1
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.),
INC.,
Petitioner,- versus -
COURT OF APPEALS and PIONEER INSURANCE AND
SURETY CORPORATION,
Respondents,
G.R. No. 166250
July 26, 2010
For review is the Court of Appeals (CA) Decision[1]
dated April 29, 2004 and Resolution[2] dated
November 26, 2004. The assailed Decision affirmed
the Regional Trial Court (RTC) decision[3] dated
February 22, 2001; while the assailed Resolution
denied petitioner Unsworth Transport International
(Philippines), Inc., American President Lines, Ltd.
(APL), and Unsworth Transport International, Inc.s
(UTIs) motion for reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing
Corporation delivered to UTI a shipment of 27 drums
of various raw materials for pharmaceutical
manufacturing, consisting of: 1) 3 drums (of) extracts,
flavoring liquid, flammable liquid x x x banana
flavoring; 2) 2 drums (of) flammable liquids x x x
turpentine oil; 2 pallets. STC: 40 bags dried yeast; and
3) 20 drums (of) Vitabs: Vitamin B Complex Extract.[4]
UTI issued Bill of Lading No. C320/C15991-2,[5]
covering the aforesaid shipment. The subject
shipment was insured with private respondent
Pioneer Insurance and Surety Corporation in favor of
Unilab against all risks in the amount of
P1,779,664.77 under and by virtue of Marine Risk
Note Number MC RM UL 0627 92[6] and Open Cargo
Policy No. HO-022-RIU.[7]
On the same day that the bill of lading was issued, the
shipment was loaded in a sealed 1x40 container van,
with no. APLU-982012, boarded on APLs vessel M/V
Pres. Jackson, Voyage 42, and transshipped to APLs
M/V Pres. Taft[8] for delivery to petitioner in favor of
the consignee United Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the
port of Manila. On October 6, 1992, petitioner
received the said shipment in its warehouse after it
stamped the Permit to Deliver Imported Goods[9]
procured by the Champs Customs Brokerage.[10]
Three days thereafter, or on October 9, 1992,
Oceanica Cargo Marine Surveyors Corporation
(OCMSC) conducted a stripping survey of the
shipment located in petitioners warehouse. The
survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order
condition and properly sealed
19- steel drums STC Vitamin B Complex Extract, all in
good order condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with
cut/hole on side, with approx. spilling of 1%[11]
On October 15, 1992, the arrastre Jardine Davies
Transport Services, Inc. (Jardine) issued Gate Pass No.
7614[12] which stated that 22 drums[13] Raw
Materials for Pharmaceutical Mfg. were loaded on a
truck with Plate No. PCK-434 facilitated by Champs
for delivery to Unilabs warehouse. The materials
were noted to be complete and in good order in the
gate pass.[14] On the same day, the shipment arrived
in Unilabs warehouse and was immediately surveyed
by an independent surveyor, J.G. Bernas Adjusters &
Surveyors, Inc. (J.G. Bernas). The Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side
content lacking
5-drums shortship/short delivery[15]
On October 23 and 28, 1992, the same independent
surveyor conducted final inspection surveys which
yielded the same results. Consequently, Unilabs
quality control representative rejected one paper bag
containing dried yeast and one steel drum containing
Vitamin B Complex as unfit for the intended
purpose.[16]
On November 7, 1992, Unilab filed a formal claim[17]
for the damage against private respondent and UTI.
On November 20, 1992, UTI denied liability on the
basis of the gate pass issued by Jardine that the goods
were in complete and good condition; while private
respondent paid the claimed amount on March 23,
1993. By virtue of the Loss and Subrogation
Receipt[18] issued by Unilab in favor of private
respondent, the latter filed a complaint for Damages
against APL, UTI and petitioner with the RTC of
Makati.[19] The case was docketed as Civil Case No.
93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial
on the merits ensued. On February 22, 2001, the RTC
decided in favor of private respondent and against
APL, UTI and petitioner, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintif PIONEER INSURANCE & SURETY
CORPORATION and against the defendants
AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now
known as JUGRO TRANSPORT INTL., PHILS.), ordering

the latter to pay, jointly and severally, the former the
following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO
HUNDRED THIRTY ONE and 27/100 (Php76,231.27)
with interest at the legal rate of 6% per annum to be
computed starting from September 30, 1993 until
fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as
attorneys fees;
3. Cost of this litigation.
SO ORDERED.[20]
On appeal, the CA affirmed the RTC decision on April
29, 2004. The CA rejected UTIs defense that it was
merely a forwarder, declaring instead that it was a
common carrier. The appellate court added that by
issuing the Bill of Lading, UTI acknowledged receipt of
the goods and agreed to transport and deliver them
at a specific place to a person named or his order. The
court further concluded that upon the delivery of the
subject shipment to petitioners warehouse, its
liability became similar to that of a depositary. As
such, it ought to have exercised ordinary diligence in
the care of the goods. And as found by the RTC, the
CA agreed that petitioner failed to exercise the
required diligence. The CA also rejected petitioners
claim that its liability should be limited to $500 per
package pursuant to the Carriage of Goods by Sea Act
(COGSA) considering that the value of the shipment
was declared pursuant to the letter of credit and the
pro forma invoice. As to APL, the court considered it
as a common carrier notwithstanding the non-
issuance of a bill of lading inasmuch as a bill of lading
is not indispensable for the execution of a contract of
carriage.[21]
Unsatisfied, petitioner comes to us in this petition for
review on certiorari, raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN UPHOLDING THE DECISION OF THE REGIONAL
TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING
THE SUM OF SEVENTY SIX THOUSAND TWO
HUNDRED THIRTY ONE AND 27/100 PESOS
(PHP76,231.27) WITH LEGAL INTEREST AT 6% PER
ANNUM AS ACTUAL DAMAGES AND 25% AS
ATTORNEYS FEES.
2
2. WHETHER OR NOT PETITIONER UTI IS A
COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED
THE REQUIRED ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT
SUFFICIENTLY ESTABLISHED THE ALLEGED DAMAGE
TO ITS CARGO.[22]
Petitioner admits that it is a forwarder but disagrees
with the CAs conclusion that it is a common carrier. It
also questions the appellate courts findings that it
failed to establish that it exercised extraordinary or
ordinary diligence in the vigilance over the subject
shipment. As to the damages allegedly suffered by
private respondent, petitioner counters that they
were not sufficiently proven. Lastly, it insists that its
liability, in any event, should be limited to $500
pursuant to the package limitation rule. Indeed,
petitioner wants us to review the factual findings of
the RTC and the CA and to evaluate anew the
evidence presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may
not be raised in a petition for review on certiorari as
clearly stated in Section 1, Rule 45 of the Rules of
Court, viz.:
Section 1. Filing of petition with Supreme Court. A
party desiring to appeal by certiorari from a judgment
or final order or resolution of the Court of Appeals,
the Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of
law which must be distinctly set forth.
Admittedly, petitioner is a freight forwarder. The
term freight forwarder" refers to a firm holding itself
out to the general public (other than as a pipeline,
rail, motor, or water carrier) to provide
transportation of property for compensation and, in
the ordinary course of its business, (1) to
assemble and consolidate, or to provide for
assembling and consolidating, shipments, and to
perform or provide for break-bulk and distribution
operations of the shipments; (2) to assume
responsibility for the transportation of goods from

the place of receipt to the place of destination; and
(3) to use for any part of the transportation a carrier
subject to the federal law pertaining to common
carriers.[23]
A freight forwarders liability is limited to damages
arising from its own negligence, including negligence
in choosing the carrier; however, where the
forwarder contracts to deliver goods to their
destination instead of merely arranging for their
transportation, it becomes liable as a common carrier
for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually
executes the transport, even though the forwarder
does not carry the merchandise itself.[24]
It is undisputed that UTI issued a bill of lading in favor
of Unilab. Pursuant thereto, petitioner undertook to
transport, ship, and deliver the 27 drums of raw
materials for pharmaceutical manufacturing to the
consignee.
A bill of lading is a written acknowledgement of the
receipt of goods and an agreement to transport and
to deliver them at a specified place to a person named
or on his or her order.[25] It 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 receipt, it
recites the date and place of shipment, describes the
goods as to quantity, weight, dimensions,
identification marks, condition, quality, and value. As
a contract, it names the contracting parties, which
include the consignee; fixes the route, destination,
and freight rate or charges; and stipulates the rights
and obligations assumed by the parties.[26]
Undoubtedly, UTI is liable as a common carrier.
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.
That is, unless they prove that they exercised
extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they
observed such diligence.[27] 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, loss, or destruction
of the goods happened, the transporter shall be held
responsible.[28]
3
Though it is not our function to evaluate anew the
evidence presented, we refer to the records of the
case to show that, as correctly found by the RTC and
the CA, petitioner failed to rebut the prima facie
presumption of negligence in the carriage of the
subject shipment.
First, as stated in the bill of lading, the subject
shipment was received by UTI in apparent good order
and condition in New York, United States of America.
Second, the OCMSC Survey Report stated that one
steel drum STC Vitamin B Complex Extract was
discovered to be with a cut/hole on the side, with
approximate spilling of 1%. Third, though Gate Pass
No. 7614, issued by Jardine, noted that the subject
shipment was in good order and condition, it was
specifically stated that there were 22 (should be 27
drums per Bill of Lading No. C320/C15991-2) drums of
raw materials for pharmaceutical manufacturing.
Last, J.G. Bernas Survey Report stated that 1-s/drum
was punctured and retaped on the bottom side and
the content was lacking, and there was a short
delivery of 5-drums.
All these conclusively prove the fact of shipment in
good order and condition, and the consequent
damage to one steel drum of Vitamin B Complex
Extract while in the possession of petitioner which
failed to explain the reason for the damage. Further,
petitioner failed to prove that it observed the
extraordinary diligence and precaution which the law
requires a common carrier to exercise and to follow
in order to avoid damage to or destruction of the
goods entrusted to it for safe carriage and
delivery.[29]
However, we affirm the applicability of the Package
Limitation Rule under the COGSA, contrary to the RTC
and the CAs findings.
It is to be noted that the Civil Code does not limit the
liability of the common carrier to a fixed amount per
package. In all matters not regulated by the Civil
Code, the rights and obligations of common carriers
are governed by the Code of Commerce and special
laws. Thus, the COGSA supplements the Civil Code by
establishing a provision limiting the carriers liability in
the absence of a shippers declaration of a higher
value in the bill of lading.[30] Section 4(5) of the
COGSA provides:
(5) Neither the carrier nor the ship shall in any event
be or become liable for any loss or damage to or in
 4

connection with the transportation of goods in an

amount exceeding $500 per package of 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 the
bill of lading. This declaration, if embodied in the bill
of lading, shall be prima facie evidence, but shall not
be conclusive on the carrier.

In the present case, the shipper did not declare a

higher valuation of the goods to be shipped. Contrary
to the CAs conclusion, the insertion of the words L/C
No. LC No. 1-187-008394/ NY 69867 covering
shipment of raw materials for pharmaceutical Mfg. x
x x cannot be the basis of petitioners liability.[31]
Furthermore, the insertion of an invoice number does
not in itself sufficiently and convincingly show that
petitioner had knowledge of the value of the
cargo.[32]

In light of the foregoing, petitioners liability should be

limited to $500 per steel drum. In this case, as there
was only one drum lost, private respondent is entitled
to receive only $500 as damages for the loss. In
addition to said amount, as aptly held by the trial
court, an interest rate of 6% per annum should also
be imposed, plus 25% of the total sum as attorneys
fees.
WHEREFORE, premises considered, the petition is
PARTIALLY GRANTED. The Court of Appeals Decision
dated April 29, 2004 and Resolution dated November
26, 2004 are AFFIRMED with MODIFICATION by
reducing the principal amount due private
respondent Pioneer Insurance and Surety
Corporation from P76,231.27 to $500, with interest of
6% per annum from date of demand, and 25% of the
amount due as attorneys fees.

The other aspects of the assailed Decision and

Resolution STAND.

SO ORDERED.

G.R. No. 94761 May 17, 1993
MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing
business under the name and style of Ethegal
Laboratories, respondents.
Bito, Lozada, Ortega & Castillo for petitioner.
Humberto A. Jambora for private respondent.
Petitioner Maersk Line is engaged in the
transportation of goods by sea, doing business in the
Philippines through its general agent Compania
General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand,
is the proprietor of Ethegal Laboratories, a firm
engaged in the manutacture of pharmaceutical
products.
On November 12, 1976, private respondent ordered
from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly,
Inc.'s) agent in the Philippines, Elanco Products,
600,000 empty gelatin capsules for the manufacture
of his pharmaceutical products. The capsules were
placed in six (6) drums of 100,000 capsules each
valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC
GR CV No.10340, Folder of Exhibits, pp. 5-6), the
shipper Eli Lilly, Inc. of Puerto Rico advised private
respondent as consignee that the 600,000 empty
gelatin capsules in six (6) drums of 100,000 capsules
each, were already shipped on board MV "Anders
Maerskline" under Voyage No. 7703 for shipment to
the Philippines via Oakland, California. In said
Memorandum, shipper Eli Lilly, Inc. specified the date
of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were
mishipped and diverted to Richmond, Virginia, USA
and then transported back Oakland, Califorilia. The
goods finally arrived in the Philippines on June 10,
1977 or after two (2) months from the date specified
in the memorandum. As a consequence, private
respondent as consignee refused to take delivery of
the goods on account of its failure to arrive on time.
Private respondent alleging gross negligence and
undue delay in the delivery of the goods, filed an
action before the court a quo for rescission of
contract with damages against petitioner and Eli Lilly,
Inc. as defendants.
5
Denying that it committed breach of contract,
petitioner alleged in its that answer that the subject
shipment was transported in accordance with the
provisions of the covering bill of lading and that its
liability under the law on transportation of good
attaches only in case of loss, destruction or
deterioration of the goods as provided for in Article
1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its
answer with compulsory and cross-claim. In its cross-
claim, it alleged that the delay in the arrival of the the
subject merchandise was due solely to the gross
negligence of petitioner Maersk Line.
The issues having been joined, private respondent
moved for the dismissal of the complaint against Eli
Lilly, Inc.on the ground that the evidence on record
shows that the delay in the delivery of the shipment
was attributable solely to petitioner.
Acting on private respondent's motion, the trial court
dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim
against petitioner in a joint motion dated December
3, 1979.
After trial held between respondent and petitioner,
the court a quo rendered judgment dated January 8,
1982 in favor of respondent Castillo, the dispositive
portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe (sic)
and so hold (sic) that there was a breach in the
performance of their obligation by the defendant
Maersk Line consisting of their negligence to ship the
6 drums of empty Gelatin Capsules which under their
own memorandum shipment would arrive in the
Philippines on April 3, 1977 which under Art. 1170 of
the New Civil Code, they stood liable for damages.
Considering that the only evidence presented by the
defendant Maersk line thru its agent the Compania de
Tabacos de Filipinas is the testimony of Rolando
Ramirez who testified on Exhs. "1" to "5" which this
Court believe (sic) did not change the findings of this
Court in its decision rendered on September 4, 1980,
this Court hereby renders judgment in favor of the
plaintiff Efren Castillo as against the defendant
Maersk Line thru its agent, the COMPANIA GENERAL
DE TABACOS DE FILIPINAS and ordering:

(a) Defendant to pay the plaintiff Efren V.
Castillo the amount of THREE HUNDRED SIXTY NINE
THOUSAND PESOS, (P369,000.00) as unrealized
profit;.
(b) Defendant to pay plaintiff the sum of TWO
HUNDRED THOUSAND PESOS (P200,000.00), as moral
damages;
(c) Defendant to pay plaintiff the sum of TEN
THOUSAND PESOS (P10,000.00) as exemplary
damages;
(d) Defendant to pay plaintiff the sum of ELEVEN
THOUSAND SIX HUNDRED EIGHTY PESOS AND NINETY
SEVEN CENTAVOS (P11,680.97) as cost of credit line;
and
(e) Defendant to pay plaintiff the sum of FIFTY
THOUSAND PESOS (P50,000.00), as attorney's fees
and to pay the costs of suit.
That the above sums due to the plaintiff will bear the
legal rate of interest until they are fully paid from the
time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision
dated August 1, 1990 affirming with modifications the
lower court's decision as follows:
WHEREFORE, the decision appealed from is affirmed
with a modification, and, as modified, the judgment
in this case should read as follows:
Judgment is hereby rendered ordering defendant-
appellant Maersk Line to pay plaintiff-appellee (1)
compensatory damages of P11,680.97 at 6% annual
interest from filing of the complaint until fully paid,
(2) moral damages of P50,000.00, (3) exemplary
damages of P20,000,00, (3) attorney's fees, per
appearance fees, and litigation expenses of
P30,000.00, (4) 30% of the total damages awarded
except item (3) above, and the costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following
"issues" for resolution of the court :
I
6
Whether or not the respondent Court of Appeals
committed an error when it ruled that a defendant's
cross-claim against a co-defendant survives or
subsists even after the dismissal of the complaint
against defendant-cross claimant.
II
Whether or not respondent Castillo is entitled to
damages resulting from delay in the delivery of the
shipment in the absence in the bill of lading of a
stipulation on the period of delivery.
III
Whether or not the respondent appellate court erred
in awarding actual, moral and exemplary damages
and attorney's fees despite the absence of factual
findings and/or legal bases in the text of the decision
as support for such awards.
IV
Whether or not the respondent Court of Appeals
committed an error when it rendered an ambiguous
and unexplained award in the dispositive portion of
the decision which is not supported by the body or
the text of the decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on
whether or not a defendant's cross-claim against co-
defendant (petitioner herein) survives or subsists
even after the dismissal of the complaint against
defendant-cross-claimant (petitioner herein), we rule
in the negative.
Apparently this issue was raised by reason of the
declaration made by respondent court in its
questioned decision, as follows:
Re the first assigned error: What should be rescinded
in this case is not the "Memorandum of Shipment"
but the contract between appellee and defendant Eli
Lilly (embodied in three documents, namely: Exhs. A,
A-1 and A-2) whereby the former agreed to buy and
the latter to sell those six drums of gelatin capsules. It
is by virtue of the cross-claim by appellant Eli Lilly
against defendant Maersk Line for the latter's gross
negligence in diverting the shipment thus causing the
delay and damage to appellee that the trial court
found appellant Maersk Line liable. . . .
xxx xxx xxx

Re the fourth assigned error: Appellant Maersk Line's
insistence that appellee has no cause of action against
it and appellant Eli Lilly because the shipment was
delivered in good order and condition, and the bill of
lading in question contains "stipulations, exceptions
and conditions" Maersk Line's liability only to the
"loss, destruction or deterioration," indeed, this issue
of lack of cause of action has already been considered
in our foregoing discussion on the second assigned
error, and our resolution here is still that appellee has
a cause of action against appellant Eli Lilly. Since the
latter had filed a cross-claim against appellant Maersk
Line, the trial court committed no error, therefore, in
holding the latter appellant ultimately liable to
appellee. (Rollo, pp. 47-50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner
submits that its liability is predicated on the cross-
claim filed its co-defendant Eli Lilly, Inc. which cross-
claim has been dismissed, the original complaint
against it should likewise be dismissed. We disagree.
It should be recalled that the complaint was filed
originally against Eli Lilly, Inc. as shipper-supplier and
petitioner as carrier. Petitioner being an original party
defendant upon whom the delayed shipment is
imputed cannot claim that the dismissal of the
complaint against Eli Lilly, Inc. inured to its benefit.
Respondent court, erred in declaring that the trial
court based petitioner's liability on the cross-claim of
Eli Lilly, Inc. As borne out by the record, the trial court
anchored its decision on petitioner's delay or
negligence to deliver the six (6) drums of gelatin
capsules within a reasonable time on the basis of
which petitioner was held liable for damages under
Article 1170 of the New Civil Code which provides that
those who in the performance of their obligations are
guilty of fraud, negligence, or delay and those who in
any manner contravene the tenor thereof, are liable
for damages.
Nonetheless, petitioner maintains that it cannot be
held for damages for the alleged delay in the delivery
of the 600,000 empty gelatin capsules since it acted
in good faith and there was no special contract under
which the carrier undertook to deliver the shipment
on or before a specific date (Rollo, p. 103).
On the other hand, private respondent claims that
during the period before the specified date of arrival
of the goods, he had made several commitments and
contract of adhesion. Therefore, petitioner can be
7
held liable for the damages suffered by private
respondent for the cancellation of the contracts he
entered into.
We have carefully reviewed the decisions of
respondent court and the trial court and both of them
show that, in finding petitioner liable for damages for
the delay in the delivery of goods, reliance was made
on the rule that contracts of adhesion are void. Added
to this, the lower court stated that the exemption
against liability for delay is against public policy and is
thus, void. Besides, private respondent's action is
anchored on Article 1170 of the New Civil Code and
not under the law on Admiralty (AC-GR CV No. 10340,
Rollo, p. 14).
The bill of lading covering the subject shipment
among others, reads:
6. GENERAL
(1) The Carrier does not undertake that the
goods shall arive at the port of discharge or the place
of delivery at any particular time or to meet any
particular market or use and save as is provided in
clause 4 the Carrier shall in no circumstances be liable
for any direct, indirect or consequential loss or
damage caused by delay. If the Carrier should
nevertheless be held legally liable for any such direct
or indirect or consequential loss or damage caused by
delay, such liability shall in no event exceed the
freight paid for the transport covered by this Bill of
Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of
Exhibits, p. 41)
It is not disputed that the aforequoted provision at
the back of the bill of lading, in fine print, is a contract
of adhesion. Generally, contracts of adhesion are
considered void since almost all the provisions of
these types of contracts are prepared and drafted
only by one party, usually the carrier (Sweet Lines v.
Teves, 83 SCRA 361 [1978]). The only participation left
of the other party in such a contract is the affixing of
his signature thereto, hence the term "Adhesion" (BPI
Credit Corporation v. Court of Appeals, 204 SCRA 601
[1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are
contracts not entirely prohibited (Ong Yiu v. Court of
Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v.
Philippine Steam Navigation Co., 117 SCRA 832
[1982]). One who adheres to the contract is in reality
free to reject it in its entirety; if he adheres, he gives

his consent (Magellan Manufacturing Marketing
Corporation v. Court of Appeals, et al., 201 SCRA 102
[1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a bill of
lading operates both as a receipt and as contract to
transport and deliver the same a therein stipulated.
As a contract, it names the parties, which includes the
consignee, fixes the route, destination, and freight
rates or charges, and stipulates the rights and
obligations assumed by the parties. Being a contract,
it is the law between the parties who are bound by its
terms and conditions provided that these are not
contrary to law, morals, good customs, public order
and public policy. A bill of lading usually becomes
effective upon its delivery to and acceptance by the
shipper. It is presumed that the stipulations of the bill
were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is
generally bound by his acceptance whether he reads
the bill or not. (Emphasis supplied)
However, the aforequoted ruling applies only if such
contracts will not create an absurd situation as in the
case at bar. The questioned provision in the subject
bill of lading has the effect of practically leaving the
date of arrival of the subject shipment on the sole
determination and will of the carrier.
While it is true that common carriers are not
obligated by law to carry and to deliver merchandise,
and persons are not vested with the right to prompt
delivery, unless such common carriers previously
assume the obligation to deliver at a given date or
time (Mendoza v. Philippine Air Lines, Inc., 90 Phil.
836 [1952]), delivery of shipment or cargo should at
least be made within a reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498
[1992]) this Court held:
The oft-repeated rule regarding a carrier's liability for
delay is that in the absence of a special contract, a
carrier is not an insurer against delay in
transportation of goods. When a common carrier
undertakes to convey goods, the law implies a
contract that they shall be delivered at destination
within a reasonable time, in the absence, of any
agreement as to the time of delivery. But where a
carrier has made an express contract to transport and
deliver properly within a specified time, it is bound to
8
fulfill its contract and is liable for any delay, no matter
from what cause it may have arisen. This result
logically follows from the well-settled rule that where
the law creates a duty or charge, and the default in
himself, and has no remedy over, then his own
contract creates a duty or charge upon himself, he is
bound to make it good notwithstanding any accident
or delay by inevitable necessity because he might
have provided against it by contract. Whether or not
there has been such an undertaking on the part of the
carrier is to be determined from the circumstances
surrounding the case and by application of the
ordinary rules for the interpretation of contracts.
An examination of the subject bill of lading (Exh. "1";
AC GR CV No. 10340, Folder of Exhibits, p. 41) shows
that the subject shipment was estimated to arrive in
Manila on April 3, 1977. While there was no special
contract entered into by the parties indicating the
date of arrival of the subject shipment, petitioner
nevertheless, was very well aware of the specific date
when the goods were expected to arrive as indicated
in the bill of lading itself. In this regard, there arises
no need to execute another contract for the purpose
as it would be a mere superfluity.
In the case before us, we find that a delay in the
delivery of the goods spanning a period of two (2)
months and seven (7) days falls was beyond the realm
of reasonableness. Described as gelatin capsules for
use in pharmaceutical products, subject shipment
was delivered to, and left in, the possession and
custody of petitioner-carrier for transport to Manila
via Oakland, California. But through petitioner's
negligence was mishipped to Richmond, Virginia.
Petitioner's insitence that it cannot be held liable for
the delay finds no merit.
Petition maintains that the award of actual, moral and
exemplary dames and attorney's fees are not valid
since there are no factual findings or legal bases
stated in the text of the trial court's decision to
support the award thereof.
Indeed, it is settled that actual and compensataory
damages requires substantial proof (Capco v.
Macasaet. 189 SCRA 561 [1990]). In the case at bar,
private respondent was able to sufficiently prove
through an invoice (Exh. 'A-1'), certification from the
issuer of the letter of credit (Exh.'A-2') and the
Memorandum of Shipment (Exh. "B"), the amount he
paid as costs of the credit line for the subject goods.
Therefore, respondent court acted correctly in
 9

affirming the award of eleven thousand six hundred

eighty pesos and ninety seven centavos (P11,680.97) WHEREFORE, with the modification regarding the
as costs of said credit line. deletion of item 4 of respondent court`s decision, the
appealed decision is is hereby AFFIRMED in all
As to the propriety of the award of moral damages, respects.
Article 2220 of the Civil Code provides that moral
damages may be awarded in "breaches of contract SO ORDERED.
where the defendant acted fraudulently or in bad
faith" (Pan American World Airways v. Intermediate
Appellate Court, 186 SCRA 687 [1990]).

In the case before us, we that the only evidence

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

In line with this pronouncement, we hold that

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

Although attorney's fees are generally not

recoverable, a party can be held lible for such if
exemplary damages are awarded (Artice 2208, New
Civil Code). In the case at bar, we hold that private
respondent is entitled to reasonable attorney`s fees
since petitioner acte with gross negligence amounting
to bad faith.

However, we find item 4 in the dispositive portion of

respondent court`s decision which awarded thirty
(30) percent of the total damages awarded except
item 3 regarding attorney`s fees and litigation
expenses in favor of private respondent, to be
unconsionable, the same should be deleted.

MALAYAN INSURANCE CO., INC.,
Petitioner,
- versus -
JARDINE DAVIES TRANSPORT SERVICES, INC. and
ASIAN TERMINALS, INC.,
Respondents.
G.R. No. 181300
September 18, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
On July 23, 1994, Petrosul International (Petrosul)
shipped on board the vessel MV Hoegh Merchant
(MV Hoegh) from Vancouver, Canada yellow crude
sulphur said to weigh 6,599.23 metric tons as per
draft survey for transportation to Manila, consigned
to LMG Chemicals Corporation (LMG).[1]
Upon arrival of the MV Hoegh in Manila on
September 5, 1994, the stevedores of respondent
Asian Terminals, Inc. (ATI) undertook discharging
operations of the shipment or cargo from the vessel
directly onto the steel barges of Creed Customs
Brokerage, Inc. (CCBI), which barges were later towed
upriver and arrived at the consignee LMGs storage
area in Pasig, Manila.
The consignees hired workers thereupon received
and unloaded the cargo with the use of an overhead
crane and clamshell grab.
During the discharge of the cargo ex vessel onto CCBIs
barges, SMS Average Surveyors and Adjusters, Inc.
(SMS), LMGs appointed surveyors, reported the
Outturn Quantity/Weight of the cargo at 6,247.199
Metric Tons (MT),[2] hence, given that as indicated in
the Bill of Lading the weight was 6,599.23 MT, there
was a shortage of 352.031 MT.
Once on board the barges, the weight of the cargo
was again taken and recorded at 6,122.023 MT,[3]
thus reflecting a shortage of 477.207 MT.
The weight of the cargo, taken a third time upon
discharge at LMGs storage area, was recorded at
6,206.748 MT[4] to thus reflect a shortage of 392.482
MT.
The cargo having been insured, LMG filed a claim for
the value of shortage of cargo with its insurer
Malayan Insurance Co., Inc., (petitioner) which paid
10
LMG the sum of P1,144,108.43 in February 1995[5]
and was accordingly subrogated to the rights of LMG.
For failing to heed demands to pay for the value of
the cargo loss and on the basis of Marine Risk Note
RN-0001-17551[6] and Marine Insurance Policy No.
001-0343,[7] petitioner as subrogee[8] filed on
September 5, 1995 a Complaint[9] against herein
respondents ATI and Jardine Davies Transport
Services, Inc. (Jardine Davies), as alleged shipagent of
MV Hoegh, together with CCBI and the Unknown
Owner and Unknown Shipagent of the MV Hoegh,
before the Regional Trial Court (RTC) of Manila, for
recovery of the amount it paid to LMG. As the
identities and addresses of CCBI and the Unknown
Owner and Unknown Shipagent could not be
ascertained, only Jardine Davies and ATI were served
with summons.[10]
ATI filed its Answer with Compulsory Counterclaim
and Crossclaim[11] denying any liability for the value
of the loss of part of the cargo, claiming that it had
exercised due care and diligence in the discharge of
the cargo from the vessel onto CCBIs barges; that its
participation was limited to supplying the stevedores
who undertook the discharging operations from the
vessel to the barges; and that any loss to the cargo
was sustained either prior to its discharge from the
vessel or due to the negligence of CCBI.
Jardine Davies likewise filed its Answer with
Compulsory Counterclaim and Crossclaim[12]
claiming that it was not the shipagent of the MV
Hoegh but a mere commercial agent; that any loss
sustained by the cargo was due to the inherent vice
or defect of the goods and unrecovered spillages,
among other things; and that the complaint failed to
state a cause of action as there was no valid
subrogation.
By Decision of September 9, 2004, Branch 52 of the
Manila RTC found for petitioner, disposing as follows:
WHEREFORE, in view of the foregoing, judgment is
hereby rendered in favor of the plaintiff ordering the
defendants Jardine Davies Transport Services, Inc.
and Asian Terminals, Inc. to pay in solidum the
former, the following:
(a) P1,144,108.43 representing the unpaid principal
obligation plus legal interest thereon from the time of
demand until fully paid;

(b) 25% of the amount due as and by way of attorneys
fees;
(c) costs of suit; and
(d) Defendant Creed Customs Brokerage, Inc. and the
unknown Owner and Unknown Shipagent of M/V
Hoegh Merchant are ordered DROPPED from the
complaint as the court has not acquired jurisdiction
over their persons.
SO ORDERED.[13] (Underscoring supplied)
Discussing in two paragraphs the basis for holding
herein respondents Jardine Davies and ATI solidarily
liable for the loss, the trial court stated:
It must be emphasized that the loss occurred while
the cargo was in the possession, custody and control
of the defendants. Absent any proof of exercise of
due diligence required by law in the vigilance over the
cargo, defendants are presumed to be at fault or to
have acted negligently. Such presumption, the
defendants failed to overturn to the satisfaction of
this court.
Moreover, defendants cannot escape liability by
raising as a defense any defect in the contract of
insurance as they are not privies thereto. Besides,
whatever defect found therein is deemed to have
been waived by the subsequent payment made by
the plaintiff of consignees claim (Compania Maritima
v. Insurance Co. of North America, 12 SCRA 213).
x x x x[14] (Underscoring supplied)
On respondents appeal, the Court of Appeals, by
Decision of January 14, 2008,[15] vacated the trial
courts decision and dismissed the complaint. It,
however, upheld the dropping from the complaint of
CCBI and the Unknown Owner and Unknown
Shipagent of M/V Hoegh.
Thus the appellate court disposed:
WHEREFORE, the assailed Decision is MODIFIED, in
that portions (a), (b), and (c) of the same are VACATED
and SET ASIDE. Accordingly, judgment is hereby
rendered DISMISSING the complaint against Asian
Terminals, Inc. and Jardine Davies Transport Services,
Inc. in Civil Case No. 95-75224. Costs against Malayan
Insurance Corp., Inc.
11
SO ORDERED.[16]
In sustaining respondents appeal, the appellate court
held that petitioner failed to establish the fact of
shortage in the cargo, doubts having arisen from the
disparity in quantity as stated the bill of lading
(6,559.23 MT) and the shipment invoice[17] (6,477.81
MT), as well as the discrepancy in quantity as
reflected in SMSs Report of Survey[18] and the
Comparison of Outturns[19] incorporated therein;
that the same Report shows that inaccuracies or
errors in the manner of/or equipment used in
measuring the weight of the cargo might have
resulted in variances in the outturn quantity; and that
the testimonies of petitioners witnesses, Eutiquiano
Patiag[20] and Emmanuel Gotladera,[21] relative to
the contents of the bill of lading may not be credited
since they were not present at the actual weighing
and loading of the cargo.
In fine, the appellate court held that the presumption
accorded to a bill of lading - as prima facie evidence
of the goods described therein, had been sufficiently
rebutted.
Since the right of subrogation in favor of an insurer
arises only upon payment of a valid insurance claim,
the appellate court held that petitioner was not
entitled to restitution, the insurance policy between
LMG and petitioner having already expired on
December 31, 1993[22] or seven (7) months prior to
the loading of the shipment on July 23, 1994; and that
the premium for Marine Risk Note RN-0001-17551
and/or the Endorsements[23] which purportedly
extended the effectivity of the policy was paid only on
October 6, 1994 or a month after the arrival of the
cargo.[24]
The appellate court went on to note that petitioner
also failed to prove that respondent Jardine Davies
was the local shipagent of the MV Hoegh given that
such vessel was sub-chartered by LMGs shipper
Petrosul from Jardine Davies principal Pacific
Commerce Line (PCL), thereby making Petrosul the
carrier which undertook to transport LMGs cargo.
The appellate court thus concluded that liability could
not be imputed to Jardine Davies, its principal PCL not
being the carrier of the cargo and no privity of
contract existed between it (Jardine Davies) and
Petrosul.

Respecting ATI, the appellate court held that no
evidence that any shortage occurred since neither
LMG nor its surveyors lodged any protest on the
manner by which ATIs stevedores carried out the
discharging operations.[25]
Hence, the present petition raising the following
issues:
I ironclad and admits certain exceptions, such as when
WHETHER OR NOT THE COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT (THE) PRESUMPTION
ACCORDED ON THE BILL OF LADING HAS BEEN
REBUTTED.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT MALAYAN IS NOT ENTITLED
TO REIMBURSEMENT SINCE THERE WAS NO VALID
SUBROGATION.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT DEFENDANT ASIAN
TERMINALS, INC. IS NOT SOLIDARILY LIABLE WITH
DEFENDANT JARDINE DAVIES.
IV
WHETHER OR NOT THE COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT PLAINTIFF DID NOT
CONSIDER JARDINE DAVIES AS M/V HOEGHS LOCAL
SHIPAGENT.[26]
The issue boils down to whether petitioner
discharged its burden of proving by clear, competent
and convincing evidence that there was shortage in
the shipment of yellow crude sulphur to the
consignee LMG.
The Court holds not.
Before proceeding to the substantive issues, the
Court deems it fit to first resolve a procedural issue
raised by respondents in their respective
Comments[27] that the present petition seeks to pass
upon questions of fact which is not allowed in a
certiorari petition whose province is confined to
questions of law.
While it is settled that the Courts jurisdiction in a
petition for review on certiorari under Rule 45 of the
12
Revised Rules of Court is limited to a review of errors
of law and does not, as a rule, involve the re-
examination of the evidence presented by the
parties, the Court has recognized several exceptions,
viz:
The rule in our jurisdiction is that only questions of
law may be entertained by this Court in a petition for
review on certiorari. This rule, however, is not
(1) the conclusion is grounded on speculations,
surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there
is grave abuse of discretion; (4) the judgment is based
on a misapprehension of facts; (5) the findings of fact
are conflicting; (6) there is no citation of specific
evidence on which the factual findings are based; (7)
the findings of absence of facts are contradicted by
the presence of evidence on record; (8) the findings
of the CA are contrary to those of the trial court; (9)
the CA manifestly overlooked certain relevant and
undisputed facts that, if properly considered, would
justify a different conclusion; (10) the findings of the
CA are beyond the issues of the case; and (11) such
findings are contrary to the admissions of both
parties.[28] (Emphasis supplied)
Given the bold-faced exceptions in the immediately-
quoted ruling of the Court, which are present in the
case at bar, not to mention the fact that the trial
courts conclusion that the loss occurred while the
cargo was in the possession, custody and control of
the defendants is bereft of any reference to specific
evidence on record upon which it was based, the
Court takes a second, hard look at the evidence.[29]
Petitioner argues, in the main, that the appellate
court erred in failing to consider the bill of lading as a
binding contract between the carrier and shipper or
consignee insofar as the accuracy of the weight of the
cargo is concerned. It insists:
x x x [T]here is no need to confirm the correctness of
its contents by other evidence outside the Bill of
Lading as it is already conclusive upon the parties. To
argue otherwise would be to allow an anomalous
situation since defendant carrier can opt not to honor
the terms and conditions of the bill of lading which
they themselves [sic] prepared by simply questioning
the disparity of the quantity between the bill of lading
and the invoice. x x x[30]

The presumption that the bill of lading, which
petitioner relies upon to support its claim for
restitution, constitutes prima facie evidence of the
goods therein described was correctly deemed by the
appellate court to have been rebutted in light of
abundant evidence casting doubts on its veracity.
That MV Hoegh undertook, under the bill of lading, to
transport 6,599.23 MT of yellow crude sulphur on a
said to weigh basis is not disputed. Under such clause,
the shipper is solely responsible for the loading of the
cargo while the carrier is oblivious of the contents of
the shipment.[31] Nobody really knows the actual
weight of the cargo inasmuch as what is written on
the bill of lading, as well as on the manifest, is based
solely on the shippers declaration.[32]
The bill of lading carried an added clause the
shipments weight, measure, quantity, quality,
condition, contents and value unknown. Evidently,
the weight of the cargo could not be gauged from the
bill of lading.
As observed by the Court of Appeals, there were also
significant differences in shipment quantity at various
stages of transit. These disparities in the quantity at
various stages of the cargos transfer after its arrival to
its final destinations in Manila are reflected in the
Comparison of Outturns[33] embodied in SMSs
Report of Survey, the pertinent portions of which
read:
GENERAL REMARKS
The resultant variations among the foregoing figures
per stage of transit as compared against the Bill of
Lading Quantity/Weight could probably be attributed
to any and/or a confluence of the following factors:
1. Variance in moisture content; evaporation and/or
absorption of moisture due to exposure of the subject
shipment to the elements otherwise atmospheric
change, attendant all throughout the stages of transit
from port of loading/origin to final destination at
consignees receiving terminal;
2. Unrecovered spillages during unloading of the
subject shipment from vessel to barges, and during
receiving at LMG Terminal from barges to stock pile
area;
13
3. Shortage of about 352.031 Metric Tons as
established on completion of discharging the subject
shipment per vessels draft, and/or 477.207 Metric
Tons as established based on quantity/weight
received by barges at shipside per displacement
method;
4. Probable error/oversight aboard vessel and barges
due rough sea condition prevailing at the time of
initial and final draft surveys; and
5. Variance due to inaccuracies or errors in manner,
procedure, method, and/or equipments used or
applied in determining the outturn quantity/weight
of the subject shipment per stage of transit from port
of loading/origin to final port of destination at
consignees designated receiving terminal.[34]
(Underscoring supplied)
In the absence of clear, convincing and competent
evidence to prove that the cargo indeed weighed,
albeit the Bill of Lading qualified it by the phrase said
to weigh, 6,599.23 MT at the port of origin when it
was loaded onto the MV Hoegh, the fact of loss or
shortage in the cargo upon its arrival in Manila cannot
be definitively established. The legal basis for
attributing liability to either of the respondents is
thus sorely wanting.
Petitioner points out, however, that the shipment
was covered not only by the Marine Risk Note but also
by Open Marine Insurance Policy which, it explains,
means that the value of the thing insured has not
been agreed upon but left to be ascertained in the
event of loss and, therefore, covered by a continuing
insurance long before the cargo even loaded on
board; and that Jardine Davies cannot set up any
defect in the insurance policy as a defense since it is
not privy to the contract of insurance between it
(petitioner) and LMG.
These matters pointed out by petitioner are closely
intertwined with the terms and conditions embodied
in the insurance contract between petitioner and
LMG such that petitioners right to recovery
unquestionably derives from contractual subrogation
as an incident to an insurance relationship.[35]
Jurisprudence mandates the presentation in evidence
of the marine insurance policy so that its terms and
conditions can be scrutinized and the extent of
 14

coverage[36] can be determined. Respondents were policy.[42] In fact, said witness did not identify the
thus well within their rights to scrutinize the contents signatory to the Endorsement nor on its genuineness
thereof for the purpose of determining the terms of and due execution, thus rendering his testimony
its validity or effectivity, among other things. thereon as mere hearsay.

Given that it is respondents who stand to be
prejudiced by any claims for restitution arising from
petitioners right of subrogation under the open
policy, it is, at best specious to insist that they are
barred from invoking any contractual defect as a
defense under the pretext that they were not privy to
the insurance contract.
Recall that petitioners main cause of action under the
complaint was based on both the Marine Risk Note
and the Open Policy. The Subrogation Receipt[37]
clearly states that the amount paid was in full
settlement of LMGs claim under petitioners Marine
Risk Note Number RN-001-17551. The Marine Risk
Note, however, is not the insurance policy. It merely
constitutes an acknowledgment or declaration of the
shipper about the specific shipment covered by the
marine insurance policy, the evaluation of the cargo
and the chargeable premium.[38] The marine open
policy is the blanket insurance to be undertaken by
the insurer on all goods to be shipped by the
consignee during the existence of the contract.
Apart from not being a legal source of subrogation,
the Marine Risk Note is invalid for, as earlier stated, it
was issued only on July 20, 1994 or after the main
insurance contract had already lapsed (by the end of
December 1993), and the insurance premium on this
risk note was paid only on October 6, 1994[39] or a
month after the shipment had already arrived in
Manila, a peculiarity that none of petitioners
witnesses has endeavored to explain.
A final note. It bears stressing that there is nothing in
the records showing that ATI was negligent in its
handling of the cargo when its stevedores discharged
the same from the vessel directly onto the steel
barges of CCBI.
Contrary to the trial courts findings, ATI was never in
custody or possession of the shipment, its
participation having been limited to where the
stevedores of Asian Terminals, Inc. (ATI) undertook
the discharging operations of the shipment ex vessel
to barges thru the use of vessels cargo gears, and
clamshell/ grab,[43] a fact confirmed by petitioners
own witness Eutiquiano Patiag.
More importantly, representatives of SMS, the
consignees assigned surveyors, were present
throughout the entire discharging operations - from
the time the cargo was unloaded from the MV Hoegh
until its discharge at LMGs chemical terminal - and
never reported any mishap or incidence of
mishandling on the part of ATI.[44]
WHEREFORE, the assailed Court of Appeals January
14, 2008 Decision in connection with CA-G.R. CV No.
84139 is AFFIRMED.
Costs against petitioner.
SO ORDERED.

Petitioners marine insurance policy explicitly states

under its effectivity clause that it shall cover all
shipments effective January 10, 1993 sailings and all
shipments made thereafter until December 31, 1993
sailings.[40] Coverage had, therefore, expired almost
seven (7) months prior to the loading of the shipment
on July 23, 1994.

Petitioner can take no refuge in its claim that the

Endorsement dated December 29, 1993[41] proves
that the subject insurance policy was amended or
renewed. The said Endorsement was never adverted
to in the complaint filed before the trial court, its
existence coming to light only at the close of the
testimony on cross of petitioners witness Emmanuel
Gotladera on the expired marine insurance

MOF COMPANY, INC.,
G.R. No. 172822
Petitioner,
- versus -
SHIN YANG BROKERAGE
CORPORATION,
Respondent.
December 18, 2009
x------------------------ --------x
The necessity of proving lies with the person who
sues.
The refusal of the consignee named in the bill of
lading to pay the freightage on the claim that it is not
privy to the contract of affreightment propelled the
shipper to sue for collection of money, stressing that
its sole evidence, the bill of lading, suffices to prove
that the consignee is bound to pay. Petitioner now
comes to us by way of Petition for Review on
Certiorari[1] under Rule 45 praying for the reversal of
the Court of Appeals' (CA) judgment that dismissed its
action for sum of money for insufficiency of evidence.
Factual Antecedents
On October 25, 2001, Halla Trading Co., a company
based in Korea, shipped to Manila secondhand cars
and other articles on board the vessel Hanjin Busan
0238W. The bill of lading covering the shipment, i.e.,
Bill of Lading No. HJSCPUSI14168303,[2] which was
prepared by the carrier Hanjin Shipping Co., Ltd.
(Hanjin), named respondent Shin Yang Brokerage
Corp. (Shin Yang) as the consignee and indicated that
payment was on a Freight Collect basis, i.e., that the
consignee/receiver of the goods would be the one to
pay for the freight and other charges in the total
amount of P57,646.00.[3]
The shipment arrived in Manila on October 29, 2001.
Thereafter, petitioner MOF Company, Inc. (MOF),
Hanjins exclusive general agent in the Philippines,
repeatedly demanded the payment of ocean freight,
documentation fee and terminal handling charges
from Shin Yang. The latter, however, failed and
refused to pay contending that it did not cause the
importation of the goods, that it is only the
Consolidator of the said shipment, that the ultimate
consignee did not endorse in its favor the original bill
15
of lading and that the bill of lading was prepared
without its consent.
Thus, on March 19, 2003, MOF filed a case for sum of
money before the Metropolitan Trial Court of Pasay
City (MeTC Pasay) which was docketed as Civil Case
No. 206-03 and raffled to Branch 48. MOF alleged that
Shin Yang, a regular client, caused the importation
and shipment of the goods and assured it that ocean
freight and other charges would be paid upon arrival
of the goods in Manila. Yet, after Hanjin's compliance,
Shin Yang unjustly breached its obligation to pay.
MOF argued that Shin Yang, as the named consignee
in the bill of lading, entered itself as a party to the
contract and bound itself to the Freight Collect
arrangement. MOF thus prayed for the payment of
P57,646.00 representing ocean freight,
documentation fee and terminal handling charges as
well as damages and attorneys fees.
Claiming that it is merely a consolidator/forwarder
and that Bill of Lading No. HJSCPUSI14168303 was not
endorsed to it by the ultimate consignee, Shin Yang
denied any involvement in shipping the goods or in
promising to shoulder the freightage. It asserted that
it never authorized Halla Trading Co. to ship the
articles or to have its name included in the bill of
lading. Shin Yang also alleged that MOF failed to
present supporting documents to prove that it was
Shin Yang that caused the importation or the one that
assured payment of the shipping charges upon arrival
of the goods in Manila.
Ruling of the Metropolitan Trial Court
On June 16, 2004, the MeTC of Pasay City, Branch 48
rendered its Decision[4] in favor of MOF. It ruled that
Shin Yang cannot disclaim being a party to the
contract of affreightment because:
x x x it would appear that defendant has business
transactions with plaintiff. This is evident from
defendants letters dated 09 May 2002 and 13 May
2002 (Exhibits 1 and 2, defendants Position Paper)
where it requested for the release of refund of
container deposits x x x. [In] the mind of the Court, by
analogy, a written contract need not be necessary; a
mutual understanding [would suffice]. Further,
plaintiff would have not included the name of the
defendant in the bill of lading, had there been no prior
agreement to that effect.

In sum, plaintiff has sufficiently proved its cause of
action against the defendant and the latter is obliged
to honor its agreement with plaintiff despite the
absence of a written contract.[5]
The dispositive portion of the MeTC Decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff and against the
defendant, ordering the latter to pay plaintiff as
follows:
1. P57,646.00 plus legal interest from the date of
demand until fully paid,
2. P10,000.00 as and for attorneys fees and
3. the cost of suit.
SO ORDERED.[6]
Ruling of the Regional Trial Court
The Regional Trial Court (RTC) of Pasay City, Branch
108 affirmed in toto the Decision of the MeTC. It held
that:
MOF and Shin Yang entered into a contract of
affreightment which Blacks Law Dictionary defined as
a contract with the ship owner to hire his ship or part
of it, for the carriage of goods and generally take the
form either of a charter party or a bill of lading.
The bill of lading contain[s] the information embodied
in the contract.
Article 652 of the Code of Commerce provides that
the charter party must be in writing; however, Article
653 says: If the cargo should be received without
charter party having been signed, the contract shall
be understood as executed in accordance with what
appears in the bill of lading, the sole evidence of title
with regard to the cargo for determining the rights
and obligations of the ship agent, of the captain and
of the charterer. Thus, the Supreme Court opined in
the Market Developers, Inc. (MADE) vs. Honorable
Intermediate Appellate Court and Gaudioso Uy, G.R.
No. 74978, September 8, 1989, this kind of contract
may be oral. In another case, Compania Maritima vs.
Insurance Company of North America, 12 SCRA 213
the contract of affreightment by telephone was
recognized where the oral agreement was later
confirmed by a formal booking.
16
xxxx
Defendant is liable to pay the sum of P57,646.00, with
interest until fully paid, attorneys fees of P10,000.00
[and] cost of suit.
Considering all the foregoing, this Court affirms in
toto the decision of the Court a quo.
SO ORDERED.[7]
Ruling of the Court of Appeals
Seeing the matter in a different light, the CA
dismissed MOFs complaint and refused to award any
form of damages or attorneys fees. It opined that
MOF failed to substantiate its claim that Shin Yang
had a hand in the importation of the articles to the
Philippines or that it gave its consent to be a
consignee of the subject goods. In its March 22, 2006
Decision,[8] the CA said:
This Court is persuaded [that except] for the Bill of
Lading, respondent has not presented any other
evidence to bolster its claim that petitioner has
entered [into] an agreement of affreightment with
respondent, be it verbal or written. It is noted that the
Bill of Lading was prepared by Hanjin Shipping, not
the petitioner. Hanjin is the principal while
respondent is the formers agent. (p. 43, rollo)
The conclusion of the court a quo, which was upheld
by the RTC Pasay City, Branch 108 xxx is purely
speculative and conjectural. A court cannot rely on
speculations, conjectures or guesswork, but must
depend upon competent proof and on the basis of the
best evidence obtainable under the circumstances.
Litigation cannot be properly resolved by
suppositions, deductions or even presumptions, with
no basis in evidence, for the truth must have to be
determined by the hard rules of admissibility and
proof (Lagon vs. Hooven Comalco Industries, Inc. 349
SCRA 363).
While it is true that a bill of lading serves two (2)
functions: first, it is a receipt for the goods shipped;
second, it is a contract by which three parties,
namely, the shipper, the carrier and the consignee
who undertake specific responsibilities and assume
stipulated obligations (Belgian Overseas Chartering
and Shipping N.V. vs. Phil. First Insurance Co., Inc.,

383 SCRA 23), x x x if the same is not accepted, it is as
if one party does not accept the contract. Said the
Supreme Court:
A bill of lading delivered and accepted constitutes the
contract of carriage[,] even though not signed,
because the acceptance of a paper containing the
terms of a proposed contract generally constitutes an
acceptance of the contract and of all its terms and
conditions of which the acceptor has actual or
constructive notice (Keng Hua Paper Products Co.,
Inc. vs. CA, 286 SCRA 257).
In the present case, petitioner did not only [refuse to]
accept the bill of lading, but it likewise disown[ed] the
shipment x x x. [Neither did it] authorize Halla Trading
Company or anyone to ship or export the same on its
behalf.
It is settled that a contract is upheld as long as there
is proof of consent, subject matter and cause (Sta.
Clara Homeowners Association vs. Gaston, 374 SCRA
396). In the case at bar, there is not even any iota of
evidence to show that petitioner had given its
consent.
He who alleges a fact has the burden of proving it and
a mere allegation is not evidence (Luxuria Homes Inc.
vs. CA, 302 SCRA 315).
The 40-footer van contains goods of substantial
value. It is highly improbable for petitioner not to pay
the charges, which is very minimal compared with the
value of the goods, in order that it could work on the
release thereof.
For failure to substantiate its claim by preponderance
of evidence, respondent has not established its case
against petitioner.[9]
Petitioners filed a motion for reconsideration but it
was denied in a Resolution[10] dated May 25, 2006.
Hence, this petition for review on certiorari.
Petitioners Arguments
In assailing the CAs Decision, MOF argues that the
factual findings of both the MeTC and RTC are entitled
to great weight and respect and should have bound
the CA. It stresses that the appellate court has no
justifiable reason to disturb the lower courts
judgments because their conclusions are well-
supported by the evidence on record.
17
MOF further argues that the CA erred in labeling the
findings of the lower courts as purely speculative and
conjectural. According to MOF, the bill of lading,
which expressly stated Shin Yang as the consignee, is
the best evidence of the latters actual participation in
the transportation of the goods. Such document,
validly entered, stands as the law among the shipper,
carrier and the consignee, who are all bound by the
terms stated therein. Besides, a carriers valid claim
after it fulfilled its obligation cannot just be rejected
by the named consignee upon a simple denial that it
ever consented to be a party in a contract of
affreightment, or that it ever participated in the
preparation of the bill of lading. As against Shin Yangs
bare denials, the bill of lading is the sufficient
preponderance of evidence required to prove MOFs
claim. MOF maintains that Shin Yang was the one that
supplied all the details in the bill of lading and
acquiesced to be named consignee of the shipment
on a Freight Collect basis.
Lastly, MOF claims that even if Shin Yang never gave
its consent, it cannot avoid its obligation to pay,
because it never objected to being named as the
consignee in the bill of lading and that it only
protested when the shipment arrived in the
Philippines, presumably due to a botched transaction
between it and Halla Trading Co. Furthermore, Shin
Yangs letters asking for the refund of container
deposits highlight the fact that it was aware of the
shipment and that it undertook preparations for the
intended release of the shipment.
Respondents Arguments
Echoing the CA decision, Shin Yang insists that MOF
has no evidence to prove that it consented to take
part in the contract of affreightment. Shin Yang
argues that MOF miserably failed to present any
evidence to prove that it was the one that made
preparations for the subject shipment, or that it is an
actual shipping practice that
forwarders/consolidators as consignees are the ones
that provide carriers details and information on the
bills of lading.
Shin Yang contends that a bill of lading is essentially a
contract between the shipper and the carrier and
ordinarily, the shipper is the one liable for the freight
charges. A consignee, on the other hand, is initially a
stranger to the bill of lading and can be liable only
when the bill of lading specifies that the charges are

to be paid by the consignee. This liability arises from
either a) the contract of agency between the
shipper/consignor and the consignee; or b) the
consignees availment of the stipulation pour autrui
drawn up by and between the shipper/ consignor and
carrier upon the consignees demand that the goods
be delivered to it. Shin Yang contends that the fact
that its name was mentioned as the consignee of the
cargoes did not make it automatically liable for the
freightage because it never benefited from the
shipment. It never claimed or accepted the goods, it
was not the shippers agent, it was not aware of its
designation as consignee and the original bill of lading
was never endorsed to it.
Issue
The issue for resolution is whether a consignee, who
is not a signatory to the bill of lading, is bound by the
stipulations thereof. Corollarily, whether respondent
who was not an agent of the shipper and who did not
make any demand for the fulfillment of the
stipulations of the bill of lading drawn in its favor is
liable to pay the corresponding freight and handling
charges.
Our Ruling
Since the CA and the trial courts arrived at different
conclusions, we are constrained to depart from the
general rule that only errors of law may be raised in a
Petition for Review on Certiorari under Rule 45 of the
Rules of Court and will review the evidence
presented.[11]
The bill of lading is oftentimes drawn up by the
shipper/consignor and the carrier without the
intervention of the consignee. However, the latter
can be bound by the stipulations of the bill of lading
when a) there is a relation of agency between the
shipper or consignor and the consignee or b) when
the consignee demands fulfillment of the stipulation
of the bill of lading which was drawn up in its
favor.[12]
In Keng Hua Paper Products Co., Inc. v. Court of
Appeals,[13] we held that once the bill of lading is
received by the consignee who does not object to any
terms or stipulations contained therein, it constitutes
as an acceptance of the contract and of all of its terms
and conditions, of which the acceptor has actual or
constructive notice.
18
In Mendoza v. Philippine Air Lines, Inc.,[14] the
consignee sued the carrier for damages but
nevertheless claimed that he was never a party to the
contract of transportation and was a complete
stranger thereto. In debunking Mendozas contention,
we held that:
x x x First, he insists that the articles of the Code of
Commerce should be applied; that he invokes the
provisions of said Code governing the obligations of a
common carrier to make prompt delivery of goods
given to it under a contract of transportation. Later,
as already said, he says that he was never a party to
the contract of transportation and was a complete
stranger to it, and that he is now suing on a tort or a
violation of his rights as a stranger (culpa aquiliana).
If he does not invoke the contract of carriage entered
into with the defendant company, then he would
hardly have any leg to stand on. His right to prompt
delivery of the can of film at the Pili Air Port stems and
is derived from the contract of carriage under which
contract, the PAL undertook to carry the can of film
safely and to deliver it to him promptly. Take away or
ignore that contract and the obligation to carry and to
deliver and right to prompt delivery disappear.
Common carriers are not obligated by law to carry
and to deliver merchandise, and persons are not
vested with the right to prompt delivery, unless such
common carriers previously assume the obligation.
Said rights and obligations are created by a specific
contract entered into by the parties. In the present
case, the findings of the trial court which as already
stated, are accepted by the parties and which we
must accept are to the effect that the LVN Pictures
Inc. and Jose Mendoza on one side, and the
defendant company on the other, entered into a
contract of transportation (p. 29, Rec. on Appeal).
One interpretation of said finding is that the LVN
Pictures Inc. through previous agreement with
Mendoza acted as the latter's agent. When he
negotiated with the LVN Pictures Inc. to rent the film
'Himala ng Birhen' and show it during the Naga town
fiesta, he most probably authorized and enjoined the
Picture Company to ship the film for him on the PAL
on September 17th. Another interpretation is that
even if the LVN Pictures Inc. as consignor of its own
initiative, and acting independently of Mendoza for
the time being, made Mendoza a consignee.
[Mendoza made himself a party to the contract of
transportaion when he appeared at the Pili Air Port
armed with the copy of the Air Way Bill (Exh. 1)
demanding the delivery of the shipment to him.] The
very citation made by appellant in his memorandum

supports this view. Speaking of the possibility of a
conflict between the order of the shipper on the one
hand and the order of the consignee on the other, as
when the shipper orders the shipping company to
return or retain the goods shipped while the
consignee demands their delivery, Malagarriga in his
book Codigo de Comercio Comentado, Vol. 1, p. 400,
citing a decision of the Argentina Court of Appeals on
commercial matters, cited by Tolentino in Vol. II of his
book entitled 'Commentaries and Jurisprudence on
the Commercial Laws of the Philippines' p. 209, says
that the right of the shipper to countermand the
shipment terminates when the consignee or
legitimate holder of the bill of lading appears with
such bill of lading before the carrier and makes
himself a party to the contract. Prior to that time he
is a stranger to the contract.
Still another view of this phase of the case is that
contemplated in Art. 1257, paragraph 2, of the old
Civil Code (now Art. 1311, second paragraph) which
reads thus:
Should the contract contain any stipulation in favor of
a third person, he may demand its fulfillment
provided he has given notice of his acceptance to the
person bound before the stipulation has been
revoked.'
Here, the contract of carriage between the LVN
Pictures Inc. and the defendant carrier contains the
stipulations of delivery to Mendoza as consignee. His
demand for the delivery of the can of film to him at
the Pili Air Port may be regarded as a notice of his
acceptance of the stipulation of the delivery in his
favor contained in the contract of carriage and
delivery. In this case he also made himself a party to
the contract, or at least has come to court to enforce
it. His cause of action must necessarily be founded on
its breach.[15] (Emphasis Ours)
In sum, a consignee, although not a signatory to the
contract of carriage between the shipper and the
carrier, becomes a party to the contract by reason of
either a) the relationship of agency between the
consignee and the shipper/ consignor; b) the
unequivocal acceptance of the bill of lading delivered
to the consignee, with full knowledge of its contents
or c) availment of the stipulation pour autrui, i.e.,
when the consignee, a third person, demands before
the carrier the fulfillment of the stipulation made by
the consignor/shipper in the consignees favor,
19
specifically the delivery of the goods/cargoes
shipped.[16]
In the instant case, Shin Yang consistently denied in
all of its pleadings that it authorized Halla Trading, Co.
to ship the goods on its behalf; or that it got hold of
the bill of lading covering the shipment or that it
demanded the release of the cargo. Basic is the rule
in evidence that the burden of proof lies upon him
who asserts it, not upon him who denies, since, by the
nature of things, he who denies a fact cannot produce
any proof of it.[17] Thus, MOF has the burden to
controvert all these denials, it being insistent that
Shin Yang asserted itself as the consignee and the one
that caused the shipment of the goods to the
Philippines.
In civil cases, the party having the burden of proof
must establish his case by preponderance of
evidence,[18] which means evidence which is of
greater weight, or more convincing than that which is
offered in opposition to it.[19] Here, MOF failed to
meet the required quantum of proof. Other than
presenting the bill of lading, which, at most, proves
that the carrier acknowledged receipt of the subject
cargo from the shipper and that the consignee named
is to shoulder the freightage, MOF has not adduced
any other credible evidence to strengthen its cause of
action. It did not even present any witness in support
of its allegation that it was Shin Yang which furnished
all the details indicated in the bill of lading and that
Shin Yang consented to shoulder the shipment costs.
There is also nothing in the records which would
indicate that Shin Yang was an agent of Halla Trading
Co. or that it exercised any act that would bind it as a
named consignee. Thus, the CA correctly dismissed
the suit for failure of petitioner to establish its cause
against respondent.
WHEREFORE, the petition is DENIED. The assailed
Decision of the Court of Appeals dated March 22,
2006 dismissing petitioners complaint and the
Resolution dated May 25, 2006 denying the motion
for reconsideration are AFFIRMED.
SO ORDERED.

[G.R. No. 161833. July 8, 2005]
PHILIPPINE CHARTER INSURANCE CORPORATION,
petitioner, vs. UNKNOWN OWNER OF THE VESSEL
M/V NATIONAL HONOR, NATIONAL SHIPPING
CORPORATION OF THE PHILIPPINES and
INTERNATIONAL CONTAINER SERVICES, INC.,
respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review under Rule 45 of the 1997
Revised Rules of Civil Procedure assailing the
Decision[1] dated January 19, 2004 of the Court of
Appeals (CA) in CA-G.R. CV No. 57357 which affirmed
the Decision dated February 17, 1997 of the Regional
Trial Court (RTC) of Manila, Branch 37, in Civil Case
No. 95-73338.
The Antecedent
On November 5, 1995, J. Trading Co. Ltd. of Seoul,
Korea, loaded a shipment of four units of parts and
accessories in the port of Pusan, Korea, on board the
vessel M/V National Honor, represented in the
Philippines by its agent, National Shipping
Corporation of the Philippines (NSCP). The shipment
was for delivery to Manila, Philippines. Freight
forwarder, Samhwa Inter-Trans Co., Ltd., issued Bill of
Lading No. SH9410306[2] in the name of the shipper
consigned to the order of Metropolitan Bank and
Trust Company with arrival notice in Manila to
ultimate consignee Blue Mono International
Company, Incorporated (BMICI), Binondo, Manila.
NSCP, for its part, issued Bill of Lading No.
NSGPBSML512565[3] in the name of the freight
forwarder, as shipper, consigned to the order of
Stamm International Inc., Makati, Philippines. It is
provided therein that:
12. This Bill of Lading shall be prima facie evidence
of the receipt of the Carrier in apparent good order
and condition except as, otherwise, noted of the total
number of Containers or other packages or units
enumerated overleaf. Proof to the contrary shall be
admissible when this Bill of Lading has been
transferred to a third party acting in good faith. No
representation is made by the Carrier as to the
weight, contents, measure, quantity, quality,
description, condition, marks, numbers, or value of
the Goods and the Carrier shall be under no
20
responsibility whatsoever in respect of such
description or particulars.
13. The shipper, whether principal or agent,
represents and warrants that the goods are properly
described, marked, secured, and packed and may be
handled in ordinary course without damage to the
goods, ship, or property or persons and guarantees
the correctness of the particulars, weight or each
piece or package and description of the goods and
agrees to ascertain and to disclose in writing on
shipment, any condition, nature, quality, ingredient
or characteristic that may cause damage, injury or
detriment to the goods, other property, the ship or to
persons, and for the failure to do so the shipper
agrees to be liable for and fully indemnify the carrier
and hold it harmless in respect of any injury or death
of any person and loss or damage to cargo or
property. The carrier shall be responsible as to the
correctness of any such mark, descriptions or
representations.[4]
The shipment was contained in two wooden crates,
namely, Crate No. 1 and Crate No. 2, complete and in
good order condition, covered by Commercial Invoice
No. YJ-73564 DTD[5] and a Packing List.[6] There were
no markings on the outer portion of the crates except
the name of the consignee.[7] Crate No. 1 measured
24 cubic meters and weighed 3,620 kgs. It contained
the following articles: one (1) unit Lathe Machine
complete with parts and accessories; one (1) unit
Surface Grinder complete with parts and accessories;
and one (1) unit Milling Machine complete with parts
and accessories. On the flooring of the wooden crates
were three wooden battens placed side by side to
support the weight of the cargo. Crate No. 2, on the
other hand, measured 10 cubic meters and weighed
2,060 kgs. The Lathe Machine was stuffed in the
crate. The shipment had a total invoice value of
US$90,000.00 C&F Manila.[8] It was insured for
P2,547,270.00 with the Philippine Charter Insurance
Corporation (PCIC) thru its general agent, Family
Insurance and Investment Corporation,[9] under
Marine Risk Note No. 68043 dated October 24,
1994.[10]
The M/V National Honor arrived at the Manila
International Container Terminal (MICT) on
November 14, 1995. The International Container
Terminal Services, Incorporated (ICTSI) was furnished
with a copy of the crate cargo list and bill of lading,
and it knew the contents of the crate.[11] The
following day, the vessel started discharging its

cargoes using its winch crane. The crane was
operated by Olegario Balsa, a winchman from the
ICTSI,[12] the exclusive arrastre operator of MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP,
along with the crew and the surveyor of the ICTSI,
conducted an inspection of the cargo.[13] They
inspected the hatches, checked the cargo and found
it in apparent good condition.[14] Claudio Cansino,
the stevedore of the ICTSI, placed two sling cables on
each end of Crate No. 1.[15] No sling cable was
fastened on the mid-portion of the crate. In Dauzs
experience, this was a normal procedure.[16] As the
crate was being hoisted from the vessels hatch, the
mid-portion of the wooden flooring suddenly
snapped in the air, about five feet high from the
vessels twin deck, sending all its contents crashing
down hard,[17] resulting in extensive damage to the
shipment.
BMICIs customs broker, JRM Incorporated, took
delivery of the cargo in such damaged condition.[18]
Upon receipt of the damaged shipment, BMICI found
that the same could no longer be used for the
intended purpose. The Mariners Adjustment
Corporation hired by PCIC conducted a survey and
declared that the packing of the shipment was
considered insufficient. It ruled out the possibility of
taxes due to insufficiency of packing. It opined that
three to four pieces of cable or wire rope slings, held
in all equal setting, never by-passing the center of the
crate, should have been used, considering that the
crate contained heavy machinery.[19]
BMICI subsequently filed separate claims against the
NSCP,[20] the ICTSI,[21] and its insurer, the PCIC,[22]
for US$61,500.00. When the other companies denied
liability, PCIC paid the claim and was issued a
Subrogation Receipt[23] for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the
RTC of Manila, Branch 35, a Complaint for
Damages[24] against the Unknown owner of the
vessel M/V National Honor, NSCP and ICTSI, as
defendants.
PCIC alleged that the loss was due to the fault and
negligence of the defendants. It prayed, among
others
WHEREFORE, it is respectfully prayed of this
Honorable Court that judgment be rendered ordering
21
defendants to pay plaintiff, jointly or in the
alternative, the following:
1. Actual damages in the amount of P1,740,634.50
plus legal interest at the time of the filing of this
complaint until fully paid;
2. Attorneys fees in the amount of P100,000.00;
3. Cost of suit.[25]
ICTSI, for its part, filed its Answer with Counterclaim
and Cross-claim against its co-defendant NSCP,
claiming that the loss/damage of the shipment was
caused exclusively by the defective material of the
wooden battens of the shipment, insufficient packing
or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector
of ICTSI, testified that the wooden battens placed on
the wooden flooring of the crate was of good material
but was not strong enough to support the weight of
the machines inside the crate. He averred that most
stevedores did not know how to read and write;
hence, he placed the sling cables only on those
portions of the crate where the arrow signs were
placed, as in the case of fragile cargo. He said that
unless otherwise indicated by arrow signs, the ICTSI
used only two cable slings on each side of the crate
and would not place a sling cable in the mid-
section.[26] He declared that the crate fell from the
cranes because the wooden batten in the mid-portion
was broken as it was being lifted.[27] He concluded
that the loss/damage was caused by the failure of the
shipper or its packer to place wooden battens of
strong materials under the flooring of the crate, and
to place a sign in its mid-term section where the sling
cables would be placed.
The ICTSI adduced in evidence the report of the R.J.
Del Pan & Co., Inc. that the damage to the cargo could
be attributed to insufficient packing and unbalanced
weight distribution of the cargo inside the crate as
evidenced by the types and shapes of items
found.[28]
The trial court rendered judgment for PCIC and
ordered the complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the
respective counterclaims of the two defendants are
dismissed, with costs against the plaintiff.

SO ORDERED.[29]
According to the trial court, the loss of the shipment
contained in Crate No. 1 was due to the internal
defect and weakness of the materials used in the
fabrication of the crates. The middle wooden batten
had a hole (bukong-bukong). The trial court rejected
the certification[30] of the shipper, stating that the
shipment was properly packed and secured, as mere
hearsay and devoid of any evidentiary weight, the
affiant not having testified.
Not satisfied, PCIC appealed[31] to the CA which
rendered judgment on January 19, 2004 affirming in
toto the appealed decision, with this fallo
WHEREFORE, the decision of the Regional Trial Court
of Manila, Branch 35, dated February 17, 1997, is
AFFIRMED.
SO ORDERED.[32]
The appellate court held, inter alia, that it was bound
by the finding of facts of the RTC, especially so where
the evidence in support thereof is more than
substantial. It ratiocinated that the loss of the
shipment was due to an excepted cause [t]he
character of the goods or defects in the packing or in
the containers and the failure of the shipper to
indicate signs to notify the stevedores that extra care
should be employed in handling the shipment.[33] It
blamed the shipper for its failure to use materials of
stronger quality to support the heavy machines and
to indicate an arrow in the middle portion of the
cargo where additional slings should be attached.[34]
The CA concluded that common carriers are not
absolute insurers against all risks in the transport of
the goods.[35]
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS
ERROR OF LAW IN NOT HOLDING THAT RESPONDENT
COMMON CARRIER IS LIABLE FOR THE DAMAGE
SUSTAINED BY THE SHIPMENT IN THE POSSESSION OF
THE ARRASTRE OPERATOR.
II.
THE COURT OF APPEALS COMMITTED SERIOUS
ERROR OF LAW IN NOT APPLYING THE STATUTORY
PRESUMPTION OF FAULT AND NEGLIGENCE IN THE
CASE AT BAR.
22
III.
THE COURT OF APPEALS GROSSLY
MISCOMPREHENDED THE FACTS IN FINDING THAT
THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS
DUE TO ITS DEFECTIVE PACKING AND NOT TO THE
FAULT AND NEGLIGENCE OF THE RESPONDENTS.[36]
The petitioner asserts that the mere proof of receipt
of the shipment by the common carrier (to the
carrier) in good order, and their arrival at the place of
destination in bad order makes out a prima facie case
against it; in such case, it is liable for the loss or
damage to the cargo absent satisfactory explanation
given by the carrier as to the exercise of extraordinary
diligence. The petitioner avers that the shipment was
sufficiently packed in wooden boxes, as shown by the
fact that it was accepted on board the vessel and
arrived in Manila safely. It emphasizes that the
respondents did not contest the contents of the bill of
lading, and that the respondents knew that the
manner and condition of the packing of the cargo was
normal and barren of defects. It maintains that it
behooved the respondent ICTSI to place three to four
cables or wire slings in equal settings, including the
center portion of the crate to prevent damage to the
cargo:
[A] simple look at the manifesto of the cargo and the
bill of lading would have alerted respondents of the
nature of the cargo consisting of thick and heavy
machinery. Extra-care should have been made and
extended in the discharge of the subject shipment.
Had the respondent only bothered to check the list of
its contents, they would have been nervous enough
to place additional slings and cables to support those
massive machines, which were composed almost
entirely of thick steel, clearly intended for heavy
industries. As indicated in the list, the boxes
contained one lat[h]e machine, one milling machine
and one grinding machine-all coming with complete
parts and accessories. Yet, not one among the
respondents were cautious enough. Here lies the
utter failure of the respondents to observed
extraordinary diligence in the handling of the cargo in
their custody and possession, which the Court of
Appeals should have readily observed in its
appreciation of the pertinent facts.[37]
The petitioner posits that the loss/damage was
caused by the mishandling of the shipment by therein

respondent ICTSI, the arrastre operator, and not by its
negligence.
The petitioner insists that the respondents did not
observe extraordinary diligence in the care of the
goods. It argues that in the performance of its
obligations, the respondent ICTSI should observe the
same degree of diligence as that required of a
common carrier under the New Civil Code of the
Philippines. Citing Eastern Shipping Lines, Inc. v.
Court of Appeals,[38] it posits that respondents are
liable in solidum to it, inasmuch as both are charged
with the obligation to deliver the goods in good
condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent
ICTSI is adjudged liable, it is not solidarily liable with
it. It further avers that the carrier cannot discharge
directly to the consignee because cargo discharging is
the monopoly of the arrastre. Liability, therefore, falls
solely upon the shoulder of respondent ICTSI,
inasmuch as the discharging of cargoes from the
vessel was its exclusive responsibility. Besides, the
petitioner is raising questions of facts, improper in a
petition for review on certiorari.[39]
Respondent ICTSI avers that the issues raised are
factual, hence, improper under Rule 45 of the Rules
of Court. It claims that it is merely a depository and
not a common carrier; hence, it is not obliged to
exercise extraordinary diligence. It reiterates that the
loss/damage was caused by the failure of the shipper
or his packer to place a sign on the sides and middle
portion of the crate that extra care should be
employed in handling the shipment, and that the
middle wooden batten on the flooring of the crate
had a hole. The respondent asserts that the
testimony of Anthony Abarquez, who conducted his
investigation at the site of the incident, should prevail
over that of Rolando Balatbat. As an alternative, it
argues that if ever adjudged liable, its liability is
limited only to P3,500.00 as expressed in the liability
clause of Gate Pass CFS-BR-GP No. 319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that
only questions of law may be entertained by this
Court in a petition for review on certiorari. This rule,
however, is not ironclad and admits certain
exceptions, such as when (1) the conclusion is
grounded on speculations, surmises or conjectures;
(2) the inference is manifestly mistaken, absurd or
23
impossible; (3) there is grave abuse of discretion; (4)
the judgment is based on a misapprehension of facts;
(5) the findings of fact are conflicting; (6) there is no
citation of specific evidence on which the factual
findings are based; (7) the findings of absence of facts
are contradicted by the presence of evidence on
record; (8) the findings of the Court of Appeals are
contrary to those of the trial court; (9) the Court of
Appeals manifestly overlooked certain relevant and
undisputed facts that, if properly considered, would
justify a different conclusion; (10) the findings of the
Court of Appeals are beyond the issues of the case;
and (11) such findings are contrary to the admissions
of both parties.[40]
We have reviewed the records and find no
justification to warrant the application of any
exception to the general rule.
We agree with the contention of the petitioner that
common carriers, from the nature of their business
and for reasons of public policy, are mandated 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.[41] The Court has
defined extraordinary diligence in the vigilance over
the goods as follows:
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.[42]
The common carriers duty to observe the requisite
diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally
placed in the possession of, and received by, the
carrier for transportation until delivered to, or until
the lapse of a reasonable time for their acceptance,
by the person entitled to receive them.[43] When the
goods shipped are either lost or arrive in damaged
condition, a presumption arises against the carrier of
its failure to observe that diligence, and there need
not be an express finding of negligence to hold it
liable.[44] To overcome the presumption of

negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must
prove that it exercised extraordinary diligence.[45]
However, under Article 1734 of the New Civil Code,
the presumption of negligence does not apply to any
of the following causes:
1. Flood, storm, earthquake, lightning or other
natural disaster or calamity;
2. Act of the public enemy in war, whether
international or civil;
3. Act or omission of the shipper or owner of the
goods;
4. The character of the goods or defects in the
packing or in the containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734
of the New Civil Code which exempts the common
carrier for the loss or damage to the cargo is a closed
list.[46] To exculpate itself from liability for the
loss/damage to the cargo under any of the causes, the
common carrier is burdened to prove any of the
aforecited causes claimed by it by a preponderance of
evidence. If the carrier succeeds, the burden of
evidence is shifted to the shipper to prove that the
carrier is negligent.[47]
Defect is the want or absence of something necessary
for completeness or perfection; a lack or absence of
something essential to completeness; a deficiency in
something essential to the proper use for the purpose
for which a thing is to be used.[48] On the other hand,
inferior means of poor quality, mediocre, or second
rate.[49] A thing may be of inferior quality but not
necessarily defective. In other words, defectiveness
is not synonymous with inferiority.
In the present case, the trial court declared that based
on the record, the loss of the shipment was caused by
the negligence of the petitioner as the shipper:
The same may be said with respect to defendant
ICTSI. The breakage and collapse of Crate No. 1 and
the total destruction of its contents were not
imputable to any fault or negligence on the part of
said defendant in handling the unloading of the
cargoes from the carrying vessel, but was due solely
to the inherent defect and weakness of the materials
used in the fabrication of said crate.
24
The crate should have three solid and strong wooden
batten placed side by side underneath or on the
flooring of the crate to support the weight of its
contents. However, in the case of the crate in
dispute, although there were three wooden battens
placed side by side on its flooring, the middle wooden
batten, which carried substantial volume of the
weight of the crates contents, had a knot hole or
bukong-bukong, which considerably affected,
reduced and weakened its strength. Because of the
enormous weight of the machineries inside this crate,
the middle wooden batten gave way and collapsed.
As the combined strength of the other two wooden
battens were not sufficient to hold and carry the load,
they too simultaneously with the middle wooden
battens gave way and collapsed (TSN, Sept. 26, 1996,
pp. 20-24).
Crate No. 1 was provided by the shipper of the
machineries in Seoul, Korea. There is nothing in the
record which would indicate that defendant ICTSI had
any role in the choice of the materials used in
fabricating this crate. Said defendant, therefore,
cannot be held as blame worthy for the loss of the
machineries contained in Crate No. 1.[50]
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions
mentioned in Article 1734 of the Civil Code,
particularly number (4) thereof, i.e., the character of
the goods or defects in the packing or in the
containers. The trial court found that the breakage of
the crate was not due to the fault or negligence of
ICTSI, but to the inherent defect and weakness of the
materials used in the fabrication of the said crate.
Upon examination of the records, We find no
compelling reason to depart from the factual findings
of the trial court.
It appears that the wooden batten used as support for
the flooring was not made of good materials, which
caused the middle portion thereof to give way when
it was lifted. The shipper also failed to indicate signs
to notify the stevedores that extra care should be
employed in handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before
the court their duties and responsibilities:
Q: With regard to crates, what do you do with the
crates?

A: Everyday with the crates, there is an arrow drawn
where the sling is placed, Maam.
Q: When the crates have arrows drawn and where
you placed the slings, what do you do with these
crates?
A: A sling is placed on it, Maam.
Q: After you placed the slings, what do you do with
the crates?
A: After I have placed a sling properly, I ask the crane
(sic) to haul it, Maam.
Q: Now, what, if any, were written or were marked
on the crate?
A: The thing that was marked on the cargo is an
arrow just like of a chain, Maam.
Q: And where did you see or what parts of the crate
did you see those arrows?
A: At the corner of the crate, Maam.
Q: How many arrows did you see?
A: Four (4) on both sides, Maam.
Q: What did you do with the arrows?
A: When I saw the arrows, thats where I placed the
slings, Maam.
Q: Now, did you find any other marks on the crate?
A: Nothing more, Maam.
Q: Now, Mr. Witness, if there are no arrows, would
you place slings on the parts where there are no
arrows?
A: You can not place slings if there are no arrows,
Maam.
Appellants allegation that since the cargo arrived
safely from the port of [P]usan, Korea without defect,
the fault should be attributed to the arrastre operator
who mishandled the cargo, is without merit. The
cargo fell while it was being carried only at about five
(5) feet high above the ground. It would not have so
easily collapsed had the cargo been properly packed.
The shipper should have used materials of stronger
quality to support the heavy machines. Not only did
the shipper fail to properly pack the cargo, it also
failed to indicate an arrow in the middle portion of
the cargo where additional slings should be attached.
At any rate, the issue of negligence is factual in nature
and in this regard, it is settled that factual findings of
the lower courts are entitled to great weight and
25
respect on appeal, and, in fact, accorded finality when
supported by substantial evidence.[51]
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to
counter that of respondent ICTSI. The petitioner
failed to rebut the testimony of Dauz, that the crates
were sealed and that the contents thereof could not
be seen from the outside.[52] While it is true that the
crate contained machineries and spare parts, it
cannot thereby be concluded that the respondents
knew or should have known that the middle wooden
batten had a hole, or that it was not strong enough to
bear the weight of the shipment.
There is no showing in the Bill of Lading that the
shipment was in good order or condition when the
carrier received the cargo, or that the three wooden
battens under the flooring of the cargo were not
defective or insufficient or inadequate. On the other
hand, under Bill of Lading No. NSGPBSML512565
issued by the respondent NSCP and accepted by the
petitioner, the latter represented and warranted that
the goods were properly packed, and disclosed in
writing the condition, nature, quality or characteristic
that may cause damage, injury or detriment to the
goods. Absent any signs on the shipment requiring
the placement of a sling cable in the mid-portion of
the crate, the respondent ICTSI was not obliged to do
so.
The statement in the Bill of Lading, that the shipment
was in apparent good condition, is sufficient to
sustain a finding of absence of defects in the
merchandise. Case law has it that such statement will
create a prima facie presumption only as to the
external condition and not to that not open to
inspection.[53]
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit.
SO ORDERED.

[G.R. No. 150094. August 18, 2004]
FEDERAL EXPRESS CORPORATION, petitioner, vs.
AMERICAN HOME ASSURANCE COMPANY and
PHILAM INSURANCE COMPANY, INC., respondents.
DECISION
PANGANIBAN, J.:
Basic is the requirement that before suing to recover
loss of or damage to transported goods, the plaintiff
must give the carrier notice of the loss or damage,
within the period prescribed by the Warsaw
Convention and/or the airway bill.
The Case
Before us is a Petition for Review[1] under Rule 45 of
the Rules of Court, challenging the June 4, 2001
Decision[2] and the September 21, 2001
Resolution[3] of the Court of Appeals (CA) in CA-GR
CV No. 58208. The assailed Decision disposed as
follows:
WHEREFORE, premises considered, the present
appeal is hereby DISMISSED for lack of merit. The
appealed Decision of Branch 149 of the Regional Trial
Court of Makati City in Civil Case No. 95-1219, entitled
American Home Assurance Co. and PHILAM Insurance
Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or
CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.), is
hereby AFFIRMED and REITERATED.
Costs against the [petitioner and Cargohaus, Inc.].[4]
The assailed Resolution denied petitioners Motion for
Reconsideration.
The Facts
The antecedent facts are summarized by the
appellate court as follows:
On January 26, 1994, SMITHKLINE Beecham
(SMITHKLINE for brevity) of Nebraska, USA delivered
to Burlington Air Express (BURLINGTON), an agent of
[Petitioner] Federal Express Corporation, a shipment
of 109 cartons of veterinary biologicals for delivery to
consignee SMITHKLINE and French Overseas
Company in Makati City, Metro Manila. The shipment
was covered by Burlington Airway Bill No. 11263825
with the words, REFRIGERATE WHEN NOT IN TRANSIT
and PERISHABLE stamp marked on its face. That same
day, Burlington insured the cargoes in the amount of
26
$39,339.00 with American Home Assurance Company
(AHAC). The following day, Burlington turned over the
custody of said cargoes to Federal Express which
transported the same to Manila. The first shipment,
consisting of 92 cartons arrived in Manila on January
29, 1994 in Flight No. 0071-28NRT and was
immediately stored at [Cargohaus Inc.s] warehouse.
While the second, consisting of 17 cartons, came in
two (2) days later, or on January 31, 1994, in Flight
No. 0071-30NRT which was likewise immediately
stored at Cargohaus warehouse. Prior to the arrival of
the cargoes, Federal Express informed GETC Cargo
International Corporation, the customs broker hired
by the consignee to facilitate the release of its cargoes
from the Bureau of Customs, of the impending arrival
of its clients cargoes.
On February 10, 1994, DARIO C. DIONEDA (DIONEDA),
twelve (12) days after the cargoes arrived in Manila, a
non-licensed customs broker who was assigned by
GETC to facilitate the release of the subject cargoes,
found out, while he was about to cause the release of
the said cargoes, that the same [were] stored only in
a room with two (2) air conditioners running, to cool
the place instead of a refrigerator. When he asked an
employee of Cargohaus why the cargoes were stored
in the cool room only, the latter told him that the
cartons where the vaccines were contained
specifically indicated therein that it should not be
subjected to hot or cold temperature. Thereafter,
DIONEDA, upon instructions from GETC, did not
proceed with the withdrawal of the vaccines and
instead, samples of the same were taken and brought
to the Bureau of Animal Industry of the Department
of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the ELISA
reading of vaccinates sera are below the positive
reference serum.
As a consequence of the foregoing result of the
veterinary biologics test, SMITHKLINE abandoned the
shipment and, declaring total loss for the unusable
shipment, filed a claim with AHAC through its
representative in the Philippines, the Philam
Insurance Co., Inc. (PHILAM) which recompensed
SMITHKLINE for the whole insured amount of THIRTY
NINE THOUSAND THREE HUNDRED THIRTY NINE
DOLLARS ($39,339.00). Thereafter, [respondents]
filed an action for damages against the [petitioner]
imputing negligence on either or both of them in the
handling of the cargo.

Trial ensued and ultimately concluded on March 18,
1997 with the [petitioner] being held solidarily liable
for the loss as follows:
WHEREFORE, judgment is hereby rendered in favor of
[respondents] and [petitioner and its Co-Defendant
Cargohaus] are directed to pay [respondents], jointly
and severally, the following:
1. Actual damages in the amount of the peso
equivalent of US$39,339.00 with interest from the
time of the filing of the complaint to the time the
same is fully paid.
2. Attorneys fees in the amount of P50,000.00 and
3. Costs of suit.
SO ORDERED.
Aggrieved, [petitioner] appealed to [the CA].[5]
Ruling of the Court of Appeals
The Test Report issued by the United States
Department of Agriculture (Animal and Plant Health
Inspection Service) was found by the CA to be
inadmissible in evidence. Despite this ruling, the
appellate court held that the shipping Receipts were
a prima facie proof that the goods had indeed been
delivered to the carrier in good condition. We quote
from the ruling as follows:
Where the plaintiff introduces evidence which shows
prima facie that the goods were delivered to the
carrier in good condition [i.e., the shipping receipts],
and that the carrier delivered the goods in a damaged
condition, a presumption is raised that the damage
occurred through the fault or negligence of the
carrier, and this casts upon the carrier the burden of
showing that the goods were not in good condition
when delivered to the carrier, or that the damage was
occasioned by some cause excepting the carrier from
absolute liability. This the [petitioner] failed to
discharge. x x x.[6]
Found devoid of merit was petitioners claim that
respondents had no personality to sue. This argument
was supposedly not raised in the Answer or during
trial.
Hence, this Petition.[7]
The Issues
In its Memorandum, petitioner raises the following
issues for our consideration:
27
I.
Are the decision and resolution of the Honorable
Court of Appeals proper subject for review by the
Honorable Court under Rule 45 of the 1997 Rules of
Civil Procedure?
II. Is the conclusion of the Honorable Court of Appeals
petitioners claim that respondents have no
personality to sue because the payment was made by
the respondents to Smithkline when the insured
under the policy is Burlington Air Express is devoid of
merit correct or not?
III. Is the conclusion of the Honorable Court of
Appeals that the goods were received in good
condition, correct or not?
IV. Are Exhibits F and G hearsay evidence, and
therefore, not admissible?
V. Is the Honorable Court of Appeals correct in
ignoring and disregarding respondents own
admission that petitioner is not liable? and
VI. Is the Honorable Court of Appeals correct in
ignoring the Warsaw Convention?[8]
Simply stated, the issues are as follows: (1) Is the
Petition proper for review by the Supreme Court? (2)
Is Federal Express liable for damage to or loss of the
insured goods?
This Courts Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the
Court of Appeals from undisputed facts is a question
of law cognizable by the Supreme Court.[9]
In the present case, the facts are undisputed. As will
be shown shortly, petitioner is questioning the
conclusions drawn from such facts. Hence, this case is
a proper subject for review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no
personality to sue -- thus, no cause of action against

it -- because the payment made to Smithkline was
erroneous.
Pertinent to this issue is the Certificate of
Insurance[10] (Certificate) that both opposing parties
cite in support of their respective positions. They
differ only in their interpretation of what their rights
are under its terms. The determination of those rights
involves a question of law, not a question of fact. As
distinguished from a question of law which exists
when the doubt or difference arises as to what the
law is on a certain state of facts -- there is a question
of fact when the doubt or difference arises as to the
truth or the falsehood of alleged facts; or when the
query necessarily invites calibration of the whole
evidence considering mainly the credibility of
witnesses, existence and relevancy of specific
surrounding circumstance, their relation to each
other and to the whole and the probabilities of the
situation.[11]
Proper Payee
The Certificate specifies that loss of or damage to the
insured cargo is payable to order x x x upon surrender
of this Certificate. Such wording conveys the right of
collecting on any such damage or loss, as fully as if the
property were covered by a special policy in the name
of the holder itself. At the back of the Certificate
appears the signature of the representative of
Burlington. This document has thus been duly
indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of
Smithkline, the latter had the right of collecting or of
being indemnified for loss of or damage to the
insured shipment, as fully as if the property were
covered by a special policy in the name of the holder.
Hence, being the holder of the Certificate and having
an insurable interest in the goods, Smithkline was the
proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the
consignee (Smithkline) executed a subrogation
Receipt[12] in favor of respondents. The latter were
thus authorized to file claims and begin suit against
any such carrier, vessel, person, corporation or
government. Undeniably, the consignee had a legal
right to receive the goods in the same condition it was
delivered for transport to petitioner. If that right was
28
violated, the consignee would have a cause of action
against the person responsible therefor.
Upon payment to the consignee of an indemnity for
the loss of or damage to the insured goods, the
insurers entitlement to subrogation pro tanto -- being
of the highest equity -- equips it with a cause of action
in case of a contractual breach or negligence.[13]
Further, the insurers subrogatory right to sue for
recovery under the bill of lading in case of loss of or
damage to the cargo is jurisprudentially upheld.[14]
In the exercise of its subrogatory right, an insurer may
proceed against an erring carrier. To all intents and
purposes, it stands in the place and in substitution of
the consignee. A fortiori, both the insurer and the
consignee are bound by the contractual stipulations
under the bill of lading.[15]
Prescription of Claim
From the initial proceedings in the trial court up to the
present, petitioner has tirelessly pointed out that
respondents claim and right of action are already
barred. The latter, and even the consignee, never
filed with the carrier any written notice or complaint
regarding its claim for damage of or loss to the subject
cargo within the period required by the Warsaw
Convention and/or in the airway bill. Indeed, this fact
has never been denied by respondents and is plainly
evident from the records.
Airway Bill No. 11263825, issued by Burlington as
agent of petitioner, states:
6. No action shall be maintained in the case of
damage to or partial loss of the shipment unless a
written notice, sufficiently describing the goods
concerned, the approximate date of the damage or
loss, and the details of the claim, is presented by
shipper or consignee to an office of Burlington within
(14) days from the date the goods are placed at the
disposal of the person entitled to delivery, or in the
case of total loss (including non-delivery) unless
presented within (120) days from the date of issue of
the [Airway Bill].[16]
Relevantly, petitioners airway bill states:
12./12.1 The person entitled to delivery must make a
complaint to the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately
after discovery of the damage and at the latest within
fourteen (14) days from receipt of the goods;

12.1.2 of other damage to the goods, within fourteen
(14) days from the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date
the goods are placed at his disposal; and
12.1.4 of non-delivery of the goods, within one
hundred and twenty (120) days from the date of the
issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may
be made to the carrier whose air waybill was used, or
to the first carrier or to the last carrier or to the carrier
who performed the transportation during which the
loss, damage or delay took place.[17]
Article 26 of the Warsaw Convention, on the other
hand, provides:
ART. 26. (1) Receipt by the person entitled to the
delivery of baggage or goods without complaint shall
be prima facie evidence that the same have been
delivered in good condition and in accordance with
the document of transportation.
(2) In case of damage, the person entitled to delivery
must complain to the carrier forthwith after the
discovery of the damage, and, at the latest, within 3
days from the date of receipt in the case of baggage
and 7 days from the date of receipt in the case of
goods. In case of delay the complaint must be made
at the latest within 14 days from the date on which
the baggage or goods have been placed at his
disposal.
(3) Every complaint must be made in writing upon the
document of transportation or by separate notice in
writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no
action shall lie against the carrier, save in the case of
fraud on his part.[18]
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier
within the time limitation therefor actually
constitutes a condition precedent to the accrual of a
right of action against a carrier for loss of or damage
to the goods.[19] The shipper or consignee must
allege and prove the fulfillment of the condition. If it
fails to do so, no right of action against the carrier can
accrue in favor of the former. The aforementioned
requirement is a reasonable condition precedent; it
does not constitute a limitation of action.[20]
29
The requirement of giving notice of loss of or injury to
the goods is not an empty formalism. The
fundamental reasons for such a stipulation are (1) to
inform the carrier that the cargo has been damaged,
and that it is being charged with liability therefor; and
(2) to give it an opportunity to examine the nature
and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation
of a claim while the matter is fresh and easily
investigated so as to safeguard itself from false and
fraudulent claims.[21]
When an airway bill -- or any contract of carriage for
that matter -- has a stipulation that requires a notice
of claim for loss of or damage to goods shipped and
the stipulation is not complied with, its enforcement
can be prevented and the liability cannot be imposed
on the carrier. To stress, notice is a condition
precedent, and the carrier is not liable if notice is not
given in accordance with the stipulation.[22] Failure
to comply with such a stipulation bars recovery for
the loss or damage suffered.[23]
Being a condition precedent, the notice must precede
a suit for enforcement.[24] In the present case, there
is neither an allegation nor a showing of respondents
compliance with this requirement within the
prescribed period. While respondents may have had
a cause of action then, they cannot now enforce it for
their failure to comply with the aforesaid condition
precedent.
In view of the foregoing, we find no more necessity to
pass upon the other issues raised by petitioner.
We note that respondents are not without recourse.
Cargohaus, Inc. -- petitioners co-defendant in
respondents Complaint below -- has been adjudged
by the trial court as liable for, inter alia, actual
damages in the amount of the peso equivalent of US
$39,339.[25] This judgment was affirmed by the Court
of Appeals and is already final and executory.[26]
WHEREFORE, the Petition is GRANTED, and the
assailed Decision REVERSED insofar as it pertains to
Petitioner Federal Express Corporation. No
pronouncement as to costs.
SO ORDERED.

UCPB GENERAL INSURANCE G.R. No. 168433
CO., INC.,
Petitioner, - versus -
ABOITIZ SHIPPING CORP
EAGLE EXPRESS LINES,
DAMCO INTERMODAL SERVICES,
INC., and PIMENTEL CUSTOMSBROKERAGE CO.,
Respondents.
February 10, 2009
x-----------------------------------------------------x
UCPB General Insurance Co., Inc. (UCPB) assails the
Decision[1] of the Court of Appeals dated October 29,
2004, which reversed the Decision[2] dated
November 29, 1999 of the Regional Trial Court of
Makati City, Branch 146, and its Resolution[3] dated
June 14, 2005, which denied UCPBs motion for
reconsideration.
The undisputed facts, culled from the assailed
Decision, are as follows:
On June 18, 1991, three (3) units of waste water
treatment plant with accessories were purchased by
San Miguel Corporation (SMC for brevity) from Super
Max Engineering Enterprises, Co., Ltd. of Taipei,
Taiwan. The goods came from Charleston, U.S.A. and
arrived at the port of Manila on board MV
SCANDUTCH STAR. The same were then transported
to Cebu on board MV ABOITIZ SUPERCON II. After its
arrival at the port of Cebu and clearance from the
Bureau of Customs, the goods were delivered to and
received by SMC at its plant site on August 2, 1991. It
was then discovered that one electrical motor of DBS
Drive Unit Model DE-30-7 was damaged.
Pursuant to an insurance agreement, plaintiff-
appellee paid SMC the amount of P1,703,381.40
representing the value of the damaged unit. In turn,
SMC executed a Subrogation Form dated March 31,
1992 in favor of plaintiff-appellee.
Consequently, plaintiff-appellee filed a Complaint on
July 21, 1992 as subrogee of SMC seeking to recover
from defendants the amount it had paid SMC.
On September 20, 1994, plaintiff-appellee moved to
admit its Amended Complaint whereby it impleaded
East Asiatic Co. Ltd. (EAST for brevity) as among the
defendants for being the general agent of DAMCO. In
its Order dated September 23, 1994, the lower court
admitted the said amended complaint.
30
Upon plaintiff-appellees motion, defendant DAMCO
was declared in default by the lower court in its Order
dated January 6, 1995.
In the meantime, on January 25, 1995, defendant
EAST filed a Motion for Preliminary Hearing on its
affirmative defenses seeking the dismissal of the
complaint against it on the ground of prescription,
which motion was however denied by the court a quo
in its Order dated September 1, 1995. Such denial was
elevated by defendant EAST to this Court through a
Petition for Certiorari on October 30, 1995 in CA G.R.
SP No. 38840. Eventually, this Court issued its
Decision dated February 14, 1996 setting aside the
lower courts assailed order of denial and further
ordering the dismissal of the complaint against
defendant EAST. Plaintiff-appellee moved for
reconsideration thereof but the same was denied by
this Court in its Resolution dated November 8, 1996.
As per Entry of Judgment, this Courts decision
ordering the dismissal of the complaint against
defendant EAST became final and executory on
December 5, 1996.
Accordingly, the court a quo noted the dismissal of
the complaint against defendant EAST in its Order
dated December 5, 1997. Thus, trial ensued with
respect to the remaining defendants.
On November 29, 1999, the lower court rendered its
assailed Decision, the dispositive portion of which
reads:
WHEREFORE, all the foregoing premises considered,
judgment is hereby rendered declaring DAMCO
Intermodal Systems, Inc., Eagle Express Lines, Inc. and
defendant Aboitiz Shipping solidarily liable to
plaintiff-subrogee for the damaged shipment and
orders them to pay plaintiff jointly and severally the
sum of P1,703,381.40.
No costs.
SO ORDERED.
Not convinced, defendants-appellants EAGLE and
ABOITIZ now come to this Court through their
respective appeals x x x[4]
The appellate court, as previously mentioned,
reversed the decision of the trial court and ruled that
UCPBs right of action against respondents did not
accrue because UCPB failed to file a formal notice of

claim within 24 hours from (SMCs) receipt of the
damaged merchandise as required under Art. 366 of
the Code of Commerce. According to the Court of
Appeals, the filing of a claim within the time limitation
in Art. 366 is a condition precedent to the accrual of a
right of action against the carrier for the damages
caused to the merchandise.
In its Memorandum[5] dated February 8, 2007, UCPB
asserts that the claim requirement under Art. 366 of
the Code of Commerce does not apply to this case
because the damage to the merchandise had already
been known to the carrier. Interestingly, UCPB makes
this revelation: x x x damage to the cargo was found
upon discharge from the foreign carrier onto the
International Container Terminal Services, Inc. (ICTSI)
in the presence of the carriers representative who
signed the Request for Bad Order Survey[6] and the
Turn Over of Bad Order Cargoes.[7] On
transshipment, the cargo was already damaged when
loaded on board the inter-island carrier.[8] This
knowledge, UCPB argues, dispenses with the need to
give the carrier a formal notice of claim. Incidentally,
the carriers representative mentioned by UCPB as
present at the time the merchandise was unloaded
was in fact a representative of respondent Eagle
Express Lines (Eagle Express).
UCPB claims that under the Carriage of Goods by Sea
Act (COGSA), notice of loss need not be given if the
condition of the cargo has been the subject of joint
inspection such as, in this case, the inspection in the
presence of the Eagle Express representative at the
time the cargo was opened at the ICTSI.
UCPB further claims that the issue of the applicability
of Art. 366 of the Code of Commerce was never raised
before the trial court and should, therefore, not have
been considered by the Court of Appeals.
Eagle Express, in its Memorandum[9] dated February
7, 2007, asserts that it cannot be held liable for the
damage to the merchandise as it acted merely as a
freight forwarders agent in the transaction. It
allegedly facilitated the transshipment of the cargo
from Manila to Cebu but represented the interest of
the cargo owner, and not the carriers. The only
reason why the name of the Eagle Express
representative appeared on the Permit to Deliver
Imported Goods was that the form did not have a
space for the freight forwarders agent, but only for
the agent of the shipping line. Moreover, UCPB had
previously judicially admitted that upon verification
31
from the Bureau of Customs, it was East Asiatic Co.,
Ltd. (East Asiatic), regarding whom the original
complaint was dismissed on the ground of
prescription, which was the real agent of DAMCO
Intermodal Services, Inc. (DAMCO), the ship owner.
Eagle Express argues that the applicability of Art. 366
of the Code of Commerce was properly raised as an
issue before the trial court as it mentioned this issue
as a defense in its Answer to UCPBs Amended
Complaint. Hence, UCPBs contention that the
question was raised for the first time on appeal is
incorrect.
Aboitiz Shipping Corporation (Aboitiz), on the other
hand, points out, in its Memorandum[10] dated
March 29, 2007, that it obviously cannot be held
liable for the damage to the cargo which, by UCPBs
admission, was incurred not during transshipment to
Cebu on
board one of Aboitizs vessels, but was already
existent at the time of unloading in Manila. Aboitiz
also argues that Art. 366 of the Code of Commerce is
applicable and serves as a condition precedent to the
accrual of UCPBs cause of action against it.
The Memorandum[11] dated June 3, 2008, filed by
Pimentel Customs Brokerage Co. (Pimentel Customs),
is also a reiteration of the applicability of Art. 366 of
the Code of Commerce.
It should be stated at the outset that the issue of
whether a claim should have been made by SMC, or
UCPB as SMCs subrogee, within the 24-hour period
prescribed by Art. 366 of the Code of Commerce was
squarely raised before the trial court.
In its Answer to Amended Complaint[12] dated May
10, 1993, Eagle Express averred, thus:
The amended complaint states no cause of action
under the provisions of the Code of Commerce and
the terms of the bill of lading; consignee made no
claim against herein defendant within twenty four
(24) hours following the receipt of the alleged cargo
regarding the condition in which said cargo was
delivered; however, assuming arguendo that the
damage or loss, if any, could not be ascertained from
the outside part of the shipment, consignee never
made any claim against herein defendant at the time
of receipt of said cargo; herein defendant learned of
the alleged claim only upon receipt of the
complaint.[13]

Likewise, in its Answer[14] dated September 21,
1992, Aboitiz raised the defense that UCPB did not file
a claim with it and that the complaint states no cause
of action.
UCPB obviously made a gross misrepresentation to
the Court when it claimed that the issue regarding the
applicability of the Code of Commerce, particularly
the 24-hour formal claim rule, was not raised as an
issue before the trial court. The appellate court,
therefore, correctly looked into the validity of the
arguments raised by Eagle Express, Aboitiz and
Pimentel Customs on this point after the trial court
had so ill-advisedly centered its decision merely on
the matter of extraordinary diligence.
Interestingly enough, UCPB itself has revealed that
when the shipment was discharged and opened at
the ICTSI in Manila in the presence of an Eagle Express
representative, the cargo had already been found
damaged. In fact, a request for bad order survey was
then made and a turnover survey of bad order
cargoes was issued, pursuant to the procedure in the
discharge of bad order cargo. The shipment was then
repacked and transshipped from Manila to Cebu on
board MV Aboitiz Supercon II. When the cargo was
finally received by SMC at its Mandaue City
warehouse, it was found in bad order, thereby
confirming the damage already uncovered in
Manila.[15]
In charging Aboitiz with liability for the damaged
cargo, the trial court condoned UCPBs wrongful suit
against Aboitiz to whom the damage could not have
been attributable since there was no evidence
presented that the cargo was further damaged during
its transshipment to Cebu. Even by the exercise of
extraordinary diligence, Aboitiz could not have
undone the damage to the cargo that had already
been there when the same was shipped on board its
vessel.
That said, it is nonetheless necessary to ascertain
whether any of the remaining parties may still be held
liable by UCPB. The provisions of the Code of
Commerce, which apply to overland, river and
maritime transportation, come into play.
Art. 366 of the Code of Commerce states:
Art. 366. Within twenty-four hours following the
receipt of the merchandise, the claim against the
32
carrier for damage or average which may be found
therein upon opening the packages, may be made,
provided that the indications of the damage or
average which gives rise to the claim cannot be
ascertained from the outside part of such packages,
in which case the claim shall be admitted only at the
time of receipt.
After the periods mentioned have elapsed, or the
transportation charges have been paid, no claim shall
be admitted against the carrier with regard to the
condition in which the goods transported were
delivered.
The law clearly requires that the claim for damage or
average must be made within 24 hours from receipt
of the merchandise if, as in this case, damage cannot
be ascertained merely from the outside packaging of
the cargo.
In Philippine Charter Insurance Corporation v.
Chemoil Lighterage Corporation,[16] petitioner, as
subrogee of Plastic Group Phil., Inc. (PGP), filed suit
against respondent therein for the damage found on
a shipment of chemicals loaded on board
respondents barge. Respondent claimed that no
timely notice in accordance with Art. 366 of the Code
of Commerce was made by petitioner because an
employee of PGP merely made a phone call to
respondents Vice President, informing the latter of
the contamination of the cargo. The Court ruled that
the notice of claim was not timely made or relayed to
respondent in accordance with Art. 366 of the Code
of Commerce.
The requirement to give notice of loss or damage to
the goods is not an empty formalism. The
fundamental reason or purpose of such a stipulation
is not to relieve the carrier from just liability, but
reasonably to inform it that the shipment has been
damaged and that it is charged with liability therefor,
and to give it an opportunity to examine the nature
and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation
of a claim while the matter is still fresh and easily
investigated so as to safeguard itself from false and
fraudulent claims.[17]
We have construed the 24-hour claim requirement as
a condition precedent to the accrual of a right of
action against a carrier for loss of, or damage to, the
goods. The shipper or consignee must allege and
prove the fulfillment of the condition. Otherwise, no

right of action against the carrier can accrue in favor
of the former.[18]
The shipment in this case was received by SMC on
August 2, 1991. However, as found by the Court of
Appeals, the claims were dated October 30, 1991,
more than three (3) months from receipt of the
shipment and, at that, even after the extent of the
loss had already been determined by SMCs surveyor.
The claim was, therefore, clearly filed beyond the 24-
hour time frame prescribed by Art. 366 of the Code of
Commerce.
But what of the damage already discovered in the
presence of Eagle Expresss representative at the time
the shipment was discharged in Manila? The Request
for Bad Order Survey and Turn Over Survey of Bad
Order Cargoes, respectively dated June 17, 1999 and
June 28, 1991, evince the fact that the damage to the
cargo was already made known to Eagle Express and,
possibly, SMC, as of those dates.
Sec. 3(6) of the COGSA provides a similar claim
mechanism as the Code of Commerce but prescribes
a period of three (3) days within which notice of claim
must be given if the loss or damage is not apparent. It
states:
Sec. 3(6). Unless notice of loss or damage and the
general nature of such loss or damage be given in
writing to the carrier or his agent at the port of
discharge or at the time of the removal of the goods
into the custody of the person entitled to delivery
thereof under the contract of carriage, such removal
shall be prima facie evidence of the delivery by the
carrier of the goods as descibed in the bill of lading. If
the loss or damage is not apparent, the notice must
be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon
the receipt of the goods given by the person taking
delivery thereof.
The notice in writing need not be given if the state of
the goods has at the time of their receipt been the
subject of joint survey or inspection.
UCPB seizes upon the last paragraph which dispenses
with the written notice if the state of the goods has
been the subject of a joint survey which, in this case,
was the opening of the shipment in the presence of
an Eagle Express representative. It should be noted at
this point that the applicability of the above-quoted
33
provision of the COGSA was not raised as an issue by
UCPB before the trial court and was only cited by
UCPB in its Memorandum in this case.
UCPB, however, is ambivalent as to which party Eagle
Express represented in the transaction. By its own
manifestation, East Asiatic, and not Eagle Express,
acted as the agent through which summons and court
notices may be served on DAMCO. It would be unjust
to hold that Eagle Expresss knowledge of the damage
to the cargo is such that it served to preclude or
dispense with the 24-hour notice to the carrier
required by Art. 366 of the Code of Commerce.
Neither did the inspection of the cargo in which Eagle
Expresss representative had participated lead to the
waiver of the written notice under the Sec. 3(6) of the
COGSA. Eagle Express, after all, had acted as the
agent of the freight consolidator, not that of the
carrier to whom the notice should have been made.
At any rate, the notion that the request for bad order
survey and turn over survey of bad cargoes signed by
Eagle Expresss representative is construable as
compliant with the notice requirement under Art. 366
of the Code of Commerce was foreclosed by the
dismissal of the complaint against DAMCOs
representative, East Asiatic.
As regards respondent Pimentel Customs, it is
sufficient to acknowledge that it had no participation
in the physical handling, loading and delivery of the
damaged cargo and should, therefore, be absolved of
liability.
Finally, UCPBs misrepresentation that the
applicability of the Code of Commerce was not raised
as an issue before the trial court warrants the
assessment of double costs of suit against it.
WHEREFORE, the petition is DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 68168, dated
October 29, 2004 and its Resolution dated June 14,
2005 are AFFIRMED. Double costs against petitioner.
SO ORDERED.

[G.R. No. 136888. June 29, 2005]
PHILIPPINE CHARTER INSURANCE CORPORATION,
petitioner, vs. CHEMOIL LIGHTERAGE
CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari which
assails the Decision of the Court of Appeals[1] in CA-
G.R. CV No. 56209, dated 18 December 1998. The
Decision reversed and set aside the decision of the
Regional Trial Court (RTC),[2] Branch 16, City of
Manila, which ordered herein respondent to pay the
petitioners claim in the amount of P5,000,000.00 with
legal interest from the date of the filing of the
complaint.
THE FACTS
Petitioner Philippine Charter Insurance Corporation is
a domestic corporation engaged in the business of
non-life insurance. Respondent Chemoil Lighterage
Corporation is also a domestic corporation engaged in
the transport of goods.
On 24 January 1991, Samkyung Chemical Company,
Ltd., based in Ulsan, South Korea, shipped 62.06
metric tons of the liquid chemical DIOCTYL
PHTHALATE (DOP) on board MT TACHIBANA which
was valued at US$90,201.57 under Bill of Lading No.
ULS/MNL-1[3] and another 436.70 metric tons of DOP
valued at US$634,724.89 under Bill of Lading No.
ULS/MNL-2[4] to the Philippines. The consignee was
Plastic Group Phils., Inc. (PGP) in Manila.
PGP insured the cargo with herein petitioner
Philippine Charter Insurance Corporation against all
risks. The insurance was under Marine Policies No.
MRN-30721[5] dated 06 February 1991 for
P31,757,969.19 and No. MRN-30722[6] for
P4,514,881.00. Marine Endorsement No. 2786[7]
dated 11 May 1991 was attached and formed part of
MRN-30721, amending the latters insured value to
P24,667,422.03, and reduced the premium
accordingly.
The ocean tanker MT TACHIBANA unloaded the cargo
to Tanker Barge LB-1011 of respondent Chemoil
Lighterage Corporation, which shall transport the
same to Del Pan Bridge in Pasig River. Tanker Barge
LB-1011 would unload the cargo to tanker trucks, also
34
owned by the respondent, and haul it by land to PGPs
storage tanks in Calamba, Laguna.
Upon inspection by PGP, the samples taken from the
shipment showed discoloration from yellowish to
amber, demonstrating that it was damaged, as DOP is
colorless and water clear. PGP then sent a letter to
the petitioner dated 18 February 1991[8] where it
formally made an insurance claim for the loss it
sustained due to the contamination.
The petitioner requested an independent insurance
adjuster, the GIT Insurance Adjusters, Inc. (GIT), to
conduct a Quantity and Condition Survey of the
shipment. On 22 February 1991, GIT issued a
Report,[9] part of which states:
As unloading progressed, it was observed on February
14, 1991 that DOP samples taken were discolored
from yellowish to amber. Inspection of cargo tanks
showed manhole covers of ballast tanks ceilings
loosely secured. Furthermore, it was noted that the
rubber gaskets of the manhole covers of the ballast
tanks re-acted to the chemical causing shrinkage
thus, loosening the covers and cargo ingress to the
rusty ballast tanks[10]
On 13 May 1991, the petitioner paid PGP the amount
of P5,000,000.00[11] as full and final payment for the
loss. PGP issued a Subrogation Receipt to the
petitioner.
Meanwhile, on 03 April 1991, PGP paid the
respondent the amount of P301,909.50 as full
payment for the latters services, as evidenced by
Official Receipt No. 1274.[12]
On 15 July 1991, an action for damages was instituted
by the petitioner-insurer against respondent-carrier
before the RTC, Branch 16, City of Manila, docketed
as Civil Case No. 91-57923.[13] The petitioner prayed
for actual damages in the amount of P5,000,000.00,
attorneys fees in the amount of no less than
P1,000,000.00, and costs of suit.
An Answer with Compulsory Counterclaim[14] was
filed by the respondent on 05 September 1991. The
respondent admitted it undertook to transport the
consignees shipment from MT TACHIBANA to the Del
Pan Bridge, Pasig River, where it was transferred to its
tanker trucks for hauling to PGPs storage tanks in
Calamba, Laguna. The respondent alleged that before
the DOP was loaded into its barge (LB-1011), the

surveyor/representative of PGP, Adjustment
Standard Corporation, inspected it and found the
same clean, dry, and fit for loading. The entire loading
and unloading of the shipment were also done under
the control and supervision of PGPs
surveyor/representative. It was also mentioned by
the respondent that the contract between it and PGP
expressly stipulated that it shall be free from any and
all claims arising from contamination, loss of cargo or
part thereof; that the consignee accepted the cargo
without any protest or notice; and that the cargo shall
be insured by its owner sans recourse against all risks.
As subrogee, the petitioner was bound by this
stipulation. As carrier, no fault and negligence can be
attributed against respondent as it exercised
extraordinary diligence in handling the cargo.[15]
After due hearing, the trial court rendered a Decision
on 06 January 1997, the dispositive portion of which
reads:
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered in favor of plaintiff ordering
defendant to pay plaintiffs claim of P5,000,000.00
with legal interest from the date of the filing of the
complaint. The counterclaims are DISMISSED.[16]
Aggrieved by the trial courts decision, the respondent
sought relief with the Court of Appeals where it
alleged in the main that PGP failed to file any notice,
claim or protest within the period required by Article
366 of the Code of Commerce, which is a condition
precedent to the accrual of a right of action against
the carrier.[17] A telephone call which was
supposedly made by a certain Alfred Chan, an
employee of PGP, to one of the Vice Presidents of the
respondent, informing the latter of the discoloration,
is not the notice required by Article 366 of the Code
of Commerce.[18]
On 18 December 1998, the Court of Appeals
promulgated its Decision reversing the trial court, the
dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby
REVERSED AND SET ASIDE and a new one is entered
dismissing the complaint.[19]
A petition for review on certiorari[20] was filed by the
petitioner with this Court, praying that the decision of
the trial court be affirmed.
35
After the respondent filed its Comment[21] and the
petitioner filed its Reply[22] thereto, this Court issued
a Resolution[23] on 18 August 1999, giving due
course to the petition.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
I THE APPELLATE COURT GRAVELY ERRED IN FINDING
THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN
THE REQUIRED PERIOD.
II THE APPELLATE COURT GRAVELY ERRED IN NOT
HOLDING THAT DAMAGE TO THE CARGO WAS DUE
TO THE FAULT OR NEGLIGENCE OF RESPONDENT
CHEMOIL.
III THE APPELLATE COURT GRAVELY ERRED IN
SETTING ASIDE THE TRIAL COURTS DECISION AND IN
DISMISSING THE COMPLAINT.[24]
ISSUES
Synthesized, the issues that must be addressed by
this Court are:
I WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED
WITHIN THE REQUIRED PERIOD. If the answer is in the
affirmative,
II WHETHER OR NOT THE DAMAGE TO THE CARGO
WAS DUE TO THE FAULT OR NEGLIGENCE OF THE
RESPONDENT.
THE COURTS RULINGS
Article 366 of the Code of Commerce has profound
application in the case at bar. This provision of law
imparts:
Art. 366. Within twenty-four hours following the
receipt of the merchandise a claim may be made
against the carrier on account of damage or average
found upon opening the packages, provided that the
indications of the damage or average giving rise to the
claim cannot be ascertained from the exterior of said
packages, in which case said claim shall only be
admitted at the time of the receipt of the packages.
After the periods mentioned have elapsed, or after
the transportation charges have been paid, no claim
whatsoever shall be admitted against the carrier with

regard to the condition in which the goods
transported were delivered.
As to the first issue, the petitioner contends that the
notice of contamination was given by Alfredo Chan,
an employee of PGP, to Ms. Encarnacion Abastillas,
Vice President for Administration and Operations of
the respondent, at the time of the delivery of the
cargo, and therefore, within the required period.[25]
This was done by telephone.
The respondent, however, claims that the supposed
notice given by PGP over the telephone was denied
by Ms. Abastillas. Between the testimonies of Alfredo
Chan and Encarnacion Abastillas, the latters
testimony is purportedly more credible because it
would be quite unbelievable and contrary to business
practice for Alfredo Chan to merely make a verbal
notice of claim that involves millions of pesos.[26]
On this point, the Court of Appeals declared:
. . . We are inclined to sustain the view that a
telephone call made to defendant-company could
constitute substantial compliance with the
requirement of notice considering that the notice was
given to a responsible official, the Vice-President,
who promptly replied that she will look into the
matter. However, it must be pointed out that
compliance with the period for filing notice is an
essential part of the requirement, i.e.. immediately if
the damage is apparent, or otherwise within twenty-
four hours from receipt of the goods, the clear import
being that prompt examination of the goods must be
made to ascertain damage if this is not immediately
apparent. We have examined the evidence, and We
are unable to find any proof of compliance with the
required period, which is fatal to the accrual of the
right of action against the carrier.[27]
The petitioner is of the view that there was an
incongruity in the findings of facts of the trial court
and the Court of Appeals, the former allegedly
holding that the period to file the notice had been
complied with, while the latter held otherwise.
We do not agree. On the matter concerning the giving
of the notice of claim as required by Article 366 of the
Code of Commerce, the finding of fact of the Court of
Appeals does not actually contradict the finding of
fact of the trial court. Both courts held that, indeed, a
telephone call was made by Alfredo Chan to
Encarnacion Abastillas, informing the latter of the
36
contamination. However, nothing in the trial courts
decision stated that the notice of claim was relayed
or filed with the respondent-carrier immediately or
within a period of twenty-four hours from the time
the goods were received. The Court of Appeals made
the same finding. Having examined the entire records
of the case, we cannot find a shred of evidence that
will precisely and ultimately point to the conclusion
that the notice of claim was timely relayed or filed.
The allegation of the petitioner that not only the Vice
President of the respondent was informed, but also
its drivers, as testified by Alfredo Chan, during the
time that the delivery was actually being made,
cannot be given great weight as no driver was
presented to the witness stand to prove this. Part of
the testimony of Alfredo Chan is revealing:
Q:
Mr. Witness, were you in your plant site at the time
these various cargoes were delivered?
A: No, sir.
Q: So, do you have a first hand knowledge that your
plant representative informed the driver of the
alleged contamination?
A: What do you mean by that?
Q: Personal knowledge [that] you yourself heard or
saw them [notify] the driver?
A: No, sir.[28]
From the preceding testimony, it is quite palpable
that the witness Alfredo Chan had no personal
knowledge that the drivers of the respondent were
informed of the contamination.
The requirement that a notice of claim should be filed
within the period stated by Article 366 of the Code of
Commerce is not an empty or worthless proviso. In a
case, we held:
The object sought to be attained by the requirement
of the submission of claims in pursuance of this article
is to compel the consignee of goods entrusted to a
carrier to make prompt demand for settlement of
alleged damages suffered by the goods while in
transport, so that the carrier will be enabled to verify
all such claims at the time of delivery or within
 37

twenty-four hours thereafter, and if necessary fix
responsibility and secure evidence as to the nature
and extent of the alleged damages to the goods while
the matter is still fresh in the minds of the parties.[29]
In another case, we ruled, thus:
We do not believe so. As discussed at length above,
there is no evidence to confirm that the notice of
claim was filed within the period provided for under
Article 366 of the Code of Commerce. Petitioners
contention proceeds from a false presupposition that
the notice of claim was timely filed.

More particularly, where the contract of shipment Considering that we have resolved the first issue in
contains a reasonable requirement of giving notice of the negative, it is therefore unnecessary to make a
loss of or injury to the goods, the giving of such notice resolution on the second issue.
is a condition precedent to the action for loss or injury
or the right to enforce the carriers liability. Such WHEREFORE, in view of all the foregoing, the Decision
requirement is not an empty formalism. The of the Court of Appeals dated 18 December 1998,
fundamental reason or purpose of such a stipulation which reversed and set aside the decision of the trial
is not to relieve the carrier from just liability, but court, is hereby AFFIRMED in toto. No
reasonably to inform it that the shipment has been pronouncement as to costs.
damaged and that it is charged with liability
therefore, and to give it an opportunity to examine SO ORDERED.
the nature and extent of the injury. This protects the
carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false
and fraudulent claims.[30]

The filing of a claim with the carrier within the time

limitation therefore actually constitutes a condition
precedent to the accrual of a right of action against a
carrier for loss of, or damage to, the goods. The
shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right
of action against the carrier can accrue in favor of the
former. The aforementioned requirement is a
reasonable condition precedent; it does not
constitute a limitation of action.[31]

The second paragraph of Article 366 of the Code of

Commerce is also edifying. It is not only when the
period to make a claim has elapsed that no claim
whatsoever shall be admitted, as no claim may
similarly be admitted after the transportation charges
have been paid.

In this case, there is no question that the

transportation charges have been paid, as admitted
by the petitioner, and the corresponding official
receipt[32] duly issued. But the petitioner is of the
view that the payment for services does not
invalidate its claim. It contends that under the second
paragraph of Article 366 of the Code of Commerce, it
is clear that if notice or protest has been made prior
to payment of services, claim against the bad order
condition of the cargo is allowed.

[G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT, petitioners,
vs. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE
CORPORATION, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and
set aside the Decision of respondent Court of Appeals
dated December 14, 1995[1] and its Resolution dated
February 22, 1996[2] in CA-G.R. CV No. 45805 entitled
Mayer Steel Pipe Corporation and Hongkong
Government Supplies Department v. South Sea
Surety Insurance Co., Inc. and The Charter Insurance
Corporation.[3]
In 1983, petitioner Hongkong Government Supplies
Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and
supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings
to Hongkong as evidenced by Invoice Nos. MSPC-
1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-
1017 and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the
pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc.
(South Sea) and Charter Insurance Corp. (Charter).
The pipes and fittings covered by Invoice Nos. MSPC-
1014, 1015 and 1025 with a total amount of
US$212,772.09 were insured with respondent South
Sea, while those covered by Invoice Nos. 1020, 1017
and 1022 with a total amount of US$149,470.00 were
insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed
Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings
are manufactured in accordance with the
specifications in the contract. Industrial Inspection
certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel.
Nonetheless, when the goods reached Hongkong, it
was discovered that a substantial portion thereof was
damaged.
Petitioners filed a claim against private respondents
for indemnity under the insurance contract.
Respondent Charter paid petitioner Hongkong the
38
amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30
representing the cost of repair of the damaged pipes.
Private respondents refused to pay because the
insurance surveyor's report allegedly showed that the
damage is a factory defect.
On April 17, 1986, petitioners filed an action against
private respondents to recover the sum of
HK$299,345.30. For their defense, private
respondents averred that they have no obligation to
pay the amount claimed by petitioners because the
damage to the goods is due to factory defects which
are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found
that the damage to the goods is not due to
manufacturing defects. It also noted that the
insurance contracts executed by petitioner Mayer
and private respondents are "all risks" policies which
insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in
the policy, or those sustained due to fraud or
intentional misconduct on the part of the insured. The
dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering
the defendants jointly and severally, to pay the
plaintiffs the following:
1. the sum equivalent in Philippine currency of
HK$299,345.30 with legal rate of interest as of the
filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent
Court of Appeals.
Respondent court affirmed the finding of the trial
court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance policies
issued by private respondents to petitioner Mayer.
However, it set aside the decision of the trial court
and dismissed the complaint on the ground of
prescription. It held that the action is barred under
Section 3(6) of the Carriage of Goods by Sea Act since
it was filed only on April 17, 1986, more than two
years from the time the goods were unloaded from
the vessel. Section 3(6) of the Carriage of Goods by
Sea Act provides that "the carrier and the ship shall

be discharged from all liability in respect of loss or
damage unless suit is brought within one year after
delivery of the goods or the date when the goods
should have been delivered." Respondent court ruled
that this provision applies not only to the carrier but
also to the insurer, citing Filipino Merchants
Insurance Co., Inc. vs. Alejandro.[6]
Hence this petition with the following assignments of
error:
1. The respondent Court of Appeals erred in holding
that petitioners' cause of action had already
prescribed on the mistaken application of the
Carriage of Goods by Sea Act and the doctrine of
Filipino Merchants Co., Inc. v. Alejandro (145 SCRA
42); and
2. The respondent Court of Appeals committed an
error in dismissing the complaint.[7]
The petition is impressed with merit. Respondent
court erred in applying Section 3(6) of the Carriage of
Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states
that the carrier and the ship shall be discharged from
all liability for loss or damage to the goods if no suit is
filed within one year after delivery of the goods or the
date when they should have been delivered. Under
this provision, only the carrier's liability is
extinguished if no suit is brought within one year. But
the liability of the insurer is not extinguished because
the insurer's liability is based not on the contract of
carriage but on the contract of insurance. A close
reading of the law reveals that the Carriage of Goods
by Sea Act governs the relationship between the
carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It
defines the obligations of the carrier under the
contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v.
Alejandro[8] and the other cases[9] cited therein does
not support respondent court's view that the
insurer's liability prescribes after one year if no action
for indemnity is filed against the carrier or the insurer.
In that case, the shipper filed a complaint against the
insurer for recovery of a sum of money as indemnity
for the loss and damage sustained by the insured
goods. The insurer, in turn, filed a third-party
39
complaint against the carrier for reimbursement of
the amount it paid to the shipper. The insurer filed
the third-party complaint on January 9, 1978, more
than one year after delivery of the goods on
December 17, 1977. The court held that the Insurer
was already barred from filing a claim against the
carrier because under the Carriage of Goods by Sea
Act, the suit against the carrier must be filed within
one year after delivery of the goods or the date when
the goods should have been delivered. The court said
that "the coverage of the Act includes the insurer of
the goods."[10]
The Filipino Merchants case is different from the case
at bar. In Filipino Merchants, it was the insurer which
filed a claim against the carrier for reimbursement of
the amount it paid to the shipper. In the case at bar,
it was the shipper which filed a claim against the
insurer. The basis of the shipper's claim is the "all
risks" insurance policies issued by private
respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to
suits against the carrier filed either by the shipper, the
consignee or the insurer. When the court said in
Filipino Merchants that Section 3(6) of the Carriage of
Goods by Sea Act applies to the insurer, it meant that
the insurer, like the shipper, may no longer file a claim
against the carrier beyond the one-year period
provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer
because the basis of the insurer's liability is the
insurance contract. An insurance contract is a
contract whereby one party, for a consideration
known as the premium, agrees to indemnify another
for loss or damage which he may suffer from a
specified peril.[11] An "all risks" insurance policy
covers all kinds of loss other than those due to willful
and fraudulent act of the insured.[12] Thus, when
private respondents issued the "all risks" policies to
petitioner Mayer, they bound themselves to
indemnify the latter in case of loss or damage to the
goods insured. Such obligation prescribes in ten
years, in accordance with Article 1144 of the New Civil
Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. The
Decision of respondent Court of Appeals dated
December 14, 1995 and its Resolution dated February
22, 1996 are hereby SET ASIDE and the Decision of the
Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.

G.R. No. L-61352 February 27, 1987
DOLE PHILIPPINES, INC., plaintiff-appellant,
vs.
MARITIME COMPANY OF THE PHILIPPINES,
defendant-appellee.
Domingo E. de Lara & Associates for plaintiff-
appellant.
Bito, Misa and Lozada Law Office for defendant-
appellee.
NARVASA, J.:
This appeal, which was certified to the Court by the
Court of Appeals as involving only questions of law, 1
relates to a claim for loss and/or damage to a
shipment of machine parts sought to be enforced by
the consignee, appellant Dole Philippines, Inc.
(hereinafter caged Dole) against the carrier, Maritime
Company of the Philippines (hereinafter called
Maritime), under the provisions of the Carriage of
Goods by Sea Act. 2
The basic facts are succinctly stated in the order of the
Trial Court 3 dated March 16, 1977, the relevant
portion of which reads:
xxx xxx xxx
Before the plaintiff started presenting evidence at
today's trial at the instance of the Court the lawyers
entered into the following stipulation of facts:
1. The cargo subject of the instant case was
discharged in Dadiangas unto the custody of the
consignee on December 18, 1971;
2. The corresponding claim for the damages
sustained by the cargo was filed by the plaintiff with
the defendant vessel on May 4, 1972;
3. On June 11, 1973 the plaintiff filed a
complaint in the Court of First Instance of Manila,
docketed therein as Civil Case No. 91043, embodying
three (3) causes of action involving three (3) separate
and different shipments. The third cause of action
therein involved the cargo now subject of this present
litigation;
4. On December 11, 1974, Judge Serafin
Cuevas issued an Order in Civil Case No. 91043
dismissing the first two causes of action in the
40
aforesaid case with prejudice and without
pronouncement as to costs because the parties had
settled or compromised the claims involved therein.
The third cause of action which covered the cargo
subject of this case now was likewise dismissed but
without prejudice as it was not covered by the
settlement. The dismissal of that complaint
containing the three causes of action was upon a joint
motion to dismiss filed by the parties;
5. Because of the dismissal of the (complaint in
Civil Case No. 91043 with respect to the third cause of
action without prejudice, plaintiff instituted this
present complaint on January 6, 1975.
xxx xxx xxx 4
To the complaint in the subsequent action Maritime
filed an answer pleading inter alia the affirmative
defense of prescription under the provisions of the
Carriage of Goods by Sea Act, 5 and following pre-
trial, moved for a preliminary hearing on said defense.
6 The Trial Court granted the motion, scheduling the
preliminary hearing on April 27, 1977. 7 The record
before the Court does not show whether or not that
hearing was held, but under date of May 6, 1977,
Maritime filed a formal motion to dismiss invoking
once more the ground of prescription. 8 The motion
was opposed by Dole 9 and the Trial Court, after due
consideration, resolved the matter in favor of
Maritime and dismissed the complaint 10 Dole sought
a reconsideration, which was denied, 11 and
thereafter took the present appeal from the order of
dismissal.
The pivotal issue is whether or not Article 1155 of the
Civil Code providing that the prescription of actions is
interrupted by the making of an extrajudicial written
demand by the creditor is applicable to actions
brought under the Carriage of Goods by Sea Act
which, in its Section 3, paragraph 6, provides that:
*** the carrier and the ship shall be discharged from
all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or
the date when the goods should have been delivered;
Provided, That, if a notice of loss or damage, either
apparent or conceded, is not given as provided for in
this section, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after
the delivery of the goods or the date when the goods
should have been delivered.

xxx xxx xxx
Dole concedes that its action is subject to the one-
year period of limitation prescribe in the above-cited
provision. 12 The substance of its argument is that
since the provisions of the Civil Code are, by express
mandate of said Code, suppletory of deficiencies in
the Code of Commerce and special laws in matters
governed by the latter, 13 and there being "*** a
patent deficiency *** with respect to the tolling of
the prescriptive period ***" provided for in the
Carriage of Goods by Sea Act, 14 prescription under
said Act is subject to the provisions of Article 1155 of
the Civil Code on tolling and because Dole's claim for
loss or damage made on May 4, 1972 amounted to a
written extrajudicial demand which would toll or
interrupt prescription under Article 1155, it operated
to toll prescription also in actions under the Carriage
of Goods by Sea Act. To much the same effect is the
further argument based on Article 1176 of the Civil
Code which provides that the rights and obligations of
common carriers shag be governed by the Code of
Commerce and by special laws in all matters not
regulated by the Civil Code.
These arguments might merit weightier consideration
were it not for the fact that the question has already
received a definitive answer, adverse to the position
taken by Dole, in The Yek Tong Lin Fire & Marine
Insurance Co., Ltd. vs. American President Lines, Inc.
15 There, in a parallel factual situation, where suit to
recover for damage to cargo shipped by vessel from
Tokyo to Manila was filed more than two years after
the consignee's receipt of the cargo, this Court
rejected the contention that an extrajudicial demand
toiled the prescriptive period provided for in the
Carriage of Goods by Sea Act, viz:
In the second assignment of error plaintiff-appellant
argues that it was error for the court a quo not to
have considered the action of plaintiff-appellant
suspended by the extrajudicial demand which took
place, according to defendant's own motion to
dismiss on August 22, 1952. We notice that while
plaintiff avoids stating any date when the goods
arrived in Manila, it relies upon the allegation made
in the motion to dismiss that a protest was filed on
August 22, 1952 — which goes to show that plaintiff-
appellant's counsel has not been laying the facts
squarely before the court for the consideration of the
merits of the case. We have already decided that in a
case governed by the Carriage of Goods by Sea Act,
the general provisions of the Code of Civil Procedure
41
on prescription should not be made to apply. (Chua
Kuy vs. Everett Steamship Corp., G.R. No. L-5554, May
27, 1953.) Similarly, we now hold that in such a case
the general provisions of the new Civil Code (Art.
1155) cannot be made to apply, as such application
would have the effect of extending the one-year
period of prescription fixed in the law. It is desirable
that matters affecting transportation of goods by sea
be decided in as short a time as possible; the
application of the provisions of Article 1155 of the
new Civil Code would unnecessarily extend the period
and permit delays in the settlement of questions
affecting transportation, contrary to the clear intent
and purpose of the law. * * *
Moreover, no different result would obtain even if
the Court were to accept the proposition that a
written extrajudicial demand does toll prescription
under the Carriage of Goods by Sea Act. The demand
in this instance would be the claim for damage-filed
by Dole with Maritime on May 4, 1972. The effect of
that demand would have been to renew the one- year
prescriptive period from the date of its making.
Stated otherwise, under Dole's theory, when its claim
was received by Maritime, the one-year prescriptive
period was interrupted — "tolled" would be the more
precise term — and began to run anew from May 4,
1972, affording Dole another period of one (1) year
counted from that date within which to institute
action on its claim for damage. Unfortunately, Dole
let the new period lapse without filing action. It
instituted Civil Case No. 91043 only on June 11, 1973,
more than one month after that period has expired
and its right of action had prescribed.
Dole's contention that the prescriptive period "***
remained tolled as of May 4, 1972 *** (and that) in
legal contemplation *** (the) case (Civil Case No.
96353) was filed on January 6, 1975 *** well within
the one-year prescriptive period in Sec. 3(6) of the
Carriage of Goods by Sea Act." 16 equates tolling with
indefinite suspension. It is clearly fallacious and
merits no consideration.
WHEREFORE, the order of dismissal appealed from is
affirmed, with costs against the appellant, Dole
Philippines, Inc.
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.
42
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
43
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
44
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,
45
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.
46
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
47
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.
48
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
49
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
 50

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.