(CASE NO.1) : Transportation Law

(CASE NO.
1)
Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal
in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring
such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling
the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with
cargo which various merchants wanted delivered to differing establishments in Pangasinan. For that
service, respondent charged freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not
be held responsible for the value of the lost goods, such loss having been due to force majeure.
Transportation Law Page 1

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as
for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court of
Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water,
or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its

classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. ...
(Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or

calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed
to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case — the hijacking of the carrier's truck — does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted negligently.
This presumption, however, may be overthrown by proof of extraordinary diligence on the part of
private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should
have hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled
milk. We do not believe, however, that in the instant case, the standard of extraordinary diligence
required private respondent to retain a security guard to ride with the truck and to engage brigands in
a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4,
5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:
xxx xxxxxx
(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;

(6) that the common carrier's liability for acts committed by thieves, or of
robbers who donot act with grave or irresistible threat, violence or force, is
dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction
or deterioration of goods on account of the defective condition of the car
vehicle, ship, airplane or other equipment used in the contract of carriage.
(Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-
uppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite
beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary
to recall that even common carriers are not made absolute insurers against all risks of travel and of
transport of goods, and are not held liable for acts or events which cannot be foreseen or are
inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

(CASE NO.2)
SECOND DIVISION
G.R. No. 148496 March 19, 2002
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming
the decision2 of the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay
respondent, as subrogee, the amount of P93,112.00 with legal interest, representing the value of
damaged cargo handled by petitioner, 25% thereof as attorney's fees, and the cost of the suit.1hi1.nêt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a
sole proprietorship customs broker. At the time material to this case, petitioner entered into a contract
with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and
124 reels of kraft liner board from the Port Area in Manila to SMC's warehouse at the Tabacalera
Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General
Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board
"M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the
arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her
contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC's
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo
Surveyors, who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn" and 3
reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned
amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial
Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding petitioner
liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh.
"F") with entries appearing therein, classified as "TED" and "TSN", which the claims processor,
Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the
subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh.
"H" - "H-4-A") confirms the fact of the damaged condition of the subject cargoes. The
surveyor[s'] report (Exh. "H-4-A") in particular, which provides among others that:

" . . . we opine that damages sustained by shipment is attributable to improper handling
in transit presumably whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is]
are not liable. Defendant by reason of the nature of [her] business should have devised ways
and means in order to prevent the damage to the cargoes which it is under obligation to take
custody of and to forthwith deliver to the consignee. Defendant did not present any evidence
on what precaution [she] performed to prevent [the] said incident, hence the presumption is
that the moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been
lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they have observed the extraordinary diligence
required by law. The burden of the plaintiff, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
carrier to prove that he has exercised the extraordinary diligence required by law. Thus, it has
been held that the mere proof of delivery of goods in good order to a carrier, and of their arrival
at the place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held
responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some
other circumstances inconsistent with its liability." (cited in Commercial Laws of the Philippines
by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and
received by the carrier for transportation until the same are delivered actually or constructively
by the carrier to the consignee or to the person who has the right to receive the same. 3
Accordingly, the trial court ordered petitioner to pay the following amounts --
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]

DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES,
SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is
indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her,
would require.6 Consequently, any damage to the cargo she agrees to transport cannot be presumed
to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not
a common carrier but a private carrier because, as a customs broker and warehouseman, she does
not indiscriminately hold her services out to the public but only offers the same to select parties with
whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar
contention and held the party to be a common carrier, thus -
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public."
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
" x xx every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of

passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. x xx" 8
There is greater reason for holding petitioner to be a common carrier because the transportation of
goods is an integral part of her business. To uphold petitioner's contention would be to deprive those
with whom she contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for her customers, as already noted, is part and parcel of petitioner's
business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case. . . .
In CompaniaMaritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance

over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable means
to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the "spoilage
or wettage" took place while the goods were in the custody of either the carrying vessel "M/V
Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator, to whom the goods
were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998
notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged,
as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened. 10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no
personal knowledge on whether the container vans were first stored in petitioner's warehouse prior to
their delivery to the consignee. She likewise claims that after withdrawing the container vans from the
arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMC's warehouse

in Ermita, Manila, which is a mere thirty-minute drive from the Port Area where the cargo came from.
Thus, the damage to the cargo could not have taken place while these were in her custody. 11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these were
covered by clean Equipment Interchange Report (EIR) and, when petitioner's employees withdrew
the cargo from the arrastre operator, they did so without exception or protest either with regard to the
condition of container vans or their contents. The Survey Report pertinently reads --
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of
Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal
vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof
panels, these containers were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990. 12
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean
Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there
would have been a report to that effect made by the arrastre operator. The cargoes were
withdrawn by the defendant-appellant from the arrastre still in good order and condition as the
same were received by the former without exception, that is, without any report of damage or
loss. Surely, if the container vans were deformed, cracked, distorted or dented, the defendant-
appellant would report it immediately to the consignee or make an exception on the delivery
receipt or note the same in the Warehouse Entry Slip (WES). None of these took place. To put
it simply, the defendant-appellant received the shipment in good order and condition and
delivered the same to the consignee damaged. We can only conclude that the damages to the
cargo occurred while it was in the possession of the defendant-appellant. Whenever the thing
is lost (or damaged) in the possession of the debtor (or obligor), it shall be presumed that the
loss (or damage) was due to his fault, unless there is proof to the contrary. No proof was
proffered to rebut this legal presumption and the presumption of negligence attached to a
common carrier in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her custody as she
immediately delivered the containers to SMC's compound, suffice it to say that to prove the exercise
of extraordinary diligence, petitioner must do more than merely show the possibility that some other

party could be responsible for the damage. It must prove that it used "all reasonable means to
ascertain the nature and characteristic of goods tendered for [transport] and that [it] exercise[d] due
care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the
container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception notwithstanding such condition, he is not
relieved of liability for damage resulting therefrom.14 In this case, petitioner accepted the cargo
without exception despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of goods in this case or
that she is exempt from liability, the presumption of negligence as provided under Art. 1735 15 holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.1âwphi1.nêt
SO ORDERED.

(CASE NO.3)
THIRD DIVISION
G.R. No. 143133 June 5, 2002
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT
SERVICES, INC., petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at
their destination constitutes prima facie fault or negligence on the part of the carrier. If no adequate
explanation is given as to how the loss, the destruction or the deterioration of the goods happened,
the carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998
Decision1 and the May 2, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 53571.
The decretal portion of the Decision reads as follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby
REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally
pay plaintiffs-appellants the following:
'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32)
as actual damages, representing the value of the damaged cargo, plus interest at the
legal rate from the time of filing of the complaint on July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit.'"4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which
had disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the

complaint, as well as defendant's counterclaim."5
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg,
Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila
consigned to the Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky
arrived at the port of Manila and, within the subsequent days, discharged the subject cargo.
Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4)

coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel
Trading Corporation declared the same as total loss.1âwphi1.nêt
"Despite receipt of a formal demand, defendants-appellees refused to submit to the

consignee's claim. Consequently, plaintiff-appellant paid the consignee five hundred six
thousand eighty six& 50/100 pesos (P506,086.50), and was subrogated to the latter's rights
and causes of action against defendants-appellees. Subsequently, plaintiff-appellant instituted
this complaint for recovery of the amount paid by them, to the consignee as insured.
"Impugning the propriety of the suit against them, defendants-appellees imputed that the
damage and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of
the goods, or to perils, danger and accidents of the sea, or to insufficiency of packing thereof,
or to the act or omission of the shipper of the goods or their representatives. In addition
thereto, defendants-appellees argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other pertinent laws. Finally,
defendants-appellees averred that, in any event, they exercised due diligence and foresight
required by law to prevent any damage/loss to said shipment." 6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the
quantum of proof required by law.7
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous
or primarily intended to harass them.8
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the
goods shipped, because they had failed to overcome the presumption of negligence imposed on
common carriers.
The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the
goods was due to pre-shipment damage.9 It likewise opined that the notation "metal envelopes rust
stained and slightly dented" placed on the Bill of Lading had not been the proximate cause of the
damage to the four (4) coils.10
As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not
applicable, because the words "L/C No. 90/02447" indicated that a higher valuation of the cargo had
been declared by the shipper. The CA, however, affirmed the award of attorney's fees.
Hence, this Petition.11
Issues
In their Memorandum, petitioners raise the following issues for the Court's consideration:

"Whether or not plaintiff by presenting only one witness who has never seen the subject
shipment and whose testimony is purely hearsay is sufficient to pave the way for the
applicability of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required
by law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-
shipment damage and to exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is
applicable to the case at bar."12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied
on the basis of the lone testimony offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of
the goods and the passengers they transport.13 Thus, common carriers are required to render service
with the greatest skill and foresight and "to use all reason[a]ble means to ascertain the nature and
characteristics of the goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires." 14 The extraordinary responsibility lasts
from the time the goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or constructively, to the consignee or to
the person who has a right to receive them.15
This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such
contract, the riding public enters into a contract of transportation with common carriers. 16 Even if it
wants to, it cannot submit its own stipulations for their approval.17 Hence, it merely adheres to the
agreement prepared by them.

Owing to this high degree of diligence required of them, common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or
destroyed.18 That is, unless they prove that they exercised extraordinary diligence in transporting the
goods.19 In order to avoid responsibility for any loss or damage, therefore, they have the burden of
proving that they observed such diligence.20
However, the presumption of fault or negligence will not arise 21 if the loss is due to any of the
following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an
act of the public enemy in war, whether international or civil; (3) an act or omission of the shipper or
owner of the goods; (4) the character of the goods or defects in the packing or the container; or (5) an
order or act of competent public authority.22 This is a closed list. If the cause of destruction, loss or
deterioration is other than the enumerated circumstances, then the carrier is liable therefor. 23
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence
against the carrier. If no adequate explanation is given as to how the deterioration, the loss or the
destruction of the goods happened, the transporter shall be held responsible.24
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at
bar by a review of the records and more so by the evidence adduced by respondent. 25
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and
condition in Hamburg, Germany.26
Second, prior to the unloading of the cargo, an Inspection Report27 prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes rust-stained and
heavily buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 15497928 issued by Jardine Davies Transport Services, Inc., stated
that the four coils were in bad order and condition. Normally, a request for a bad order survey is made
in case there is an apparent or a presumed loss or damage.29
Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested, the steel
sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter31 addressed to the Philippine Steel Coating Corporation and dated
October 12, 1990 -- admitted that they were aware of the condition of the four coils found in bad order
and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency.
Pertinent portions of his testimony are reproduce hereunder:
"Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the
Honorable Court with what company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos checkers Agency related or connected with defendant Jardine

Davies Transport Services?

A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your
duties and responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the

discharge of cargoes.
x xx x xx x xx
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a
Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and inspection
of cold steel sheets in coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
x xx x xx x xx
Q. Based on your inspection since you were also present at that time, will you inform this
Honorable Court the condition or the appearance of the bad order cargoes that were unloaded
from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel
sheets and the best evidence is the document itself, Your Honor that shows the
condition of the steel sheets.
COURT:
Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are
dent on the sides."32
All these conclusively prove the fact of shipment in good order and condition and the consequent
damage to the four coils while in the possession of petitioner,33 who notably failed to explain why.34
Further, petitioners failed to prove that they observed the extraordinary diligence and precaution
which the law requires a common carrier to know and to follow to avoid damage to or destruction of
the goods entrusted to it for safe carriage and delivery.35
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading;
however, there is no showing that petitioners exercised due diligence to forestall or lessen the
loss.36 Having been in the service for several years, the master of the vessel should have known at
the outset that metal envelopes in the said state would eventually deteriorate when not properly
stored while in transit.37 Equipped with the proper knowledge of the nature of steel sheets in coils and
of the proper way of transporting them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo. But none of these measures was

taken.38 Having failed to discharge the burden of proving that they have exercised the extraordinary
diligence required by law, petitioners cannot escape liability for the damage to the four coils. 39
In their attempt to escape liability, petitioners further contend that they are exempted from liability
under Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust stained and
slightly dented" printed on the Bill of Lading as evidence that the character of the goods or defect in
the packing or the containers was the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four coils
was due to the condition noted on the Bill of Lading. 40 The aforecited exception refers to cases when
goods are lost or damaged while in transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods in
transport, defects in packages in which they are shipped, or the natural propensities of
animals.41 None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent
upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it
accepts the goods notwithstanding such condition.42 Thus, petitioners have not successfully proven
the application of any of the aforecited exceptions in the present case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act44 (COGSA), respondent should have filed its Notice of Loss within three days from delivery. They
assert that the cargo was discharged on July 31, 1990, but that respondent filed its Notice of Claim
only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim
need not be given if the state of the goods, at the time of their receipt, has been the subject of a joint
inspection or survey. As stated earlier, prior to unloading the cargo, an Inspection Report 46 as to the
condition of the goods was prepared and signed by representatives of both parties. 47
Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar
recovery if it is nonetheless filed within one year.48 This one-year prescriptive period also applies to
the shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the words of the ponente, Chief
Justice Hilario G. Davide Jr.:
"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which provides
for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during
transit--may be applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint 51 was filed by
respondent on July 25, 1991, within the one-year prescriptive period.

Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability
should be limited to US$500 per package as provided in the Bill of Lading and by Section 4(5) 52 of
COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value
of the subject shipment was declared by petitioners beforehand, as evidenced by the reference to
and the insertion of the Letter of Credit or "L/C No. 90/02447" in the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a
contract by which three parties -- namely, the shipper, the carrier, and the consignee -- undertake
specific responsibilities and assume stipulated obligations.56 In a nutshell, the acceptance of the bill of
lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that it constituted a perfected and binding contract. 57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss
or destruction of a cargo -- unless the shipper or owner declares a greater value 58 -- is sanctioned by
law.59 There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under
the circumstances, and (2) it has been fairly and freely agreed upon by the parties. 60 The rationale for
this rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods. 61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a
fixed amount per package.62 In all matters not regulated by the Civil Code, the right and the
obligations of common carriers shall be governed by the Code of Commerce and special
laws.63 Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the
latter by establishing a statutory provision limiting the carrier's liability in the absence of a shipper's
declaration of a higher value in the bill of lading.64 The provisions on limited liability are as much a
part of the bill of lading as though physically in it and as though placed there by agreement of the
parties.65
In the case before us, there was no stipulation in the Bill of Lading66 limiting the carrier's liability.
Neither did the shipper declare a higher valuation of the goods to be shipped. This fact
notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the basis for petitioners'
liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the
shipper for the importation of steel sheets did not effect a declaration of the value of the goods as
required by the bill.67 That notation was made only for the convenience of the shipper and the bank
processing the Letter of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate
from the Other Letter of Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the contract

of issuance of a letter of credit between the amount of goods described in the commercial
invoice in the contract of sale and the amount allowed in the letter of credit will not affect the
validity and enforceability of the contract of carriage as embodied in the bill of lading. As the
bank cannot be expected to look beyond the documents presented to it by the seller pursuant
to the letter of credit, neither can the carrier be expected to go beyond the representations of
the shipper in the bill of lading and to verify their accuracy vis-à-vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice
and the amount in the bill of lading cannot negate petitioner's obligation to private respondent
arising from the contract of transportation."70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per package
and not on the per metric ton price declared in the Letter of Credit. 71 In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court,72 we explained the meaning of packages:
"When what would ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping documents, each of those
units and not the container constitutes the 'package' referred to in the liability limitation
provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly
disclosed the contents of the containers, the number of units, as well as the nature of the steel
sheets, the four damaged coils should be considered as the shipping unit subject to the US$500
limitation.1âwphi1.nêt
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners'
liability is reduced to US$2,000 plus interest at the legal rate of six percent from the time of the filing
of the Complaint on July 25, 1991 until the finality of this Decision, and 12 percent thereafter until fully
paid. No pronouncement as to costs.
SO ORDERED.

(CASE NO.4)
SECOND DIVISION
G.R. No. 119756 March 18, 1999
FORTUNE EXPRESS, INC., petitioner,

vs.
COURT OF APPEALS, PAULIE U.CAORONG, and minor childrenYASSER KING CAORONG,
ROSE HEINNI and PRINCE ALEXANDER, all surnamed CAORONG, and represented by their
mother PAULIE U. CAORONG, respondents.
MENDOZA, J.:
This is an appeal by petition for review on certiorari of the decision, dated July 29, 1994, of the Court
of Appeals, which reversed the decision of the Regional Trial Court, Branch VI, Iligan City. The
aforesaid decision of the trial court dismissed the complaint of public respondents against petitioner
for damages for breach of contract of carriage filed on the ground that petitioner had not exercised
the required degree of diligence in the operation of one of its buses. Atty. TalibCaorong, whose heirs
are private respondents herein, was a passenger of the bus and was killed in the ambush involving
said bus.
The facts of the instant case are as follows:
Petitioner is a bus company in northern Mindanao. Private respondent PaulieCaorong is the widow of
Atty. Caorong, while private respondents Yasser King, Rose Heinni, and Prince Alexander are their
minor children.
On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in Kauswagan,
Lanao del Norte, resulting in the death of several passengers of the jeepney, including two Maranaos.
CrisantoGeneralao, a volunteer field agent of the Constabulary Regional Security Unit No. X,
conducted an investigation of the accident. He found that the owner of the jeepney was a Maranao
residing in Delabayan, Lanao del Norte and that certain Maranaos were planning to take revenge on
the petitioner by burning some of its buses. Generalao rendered a report on his findings to Sgt.
Reynaldo Bastasa of the Philippine Constabulary Regional Headquarters at Cagayan de Oro. Upon
the instruction of Sgt. Bastasa, he went to see Diosdado Bravo, operations manager of petitioner, its
main office in Cagayan de Oro City. Bravo assured him that the necessary precautions to insure the
safety of lives and property would be taken.1
At about 6:45 P.M. on November 22, 1989, three armed Maranaos who pretended to be passengers,
seized a bus of petitioner at Linamon, Lanao del Norte while on its way to Iligan City. Among the
passengers of the bus was Atty. Caorong. The leader of the Maranaos, identified as one
BashierMananggolo, ordered the driver, GodofredoCabatuan, to stop the bus on the side of the
highway. Mananggolo then shot Cabatuan on the arm, which caused him to slump on the steering
wheel. The one of the companions of Mananggolo started pouring gasoline inside the bus, as the

other held the passenger at bay with a handgun. Mananggolo then ordered the passenger to get off
the bus. The passengers, including Atty. Caorong, stepped out of the bus and went behind the
bushes in a field some distance from the highway.2
However, Atty. Caorong returned to the bus to retrieve something from the overhead rack. at that
time, one of the armed men was pouring gasoline on the head of the driver. Cabatuan, who had
meantime regained consciousness, heard Atty. Caorong pleading with the armed men to spare the
driver as he was innocent of any wrong doing and was only trying to make a living. The armed men
were, however, adamant as they repeated the warning that they were going to burn the bus along
with its driver. During this exchange between Atty. Caorong and the assailants, Cabatuan climbed out
of the left window of the bus and crawled to the canal on the opposite side of the highway. He heard
shots from inside the bus. Larry de la Cruz, one of the passengers, saw that Atty. Caorong was hit.
Then the bus was set on fire. Some of the passengers were able to pull Atty. Caorong out of the
burning bus and rush him to the Mercy Community Hospital in Iligan City, but he died while
undergoing operation.3
The private respondents brought this suit for breach of contract of carriage in the Regional Trial
Court, Branch VI, Iligan City. In its decision, dated December 28, 1990, the trial court dismissed the
complaint, holding as follows:
The fact that defendant, through Operations Manager Diosdado Bravo, was informed of
the "rumors" that the Moslems intended to take revenge by burning five buses of
defendant is established since the latter also utilized CrisantoGeneralao as a witness.
Yet despite this information, the plaintiffs charge, defendant did not take proper
precautions. . . . Consequently, plaintiffs now fault the defendant for ignoring the report.
Their position is that the defendant should have provided its buses with security guards.
Does the law require common carriers to install security guards in its buses for the
protection and safety of its passengers? Is the failure to post guards on omission of the
duty to "exercise the diligence of a good father of the family" which could have
prevented the killing of Atty. Caorong? To our mind, the diligence demanded by law
does not include the posting of security guard in buses. It is an obligation that properly
belongs to the State. Besides, will the presence of one or two security guards suffice to
deter a determined assault of the lawless and thus prevent the injury complained of?
Maybe so, but again, perhaps not. In other words, the presence of a security guard is
not a guarantee that the killing of Atty. Caorong would have been definitely avoided.
xxx xxxxxx
Accordingly, the failure of defendant to accord faith and credit to the report of Mr.
Generalao and the fact that it did not provide security to its buses cannot, in the light of
the circumstances, be characterized as negligence.
Finally, the evidence clearly shows that the assalants did not have the least intention of
the harming any of the passengers. They ordered all the passengers to alight and set
fire on the bus only after all the passengers were out of danger. The death of Atty.

Caorong was an unexpected and unforseenoccurrense over which defendant had no
control. Atty. Caorong performed an act of charity and heroism in coming to the succor
of the driver even in the face of danger. He deserves the undying gratitude of the driver
whose life he saved. No one should blame him for an act of extraordinary charity and
altruism which cost his life. But neither should any blame be laid on the doorstep of
defendant. His death was solely due to the willfull acts of the lawless which defendant
could neither prevent nor to stop.
WHEREFORE, in view of the foregoing, the complaint is hereby dismissed. For lack of
merit, the counter-claim is likewise dismissed. No costs.4
On appeal, however, the Court of Appeals reversed. It held:
In the case at bench, how did defendant-appellee react to the tip or information that
certain Maranao hotheads were planning to burn five of its buses out of revenge for the
deaths of two Maranaos in an earlier collision involving appellee's bus? Except for the
remarks of appellee's operations manager that "we will have our action . . . . and I'll be
the one to settle it personally," nothing concrete whatsoever was taken by appellee or
its employees to prevent the execution of the threat. Defendant-appellee never adopted
even a single safety measure for the protection of its paying passengers. Were there
available safeguards? Of course, there were: one was frisking passengers particularly
those en route to the area where the threats were likely to be carried out such as where
the earlier accident occurred or the place of influence of the victims or their locality. If
frisking was resorted to, even temporarily, . . . . appellee might be legally excused from
liabilty. Frisking of passengers picked up along the route could have been implemented
by the bus conductor; for those boarding at the bus terminal, frisking could have been
conducted by him and perhaps by additional personnel of defendant-appellee. On
hindsight, the handguns and especially the gallon of gasoline used by the felons all of
which were brought inside the bus would have been discovered, thus preventing the
burning of the bus and the fatal shooting of the victim.
Appellee's argument that there is no law requiring it to provide guards on its buses and
that the safety of citizens is the duty of the government, is not well taken. To be sure,
appellee is not expected to assign security guards on all its buses; if at all, it has the
duty to post guards only on its buses plying predominantly Maranaos areas. As
discussed in the next preceding paragraph, least appellee could have done in response
to the report was to adopt a system of verification such as the frisking of passengers
boarding at its buses. Nothing, and no repeat, nothing at all, was done by defendant-
appellee to protect its innocent passengers from the danger arising from the "Maranao
threats." It must be observed that frisking is not a novelty as a safety measure in our
society. Sensitive places — in fact, nearly all important places — have applied this
method of security enhancement. Gadgets and devices are avilable in the market for
this purpose. It would not have weighed much against the budget of the bus company if

such items were made available to its personnel to cope up with situations such as the
"Maranaos threats."
In view of the constitutional right to personal privacy, our pronouncement in this decision
should not be construed as an advocacy of mandatory frisking in all public
conveyances. What we are saying is that given the circumstances obtaining in the case
at bench that: (a) two Maranaos died because of a vehicular collision involving one of
appellee's vehicles; (b) appellee received a written report from a member of the
Regional Security Unit, Constabulary Security Group, that the tribal/ethnic group of the
two deceased were planning to burn five buses of appellee out of revenge; and (c)
appelle did nothing — absolutely nothing — for the safety of its passengers travelling in
the area of influence of the victims, appellee has failed to exercise the degree of
dilegence required of common carriers. Hence, appellee must be adjudge liable.
xxx xxxxxx
WHEREFORE the decision appealed from is hereby REVERSED and another rendered
ordering defendant-appellee to pay plaintiffs-appellants the following:
1) P3,399,649.20 as death indemnity;
2) P50,000.00 and P500.00 per appearance as attorney's

fee and
Costs against defendant-appellee.5
Hence, this appeal. Petitioner contends:
(A) THAT PUBLIC RESPONDENT ERRED IN REVERSING THE DECISION OF THE

REGIONAL TRIAL COURT DATED DECEMBER 28, 1990 DISMISSING THE
COMPLAINT AS WELL AS THE COUNTERCLAIM, AND FINDING FOR PRIVATE
RESPONDENTS BY ORDERING PETITIONER TO PAY THE GARGANTUAN SUM OF
P3,449,649.20 PLUS P500.00 PER APPEARANCE AS ATTORNEY'S FEES, AS WELL
AS DENYING PETITIONERS MOTION FRO RECONSIDERATION AND THE
SUPPLEMENT TO SAID MOTION, WHILE HOLDING, AMONG OTHERS, THAT THE
PETITIONER BREACHED THE CONTRACT OF THE CARRIAGE BY ITS FAILURE
TO EXCERCISE THE REQUIRED DEGREE OF DILIGENCE;
(B) THAT THE ACTS OF THE MARANAO OUTLAWS WERE SO GRAVE,

IRRESISTABLE, VIOLENT, AND FORCEFULL, AS TO BE REGARDED AS CASO
FORTUITO; AND
(C) THAT PUBLIC RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN

HOLDING THAT PETITIONER COULD HAVE PROVIDED ADEQUATE SECURITY IN
PREDOMINANTLY MUSLIM AREAS AS PART OF ITS DUTY TO OBSERVE EXTRA-
ORDINARY DILIGENCE AS A COMMON CARRIER.
The instant has no merit.
First. Petitioner's Breach of the Contract of Carriage.

Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a
passenger on account of wilfull acts of other passengers, if the employees of the common carrier
could have prevented the act through the exercise of the diligence of a good father of a family. In the
present case, it is clear that because of the negligence of petitioner's employees, the seizure of the
bus by Mananggolo and his men was made possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were planning
to take revenge on the petitioner by burning some of its buses and the assurance of petitioner's
operation manager, Diosdado Bravo, that the necessary precautions would be taken, petitioner did
nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have failed to see that the malefactors
had a large quantity of gasoline with them. Under the circumstances, simple precautionary measures
to protect the safety of passengers, such as frisking passengers and inspecting their baggages,
preferably with non-intrusive gadgets such as metal detectors, before allowing them on board could
have been employed without violating the passenger's constitutional rights. As this Court amended
in Gacal v. Philippine Air Lines, Inc., 6 a common carrier can be held liable for failing to prevent a
hijacking by frisking passengers and inspecting their baggages.
From the foregoing, it is evident that petitioner's employees failed to prevent the attack on one of
petitioner's buses because they did not exercise the diligence of a good father of a family. Hence,
petitioner should be held liable for the death of Atty. Caorong.
Second. Seizure of Petitioner's Bus not a Case of Force Majeure
The petitioner contends that the seizure of its bus by the armed assailants was a fortuitous event for
which it could not be held liable.
Art. 1174 of the Civil Code defines a fortuitous event as an occurence which could not be foreseen, is
inevitable. In Yobido v. Court of Appeals, 7 we held that to considered as force majeure, it is
necessary that (1) the cause of the breach of the obligation must be independent of the human will;
(2) the event must be either unforeseeable or unavoidable; (3) the occurence must be render it
impossible for the debtor to fulfill the obligation in a normal manner; and (4) the obligor must be free
of participation in, or aggravation of, the injury to the creditor. The absence of any of the requisites
mentioned above would prevent the obligor from being excused from liability.
Thus, in Vasquez v. Court of Appeals, 8 it was held that the common carrier was liable for its failure to
take the necessary precautions against an approaching typhoon, of which it was warned, resulting in
the loss of the lives of several passengers. The event was forseeable, and, thus, the second requisite
mentioned above was not fulfilled. This ruling applies by analogy to the present case. Despite the
report of PC agent Generalao that the Maranaos were going to attack its buses, petitioner took no
steps to safeguard the lives and properties of its passengers. The seizure of the bus of the petitioner
was foreseeable and, therefore, was not a fortuitous event which would exempt petitioner from
liabilty.
Petitioner invokes the ruling in Pilapil v. Court of Appeals, 9 and De Guzman v. Court of Appeals, 10 in
support of its contention that the seizure of its bus by the assailants constitutes force majeure.

In Pilapil v. Court of Appeals, 11 it was held that a common carrier is not liable for failing to install
window grills on its buses to protect the passengers from injuries cause by rocks hurled at the bus by
lawless elements. On the other hand, in De Guzman v. Court of Appeals, 12 it was ruled that a
common carriers is not responsible for goods lost as a result of a robbery which is attended by grave
or irresistable threat, violence, or force.
It is clear that the cases of Pilapil and De Guzman do not apply to the prensent case. Art. 1755 of the
Civil Code provides that "a common carrier is bound to carry the passengers as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all
the circumstances." Thus, we held in Pilapil and De Guzman that the respondents therein were not
negligent in failing to take special precautions against threats to the safety of passengers which could
not be foreseen, such as tortious or criminal acts of third persons. In the present case, this factor of
unforeseeability (the second requisite for an event to be considered force majeure) is lacking. As
already stated, despite the report of PC agent Generalao that the Maranaos were planning to burn
some of petitioner's buses and the assurance of petitioner's operation manager (Diosdado Bravo) that
the necessary precautions would be taken, nothing was really done by petitioner to protect the safety
of passengers.
Third. Deceased not Guilty of Contributory Negligence
The petitioner contends that Atty. Caorong was guilty of contributory negligence in returning to the
bus to retrieve something. But Atty. Caorong did not act recklessly. It should be pointed out that the
intended targets of the violence were petitioners and its employees, not its passengers. The
assailant's motive was to retaliate for the loss of life of two Maranaos as a result of the collision
between petitioner's bus and the jeepney in which the two Maranaos were riding. Mananggolo, the
leader of the group which had hijacked the bus, ordered the passengers to get off the bus as they
intended to burn it and its driver. The armed men actually allowed Atty. Caorong to retrieve something
from the bus. What apparently angered them was his attempt to help the driver of the bus by pleading
for his life. He was playing the role of the good Samaritan. Certainly, this act cannot considered an
act of negligence, let alone recklessness.
Fourth. Petitioner Liable to Private Respaondents for Damages
We now consider the question of damages that the heirs of Atty. Caorong, private respondents
herein, are entitled to recover from the petitioner.
Indemnity for Death. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof, provides for the
payment of indemnity for the death of passengers caused by the breach of contract of carriage by a
common carrier. Initially fixed in Art. 2206 at P3,000.00, the amount of the said indemnity for death
has through the years been gradually increased in view of the declining value of the peso. It is
presently fixed at P50,000.00. 13 Private respondents are entitled to this amount.
Actual Damages. Art. 2199 provides that "except as provided by law or by stipulation, one is entitled
to an adequate compensation only for such pecuniary loss suffered by him as has duly proved." The
trial court found that the private respondents spent P30,000.00 for the wake and burial of Atty.

Caorong. 14 Since petitioner does not question this finding of the trial court, it is liable to private
respondent in the said amount as actual damages.
Moral Damages. Under Art. 2206, the "spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental anguish by reason of the death
of the deceased." The trial court found that private respondent PaulieCaorong suffered pain from the
death of her husband and worry on how to provide support for their minor children, private
respondents Yasser King, Rose Heinni, and Prince Alexander. 15 The petitioner likewise does not
question this finding of the trial court. Thus, in accordance with recent decisions of this Court, 16 we
hold that the petitioner is liable to the private respondents in the amount of P100,000.00 as moral
damages for the death of Atty. Caorong.
Exemplary Damages. Art. 2232 provides that "in contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent reckless manner." In the present case, the petitioner acted in a wanton and reckless
manner. Despite warning that the Maranaos were planning to take revenge against the petitioner by
burning some of its buses, and contary to the assurance made by its operations manager that the
necessary precautions would be take, the petitioner and its employees did nothing to protect the
safety of passengers. Under the circumtances, we deem it reasonable to award private respondents
exemplary damages in the amount of P100,000.00.17
Attorney's Fees. Pursuant to Art. 2208, attorney's fees may be recovered when, as in the instant
case, exemplary damages are awarded. In the recent case of Sulpicio Lines, Inc. v. Court of
Appeals, 18 we held an award of P50,000.00 as attorney's fees to be reasonable. Hence, the private
respondents are entitled to attorney's fees in that amount.
Compensation for Loss of Earning Capacity. Art. 1764 of the Civil Code, in relation to Art. 2206
thereof, provides that in addition to the indemnity for death arising from the breach of contrtact of
carriage by a common carrier, the "defendant shall be liable for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the heirs of the latter." The formula established in
decided cases for computing net earning capacity is as follows:19
Gross Necessary
Net Earning = Life x Annual — Living
Capacity Expectancy Income Expenses
Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty (80) and the age
of the deceased. 20 Since Atty. Caorong was 37 years old at that time of his death, 21 he had a life
expectancy of 28 2/3 more years.22 His projected gross annual income, computed based on his
monthly salary of P11,385.00. 23 as a lawyer in the Department of Agrarian Reform at the time of his
death, was P148,005.00. 24 Allowing for necessary living expenses of fifty percent (50%) 25 of his
projected gross annual income, his total earning capacity amounts to P2,121,404.90. 26 Hence, the
petitioner is liable to the private respondents in the said amount as a compensation for loss of earning
capacity.

WHEREFORE, the decision, dated July 29, 1994, of the Court of Appeals is hereby AFFIRMED with
the MODIFICATION that petitioner Fortune Express, Inc. is ordered to pay the following amounts to
private respondents Paulie, Yasser King, Rose Heinni, and Prince Alexander Caorong:
1. death indemnity in the amount of fifty thousand pesos (P50,000.00);
2. actual damages in the amount of thirty thousand pesos (P30,000.00);
3. moral damages in the amount of one hundred thousand pesos (P100,000.00);
4. exemplary damages in the amount of one hundred thousand pesos (P100,000.00);
5. attorney's fees in the amount of fifty thousand pesos (P50,000.00);
6. compensation for loss of earning capacity in the amount of two million one hundred twenty-one
thousand four hundred four pesos and ninety centavos (P2,121,404.90); and
7. cost of suits.
SO ORDERED.

(CASE NO.6)
FIRST DIVISION
G.R. No. 145804 February 6, 2003
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners,

vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR NAVIDAD & PRUDENT SECURITY
AGENCY, respondents.
DECISION
VITUG, J.:
The case before the Court is an appeal from the decision and resolution of the Court of Appeals,
promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720, entitled
"Marjorie Navidad and Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et. al.," which has
modified the decision of 11 August 1998 of the Regional Trial Court, Branch 266, Pasig City,
exonerating Prudent Security Agency (Prudent) from liability and finding Light Rail Transit Authority
(LRTA) and Rodolfo Roman liable for damages on account of the death of Nicanor Navidad.
On 14 October 1993, about half an hour past seven o’clock in the evening, Nicanor Navidad, then
drunk, entered the EDSA LRT station after purchasing a "token" (representing payment of the fare).
While Navidad was standing on the platform near the LRT tracks, JunelitoEscartin, the security guard
assigned to the area approached Navidad. A misunderstanding or an altercation between the two
apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the
fight started or who, between the two, delivered the first blow or how Navidad later fell on the LRT
tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman,
was coming in. Navidad was struck by the moving train, and he was killed instantaneously.
On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with her
children, filed a complaint for damages against JunelitoEscartin, Rodolfo Roman, the LRTA, the
Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and
Roman filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent.
Prudent, in its answer, denied liability and averred that it had exercised due diligence in the selection
and supervision of its security guards.
The LRTA and Roman presented their evidence while Prudent and Escartin, instead of presenting
evidence, filed a demurrer contending that Navidad had failed to prove that Escartin was negligent in
his assigned task. On 11 August 1998, the trial court rendered its decision; it adjudged:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants
Prudent Security and JunelitoEscartin ordering the latter to pay jointly and severally the plaintiffs the
following:
"a) 1) Actual damages of P44,830.00;
2) Compensatory damages of P443,520.00;

3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;
"b) Moral damages of P50,000.00;
"c) Attorney’s fees of P20,000;
"d) Costs of suit.
"The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.
"The compulsory counterclaim of LRTA and Roman are likewise dismissed." 1
Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its
now assailed decision exonerating Prudent from any liability for the death of Nicanor Navidad and,
instead, holding the LRTA and Roman jointly and severally liable thusly:
"WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from any
liability for the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail
Transit Authority (LRTA) are held liable for his death and are hereby directed to pay jointly and
severally to the plaintiffs-appellees, the following amounts:
a) P44,830.00 as actual damages;
b) P50,000.00 as nominal damages;
c) P50,000.00 as moral damages;
d) P50,000.00 as indemnity for the death of the deceased; and
e) P20,000.00 as and for attorney’s fees."2
The appellate court ratiocinated that while the deceased might not have then as yet boarded the train,
a contract of carriage theretofore had already existed when the victim entered the place where
passengers were supposed to be after paying the fare and getting the corresponding token therefor.
In exempting Prudent from liability, the court stressed that there was nothing to link the security
agency to the death of Navidad. It said that Navidad failed to show that Escartin inflicted fist blows
upon the victim and the evidence merely established the fact of death of Navidad by reason of his
having been hit by the train owned and managed by the LRTA and operated at the time by Roman.
The appellate court faulted petitioners for their failure to present expert evidence to establish the fact
that the application of emergency brakes could not have stopped the train.
The appellate court denied petitioners’ motion for reconsideration in its resolution of 10 October 2000.
In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz:
"I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE FINDINGS

OF FACTS BY THE TRIAL COURT
"II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT PETITIONERS

ARE LIABLE FOR THE DEATH OF NICANOR NAVIDAD, JR.

"III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RODOLFO

ROMAN IS AN EMPLOYEE OF LRTA."3
Petitioners would contend that the appellate court ignored the evidence and the factual findings of the
trial court by holding them liable on the basis of a sweeping conclusion that the presumption of
negligence on the part of a common carrier was not overcome. Petitioners would insist that Escartin’s
assault upon Navidad, which caused the latter to fall on the tracks, was an act of a stranger that could
not have been foreseen or prevented. The LRTA would add that the appellate court’s conclusion on
the existence of an employer-employee relationship between Roman and LRTA lacked basis
because Roman himself had testified being an employee of Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court, contended that a contract of carriage
was deemed created from the moment Navidad paid the fare at the LRT station and entered the
premises of the latter, entitling Navidad to all the rights and protection under a contractual relation,
and that the appellate court had correctly held LRTA and Roman liable for the death of Navidad in
failing to exercise extraordinary diligence imposed upon a common carrier.
Law and jurisprudence dictate that a common carrier, both from the nature of its business and for
reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the
safety of passengers.4 The Civil Code, governing the liability of a common carrier for death of or injury
to its passengers, provides:
"Article 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances.
"Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755."
"Article 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former’s employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.
"This liability of the common carriers does not cease upon proof that they exercised all the diligence
of a good father of a family in the selection and supervision of their employees."
"Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or of strangers, if the common carrier’s employees
through the exercise of the diligence of a good father of a family could have prevented or stopped the
act or omission."
The law requires common carriers to carry passengers safely using the utmost diligence of very
cautious persons with due regard for all circumstances.5 Such duty of a common carrier to provide
safety to its passengers so obligates it not only during the course of the trip but for so long as the
passengers are within its premises and where they ought to be in pursuance to the contract of

carriage.6 The statutory provisions render a common carrier liable for death of or injury to passengers
(a) through the negligence or wilful acts of its employees or b) on account of wilful acts or negligence
of other passengers or of strangers if the common carrier’s employees through the exercise of due
diligence could have prevented or stopped the act or omission.7 In case of such death or injury, a
carrier is presumed to have been at fault or been negligent, and 8 by simple proof of injury, the
passenger is relieved of the duty to still establish the fault or negligence of the carrier or of its
employees and the burden shifts upon the carrier to prove that the injury is due to an unforeseen
event or to force majeure.9 In the absence of satisfactory explanation by the carrier on how the
accident occurred, which petitioners, according to the appellate court, have failed to show, the
presumption would be that it has been at fault,10 an exception from the general rule that negligence
must be proved.11
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required
of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a
carrier may choose to hire its own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 217612 and related provisions, in conjunction with Article 2180,13 of the Civil Code.
The premise, however, for the employer’s liability is negligence or fault on the part of the employee.
Once such fault is established, the employer can then be made liable on the basis of the presumption
juris tantum that the employer failed to exercise diligentissimipatris families in the selection and
supervision of its employees. The liability is primary and can only be negated by showing due
diligence in the selection and supervision of the employee, a factual matter that has not been shown.
Absent such a showing, one might ask further, how then must the liability of the common carrier, on
the one hand, and an independent contractor, on the other hand, be described? It would be solidary.
A contractual obligation can be breached by tort and when the same act or omission causes the
injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 14 of the Civil
Code can well apply.15 In fine, a liability for tort may arise even under a contract, where tort is that
which breaches the contract.16 Stated differently, when an act which constitutes a breach of contract
would have itself constituted the source of a quasi-delictual liability had no contract existed between
the parties, the contract can be said to have been breached by tort, thereby allowing the rules on tort
to apply.17
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad,
this Court is concluded by the factual finding of the Court of Appeals that "there is nothing to link
(Prudent) to the death of Nicanor (Navidad), for the reason that the negligence of its employee,
Escartin, has not been duly proven x xx." This finding of the appellate court is not without substantial
justification in our own review of the records of the case.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act
or omission, he must also be absolved from liability. Needless to say, the contractual tie between the

LRT and Navidad is not itself a juridical relation between the latter and Roman; thus, Roman can be
made liable only for his own fault or negligence.
The award of nominal damages in addition to actual damages is untenable. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.18 It is an established rule that nominal damages cannot co-exist with compensatory
damages.19
WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but
only in that (a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is
absolved from liability. No costs.
SO ORDERED.

(CASE NO.7 [1])
EN BANC
G.R. No. L-20761 July 27, 1966
LA MALLORCA, petitioner,
vs.
HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL., respondents.
BARRERA, J.:
La Mallorca seeks the review of the decision of the Court of Appeals in CA-G.R. No. 23267-R, holding
it liable for quasi-delict and ordering it to pay to respondents Mariano Beltran, et al., P6,000.00 for the
death of his minor daughter Raquel Beltran, plus P400.00 as actual damages.
The facts of the case as found by the Court of Appeals, briefly are:
On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their
minor daughters, namely, Milagros, 13 years old, Raquel, about 4½ years old, and Fe, over 2
years old, boarded the Pambusco Bus No. 352, bearing plate TPU No. 757 (1953 Pampanga),
owned and operated by the defendant, at San Fernando, Pampanga, bound for Anao, Mexico,
Pampanga. At the time, they were carrying with them four pieces of baggages containing their
personal belonging. The conductor of the bus, who happened to be a half-brother of plaintiff
Mariano Beltran, issued three tickets (Exhs. A, B, & C) covering the full fares of the plaintiff and
their eldest child, Milagros. No fare was charged on Raquel and Fe, since both were below the
height at which fare is charged in accordance with the appellant's rules and regulations.
After about an hour's trip, the bus reached Anao whereat it stopped to allow the passengers
bound therefor, among whom were the plaintiffs and their children to get off. With respect to
the group of the plaintiffs, Mariano Beltran, then carrying some of their baggages, was the first
to get down the bus, followed by his wife and his children. Mariano led his companions to a
shaded spot on the left pedestrians side of the road about four or five meters away from the
vehicle. Afterwards, he returned to the bus in controversy to get his other bayong, which he
had left behind, but in so doing, his daughter Raquel followed him, unnoticed by her father.
While said Mariano Beltran was on the running board of the bus waiting for the conductor to
hand him his bayong which he left under one of its seats near the door, the bus, whose motor
was not shut off while unloading, suddenly started moving forward, evidently to resume its trip,
notwithstanding the fact that the conductor has not given the driver the customary signal to
start, since said conductor was still attending to the baggage left behind by Mariano Beltran.
Incidentally, when the bus was again placed into a complete stop, it had travelled about ten
meters from the point where the plaintiffs had gotten off.
Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the
running board without getting his bayong from the conductor. He landed on the side of the road
almost in front of the shaded place where he left his wife and children. At that precise time, he

saw people beginning to gather around the body of a child lying prostrate on the ground, her
skull crushed, and without life. The child was none other than his daughter Raquel, who was
run over by the bus in which she rode earlier together with her parents.
For the death of their said child, the plaintiffs commenced the present suit against the
defendant seeking to recover from the latter an aggregate amount of P16,000 to cover moral
damages and actual damages sustained as a result thereof and attorney's fees. After trial on
the merits, the court below rendered the judgment in question.
On the basis of these facts, the trial court found defendant liable for breach of contract of carriage and
sentenced it to pay P3,000.00 for the death of the child and P400.00 as compensatory damages
representing burial expenses and costs.
On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract in
the case, for the reason that when the child met her death, she was no longer a passenger of the bus
involved in the incident and, therefore, the contract of carriage had already terminated. Although the
Court of Appeals sustained this theory, it nevertheless found the defendant-appellant guilty of quasi-
delict and held the latter liable for damages, for the negligence of its driver, in accordance with Article
2180 of the Civil Code. And, the Court of Appeals did not only find the petitioner liable, but increased
the damages awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00 granted by the trial
court.
In its brief before us, La Mallorca contends that the Court of Appeals erred (1) in holding it liable
for quasi-delict, considering that respondents complaint was one for breach of contract, and (2) in
raising the award of damages from P3,000.00 to P6,000.00 although respondents did not appeal from
the decision of the lower court.
Under the facts as found by the Court of Appeals, we have to sustain the judgement holding petitioner
liable for damages for the death of the child, Raquel Beltran. It may be pointed out that although it is
true that respondent Mariano Beltran, his wife, and their children (including the deceased child) had
alighted from the bus at a place designated for disembarking or unloading of passengers, it was also
established that the father had to return to the vehicle (which was still at a stop) to get one of his bags
or bayong that was left under one of the seats of the bus. There can be no controversy that as far as
the father is concerned, when he returned to the bus for his bayongwhich was not unloaded, the
relation of passenger and carrier between him and the petitioner remained subsisting. For, the
relation of carrier and passenger does not necessarily cease where the latter, after alighting from the
car, aids the carrier's servant or employee in removing his baggage from the car.1 The issue to be
determined here is whether as to the child, who was already led by the father to a place about 5
meters away from the bus, the liability of the carrier for her safety under the contract of carriage also
persisted.
It has been recognized as a rule that the relation of carrier and passenger does not cease at the
moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point
of destination, but continues until the passenger has had a reasonable time or a reasonable
opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay

within this rule is to be determined from all the circumstances. Thus, a person who, after alighting
from a train, walks along the station platform is considered still a passenger. 2 So also, where a
passenger has alighted at his destination and is proceeding by the usual way to leave the company's
premises, but before actually doing so is halted by the report that his brother, a fellow passenger, has
been shot, and he in good faith and without intent of engaging in the difficulty, returns to relieve his
brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger
entitled as such to the protection of the railroad and company and its agents.3
In the present case, the father returned to the bus to get one of his baggages which was not unloaded
when they alighted from the bus. Raquel, the child that she was, must have followed the father.
However, although the father was still on the running board of the bus awaiting for the conductor to
hand him the bag or bayong, the bus started to run, so that even he (the father) had to jump down
from the moving vehicle. It was at this instance that the child, who must be near the bus, was run over
and killed. In the circumstances, it cannot be claimed that the carrier's agent had exercised the
"utmost diligence" of a "very cautions person" required by Article 1755 of the Civil Code to be
observed by a common carrier in the discharge of its obligation to transport safely its passengers. In
the first place, the driver, although stopping the bus, nevertheless did not put off the engine.
Secondly, he started to run the bus even before the bus conductor gave him the signal to go and
while the latter was still unloading part of the baggages of the passengers Mariano Beltran and family.
The presence of said passengers near the bus was not unreasonable and they are, therefore, to be
considered still as passengers of the carrier, entitled to the protection under their contract of carriage.
But even assuming arguendo that the contract of carriage has already terminated, herein petitioner
can be held liable for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article
2180 of the Civil Code. Paragraph 7 of the complaint, which reads —
That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiffs'
daughter, was caused by the negligence and want of exercise of the utmost diligence of a very
cautious person on the part of the defendants and their agent, necessary to transport plaintiffs
and their daughter safely as far as human care and foresight can provide in the operation of
their vehicle.
is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while
incompatible with the other claim under the contract of carriage, is permissible under Section 2 of
Rule 8 of the New Rules of Court, which allows a plaintiff to allege causes of action in the alternative,
be they compatible with each other or not, to the end that the real matter in controversy may be
resolved and determined.4
The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was predicated when
it was alleged in the complaint that "the death of Raquel Beltran, plaintiffs' daughter, was caused by
the negligence and want of exercise of the utmost diligence of a very cautious person on the part of
the defendants and their agent." This allegation was also proved when it was established during the
trial that the driver, even before receiving the proper signal from the conductor, and while there were
still persons on the running board of the bus and near it, started to run off the vehicle. The
presentation of proof of the negligence of its employee gave rise to the presumption that the
defendant employer did not exercise the diligence of a good father of the family in the selection and
supervision of its employees. And this presumption, as the Court of Appeals found, petitioner had
failed to overcome. Consequently, petitioner must be adjudged peculiarily liable for the death of the
child Raquel Beltran.
The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals,
however, cannot be sustained. Generally, the appellate court can only pass upon and consider
questions or issues raised and argued in appellant's brief. Plaintiffs did not appeal from that portion of
the judgment of the trial court awarding them on P3,000.00 damages for the death of their daughter.
Neither does it appear that, as appellees in the Court of Appeals, plaintiffs have pointed out in their
brief the inadequacy of the award, or that the inclusion of the figure P3,000.00 was merely a clerical
error, in order that the matter may be treated as an exception to the general rule. 5Herein petitioner's
contention, therefore, that the Court of Appeals committed error in raising the amount of the award for
damages is, evidently, meritorious.1äwphï1.ñët
Wherefore, the decision of the Court of Appeals is hereby modified by sentencing, the petitioner to
pay to the respondents Mariano Beltran, et al., the sum of P3,000.00 for the death of the child,
Raquel Beltran, and the amount of P400.00 as actual damages. No costs in this instance. So
ordered.

(CASE NO.7 [2])
G.R. No. 84458 November 6, 1989
ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, ELEVENTH DIVISION, LUCILA C. VIANA, SPS. ANTONIO VIANA
and GORGONIA VIANA, and PIONEER STEVEDORING CORPORATION, respondents.
REGALADO, J.:
In this appeal by certiorari, petitioner Aboitiz Shipping Corporation seeks a review of the decision 1 of
respondent Court of Appeals, dated July 29, 1988, the decretal portion of which reads:
WHEREFORE, the judgment appealed from as modified by the order of October 27,
1982, is hereby affirmed with the modification that appellant Aboitiz Shipping is hereby
ordered to pay plaintiff-appellees the amount of P30,000.00 for the death of Anacleto
Viana; actual damages of P9,800.00; P150,000.00 for unearned income; P7,200.00 as
support for deceased's parents; P20,000.00 as moral damages; P10,000.00 as
attorney's fees; and to pay the costs.
The undisputed facts of the case, as found by the court a quo and adopted by respondent court, are
as follows: .
The evidence disclosed that on May 11, 1975, Anacleto Viana boarded the vessel M/V
Antonia, owned by defendant, at the port at San Jose, Occidental Mindoro, bound for
Manila, having purchased a ticket (No. 117392) in the sum of P23.10 (Exh. 'B'). On May
12, 1975, said vessel arrived at Pier 4, North Harbor, Manila, and the passengers
therein disembarked, a gangplank having been provided connecting the side of the
vessel to the pier. Instead of using said gangplank Anacleto Viana disembarked on the
third deck which was on the level with the pier. After said vessel had landed, the
Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded
on said vessel pursuant to the Memorandum of Agreement dated July 26, 1975 (Exh.
'2') between the third party defendant Pioneer Stevedoring Corporation and defendant
Aboitiz Shipping Corporation.
The crane owned by the third party defendant and operated by its crane operator Alejo
Figueroa was placed alongside the vessel and one (1) hour after the passengers of said
vessel had disembarked, it started operation by unloading the cargoes from said vessel.
While the crane was being operated, Anacleto Viana who had already disembarked
from said vessel obviously remembering that some of his cargoes were still loaded in
the vessel, went back to the vessel, and it was while he was pointing to the crew of the
said vessel to the place where his cargoes were loaded that the crane hit him, pinning
him between the side of the vessel and the crane. He was thereafter brought to the
hospital where he later expired three (3) days thereafter, on May 15, 1975, the cause of
his death according to the Death Certificate (Exh. "C") being "hypostatic pneumonia
secondary to traumatic fracture of the pubic bone lacerating the urinary bladder" (See
also Exh. "B"). For his hospitalization, medical, burial and other miscellaneous
expenses, Anacleto's wife, herein plaintiff, spent a total of P9,800.00 (Exhibits "E", "E-
1", to "E-5"). Anacleto Viana who was only forty (40) years old when he met said fateful
accident (Exh. 'E') was in good health. His average annual income as a farmer or a farm
supervisor was 400 cavans of palay annually. His parents, herein plaintiffs Antonio and
Gorgonia Viana, prior to his death had been recipient of twenty (20) cavans of palay as
support or P120.00 monthly. Because of Anacleto's death, plaintiffs suffered mental
anguish and extreme worry or moral damages. For the filing of the instant case, they
had to hire a lawyer for an agreed fee of ten thousand (P10,000.00) pesos. 2
Private respondents Vianas filed a complaint 3 for damages against petitioner corporation (Aboitiz, for
brevity) for breach of contract of carriage.
In its answer. 4 Aboitiz denied responsibility contending that at the time of the accident, the vessel
was completely under the control of respondent Pioneer Stevedoring Corporation (Pioneer, for short)
as the exclusive stevedoring contractor of Aboitiz, which handled the unloading of cargoes from the
vessel of Aboitiz. It is also averred that since the crane operator was not an employee of Aboitiz, the
latter cannot be held liable under the fellow-servant rule.
Thereafter, Aboitiz, as third-party plaintiff, filed a third-party complaint 5 against Pioneer imputing
liability thereto for Anacleto Viana's death as having been allegedly caused by the negligence of the
crane operator who was an employee of Pioneer under its exclusive control and supervision.
Pioneer, in its answer to the third-party complaint, 6 raised the defenses that Aboitiz had no cause of
action against Pioneer considering that Aboitiz is being sued by the Vianas for breach of contract of
carriage to which Pioneer is not a party; that Pioneer had observed the diligence of a good father of a
family both in the selection and supervision of its employees as well as in the prevention of damage
or injury to anyone including the victim Anacleto Viana; that Anacleto Viana's gross negligence was
the direct and proximate cause of his death; and that the filing of the third-party complaint was
premature by reason of the pendency of the criminal case for homicide through reckless imprudence
filed against the crane operator, Alejo Figueroa.
In a decision rendered on April 17, 1980 by the trial court, 7 Aboitiz was ordered to pay the Vianas for
damages incurred, and Pioneer was ordered to reimburse Aboitiz for whatever amount the latter paid
the Vianas. The dispositive portion of said decision provides:
WHEREFORE, judgment is hereby rendered in favor of the plantiffs:
(1) ordering defendant Aboitiz Shipping Corporation to pay to plaintiffs the sum of
P12,000.00 for the death of Anacleto Viana P9,800.00 as actual damages; P533,200.00
value of the 10,664 cavans of palay computed at P50.00 per cavan; P10,000.00 as
attorney's fees; F 5,000.00, value of the 100 cavans of palay as support for five (5)
years for deceased (sic) parents, herein plaintiffs Antonio and Gorgonia Viana
computed at P50.00 per cavan; P7,200.00 as support for deceased's parents computed

at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the Civil Code;
P20,000.00 as moral damages, and costs; and
(2) ordering the third party defendant Pioneer Stevedoring Corporation to reimburse
defendant and third party plaintiff Aboitiz Shipping Corporation the said amounts that it
is ordered to pay to herein plaintiffs.
Both Aboitiz and Pioneer filed separate motions for reconsideration wherein they similarly raised the
trial court's failure to declare that Anacleto Viana acted with gross negligence despite the
overwhelming evidence presented in support thereof. In addition, Aboitiz alleged, in opposition to
Pioneer's motion, that under the memorandum of agreement the liability of Pioneer as contractor is
automatic for any damages or losses whatsoever occasioned by and arising from the operation of its
arrastre and stevedoring service.
In an order dated October 27, 1982, 8 the trial court absolved Pioneer from liability for failure of the
Vianas and Aboitiz to preponderantly establish a case of negligence against the crane operator which
the court a quo ruled is never presumed, aside from the fact that the memorandum of agreement
supposedly refers only to Pioneer's liability in case of loss or damage to goods handled by it but not in
the case of personal injuries, and, finally that Aboitiz cannot properly invoke the fellow-servant rule
simply because its liability stems from a breach of contract of carriage. The dispositive portion of said
order reads:
WHEREFORE, judgment is hereby modified insofar as third party defendant Pioneer

Stevedoring Corporation is concerned rendered in favor of the plaintiffs-,:
(1) Ordering defendant Aboitiz Shipping Corporation to pay the plaintiffs the sum of
P12,000.00 for the death of Anacleto Viana; P9,000.00 (sic) as actual damages;
P533,200.00 value of the 10,664 cavans of palay computed at P50.00 per cavan;
P10,000.00 as attorney's fees; P5,000.00 value of the 100 cavans of palay as support
for five (5) years for deceased's parents, herein plaintiffs Antonio and
GorgoniaViana,computed at P50.00 per cavan; P7,200.00 as support for deceased's
parents computed at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the
Civil Code; P20,000.00 as moral damages, and costs; and
(2) Absolving third-party defendant Pioneer Stevedoring Corporation for (sic) any liability
for the death of Anacleto Viana the passenger of M/V Antonia owned by defendant third
party plaintiff Aboitiz Shipping Corporation it appearing that the negligence of its crane
operator has not been established therein.
Not satisfied with the modified judgment of the trial court, Aboitiz appealed the same to respondent
Court of Appeals which affirmed the findings of of the trial court except as to the amount of damages
awarded to the Vianas.
Hence, this petition wherein petitioner Aboitiz postulates that respondent court erred:
(A) In holding that the doctrine laid down by this honorable Court in La Mallorca vs.
Court of Appeals, et al. (17 SCRA 739, July 27, 1966) is applicable to the case in the

face of the undisputable fact that the factual situation under the La Mallorca case is
radically different from the facts obtaining in this case;
(B) In holding petitioner liable for damages in the face of the finding of the court a quo
and confirmed by the Honorable respondent court of Appeals that the deceased,
Anacleto Viana was guilty of contributory negligence, which, We respectfully submit
contributory negligence was the proximate cause of his death; specifically the honorable
respondent Court of Appeals failed to apply Art. 1762 of the New Civil Code;
(C) In the alternative assuming the holding of the Honorable respondent Court of
Appears that petitioner may be legally condemned to pay damages to the private
respondents we respectfully submit that it committed a reversible error when it
dismissed petitioner's third party complaint against private respondent Pioneer
Stevedoring Corporation instead of compelling the latter to reimburse the petitioner for
whatever damages it may be compelled to pay to the private respondents Vianas. 9
At threshold, it is to be observed that both the trial court and respondent Court of Appeals found the
victim Anacleto Viana guilty of contributory negligence, but holding that it was the negligence of
Aboitiz in prematurely turning over the vessel to the arrastre operator for the unloading of cargoes
which was the direct, immediate and proximate cause of the victim's death.
I. Petitioner contends that since one (1) hour had already elapsed from the time Anacleto Viana
disembarked from the vessel and that he was given more than ample opportunity to unload his
cargoes prior to the operation of the crane, his presence on the vessel was no longer reasonable e
and he consequently ceased to be a passenger. Corollarily, it insists that the doctrine in La Mallorca
vs. Court of Appeals, et al. 10 is not applicable to the case at bar.
The rule is that the relation of carrier and passenger continues until the passenger has been landed
at the port of destination and has left the vessel owner's dock or premises. 11 Once created, the
relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely
alighted from the carrier's conveyance or had a reasonable opportunity to leave the carrier's
premises. All persons who remain on the premises a reasonable time after leaving the conveyance
are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is
to be determined from all the circumstances, and includes a reasonable time to see after his baggage
and prepare for his departure.12 The carrier-passenger relationship is not terminated merely by the
fact that the person transported has been carried to his destination if, for example, such person
remains in the carrier's premises to claim his baggage.13
It was in accordance with this rationale that the doctrine in the aforesaid case of La Mallorca was
enunciated, to wit:
It has been recognized as a rule that the relation of carrier and passenger does not
cease at the moment the passenger alights from the carrier's vehicle at a place selected
by the carrier at the point of destination, but continues until the passenger has had a
reasonable time or a reasonable opportunity to leave the carrier's premises. And, what
is a reasonable time or a reasonable delay within this rule is to be determined from all

the circumstances. Thus, a person who, after alighting from a train, walks along the
station platform is considered still a passenger. So also, where a passenger has
alighted at his destination and is proceeding by the usual way to leave the company's
premises, but before actually doing so is halted by the report that his brother, a fellow
passenger, has been shot, and he in good faith and without intent of engaging in the
difficulty, returns to relieve his brother, he is deemed reasonably and necessarily
delayed and thus continues to be a passenger entitled as such to the protection of the
railroad company and its agents.
In the present case, the father returned to the bus to get one of his baggages which was
not unloaded when they alighted from the bus. Racquel, the child that she was, must
have followed the father. However, although the father was still on the running board of
the bus waiting for the conductor to hand him the bag or bayong, the bus started to run,
so that even he (the father) had to jump down from the moving vehicle. It was at this
instance that the child, who must be near the bus, was run over and killed. In the
circumstances, it cannot be claimed that the carrier's agent had exercised the 'utmost
diligence' of a 'very cautious person' required by Article 1755 of the Civil Code to be
observed by a common carrier in the discharge of its obligation to transport safely its
passengers. ... The presence of said passengers near the bus was not unreasonable
and they are, therefore, to be considered still as passengers of the carrier, entitled to
the protection under their contract of carriage. 14
It is apparent from the foregoing that what prompted the Court to rule as it did in said case is the fact
of the passenger's reasonable presence within the carrier's premises. That reasonableness of time
should be made to depend on the attending circumstances of the case, such as the kind of common
carrier, the nature of its business, the customs of the place, and so forth, and therefore precludes a
consideration of the time element per se without taking into account such other factors. It is thus of no
moment whether in the cited case of La Mallorca there was no appreciable interregnum for the
passenger therein to leave the carrier's premises whereas in the case at bar, an interval of one (1)
hour had elapsed before the victim met the accident. The primary factor to be considered is the
existence of a reasonable cause as will justify the presence of the victim on or near the petitioner's
vessel. We believe there exists such a justifiable cause.
It is of common knowledge that, by the very nature of petitioner's business as a shipper, the
passengers of vessels are allotted a longer period of time to disembark from the ship than other
common carriers such as a passenger bus. With respect to the bulk of cargoes and the number of
passengers it can load, such vessels are capable of accommodating a bigger volume of both as
compared to the capacity of a regular commuter bus. Consequently, a ship passenger will need at
least an hour as is the usual practice, to disembark from the vessel and claim his baggage whereas a
bus passenger can easily get off the bus and retrieve his luggage in a very short period of time.
Verily, petitioner cannot categorically claim, through the bare expedient of comparing the period of
time entailed in getting the passenger's cargoes, that the ruling in La Mallorca is inapplicable to the
case at bar. On the contrary, if we are to apply the doctrine enunciated therein to the instant petition,

we cannot in reason doubt that the victim Anacleto Viana was still a passenger at the time of the
incident. When the accident occurred, the victim was in the act of unloading his cargoes, which he
had every right to do, from petitioner's vessel. As earlier stated, a carrier is duty bound not only to
bring its passengers safely to their destination but also to afford them a reasonable time to claim their
baggage.
It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked
from the vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was
taking his cargoes, the vessel had already docked an hour earlier. In consonance with common
shipping procedure as to the minimum time of one (1) hour allowed for the passengers to disembark,
it may be presumed that the victim had just gotten off the vessel when he went to retrieve his
baggage. Yet, even if he had already disembarked an hour earlier, his presence in petitioner's
premises was not without cause. The victim had to claim his baggage which was possible only one
(1) hour after the vessel arrived since it was admittedly standard procedure in the case of petitioner's
vessels that the unloading operations shall start only after that time. Consequently, under the
foregoing circumstances, the victim Anacleto Viana is still deemed a passenger of said carrier at the
time of his tragic death.
II. Under the law, common carriers are, from the nature of their business and for reasons of public
policy, bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case. 15 More
particularly, a common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances. 16 Thus, where a passenger dies or is injured, the common carrier is presumed to
have been at fault or to have acted negligently. 17 This gives rise to an action for breach of contract of
carriage where all that is required of plaintiff is to prove the existence of the contract of carriage and
its non-performance by the carrier, that is, the failure of the carrier to carry the passenger safely to his
destination, 18which, in the instant case, necessarily includes its failure to safeguard its passenger
with extraordinary diligence while such relation subsists.
The presumption is, therefore, established by law that in case of a passenger's death or injury the
operator of the vessel was at fault or negligent, having failed to exercise extraordinary diligence, and
it is incumbent upon it to rebut the same. This is in consonance with the avowed policy of the State to
afford full protection to the passengers of common carriers which can be carried out only by imposing
a stringent statutory obligation upon the latter. Concomitantly, this Court has likewise adopted a rigid
posture in the application of the law by exacting the highest degree of care and diligence from
common carriers, bearing utmost in mind the welfare of the passengers who often become hapless
victims of indifferent and profit-oriented carriers. We cannot in reason deny that petitioner failed to
rebut the presumption against it. Under the facts obtaining in the present case, it cannot be gainsaid
that petitioner had inadequately complied with the required degree of diligence to prevent the
accident from happening.
As found by the Court of Appeals, the evidence does not show that there was a cordon of drums
around the perimeter of the crane, as claimed by petitioner. It also adverted to the fact that the

alleged presence of visible warning signs in the vicinity was disputable and not indubitably
established. Thus, we are not inclined to accept petitioner's explanation that the victim and other
passengers were sufficiently warned that merely venturing into the area in question was fraught with
serious peril. Definitely, even assuming the existence of the supposed cordon of drums loosely
placed around the unloading area and the guard's admonitions against entry therein, these were at
most insufficient precautions which pale into insignificance if considered vis-a-vis the gravity of the
danger to which the deceased was exposed. There is no showing that petitioner was extraordinarily
diligent in requiring or seeing to it that said precautionary measures were strictly and actually
enforced to subserve their purpose of preventing entry into the forbidden area. By no stretch of liberal
evaluation can such perfunctory acts approximate the "utmost diligence of very cautious persons" to
be exercised "as far as human care and foresight can provide" which is required by law of common
carriers with respect to their passengers.
While the victim was admittedly contributorily negligent, still petitioner's aforesaid failure to exercise
extraordinary diligence was the proximate and direct cause of, because it could definitely have
prevented, the former's death. Moreover, in paragraph 5.6 of its petition, at bar, 19 petitioner has
expressly conceded the factual finding of respondent Court of Appeals that petitioner did not present
sufficient evidence in support of its submission that the deceased Anacleto Viana was guilty of gross
negligence. Petitioner cannot now be heard to claim otherwise.
No excepting circumstance being present, we are likewise bound by respondent court's declaration
that there was no negligence on the part of Pioneer Stevedoring Corporation, a confirmation of the
trial court's finding to that effect, hence our conformity to Pioneer's being absolved of any liability.
As correctly observed by both courts, Aboitiz joined Pioneer in proving the alleged gross negligence
of the victim, hence its present contention that the death of the passenger was due to the negligence
of the crane operator cannot be sustained both on grounds, of estoppel and for lack of evidence on its
present theory. Even in its answer filed in the court below it readily alleged that Pioneer had taken the
necessary safeguards insofar as its unloading operations were concerned, a fact which appears to
have been accepted by the plaintiff therein by not impleading Pioneer as a defendant, and likewise
inceptively by Aboitiz by filing its third-party complaint only after ten (10) months from the institution of
the suit against it. Parenthetically, Pioneer is not within the ambit of the rule on extraordinary diligence
required of, and the corresponding presumption of negligence foisted on, common carriers like
Aboitiz. This, of course, does not detract from what we have said that no negligence can be imputed
to Pioneer but, that on the contrary, the failure of Aboitiz to exercise extraordinary diligence for the
safety of its passenger is the rationale for our finding on its liability.
WHEREFORE, the petition is DENIED and the judgment appealed from is hereby AFFIRMED in toto.
SO ORDERED.

(CASE NO.8)
THIRD DIVISION
G.R. No. 146018 June 25, 2003
EDGAR COKALIONG SHIPPING LINES, INC., Petitioner,

vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be
limited to the value declared by the shipper. On the other hand, the liability of the insurer is
determined by the actual value covered by the insurance policy and the insurance premiums paid
therefor, and not necessarily by the value declared in the bill of lading.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside
the August 31, 2000 Decision2 and the November 17, 2000 Resolution3 of the Court of Appeals4 (CA)
in CA-GR SP No. 62751. The dispositive part of the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from
is REVERSED. [Petitioner] is hereby condemned to pay to [respondent] the total amount of
₱148,500.00, with interest thereon, at the rate of 6% per annum, from date of this Decision of the
Court. [Respondent’s] claim for attorney’s fees [is] DISMISSED. [Petitioner’s] counterclaims
are DISMISSED."5
The assailed Resolution denied petitioner’s Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s 6 Decision,7 which was later reversed
by the CA, states:
"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.
"No cost."8
The Facts
The facts of the case are summarized by the appellate court in this wise:
"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines,
Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of
Christmas décor and two (2) sacks of plastic toys, to be transported on board the M/V Tandag on
its Voyage No. T-189 scheduled to depart from Cebu City, on December 12, 1991, for Tandag,
Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor
Angelia was both the shipper and consignee of the cargo valued, on the face thereof, in the amount
of ₱6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of
plastic toys and Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted

goods for transportation thereof from Cebu City to Tandag, Surigao del Sur, on board the said vessel,
and said voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face
thereof, was valued in the amount of ₱14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.
"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with
the UCPB General Insurance Co., Inc., [respondent] for brevity, for the amount of ₱100,000.00
‘against all risks’ under Open Policy No. 002/9 1/254 for which she was issued, by
[respondent], Marine Risk Note No. 18409 on said date. She also insured the cargo covered by Bill
of Lading No. 58, with [respondent], for the amount of ₱50,000.00, under Open Policy No. 002/9
1/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on said date.
"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including
the goods of Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the
engine room, and, despite earnest efforts of the officers and crew of the vessel, the fire engulfed and
destroyed the entire vessel resulting in the loss of the vessel and the cargoes therein. The Captain
filed the required Marine Protest.
"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo
insured under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in
support of her claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado,
and Order Slips purportedly signed by him for the goods he received from Feliciana Legaspi valued
in the amount of ₱110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and
issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of ₱99,000.00, in
settlement of her claim after which she executed a Subrogation Receipt/Deed, for said amount, in
favor of [respondent]. She also filed a claim for the value of the cargo covered by Bill of Lading No.
58. She submitted to [respondent] a Receipt, dated December 11, 1991 and Order Slips,
purportedly signed by Nestor Angelia for the goods he received from Feliciana Legaspi valued at
₱60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the net amount of
₱49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].
"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on
torts against [petitioner], with the Regional Trial Court of Makati City, for the collection of the total
principal amount of ₱148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying
that judgment be rendered in its favor and against the [petitioner] as follows:
‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be
rendered ordering [petitioner] to pay [respondent] the following.
1. Actual damages in the amount of ₱148,500.00 plus interest thereon at the legal rate from
the time of filing of this complaint until fully paid;
2. Attorney’s fees in the amount of ₱10,000.00; and
3. Cost of suit.

‘[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem
just and equitable under the premises.’
"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was
delivered to, and received by, [petitioner] for transportation to Tandag, Surigao del Sur under ‘Bill of
Ladings,’ Annexes ‘A’ and ‘B’ of the complaint; that the loss of the cargo was due to the negligence
of the [petitioner]; and that Feliciana Legaspi had executed Subrogation Receipts/Deeds in favor of
[respondent] after paying to her the value of the cargo on account of the Marine Risk Notes it issued
in her favor covering the cargo.
"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of
Marine Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of
action against [petitioner]; and (c) the shippers/consignee had already been paid the value of the
goods as stated in the Bill of Lading and, hence, [petitioner] cannot be held liable for the loss of the
cargo beyond the value thereof declared in the Bill of Lading.
"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to
take the depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of
[petitioner], and a resident of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking
Corporation, in Cebu City, and a resident of Cebu City, to be given before the Presiding Judge of
Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify,
by way of deposition, before the Court and declared inter alia, that: [petitioner] is a family corporation
like the Chester Marketing, Inc.; Nestor Angelia had been doing business with [petitioner] and
Chester Marketing, Inc., for years, and incurred an account with Chester Marketing, Inc. for his
purchases from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59 for the cargo
described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees, respectively; the
engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in
the total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine
Inquiry of the Philippine Coast Guard which rendered a Report, dated February 13, 1992 absolving
[petitioner] of any responsibility on account of the fire, which Report of the Board was approved by the
District Commander of the Philippine Coast Guard; a few days after the sinking of the vessel, a
representative of the Legaspi Marketing filed claims for the values of the goods under Bills of Lading
Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo Mercado;
[petitioner] was able to ascertain, from the shippers/consignees and the representative of the Legaspi
Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and
consigned to Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor
Angelia from the Legaspi Marketing; that [petitioner] approved the claim of Legaspi Marketing for the
value of the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing the said amount
under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in the amount of
₱14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated
August 12, 1992, for the said amount of ₱14,000.00 in full payment of claims under Bill of Lading
No. 59; that [petitioner] approved the claim of Nestor Angelia in the amount of ₱6,500.00 but that
since the latter owed Chester Marketing, Inc., for some purchases, [petitioner] merely set off the

amount due to Nestor Angelia under Bill of Lading No. 58 against his account with Chester
Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received by Legaspi
Marketing, hence, the production of the microfilm copy by Noel Tanyu of the Equitable Banking
Corporation; [petitioner] never knew, before settling with Legaspi Marketing and Nestor Angelia that
the cargo under both Bills of Lading were insured with [respondent], or that Feliciana Legaspi filed
claims for the value of the cargo with [respondent] and that the latter approved the claims of Feliciana
Legaspi and paid the total amount of ₱148,500.00 to her; [petitioner] came to know, for the first time,
of the payments by [respondent] of the claims of Feliciana Legaspi when it was served with the
summons and complaint, on October 8, 1992; after settling his claim, Nestor Angelia x xx executed
the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated July 2, 1993 in favor of
[respondent]; hence, [petitioner] was absolved of any liability for the loss of the cargo covered by Bills
of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of the cargo as
stated in the Bills of Lading.
"[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x"9 (Citations
omitted)
The CA held that petitioner had failed "to prove that the fire which consumed the vessel and its cargo
was caused by something other than its negligence in the upkeep, maintenance and operation of the
vessel."10
Petitioner had paid ₱14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The
CA, however, held that the payment did not extinguish petitioner’s obligation to respondent, because
there was no evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi
Marketing. The CA also pointed out the impropriety of treating the claim under Bill of Lading No. 58 --
covering cargo valued therein at ₱6,500 -- as a setoff against Nestor Angelia’s account with Chester
Enterprises, Inc.
Finally, it ruled that respondent "is not bound by the valuation of the cargo under the Bills of Lading, x
xx nor is the value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so
because, in the first place, the goods were insured with the [respondent] for the total amount of
₱150,000.00, which amount may be considered as the face value of the goods." 11
Hence this Petition.12
Issues
Petitioner raises for our consideration the following alleged errors of the CA:
"I
"The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that
petitioner’s liability should be based on the ‘actual insured value’ of the goods and not from actual
valuation declared by the shipper/consignee in the bill of lading.
"II

"The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained
by the trial court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading
Nos. 58 and 59 was due to force majeure and due diligence was [exercised] by petitioner prior to,
during and immediately after the fire on [petitioner’s] vessel.
"III
"The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of
action against the petitioner."13
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the
extent of its liability?
This Court’s Ruling
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It
adds that its exercise of due diligence was adequately proven by the findings of the Philippine Coast
Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V
Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank.
Fuel spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst
into flames. The crack was located on the side of the fuel oil tank, which had a mere two-inch gap
from the engine room walling, thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been
caused by force majeure. Broadly speaking, force majeure generally applies to a natural accident,
such as that caused by a lightning, an earthquake, a tempest or a public enemy. 14 Hence, fire is not
considered a natural disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court,15 we explained:
"x xx. This must be so as it arises almost invariably from some act of man or by human means. It
does not fall within the category of an act of God unless caused by lighting or by other natural
disaster or calamity. It may even be caused by the actual fault or privity of the carrier.
"Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
leases or rural lands where a reduction of the rent is allowed when more than one-half of the fruits
have been lost due to such event, considering that the law adopts a protective policy towards
agriculture.
"As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of
the Civil Code provides that in all cases other than those mentioned in Article 1734, the common
carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it
has observed the extraordinary diligence required by law."

Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently
so as to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but
to the negligence of those officials.16
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the
vessel is the first step in exercising the required vigilance. Petitioner did not present sufficient
evidence showing what measures or acts it had undertaken to ensure the seaworthiness of the
vessel. It failed to show when the last inspection and care of the auxiliary engine fuel oil service tank
was made, what the normal practice was for its maintenance, or some other evidence to establish
that it had exercised extraordinary diligence. It merely stated that constant inspection and care were
not possible, and that the last time the vessel was dry-docked was in November 1990. Necessarily, in
accordance with Article 173517 of the Civil Code, we hold petitioner responsible for the loss of the
goods covered by Bills of Lading Nos. 58 and 59.
Second Issue:
Extent of Liability
Respondent contends that petitioner’s liability should be based on the actual insured value of the
goods, subject of this case. On the other hand, petitioner claims that its liability should be limited to
the value declared by the shipper/consignee in the Bill of Lading.
The records18 show that the Bills of Lading covering the lost goods contain the stipulation that in case
of claim for loss or for damage to the shipped merchandise or property, "[t]he liability of the common
carrier x xx shall not exceed the value of the goods as appearing in the bill of lading." 19 The attempt
by respondent to make light of this stipulation is unconvincing. As it had the consignees’ copies of the
Bills of Lading,20 it could have easily produced those copies, instead of relying on mere allegations
and suppositions. However, it presented mere photocopies thereof to disprove petitioner’s evidence
showing the existence of the above stipulation.
A stipulation that limits liability is valid21 as long as it is not against public policy. In Everett Steamship
Corporation v. Court of Appeals,22 the Court stated:
"A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo
to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances,
and has been freely and fairly agreed upon.’
"Such limited-liability clause has also been consistently upheld by this Court in a number of cases.
Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:

‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if
a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount
to questioning the justness and fairness of the law itself, and this the private respondent does not
pretend to do. But over and above that consideration, the just and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation
by the simple and surely far from onerous expedient of declaring the nature and value of the shipment
in the bill of lading.’
"Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common
carrier’s liability for loss must be ‘reasonable and just under the circumstances, and has been freely
and fairly agreed upon.
"The bill of lading subject of the present controversy specifically provides, among others:
’18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the
shipper’s net invoice cost plus freight and insurance premiums, if paid, and in no event shall the
carrier be liable for any loss of possible profits or any consequential loss.
‘The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an
amount exceeding One Hundred Thousand Yen in Japanese Currency (¥100,000.00) or its
equivalent in any other currency per package or customary freight unit (whichever is least) unless the
value of the goods higher than this amount is declared in writing by the shipper before receipt of the
goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.’
"The above stipulations are, to our mind, reasonable and just.1avvphi1 In the bill of lading, the carrier
made it clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen.
However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of
its cargo was higher than the limited liability of the carrier. Considering that the shipper did not
declare a higher valuation, it had itself to blame for not complying with the stipulations." (Italics
supplied)
In the present case, the stipulation limiting petitioner’s liability is not contrary to public policy. In fact,
its just and reasonable character is evident. The shippers/consignees may recover the full value of
the goods by the simple expedient of declaring the true value of the shipment in the Bill of Lading.
Other than the payment of a higher freight, there was nothing to stop them from placing the actual
value of the goods therein. In fact, they committed fraud against the common carrier by deliberately
undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper and just transport
fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common
carrier. Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that
the latter may be liable for in case of loss of the goods. The common carrier can then take
appropriate measures -- getting insurance, if needed, to cover or protect itself. This precaution on the

part of the carrier is reasonable and prudent. Hence, a shipper/consignee that undervalues the real
worth of the goods it seeks to transport does not only violate a valid contractual stipulation, but
commits a fraudulent act when it seeks to make the common carrier liable for more than the amount it
declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their
respective Bills of Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from
it, and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the
insurance company was paid the correct higher premium by Feliciana Legaspi; while petitioner was
paid a fee lower than what it was entitled to for transporting the goods that had been deliberately
undervalued by the shippers in the Bill of Lading. Between the two of them, the insurer should bear
the loss in excess of the value declared in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,23 the description of the nature and the value of
the goods shipped were declared and reflected in the bill of lading, like in the present case. The Court
therein considered this declaration as the basis of the carrier’s liability and ordered payment based on
such amount. Following this ruling, petitioner should not be held liable for more than what was
declared by the shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the owner of the
goods covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to
Nestor Angelia and Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee
(respondent) was entitled to the goods or, in case of loss, to compensation therefor. There is no
evidence showing that petitioner paid her for the loss of those goods. It does not even claim to have
paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of
Lading No. 59, for which the latter subsequently paid ₱14,000. But nothing in the records convincingly
shows that the former was the owner of the goods. Respondent was, however, able to prove that it
was Feliciana Legaspi who owned those goods, and who was thus entitled to payment for their loss.
Hence, the claim for the goods under Bill of Lading No. 59 cannot be deemed to have been
extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at
₱6,500, the parties have not convinced us to disturb the findings of the CA that compensation could
not validly take place. Thus, we uphold the appellate court’s ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in
the sense that petitioner is ORDERED to pay respondent the sums of ₱14,000 and ₱6,500, which
represent the value of the goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.

(CASE NO.9)
THIRD DIVISION
[G.R. No. 143360. September 5, 2002]
EQUITABLE LEASING CORPORATION, petitioner, vs. LUCITA SUYOM, MARISSA ENANO,

MYRNA TAMAYO and FELIX OLEDAN, respondents.
DECISION
PANGANIBAN, J.:
In an action based on quasi delict, the registered owner of a motor vehicle is solidarily liable for
the injuries and damages caused by the negligence of the driver, in spite of the fact that the vehicle
may have already been the subject of an unregistered Deed of Sale in favor of another
person. Unless registered with the Land Transportation Office, the sale -- while valid and binding
between the parties -- does not affect third parties, especially the victims of accidents involving the
said transport equipment. Thus, in the present case, petitioner, which is the registered owner, is liable
for the acts of the driver employed by its former lessee who has become the owner of that vehicle by
virtue of an unregistered Deed of Sale.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the May 12, 2000
Decision[1] of the Court of Appeals[2] (CA) in CA-GR CV No. 55474. The decretal portion of the
Decision reads as follows:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The
assailed decision, dated May 5, 1997, of the Regional Trial Court of Manila, Branch 14, in Civil Case
No. 95-73522, is hereby AFFIRMED with MODIFICATION that the award of attorneys fees
is DELETED.[3]
On the other hand, in Civil Case No. 95-73522, the Regional Trial Court (RTC) of Manila (Branch
14) had earlier disposed in this wise:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant
Equitable Leasing Corporation ordering said defendant to pay to the plaintiffs the following:
A. TO MYRNA TAMAYO
1. the sum of P50,000.00 for the death of Reniel Tamayo;
2. P50,000.00 as moral damages; and
3. P56,000.00 for the damage to the store and its contents, and funeral expenses.
B. TO FELIX OLEDAN
1. the sum of P50,000.00 for the death of FelmarieOledan;
2. P50,000.00 as moral damages; and
3. P30,000.00 for medical expenses, and funeral expenses.

C. TO MARISSA ENANO
1. P7,000.00 as actual damages
D. TO LUCITA SUYOM
1. The sum of P5,000.00 for the medical treatment of her two sons.
The sum of P120,000.00 as and for attorneys fees.[4]
The Facts
On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the house cum store of
Myrna Tamayo located at Pier 18, Vitas, Tondo, Manila. A portion of the house was
destroyed. Pinned to death under the engine of the tractor were Respondent Myrna Tamayos son,
Reniel Tamayo, and Respondent Felix Oledans daughter, FelmarieOledan. Injured were Respondent
Oledan himself, Respondent Marissa Enano, and two sons of Respondent LucitaSuyom.
Tutor was charged with and later convicted of reckless imprudence resulting in multiple homicide
and multiple physical injuries in Criminal Case No. 296094-SA, Metropolitan Trial Court of Manila,
Branch 12.[5]
Upon verification with the Land Transportation Office, respondents were furnished a copy of
Official Receipt No. 62204139[6] and Certificate of Registration No. 08262797,[7] showing that the
registered owner of the tractor was Equitable Leasing Corporation/leased to Edwin Lim. On April 15,
1995, respondents filed against Raul Tutor, Ecatine Corporation (Ecatine) and Equitable Leasing
Corporation (Equitable) a Complaint[8] for damages docketed as Civil Case No. 95-73522 in the RTC
of Manila, Branch 14.
The trial court, upon motion of plaintiffs counsel, issued an Order dropping Raul Tutor, Ecatine
and Edwin Lim from the Complaint, because they could not be located and served with
summonses.[9] On the other hand, in its Answer with Counterclaim,[10] petitioner alleged that the
vehicle had already been sold to Ecatine and that the former was no longer in possession and control
thereof at the time of the incident. It also claimed that Tutor was an employee, not of Equitable, but of
Ecatine.
After trial on the merits, the RTC rendered its Decision ordering petitioner to pay actual and moral
damages and attorneys fees to respondents. It held that since the Deed of Sale between petitioner
and Ecatine had not been registered with the Land Transportation Office (LTO), the legal owner was
still Equitable.[11] Thus, petitioner was liable to respondents.[12]
Sustaining the RTC, the CA held that petitioner was still to be legally deemed the owner/operator
of the tractor, even if that vehicle had been the subject of a Deed of Sale in favor of Ecatine on
December 9, 1992. The reason cited by the CA was that the Certificate of Registration on file with the
LTO still remained in petitioners name.[13] In order that a transfer of ownership of a motor vehicle can
bind third persons, it must be duly recorded in the LTO.[14]

The CA likewise upheld respondents claim for moral damages against petitioner because the
appellate court considered Tutor, the driver of the tractor, to be an agent of the registered
owner/operator.[15]
Hence, this Petition.[16]
Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
Whether or not the Court of Appeals and the trial court gravely erred when they decided and held that
petitioner [was] liable for damages suffered by private respondents in an action based on quasi delict
for the negligent acts of a driver who [was] not the employee of the petitioner.
II
Whether or not the Court of Appeals and the trial court gravely erred when they awarded moral
damages to private respondents despite their failure to prove that the injuries they suffered were
brought by petitioners wrongful act.[17]
This Courts Ruling
The Petition has no merit.
First Issue:
Liability for Wrongful Acts
Petitioner contends that it should not be held liable for the damages sustained by respondents
and that arose from the negligence of the driver of the Fuso Road Tractor, which it had already sold
to Ecatine at the time of the accident. Not having employed Raul Tutor, the driver of the vehicle, it
could not have controlled or supervised him.[18]
We are not persuaded. In negligence cases, the aggrieved party may sue the negligent party
under (1) Article 100[19] of the Revised Penal Code, for civil liability ex delicto; or (2) under Article
2176[20] of the Civil Code, for civil liability ex quasi delicto.[21]
Furthermore, under Article 103 of the Revised Penal Code, employers may be held subsidiarily
liable for felonies committed by their employees in the discharge of the latters duties. [22]This liability
attaches when the employees who are convicted of crimes committed in the performance of their
work are found to be insolvent and are thus unable to satisfy the civil liability adjudged. [23]
On the other hand, under Article 2176 in relation to Article 2180[24] of the Civil Code, an action
predicated on quasi delict may be instituted against the employer for an employees act or omission.
The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the
defense of due diligence in the selection and supervision of the employee. [25]The enforcement of the
judgment against the employer for an action based on Article 2176 does not require the employee to
be insolvent, since the liability of the former is solidary -- the latter being statutorily considered a joint
tortfeasor.[26] To sustain a claim based on quasi delict, the following requisites must be proven: (a)
damage suffered by the plaintiff, (b) fault or negligence of the defendant, and (c) connection of cause

and effect between the fault or negligence of the defendant and the damage incurred by the
plaintiff.[27]
These two causes of action (ex delicto or ex quasi delicto) may be availed of, subject to the
caveat[28] that the offended party cannot recover damages twice for the same act or omission or
under both causes.[29] Since these two civil liabilities are distinct and independent of each other, the
failure to recover in one will not necessarily preclude recovery in the other. [30]
In the instant case, respondents -- having failed to recover anything in the criminal case -- elected
to file a separate civil action for damages, based on quasi delict under Article 2176 of the Civil
Code.[31] The evidence is clear that the deaths and the injuries suffered by respondents and their kins
were due to the fault of the driver of the Fuso tractor.
Dated June 4, 1991, the Lease Agreement[32] between petitioner and Edwin Lim stipulated that it
is the intention of the parties to enter into a FINANCE LEASE AGREEMENT. [33] Under such scheme,
ownership of the subject tractor was to be registered in the name of petitioner, until the value of the
vehicle has been fully paid by Edwin Lim.[34] Further, in the Lease Schedule,[35] the monthly rental for
the tractor was stipulated, and the term of the Lease was scheduled to expire on December 4, 1992.
After a few months, Lim completed the payments to cover the full price of the tractor. [36] Thus, on
December 9, 1992, a Deed of Sale[37] over the tractor was executed by petitioner in favor of Ecatine
represented by Edwin Lim. However, the Deed was not registered with the LTO.
We hold petitioner liable for the deaths and the injuries complained of, because it was the
registered owner of the tractor at the time of the accident on July 17, 1994. [38] The Court has
consistently ruled that, regardless of sales made of a motor vehicle, the registered owner is the lawful
operator insofar as the public and third persons are concerned; consequently, it is directly and
primarily responsible for the consequences of its operation.[39] In contemplation of law, the
owner/operator of record is the employer of the driver, the actual operator and employer being
considered as merely its agent.[40] The same principle applies even if the registered owner of any
vehicle does not use it for public service.[41]
Since Equitable remained the registered owner of the tractor, it could not escape primary liability
for the deaths and the injuries arising from the negligence of the driver.[42]
The finance-lease agreement between Equitable on the one hand and Lim or Ecatine on the
other has already been superseded by the sale. In any event, it does not bind third persons.The
rationale for this rule has been aptly explained in Erezo v. Jepte,[43] which we quote hereunder:
x xx. The main aim of motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility
therefor can be fixed on a definite individual, the registered owner. Instances are numerous where
vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles
without positive identification of the owner or drivers, or with very scant means of identification. It is to
forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons responsible for
damages or injuries caused on public highways.[44]

Further, petitioners insistence on FGU Insurance Corp. v. Court of Appeals is
misplaced.[45] First, in FGU Insurance, the registered vehicle owner, which was engaged in a rent-a-
car business, rented out the car. In this case, the registered owner of the truck, which is engaged in
the business of financing motor vehicle acquisitions, has actually sold the truck to Ecatine, which in
turn employed Tutor. Second, in FGU Insurance, the registered owner of the vehicle was not held
responsible for the negligent acts of the person who rented one of its cars, because Article 2180 of
the Civil Code was not applicable. We held that no vinculum juris as employer and employee existed
between the owner and the driver.[46] In this case, the registered owner of the tractor is considered
under the law to be the employer of the driver, while the actual operator is deemed to be
its agent.[47] Thus, Equitable, the registered owner of the tractor, is -- for purposes of the law on quasi
delict -- the employer of Raul Tutor, the driver of the tractor. Ecatine, Tutors actual employer, is
deemed as merely an agent of Equitable.[48]
True, the LTO Certificate of Registration, dated 5/31/91, qualifies the name of the registered
owner as EQUITABLE LEASING CORPORATION/Leased to Edwin Lim. But the lease agreement
between Equitable and Lim has been overtaken by the Deed of Sale on December 9, 1992, between
petitioner and Ecatine. While this Deed does not affect respondents in this quasi delict suit, it
definitely binds petitioner because, unlike them, it is a party to it.
We must stress that the failure of Equitable and/or Ecatine to register the sale with the LTO
should not prejudice respondents, who have the legal right to rely on the legal principle that the
registered vehicle owner is liable for the damages caused by the negligence of the driver. Petitioner
cannot hide behind its allegation that Tutor was the employee of Ecatine. This will effectively prevent
respondents from recovering their losses on the basis of the inaction or fault of petitioner in failing to
register the sale. The non-registration is the fault of petitioner, which should thus face the legal
consequences thereof.
Second Issue:
Moral Damages
Petitioner further claims that it is not liable for moral damages, because respondents failed to
establish or show the causal connection or relation between the factual basis of their claim and their
wrongful act or omission, if any. [49]
Moral damages are not punitive in nature, but are designed to compensate[50] and alleviate in
some way the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury unjustly caused a
person.[51] Although incapable of pecuniary computation, moral damages must nevertheless be
somehow proportional to and in approximation of the suffering inflicted. [52] This is so because moral
damages are in the category of an award designed to compensate the claimant for actual injury
suffered, not to impose a penalty on the wrongdoer.[53]
Viewed as an action for quasi delict, the present case falls squarely within the purview of Article
2219 (2),[54] which provides for the payment of moral damages in cases of quasi delict. [55] Having
established the liability of petitioner as the registered owner of the vehicle, [56] respondents have

satisfactorily shown the existence of the factual basis for the award [57] and its causal connection to the
acts of Raul Tutor, who is deemed as petitioners employee.[58] Indeed, the damages and injuries
suffered by respondents were the proximate result of petitioners tortious act or omission.[59]
Further, no proof of pecuniary loss is necessary in order that moral damages may be awarded,
the amount of indemnity being left to the discretion of the court.[60] The evidence gives no ground for
doubt that such discretion was properly and judiciously exercised by the trial court. [61] The award is in
fact consistent with the rule that moral damages are not intended to enrich the injured party, but to
alleviate the moral suffering undergone by that party by reason of the defendants culpable action.[62]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.

(CASE NO.10)
G.R. No. 83613 February 21, 1990
FIREMAN'S FUND INSURANCE CO., petitioner,

vs.
METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), respondent.
GUTIERREZ, JR., J.:
This is a petition for review of the decision and resolution denying reconsideration of the Court of
Appeals in CA-G.R. CV No. 00673 entitled "Fireman's Fund Insurance Co. v. Maersk Line, Compañia
General de Tabacos de Filipinas and E. Razon, Inc."
The facts are as follows:
Vulcan Industrial and Mining Corporation imported from the United States several machineries and
equipment which were loaded on board the SIS Albert Maersk at the port of Philadelphia, U.S.A., and
transhipped for Manila through the vessel S/S Maersk Tempo.
The cargo which was covered by a clean bill of lading issued by Maersk Line and Compania General
de Tabacos de Filipinas (referred to as the CARRIER) consisted of the following:
xxx xxxxxx
1 piece truck mounted core drill
1 piece trailer mounted core drill
1 (40') container of 321 pieces steel tubings
1 (40') container of 170 pieces steel tubings
1 (40') container of 13 cases, 3 crates, 2 pallets and 26 mining machinery parts. (Rollo,
p. 4)
The shipment arrived at the port of Manila on June 3, 1979 and was turned over complete and in
good order condition to the arrastre operator E. Razon Inc. (now Metro Port Service Inc. and referred
to as the ARRASTRE).
At about 10:20 in the morning of June 8, 1979, a tractor operator, named Danilo Librando and
employed by the ARRASTRE, was ordered to transfer the shipment to the Equipment Yard at Pier 3.
While Librando was maneuvering the tractor (owned and provided by Maersk Line) to the left, the
cargo fell from the chassis and hit one of the container vans of American President Lines. It was
discovered that there were no twist lock at the rear end of the chassis where the cargo was loaded.
There was heavy damage to the cargo as the parts of the machineries were broken, denied, cracked
and no longer useful for their purposes.
The value of the damage was estimated at P187,500.00 which amount was paid by the petitioner
insurance company to the consignee, Vulcan Industrial and Mining Corporation.

The petitioner, under its subrogation rights, then filed a suit against Maersk Line, Compania General
de Tabacos (as agent) and E. Razon, Inc., for the recovery of the amount it paid the assured under
the covering insurance policy. On October 26, 1980, the trial court rendered judgment, the decretal
portion of which reads as follows:
xxx xxxxxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants by ordering the latter to pay, jointly and severally, the plaintiff the sum of
P187,500.00, with legal interest thereon from August 29, 1980 until full payment thereof.
Defendants are also ordered to pay, in solidum, the sum of P10,000.00 as attorney's
fees to the plaintiff, and to pay the costs of this suit.
There shall be no award for exemplary damages in favor of the plaintiff, for the reason
that defendants are probably acting in good faith in resisting the complaint. (Rollo, pp.
45-46)
All the defendants appealed to the Court of Appeals. Eventually, Maersk Line and Compania General
de Tabacos negotiated with the petitioner for the settlement of the latter's claim and no longer
pursued their appeal.
On the appeal of the ARRASTRE, the Court of Appeals rendered a decision with the following
dispositive portion:
WHEREFORE, foregoing premises considered, the decision of the court a quo insofar
as herein defendant-appellant is concerned is REVERSED It is hereby ordered that the
complaint against herein defendant-appellant be dismissed. No costs. (Rollo, p. 50)
Reconsideration of the decision was denied in a resolution dated May 23, 1988.
Hence, the present recourse.
The petitioner raises this lone assignment of error:
THE HONORABLE COURT OF APPEALS ERRED IN LIMITING LIABILITY SOLELY

ON CO-DEFENDANT MAERSK LINES, CONTRARY TO THE FINDINGS OF FACTS
OF THE TRIAL COURT A QUO AND OTHER FACTORS SHOWING CLEAR JOINT
LIABILITY OF DEFENDANTS IN SOLIDUM.
There is merit in this petition.
This Court has held in a number of cases that findings of fact of the Court of Appeals are, in general,
conclusive on the Supreme Court when supported by the evidence on record. The rule is not
absolute, however, and allows exceptions, which we find present in the case at bar. The respondent
court's findings of facts are contrary to those of the trial court and appear to be contradicted by the
evidence on record thus calling for our review. (Metro Port Service, Inc. v. Court of Appeals, 131
SCRA 365 [1984]).
In absolving the ARRASTRE, the respondent Court ruled that although Librando was an employee of
the ARRASTRE, since he was included in its payroll, he was technically and strictly an employee of

Maersk Line in this particular instance when he drove the tractor admittedly owned by the foreign
shipping line. The Court ruled that he received instructions not from Metro Port but from Maersk Line
relative to this job. He was performing a duty that properly pertained to Maersk Line which, for lack of
a tractor operator, had to get or hire from the ARRASTRE as per their management contract.
Nevertheless, Librando was not remiss in his duty as tractor-driver considering that the proximate and
direct cause of the damage was the absence of twist locks in the rear end of the chassis which
Maersk Line failed to provide. The respondent court thereby placed the entire burden of liability on the
owner of the Chassis which in this case was the foreign shipping company, Maersk Line.
The foregoing conclusion disregarded the pertinent findings of facts made by the lower court which
are supported by the evidence on record, to wit:
1. The accident occurred while the cargoes were in the custody of the arrastre operator.
2. The tractor operator was an employee of the arrastre operator.
xxx xxxxxx
4. By the management contract inasmuch as the foreign shipping company has no

tractor operator in its employ, the arrastre provided the operator.
xxx xxxxxx
8. It was likewise the responsibility of the tractor operator, an employee of the arrastre
operator to inspect the chassis and tractor before driving the same, but which obligation
the operator failed to do.
9. It was also the responsibility of the supervisor in the employ of the arrastre operator
to see that their men complied with their respective tasks, which included the
examination if the chassis has twist lock. (Rollo, pp. 44-45)
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]). The relationship between
the consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods in good
condition to the consignee.
In general, the nature of the work of an arrastre operator covers the handling of cargoes at piers and
wharves (Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue, 13 SCRA 357
[1965]). This is embodied in the Management Contract drawn between the Bureau of Customs and E.
Razon Inc., as the Arrastre Operator. The latter agreed to bind itself, to wit:
CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES
1. Responsibility and Liability for Losses and Damages;

Claims. — The CONTRACTOR shall, at its own expense handle all merchandise in the
piers and other designated places and at its own expense perform all work undertaken
by it hereunder diligently and in skillful workmanlike and efficient manner; That the
CONTRACTOR shall be solely responsible as an independent CONTRACTOR, and
hereby agrees to accept liability and to promptly pay to the s hip company, consignee,
consignor or other interested party or parties for the loss, damage, or non-delivery of
cargoes to the extent of the actual invoice value of each package which in no case shall
be more than Three Thousand Five Hundred Pesos (P3,500.00) for each package
unless the value of the importation is otherwise specified or manifested or
communicated in writing together with the invoice value and supported by a certified
packing list to the CONTRACTOR by the interested party or parties before the
discharge of the goods, as well as all damage that may be suffered on account of loss,
damage, or destruction of any merchandise while in custody or under the control of the
CONTRACTOR in any pier, shed, warehouse, facility; or other designated place under
the supervision of the BUREAU, but said CONTRACTOR shall not be responsible for
the condition of the contents of any package received nor for the weight, nor for any
loss, injury or damage to the said cargo before or while the goods are being received or
remained on the piers, sheds, warehouse or facility if the loss, injury or damage is
caused by force majeure, or other cause beyond the CONTRACTORS control or
capacity to prevent or remedy; ...
xxx xxxxxx
The CONTRACTOR shall be solely responsible for any and all injury or damage that
may arise on account of the negligence or carelessness of the CONTRACTOR, its
agent or employees in the performance of the undertaking by it to be performed under
the terms of the contract, and the CONTRACTOR hereby agree to and hold the
BUREAU at all times harmless therefrom and whole or any part thereof. (Original
Records, pp. 110-112; Emphasis supplied)
To carry out its duties, the ARRASTRE is required to provide cargo handling equipment which
includes among others trailers, chassis for containers. In some cases, however, the shipping line has
its own cargo handling equipment.
In this particular instance, the records reveal that Maersk Line provided the chassis and the tractor
which carried the carried the subject shipment. It merely requested the ARRASTRE to dispatch a
tractor operator to drive the tractor inasmuch as the foreign shipping line did not have any truck
operator in its employ. Such arrangement is allowed between the ARRASTRE and the CARRIER
pursuant to the Management Contract. It was clearly one of the services offered by the ARRASTRE.
We agree with the petitioner that it is the ARRASTRE which had the sole discretion and prerogative
to hire and assign Librando to operate the tractor. It was also the ARRASTRE's sole decision to detail
and deploy Librando for the particular task from among its pool of tractor operators or drivers. It is,
therefore, inacurrate to state that Librando should be considered an employee of Maersk Line on that
specific occasion.

Handling cargo is mainly the s principal work so its driver/operators, "cargadors", or employees
should observe the stand" and indispensable measures necessary to prevent losses and damage to
shipments under its custody. Since the ARRASTRE offered its drivers for the operation of tractors in
the handling of cargo and equipment, then the ARRASTRE should see to it that the drivers under its
employ must exercise due diligence in the performance of their work. From the testimonies of
witnesses presented, we gather that driver/operator Librando was remiss in his duty. Benildez
Cepeda, an arrastre-investigator of Metro Port admitted that Librando as tractor-operator should first
have inspected the chassis and made sure that the cargo was securely loaded on the chassis. He
testified:
xxx xxxxxx
Q My question is in your investigation report including enclosures, the

principal reason was that the chassis has no rear twist lock?
A Yes, sir.
Q Did you investigate whether the driver Librando inspected the the truck
before he operated the same whether there was rear twist lock or not?
A I have asked him about that question whether he had inspected the has
any rear twist lock and the answer he did not inspect, sir.
Q As a operator, do you agree with me that it is the duty also of Librando

to see to it that the truck is in good condition and fit to travel, is that
correct?
A Yes, sir.
Q And as a tractor operator it is his duty to see to it that the van mounted
on top of the tractor was properly is that correct?
A Yes, sir. (At pp. 18-20, T.S.N., February 17, 1982)
Again Danilo Librando also admitted that it was usually his practice to inspect not only the tractor but
the chassis as well but failed to do so in this particular instance.
xxx xxxxxx
Q You mentioned of the absence of a twist lock. Will you tell us where is
this twist lock supposed to be located?
A At the rear end of the chassis.
Q Before you operated the tractor which carried the mounted cord drill
truck and trailer did you examine if the chasiss had any twist locks?
A No, sir, because I presumed that it had twist locks and I was confident
that it had twist locks.

Q As a matter of procedure and according to you, you examined the
tractor, do you not make it a practice to examine whether the chassis had
any twist locks?
A I used to do that but in that particular instance I thought it had already its
twist locks. (p. 8, T.S.N., October 5, 1981)
It is true that Maersk Line is also at fault for not providing twist locks on the chassis. However, we find
the testimony of Manuel Heraldez who is the Motor Pool General Superintendent of Metro Port rather
significant. On cross-examination, he stated that:
Q In your experience, Mr. witness, do you know which is ahead of the

placing of the container van or the placing of the twist lock on the chassis?
A The twist lock is already permanently attached on the chassis, sir.
Q Earlier, you mentioned that you cannot see the twist lock if the chassis
is loaded, correct?
A Yes, sir.
Q Do you what to impress upon the Honorable Court that, by mere looking
at a loaded chassis, the twist lock cannot be seen by the naked eye?
Because the van contained a hole in which the twist lock thus entered
inside the hold and locked itself. It is already loaded. So. you cannot no
longer see it.
Q But if you closely examine this chassis which has a load of container
van. You can see whether a twist lock is present or not?
A Yes, sir. A twist lock is present.
Q In other words, if the driver of this tractor closely examined this van, he
could have detected whether or not a twist lock is present?
A Yes, sir. (pp. 33-35, T.S.N., March 23, 1982; Emphasis supplied)
Whether or not the twist lock can be seen by the naked eye when the cargo has been loaded on the
chassis, an efficient and diligent tractor operator must nevertheless check if the cargo is securely
loaded on the chassis.
We, therefore, find Metro Port Service Inc., solidarily liable in the instant case for the negligence of its
employee. With respect to the limited liability of the ARRASTRE, the records disclose that the value
of the importation was relayed to the arrastre operator and in fact processed by its chief claims
examiner based on the documents submitted.
WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby REVERSED and
SET ASIDE and that of the Court of First Instance of Manila, 6th Judicial District, Branch II is
REINSTATED. No costs.
SO ORDERED.

(CASE NO. 12)
FIRST DIVISION
G.R. No. 149038 April 9, 2003
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,

vs.
PKS SHIPPING COMPANY, respondent.
VITUG, J.:
The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV
No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional
Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner
insurance corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags
of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00).
DUMC insured the goods for its full value with petitioner Philippine American General Insurance
Company (Philamgen). The goods were loaded aboard the dumb barge Limar I belonging to PKS
Shipping. On the evening of 22 December 1988, about nine o’clock, while LimarIwas being towed by
respondent’s tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa
Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly
made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the
shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been
caused either by a fortuitous event, in which case the ship owner was not liable, or through the
negligence of the captain and crew of the vessel and that, under Article 587 of the Code of
Commerce adopting the "Limited Liability Rule," the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the trial
court. The appellate court ruled that evidence to establish that PKS Shipping was a common carrier
at the time it undertook to transport the bags of cement was wanting because the peculiar method of
the shipping company’s carrying goods for others was not generally held out as a business but as a
casual occupation. It then concluded that PKS Shipping, not being a common carrier, was not
expected to observe the stringent extraordinary diligence required of common carriers in the care of
goods. The appellate court, moreover, found that the loss of the goods was sufficiently established as
having been due to fortuitous event, negating any liability on the part of PKS Shipping to the shipper.

In the instant appeal, Philamgen contends that the appellate court has committed a patent error in
ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject
cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against
respondent’s being a common carrier and that the only way by which such carrier can be held exempt
for the loss of the cargo would be if the loss were caused by natural disaster or calamity. Petitioner
avers that typhoon "APIANG" has not entered the Philippine area of responsibility and that, even if it
did, respondent would not be exempt from liability because its employees, particularly the tugmaster,
have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen
seeks is not a review on points or errors of law but a review of the undisputed factual findings of the
RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question of
whether it is a private carrier or a common carrier and, in either case, to the other question of whether
or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are consistent with
those of the trial court, may not at liberty be reviewed by this Court in a petition for review under Rule
45 of the Rules of Court.1The conclusions derived from those factual findings, however, are not
necessarily just matters of fact as when they are so linked to, or inextricably intertwined with, a
requisite appreciation of the applicable law. In such instances, the conclusions made could well be
raised as being appropriate issues in a petition for review before this Court. Thus, an issue whether a
carrier is private or common on the basis of the facts found by a trial court or the appellate court can
be a valid and reviewable question of law.
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public."
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it
defines "public service" to be –
"x xx every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, subway motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas, electric light,
heat and power, water supply and power petroleum, sewerage system, wire or wireless

communication systems, wire or wireless broadcasting stations and other similar public
services. x xx. (Underscoring supplied)."
The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs. Court
of Appeals.2Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public Service
Act, this Court has held:
"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as `a sideline’). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
`general public,’ i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions.
"So understood, the concept of `common carrier’ under Article 1732 may be seen to coincide
neatly with the notion of `public service,’ under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code."
Much of the distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is an isolated transaction, not a part of the
business or occupation, and the carrier does not hold itself out to carry the goods for the general
public or to a limited clientele, although involving the carriage of goods for a fee, 3 the person or
corporation providing such service could very well be just a private carrier. A typical case is that of a
charter party which includes both the vessel and its crew, such as in a bareboat or demise, where the
charterer obtains the use and service of all or some part of a ship for a period of time or a voyage or
voyages4 and gets the control of the vessel and its crew.5 Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry such goods for a fee.
The regularity of its activities in this area indicates more than just a casual activity on its part.6 Neither
can the concept of a common carrier change merely because individual contracts are executed or
entered into with patrons of the carrier. Such restrictive interpretation would make it easy for a
common carrier to escape liability by the simple expedient of entering into those distinct agreements
with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them.7 The provisions of Article 1733,
notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of the
goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.8
The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective
vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barge’s or the
tugboat’s crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barge’s hatches. The official Certificate of Inspection of the
barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to
the seaworthiness of Limar I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court are
contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of
the case and such findings are contrary to the admissions of both appellant and appellee; (6) when
the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court
of Appeals failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are
conclusions without citation of the specific evidence on which they are based; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence but such findings
are contradicted by the evidence on record – would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for
the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs. SO ORDERED.

(CASE NO. 13)
THIRD DIVISION
G.R. No. 94761 May 17, 1993
MAERSK LINE, petitioner,

vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of
Ethegal Laboratories, respondents.
BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the
Philippines through its general agent Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm
engaged in the manutacture of pharmaceutical products.
On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli
Lilly, Inc.'s) agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the
manufacture of his pharmaceutical products. The capsules were placed in six (6) drums of 100,000
capsules each valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6),
the shipper Eli Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000
empty gelatin capsules in six (6) drums of 100,000 capsules each, were already shipped on board
MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland,
California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia,
USA and then transported back Oakland, Califorilia. The goods finally arrived in the Philippines on
June 10, 1977 or after two (2) months from the date specified in the memorandum. As a
consequence, private respondent as consignee refused to take delivery of the goods on account of its
failure to arrive on time.
Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an
action before the court a quo for rescission of contract with damages against petitioner and Eli Lilly,
Inc. as defendants.
Denying that it committed breach of contract, petitioner alleged in its that answer that the subject
shipment was transported in accordance with the provisions of the covering bill of lading and that its
liability under the law on transportation of good attaches only in case of loss, destruction or
deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its
cross-claim, it alleged that the delay in the arrival of the the subject merchandise was due solely to
the gross negligence of petitioner Maersk Line.

The issues having been joined, private respondent moved for the dismissal of the complaint against
Eli Lilly, Inc.on the ground that the evidence on record shows that the delay in the delivery of the
shipment was attributable solely to petitioner.
Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated
December 3, 1979.
After trial held between respondent and petitioner, the court a quo rendered judgment dated January
8, 1982 in favor of respondent Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was
a breach in the performance of their obligation by the defendant Maersk Line consisting
of their negligence to ship the 6 drums of empty Gelatin Capsules which under their own
memorandum shipment would arrive in the Philippines on April 3, 1977 which under Art.
1170 of the New Civil Code, they stood liable for damages.
Considering that the only evidence presented by the defendant Maersk line thru its
agent the Compania de Tabacos de Filipinas is the testimony of Rolando Ramirez who
testified on Exhs. "1" to "5" which this Court believe (sic) did not change the findings of
this Court in its decision rendered on September 4, 1980, this Court hereby renders
judgment in favor of the plaintiff Efren Castillo as against the defendant Maersk Line
thru its agent, the COMPANIA GENERAL DE TABACOS DE FILIPINAS and ordering:
(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED
SIXTY NINE THOUSAND PESOS, (P369,000.00) as unrealized profit;.
(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS
(P200,000.00), as moral damages;
(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as
exemplary damages;
(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY
PESOS AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as
attorney's fees and to pay the costs of suit.
That the above sums due to the plaintiff will bear the legal rate of interest until they are
fully paid from the time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications
the lower court's decision as follows:
WHEREFORE, the decision appealed from is affirmed with a modification, and, as

modified, the judgment in this case should read as follows:

Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-
appellee (1) compensatory damages of P11,680.97 at 6% annual interest from filing of
the complaint until fully paid, (2) moral damages of P50,000.00, (3) exemplary damages
of P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses of
P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the
costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following "issues" for resolution of the court :
Whether or not the respondent Court of Appeals committed an error when it ruled that a
defendant's cross-claim against a co-defendant survives or subsists even after the
dismissal of the complaint against defendant-cross claimant.
II
Whether or not respondent Castillo is entitled to damages resulting from delay in the
delivery of the shipment in the absence in the bill of lading of a stipulation on the period
of delivery.
III
Whether or not the respondent appellate court erred in awarding actual, moral and
exemplary damages and attorney's fees despite the absence of factual findings and/or
legal bases in the text of the decision as support for such awards.
IV
Whether or not the respondent Court of Appeals committed an error when it rendered
an ambiguous and unexplained award in the dispositive portion of the decision which is
not supported by the body or the text of the decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against
co-defendant (petitioner herein) survives or subsists even after the dismissal of the complaint against
defendant-cross-claimant (petitioner herein), we rule in the negative.
Apparently this issue was raised by reason of the declaration made by respondent court in its
questioned decision, as follows:
Re the first assigned error: What should be rescinded in this case is not the
"Memorandum of Shipment" but the contract between appellee and defendant Eli Lilly
(embodied in three documents, namely: Exhs. A, A-1 and A-2) whereby the former
agreed to buy and the latter to sell those six drums of gelatin capsules. It is by virtue of
the cross-claim by appellant Eli Lilly against defendant Maersk Line for the latter's gross
negligence in diverting the shipment thus causing the delay and damage to appellee
that the trial court found appellant Maersk Line liable. . . .
xxx xxxxxx

Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no
cause of action against it and appellant Eli Lilly because the shipment was delivered in
good order and condition, and the bill of lading in question contains "stipulations,
exceptions and conditions" Maersk Line's liability only to the "loss, destruction or
deterioration," indeed, this issue of lack of cause of action has already been considered
in our foregoing discussion on the second assigned error, and our resolution here is still
that appellee has a cause of action against appellant Eli Lilly. Since the latter had filed a
cross-claim against appellant Maersk Line, the trial court committed no error, therefore,
in holding the latter appellant ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis
supplied)
Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-
claim filed its co-defendant Eli Lilly, Inc. which cross-claim has been dismissed, the original complaint
against it should likewise be dismissed. We disagree. It should be recalled that the complaint was
filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier. Petitioner being an
original party defendant upon whom the delayed shipment is imputed cannot claim that the dismissal
of the complaint against Eli Lilly, Inc. inured to its benefit.
Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim
of Eli Lilly, Inc. As borne out by the record, the trial court anchored its decision on petitioner's delay or
negligence to deliver the six (6) drums of gelatin capsules within a reasonable time on the basis of
which petitioner was held liable for damages under Article 1170 of the New Civil Code which provides
that those who in the performance of their obligations are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor thereof, are liable for damages.
Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the
delivery of the 600,000 empty gelatin capsules since it acted in good faith and there was no special
contract under which the carrier undertook to deliver the shipment on or before a specific date (Rollo,
p. 103).
On the other hand, private respondent claims that during the period before the specified date of
arrival of the goods, he had made several commitments and contract of adhesion. Therefore,
petitioner can be held liable for the damages suffered by private respondent for the cancellation of the
contracts he entered into.
We have carefully reviewed the decisions of respondent court and the trial court and both of them
show that, in finding petitioner liable for damages for the delay in the delivery of goods, reliance was
made on the rule that contracts of adhesion are void. Added to this, the lower court stated that the
exemption against liability for delay is against public policy and is thus, void. Besides, private
respondent's action is anchored on Article 1170 of the New Civil Code and not under the law on
Admiralty (AC-GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among others, reads:
6. GENERAL

(1) The Carrier does not undertake that the goods shall arive at the port of discharge or
the place of delivery at any particular time or to meet any particular market or use and
save as is provided in clause 4 the Carrier shall in no circumstances be liable for any
direct, indirect or consequential loss or damage caused by delay. If the Carrier should
nevertheless be held legally liable for any such direct or indirect or consequential loss or
damage caused by delay, such liability shall in no event exceed the freight paid for the
transport covered by this Bill of Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of
Exhibits, p. 41)
It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a
contract of adhesion. Generally, contracts of adhesion are considered void since almost all the
provisions of these types of contracts are prepared and drafted only by one party, usually the carrier
(Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the other party in such a
contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit Corporation v.
Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v.
Court of Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co.,
117 SCRA 832 [1982]). One who adheres to the contract is in reality free to reject it in its entirety; if
he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court of
Appeals, et al., 201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt
and as contract to transport and deliver the same a therein stipulated. As a contract, it
names the parties, which includes the consignee, fixes the route, destination, and
freight rates or charges, and stipulates the rights and obligations assumed by the
parties. Being a contract, it is the law between the parties who are bound by its terms
and conditions provided that these are not contrary to law, morals, good customs, public
order and public policy. A bill of lading usually becomes effective upon its delivery to
and acceptance by the shipper. It is presumed that the stipulations of the bill were, in
the absence of fraud, concealment or improper conduct, known to the shipper, and he is
generally bound by his acceptance whether he reads the bill or not. (Emphasis
supplied)
However, the aforequoted ruling applies only if such contracts will not create an absurd situation as in
the case at bar. The questioned provision in the subject bill of lading has the effect of practically
leaving the date of arrival of the subject shipment on the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and
persons are not vested with the right to prompt delivery, unless such common carriers previously
assume the obligation to deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil.
836 [1952]), delivery of shipment or cargo should at least be made within a reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a
special contract, a carrier is not an insurer against delay in transportation of
goods. When a common carrier undertakes to convey goods, the law implies a contract
that they shall be delivered at destination within a reasonable time, in the absence, of
any agreement as to the time of delivery. But where a carrier has made an express
contract to transport and deliver properly within a specified time, it is bound to fulfill its
contract and is liable for any delay, no matter from what cause it may have arisen. This
result logically follows from the well-settled rule that where the law creates a duty or
charge, and the default in himself, and has no remedy over, then his own contract
creates a duty or charge upon himself, he is bound to make it good notwithstanding any
accident or delay by inevitable necessity because he might have provided against it by
contract. Whether or not there has been such an undertaking on the part of the carrier is
to be determined from the circumstances surrounding the case and by application of the
ordinary rules for the interpretation of contracts.
An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41)
shows that the subject shipment was estimated to arrive in Manila on April 3, 1977. While there was
no special contract entered into by the parties indicating the date of arrival of the subject shipment,
petitioner nevertheless, was very well aware of the specific date when the goods were expected to
arrive as indicated in the bill of lading itself. In this regard, there arises no need to execute another
contract for the purpose as it would be a mere superfluity.
In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2)
months and seven (7) days falls was beyond the realm of reasonableness. Described as gelatin
capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the
possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But
through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it
cannot be held liable for the delay finds no merit.
Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not
valid since there are no factual findings or legal bases stated in the text of the trial court's decision to
support the award thereof.
Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v.
Macasaet. 189 SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently
prove through an invoice (Exh. 'A-1'), certification from the issuer of the letter of credit (Exh.'A-2') and
the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit line for the
subject goods. Therefore, respondent court acted correctly in affirming the award of eleven thousand
six hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of said credit line.
As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral
damages may be awarded in "breaches of contract where the defendant acted fraudulently or in bad
faith" (Pan American World Airways v. Intermediate Appellate Court, 186 SCRA 687 [1990]).

In the case before us, we that the only evidence presented by petitioner was the testimony of Mr.
Rolando Ramirez, a claims manager of its agent Compania General de Tabacos de Filipinas, who
merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and nothing else. Petitioner never
even bothered to explain the course for the delay, i.e. more than two (2) months, in the delivery of
subject shipment. Under the circumstances of the case, we hold that petitioner is liable for breach of
contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral
damages if therefore proper in this case.
In line with this pronouncement, we hold that exemplary damages may be awarded to the private
respondent. In contracts, exemplary damages may be awarded if the defendant acted in a wanton,
fraudulent, reckless, oppresive or malevolent manner. There was gross negligence on the part of the
petitioner in mishiping the subject goods destined for Manila but was inexplicably shipped to
Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct, hence,
exemplary damages may be awarded to the aggrieved party (Radio Communication of the Phils., Inc.
v. Court of Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary
damages are awarded (Artice 2208, New Civil Code). In the case at bar, we hold that private
respondent is entitled to reasonable attorney`s fees since petitioner acte with gross negligence
amounting to bad faith.
However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty
(30) percent of the total damages awarded except item 3 regarding attorney`s fees and litigation
expenses in favor of private respondent, to be unconsionable, the same should be deleted.
WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision,
the appealed decision is is hereby AFFIRMED in all respects. SO ORDERED.

(CASE NO.14)
THIRD DIVISION
G.R. No. 143008 June 10, 2002
SMITH BELL DODWELL SHIPPING AGENCY CORPORATION, petitioner,

vs.
CATALINO BORJA and INTERNATIONAL TO WAGE AND TRANSPORT
CORPORATION, respondents.
PANGANIBAN, J.:
The owner or the person in possession and control of a vessel is liable for all natural and proximate
damages caused to persons and property by reason of negligence in its management or navigation.
The liability for the loss of the earning capacity of the deceased is fixed by taking into account the net
income of the victim at the time of death -- of the incident in this case -- and that person's probable life
expectancy.1âwphi1.nêt
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging the
March 6, 2000 Decision1 and the April 25, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR
CV No. 57470. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the instant appeal is hereby DENIED. The questioned
decision of the lower court is hereby AFFIRMED in toto. No pronouncement as to costs."4
Reconsideration was denied in the assailed Resolution.
The Facts
The facts of the case are set forth by the CA as follows:
"It appears that on September 23, 1987, Smith Bell [herein petitioner] filed a written request
with the Bureau of Customs for the attendance of the latter's inspection team on vessel M/T
King Family which was due to arrive at the port of Manila on September 24, 1987.
"Said vessel contained 750 metric tons of alkyl benzene and methyl methacrylate monomer.
"On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan instructed
[Respondent Catalino Borja] to board said vessel and perform his duties as inspector upon the
vessel's arrival until its departure. At that time, [Borja] was a customs inspector of the Bureau
of Customs receiving a salary of P31,188.25 per annum.
"At about 11 o'clock in the morning on September 24, 1987, while M/T King Family was
unloading chemicals unto two (2) barges [--] ITTC 101 and CLC-1002 [--] owned by
[Respondent] ITTC, a sudden explosion occurred setting the vessels afire. Upon hearing the
explosion, [Borja], who was at that time inside the cabin preparing reports, ran outside to check
what happened. Again, another explosion was heard.

"Seeing the fire and fearing for his life, [Borja] hurriedly jumped over board to save himself.
However, the [water] [was] likewise on fire due mainly to the spilled chemicals. Despite the
tremendous heat, [Borja] swam his way for one (1) hour until he was rescued by the people
living in the squatters' area and sent to San Juan De Dios Hospital.
"After weeks of intensive care at the hospital, his attending physician diagnosed [Borja] to be
permanently disabled due to the incident. [Borja] made demands against Smith Bell and ITTC
for the damages caused by the explosion. However, both denied liabilities and attributed to
each other negligence."5
The trial court6 (RTC) ruled in favor of Respondent Borja and held petitioner liable for damages and
loss of income. The RTC disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering [Petitioner] Smith

Bell Dodwell [S]hipping Agency Corporation to pay [Borja]:
1. The amount of P495,360.00 as actual damages for loss of earning capacity:
2. The amount of P100,000.00 for moral damages; and
3. The amount of P50,000.00 for and as reasonable attorney's fees.
"The cross-claim of [Petitioner] Smith Bell Dodwell Shipping Agency Corporation against co-
defendant International Towage and Transport Corporation and the latter's counterclaim
against [Borja] and cross-claim with compulsory counterclaim against Smith Bell are hereby
ordered dismissed."7
Affirming the trial court, the CA rejected the plea of petitioner that it be exonerated from liability for
Respondent Borja's injuries. Contrary to the claim of petitioner that no physical evidence was shown
to prove that the explosion had originated from its vessel, the CA held that the fire had originated
from M/T King Family. This conclusion was amply supported by the testimonies of Borja and
EulogioLaurente (the eyewitness of International Towage and Transport Corporation or ITTC) as well
as by the investigation conducted by the Special Board of Marine Inquiry and affirmed by the
secretary of the Department of National Defense. On the other hand, the RTC, which the CA
sustained, had not given probative value to the evidence of petitioner, whose sole eyewitness had not
shown up for cross-examination.
Hence, this Petition.8
The Issues
In its Memorandum,9 petitioner raises the following issues:
"1. Whether petitioner should be held liable for the injuries of Respondent Catalino Borja.
"2. Whether Respondent ITTC should be held liable for the injuries of Respondent Catalino
Borja.
"3. Assuming without admitting that Respondent Catalino Borja is entitled to damages, whether
Respondent Borja is entitled to the amount of damages awarded to him by the trial court." 10

Simply put, these issues can be summed up in these two questions: (1) Who, if any, is liable for
Borja's injuries? (2) What is the proper amount of liability?
This Court's Ruling
First Issue:
Responsibility for Injuries
Petitioner avers that both lower courts labored under a misapprehension of the facts. It claims that the
documents adduced in the RTC conclusively revealed that the explosion that caused the fire on M/T
King Family had originated from the barge ITTC-101, a conclusion based on three grounds. First, the
Survey Report (Exh. "10") dated October 21, 1987 submitted by the Admiral Surveyors and Adjusters,
Inc., showed that no part of M/T King Family sustained any sharp or violent damage that would
otherwise be observed if indeed an explosion had occurred on it. On the other hand, the fact that the
vessel sustained cracks on its shell plating was noted in two Survey Reports from Greutzman Divers
Underwater Specialist, dated October 6, 1987 (Exh. "11"), and during the underwater inspection on
the sunken barge ITTC-101.
Second, external fire damage on the hull of M/T King Family indicated that the fire had started from
outside the vessel and from ITTC-101. The port side of the vessel to which the ITTC barge was tied
was completely gutted by fire, while the starboard side to which the barge CLC-1002 was tied
sustained only slight fire damage.
Third, testimonial evidence proved that the explosion came from the barge of the ITTC and not from
its vessel. Security Guard Vivencio Estrella testified that he had seen the sudden explosion of
monomer on the barge with fire that went up to about 60 meters. Third Mate Choi Seong Hwan and
Second Mate Nam Bang Choun of M/T King Family narrated that while they were discharging the
chemicals, they saw and heard an explosion from the barge ITTC-101. Chief Security Guard
Reynaldo Patron, in turn, testified that he was 7 to 10 meters away from the barge when he heard the
explosion from the port side of M/T King Family and saw the barge already on fire.
We are not persuaded. Both the RTC and the CA ruled that the fire and the explosion had originated
from petitioner's vessel. Said the trial court:
"The attempts of [Petitioner] Smith Bell to shift the blame on x xx ITTC were all for naught.
First, the testimony of its alleged eyewitness was stricken off the record for his failure to
appear for cross-examination (p. 361, Record). Second, the documents offered to prove that
the fire originated from barge ITTC-101 were all denied admission by the [c]ourt for being, in
effect, hearsay (pp. 335 and 362). x xx Thus, there is nothing in the record to support
[petitioner's] contention that the fire and explosion originated from barge ITTC-101."11
We find no cogent reason to overturn these factual findings. Nothing is more settled in jurisprudence
than that this Court is bound by the factual findings of the Court of Appeals when these are supported
by substantial evidence and are not under any of the exceptions in Fuentes v. Court of
Appeals;12 more so, when such findings affirm those of the trial court.13 Verily, this Court reviews only
issues of law.
Negligence is conduct that creates undue risk of harm to another. It is the failure to observe that
degree of care, precaution and vigilance that the circumstances justly demand, whereby that other
person suffers injury.14Petitioner's vessel was carrying chemical cargo -- alkyl benzene and methyl
methacrylate monomer.15 While knowing that their vessel was carrying dangerous inflammable
chemicals, its officers and crew failed to take all the necessary precautions to prevent an accident.
Petitioner was, therefore, negligent.
The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or negligence of
the defendant, and (c) the connection of cause and effect between the fault or negligence of the
defendant and the damages inflicted on the plaintiff. 16 All these elements were established in this
case. Knowing fully well that it was carrying dangerous chemicals, petitioner was negligent in not
taking all the necessary precautions in transporting the cargo.
As a result of the fire and the explosion during the unloading of the chemicals from petitioner's vessel,
Respondent Borja suffered the following damage: and injuries: "(1) chemical burns of the face and
arms; (2) inhalation of fumes from burning chemicals; (3) exposure to the elements [while] floating in
sea water for about three (3) hours; (4) homonymous hemianopsia or blurring of the right eye [which
was of] possible toxic origin; and (5) [c]erebral infract with neo-vascularization, left occipital region
with right sided headache and the blurring of vision of right eye." 17
Hence, the owner or the person in possession and control of a vessel and the vessel are liable for all
natural and proximate damage caused to persons and property by reason of negligent management
or navigation.18
Second Issue:
Amount of Liability
Petitioner insists that Borja is not entitled to the full amount of damages awarded by the lower courts.
It disputes the use of his gross earning as basis for the computation of the award for loss of earning
capacity. Both courts, in computing the value of such loss, used the remaining years of the victim as a
government employee and the amount he had been receiving per annum at the time of the incident.
Counsel for Respondent Borja, on the other hand, claims that petitioner had no cause to complain,
because the miscomputation had ironically been in its favor. The multiplier used in the computation
was erroneously based on the remaining years in government service, instead of the life expectancy,
of the victim. Borja's counsel also points out that the award was based on the former's meager salary
in 1987, or about 23 years ago when the foreign exchange was still P14 to $1. Hence, the questioned
award is consistent with the primary purpose of giving what is just, moral and legally due the victim as
the aggrieved party.
Both parties have a point. In determining the reasonableness of the damages awarded under Article
1764 in conjunction with Article 2206 of the Civil Code, the factors to be considered are: (1) life
expectancy (considering the health of the victim and the mortality table which is deemed conclusive)
and loss of earning capacity; (b) pecuniary loss, loss of support and service; and (c) moral and mental
sufferings.19 The loss of earning capacity is based mainly on the number of years remaining in the

person's expected life span. In turn, this number is the basis of the damages that shall be computed
and the rate at which the loss sustained by the heirs shall be fixed.20
The formula for the computation of loss of earning capacity is as follows: 21
Net earning capacity = Life expectancy x [Gross Annual Income - Living Expenses
(50% of gross annual income)], where life expectancy = 2/3 (80 - the age of the
deceased).22
Petitioner is correct in arguing that it is net income (or gross income less living expenses) which is to
be used in the computation of the award for loss of income. Villa Rey Transit v. Court of
Appeals23 explained that "the amount recoverable is not the loss of the entire earning, but rather the
loss of that portion of the earnings which the beneficiary would have received." Hence, in fixing the
amount of the said damages, the necessary expenses of the deceased should be deducted from his
earnings.
In other words, only net earnings, not gross earnings, are to be considered; that is, the total of the
earnings less expenses necessary in the creation of such earnings or income, less living and other
incidental expenses. When there is no showing that the living expenses constituted a smaller
percentage of the gross income, we fix the living expenses at half of the gross income. To hold that
one would have used only a small part of the income, with the larger part going to the support of one's
children, would be conjectural and unreasonable.24
Counsel for Respondent Borja is also correct in saying that life expectancy should not be based on
the retirement age of government employees, which is pegged at 65. In Negros Navigation Co, Inc. v.
CA,25 the Court resolved that in calculating the life expectancy of an individual for the purpose of
determining loss of earning capacity under Article 2206(1) of the Civil Code, it is assumed that the
deceased would have earned income even after retirement from a particular job.1âwphi1.nêt
Respondent Borja should not be situated differently just because he was a government employee.
Private employees, given the retirement packages provided by their companies, usually retire earlier
than government employees; yet, the life expectancy of the former is not pegged at 65 years.
Petitioner avers that Respondent Borja died nine years after the incident and, hence, his life
expectancy of 80 years should yield to the reality that he was only 59 when he actually died.
We disagree. The Court uses the American Experience/Expectancy Table of Mortality or the Actuarial
or Combined Experience Table of Mortality, which consistently pegs the life span of the average
Filipino at 80 years, from which it extrapolates the estimated income to be earned by the deceased
had he or she not been killed.26
Respondent Borja's demise earlier than the estimated life span is of no moment. For purposes of
determining loss of earning capacity, life expectancy remains at 80. Otherwise, the computation of
loss of earning capacity will never become final, being always subject to the eventuality of the victim's
death. The computation should not change even if Borja lived beyond 80 years. Fair is fair.
Based on the foregoing discussion, the award for loss of earning capacity should be computed as
follows:

Loss of earning = [2 (80-50)] x [(P2,752x12)-
capacity 16,512]
3
= P330,240
Having been duly proven, the moral damages and attorney's fees awarded are justified under the
Civil Code's Article 2219, paragraph 2; and Article 2208, paragraph 11, respectively.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is AFFIRMED with the
following MODIFICATIONS: petitioner is ordered to pay the heirs of the victim damages in the
amount of P320,240 as loss of earning capacity, moral damages in the amount of P100,000, plus
another P50,000 as attorney's fees. Costs against petitioner.
SO ORDERED.

(CASE NO.15)
SECOND DIVISION
G.R. No. 161833. July 8, 2005
PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioners,

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
Decision1dated 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. SH94103062 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 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 DTD5 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 ₱2,547,270.00 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.
DenastoDauz, 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
Dauz’s experience, this was a normal procedure.16 As the crate was being hoisted from the vessel’s
hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from
the vessel’s twin deck, sending all its contents crashing down hard, 17 resulting in extensive damage to
the shipment.
BMICI’s 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 Receipt23 for ₱1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint for
Damages24against 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
defendants to pay plaintiff, jointly or in the alternative, the following:
1. Actual damages in the amount of ₱1,740,634.50 plus legal interest at the time of the filing of this
complaint until fully paid;
2. Attorney’s fees in the amount of ₱100,000.00;
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 certification30 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 appealed31 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.
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 ₱3,500.00 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 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 carrier’s 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.
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 crate’s 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, Ma’am.
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, Ma’am.
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, Ma’am.
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, Ma’am.
Q: And where did you see or what parts of the crate did you see those arrows?
A: At the corner of the crate, Ma’am.
Q: How many arrows did you see?
A: Four (4) on both sides, Ma’am.
Q: What did you do with the arrows?
A: When I saw the arrows, that’s where I placed the slings, Ma’am.
Q: Now, did you find any other marks on the crate?
A: Nothing more, Ma’am.
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, Ma’am."
Appellant’s 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 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.52While 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 faciepresumption 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.

(CASE NO.16)
SECOND DIVISION
G.R. No. 136960 December 8, 2003
IRON BULK SHIPPING PHILIPPINES, CO., LTD., petitioner,

vs.
REMINGTON INDUSTRIAL SALES CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
August 28, 1998 Decision1 and the December 24, 1998 Resolution of the Court of Appeals in CA-G.R.
CV No. 49725,2 affirming in toto the decision of the Regional Trial Court of Manila (Branch 9).
The factual background of the case is summarized by the appellate court, thus:
Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation (hereafter
Remington for short) ordered from defendant Wangs Company, Inc. (hereafter Wangs for short) 194
packages of hot rolled steel sheets, weighing 686.565 metric tons, with a total value of $219,380.00,
then equivalent to ₱6,469,759.17. Wangs forwarded the order to its supplier, Burwill (Agencies) Ltd.,
in Hongkong. On or about November 26, 1991, the 194 packages were loaded on board the vessel
MV ‘Indian Reliance’ at the Port of Gdynia, Poland, for transportation to the Philippines, under Bill of
Lading No. 27 (Exh. ‘C’). The vessel’s owner/charterer is represented in the Philippines by defendant
Iron Bulk Shipping Phils., Inc. (hereafter Iron Bulk for short).
Remington had the cargo insured for ₱6,469,759.17 during the voyage by Marine Insurance Policy
No. 7741 issued by defendant Pioneer Asia Insurance Corporation (hereafter Pioneer for short).
On or about January 3, 1992, the MV ‘Indian Reliance’ arrived in the Port of Manila, and the 194
packages of hot rolled steel sheets were discharged from the vessel. The cargo was inspected twice
by SGS Far East Ltd. and found to be wet (with slight trace of salt) and rusty, extending from 50% to
80% of each plate. Plaintiff filed formal claims for loss amounting to ₱544,875.17 with Pioneer, Iron
Bulk, Manila Port Services, Inc. (MPS) and ESE Brokerage Corporation (ESE). No one honored such
claims.
Thus, plaintiff filed an action for collection, plus attorney’s fees, against Wangs, Pioneer and Iron
Bulk. . . ."3
and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit:
The evidence on record shows that the direct and immediate cause of the rusting of the goods
imported by the plaintiff was the water found inside the cargo hold of M/V ‘Indian Reliance’ wherein
those goods were stored during the voyage, particularly the water found on the surface of the
merchandise and on the floor of the vessel hatch. And even at the time the cargoes were being
unloaded by crane at the Pier of Manila, Iron Bulk’s witnesses noticed that water was dripping from

the cargoes. (TSN dated July 20, 1993, pp. 13-14; TSN dated May 30, 1994, pp. 8-9, 14, 24-25; TSN
dated June 3, 1994, pp. 31-32; TSN dated July 14, 1994, pp. 10-11).
SGS Far East Limited, an inspection agency hired by defendant Wangs, issued Certificate of
Inspection and Analysis No 6401/35071 stating the following findings:
Results of tests indicated that a very slight trace of salt was present in the sample as confirmed by
the test of Sodium. The results however does not necessarily indicate that the rusty condition of the
material was caused by seawater.
Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer, submitted a
Report (Exh. 10-Pioneer) dated February 20, 1992 to Pioneer which pertinently reads as follows:
All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of cotton were
rubbed by us on different rusty steel sheets and submitted to Precision Analytical Services, Inc. to
determine the cause of wetting. Result thereof as per Laboratory Report No. 077-92 of this firm
showed that: ‘The sample was wetted/contaminated by fresh water.
After considering the foregoing test results and the other evidence on record, the Court found no clear
and sufficient proof showing that the water which stayed in the cargo hold of the vessel and which
contaminated the merchandise was seawater. The Court, however, is convinced that the subject
goods were exposed to salt conditions as evidenced by the presence of about 17% Sodium on the
rust sample tested by SGS.
As to the source of the water found in the cargo hold, there is also no concrete and competent
evidence on record establishing that such water leaked from the pipe installed in Hatch No. 1 of M/V
‘Indian Reliance’, as claimed by plaintiff. Indeed, the plaintiff based such claim only from information it
allegedly received from its supplier, as stated in its letter to defendant Iron Bulk dated March 28, 1992
(Exh. K-3). And no one took the witness stand to confirm or establish the alleged leakage.
Nevertheless, since Iron Bulk’s own evidence shows that there was water inside the cargo hold of the
vessel and that the goods stored therein were wet and full of rust, without sufficient explanation on its
part as to when and how water found its way into the vessel holds, the Court finds and so holds that
Iron Bulk failed to exercise the extraordinary diligence required by law in the handling and
transporting of the goods.
.....
Iron Bulk did not even exercise due diligence because admittedly, water was dripping from the
cargoes at the time they were being discharged from the vessel. Had Iron Bulk done so, it could have
discovered by ordinary inspection that the cargo holds and the cargoes themselves were affected by
water and it could have provided some remedial measures to prevent or minimize the damage to the
cargoes. But it did not, showing its lack of care and diligence over the goods.
Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to establish by any
clear and convincing evidence any of the exempting causes provided for in Article 1734 of the Civil
Code, it is presumed to have been at fault or to have acted negligently.
.....

WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby renders judgment
in favor of it and against all the defendants herein as follows:
1. Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the following amounts:
a) ₱544,875.17 representing the loss allowance for the goods insured, plus interest at
the legal rate (6% p.a.) reckoned from the time of filing of this case until full payment is
made;
b) ₱50,000.00 for and as attorney’s fees; and
c) the cost of suit.
2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by defendant Pioneer of
the foregoing award to the plaintiff, to reimburse defendant Pioneer the total amount it paid to the
plaintiff, in respect to its right of subrogation.
3. Denying the counterclaims of all the defendants and the cross-claim of defendant Wangs
Company, Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit.
4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against defendant Iron
Bulk by virtue of its right of subrogation.
5. Dismissing the case against defendant Wangs Company, Inc.
SO ORDERED.4
Only Iron Bulk filed the present petition raising the following Assignment of Errors:
FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of Lading to
establish the condition of the cargo upon loading;
SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo was not
contaminated during the time the same was in possession of the vessel, as evidenced by the
express finding of the lower court that the contamination and rusting was chemically
established to have been caused by fresh water;
THRIDLY, the Court of Appeals erred in making a sweeping finding that the petitioner as
carrier failed to exercise the requisite diligence under the law, which is contrary to what is
demonstrated by the evidence adduced; and
FINALLY, the Court of Appeals erred in affirming the amount of damages adjudicated by the
Court below, which is at best speculative and not supported by damages.5
The general rule is that only questions of law are entertained in petitions for review by certiorari under
Rule 45 of the Rules of Court. The trial court’s findings of fact, which the Court of Appeals affirmed,
are generally binding and conclusive upon this court. 6 There are recognized exceptions to this rule,
among which are: (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 facts are conflicting; (6) there is
no citation of specific evidence on which the factual findings are based; (7) the finding of absence of
facts is contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to

the findings 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.7 Petitioner failed to demonstrate that its petition falls under any one of the above exceptions,
except as to damages which will be discussed forthwith.
Anent the first assigned error: That the Court of Appeals erred in relying on the pro forma Bills of
Lading to establish the condition of the cargo upon landing.
There is no merit to petitioner’s contention that the Bill of Lading covering the subject cargo cannot be
relied upon to indicate the condition of the cargo upon loading. It is settled that a bill of lading has a
two-fold character. In Phoenix Assurance Co., Ltd. vs. United States Lines, we held 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 receipt, it recites the date and
place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and
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.8
We find no error in the findings of the appellate court that the questioned bill of lading is a clean bill of
lading, i.e., it does not indicate any defect in the goods covered by it, as shown by the notation,
"CLEAN ON BOARD"9 and "Shipped at the Port of Loading in apparent good condition on board the
vessel for carriage to Port of Discharge".10
Petitioner presented evidence to prove that, contrary to the recitals contained in the subject bill of
lading, the cargo therein described as clean on board is actually wet and covered with rust. Indeed,
having the nature of a receipt, or an acknowledgement of the quantity and condition of the goods
delivered, the bill of lading, like any other receipts, may be explained, varied or even
contradicted.11 However, we agree with the Court of Appeals that far from contradicting the recitals
contained in the said bill, petitioner’s own evidence shows that the cargo covered by the subject bill of
lading, although it was partially wet and covered with rust was, nevertheless, found to be in a "fair,
usually accepted condition" when it was accepted for shipment. 12
The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading is not truly
reflective of the true condition of the cargo at the time of loading to the effect that the said cargo was
indeed in a damaged state, the carrier could have refused to accept it, or at the least, made a
marginal note in the bill of lading indicating the true condition of the merchandise. But it did not. On
the contrary, it accepted the subject cargo and even agreed to the issuance of a clean bill of lading
without taking any exceptions with respect to the recitals contained therein. Since the carrier failed to
annotate in the bill of lading the alleged damaged condition of the cargo when it was loaded, said
carrier and the petitioner, as its representative, are bound by the description appearing therein and
they are now estopped from denying the contents of the said bill.
Petitioner presented in evidence the Mate’s Receipts13 and a Survey Report14 to prove the damaged
condition of the cargo. However, contrary to the asseveration of petitioner, the Mate’s Receipts and

the Survey Report which were both dated November 6, 1991, are unreliable evidence of the true
condition of the shipment at the time of loading since said receipts and report were issued twenty
days prior to loading and before the issuance of the clean bill of lading covering the subject cargo on
November 26, 1991. Moreover, while the surveyor, commissioned by the carrier to inspect the subject
cargo, found the inspected steel goods to be contaminated with rust he, nonetheless, estimated the
merchandise to be in a fair and usually accepted condition.
Anent the second and third assigned errors: That the Court of Appeals erred in not finding that the
contamination and rusting was chemically to have been caused by fresh water; and that the appellate
court erred in finding that petitioner failed to exercise the requisite diligence under the law.
Petitioner’s arguments in support of the assigned errors are not plausible. Even granting, for the sake
of argument, that the subject cargo was already in a damaged condition at the time it was accepted
for transportation, the carrier is not relieved from its responsibility to exercise due care in handling the
merchandise and in employing the necessary precautions to prevent the cargo from further
deteriorating. It is settled that the extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for safe carriage and delivery. 15 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. 16 Under Article
1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods should be caused,
among others, by the character of the goods, the common carrier must exercise due diligence to
forestall or lessen the loss. This extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them.17 In the instant case, if the carrier indeed found the steel sheets to have
been covered by rust at the time that it accepted the same for transportation, such finding should
have prompted it to apply additional safety measures to make sure that the cargo is protected from
corrosion. This, the carrier failed to do.
Article 1734 of the Civil Code states that:
Common carriers are responsible for the loss, destruction or deterioration of the goods, unless the
same is due to any of the following causes only:
(4) The character of the goods or defects in the packing or in the containers;
Except in the cases mentioned under Article 1734, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove

that they observed extraordinary diligence as required under the law.18 The Court of Appeals did not
err in finding that no competent evidence was presented to prove that the deterioration of the subject
cargo was brought about by any of the causes enumerated under the aforequoted Article 1734 of the
said Code. We likewise agree with appellate court’s finding that the carrier failed to present proof that
it exercised extraordinary diligence in its vigilance over the goods. The presumption that the carrier
was at fault or that it acted negligently was not overcome by any countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming the amount of damages
awarded by the trial court.
We agree with the contention of the petitioner in its last assigned error that the amount of damages
adjudicated by the trial court and affirmed by the appellate court is not in consonance with the
evidence presented by the parties. The judgments of both lower courts are based on
misapprehension of facts as we find no competent evidence to prove the actual damages sustained
by respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the steel sheets, the
cargo consigned to Remington consisted of hot rolled steel sheets with lengths of eight feet and
twenty feet. The eight-foot length steel sheets contained in 142 packages had a weight of 491.54
metric tons while the twenty-foot steel sheets which were contained in 52 packages weighed 194.25
metric tons.19 The goods were valued at $320.00 per metric ton.20
It is not disputed that at the time of inspection of the subject merchandise conducted by SGS Far East
Limited on January 21-24, 1992 and January 27-28, 1992, only 30% of said goods originally
consigned to Remington was available for examination at Remington’s warehouse in Manila and that
Remington had already disposed of the remaining 70%. In the Certificate of Inspection issued by
SGS, dated February 18, 1992, it was reported that the surface of the steel sheets with length of
twenty feet were found to be rusty "extending from 60% to 80% per plate". 21 However, there was no
proof to show how many metric tons of twenty-foot and eight-foot length steel sheets, respectively,
comprise the remaining 30% of the cargo. No competent evidence was presented to prove the weight
of the remaining twenty-foot length steel sheets, on the basis of which the amount of actual damages
could have been ascertained.
Remington claims that 70% of the twenty-foot length steel sheets were damaged. Remington’s
general manager, Rowina Tan Saban, testified that the "70%" figure was based on the reports
submitted by SGS and Tan-Gatue and Remington’s independent survey to confirm these
reports.22 Saban further testified that on the basis of these reports, Remington came up with a
summary of the amount of damages sustained by the subject cargo, to wit:
Plates 8 ft lengths 491.540 MT - US$157,292.80

Quantity Damaged 25%
Loss Allowance 13%
Total Plates 8 ft lengths US$ 15,211.56
Plates 20 ft lengths 194.025 MT - US$ 62,088.00

Quantity Damaged 70%
Loss Allowance 35%
Total Plates 20 ft lengths ₱544,875.71
with the following detailed computation:
Plates under 8 ft lengths 491.540 MT @ $320./MT
US $157,292.80
Multiply by 25% Qty. damaged $ 39,323.20
13% Loss allowance $ 5,112.02

Plates under 20 ft. lengths 194.025 MT @ $320./MT
US $ 62,088.00
Multiple 70% Qty. damaged US $ 43,461.60
35% Loss allowance $ 15,211.56
Total claim US $ 5,112.02
$15,211.56
US $20,323.58 @ $26.81 = ₱544,875.17
and which the trial court based the actual damages awarded in favor of Remington.
However, after a careful examination of the reports submitted by SGS and Tan-Gatue, we find
nothing in the said reports and computation to justify the claim of Remington that 70% of the twenty-
foot length steel sheets were damaged. Neither does the alleged survey conducted by Remington
consisting only of photographs,23 prove the quantity of the damaged cargo.
As to the eight-foot length steel sheets, SGS reported that they were found oiled all over which makes
it hard to determine the rust condition on its surface. 24 On the other hand, the report issued by Tan-
Gatue did not specify the extent of damage done to the said merchandise. 25 There is also no proof of
the weight of the remaining eight-foot length steel sheets. From the foregoing, it is evident that the
extent of actual damage to the subject cargo is likewise not satisfactorily proven.
It is settled that actual or compensatory damages are not presumed and should be proven before
they are awarded. In Spouses Quisumbing vs. Meralco26 , we held that
Actual damages are compensation for an injury that will put the injured party in the position where it
was before it was injured. They pertain to such injuries or losses that are actually sustained and
susceptible of measurement. Except as provided by law or stipulation, a party is entitled to an
adequate compensation only for such pecuniary loss as it has duly proven.
Hence, for failure of Remington to present sufficient evidence which is susceptible of measurement, it
is not entitled to actual damages.
Nonetheless, since it was established that the subject steel sheets sustained damage by reason of
the negligence of the carrier, albeit no competent proof was presented to justify the award of actual

damages, we find that Remington is entitled to temperate damages in accordance with Articles 2216,
2224 and 2225 of the Civil Code, to wit:
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated
or exemplary damages may be adjudicated. The assessment of such damages, except liquidated
ones, is left to the discretion of the court, according to the circumstances of each case.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances.1âwphi1
Thirty percent of the alleged cost of damages, i.e., ₱544, 875.17 or ₱165,000.00 is reasonable
enough for temperate damages.
We likewise agree with petitioner’s claim that it should not be held liable for the payment of attorney’s
fees because it was always willing to settle its liability by offering to pay 30% of Remington’s claim
and that it is only Remington’s unwarranted refusal to accept such offer that led to the filing of the
instant case. As found earlier, there is no evidence that the 70% of the 20-foot length steel sheets
which had been disposed of had been damaged. Neither is there competent evidence proving the
actual extent of damage sustained by the eight-foot length steel sheets. Petitioner was therefore
justified in refusing to satisfy the full amount of Remington’s claims.
WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998 and the
Resolution dated December 24, 1998, in CA-G.R. CV No. 49725 are MODIFIED as follows: The
award of actual damages and attorney’s fees are deleted. Respondent is awarded temperate
damages in the amount of ₱165,000.00. In all other respects, the appealed decision and resolution
are affirmed.
No pronouncement as to costs.
SO ORDERED.

(CASE NO.17)
SECOND DIVISION
G.R. No. 165647 March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,

vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN CHARTERER OF
THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP BUSINESS
COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the
Court of Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision 4 of the Regional
Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the complaint for sum
of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S
Offshore Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and delivery at the port of Manila for
consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill
of Lading reflects the gross weight of the total cargo at 500,200 kilograms. 6 The Owner and/or
Charterer of M/V Offshore Master is unknown while the shipper of the shipment is Shanghai Fareast
Ship Business Company. Both are foreign firms doing business in the Philippines, thru its local ship
agent, respondent Wallem Philippines Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S
Offshore Master from which it was subsequently discharged. It was disclosed during the discharge of
the shipment from the carrier that 2,426 poly bags (bags) were in bad order and condition, having
sustained various degrees of spillages and losses. This is evidenced by the Turn Over Survey of Bad
Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals, Inc. (arrastre
operator).8 The bad state of the bags is also evinced by the arrastre operator’s Request for Bad Order
Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the
consignee’s warehouse in Quezon City,10 while the final inspection was conducted jointly by the
consignee’s representative and the cargo surveyor. During the unloading, it was found and noted that
the bags had been discharged in damaged and bad order condition. Upon inspection, it was
discovered that 63,065.00 kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting in losses due to depreciation and
downgrading.11

On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. Since the shipment was insured with petitioner Philippines First Insurance Co.,
Inc. against all risks in the amount of ₱2,470,213.50, 12 the consignee filed a formal claim13 with
petitioner for the damage and losses sustained by the shipment. After evaluating the invoices, the
turn-over survey, the bad order certificate and other documents, 14petitioner found the claim to be in
order and compensable under the marine insurance policy. Consequently, petitioner paid the
consignee the sum of ₱397,879.69 and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the recovery
of the amount paid by petitioner to the consignee. However, despite receipt of the letter, Wallem did
not settle nor even send a response to petitioner’s claim. 15
Consequently, petitioner instituted an action before the RTC for damages against respondents for the
recovery of ₱397,879.69 representing the actual damages suffered by petitioner plus legal interest
thereon computed from the time of the filing of the complaint until fully paid and attorney’s fees
equivalent to 25% of the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner ₱397,879.69
with 6% interest plus attorney’s fees and costs of the suit. It attributed the damage and losses
sustained by the shipment to the arrastre operator’s mishandling in the discharge of the shipment.
Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the shipping company and the
arrastre operator solidarily liable since both the arrastre operator and the carrier are charged with and
obligated to deliver the goods in good order condition to the consignee. It also ruled that the ship
functioned as a common carrier and was obliged to observe the degree of care required of a common
carrier in handling cargoes. Further, it held that a notice of loss or damage in writing is not required in
this case because said goods already underwent a joint inspection or survey at the time of receipt
thereof by the consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision. 18 According to the appellate court,
there is no solidary liability between the carrier and the arrastre operator because it was clearly
established by the court a quo that the damage and losses of the shipment were attributed to the
mishandling by the arrastre operator in the discharge of the shipment. The appellate court ruled that
the instant case falls under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the
carrier’s duties extend to the obligation to safely discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial demand by petitioner for the
cost of the lost/damaged shipment is an implied admission of the former’s liability for said
goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr. Talens.

It is beyond question that respondent’s vessel is a common carrier. 20 Thus, the standards for
determining the existence or absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment was an exercise of international
trade, the provisions of the Carriage of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply. 22
The first and second issues raised in the petition will be resolved concurrently since they are
interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The
damage to the shipment was documented by the turn-over survey23 and Request for Bad Order
Survey.24 The turn-over survey, in particular, expressly stipulates that 2,426 bags of the shipment
were received by the arrastre operator in damaged condition. With these documents, petitioner insists
that the shipment incurred damage or losses while still in the care and responsibility of Wallem and
before it was turned over and delivered to the arrastre operator.
The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo
surveyor of Oceanica Cargo Marine Surveyors Corporation, that the losses and damage to the cargo
were caused by the mishandling of the arrastre operator. Specifically, that the torn cargo bags
resulted from the use of steel hooks/spikes in piling the cargo bags to the pallet board and in pushing
the bags by the stevedores of the arrastre operator to the tug boats then to the ports. 25 The appellate
court affirmed the finding of mishandling in the discharge of cargo and it served as its basis for
exculpating respondents from liability, rationalizing that with the fault of the arrastre operator in the
unloading of the cargo established it should bear sole liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the shipment during the unloading, it is
disputed who should be liable for the damage incurred at that point of transport. To address this
issue, the pertinent laws and jurisprudence are examined.
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods transported by them. 26 Subject to
certain exceptions enumerated under Article 1734 27 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of
the common carrier lasts from the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them. 28
For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for
the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at the port of
loading, until he delivers it on the shore or on the discharging wharf at the port of unloading, unless
agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo,29 the Court interpreted the ship
captain’s liability as ultimately that of the shipowner by regarding the captain as the representative of
the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the
carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such

goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities
set forth in the Act.30 Section 3 (2) thereof then states that among the carriers’ responsibilities are to
properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
The above doctrines are in fact expressly incorporated in the bill of lading between the shipper
Shanghai Fareast Business Co., and the consignee, to wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time
when the goods are loaded on board the vessel and shall cease when they are discharged from the
vessel.
The Carrier shall not be liable of loss of or damage to the goods before loading and after discharging
from the vessel, howsoever such loss or damage arises.31
On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on
the wharf or between the establishment of the consignee or shipper and the ship's tackle. 32 Being the
custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care of
the goods and to turn them over to the party entitled to their possession. 33
Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees
should observe the standards and measures necessary to prevent losses and damage to shipments
under its custody.34
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc. 35 the Court explained the relationship
and responsibility of an arrastre operator to a consignee of a cargo, to quote:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman. The relationship between the consignee and the common carrier is similar to
that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good
care of the goods that are in its custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with and obligated to deliver the goods in good condition to the
consignee.(Emphasis supplied) (Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
Appeals36 with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a
carrier may not be held solidarily liable at all times. But the precise question is which entity had
custody of the shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the carriers’ responsibilities are to
properly and carefully load, care for and discharge the goods carried. The bill of lading covering the
subject shipment likewise stipulates that the carrier’s liability for loss or damage to the goods ceases
after its discharge from the vessel. Article 619 of the Code of Commerce holds a ship captain liable
for the cargo from the time it is turned over to him until its delivery at the port of unloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that like
the duty of seaworthiness, the duty of care of the cargo is non-delegable,38 and the carrier is
accordingly responsible for the acts of the master, the crew, the stevedore, and his other agents. It
has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo and place
it in readiness for delivery to the consignee, and there is an implied obligation that this shall be
accomplished with sound machinery, competent hands, and in such manner that no unnecessary
injury shall be done thereto.39 And the fact that a consignee is required to furnish persons to assist in
unloading a shipment may not relieve the carrier of its duty as to such unloading. 40
The exercise of the carrier’s custody and responsibility over the subject shipment during the
unloading actually transpired in the instant case during the unloading of the shipment as testified by
Mr. Talens, the cargo surveyor, to quote:
Atty. Repol:
- Do you agree with me that Wallem Philippines is a shipping [company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir.41
x xx
Q Mr. Witness, during the discharging operation of this cargo, where was the master of the
vessel?
A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was being unloaded from the
vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging of the cargo from the
vessel?
A And head checker po and siyangnagpapatakbo ng trabahosaloob ng barko, sir. 42
x xx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.43
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order Inspection, to
wit:

"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in piling the cargo to
[the] pallet board at the vessel’s cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic]."44 (Emphasis supplied)
The records are replete with evidence which show that the damage to the bags happened before and
after their discharge45 and it was caused by the stevedores of the arrastre operator who were then
under the supervision of Wallem.1awphi1.net
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier. In the instant case, the damage or losses were incurred during the
discharge of the shipment while under the supervision of the carrier. Consequently, the carrier is
liable for the damage or losses caused to the shipment. As the cost of the actual damage to the
subject shipment has long been settled, the trial court’s finding of actual damages in the amount of
₱397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of
witnesses is well-settled:
x xx the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled to the
highest respect because it is more competent to so conclude, having had the opportunity to observe
the witnesses' demeanor and deportment on the stand, and the manner in which they gave their
testimonies. The trial judge therefore can better determine if such witnesses were telling the truth,
being in the ideal position to weigh conflicting testimonies. Therefore, unless the trial judge plainly
overlooked certain facts of substance and value which, if considered, might affect the result of the
case, his assessment on credibility must be respected.46
Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its demand letter
does not constitute an implied admission of liability. To borrow the words of Mr. Justice Oliver
Wendell Holmes, thus:
A man cannot make evidence for himself by writing a letter containing the statements that he wishes
to prove. He does not make the letter evidence by sending it to the party against whom he wishes to
prove the facts [stated therein]. He no more can impose a duty to answer a charge than he can
impose a duty to pay by sending goods. Therefore a failure to answer such adverse assertions in the
absence of further circumstances making an answer requisite or natural has no effect as an
admission.47
With respect to the attorney’s fees, it is evident that petitioner was compelled to litigate this matter to
protect its interest. The RTC’s award of ₱20,000.00 as attorney’s fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2004
and its Resolution dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is ordered to
pay petitioner the sum of ₱397,879.69, with interest thereon at 6% per annum from the filing of the
complaint on 7 October 1996 until the judgment becomes final and executory. Thereafter, an interest
rate of 12% per annum shall be imposed.48Respondents are also ordered to pay petitioner the
amount of ₱20,000.00 for and as attorney’s fees, together with the costs of the suit.
SO ORDERED.
(CASE NO.18)
SECOND DIVISION
G.R. No. 162467 May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure of
the 29 October 20032 Decision of the Court of Appeals and the 26 February 2004 Resolution 3 of the
same court denying petitioner’s motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage
Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a shipment of 146,288
cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold of the vessel M/V
Mistrau. The vessel was docked at the port of Davao City and the goods were to be transported by it
to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured
the shipment under an "open cargo policy" with private respondent Phoenix Assurance Company of
New York (Phoenix), a non-life insurance company, and private respondent McGee & Co. Inc.
(McGee), the underwriting manager/agent of Phoenix.4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from
the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon discharge
that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of Incok Loss and
Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the
extent of the damage of the shipment. In a survey report, it was stated that 16,069 cartons of the
banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they no longer
had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGee’s Marine Claims Insurance Adjuster evaluated the claim and recommended that payment in
the amount of $210,266.43 be made. A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt6 to Phoenix and McGee.
Phoenix and McGee instituted an action for damages 7 against Mindanao Terminal in the Regional
Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC, 8 in a decision dated 20 October
1999, held that the only participation of Mindanao Terminal was to load the cargoes on board the M/V
Mistrau under the direction and supervision of the ship’s officers, who would not have accepted the
cargoes on board the vessel and signed the foreman’s report unless they were properly arranged and
tightly secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal cannot be

held liable for whatever happened to the cargoes after it had loaded and stowed them. Moreover,
citing the survey report, it was found by the RTC that the cargoes were damaged on account of a
typhoon which M/V Mistrau had encountered during the voyage. It was further held that Phoenix and
McGee had no cause of action against Mindanao Terminal because the latter, whose services were
contracted by Del Monte, a distinct corporation from Del Monte Produce, had no contract with the
assured Del Monte Produce. The RTC dismissed the complaint and awarded the counterclaim of
Mindanao Terminal in the amount of ₱83,945.80 as actual damages and ₱100,000.00 as attorney’s
fees.9 The actual damages were awarded as reimbursement for the expenses incurred by Mindanao
Terminal’s lawyer in attending the hearings in the case wherein he had to travel all the way from
Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered Mindanao
Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal interest from the
filing of the complaint until fully paid and attorney’s fees of 20% of the claim." 11 It sustained Phoenix’s
and McGee’s argument that the damage in the cargoes was the result of improper stowage by
Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the cause
of action of Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil
Code.12
Mindanao Terminal filed a motion for reconsideration, 13 which the Court of Appeals denied in its 26
February 200414 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao Terminal under
Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have to be
answered: first, whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the
same extraordinary degree of diligence in the conduct of its business as required by law for common
carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed the degree of
diligence required by law of a stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao
Terminal, from which the present case has arisen, states a cause of action. The present action is
based on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes
belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only been
subrogated in the rights of Del Monte Produce, who is not a party to the contract of service between
Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of
the Court’s consistent ruling that the act that breaks the contract may be also a tort.17 In fine, a liability
for tort may arise even under a contract, where tort is that which breaches the contract 18 . In the
present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of

the contract of service but from the alleged negligent manner by which Mindanao Terminal handled
the cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship
between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the
defendant should be sufficient to establish a cause of action arising from quasi-delict.19
The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected of a
good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring
company which was charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific
provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring
company or one who is charged only with the loading and stowing of cargoes. It was neither alleged
nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes.
The case of Summa Insurance Corporation v. CA, which involved the issue of whether an arrastre
operator is legally liable for the loss of a shipment in its custody and the extent of its liability, is
inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned by the National
Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party." The shipment, including a bundle of PC 8 U blades, was discharged from the vessel to
the custody of the private respondent, the exclusive arrastre operator at the South Harbor.
Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship's
checker and a representative of private respondent. When Semirara inspected the shipment at
house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court
observed:
x xxThe relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of shipped
goods and the common carrier, or that between a depositor and a warehouseman [22 ]. In the
performance of its obligations, an arrastre operator should observe the same degree of diligence
as that required of a common carrier and a warehouseman as enunciated under Article 1733 of
the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being the custodian
of the goods discharged from a vessel, an arrastre operator's duty is to take good care of the
goods and to turn them over to the party entitled to their possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore. 24 Arrastre, a Spanish word which refers to
hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment of
the consignee or shipper and the ship's tackle. The responsibility of the arrastre operator lasts until
the delivery of the cargo to the consignee. The service is usually performed by longshoremen. On the
other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between the
ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon the loading
and stowing of the cargo in the vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring function while the private
respondent in the Summa case was performing arrastre function. In the present case, Mindanao
Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes from the pier
to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte Produce. A
stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a
warehouseman for it does not store goods for profit. The loading and stowing of cargoes would not
have a far reaching public ramification as that of a common carrier and a warehouseman; the public
is adequately protected by our laws on contract and on quasi-delict. The public policy considerations
in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not
present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its
clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence 25 that Mindanao
Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise or there is any
doubt on which side the evidence preponderates the party having the burden of proof fails upon that
issue. That is to say, if the evidence touching a disputed fact is equally balanced, or if it does not
produce a just, rational belief of its existence, or if it leaves the mind in a state of perplexity, the party
holding the affirmative as to such fact must fail.261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of
Appeals did not make any new findings of fact when it reversed the decision of the trial court. The
only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.29 It was not
disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in
lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry
standard.30
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte
Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessel’s hold, prepared by Del Monte Produce and the officers
of M/V Mistrau.31 The loading and stowing was done under the direction and supervision of the ship
officers. The vessel’s officer would order the closing of the hatches only if the loading was done
correctly after a final inspection.32 The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to withstand the voyage in
open seas. They would order the stevedore to rectify any error in its loading and stowing. A foreman’s
report, as proof of work done on board the vessel, was prepared by the checkers of Mindanao
Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied that the
cargoes were properly loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn 34 and on the survey
report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey
report,36 found that the cause of the damage was improper stowage37 due to the manner the cargoes
were arranged such that there were no spaces between cartons, the use of cardboards as support
system, and the use of small rope to tie the cartons together but not by the negligent conduct of
Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment38 before us, the latter is merely a stevedoring company which was tasked by Del Monte to
load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V
Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. In other words, the work of the stevedore was under the
supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it
was because of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V
Mistrau during its voyage, which caused the shipments in the cargo hold to collapse, shift and bruise
in extensive extent.39 Even the deposition of Byeong was not supported by the conclusion in the
survey report that:
CAUSE OF DAMAGE
x xx
From the above facts and our survey results, we are of the opinion that damage occurred aboard the
carrying vessel during sea transit, being caused by ship’s heavy rolling and pitching under boisterous
weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October, 1994 as
described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading
and stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant of the
petition is in order.
However, the Court finds no basis for the award of attorney’s fees in favor of
petitioner.lawphil.net None of the circumstances enumerated in Article 2208 of the Civil Code exists.
The present case is clearly not an unfounded civil action against the plaintiff as there is no showing
that it was instituted for the mere purpose of vexation or injury. It is not sound public policy to set a
premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding ₱83,945.80 actual damages to Mindanao
Terminal. Although actual expenses were incurred by Mindanao Terminal in relation to the trial of this
case in Davao City, the lawyer of Mindanao Terminal incurred expenses for plane fare, hotel
accommodations and food, as well as other miscellaneous expenses, as he attended the trials
coming all the way from Manila. But there is no showing that Phoenix and McGee made a false claim
against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of
expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No.
66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil
Case No. 25,311.97 is hereby REINSTATED MINUS the awards of ₱100,000.00 as attorney’s fees
and ₱83,945.80 as actual damages.
SO ORDERED.

(CASE NO.19)
SECOND DIVISION
G.R. No. 127897 November 15, 2001
DELSAN TRANSPORT LINES, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE
CORPORATION, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals in CA-G.R. CV
No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of
Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-
Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs
and the Resolution2 dated January 21, 1997 which denied the subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with
the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier
agreed to transport Caltex’s industrial fuel oil from the Batangas-Bataan Refinery to different parts of
the country. Under the contract, petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of
industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The
shipment was insured with the private respondent, American Home Assurance Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately, the
vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the
entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured value
of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the
private respondent demanded of the petitioner the same amount it paid to Caltex.1âwphi1.nêt
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money.
After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on
November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to
cost. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage as
determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon
inspection during its annual dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier (herein petitioner) from
liability for the loss of its cargo.3
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The
appellate court gave credence to the weather report issued by the Philippine Atmospheric,

Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that from
2:00 o’clock to 8:oo o’clock in the morning on August 16, 1986, the wind speed remained at 10 to 20
knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity of the
Panay Gulf where the subject vessel sank, in contrast to herein petitioner’s allegation that the waves
were twenty (20) feet high. In the absence of any explanation as to what may have caused the
sinking of the vessel coupled with the finding that the same was improperly manned, the appellate
court ruled that the petitioner is liable on its obligation as common carrier 4 to herein private
respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration of
herein petitioner was denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant petition, 5 to wit:
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL

TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL
PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY.
III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE

SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF
APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of
the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or
upon any thin which is the subject of marine insurance there is an implied warranty by the shipper
that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss
under the policy in case the vessel would later on be found as not seaworthy at the inception of the
insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of
the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy;
otherwise, private respondent was not legally liable to Caltex due to the latter’s breach of implied
warranty under the marine insurance policy that the vessel was seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not
seaworthy on the ground that the marine officer who served as the chief mate of the vessel,
Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the
Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent
admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo,
extends to the vessel’s complement. Besides, petitioner avers that although Berina had merely a
2nd officer’s license, he was qualified to act as the vessel’s chief officer under Chapter IV(403),
Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the crew
and officers of MT Maysun were exonerated in the administrative investigation conducted by the
Board of Marine Inquiry after the subject accident.6
In any event, petitioner further avers that private respondent failed, for unknown reason, to present in
evidence during the trial of the instant case the subject marine cargo insurance policy it entered into
with Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs.
CA,7 the failure of the private respondent to present the insurance policy in evidence is allegedly fatal
to its claim inasmuch as there is no way to determine the rights of the parties thereto.
Hence, the legal issues posed before the Court are:
Whether or not the payment made by the private respondent to Caltex for the insured value of
the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any
action for recovery against the petitioner.
II
Whether or not the non-presentation of the marine insurance policy bars the complaint for
recovery of sum of money for lack of cause of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the lost cargo operates as
waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex
under the marine insurance policy. However, the same cannot be validly interpreted as an automatic
admission of the vessel’s seaworthiness by the private respondent as to foreclose recourse against
the petitioner for any liability under its contractual obligation as a common carrier. The fact of
payment grants the private respondent subrogatory right which enables it to exercise legal remedies
that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common
carrier.8 Article 2207 of the New civil Code provides that:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice
and good conscience ought to pay.9 It is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment by the insurance
company of the insurance claim.10 Consequently, the payment made by the private respondent
(insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies
which the latter may have against the petitioner.
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of passengers
transported by them, according to all the circumstance of each case. 11 In the event of loss,

destruction or deterioration of the insured goods, common carriers shall be responsible unless the
same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster
or calamity.12 In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.13
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner
attributes the sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of
Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it
appears that a sudden and unexpected change of weather condition occurred in the early morning of
August 16, 1986; that at around 3:15 o’clock in the morning a squall ("unos") carrying strong winds
with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty
(20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with
its cargo.14 This tale of strong winds and big waves by the said officers of the petitioner however, was
effectively rebutted and belied by the weather report 15 from the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAGASA), the independent government agency charged
with monitoring weather and sea conditions, showing that from 2:00 o’clock to 8:00 o’clock in the
morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while
the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay
Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioner’s vessel,
MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall
or bad weather or extremely poor sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioner’s witnesses, Jaime Jarabe and Francisco
Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify
against the interest of their employer, the herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence certificates16 that tend to show that at
the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit
for voyage. These pieces of evidence do not necessarily take into account the actual condition of the
vessel at the time of the commencement of the voyage. As correctly observed by the Court of
appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The certificates
issued, however, do not negate the presumption of unseaworthiness triggered by an
unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to
their probative value, (thus):
Seaworthiness relates to a vessel’s actual condition. Neither the granting of

classification or the issuance of certificates established seaworthiness. (2-A Benedict on
Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing certificates of seaworthiness does not
satisfy the vessel owner’s obligation. Also securing the approval of the shipper of the

cargo, or his surveyor, of the condition of the vessel or her stowage does not establish
due diligence if the vessel was in fact unseaworthy, for the cargo owner has no
obligation in relation to seaworthiness. (Ibid.)17
Additionally, the exoneration of MT Maysun’s officers and crew by the Board of Marine Inquiry merely
concerns their respective administrative liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liability arising from its failure to observe extraordinary
diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of
its employees, the determination of which properly belongs to the courts. 18 In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its
failure to rebut the presumption of fault or negligence as common carrier19 occasioned by the
unexplained sinking of its vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as
insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.20
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation
v. CA21 (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through
several stages with different parties involved in each stage. First, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S
Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or
arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the
hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the
consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary,
the hauler can be liable only for any damage that occurred from the time it received the cargo until it
finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the
cargo before it actually received it. The insurance contract, which was not presented in evidence in
that case would have indicated the scope of the insurer’s liability, if any, since no evidence was
adduced indicating at what stage in the handling process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance
Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of
industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioner’s vessel,
MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early
morning of August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of
Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner. SO ORDERED.

(CASE NO.20)
THIRD DIVISION
G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
PUNO, J.:
On appeal is the Court of Appeals' May 11, 2000 Decision 1 in CA-G.R. CV No. 49195 and February
21, 2001 Resolution2 affirming with modification the April 6, 1994 Decision 3 of the Regional Trial
Court of Manila which found petitioner liable to pay private respondent the amount of indemnity and
attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on board the
vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in
Manila, evidenced by Bill of Lading No. PTD/Man-4.5The shipment was insured by the private
respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody
of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as
carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an
incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering
Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other
barges which arrived ahead of it while weathering out the storm that night. A few days after, the barge
developed a list because of a hole it sustained after hitting an unseen protuberance underneath the
water. The petitioner filed a Marine Protest on August 28, 1990. 8 It likewise secured the services of
Gaspar Salvaging Corporation which refloated the barge. 9 The hole was then patched with clay and
cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf
on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to
strong current. To avoid the complete sinking of the barge, a portion of the goods was transferred to
three other barges.10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in
the total loss of the remaining cargo.11 A second Marine Protest was filed on September 7, 1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges.13 The total proceeds from the sale of the salvaged cargo
was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another
letter dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but
to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the
amount of indemnity, attorney's fees and cost of suit.16 Petitioner filed its answer with counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia

Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc.
the sum of P4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until
fully satisfied plus 10% of the amount awarded as and for attorney's fees. Defendant's
counterclaim is hereby DISMISSED. With costs against defendant. 18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate
court affirmed the decision of the trial court with modification. The dispositive portion of its decision
reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the
sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court
in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT HELD THAT PETITIONER IS A COMMON CARRIER.
WHEN IT AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS
OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, "THE
LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES
EXCEPT IN THE FIVE (5) CASES ENUMERATED."

WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE
DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE
CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in
its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and
publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged
to carry indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it
does not hold out its services to the general public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732
of the Civil Code makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity. We also
did not distinguish between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to
the general public, and one who offers services or solicits business only from a narrow segment of
the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage 22 and it
offers its barges to the public for carrying or transporting goods by water for compensation. Petitioner
is clearly a common carrier. In De Guzman, supra,23 we considered private respondent Ernesto
Cendaña to be a common carrier even if his principal occupation was not the carriage of goods for
others, but that of buying used bottles and scrap metal in Pangasinan and selling these items in
Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not
have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a part of the
business engaged in by the carrier which he has held out to the general public as his occupation

rather than the quantity or extent of the business transacted." 25 In the case at bar, the petitioner
admitted that it is engaged in the business of shipping and lighterage, 26 offering its barges to the
public, despite its limited clientele for carrying or transporting goods by water for compensation. 27
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.28 They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated.29 To overcome the presumption of negligence in the case
of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code
enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(4) The character of the goods or defects in the packing or in the containers;
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its
cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the
loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause
of the loss of the goods, and that it has exercised due diligence before, during and after the
occurrence of the typhoon to prevent or minimize the loss.30 The evidence show that, even before the
towing bits of the barge broke, it had already previously sustained damage when it hit a sunken object
while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel was refloated but its hole was patched with
only clay and cement. The patch work was merely a provisional remedy, not enough for the barge to
sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly exposed the
cargo to further damage. A portion of the cross-examination of Alfredo Cunanan, cargo-surveyor of
Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
x xx x xx x xx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull out
the barge from the place of the accident, and bring it to the anchor terminal for safety, then
after deciding if the vessel is stabilized, they tried to pull it to the consignee's warehouse, now

while on route another accident occurred, now this time the barge totally hitting something in
the course.
q - You said there was another accident, can you tell the court the nature of the second
accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on
the bottom part of the barge.
x xx x xx x xx
This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming
typhoon. During the time that the barge was heading towards the consignee's wharf on September 5,
1990, typhoon "Loleng" has already entered the Philippine area of responsibility. 32 A part of the
testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
x xx x xx x xx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie
where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their Wharf since
they needed badly the wheat that was loaded in PSTSI-3. It was needed badly by the
consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
x xx x xx x xx
CROSS-EXAMINATION BY ATTY. IGNACIO:34
x xx x xx x xx
q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I
correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I have stated.
q - Despite of the threats of an incoming typhoon as you testified a while ago?
a - It is already in an inner portion of Pasig River. The typhoon would be coming and it
would be dangerous if we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
a - Yes.

q - And yet as a standard operating procedure of your Company, you have to secure a
sort of Certification to determine the weather condition, am I correct?
a - Yes, sir.
q - So, more or less, you had the knowledge of the incoming typhoon, right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are
already inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape
liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls short
of due diligence required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel broke that caused its sinking
and the total loss of the cargo upon reaching the Pasig River, it was no longer affected by the
typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor, i.e.,
negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs
against petitioner.
SO ORDERED.

(CASE NO.1) : Transportation Law

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(CASE NO.1) : Transportation Law

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(CASE NO.

Republic of the Philippines

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

PEDRO DE GUZMAN, petitioner,

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1. that private respondent was not a common carrier;

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

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

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

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

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G.R. No. 148496 March 19, 2002

The facts are as follows:

The trial court held:

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is a finding which cannot be traversed and overturned.

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]

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

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Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:

In CompaniaMaritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened. 10

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As found by the Court of Appeals:

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G.R. No. 143133 June 5, 2002

Statement of the Case

'2) Attorney's fees amounting to 20% of the claim; and

'3) Costs of suit.'"4

The assailed Resolution denied petitioner's Motion for Reconsideration.

"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the

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"Despite receipt of a formal demand, defendants-appellees refused to submit to the

Ruling of the Trial Court

Ruling of the Court of Appeals

Hence, this Petition.11

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In sum, the issues boil down to three:

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

2. Whether the notice of loss was timely filed

3. Whether the package limitation of liability is applicable

This Court's Ruling

The Petition is partly meritorious.

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A. BM Santos Checkers Agency, sir.

Q. How is BM Santos checkers Agency related or connected with defendant Jardine

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

A. Yes, sir, I was there.

Let the witness answer.