this case. [31] It also cites Manila Railroad Co. vs. Compaia Transatlantica [32] and contends that
stipulations exempting a party from liability for damages due to negligence should not be countenanced and should be strictly
construed against the party claiming its benefit. [33] We disagree.
[30]

The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the application of such
policy considerations and concomitantly stricter rules. As already discussed above, the public policy considerations behind the
rigorous treatment of common carriers are absent in the case of private carriers. Hence, the stringent laws applicable to common
carriers are not applied to private carriers. The case of Manila Railroad is also inapplicable because the action for damages there
does not involve a contract for transportation. Furthermore, the defendant therein made a promise to use due care in the lifting
operations and, consequently, it was bound by its undertaking; besides, the exemption was intended to cover accidents due to
hidden defects in the apparatus or other unforseeable occurrences not caused by its personal negligence. This promise was
thus construed to make sense together with the stipulation against liability for damages. [34] In the present case, we stress that the
private respondent made no such promise. The agreement of the parties to exempt the shipowner from responsibility for any
damage to the cargo and place responsibility over the same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, [35] Walter A. Smith & Co. vs. Cadwallader
Gibson Lumber Co.,[36] N. T. Hashim and Co. vs. Rocha and Co.,[37] Ohta Development Co. vs.
SteamshipPompey[38] and Limpangco Sons vs. Yangco Steamship Co.[39] in support of its contention that the shipowner be held
liable for damages.[40] These however are not on all fours with the present case because they do not involve a similar factual
milieu or an identical stipulation in the charter party expressly exempting the shipowner from responsibility for any damage to
the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court has earlier
affirmed the liability of South Sea for the loss suffered by petitioner. Private respondent submits that petitioner is not legally
entitled to collect twice for a single loss. [41] In view of the above disquisition upholding the validity of the questioned charter
party stipulation and holding that petitioner may not recover from private respondent, the present issue is moot and academic. It
suffices to state that the Resolution of this Court dated June 2, 1995 [42] affirming the liability of South Sea does not, by itself,
necessarily preclude the petitioner from proceeding against private respondent. An aggrieved party may still recover the
deficiency from the person causing the loss in the event the amount paid by the insurance company does not fully cover the
loss. Article 2207 of the Civil Code provides:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible error on
the part of Respondent Court. The assailed Decision is AFFIRMED.

PLANTERS CASE AGAIN

BELGIAN CASE AGAIN
APL v KLEPPER (my case)

THIRD DIVISION
[G.R. No. 146018. June 25, 2003]
EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL INSURANCE COMPANY,
INC., respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to the value
declared by the shipper. On the other hand, the liability of the insurer is determined by the actual value covered by the insurance
policy and the insurance premiums paid therefor, and not necessarily by the value declared in the bill of lading.
The Case
Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the August 31, 2000
Decision[2] and the November 17, 2000 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 62751. The dispositive
part of the Decision reads:
IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED. [Petitioner]
is hereby condemned to pay to [respondent] the total amount of P148,500.00, with interest thereon, at the rate of 6% per annum,
from date of this Decision of the Court. [Respondents] claim for attorneys fees [is] DISMISSED. [Petitioners] counterclaims
are DISMISSED.[5]
The assailed Resolution denied petitioners Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Courts[6] Decision,[7] which was later reversed by the CA, states:
WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.
No cost.[8]
The Facts
The facts of the case are summarized by the appellate court in this wise:
Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong
Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas dcor and two (2) sacks of plastic toys,
to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart from Cebu City, on December 12,
1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia
was both the shipper and consignee of the cargo valued, on the face thereof, in the amount of P6,500.00. Zosimo Mercado
likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat
and one (1) bundle of various or assorted goods for transportation thereof from Cebu City to Tandag, Surigao del Sur, on board
the said vessel, and said voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face thereof, was
valued in the amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado was both the shipper and consignee of the
cargo.
On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB General
Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 against all risks under Open Policy No.
002/91/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date. She also insured the cargo
covered by Bill of Lading No. 58, with [respondent], for the amount of P50,000.00, under Open Policy No. 002/91/254 on the
basis of which [respondent] issued Marine Risk Note No. 18410 on said date.

When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods of Legaspi. After
the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and, despite earnest efforts of the officers
and crew of the vessel, the fire engulfed and destroyed the entire vessel resulting in the loss of the vessel and the cargoes
therein. The Captain filed the required Marine Protest.
Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured under Marine Risk Note
No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her claim, a Receipt, dated December 11, 1991,
purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him for the goods he received from Feliciana
Legaspi valued in the amount of P110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB
Check No. 612939, dated March 9, 1992, in the net amount ofP99,000.00, in settlement of her claim after which she executed
a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the value of the cargo covered
by Bill of Lading No. 58. She submitted to [respondent] a Receipt, dated December 11, 1991 andOrder Slips, purportedly
signed by Nestor Angelia for the goods he received from Feliciana Legaspi valued at P60,338.00. [Respondent] approved her
claim and remitted to Feliciana Legaspi the net amount of P49,500.00, after which she signed a Subrogation Receipt/Deed,
dated March 9, 1992, in favor of [respondent].
On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against [petitioner], with
the Regional Trial Court of Makati City, for the collection of the total principal amount of P148,500.00, which it paid to Feliciana
Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and against the [petitioner] as follows:
WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered ordering
[petitioner] to pay [respondent] the following.
1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the time of filing of this complaint
until fully paid;
2. Attorneys fees in the amount of P10,000.00; and
3. Cost of suit.
[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and equitable under the
premises.
[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and received by,
[petitioner] for transportation to Tandag, Surigao del Sur under Bill of Ladings, Annexes A and B of the complaint; that the
loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana Legaspi had executed Subrogation
Receipts/Deeds in favor of [respondent] after paying to her the value of the cargo on account of the Marine Risk Notes it issued
in her favor covering the cargo.
In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel; (b) the complaint stated no cause of action against [petitioner]; and (c) the
shippers/consignee had already been paid the value of the goods as stated in the Bill of Lading and, hence, [petitioner] cannot be
held liable for the loss of the cargo beyond the value thereof declared in the Bill of Lading.
After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the depositions of Chester
Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident of Cebu City, and of Noel Tanyu, an
officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu City, to be given before the Presiding Judge of
Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition,
before the Court and declared inter alia, that: [petitioner] is a family corporation like the Chester Marketing, Inc.; Nestor
Angelia had been doing business with [petitioner] and Chester Marketing, Inc., for years, and incurred an account with Chester
Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59for the cargo
described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees, respectively; the engine room of the M/V
Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in the total loss of the vessel and its cargo; an
investigation was conducted by the Board of Marine Inquiry of the Philippine Coast Guard which rendered a Report, dated
February 13, 1992 absolving [petitioner] of any responsibility on account of the fire, which Report of the Board was approved by
the District Commander of the Philippine Coast Guard; a few days after the sinking of the vessel, a representative of the Legaspi
Marketing filed claims for the values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees,
Nestor Angelia and Zosimo Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the representative of

the Legaspi Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned to
Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the Legaspi Marketing;
that [petitioner] approved the claim of Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and remitted to
Legaspi Marketing the said amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in the
amount of P14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated August 12, 1992,
for the said amount of P14,000.00 in full payment of claims under Bill of Lading No. 59; that [petitioner] approved the claim of
Nestor Angelia in the amount of P6,500.00 but that since the latter owed Chester Marketing, Inc., for some purchases,
[petitioner] merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against his account with Chester
Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received by Legaspi Marketing, hence, the
production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner] never knew, before settling
with Legaspi Marketing and Nestor Angelia that the cargo under both Bills of Lading were insured with [respondent], or that
Feliciana Legaspi filed claims for the value of the cargo with [respondent] and that the latter approved the claims of Feliciana
Legaspi and paid the total amount of P148,500.00 to her; [petitioner] came to know, for the first time, of the payments by
[respondent] of the claims of Feliciana Legaspi when it was served with the summons and complaint, on October 8, 1992; after
settling his claim, Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated July 2,
1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the cargo covered by Bills of
Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of the cargo as stated in the Bills of Lading.
[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x [9] (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed to prove that the fire which consumed the vessel and its cargo was caused by
something other than its negligence in the upkeep, maintenance and operation of the vessel. [10]
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA, however, held
that the payment did not extinguish petitioners obligation to respondent, because there was no evidence that Feliciana Legaspi
(the insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the impropriety of treating the claim
under Bill of Lading No. 58 -- covering cargo valued therein at P6,500 -- as a setoff against Nestor Angelias account with
Chester Enterprises, Inc.
Finally, it ruled that respondent is not bound by the valuation of the cargo under the Bills of Lading, x x x nor is the value
of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in the first place, the goods were
insured with the [respondent] for the total amount of P150,000.00, which amount may be considered as the face value of the
goods.[11]
Hence this Petition.[12]
Issues
Petitioner raises for our consideration the following alleged errors of the CA:
I
The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioners liability should be
based on the actual insured value of the goods and not from actual valuation declared by the shipper/consignee in the bill of
lading.
II
The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial court a quo,
holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure and due
diligence was [exercised] by petitioner prior to, during and immediately after the fire on [petitioners] vessel.
III

The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action against the
petitioner.[13]
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent of its liability?
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that its exercise of
due diligence was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag sank due to a
fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the fuel oil tank, which had
a mere two-inch gap from the engine room walling, thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused by force
majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy.[14] Hence, fire is not considered a natural disaster or calamity. In Eastern Shipping
Lines, Inc. v. Intermediate Appellate Court,[15] we explained:
x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the
category of an act of God unless caused by lighting or by other natural disaster or calamity. It may even be caused by the actual
fault or privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands where a
reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law
adopts a protective policy towards agriculture.
As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code provides
that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have been at fault or to have
acted negligently, unless it proves that it has observed the extraordinary diligence required by law.
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to discover the
existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence of those officials. [16]
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the first step in exercising the
required vigilance. Petitioner did not present sufficient evidence showing what measures or acts it had undertaken to ensure the
seaworthiness of the vessel. It failed to show when the last inspection and care of the auxiliary engine fuel oil service tank was
made, what the normal practice was for its maintenance, or some other evidence to establish that it had exercised extraordinary
diligence. It merely stated that constant inspection and care were not possible, and that the last time the vessel was dry-docked
was in November 1990. Necessarily, in accordance with Article 1735 [17] of the Civil Code, we hold petitioner responsible for the
loss of the goods covered by Bills of Lading Nos. 58 and 59.
Second Issue:
Extent of Liability

Respondent contends that petitioners liability should be based on the actual insured value of the goods, subject of this
case. On the other hand, petitioner claims that its liability should be limited to the value declared by the shipper/consignee in the
Bill of Lading.
The records[18] show that the Bills of Lading covering the lost goods contain the stipulation that in case of claim for loss or
for damage to the shipped merchandise or property, [t]he liability of the common carrier x x x shall not exceed the value of the
goods as appearing in the bill of lading. [19] The attempt by respondent to make light of this stipulation is unconvincing. As it had
the consignees copies of the Bills of Lading, [20] it could have easily produced those copies, instead of relying on mere allegations
and suppositions. However, it presented mere photocopies thereof to disprove petitioners evidence showing the existence of the
above stipulation.
A stipulation that limits liability is valid [21] as long as it is not against public policy. In Everett Steamship Corporation v.
Court of Appeals,[22] the Court stated:
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo to a certain sum, unless
the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which
provides:
Art. 1749. A stipulation that the common carriers liability is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of
the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea-Land Service,
Inc. vs. Intermediate Appellate Court, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of
the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil Code
Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit
to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to
questioning the justness and fairness of the law itself, and this the private respondent does not pretend to do. But over and above
that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carriers liability for loss
must be reasonable and just under the circumstances, and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18.
All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shippers net invoice cost
plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any
consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding One
Hundred Thousand Yen in Japanese Currency (100,000.00) or its equivalent in any other currency per package or customary
freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before
receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability would
only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not
declare a higher valuation, it had itself to blame for not complying with the stipulations. (Italics supplied)
In the present case, the stipulation limiting petitioners liability is not contrary to public policy. In fact, its just and
reasonable character is evident. The shippers/consignees may recover the full value of the goods by the simple expedient of

declaring the true value of the shipment in the Bill of Lading. Other than the payment of a higher freight, there was nothing to
stop them from placing the actual value of the goods therein. In fact, they committed fraud against the common carrier by
deliberately undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier. Such stipulation
obliges the shipper/consignee to notify the common carrier of the amount that the latter may be liable for in case of loss of the
goods. The common carrier can then take appropriate measures -- getting insurance, if needed, to cover or protect itself. This
precaution on the part of the carrier is reasonable and prudent. Hence, a shipper/consignee that undervalues the real worth of the
goods it seeks to transport does not only violate a valid contractual stipulation, but commits a fraudulent act when it seeks to
make the common carrier liable for more than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their respective Bills of
Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance company was
paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than what it was entitled to for
transporting the goods that had been deliberately undervalued by the shippers in the Bill of Lading. Between the two of them, the
insurer should bear the loss in excess of the value declared in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature and the value of the goods shipped
were declared and reflected in the bill of lading, like in the present case. The Court therein considered this declaration as the
basis of the carriers liability and ordered payment based on such amount. Following this ruling, petitioner should not be held
liable for more than what was declared by the shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CAs finding that Feliciana Legaspi was the owner of the goods covered by Bills of
Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia and Zosimo Mercado, respectively;
thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in case of loss, to compensation therefor. There
is no evidence showing that petitioner paid her for the loss of those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading No. 59, for
which the latter subsequently paid P14,000. But nothing in the records convincingly shows that the former was the owner of the
goods. Respondent was, however, able to prove that it was Feliciana Legaspi who owned those goods, and who was thus entitled
to payment for their loss. Hence, the claim for the goods under Bill of Lading No. 59 cannot be deemed to have been
extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at P6,500, the parties have
not convinced us to disturb the findings of the CA that compensation could not validly take place. Thus, we uphold the appellate
courts ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense that
petitioner is ORDERED to pay respondent the sums of P14,000 and P6,500, which represent the value of the goods stated in Bills
of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.