SECOND DIVISION
13 Since the first page
[G.R. No. 210621. April 4, 2016.]
ALFREDO MANAY, JR., FIDELINO SAN LUIS, ADRIAN SAN LUIS,
ANNALEE SAN LUIS, MARK ANDREW JOSE, MELISSA JOSE,
CHARLOTTE JOSE, DAN JOHN DE GUZMAN, PAUL MARK BALUYOT,
and CARLOS S. JOSE, petitioners, vs. CEBU AIR, INC., respondent.
DECISION
LEONEN, J p:
The Air Passenger Bill of Rights 1 mandates that the airline must
inform the passenger in writing of all the conditions and restrictions in
the contract of carriage. 2 Purchase of the contract of carriage binds
the passenger and imposes reciprocal obligations on both the airline
and the passenger. The airline must exercise extraordinary diligence
in the fulfillment of the terms and conditions of the contract of carriage.
The passenger, however, has the correlative obligation to exercise
ordinary diligence in the conduct of his or her affairs.
This resolves a Petition for Review on Certiorari 3 assailing the Court
of Appeals Decision 4 dated December 13, 2013 in CA-G.R. SP. No.
129817. In the assailed Decision, the Court of Appeals reversed the
Metropolitan Trial Court Decision 5 dated December 15, 2011 and the
Regional Trial Court Decision 6 dated November 6, 2012 and dismissed
the Complaint for Damages filed by petitioners Alfredo Manay, Jr.,
Fidelino San Luis, Adrian San Luis, Annalee San Luis, Mark Andrew
Jose, Melissa Jose, Charlotte Jose, Dan John De Guzman, Paul Mark
Baluyot, and Carlos S. Jose against respondent Cebu Air, Incorporated
(Cebu Pacific). 7 HTcADC
On June 13, 2008, Carlos S. Jose (Jose) purchased 20 Cebu Pacific
round-trip tickets from Manila to Palawan for himself and on behalf of
his relatives and friends. 8 He made the purchase at Cebu Pacific's
branch office in Robinsons Galleria. 9
Jose alleged that he specified to "Alou," the Cebu Pacific ticketing
agent, that his preferred date and time of departure from Manila to
Palawan should be on July 20, 2008 at 0820 (or 8:20 a.m.) and that
his preferred date and time for their flight back to Manila should be on
July 22, 2008 at 1615 (or 4:15 p.m.). 10 He paid a total amount of
P42,957.00 using his credit card. 11 He alleged that after paying for
the tickets, Alou printed the tickets, 12 which consisted of three (3)
pages, and recapped only the first page to him.
contained the details he specified to Alou, he no longer read the other
pages of the flight information. 14
On July 20, 2008, Jose and his 19 companions boarded the 0820 Cebu
Pacific flight to Palawan and had an enjoyable stay. 15
On the afternoon of July 22, 2008, the group proceeded to the airport
for their flight back to Manila. 16 During the processing of their
boarding passes, they were informed by Cebu Pacific personnel that
nine (9) 17 of them could not be admitted because their tickets were
for the 1005 (or 10:05 a.m.) 18 flight earlier that day. 19 Jose informed
the ground personnel that he personally purchased the tickets and
specifically instructed the ticketing agent that all 20 of them should be
on the 4:15 p.m. flight to Manila. 20
Upon checking the tickets, they learned that only the first two (2) pages
had the schedule Jose specified. 21 They were left with no other option
but to rebook their tickets. 22 They then learned that their return
tickets had been purchased as part of the promo sales of the airline,
and the cost to rebook the flight would be P7,000.00 more expensive
than the promo tickets. 23 The sum of the new tickets amounted to
P65,000.00. 24
They offered to pay the amount by credit card but were informed by
the ground personnel that they only accepted cash. 25 They then
offered to pay in dollars, since most of them were balikbayans and had
the amount on hand, but the airline personnel still refused. 26
Eventually, they pooled enough cash to be able to buy tickets for five
(5) of their companions. 27 The other four (4) were left behind in
Palawan and had to spend the night at an inn, incurring additional
expenses. 28 Upon his arrival in Manila, Jose immediately purchased
four (4) tickets for the companions they left behind, which amounted
to P5,205. 29 CAIHTE
Later in July 2008, Jose went to Cebu Pacific's ticketing office in
Robinsons Galleria to complain about the allegedly erroneous booking
and the rude treatment that his group encountered from the ground
personnel in Palawan. 30 He alleged that instead of being assured by
the airline that someone would address the issues he raised, he was
merely "given a run around." 31
Jose and his companions were frustrated and annoyed by Cebu
Pacific's handling of the incident so they sent the airline demand letters
dated September 3, 2008 32 and January 20, 2009 33 asking for a
reimbursement of P42,955.00, representing the additional amounts
spent to purchase the nine (9) tickets, the accommodation, and meals
of the four (4) that were left behind. 34 They also filed a complaint 35
before the Department of Trade and Industry. 36
On February 24, 2009, Cebu Pacific, through its Guest Services
Department, sent petitioners' counsel an email 37 explaining that
"ticketing agents, like Alou, recap [the] flight details to the purchaser
to avoid erroneous booking[s]." 38 The recap is given one other time by
the cashier. 39 Cebu Pacific stated that according to its records, Jose
was given a full recap and was made aware of the flight restriction of
promo tickets, 40 "which included [the] promo fare being non-
refundable." 41
Jose and his companions were unsatisfied with Cebu Pacific's response
so they filed a Complaint 42 for Damages against Cebu Pacific before
Branch 59 of the Metropolitan Trial Court of Mandaluyong. 43 The
Complaint prayed for actual damages in the amount of P42,955.00,
moral damages in the amount of P45,000.00, exemplary damages in
the amount of P50,000.00, and attorney's fees. 44
In its Answer, 45 Cebu Pacific essentially denied all the allegations in
the Complaint and insisted that Jose was given a full recap of the
tickets. 46 It also argued that Jose had possession of the tickets 37
days before the scheduled flight; hence, he had sufficient time and
opportunity to check the flight information and itinerary. 47 It also
placed a counterclaim of P100,000.00 by reason that it was
constrained to litigate and it incurred expenses for litigation. 48
On December 15, 2011, the Metropolitan Trial Court rendered its
Decision ordering Cebu Pacific to pay Jose and his companions
P41,044.50 in actual damages and P20,000.00 in attorney's fees with
costs of suit. 49 The Metropolitan Trial Court found that as a common
carrier, Cebu Pacific should have exercised extraordinary diligence in
performing its contractual obligations. 50 According to the
Metropolitan Trial Court, Cebu Pacific's ticketing agent "should have
placed markings or underlined the time of the departure of the nine
passengers" 51 who were not in the afternoon flight since it was only
logical for Jose to expect that all of them would be on the same flight.
52 It did not find merit, however, in the allegation that the airline's
ground personnel treated Jose and his companions rudely since this
allegation was unsubstantiated by evidence. 53 aScITE
Cebu Pacific appealed to the Regional Trial Court, reiterating that its
ticketing agent gave Jose a full recap of the tickets he purchased. 54
On November 6, 2012, Branch 212 of the Regional Trial Court of
Mandaluyong rendered the Decision dismissing the appeal. 55 The
Regional Trial Court affirmed the findings of the Metropolitan Trial
Court but deleted the award of attorney's fees on the ground that this
was granted without stating any ground under Article 2208 of the Civil
Code to justify its grant. 56
Cebu Pacific appealed to the Court of Appeals, arguing that it was not
at fault for the damages caused to the passengers. 57
On December 13, 2013, the Court of Appeals rendered the Decision
granting the appeal and reversing the Decisions of the Metropolitan
Trial Court and the Regional Trial Court. 58 According to the Court of
Appeals, the extraordinary diligence expected of common carriers only
applies to the carriage of passengers and not to the act of encoding the
requested flight schedule. 59 It was incumbent upon the passenger to
exercise ordinary care in reviewing flight details and checking
schedules. 60 Cebu Pacific's counterclaim, however, was denied since
there was no evidence that Jose and his companions filed their
Complaint in bad faith and with malice. 61
Aggrieved, Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis,
Annalee San Luis, Mark Andrew Jose, Melissa Jose, Charlotte Jose,
Dan John De Guzman, Paul Mark Baluyot, and Carlos S. Jose (Jose,
et al.) filed before this Court a Petition for Review on Certiorari 62
assailing the Court of Appeals' December 13, 2013 Decision. 63
Cebu Pacific was ordered to comment on the Petition. 64 Upon
compliance, 65 Jose, et al. submitted their Reply. 66 The parties were
then directed 67 to submit their respective memoranda. 68
Jose, et al. argue that Cebu Pacific is a common carrier obligated to
exercise extraordinary diligence to carry Jose, et al. to their destination
at the time clearly instructed to its ticketing agent. 69 They argue that
they have the decision to choose flight schedules and that Cebu Pacific
should not choose it for them. 70 They insist that they have made their
intended flight schedule clear to the ticketing agent and it would have
been within normal human behavior for them to expect that their
entire group would all be on the same flight. 71 They argue that they
should not have to ask for a full recap of the tickets since they are
under no obligation, as passengers, to remind Cebu Pacific's ticketing
agent of her duties. 72
Jose, et al. further pray that they be awarded actual damages in the
amount of P43,136.52 since the Metropolitan Trial Court erroneously
failed to add the costs of accommodations and dinner spent on by four
(4) of the petitioners who were left behind in Palawan. 73 They also
pray for P100,000.00 in moral damages and P100,000.00 in exemplary
damages for the "profound distress and anxiety" 74 they have
undergone from the experience, with P100,000.00 in attorney's fees to
represent the reasonable expenses incurred from "engaging the
services of their counsel." 75 DETACa
Cebu Pacific, on the other hand, argues that the damage in this case
was caused by Jose, et al.'s "gross and inexplicable [negligence.]" 76 It
maintains that Jose, et al. should have read the details of their flight,
and if there were errors in the encoded flight details, Jose, et al. would
still have ample time to have the error corrected. 77 It argues further
that its ticketing agent did not neglect giving Jose a full recap of his
purchase since the tickets clearly indicated in the "Comments" section:
"FULL RECAP GVN TO CARLOS JOSE." 78
Cebu Pacific further posits that according to the Parol Evidence Rule,
the plane tickets issued to Jose, et al. contain all the terms the parties
agreed on, and it was agreed that nine (9) of the passengers would be
on the July 22, 2008, 1005 flight to Manila. 79 It argues that Jose, et
al. have not been able to present any evidence to substantiate their
allegation that their intent was to be on the July 22, 2008 1615 flight
to Manila. 80
From the arguments in the parties' pleadings, the sole issue before this
Court is whether respondent Cebu Air, Inc. is liable to petitioners
Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee San
Luis, Mark Andrew Jose, Melissa Jose, Charlotte Jose, Dan John De
Guzman, Paul Mark Baluyot, and Carlos S. Jose for damages for the
issuance of a plane ticket with an allegedly erroneous flight schedule.
I NOW THEREFORE, the Court Resolves, for the guidance of the Bench
Although it was not mentioned by the parties, a procedural issue must
first be addressed before delving into the merits of the case.
Petitioners received the assailed Court of Appeals Decision on
December 27, 2013. 81 They chose to forego the filing of a motion for
reconsideration. Instead, petitioners filed before this Court a Motion
for Extension of Time 82 on January 13, 2014.
Under Rule 45, Section 2 of the Rules of Court, 83 petitioners only had
15 days or until January 11, 2014 to file their petition. Since January
11, 2014 fell on a Saturday, petitioners could have filed their pleading
on the following Monday, or on January 13, 2014.
In their Motion for Extension of Time, however, petitioners requested
an additional 30 days from January 13, 2014 within which to file their
petition for review on certiorari. 84
This Court already clarified the periods of extension in A.M. No. 00-2-
14-SC: 85
Whereas, Section 1, Rule 22 of the 1997 Rules of Civil Procedure
provides: HEITAD
Section 1. How to compute time. — In computing any period of
time prescribed or allowed by these Rules, or by order of the court, or
by any applicable statute, the day of the act or event from which the
designated period of time begins to run is to be excluded and the date
of performance included. If the last day of the period, as thus
computed, falls on a Saturday, a Sunday, or a legal holiday in the place
where the court sits, the time shall not run until the next working day.
Whereas, the aforecited provision applies in the matter of filing of
pleadings in courts when the due date falls on a Saturday, Sunday or
legal holiday, in which case, the filing of the said pleading on the next
working day is deemed on time;
Whereas, the question has been raised if the period is extended ipso
jure to the next working day immediately following where the last day
of the period is a Saturday, Sunday or a legal holiday, so that when a
motion for extension of time is filed, the period of extension is to be
reckoned from the next working day and not from the original
expiration of the period.
and the Bar, to declare that Section 1, Rule 22 speaks only of "the last
day of the period" so that when a party seeks an extension and the
same is granted, the due date ceases to be the last day and hence, the
provision no longer applies. Any extension of time to file the required
pleading should therefore be counted from the expiration of the period
regardless of the fact that said due date is a Saturday, Sunday or legal
holiday. (Emphasis supplied)
Thus, petitioners' request for extension of time should have been
reckoned from the original due date on January 11, 2014, even if this
day fell on a Saturday. A request for extension of 30 days would have
ended on February 10, 2014. 86
Petitioners subsequently filed their Petition for Review on Certiorari on
February 12, 2014. 87 Pursuant to A.M. No. 00-2-14-SC, 88 this
Petition would have been filed out of time.
We are not, however, precluded from granting the period of extension
requested and addressing the Petition filed on its merits, instead of
outright dismissing it. After all, "[l]itigations should, as much as
possible, be decided on the merits and not on technicalities." 89
However, it does not follow that in the relaxation of the procedural
rules, this Court automatically rules in favor of petitioners. Their case
must still stand on its own merits for this Court to grant the relief
petitioners pray for. aDSIHc
II
Common carriers are required to exercise extraordinary diligence in
the performance of its obligations under the contract of carriage. This
extraordinary diligence must be observed not only in the
transportation of goods and services but also in the issuance of the
contract of carriage, including its ticketing operations.
Article 1732 of the Civil Code defines a common carrier as "persons,
corporations or 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." Articles
1733, 1755, and 1756 of the Civil Code outline the degree of diligence
required of common carriers:
ARTICLE 1733. 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.
xxx xxx xxx
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.
Respondent, as one of the four domestic airlines in the country, 90 is
a common carrier required by law to exercise extraordinary diligence.
Extraordinary diligence requires that the common carrier must
transport goods and passengers "safely as far as human care and
foresight can provide," and it must exercise the "utmost diligence of
very cautious persons . . . with due regard for all the circumstances."
91
When a common carrier, through its ticketing agent, has not yet issued
a ticket to the prospective passenger, the transaction between them is
still that of a seller and a buyer. The obligation of the airline to exercise
extraordinary diligence commences upon the issuance of the contract
of carriage. 92 Ticketing, as the act of issuing the contract of carriage,
is necessarily included in the exercise of extraordinary diligence.
A contract of carriage is defined as "one whereby a certain person or
association of persons obligate themselves to transport persons,
things, or news from one place to another for a fixed price." 93 In
Cathay Pacific Airways v. Reyes: 94
[W]hen an airline issues a ticket to a passenger confirmed on a
particular flight, on a certain date, a contract of carriage arises, and
the passenger has every right to expect that he would fly on that flight
and on that date. If he does not, then the carrier opens itself to a suit
for breach of contract of carriage. 95 (Emphasis supplied)
Once a plane ticket is issued, the common carrier binds itself to deliver
the passenger safely on the date and time stated in the ticket. The
contractual obligation of the common carrier to the passenger is
governed principally by what is written on the contract of carriage.
ATICcS
In this case, both parties stipulated 96 that the flight schedule stated
on the nine (9) disputed tickets was the 10:05 a.m. flight of July 22,
2008. According to the contract of carriage, respondent's obligation as
a common carrier was to transport nine (9) of the petitioners safely on
the 10:05 a.m. flight of July 22, 2008.
Petitioners, however, argue that respondent was negligent in the
issuance of the contract of carriage since the contract did not embody
their intention. They insist that the nine (9) disputed tickets should
have been scheduled for the 4:15 p.m. flight of July 22, 2008.
Respondent, on the other hand, denies this and states that petitioner
Jose was fully informed of the schedules of the purchased tickets and
petitioners were negligent when they failed to correct their ticket
schedule.
Respondent relies on the Parol Evidence Rule in arguing that a written
document is considered the best evidence of the terms agreed on by
the parties. Petitioners, however, invoke the exception in Rule 130,
Section 9 (b) of the Rules of Court that evidence may be introduced if
the written document fails to express the true intent of the parties: 97
Section 9. Evidence of written agreements. — When the terms of
an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written
agreement;
(b) The failure of the written agreement to express the true intent
and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement.
In ACI Philippines, Inc. v. Coquia: 98
It is a cardinal rule of evidence, not just one of technicality but of
substance, that the written document is the best evidence of its own
contents. It is also a matter of both principle and policy that when the
written contract is established as the repository of the parties
stipulations, any other evidence is excluded and the same cannot be
used as a substitute for such contract, nor even to alter or contradict
them. This rule, however, is not without exception. Section 9, Rule 130
of the Rules of Court states that a party may present evidence to
modify, explain or add to the terms of the agreement if he puts in issue
in his pleading the failure of the written agreement to express the true
intent and agreement of the parties. 99 ETHIDa
It is not disputed that on June 13, 2008, petitioner Jose purchased 20
Manila-Palawan-Manila tickets from respondent's ticketing agent.
Since all 20 tickets were part of a single transaction made by a single
purchaser, it is logical to presume that all 20 passengers would prefer
the same flight schedule, unless the purchaser stated otherwise.
In petitioners' Position Paper before the Metropolitan Trial Court, they
maintain that respondent's ticketing agent was negligent when she
failed to inform or explain to petitioner Jose that nine (9) members of
their group had been booked for the 10:05 a.m. flight, and not the 4:15
p.m. flight. 100
The first page of the tickets contained the names of eight (8)
passengers. 101 In the Information box on the left side of the ticket, it
reads:
Sunday, July 20, 2008 HK PHP999.00 PHP
5J 637 MNL-PPS 08:20-09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J 640 PPS-MNL 16:15-17:30 102
In the Comments box, it reads:
R — FULL RECAP GVN TO CARLOS JOSE//AWRE
I — FULL RECAP GVN TO CARLOS JOSE//AWRE
M — FULL RECAP GVN TO CARLOS JOSE//AWRI 103
The second page contained the names of three (3) passengers. 104 In
the Information box, it reads:
Sunday, July 20, 2008 HK PHP1,998.00 PH
5J 637 MNL-PPS 08:20-09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J 640 PPS-MNL 16:15-17:30 105
Under the caption "Comments," it reads:
R — FULL RECAP GVN TO CARLOS JOSE//AWRE
I — FULL RECAP GVN TO CARLOS JOSE//AWRE
M — FULL RECAP GVN TO CARLOS JOSE//AWRI 106
The third page contained the names of nine (9) passengers. 107 In the
Information box, it reads:
Sunday, July 20, 2008 HK PHP999.00 PHP
5J 637 MNL-PPS 08:20-09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J 638 PPS-MNL 10:05-11:20 108
In the Comments box, it reads:
R — FULL RECAP GVN TO JOSE//CARLOS AWRE
R — NON-REFUNDBLE//VALID TIL 15 OCT08 O 109
Respondent explained that as a matter of protocol, flight information
is recapped to the purchaser twice: first by the ticketing agent before
payment, and second by the cashier during payment. The tickets were
comprised of three (3) pages. Petitioners argue that only the first page
was recapped to petitioner Jose when he made the purchase.
The common carrier's obligation to exercise extraordinary diligence in
the issuance of the contract of carriage is fulfilled by requiring a full
review of the flight schedules to be given to a prospective passenger
before payment. Based on the information stated on the contract of
carriage, all three (3) pages were recapped to petitioner Jose.
The only evidence petitioners have in order to prove their true intent of
having the entire group on the 4:15 p.m. flight is petitioner Jose's self-
serving testimony that the airline failed to recap the last page of the
tickets to him. They have neither shown nor introduced any other
evidence before the Metropolitan Trial Court, Regional Trial Court,
Court of Appeals, or this Court.
Even assuming that the ticketing agent encoded the incorrect flight
information, it is incumbent upon the purchaser of the tickets to at
least check if all the information is correct before making the purchase.
Once the ticket is paid for and printed, the purchaser is presumed to
have agreed to all its terms and conditions. In Ong Yiu v. Court of
Appeals: 110
While it may be true that petitioner had not signed the plane ticket, he
is nevertheless bound by the provisions thereof. "Such provisions have
been held to be a part of the contract of carriage, and valid and binding
upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation." It is what is known as a contract of
"adhesion," in regards which it has been said that contracts of
adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent. 111
TIADCc
One of the terms stated in petitioners' tickets stipulates that the photo
identification of the passenger must match the name entered upon
booking:
Guests should present a valid photo ID to airport security and upon
check-in. Valid IDs for this purpose are Company ID, Driver's License,
Passport, School ID, SSS Card, TIN Card. The name in the photo-ID
should match the guest name that was entered upon booking. Failure
to present a valid photo ID will result in your being refused check-in.
112
Considering that respondent was entitled to deny check-in to
passengers whose names do not match their photo identification, it
would have been prudent for petitioner Jose to check if all the names
of his companions were encoded correctly. Since the tickets were for
20 passengers, he was expected to have checked each name on each
page of the tickets in order to see if all the passengers' names were
encoded and correctly spelled. Had he done this, he would have noticed
that there was a different flight schedule encoded on the third page of
the tickets since the flight schedule was stated directly above the
passengers' names.
Petitioners' flight information was not written in fine print. It was
clearly stated on the left portion of the ticket above the passengers'
names. If petitioners had exercised even the slightest bit of prudence,
they would have been able to remedy any erroneous booking.
This is not the first time that this Court has explained that an air
passenger has the correlative duty to exercise ordinary care in the
conduct of his or her affairs.
In Crisostomo v. Court of Appeals, 113 Estela Crisostomo booked a
European tour with Caravan Travel and Tours, a travel agency. She
was informed by Caravan's travel agent to be at the airport on
Saturday, two (2) hours before her flight. Without checking her travel
documents, she proceeded to the airport as planned, only to find out
that her flight was actually scheduled the day before. She subsequently
filed a suit for damages against Caravan Travel and Tours based on
the alleged negligence of their travel agent in informing her of the wrong
flight details. 114
This Court, while ruling that a travel agency was not a common carrier
and was not bound to exercise extraordinary diligence in the
performance of its obligations, also laid down the degree of diligence
concurrently required of passengers:
Contrary to petitioner's claim, the evidence on record shows that
respondent exercised due diligence in performing its obligations under
the contract and followed standard procedure in rendering its services
to petitioner. As correctly observed by the lower court, the plane ticket
issued to petitioner clearly reflected the departure date and time,
contrary to petitioner's contention. The travel documents, consisting of
the tour itinerary, vouchers and instructions, were likewise delivered
to petitioner two days prior to the trip. Respondent also properly
booked petitioner for the tour, prepared the necessary documents and
procured the plane tickets. It arranged petitioner's hotel
accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under
the contract as well as everything else that was essential to book
petitioner for the tour. Had petitioner exercised due diligence in the
conduct of her affairs, there would have been no reason for her to miss
the flight. Needless to say, after the travel papers were delivered to
petitioner, it became incumbent upon her to take ordinary care of her
concerns. This undoubtedly would require that she at least read the
documents in order to assure herself of the important details regarding
the trip. 115 (Emphasis supplied) cSEDTC
Most of the petitioners were balikbayans. 116 It is reasonable to
presume that they were adequately versed with the procedures of air
travel, including familiarizing themselves with the itinerary before
departure. Moreover, the tickets were issued 37 days before their
departure from Manila and 39 days from their departure from Palawan.
There was more than enough time to correct any alleged mistake in the
flight schedule.
Petitioners, in failing to exercise the necessary care in the conduct of
their affairs, were without a doubt negligent. Thus, they are not entitled
to damages.
Before damages may be awarded, "the claimant should satisfactorily
show the existence of the factual basis of damages and its causal
connection to defendant's acts." 117 The cause of petitioners' injury
was their own negligence; hence, there is no reason to award moral
damages. Since the basis for moral damages has not been established,
there is no basis to recover exemplary damages 118 and attorney's fees
119 as well.
III
Traveling by air for leisure is a fairly new concept to the average
Filipino. From 1974, there was only one local airline commanding a
monopoly on domestic air travel. 120 In 1996, respondent introduced
the concept of a budget airline in the Philippines, touting "low-cost
services to more destinations and routes with higher flight frequency
within the Philippines than any other airline." 121 In its inception,
respondent offered plane fares that were "40% to 50% lower than
[Philippine Airlines]." 122
On March 1, 2007, to celebrate its new fleet of aircraft, respondent
offered a promo of P1.00 base fare for all their domestic and
international destinations. 123 The fare was non-refundable and
exclusive of taxes and surcharges. 124
Despite the conditions imposed on these "piso fares," more people were
enticed to travel by air. From January to June 2007, respondent had
a total number of 2,256,289 passengers while Philippines Airlines had
a total of 1,981,267 passengers. 125 The domestic air travel market
also had a 24% increase in the first half of 2007. 126
Promotional fares encouraged more Filipinos to travel by air as the
number of fliers in the country increased from 7.2 million in 2005 to
16.5 million in 2010. 127 The emergence of low-cost carriers
"liberalized [the] aviation regime" 128 and contributed to an
"unprecedented and consistent double digit growth rates of domestic
and international travel" 129 from 2007 to 2012.
This development, however, came with its own set of problems.
Numerous complaints were filed before the Department of Trade and
Industry and the Department of Transportation and Communications,
alleging "unsatisfactory airline service" 130 as a result of flight
overbooking, delays, and cancellations. 131
This prompted concerned government agencies to issue Department of
Transportation and Communications-Department of Trade and
Industry Joint Administrative Order No. 1, Series of 2012, otherwise
known as the Air Passenger Bill of Rights.
Section 4 of the Joint Administrative Order requires airlines to provide
the passenger with accurate information before the purchase of the
ticket:
Section 4. Right to Full, Fair, and Clear Disclosure of the Service
Offered and All the Terms and Conditions of the Contract of Carriage.
— Every passenger shall, before purchasing any ticket for a contract
of carriage by the air carrier or its agents, be entitled to the full, fair,
and clear disclosure of all the terms and conditions of the contract of
carriage about to be purchased. The disclosure shall include, among
others, documents required to be presented at check-in, provisions on
check-in deadlines, refund and rebooking policies, and procedures and
re sponsibility for delayed and/or cancelled flights. These terms and
conditions may include liability limitations, claim-filing deadlines, and
other crucial conditions.
4.1 An air carrier shall cause the disclosure under this Section to
be printed on or attached to the passenger ticket and/or boarding
pass, or the incorporation of such terms and conditions of carriage by
reference. Incorporation by reference means that the ticket and/or
boarding pass shall clearly state that the complete terms and
conditions of carriage are available for perusal and/or review on the
air carrier's website, or in some other document that may be sent to or
delivered by post or electronic mail to the passenger upon his/her
request.
xxx xxx xxx
4.3 Aside from the printing and/or publication of the above
disclosures, the same shall likewise be verbally explained to the
passenger by the air carrier and/or its agent/s in English and Filipino,
or in a language that is easily understood by the purchaser, placing
emphasis on the limitations and/or restrictions attached to the ticket.
xxx xxx xxx
4.5 Any violation of the afore-stated provisions shall be a ground
for the denial of subsequent applications for approval of promotional
fare, or for the suspension or recall of the approval made on the
advertised fare/rate. (Emphasis in the original) AIDSTE
The Air Passenger Bill of Rights recognizes that a contract of carriage
is a contract of adhesion, and thus, all conditions and restrictions
must be fully explained to the passenger before the purchase of the
ticket:
WHEREAS, such a contract of carriage creates an asymmetrical
relationship between an air carrier and a passenger, considering that,
while a passenger has the option to buy or not to buy the service, the
decision of the passenger to buy the ticket binds such passenger, by
adhesion, to all the conditions and/or restrictions attached to the air
carrier ticket on an all-or-nothing basis, without any say, whatsoever,
with regard to the reasonableness of the individual conditions and
restrictions attached to the air carrier ticket; 132
Section 4.4 of the Air Passenger Bill of Rights requires that "all
rebooking, refunding, baggage allowance and check-in policies" must
be stated in the tickets:
4.4 The key terms of a contract of carriage, which should include,
among others, the rebooking, refunding, baggage allowance and check-
in policies, must be provided to a passenger and shall substantially be
stated in the following manner and, if done in print, must be in bold
letters:
(English)
"NOTICE:
The ticket that you are purchasing is subject to the following
conditions/restrictions:
1. _________________
2. _________________
3. _________________
Your purchase of this ticket becomes a binding contract on your part WHEREFORE, the Petition is DENIED.
to follow the terms and conditions of the ticket and of the flight.
Depending on the fare rules applicable to your ticket, non-use of the SO ORDERED.
same may result in forfeiture of the fare or may subject you to the Carpio, Brion, Del Castillo and Mendoza, JJ., concur.
payment of penalties and additional charges if you wish to change or
cancel your booking.

For more choices and/or control in your flight plans, please consider
other fare types."

(Filipino)

"PAALALA:

Ang tiket na ito ay binibili ninyo nang may mga kondisyon/restriksyon:

1. _________________

2. _________________

3. _________________

Sa pagpili at pagbili ng tiket na ito, kayo ay sumasang-ayon sa mga

kondisyon at restriksyon na nakalakip dito, bilang kontrata ninyo sa
air carrier. Depende sa patakarang angkop sa iyong tiket, ang hindi
paggamit nito ay maaaring magresulta sa pagwawalang bisa sa inyong
tiket o sa paniningil ng karagdagang bayad kung nais ninyong baguhin
o kanselahin ang inyong tiket.

Para sa mas maraming pagpipilian at malawak na control sa inyong

flight, inaanyayahan kayong bumili ng iba pang klase ng tiket galing
sa air carrier." (Emphasis in the original)

The Air Passenger Bill of Rights acknowledges that "while a passenger

has the option to buy or not to buy the service, the decision of the
passenger to buy the ticket binds such passenger[.]" 133 Thus, the
airline is mandated to place in writing all the conditions it will impose
on the passenger. SDAaTC

However, the duty of an airline to disclose all the necessary information

in the contract of carriage does not remove the correlative obligation of
the passenger to exercise ordinary diligence in the conduct of his or
her affairs. The passenger is still expected to read through the flight
information in the contract of carriage before making his or her
purchase. If he or she fails to exercise the ordinary diligence expected
of passengers, any resulting damage should be borne by the passenger.
THIRD DIVISION
[G.R. No. 184513. March 9, 2016.]
DESIGNER BASKETS, INC., petitioner, vs. AIR SEA TRANSPORT, INC.
and ASIA CARGO CONTAINER LINES, INC., respondents.
DECISION
JARDELEZA, J p:
This is a Petition for Review on Certiorari 1 of the August 16, 2007
Decision 2 and September 2, 2008 Resolution 3 of the Court of Appeals
(CA) in CA-G.R. CV No. 79790, absolving respondents Air Sea
Transport, Inc. (ASTI) and Asia Cargo Container Lines, Inc. (ACCLI)
from liability in the complaint for sum of money and damages filed by
petitioner Designer Baskets, Inc. (DBI). cAaDHT
The Facts
DBI is a domestic corporation engaged in the production of housewares
and handicraft items for export. 4 Sometime in October 1995,
Ambiente, a foreign-based company, ordered from DBI 5 223 cartons
of assorted wooden items (the shipment). 6 The shipment was worth
Twelve Thousand Five Hundred Ninety and Eighty-Seven Dollars
(US$12,590.87) and payable through telegraphic transfer. 7 Ambiente
designated ACCLI as the forwarding agent that will ship out its order
from the Philippines to the United States (US). ACCLI is a domestic
corporation acting as agent of ASTI, a US based corporation engaged
in carrier transport business, in the Philippines. 8
On January 7, 1996, DBI delivered the shipment to ACCLI for sea
transport from Manila and delivery to Ambiente at 8306 Wilshire Blvd.,
Suite 1239, Beverly Hills, California. To acknowledge receipt and to
serve as the contract of sea carriage, ACCLI issued to DBI triplicate
copies of ASTI Bill of Lading No. AC/MLLA601317. 9 DBI retained
possession of the originals of the bills of lading pending the payment
of the goods by Ambiente. 10
On January 23, 1996, Ambiente and ASTI entered into an Indemnity
Agreement (Agreement). 11 Under the Agreement, Ambiente obligated
ASTI to deliver the shipment to it or to its order "without the surrender
of the relevant bill(s) of lading due to the non-arrival or loss thereof."
12 In exchange, Ambiente undertook to indemnify and hold ASTI and
its agent free from any liability as a result of the release of the
shipment. 13 Thereafter, ASTI released the shipment to Ambiente
without the knowledge of DBI, and without it receiving payment for the
total cost of the shipment. 14 IDSEAH
DBI then made several demands to Ambiente for the payment of the
shipment, but to no avail. Thus, on October 7, 1996, DBI filed the
Original Complaint against ASTI, ACCLI and ACCLI's incorporators-
stockholders 15 for the payment of the value of the shipment in the
amount of US$12,590.87 or Three Hundred Thirty-Three and Six
Hundred Fifty-Eight Pesos (P333,658.00), plus interest at the legal rate
from January 22, 1996, exemplary damages, attorney's fees and cost
of suit. 16
In its Original Complaint, DBI claimed that under Bill of Lading
Number AC/MLLA601317, ASTI and/or ACCLI is "to release and
deliver the cargo/shipment to the consignee, . . ., only after the original
copy or copies of [the] Bill of Lading is or are surrendered to them;
otherwise, they become liable to the shipper for the value of the
shipment." 17 DBI also averred that ACCLI should be jointly and
severally liable with its co-defendants because ACCLI failed to register
ASTI as a foreign corporation doing business in the Philippines. In
addition, ACCLI failed to secure a license to act as agent of ASTI. 18
On February 20, 1997, ASTI, ACCLI, and ACCLI's incorporators-
stockholders filed a Motion to Dismiss. 19 They argued that: (a) they
are not the real parties-in-interest in the action because the cargo was
delivered and accepted by Ambiente. The case, therefore, was a simple
case of non-payment of the buyer; (b) relative to the incorporators-
stockholders of ACCLI, piercing the corporate veil is misplaced; (c)
contrary to the allegation of DBI, the bill of lading covering the
shipment does not contain a proviso exposing ASTI to liability in case
the shipment is released without the surrender of the bill of lading; and
(d) the Original Complaint did not attach a certificate of non-forum
shopping. 20
DBI filed an Opposition to the Motion to Dismiss, 21 asserting that
ASTI and ACCLI failed to exercise the required extraordinary diligence
when they allowed the cargoes to be withdrawn by the consignee
without the surrender of the original bill of lading. ASTI, ACCLI, and
ACCLI's incorporators-stockholders countered that it is DBI who failed
to exercise extraordinary diligence in protecting its own interest. They
averred that whether or not the buyer-consignee pays the seller is
already outside of their concern. 22
Before the trial court could resolve the motion to dismiss, DBI filed an
Amended Complaint 23 impleading Ambiente as a new defendant and
praying that it be held solidarily liable with ASTI, ACCLI, and ACCLI's
incorporators-stockholders for the payment of the value of the
shipment. DBI alleged that it received reliable information that the
shipment was released merely on the basis of a company guaranty of
Ambiente. 24 Further, DBI asserted that ACCLI's incorporators-
stockholders have not yet fully paid their stock subscriptions; thus,
"under the circumstance of [the] case," they should be held liable to
the extent of the balance of their subscriptions. 25 HCaDIS
In their Answer, 26 ASTI, ACCLI, and ACCLI's incorporators-
stockholders countered that DBI has no cause of action against ACCLI
and its incorporators-stockholders because the Amended Complaint,
on its face, is for collection of sum of money by an unpaid seller against
a buyer. DBI did not allege any act of the incorporators-stockholders
which would constitute as a ground for piercing the veil of corporate
fiction. 27 ACCLI also reiterated that there is no stipulation in the bill
of lading restrictively subjecting the release of the cargo only upon the
presentation of the original bill of lading. 28 It regarded the issue of
ASTI's lack of license to do business in the Philippines as "entirely
foreign and irrelevant to the issue of liability for breach of contract"
between DBI and Ambiente. It stated that the purpose of requiring a
license (to do business in the Philippines) is to subject the foreign
corporation to the jurisdiction of Philippine courts. 29
On July 22, 1997, the trial court directed the service of summons to
Ambiente through the Department of Trade and Industry. 30 The
summons was served on October 6, 1997 31 and December 18, 1997.
32 Ambiente failed to file an Answer. Hence, DBI moved to declare
Ambiente in default, which the trial court granted in its Order dated
September 15, 1998. 33
The Ruling of the Trial Court
In a Decision 34 dated July 25, 2003, the trial court found ASTI,
ACCLI, and Ambiente solidarily liable to DBI for the value of the
shipment. It awarded DBI the following:
1. US$12,590.87, or the equivalent of [P]333,658.00 at the time
of the shipment, plus 12% interest per annum from 07 January 1996
until the same is fully paid;
2. [P]50,000.00 in exemplary damages;
3. [P]47,000.00 as and for attorney's fees; and,
4. [P]10,000.00 as cost of suit. 35
The trial court declared that the liability of Ambiente is "very clear." As
the buyer, it has an obligation to pay for the value of the shipment. The
trial court noted that "[the case] is a simple sale transaction which had
been perfected especially since delivery had already been effected and
with only the payment for the shipment remaining left to be done." 36
With respect to ASTI, the trial court held that as a common carrier,
ASTI is bound to observe extraordinary diligence in the vigilance over
the goods. However, ASTI was remiss in its duty when it allowed the
unwarranted release of the shipment to Ambiente. 37 The trial court
found that the damages suffered by DBI was due to ASTI's release of
the merchandise despite the non-presentation of the bill of lading. That
ASTI entered into an Agreement with Ambiente to release the shipment
without the surrender of the bill of lading is of no moment. 38 The
Agreement cannot save ASTI from liability because in entering into
such, it violated the law, the terms of the bill of lading and the right of
DBI over the goods. 39 aCIHcD
The trial court also added that the Agreement only involved Ambiente
and ASTI. Since DBI is not privy to the Agreement, it is not bound by
its terms. 40
The trial court found that ACCLI "has not done enough to prevent the
defendants Ambiente and [ASTI] from agreeing among themselves the
release of the goods in total disregard of [DBI's] rights and in
contravention of the country's civil and commercial laws." 41 As the
forwarding agent, ACCLI was "well aware that the goods cannot be
delivered to the defendant Ambiente since [DBI] retained possession of
the originals of the bill of lading." 42 Consequently, the trial court held
ACCLI solidarily liable with ASTI.
As regards ACCLI's incorporators-stockholders, the trial court
absolved them from liability. The trial court ruled that the participation
of ACCLI's incorporators-stockholders in the release of the cargo is not
as direct as that of ACCLI. 43
DBI, ASTI and ACCLI appealed to the CA. On one hand, DBI took issue
with the order of the trial court awarding the value of the shipment in
Philippine Pesos instead of US Dollars. It also alleged that even
assuming that the shipment may be paid in Philippine Pesos, the trial
court erred in pegging its value at the exchange rate prevailing at the
time of the shipment, rather than at the exchange rate prevailing at
the time of payment. 44
On the other hand, ASTI and ACCLI questioned the trial court's
decision finding them solidarily liable with DBI for the value of the
shipment. They also assailed the trial court's award of interest,
exemplary damages, attorney's fees and cost of suit in DBI's favor. 45
The Ruling of the Court of Appeals
The CA affirmed the trial court's finding that Ambiente is liable to DBI,
but absolved ASTI and ACCLI from liability. The CA found that the
pivotal issue is whether the law requires that the bill of lading be
surrendered by the buyer/consignee before the carrier can release the
goods to the former. It then answered the question in the negative,
thus:
There is nothing in the applicable laws that require the surrender of
bills of lading before the goods may be released to the buyer/consignee.
In fact, Article 353 of the Code of Commerce suggests a contrary
conclusion, viz. —
"Art. 353. After the contract has been complied with, the bill of
lading which the carrier has issued shall be returned to him, and by
virtue of the exchange of this title with the thing transported, the
respective obligations shall be considered canceled . . . In case the
consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier because of its loss or of any other cause, he
must give the latter a receipt for the goods delivered, this receipt
producing the same effects as the return of the bill of lading." AHCETa
The clear import of the above article is that the surrender of the bill of
lading is not an absolute and mandatory requirement for the release of
the goods to the consignee. The fact that the carrier is given the
alternative option to simply require a receipt for the goods delivered
suggests that the surrender of the bill of lading may be dispensed with
when it cannot be produced by the consignee for whatever cause. 46
(Emphasis supplied.)
The CA stressed that DBI failed to present evidence to prove its
assertion that the surrender of the bill of lading upon delivery of the
goods is a common mercantile practice. 47 Further, even assuming
that such practice exists, it cannot prevail over law and jurisprudence.
48
As for ASTI, the CA explained that its only obligation as a common
carrier was to deliver the shipment in good condition. It did not include
looking beyond the details of the transaction between the seller and
the consignee, or more particularly, ascertaining the payment of the
goods by the buyer Ambiente. 49
Since the agency between ASTI and ACCLI was established and not
disputed by any of the parties, neither can ACCLI, as a mere agent of
ASTI, be held liable. This must be so in the absence of evidence that
the agent exceeded its authority. 50
The CA, thus, ruled:
WHEREFORE, in view of the foregoing, the Decision dated July 25,
2003 of Branch 255 of the Regional Trial Court of Las [Piñas] City in
Civil Case No. LP-96-0235 is hereby AFFIRMED with the following
MODIFICATIONS:
1. Defendants-appellants Air Sea Transport, Inc. and Asia Cargo
Container Lines, Inc. are hereby ABSOLVED from all liabilities;
2. The actual damages to be paid by defendant Ambiente shall be
in the amount of US$12,590.87. Defendant Ambiente's liability may be
paid in Philippine currency, computed at the exchange rate prevailing
at the time of payment; 51 and
3. The rate of interest to be imposed on the total amount of
US$12,590.87 shall be 6% per annum computed from the filing of the
complaint on October 7, 1996 until the finality of this decision. After
this decision becomes final and executory, the applicable rate shall be
12% per annum until its full satisfaction. cHaCAS
SO ORDERED. 52
Hence, this petition for review, which raises the sole issue of whether
ASTI and ACCLI may be held solidarily liable to DBI for the value of the
shipment.
Our Ruling
We deny the petition.
A common carrier may release the
goods to the consignee even without
the surrender of the bill of lading.
This case presents an instance where an unpaid seller sues not only
the buyer, but the carrier and the carrier's agent as well, for the
payment of the value of the goods sold. The basis for ASTI and ACCLI's
liability, as pleaded by DBI, is the bill of lading covering the shipment.
A bill of lading is defined as "a written acknowledgment of the receipt
of goods and an agreement to transport and to deliver them at a
specified place to a person named or on his order." 53 It may also be
defined as "an instrument in writing, signed by a carrier or his agent,
describing the freight so as to identify it, stating the name of the
consignor, the terms of the contract of carriage, and agreeing or
directing that the freight be delivered to bearer, to order or to a
specified person at a specified place. 54
Under Article 350 of the Code of Commerce, "the shipper as well as the
carrier of the merchandise or goods may mutually demand that a bill
of lading be made." A bill of lading, when issued by the carrier to the
shipper, is the legal evidence of the contract of carriage between the
former and the latter. It defines the rights and liabilities of the parties
in reference to the contract of carriage. The stipulations in the bill of
lading are valid and binding unless they are contrary to law, morals,
customs, public order or public policy. 55
Here, ACCLI, as agent of ASTI, issued Bill of Lading No.
AC/MLLA601317 to DBI. This bill of lading governs the rights,
obligations and liabilities of DBI and ASTI. DBI claims that Bill of
Lading No. AC/MLLA601317 contains a provision stating that ASTI
and ACCLI are "to release and deliver the cargo/shipment to the
consignee, . . ., only after the original copy or copies of the said Bill of
Lading is or are surrendered to them; otherwise they become liable to
[DBI] for the value of the shipment." 56 Quite tellingly, however, DBI
does not point or refer to any specific clause or provision on the bill of
lading supporting this claim. The language of the bill of lading shows
no such requirement. What the bill of lading provides on its face is:
Received by the Carrier in apparent good order and condition unless
otherwise indicated hereon, the Container(s) and/or goods hereinafter
mentioned to be transported and/or otherwise forwarded from the
Place of Receipt to the intended Place of Delivery upon and [subject] to
all the terms and conditions appearing on the face and back of this Bill
of Lading. If required by the Carrier this Bill of Lading duly endorsed
must be surrendered in exchange for the Goods of delivery order. 57
(Emphasis supplied.) ScHADI
There is no obligation, therefore, on the part of ASTI and ACCLI to
release the goods only upon the surrender of the original bill of lading.
Further, a carrier is allowed by law to release the goods to the
consignee even without the latter's surrender of the bill of lading. The
third paragraph of Article 353 of the Code of Commerce is enlightening:
Article 353. The legal evidence of the contract between the shipper
and the carrier shall be the bills of lading, by the contents of which the
disputes which may arise regarding their execution and performance
shall be decided, no exceptions being admissible other than those of
falsity and material error in the drafting.
After the contract has been complied with, the bill of lading which the
carrier has issued shall be returned to him, and by virtue of the
exchange of this title with the thing transported, the respective
obligations and actions shall be considered cancelled, unless in the
same act the claim which the parties may wish to reserve be reduced
to writing, with the exception of that provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill
of lading subscribed by the carrier, because of its loss or any other
cause, he must give the latter a receipt for the goods delivered, this
receipt producing the same effects as the return of the bill of lading.
(Emphasis supplied.)
The general rule is that upon receipt of the goods, the consignee
surrenders the bill of lading to the carrier and their respective
obligations are considered canceled. The law, however, provides two
exceptions where the goods may be released without the surrender of
the bill of lading because the consignee can no longer return it. These
exceptions are when the bill of lading gets lost or for other cause. In
either case, the consignee must issue a receipt to the carrier upon the
release of the goods. Such receipt shall produce the same effect as the
surrender of the bill of lading.
We have already ruled that the non-surrender of the original bill of
lading does not violate the carrier's duty of extraordinary diligence over
the goods. 58 In Republic v. Lorenzo Shipping Corporation, 59 we
found that the carrier exercised extraordinary diligence when it
released the shipment to the consignee, not upon the surrender of the
original bill of lading, but upon signing the delivery receipts and
surrender of the certified true copies of the bills of lading. Thus, we
held that the surrender of the original bill of lading is not a condition
precedent for a common carrier to be discharged of its contractual
obligation. DACcIH
Under special circumstances, we did not even require presentation of
any form of receipt by the consignee, in lieu of the original bill of lading,
for the release of the goods. In Macam v. Court of Appeals, 60 we
absolved the carrier from liability for releasing the goods to the
consignee without the bills of lading despite this provision on the bills
of lading:
"One of the Bills of Lading must be surrendered duly endorsed in
exchange for the goods or delivery order." 61 (Citations omitted.)
In clearing the carrier from liability, we took into consideration that the
shipper sent a telex to the carrier after the goods were shipped. The
telex instructed the carrier to deliver the goods without need of
presenting the bill of lading and bank guarantee per the shipper's
request since "for prepaid shipt ofrt charges already fully paid our end
. . . ." 62 We also noted the usual practice of the shipper to request the
shipping lines to immediately release perishable cargoes through
telephone calls.
Also, in Eastern Shipping Lines v. Court of Appeals, 63 we absolved
the carrier from liability for releasing the goods to the supposed
consignee, Consolidated Mines, Inc. (CMI), on the basis of an
Undertaking for Delivery of Cargo but without the surrender of the
original bill of lading presented by CMI. Similar to the factual
circumstance in this case, the Undertaking in Eastern Shipping Lines
guaranteed to hold the carrier "harmless from all demands, claiming
liabilities, actions and expenses." 64 Though the central issue in that
case was who the consignee was in the bill of lading, it is noteworthy
how we gave weight to the Undertaking in ruling in favor of the carrier:
But assuming that CMI may not be considered consignee, the
petitioner cannot be faulted for releasing the goods to CMI under the
circumstances, due to its lack of knowledge as to who was the real
consignee in view of CMI's strong representations and letter of
undertaking wherein it stated that the bill of lading would be presented
later. This is precisely the situation covered by the last paragraph of
Art. 353 of the [Code of Commerce] to wit:
"If in case of loss or for any other reason whatsoever, the consignee
cannot return upon receiving the merchandise the bill of lading
subscribed by the carrier, he shall give said carrier a receipt of the
goods delivered this receipt producing the same effects as the return
of the bill of lading." 65
Clearly, law and jurisprudence is settled that the surrender of the
original bill of lading is not absolute; that in case of loss or any other
cause, a common carrier may release the goods to the consignee even
without it.
Here, Ambiente could not produce the bill of lading covering the
shipment not because it was lost, but for another cause: the bill of
lading was retained by DBI pending Ambiente's full payment of the
shipment. Ambiente and ASTI then entered into an Indemnity
Agreement, wherein the former asked the latter to release the shipment
even without the surrender of the bill of lading. The execution of this
Agreement, and the undisputed fact that the shipment was released to
Ambiente pursuant to it, to our mind, operates as a receipt in
substantial compliance with the last paragraph of Article 353 of the
Code of Commerce. aICcHA
Articles 1733, 1734, and 1735 of
the Civil Code are not applicable.
DBI, however, challenges the Agreement, arguing that the carrier
released the goods pursuant to it, notwithstanding the carrier's
knowledge that the bill of lading should first be surrendered. As such,
DBI claims that ASTI and ACCLI are liable for damages because they
failed to exercise extraordinary diligence in the vigilance over the goods
pursuant to Articles 1733, 1734, and 1735 of the Civil Code. 66
DBI is mistaken.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable in
this case. The Articles state:
Article 1733. 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.
Such extraordinary diligence in vigilance over the goods is further
expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set
forth in Articles 1755 and 1756.
Article 1734. Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the same is due to
any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity;
(2) Act of the public enemy in war, whether international or civil;
(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.
Article 1735. In all cases other than those mentioned in Nos. 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. HSCATc
Articles 1733, 1734, and 1735 speak of the common carrier's
responsibility over the goods. They refer to the general liability of
common carriers in case of loss, destruction or deterioration of goods
and the presumption of negligence against them. This responsibility or
duty 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. 67 It is, in fact, undisputed that the goods
were timely delivered to the proper consignee or to the one who was
authorized to receive them. DBI's only cause of action against ASTI and
ACCLI is the release of the goods to Ambiente without the surrender of
the bill of lading, purportedly in violation of the terms of the bill of
lading. We have already found that Bill of Lading No. AC/MLLA601317
does not contain such express prohibition. Without any prohibition,
therefore, the carrier had no obligation to withhold release of the goods.
Articles 1733, 1734, and 1735 do not give ASTI any such obligation.
The applicable provision instead is Article 353 of the Code of
Commerce, which we have previously discussed. To reiterate, the
Article allows the release of the goods to the consignee even without
his surrender of the original bill of lading. In such case, the duty of the
carrier to exercise extraordinary diligence is not violated. Nothing,
therefore, prevented the consignee and the carrier to enter into an
indemnity agreement of the same nature as the one they entered here.
No law or public policy is contravened upon its execution.
Article 1503 of the Civil Code does
not apply to contracts for carriage
of goods.
In its petition, DBI continues to assert the wrong application of Article
353 of the Code of Commerce to its Amended Complaint. It alleges that
the third paragraph of Article 1503 of the Civil Code is the applicable
provision because: (a) Article 1503 is a special provision that deals
particularly with the situation of the seller retaining the bill of lading;
and (b) Article 1503 is a law which is later in point of time to Article
353 of the Code of Commerce. 68 DBI posits that being a special
provision, Article 1503 of the Civil Code should prevail over Article 353
of the Code of Commerce, a general provision that makes no reference
to the seller retaining the bill of lading. 69
DBI's assertion is untenable. Article 1503 is an exception to the general
presumption provided in the first paragraph of Article 1523, which
reads:
Article 1523. Where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the
goods to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to
the buyer, except in the cases provided for in Articles 1503, first,
second and third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such
contract with the carrier on behalf of the buyer as may be reasonable,
having regard to the nature of the goods and the other circumstances
of the case. If the seller omit so to do, and the goods are lost or damaged
in the course of transit, the buyer may decline to treat the delivery to
the carrier as a delivery to himself, or may hold the seller responsible
in damages. EHaASD
Unless otherwise agreed, where goods are sent by the seller to the
buyer under circumstances in which the seller knows or ought to know
that it is usual to insure, the seller must give such notice to the buyer
as may enable him to insure them during their transit, and, if the seller
fails to do so, the goods shall be deemed to be at his risk during such
transit. (Emphasis supplied.)
Article 1503, on the other hand, provides:
Article 1503. When there is a contract of sale of specific goods, the
seller may, by the terms of the contract, reserve the right of possession
or ownership in the goods until certain conditions have been fulfilled.
The right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or to a carrier
or other bailee for the purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are
deliverable to the seller or his agent, or to the order of the seller or of
his agent, the seller thereby reserves the ownership in the goods. But,
if except for the form of the bill of lading, the ownership would have
passed to the buyer on shipment of the goods, the seller's property in
the goods shall be deemed to be only for the purpose of securing
performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are
deliverable to order of the buyer or of his agent, but possession of the
bill of lading is retained by the seller or his agent, the seller thereby
reserves a right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and
transmits the bill of exchange and bill of lading together to the buyer
to secure acceptance or payment of the bill of exchange, the buyer is
bound to return the bill of lading if he does not honor the bill of
exchange, and if he wrongfully retains the bill of lading he acquires no
added right thereby. If, however, the bill of lading provides that the
goods are deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named therein, one
who purchases in good faith, for value, the bill of lading, or goods from
the buyer will obtain the ownership in the goods, although the bill of
exchange has not been honored, provided that such purchaser has
received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer
wrongful. (Emphasis supplied.) IDTSEH
Articles 1523 and 1503, therefore, refer to a contract of sale between a
seller and a buyer. In particular, they refer to who between the seller
and the buyer has the right of possession or ownership over the goods
subject of the sale. Articles 1523 and 1503 do not apply to a contract
of carriage between the shipper and the common carrier. The third
paragraph of Article 1503, upon which DBI relies, does not oblige the
common carrier to withhold delivery of the goods in the event that the
bill of lading is retained by the seller. Rather, it only gives the seller a
better right to the possession of the goods as against the mere inchoate
right of the buyer. Thus, Articles 1523 and 1503 find no application
here. The case before us does not involve an action where the seller
asserts ownership over the goods as against the buyer. Instead, we are
confronted with a complaint for sum of money and damages filed by
the seller against the buyer and the common carrier due to the non-
payment of the goods by the buyer, and the release of the goods by the
carrier despite non-surrender of the bill of lading. A contract of sale is
separate and distinct from a contract of carriage. They involve different
parties, different rights, different obligations and liabilities. Thus, we
quote with approval the ruling of the CA, to wit:
On the third assigned error, [w]e rule for the defendants-appellants
[ASTI and ACCLI]. They are correct in arguing that the nature of their
obligation with plaintiff [DBI] is separate and distinct from the
transaction of the latter with defendant Ambiente. As carrier of the
goods transported by plaintiff, its obligation is simply to ensure that
such goods are delivered on time and in good condition. In the case
[Macam v. Court of Appeals], the Supreme Court emphasized that "the
extraordinary responsibility of the common carriers lasts until actual
or constructive delivery of the cargoes to the consignee or to the person
who has the right to receive them." . . .
It is therefore clear that the moment the carrier has delivered the
subject goods, its responsibility ceases to exist and it is thereby freed
from all the liabilities arising from the transaction. Any question
regarding the payment of the buyer to the seller is no longer the
concern of the carrier. This easily debunks plaintiff's theory of joint
liability. 70 . . . (Emphasis supplied; citations omitted.)
The contract between DBI and ASTI is a contract of carriage of goods;
hence, ASTI's liability should be pursuant to that contract and the law
on transportation of goods. Not being a party to the contract of sale
between DBI and Ambiente, ASTI cannot be held liable for the payment
of the value of the goods sold. In this regard, we cite Loadstar Shipping
Company, Incorporated v. Malayan Insurance Company, Incorporated,
71 thus:
Malayan opposed the petitioners' invocation of the Philex-PASAR
purchase agreement, stating that the contract involved in this case is
a contract of affreightment between the petitioners and PASAR, not the
agreement between Philex and PASAR, which was a contract for the
sale of copper concentrates. DaIAcC

On this score, the Court agrees with Malayan that contrary to the trial
court's disquisition, the petitioners cannot validly invoke the penalty
clause under the Philex-PASAR purchase agreement, where penalties
are to be imposed by the buyer PASAR against the seller Philex if some
elements exceeding the agreed limitations are found on the copper
concentrates upon delivery. The petitioners are not privy to the
contract of sale of the copper concentrates. The contract between
PASAR and the petitioners is a contract of carriage of goods and not a
contract of sale. Therefore, the petitioners and PASAR are bound by
the laws on transportation of goods and their contract of affreightment.
Since the Contract of Affreightment between the petitioners and PASAR
is silent as regards the computation of damages, whereas the bill of
lading presented before the trial court is undecipherable, the New Civil
Code and the Code of Commerce shall govern the contract between the
parties. 72 (Emphasis supplied; citations omitted.)

In view of the foregoing, we hold that under Bill of Lading No.

AC/MLLA601317 and the pertinent law and jurisprudence, ASTI and
ACCLI are not liable to DBI. We sustain the finding of the CA that only
Ambiente, as the buyer of the goods, has the obligation to pay for the
value of the shipment. However, in view of our ruling in Nacar v.
Gallery Frames, 73 we modify the legal rate of interest imposed by the
CA. Instead of 12% per annum from the finality of this judgment until
its full satisfaction, the rate of interest shall only be 6% per annum.

WHEREFORE, the petition is DENIED for lack of merit. The August 16,
2007 Decision and the September 2, 2008 Resolution of the Court of
Appeals in CA-G.R. CV No. 79790 are hereby AFFIRMED with the
MODIFICATION that from the finality of this decision until its full
satisfaction, the applicable rate of interest shall be 6% per annum.

SO ORDERED.

Velasco, Jr., Peralta, Perez and Reyes, JJ., concur.

SECOND DIVISION
[G.R. No. 194121. July 11, 2016.]
TORRES-MADRID BROKERAGE, INC., petitioner, vs. FEB MITSUI
MARINE INSURANCE CO., INC. and BENJAMIN P. MANALASTAS,
doing business under the name of BMT TRUCKING SERVICES,
respondents.
DECISION
BRION, J p:
We resolve the petition for review on certiorari challenging the Court of
Appeals' (CA) October 14, 2010 decision in CA-G.R. CV No. 91829. 1
The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case
No. 01-1596, and found petitioner Torres-Madrid Brokerage, Inc.
(TMBI) and respondent Benjamin P. Manalastas jointly and solidarily
liable to respondent FEB Mitsui Marine Insurance Co., Inc. (Mitsui) for
damages from the loss of transported cargo.
Antecedents
On October 7, 2000, a shipment of various electronic goods from
Thailand and Malaysia arrived at the Port of Manila for Sony
Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the
services of TMBI to facilitate, process, withdraw, and deliver the
shipment from the port to its warehouse in Biñan, Laguna. 2 AaCTcI
TMBI — who did not own any delivery trucks — subcontracted the
services of Benjamin Manalastas' company, BMT Trucking Services
(BMT), to transport the shipment from the port to the Biñan
warehouse. 3 Incidentally, TMBI notified Sony who had no objections
to the arrangement. 4
Four BMT trucks picked up the shipment from the port at about 11:00
a.m. of October 7, 2000. However, BMT could not immediately
undertake the delivery because of the truck ban and because the
following day was a Sunday. Thus, BMT scheduled the delivery on
October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT's
garage for Laguna. 5 However, only three trucks arrived at Sony's
Biñan warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura
(NSF-391) was found abandoned along the Diversion Road in Filinvest,
Alabang, Muntinlupa City. 6 Both the driver and the shipment were
missing.
Later that evening, BMT's Operations Manager Melchor Manalastas
informed Victor Torres, TMBI's General Manager, of the development.
7 They went to Muntinlupa together to inspect the truck and to report
the matter to the police. 8
Victor Torres also filed a complaint with the National Bureau of
Investigation (NBI) against Lapesura for "hijacking." 9 The complaint
resulted in a recommendation by the NBI to the Manila City
Prosecutor's Office to prosecute Lapesura for qualified theft. 10
TMBI notified Sony of the loss through a letter dated October 10, 2000.
11 It also sent BMT a letter dated March 29, 2001, demanding payment
for the lost shipment. BMT refused to pay, insisting that the goods were
"hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the
insurer of the goods. After evaluating the merits of the claim, Mitsui
paid Sony PHP7,293,386.23 corresponding to the value of the lost
goods. 12 acEHCD
After being subrogated to Sony's rights, Mitsui sent TMBI a demand
letter dated August 30, 2001 for payment of the lost goods. TMBI
refused to pay Mitsui's claim. As a result, Mitsui filed a complaint
against TMBI on November 6, 2001.
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT,
as a third-party defendant. TMBI alleged that BMT's driver, Lapesura,
was responsible for the theft/hijacking of the lost cargo and claimed
BMT's negligence as the proximate cause of the loss. TMBI prayed that
in the event it is held liable to Mitsui for the loss, it should be
reimbursed by BMT.
At the trial, it was revealed that BMT and TMBI have been doing
business with each other since the early 80's. It also came out that
there had been a previous hijacking incident involving Sony's cargo in
1997, but neither Sony nor its insurer filed a complaint against BMT
or TMBI. 13
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas
jointly and solidarily liable to pay Mitsui PHP7,293,386.23 as actual
damages, attorney's fees equivalent to 25% of the amount claimed, and
the costs of the suit. 14 The RTC held that TMBI and Manalastas were
common carriers and had acted negligently.
Both TMBI and BMT appealed the RTC's verdict.
TMBI denied that it was a common carrier required to exercise
extraordinary diligence. It maintains that it exercised the diligence of
a good father of a family and should be absolved of liability because
the truck was "hijacked" and this was a fortuitous event. EcTCAD
BMT claimed that it had exercised extraordinary diligence over the lost
shipment, and argued as well that the loss resulted from a fortuitous
event.
On October 14, 2010, the CA affirmed the RTC's decision but reduced
the award of attorney's fees to PHP200,000.
The CA held: (1) that "hijacking" is not necessarily a fortuitous event
because the term refers to the general stealing of cargo during transit;
15 (2) that TMBI is a common carrier engaged in the business of
transporting goods for the general public for a fee; 16 (3) even if the
"hijacking" were a fortuitous event, TMBI's failure to observe
extraordinary diligence in overseeing the cargo and adopting security
measures rendered it liable for the loss; 17 and (4) even if TMBI had
not been negligent in the handling, transport and the delivery of the
shipment, TMBI still breached its contractual obligation to Sony when
it failed to deliver the shipment. 18
TMBI disagreed with the CA's ruling and filed the present petition on
December 3, 2010.
The Arguments
TMBI's Petition
TMBI insists that the hacking of the truck was a fortuitous event. It
contests the CA's finding that neither force nor intimidation was used
in the taking of the cargo. Considering Lapesura was never found, the
Court should not discount the possibility that he was a victim rather
than a perpetrator. 19
TMBI denies being a common carrier because it does not own a single
truck to transport its shipment and it does not offer transport services
to the public for compensation. 20 It emphasizes that Sony knew TMBI
did not have its own vehicles and would subcontract the delivery to a
third-party.
Further, TMBI now insists that the service it offered was limited to the
processing of paperwork attendant to the entry of Sony's goods. It
denies that delivery of the shipment was a part of its obligation. 21
TMBI solely blames BMT as it had full control and custody of the cargo
when it was lost. 22 BMT, as a common carrier, is presumed negligent
and should be responsible for the loss. SDHTEC
BMT's Comment
BMT insists that it observed the required standard of care. 23 Like the
petitioner, BMT maintains that the hijacking was a fortuitous event —
a force majeure — that exonerates it from liability. 24 It points out that
Lapesura has never been seen again and his fate remains a mystery.
BMT likewise argues that the loss of the cargo necessarily showed that
the taking was with the use of force or intimidation. 25
If there was any attendant negligence, BMT points the finger on TMBI
who failed to send a representative to accompany the shipment. 26
BMT further blamed TMBI for the latter's failure to adopt security
measures to protect Sony's cargo. 27
Mitsui's Comment
Mitsui counters that neither TMBI nor BMT alleged or proved during
the trial that the taking of the cargo was accompanied with grave or
irresistible threat, violence, or force. 28 Hence, the incident cannot be
considered "force majeure" and TMBI remains liable for breach of
contract.
Mitsui emphasizes that TMBI's theory — that force or intimidation
must have been used because Lapesura was never found — was only
raised for the first time before this Court. 29 It also discredits the
theory as a mere conjecture for lack of supporting evidence.
Mitsui adopts the CA's reasons to conclude that TMBI is a common
carrier. It also points out Victor Torres' admission during the trial that
TMBI's brokerage service includes the eventual delivery of the cargo to
the consignee. 30
Mitsui invokes as well the legal presumption of negligence against
TMBI, pointing out that TMBI simply entrusted the cargo to BMT
without adopting any security measures despite: (1) a previous
hijacking incident when TMBI lost Sony's cargo; and (2) TMBI's
knowledge that the cargo was worth more than 10 million pesos. 31
HSAcaE
Mitsui affirms that TMBI breached the contract of carriage through its
negligent handling of the cargo, resulting in its loss.
The Court's Ruling
A brokerage may be considered a
common carrier if it also undertakes to
deliver the goods for its customers
Common carriers are persons, corporations, firms or associations
engaged in the business of transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the
public. 32 By the nature of their business and for reasons of public
policy, they are bound to observe extraordinary diligence in the
vigilance over the goods and in the safety of their passengers. 33
In A.F. Sanchez Brokerage, Inc. v. Court of Appeals, 34 we held that a
customs broker — whose principal business is the preparation of the
correct customs declaration and the proper shipping documents — is
still considered a common carrier if it also undertakes to deliver the
goods for its customers. The law does not distinguish between one
whose principal business activity is the carrying of goods and one who
undertakes this task only as an ancillary activity. 35 This ruling has
been reiterated in Schmitz Transport & Brokerage Corp. v. Transport
Venture, Inc., 36 Loadmasters Customs Services, Inc. v. Glodel
Brokerage Corporation, 37 and Westwind Shipping Corporation v.
UCPB General Insurance Co., Inc. 38 AScHCD
Despite TMBI's present denials, we find that the delivery of the goods
is an integral, albeit ancillary, part of its brokerage services. TMBI
admitted that it was contracted to facilitate, process, and clear the
shipments from the customs authorities, withdraw them from the pier,
then transport and deliver them to Sony's warehouse in Laguna. 39
Further, TMBI's General Manager Victor Torres described the nature
of its services as follows:
ATTY. VIRTUDAZO: Could you please tell the court what is the nature
of the business of [TMBI]?
Witness MR. Victor Torres of Torres Madrid: We are engaged in
customs brokerage business. We acquire the release documents from
the Bureau of Customs and eventually deliver the cargoes to the
consignee's warehouse and we are engaged in that kind of business,
sir. 40
That TMBI does not own trucks and has to subcontract the delivery of
its clients' goods, is immaterial. As long as an entity holds itself to the
public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has
to actually hire one. 41
Lastly, TMBI's customs brokerage services — including the
transport/delivery of the cargo — are available to anyone willing to pay
its fees. Given these circumstances, we find it undeniable that TMBI is
a common carrier. HESIcT
Consequently, TMBI should be held responsible for the loss,
destruction, or deterioration of the goods it transports unless it results
from:
(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 of 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. 42
For all other cases — such as theft or robbery — a common carrier is
presumed to have been at fault or to have acted negligently, unless it
can prove that it observed extraordinary diligence. 43
Simply put, the theft or the robbery of the goods is not considered a
fortuitous event or a force majeure. Nevertheless, a common carrier
may absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the
goods; 44 or (2) if it stipulated with the shipper/owner of the goods to
limit its liability for the loss, destruction, or deterioration of the goods
to a degree less than extraordinary diligence. 45 AcICHD
However, a stipulation diminishing or dispensing with the common
carrier's liability for acts committed by thieves or robbers who do not
act with grave or irresistible threat, violence, or force is void under
Article 1745 of the Civil Code for being contrary to public policy. 46
Jurisprudence, too, has expanded Article 1734's five exemptions. De
Guzman v. Court of Appeals 47 interpreted Article 1745 to mean that
a robbery attended by "grave or irresistible threat, violence or force" is
a fortuitous event that absolves the common carrier from liability.
In the present case, the shipper, Sony, engaged the services of TMBI,
a common carrier, to facilitate the release of its shipment and deliver
the goods to its warehouse. In turn, TMBI subcontracted a portion of
its obligation — the delivery of the cargo — to another common carrier,
BMT.
Despite the subcontract, TMBI remained responsible for the cargo.
Under Article 1736, a common carrier's extraordinary responsibility
over the shipper's goods lasts from the time these goods are
unconditionally placed in the possession of, and received by, the
carrier for transportation, until they are delivered, actually or
constructively, by the carrier to the consignee. 48
That the cargo disappeared during transit while under the custody of
BMT — TMBI's subcontractor — did not diminish nor terminate TMBI's
responsibility over the cargo. Article 1735 of the Civil Code presumes
that it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI
simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this
premise carries with it the presumption of fault or negligence, thus
rendering it liable to Sony/Mitsui for breach of contract. caITAC
Specifically, TMBI's current theory — that the hijacking was attended
by force or intimidation — is untenable.
First, TMBI alleged in its Third Party Complaint against BMT that
Lapesura was responsible for hijacking the shipment. 49 Further,
Victor Torres filed a criminal complaint against Lapesura with the NBI.
50 These actions constitute direct and binding admissions that
Lapesura stole the cargo. Justice and fair play dictate that TMBI
should not be allowed to change its legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory
through evidence. Thus, the theory remained an unsupported
allegation no better than speculations and conjectures. The CA
therefore correctly disregarded the defense of force majeure.
TMBI and BMT are not solidarily liable
to Mitsui
We disagree with the lower courts' ruling that TMBI and BMT are
solidarily liable to Mitsui for the loss as joint tortfeasors. The ruling
was based on Article 2194 of the Civil Code: TAIaHE
Art. 2194. The responsibility of two or more persons who are liable
for quasi-delict is solidary.
Notably, TMBI's liability to Mitsui does not stem from a quasi-delict
(culpa aquiliana) but from its breach of contract (culpa contractual).
The tie that binds TMBI with Mitsui is contractual, albeit one that
passed on to Mitsui as a result of TMBI's contract of carriage with Sony
to which Mitsui had been subrogated as an insurer who had paid
Sony's insurance claim. The legal reality that results from this
contractual tie precludes the application of quasi-delict based Article
2194.
A third party may recover from a
common carrier for quasi-delict but must
prove actual negligence
We likewise disagree with the finding that BMT is directly liable to
Sony/Mitsui for the loss of the cargo. While it is undisputed that the
cargo was lost under the actual custody of BMT (whose employee is the
primary suspect in the hijacking or robbery of the shipment), no direct
contractual relationship existed between Sony/Mitsui and BMT. If at
all, Sony/Mitsui's cause of action against BMT could only arise from
quasi-delict, as a third party suffering damage from the action of
another due to the latter's fault or negligence, pursuant to Article 2176
of the Civil Code. 51
We have repeatedly distinguished between an action for breach of
contract (culpa contractual) and an action for quasi-delict (culpa
aquiliana).
In culpa contractual, the plaintiff only needs to establish the existence
of the contract and the obligor's failure to perform his obligation. It is
not necessary for the plaintiff to prove or even allege that the obligor's
non-compliance was due to fault or negligence because Article 1735 a. Actual damages in the amount of PHP7,293,386.23 plus legal
already presumes that the common carrier is negligent. The common interest from the time the complaint was filed until it is fully paid;
carrier can only free itself from liability by proving that it observed
extraordinary diligence. It cannot discharge this liability by shifting the b. Attorney's fees in the amount of PHP200,000.00; and
blame on its agents or servants. 52 ICHDca c. Costs of suit. cDHAES
On the other hand, the plaintiff in culpa aquiliana must clearly Respondent Benjamin P. Manalastas is in turn ORDERED to
establish the defendant's fault or negligence because this is the very REIMBURSE Torres-Madrid Brokerage, Inc. of the above-mentioned
basis of the action. 53 Moreover, if the injury to the plaintiff resulted amounts.
from the act or omission of the defendant's employee or servant, the
defendant may absolve himself by proving that he observed the SO ORDERED.
diligence of a good father of a family to prevent the damage. 54
Carpio, Del Castillo and Leonen, JJ., concur.
In the present case, Mitsui's action is solely premised on TMBI's breach
Mendoza, * J., is on official leave.
of contract. Mitsui did not even sue BMT, much less prove any
negligence on its part. If BMT has entered the picture at all, it is
because TMBI sued it for reimbursement for the liability that TMBI
might incur from its contract of carriage with Sony/Mitsui.
Accordingly, there is no basis to directly hold BMT liable to Mitsui for
quasi-delict.

BMT is liable to TMBI for breach of their

contract of carriage

We do not hereby say that TMBI must absorb the loss. By

subcontracting the cargo delivery to BMT, TMBI entered into its own
contract of carriage with a fellow common carrier.

The cargo was lost after its transfer to BMT's custody based on its
contract of carriage with TMBI. Following Article 1735, BMT is
presumed to be at fault. Since BMT failed to prove that it observed
extraordinary diligence in the performance of its obligation to TMBI, it
is liable to TMBI for breach of their contract of carriage.

In these lights, TMBI is liable to Sony (subrogated by Mitsui) for

breaching the contract of carriage. In turn, TMBI is entitled to
reimbursement from BMT due to the latter's own breach of its contract
of carriage with TMBI. The proverbial buck stops with BMT who may
either: (a) absorb the loss, or (b) proceed after its missing driver, the
suspected culprit, pursuant to Article 2181. 55

WHEREFORE, the Court hereby ORDERS petitioner Torres-Madrid

Brokerage, Inc. to pay the respondent FEB Mitsui Marine Insurance
Co., Inc. the following:
THIRD DIVISION
[G.R. No. L-47822. December 22, 1988.]
PEDRO DE GUZMAN, petitioner, vs. COURT OF APPEALS and
ERNESTO CENDAÑA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
SYLLABUS
1. CIVIL CODE; COMMON CARRIERS; ARTICLE 1732,
DEFINITION UNDER ARTICLE 1732 OF THE CODE. — The Civil Code
defines "common carriers" in the following terms: "Article 1732.
Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air for compensation, offering their
services to the public." The above article makes no distinction between
one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and
one who offers services or solicits business only from a narrow segment
of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
2. ID.; ID.; ID.; LAW ON COMMON CARRIERS SUPPLEMENTED
BY THE PUBLIC SERVICE ACT; SCOPE OF PUBLIC SERVICE. — 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 backhauling 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.
3. ID.; ID.; ID.; ID.; CERTIFICATE OF PUBLIC CONVENIENCE;
NOT A REQUISITE FOR INCURRING LIABILITY AS A COMMON
CARRIER; NATURE OF THE BUSINESS OF A COMMON CARRIER. —
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.
4. ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF, COMMON
CARRIERS. — Common carriers, "by the nature of their business and
for reasons of public policy," 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.
5. ID.; ID.; ID.; LIABILITY OF COMMON CARRIERS. — 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)
6. ID.; ID.; ID.; ID.; COMMON CARRIER'S ARE NOT ABSOLUTE
INSURERS AGAINST ALL RISKS; NO LIABILITY ATTACHES IN CASE
OF FORTUITOUS EVENTS. — 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 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.
DECISION
FELICIANO, J p:
Respondent Ernesto Cendaña, 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. llcd
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 P22,150.00, the claimed value of the lost merchandise,
plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held
liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier
and argued that he could not be held responsible for the value of the
lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision' finding
private respondent to be a common carrier and holding him liable for
the value of the undelivered goods (P22,150.00) as well as for
P4,000.00 as damages and P2,000.00 as attorney's fees. cdrep
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 Cendaña 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 deliberately refrained from
making such distinctions.
So understood, the concept of "common carrier" under Article 1732
may be seen to coincide neatly with the notion of "public service,"
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:
". . . every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, 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 backhauling 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. cdphil
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. cdll
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 fire fight at the risk of his
own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific
requirements of the duty of extraordinary diligence in the vigilance over
the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance
over goods is, under Article 1733, given additional specification not
only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5
and 6, Article 1745 provides in relevant part:
"Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) that the common carrier's liability for acts committed by
thieves, or of robbers who do not act with grave or irresistible threat,
violence or force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment used in
the contract of carriage." (Emphasis supplied)
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."
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. prLL
We, therefore, agree with the result reached by the Court of Appeals
that private respondent Cendaña 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.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortés, JJ., concur.

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
SECOND DIVISION
[G.R. No. 125948. December 29, 1998.]
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as City
Treasurer of Batangas, respondents.
SYLLABUS
1. CIVIL LAW; TRANSPORTATION; COMMON CARRIER;
DEFINED; APPLICATION IN CASE AT BAR. — A "common carrier" may
be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place
to place, for compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any
person, corporation, firm or association engaged in the business of
carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public." The test
for determining whether a party is a common carrier of goods is: 1. He
must be engaged in the business of carrying goods for others as a
public employment, and must hold himself out as ready to engage in
the transportation of goods for person generally as a business and not
as a casual occupation; 2. He must undertake to carry goods of the
kind to which his business is confined; 3. He must undertake to carry
by the method by which his business is conducted and over his
established roads: and 4. The transportation must be for hire. Based
on the above definitions and requirements, there is no doubt that
petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e., petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services and transports
the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common
carrier. As correctly pointed out by petitioner, the definition of
"common carrier" in the Civil Code makes no distinction as to the
means of transporting, as long as it is by land, water or air. It does not
provide that the transportation of the passengers or goods should be
by motor vehicle. In fact, in the United States, oil pipe line operators
are considered common carriers.
2. TAXATION; WHEN COMMON CARRIER MAY BE EXEMPT
FROM BUSINESS TAX; CASE AT BAR. — Under the Petroleum Act of
the Philippines (Republic Act 387), petitioner is considered a "common
carrier." Thus, Article 86 thereof provides that: "Article 86. Pipe line
concessionaire as common carrier. — A pipe line shall have the
preferential right to utilize installations for the transportation of
petroleum owned by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of such other
petroleum as may be offered by others for transport and to charge
without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources." Republic Act 387 also
regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides: "that everything relating to the exploration
for and exploitation of petroleum . . . and everything relating to the
manufacturer, refining, storage or transportation by special methods
of petroleum, is hereby declared to be a public utility." The Bureau of
Internal Revenue likewise considers the petitioner a "common carrier."
The BIR Ruling No. 069-83, it declared: " . . . since [petitioner] is a
pipeline concessionaire that is engaged only in transporting petroleum
products, it is considered a common carrier under Republic Act No.
387 . . .. Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78 as amended." From the
foregoing disquisition there is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business tax as provided for
in Section 133 (j) of the Local Government Code, to wit: "Section 133.
Common Limitations on the Taxing Power of Local Government Units.
— Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to
the levy of the following: . . . (j) Taxes on the gross receipts of
transportation contractors and persons engaged in the transportation
of passengers or freight by hire and common carriers by air, land or
water except as provided in this Code. DIECTc
DECISION
MARTINEZ, J p:
This petition for review on certiorari assails the Decision of the Court
of Appeals dated November 29, 1995, in CA-G.R. SP No. 36801,
affirming the decision of the Regional Trial Court of Batangas City,
Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
cdll
Petitioner is a grantee of a pipeline concession under Republic Act No.
387, as amended, to contract, install and operate oil pipelines. The
original pipeline concession was granted in 1967 1 and renewed by the
Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit
with the Office of the Mayor of Batangas City. However, before the
mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the
fiscal year 1993 pursuant to the Local Government Code. 3 The
respondent City Treasurer assessed a business tax on the petitioner
amounting to P956,076.04 payable in four installments based on the
gross receipts for products pumped at GPS-1 for the fiscal year 1993
which amounted to P181,681,151.00. In order not to hamper its
operations, petitioner paid the tax under protest in the amount of
P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the
respondent City Treasurer, the pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a
government concession granted under the Petroleum Act. It is engaged
in the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such,
our Company is exempt from paying tax on gross receipts under
Section 133 of the Local Government Code of 1991 . . .
"Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h) of the
Local Government Code. Therefore, the authority to impose tax on
contractors and other independent contractors' under Section 143,
Paragraph (e) of the Local Government Code does not include the power
to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee
authorized under Section 147 of the Local Government Code. The said
section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation,
inspection, and licensing. Hence, assuming arguendo that FPIC is
liable for the license fee, the imposition thereof based on gross receipts
is violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost of
regulation, inspection and licensing. The fee is already a revenue
raising measure, and not a mere regulatory imposition." 4
On March 8, 1994, the respondent City Treasurer denied the protest
contending that petitioner cannot be considered engaged in
transportation business, thus it cannot claim exemption under Section
133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of
Batangas City a complaint 6 for tax refund with prayer for writ of
preliminary injunction against respondents City of Batangas and
Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of
the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax
on the gross receipts of "contractors and independent contractors"
under Sec. 141(e) and 151 does not include the authority to collect
such taxes on transportation contractors for, as defined under Sec.
131 (h), the term "contractors" excludes transportation contractors;
and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax
paid. 7
Traversing the complaint, the respondents argued that petitioner
cannot be exempt from taxes under Section 133 (j) of the Local
Government Code as said exemption applies only to "transportation
contractors and persons engaged in the transportation by hire and
common carriers by air, land and water." Respondents assert that
pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the like.
Respondents further posit that the term "common carrier" under the
said code pertains to the mode or manner by which a product is
delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the
complaint, ruling in this wise:
". . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear.
It is a rule that tax exemptions are to be strictly construed against the
taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under
Republic Act 387, (Exhibit A) whose concession was lately renewed by
the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders
under Sec. 137 of the Local Tax Code. Such being the situation
obtained in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses
only common carriers so as not to overburden the riding public or
commuters with taxes. Plaintiff is not a common carrier, but a special
carrier extending its services and facilities to a single specific or
"special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more
and effective local autonomy to local governments than the previous
enactments, to make them economically and financially viable to serve
the people and discharge their functions with a concomitant obligation
to accept certain devolution of powers, . . . So, consistent with this
policy even franchise grantees are taxed (Sec. 137) and contractors are
also taxed under Sec. 143 (e) and 151 of the Code." 9
Petitioner assailed the aforesaid decision before this Court via a
petition for review. On February 27, 1995, we referred the case to the
respondent Court of Appeals for consideration and adjudication. 10 On
November 29, 1995, the respondent court rendered a decision 11
affirming the trial court's dismissal of petitioner's complaint.
Petitioner's motion for reconsideration was denied on July 18, 1996.
12
Hence, this petition. At first, the petition was denied due course in a
Resolution dated November 11, 1996. 13 Petitioner moved for a
reconsideration which was granted by this Court in a Resolution 14 of
January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding
that (1) the petitioner is not a common carrier or a transportation
contractor, and (2) the exemption sought for by petitioner is not clear
under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself
out to the public as engaged in the business of transporting persons
or property from place to place, for compensation, offering his services
to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any
person, corporation, firm or association engaged in the business of
carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods
is:
1. He must be engaged in the business of carrying goods for others
as a public employment, and must hold himself out as ready to engage
in the transportation of goods for person generally as a business and
not as a casual occupation;
2. He must undertake to carry goods of the kind to which his
business is confined;
3. He must undertake to carry by the method by which his
business is conducted and over his established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt
that petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports
the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals 16 we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between
one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as a 'sideline'). Article 1732 . . . avoids making
any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the 'general
public,' i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from
making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may
be seen to coincide neatly with the notion of 'public service,' under the
Public Service Act (Commonwealth Act No. 1416, as amended) which
at least partially supplements the law on common carriers set forth in
the Civil Code. Under Section 13, paragraph (b) of the Public Service
Act, 'public service' includes: Cdpr
'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)
Also, respondent's argument that the term "common carrier" as used
in Section 133 (j) of the Local Government Code refers only to common
carriers transporting goods and passengers through moving vehicles
or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common
carriers" in the Civil Code makes no distinction as to the means of
transporting, as long as it is by land, water or air. It does not provide
that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387),
petitioner is considered a "common carrier." Thus, Article 86 thereof
provides that:
"Art. 86. Pipe line concessionaire as common carrier. — A pipe
line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obliged to utilize the
remaining transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for transport, and to
change without discrimination such rates as may have been approved
by the Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility.
Pertinent portion of Article 7 thereof provides:
"that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum, is hereby
declared to be a public utility." (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a
"common carrier." In BIR Ruling No. 069-83, it declared:
". . . since (petitioner) is a pipeline concessionaire that is engaged only
in transporting petroleum products, it is considered a common carrier
under Republic Act No. 387 . . . Such being the case, it is not subject
to withholding tax prescribed by Revenue Regulations No. 13-78, as
amended."
From the foregoing disquisition, there is no doubt that petitioner is a
"common carrier" and, therefore, exempt from the business tax as
provided for in Section 133 (j), of the Local Government Code, to wit:
"Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxx xxx xxx
(j.) Taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire
and common carriers by air, land or water, except as provided in this
Code."
The deliberations conducted in the House of Representatives on the
Local Government Code of 1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states:
"SEC. 121 (now Sec. 131). Common Limitations on the Taxing Powers
of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of
transportation. This appears to be one of those being deemed to be
exempted from the taxing powers of the local government units. May
we know the reason why the transportation business is being excluded
from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in

Section 121 (now Sec. 131), line 16, paragraph 5. It states that local
government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of

Book II, one can see there that provinces have the power to impose a
tax on business enjoying a franchise at the rate of not more than one-
half of 1 percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject to tax by
the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker is the imposition of

taxes by local government units on the carrier business. Local
government units may impose taxes on top of what is already being
imposed by the National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of this tax, so we
just provided for an exception under Section 125 (now Section 137)
that a province may impose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .18

It is clear that the legislative intent in excluding from the taxing power
of the local government unit the imposition of business tax against
common carriers is to prevent a duplication of the so-called "common
carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on

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

WHEREFORE, the petition is hereby GRANTED. The decision of the

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

SO ORDERED. dctai

Bellosillo, Puno and Mendoza, JJ ., concur.

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.
Montilla Law Office for petitioner.
Leano and Leano Law Office for respondent.
SYNOPSIS
Petitioner, Virgines Calvo is the owner of Transorient Container
Terminal Services, Inc., a sole proprietorship customs broker, was held
liable by the RTC and the CA for damages to the cargo handled by
petitioner. On appeal, petitioner contended that: she is not liable
beyond what ordinary diligence in the vigilance over the goods
transported by her would require because her company is not a
common carrier but a private or special carrier; and that the cargo
could not have been damaged while in her custody as she immediately
delivered the containers to SMC's compound. DHITcS
The Supreme Court upheld the assailed decision on appeal, ruling:
that petitioner is a common carrier because the transportation of goods
is an integral part of her business: that as such, she is bound to
observe extraordinary diligence in the carriage of goods; that to prove
extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage;
and that improper packing of the goods could be a basis to exempt
petitioner from liability, but petitioner accepted the cargo without
exception despite the apparent defects in some of the container vans.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; CUSTOMS BROKER AND
WAREHOUSEMAN AS COMMON CARRIER; CASE AT BAR. —
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, the Court dismissed a similar contention and held the party
to be a common carrier, . . . as defined in Article 1732 of the Civil Code.
. . . There is greater reason for holding petitioner to be a common
carrier because the transportation of goods is an integral part of her
business. To uphold petitioners' contention would be to deprive those
with whom she contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioner's business.
HSDCTA
2. ID.; ID.; ID.; PROOF OF THE EXERCISE OF EXTRAORDINARY
DILIGENCE IN THE CARRIAGE OF GOODS; CASE AT BAR. — 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), . . . 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. 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 holds. EDISaA
DECISION
MENDOZA, J p:
This is a petition for review of the decision, 1 dated May 31, 2001, of
the Court of Appeals, affirming the decision 2 of the Regional Trial
Court, Makati City, Branch 148, which ordered petitioner to pay
respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25%
thereof as attorney's fees, and the cost of the suit. AaIDHS
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.
xxx xxx xxx
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 —
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public."
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity . . . Article 1732
also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We
think that Article 1732 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under Article 1732
may be seen to coincide neatly with the notion of "public service,"
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:
". . . 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. . . . " 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 Compania Maritima v. Court of Appeals, 9 the meaning of
"extraordinary diligence in the vigilance over goods" was explained
thus:
The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the
required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to
use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling
and stowage, including such methods as their nature requires."
In the case at bar, petitioner denies liability for the damage to the
cargo. She claims that the "spoilage or wettage" took place while the
goods were in the custody of either the carrying vessel "M/V Hayakawa
Maru," which transported the cargo to Manila, or the arrastre operator,
to whom the goods were unloaded and who allegedly kept them in open
air for nine days from July 14 to July 23, 1998 notwithstanding the
fact that some of the containers were deformed, cracked, or otherwise
damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door
distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of
water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel
partly detached loosened. 10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto
Tolentino testified that he has no personal knowledge on whether the
container vans were first stored in 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.
xxx xxx xxx
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 or that she is exempt from liability, the presumption of negligence as
same in the Warehouse Entry Slip (WES). None of these took place. To provided under Art. 1735 15 holds.
put it simply, the defendant-appellant received the shipment in good
order and condition and delivered the same to the consignee damaged. WHEREFORE, the decision of the Court of Appeals, dated May 31,
We can only conclude that the damages to the cargo occurred while it 2001, is AFFIRMED. aDcTHE
was in the possession of the defendant-appellant. Whenever the thing SO ORDERED.
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 Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.
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:

xxx xxx xxx

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

containers.

xxx xxx xxx

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
THIRD DIVISION
[G.R. No. 147079. December 21, 2004.]
A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT
OF APPEALS and FGU INSURANCE CORPORATION, respondents.
Bonifacio Aranjuez for petitioners.
Astorga and Repol Law Office for respondent.
SYNOPSIS
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft
one (1) LD3 aluminum container containing 124 cartons of Femenal
tablets and 20 cartons of Nordiol tablets, and two pallets containing
30 cartons of Nordiol tablets each in favor of the consignee, Wyeth-
Suaco Laboratories, Inc. The shipment was insured against all risks
with FGU Insurance. Upon arrival of the shipment, the goods were
delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) for
safekeeping. In order to secure the release of the cargoes from the PSI
and the Bureau of Customs, Wyeth-Suaco engaged the services of
Sanchez Brokerage, Inc. On July 29, 1992, representatives of Sanchez
Brokerage paid PSI storage fee and received the cargoes in good
condition. Upon instructions of Wyeth-Suaco, the cargoes were
delivered to Hizon Laboratories, Inc. for quality check. Upon
inspection, however, the representative of Wyeth-Suaco discovered
that 44 cartons containing Femenal and Nordiol tablets were in bad
order. Thus, Wyeth-Suaco demanded from Sanchez Brokerage the
payment of P191,384.25 representing the value of the damaged
tablets, but Sanchez Brokerage refused to heed the demand.
Consequently, Wyeth-Suaco filed an insurance claim from FGU
Insurance and the latter paid P181,431.49. In effect, FGU Insurance
subrogated Wyeth-Suaco and demanded from Sanchez Brokerage the
amount it paid to Wyeth-Suaco. Sanchez Brokerage, however,
disclaimed liability for the damaged goods by positing that the damage
was due to improper and insufficient export-packaging. Hence, FGU
filed a complaint for damages against Sanchez Brokerage. The trial
court, however, dismissed the complaint. On appeal, the appellate
court reversed the decision of the trial court. It held that Sanchez
Brokerage engaged not only in the business of customs brokerage but
also in the transportation and delivery of the cargo of its clients, hence,
a common carrier. It further held that Sanchez Brokerage is presumed
negligent. Hence, this petition.
The Court ruled that the appellate court did not err in finding
petitioner, a customs broker, to be also a common carrier, as defined
under Article 1732 of the Civil Code. ICAcHE
In an attempt to free itself from responsibility for the damage to the
goods, petitioner posited, among others, that they were damaged due
to the fault or negligence of the shipper for failing to properly pack
them and to the inherent characteristics of the goods. Thus, while
paragraph No. 4 of Article 1734 of the Civil Code exempts a common
carrier from liability if the loss or damage is due to the character of the
goods or defects in the packing or in the containers, the rule is that if
the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepted the
same without protest or exception notwithstanding such condition, he
is not relieved of liability for the resulting damage. Accordingly, the
decision of the Court of Appeals was affirmed.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL BY
CERTIORARI; PROPER REMEDY TO QUESTION THE DECISIONS,
FINAL ORDERS OR RESOLUTIONS OF THE COURT OF APPEALS. —
Rule 45 is clear that decisions, final orders or resolutions of the Court
of Appeals in any case, i.e., regardless of the nature of the action or
proceedings involved, may be appealed to this Court by filing a petition
for review, which would be but a continuation of the appellate process
over the original case.
2. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; CANNOT SERVE
AS A SUBSTITUTE FOR THE LOST REMEDY OF APPEAL. — The
Resolution of the Court of Appeals dated December 8, 2000 denying
the motion for reconsideration of its Decision of August 10, 2000 was
received by petitioner on January 5, 2001. Since petitioner failed to
appeal within 15 days or on or before January 20, 2001, the appellate
court's decision had become final and executory. The filing by
petitioner of a petition for certiorari on March 6, 2001 cannot serve as
a substitute for the lost remedy of appeal.
3. ID.; ID.; ID.; CANNOT BE EXERCISED IN ORDER TO REVIEW
THE JUDGMENT OF LOWER COURTS AS TO ITS INTRINSIC
CORRECTNESS. — In another vein, the rule is well settled that in a
petition for certiorari, the petitioner must prove not merely reversible
error but also grave abuse of discretion amounting to lack or excess of
jurisdiction. . . . Where the issue or question involves or affects the
wisdom or legal soundness of the decision — not the jurisdiction of the
court to render said decision — the same is beyond the province of a
petition for certiorari. The supervisory jurisdiction of this Court to
issue a cert writ cannot be exercised in order to review the judgment
of lower courts as to its intrinsic correctness, either upon the law or
the facts of the case. TESDcA
4. CIVIL LAW; COMMON CARRIERS; CUSTOMS BROKER IS
ALSO A COMMON CARRIER; CASE AT BAR. — The appellate court did
not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code[.] . . . Anacleto
F. Sanchez, Jr., the Manager and Principal Broker of Sanchez
Brokerage, himself testified that the services the firm offers include the
delivery of goods to the warehouse of the consignee or importer. Article
1732 does not distinguish between one whose principal business
activity is the carrying of goods and one who does such carrying only
as an ancillary activity. The contention, therefore, of petitioner that it
is not a common carrier but a customs broker whose principal function
is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that
petitioner undertakes to deliver the goods for pecuniary consideration.
5. ID.; ID.; MANDATED TO OBSERVE EXTRAORDINARY
DILIGENCE IN THE VIGILANCE OVER THE GOODS THEY
TRANSPORT. — In this light, petitioner as a common carrier is
mandated to observe, under Article 1733 of the Civil Code,
extraordinary diligence in the vigilance over the goods it transports
according to all the circumstances of each case. In the event that the
goods are lost, destroyed or deteriorated, it is presumed to have been
at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.
6. ID.; ID.; EXTRA-ORDINARY DILIGENCE; EXPLAINED. — The
concept of "extra-ordinary diligence" was explained in Compania
Maritima v. Court of Appeals: The extraordinary diligence in the
vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for sale, carriage
and delivery. It requires common carriers to render service with the
greatest skill and foresight and "to use all reasonable means to
ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires."
7. ID.; ID.; NOT EXEMPT FROM LIABILITY IF THEY ACCEPT THE
GOODS WITH IMPROPER PACKING WITHOUT PROTEST. — While
paragraph No. 4 of Article 1734 of the Civil Code exempts a common
carrier from liability if the loss or damage is due to the character of the
goods or defects in the packing or in the containers, the rule is that if
the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepts the
same without protest or exception notwithstanding such condition, he
is not relieved of liability for the resulting damage. CIHAED
DECISION
CARPIO-MORALES, J p:
Before this Court on a petition for Certiorari is the appellate court's
Decision 1 of August 10, 2000 reversing and setting aside the judgment
of Branch 133, Regional Trial Court of Makati City, in Civil Case No.
93-76B which dismissed the complaint of respondent FGU Insurance
Corporation (FGU Insurance) against petitioner A..F. Sanchez
Brokerage, Inc. (Sanchez Brokerage). AIECSD
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft
of KLM Royal Dutch Airlines at Dusseldorf, Germany oral
contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000
Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for
delivery to Manila in favor of the consignee, Wyeth-Suaco Laboratories,
Inc. 2 The Femenal tablets were placed in 124 cartons and the Nordiol
tablets were placed in 20 cartons which were packed together in one
(1) LD3 aluminum container, while the Trinordial tablets were packed
in two pallets, each of which contained 30 cartons. 3
Wyeth-Suaco insured the shipment against all risks with FGU
Insurance which issued Marine Risk Note No. 4995 pursuant to Marine
Open Policy No. 138. 4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino
International Airport (NAIA), 5 it was discharged "without exception" 6
and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI)
located also at the NAIA for safekeeping. 7
In order to secure the release of the cargoes from the PSI and the
Bureau of Customs, Wyeth-Suaco engaged the services of Sanchez
Brokerage which had been its licensed broker since 1984. 8 As its
customs broker, Sanchez Brokerage calculates and pays the customs
duties, taxes and storage fees for the cargo and thereafter delivers it to
Wyeth-Suaco. 9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives
of Sanchez Brokerage, paid PSI storage fee amounting to P8,572.35 a
receipt for which, Official Receipt No. 016992, 10 was issued. On the
receipt, another representative of Sanchez Brokerage, M. Sison, 11
acknowledged that he received the cargoes consisting of three pieces
in good condition. 12
Wyeth-Suaco being a regular importer, the customs examiner did not
inspect the cargoes 13 which were thereupon stripped from the
aluminum containers 14 and loaded inside two transport vehicles
hired by Sanchez Brokerage. 15
Among those who witnessed the release of the cargoes from the PSI
warehouse were Ruben Alonso and Tony Akas, 16 employees of Elite
Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo
surveyor. and insurance claim adjusters firm engaged by Wyeth-Suaco
on behalf of FGU Insurance. SEHACI
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon
Laboratories Inc. in Antipolo City for quality control check. 17 The
delivery receipt, bearing No. 07037 dated July 29, 1992, indicated that
the delivery consisted of one container with 144 cartons of Femenal
and Nordiol and 1 pallet containing Trinordiol. 18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco,
acknowledged the delivery of the cargoes by affixing his signature on
the delivery receipt. 19 Upon inspection, however, he, together with
Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing
Femenal and Nordiol tablets were in bad order. 20 He thus placed a
note above his signature on the delivery receipt stating that 44 cartons
of oral contraceptives were in bad order. The remaining 160 cartons of
oral contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a
survey report 21 dated July 31, 1992 stating that 41 cartons of
Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic). 22
The Elite Surveyors later issued Certificate No. CS-0731-1538/92 23
attached to which was an "Annexed Schedule" whereon it was
indicated that prior to the loading of the cargoes to the broker's trucks
at the NAIA, they were inspected and found to be in "apparent good
condition." 24 Also noted was that at the time of delivery to the
warehouse of Hizon Laboratories Inc., slight to heavy rains fell, which
could account for the wetting of the 44 cartons of Femenal and Nordiol
tablets. 25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction
Report 26 confirming that 38 x 700 blister packs of Femenal tablets, 3
x 700 blister packs of Femenal tablets and 3 x 700 blister packs of
Nordiol tablets were heavily damaged with water and emitted foul
smell. aEIcHA
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection
27 of 38 cartons of Femenal and 3 cartons of Nordiol on the ground
that they were "delivered to Hizon Laboratories with heavy water
damaged (sic) causing the cartons to sagged (sic) emitting a foul order
and easily attracted flies." 28
Wyeth-Suaco later demanded, by letter 29 of August 25, 1992, from
Sanchez Brokerage the payment of P191,384.25 representing the value
of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco
filed an insurance claim against FGU Insurance which paid Wyeth-
Suaco the amount of P181,431.49 in settlement of its claim under
Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt 30 in favor of FGU
Insurance.
On demand by FGU Insurance for payment of the amount of
P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage, by letter 31 of
January 7, 1993, disclaimed liability for the damaged goods, positing
that the damage was due to improper and insufficient export
packaging; that when the sealed containers were opened outside the
PSI warehouse, it was discovered that some of the loose cartons were
wet, 32 prompting its (Sanchez Brokerage's) representative Morales to
inform the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan,
about the condition of the cargoes but that the latter advised to still
deliver them to Hizon Laboratories where an adjuster would assess the
damage. 33
Hence, the filing by FGU Insurance of a complaint for damages before
the Regional Trial Court of Makati City against the Sanchez Brokerage.
aDECHI
The trial court, by Decision 34 of July 29, 1996, dismissed the
complaint, holding that the Survey Report prepared by the Elite
Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork. 35
On appeal, the appellate court reversed the decision of the trial court,
it holding that the Sanchez Brokerage engaged not only in the business
of customs brokerage but also in the transportation and delivery of the
cargo of its clients, hence, a common carrier within the context of
Article 1732 of the New Civil Code. 36
Noting that Wyeth-Suaco adduced evidence that the cargoes were
delivered to petitioner in good order and condition but were in a
damaged state when delivered to Wyeth-Suaco, the appellate court
held that Sanchez Brokerage is presumed negligent and upon it rested
the burden of proving that it exercised extraordinary negligence not
only in instances when negligence is directly proven but also in those
cases when the cause of the damage is not known or unknown. 37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant
is GRANTED. The Decision of the Court a quo is REVERSED. Another
Decision is hereby rendered in favor of the Appellant and against the
Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the
principal amount of P181, 431.49, with interest thereupon at the rate
of 6% per annum, from the date of the Decision of the Court, until the
said amount is paid in full; cSATEH
2. The Appellee is hereby ordered to pay to the Appellant the
amount of P20,000.00 as and by way of attorney's fees; and
3. The counterclaims of the Appellee are DISMISSED. 38
Sanchez Brokerage's Motion for Reconsideration having been denied
by the appellate court's Resolution of December 8, 2000 which was
received by petitioner on January 5, 2001, it comes to this Court on
petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed
grave and reversible error tantamount to abuse of discretion when it
found petitioner a "common carrier" within the context of Article 1732
of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper
course of action which petitioner should have taken was to file a
petition for review on certiorari since the sole office of a writ of certiorari
is the correction of errors of jurisdiction including the commission of
grave abuse of discretion amounting to lack or excess of jurisdiction
and does not include correction of the appellate court's evaluation of
the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as
a common carrier, failed to overcome the presumption of negligence, it
being documented that petitioner withdrew from the warehouse of PSI
the subject shipment entirely in good order and condition. 39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court
of Appeals in any case, i.e., regardless of the nature of the action or
proceedings involved, may be appealed to this Court by filing a petition
for review, which would be but a continuation of the appellate process
over the original case. 40
The Resolution of the Court of Appeals dated December 8, 2000
denying the motion for reconsideration of its Decision of August 10,
2000 was received by petitioner on January 5, 2001. Since petitioner
failed to appeal within 15 days or on or before January 20, 2001, the
appellate court's decision had become final and executory. The filing
by petitioner of a petition for certiorari on March 6, 2001 cannot serve
as a substitute for the lost remedy of appeal. DEAaIS
In another vein, the rule is well settled that in a petition for certiorari,
the petitioner must prove not merely reversible error but also grave
abuse of discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting
aside the decision of the trial court based on its finding that petitioner
is liable for the damage to the cargo as a common carrier. What
petitioner is ascribing is an error of judgment, not of jurisdiction, which
is properly the subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal
soundness of the decision - not the jurisdiction of the court to render
said decision - the same is beyond the province of a petition for
certiorari. 41 The supervisory jurisdiction of this Court to issue a cert
writ cannot be exercised in order to review the judgment of lower courts
as to its intrinsic correctness, either upon the law or the facts of the
case. 42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker,
to be also a common carrier, as defined under Article 1732 of the Civil
Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez
Brokerage, himself testified that the services the firm offers include the
delivery of goods to the warehouse of the consignee or importer.
ETISAc
ATTY. FLORES:
Q: What are the functions of these license brokers, license
customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid
in cargos, and those upon approval of the importer, we prepare the
entry together for processing and claims from customs and finally
deliver the goods to the warehouse of the importer. 43
Article 1732 does not distinguish between one whose principal
business activity is the carrying of goods and one who does such
carrying only as an ancillary activity. 44 The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and
proper shipping documents as required by law is bereft of merit. It
suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
In this light, petitioner as a common carrier is mandated to observe,
under Article 1733 45 of the Civil Code, extraordinary diligence in the
vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost,
destroyed or deteriorated, it is presumed to have been at fault or to
have acted negligently, unless it proves that it observed extraordinary
diligence. 46
The concept of "extra-ordinary diligence" was explained in Compania
Maritima v. Court of Appeals: 47
The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the
required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to
use all reasonable means to ascertain the nature and characteristics
of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature
requires." 48
In the case at bar, it was established that petitioner received the
cargoes from the PSI warehouse in NAIA in good order and condition;
49 and that upon delivery by petitioner to Hizon Laboratories Inc.,
some of the cargoes were found to be in bad order, as noted in the
Delivery Receipt 50 issued by petitioner, and as indicated in the Survey
Report of Elite Surveyors 51 and the Destruction Report of Hizon
Laboratories, Inc. 52
In an attempt to free itself from responsibility for the damage to the
goods, petitioner posits that they were damaged due to the fault or
negligence of the shipper for failing to properly pack them and to the
inherent characteristics of the goods 53 ; and that it should not be
faulted for following the instructions of Calicdan of Wyeth-Suaco to
proceed with the delivery despite information conveyed to the latter
that some of the cartons, on examination outside the PSI warehouse,
were found to be wet. 54
While paragraph No. 4 of Article 1734 55 of the Civil Code exempts a
common carrier from liability if the loss or damage is due to the
character of the goods or defects in the packing or in the containers,
the rule is that if the improper packing is known to the carrier or his
employees or is apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for the
resulting damage. 56
If the claim of petitioner that some of the cartons were already damaged
upon delivery to it were true, then it should naturally have received the
cargo under protest or with reservations duly noted on the receipt WITNESS:
issued by PSI. But it made no such protest or reservation. 57
A: Yes sir, there was an instance that one cartoon (sic) were wetted
Moreover, as observed by the appellate court, if indeed petitioner's (sic) but Wyeth-Suaco did not claim anything against us. ATTY.
employees only examined the cargoes outside the PSI warehouse and FLORES:
found some to be wet, they would certainly have gone back to PSI,
showed to the warehouseman the damage, and demanded then and Q: HOW IS IT? DECSIT
there for Bad Order documents or a certification confirming the WITNESS:
damage. 58 Or, petitioner would have presented, as witness, the
employees of the PSI from whom Morales and Domingo took delivery of A: We experienced, there was a time that we experienced that
the cargo to prove that, indeed, part of the cargoes was already there was a cartoon (sic) wetted (sic) up to the bottom are wet specially
damaged when the container was allegedly opened outside the during rainy season. 62
warehouse. 59
Since petitioner received all the cargoes in good order and condition at
Petitioner goes on to posit that contrary to the report of Elite Surveyors, the time they were turned over by the PSI warehouseman, and upon
no rain fell that day. Instead, it asserts that some of the cargoes were their delivery to Hizon Laboratories, Inc. a portion thereof was found
already wet on delivery by PSI outside the PSI warehouse but such to be in bad order, it was incumbent on petitioner to prove that it
notwithstanding Calicdan directed Morales to proceed with the delivery exercised extraordinary diligence in the carriage of the goods. It did
to Hizon Laboratories, Inc. caDTSE not, however. Hence, its presumed negligence under Article 1735 of the
Civil Code remains unrebutted.
While Calicdan testified that he received the purported telephone call
of Morales on July 29, 1992, he failed to specifically declare what time WHEREFORE, the August 10, 2000 Decision of the Court of Appeals
he received the call. As to whether the call was made at the PSI is hereby AFFIRMED.
warehouse when the shipment was stripped from the airport
Costs against petitioner.
containers, or when the cargoes were already in transit to Antipolo, it
is not determinable. Aside from that phone call, petitioner admitted SO ORDERED.
that it had no documentary evidence to prove that at the time it
received the cargoes, a part of it was wet, damaged or in bad condition. Panganiban, Sandoval-Gutierrez and Garcia, JJ ., concur.
60
Corona, J ., is on leave.
The 4-page weather data furnished by PAGASA 61 on request of
Sanchez Brokerage hardly impresses, no witness having identified it
and interpreted the technical terms thereof.

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

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

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral

contraceptives, that arrived at the NAIA were damaged and claimed by
the Wyeth-Suaco without any question?
THIRD DIVISION
[G.R. No. 150255. April 22, 2005.]
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, petitioner, vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY,
LTD., and BLACK SEA SHIPPING AND DODWELL now INCHCAPE
SHIPPING SERVICES, respondents.
Peña Del Rosario Mendoza Tiamson & Pulido and Conrado P.
Mangahas & Associates for petitioner.
Tambo Law Office and Romualdo M. Jubay for respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; NATURE AND
EFFECT OF OBLIGATIONS; FORTUITOUS EVENT; REQUISITES. — In
order, to be considered a fortuitous event, however, (1) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligation, must be independent of human will; (2) it
must be impossible to foresee the event which constitute the caso
fortuito, or if it can be foreseen it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free
from any participation in the aggravation of the injury resulting to the
creditor. [T]he principle embodied in the act of God doctrine strictly
requires that the act must be occasioned solely by the violence of
nature. Human intervention is to be excluded from creating or entering
into the cause of the mischief. When the effect is found to be in part
the result of the participation of man, whether due to his active
intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.
cDCSTA
2. ID.; ID.; ID.; ID.; LOSS NOT DUE TO FORTUITOUS EVENT;
THE LOSS COULD HAVE BEEN AVOIDED, NOTWITHSTANDING THE
DETERIORATING SEA CONDITIONS, HAD THE BARGE BEEN TOWED
BACK PROMPTLY TO THE PIER. — From a review of the records of the
case, there is no indication that there was greater risk in loading the
cargoes outside the breakwater. As the defendants proffered, the
weather on October 26, 1991 remained normal with moderate sea
condition such that port operations continued and proceeded
normally. The weather data report, furnished and verified by the Chief
of the Climate Data Section of PAG-ASA and marked as a common
exhibit of the parties, states that while typhoon signal No. 1 was
hoisted over Metro Manila on October 23-31, 1991, the sea condition
at the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was
moderate. It cannot, therefore, be said that the defendants were
negligent in not unloading the cargoes upon the barge on October 26,
1991 inside the breakwater. That no tugboat towed back the barge to
the pier after the cargoes were completely loaded by 12:30 in the
morning is, however, a material fact which the appellate court failed to
properly consider and appreciate — the proximate cause of the loss of
the cargoes. Had the barge been towed back promptly to the pier, the
deteriorating sea conditions notwithstanding, the loss could have been
avoided. But the barge was left floating in open sea until big waves set
in at 5:30 a.m., causing it to sink along with the cargoes. The loss thus
falls outside the "act of God doctrine."
3. MERCANTILE LAW; TRANSPORTATION; COMMON CARRIERS;
COMMON CARRIER'S FAILURE TO PROMPTLY PROVIDE A TUGBOAT
DID NOT ONLY INCREASE THE RISK THAT MIGHT HAVE BEEN
REASONABLY ANTICIPATED DURING THE SHIP OPERATION, BUT
WAS THE PROXIMATE CAUSE OF THE LOSS. — TVI's failure to
promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but
was the proximate cause of the loss. A man of ordinary prudence would
not leave a heavily loaded barge floating for a considerable number of
hours, at such a precarious time, and in the open sea, knowing that
the barge does not have any power of its own and is totally defenseless
from the ravages of the sea. That it was nighttime and, therefore, the
members of the crew of a tugboat would be charging overtime pay did
not excuse TVI from calling for one such tugboat.
4. ID.; ID.; ID.; THE BROKERAGE FIRM AND THE COMMON
CARRIER ARE SOLIDARILY LIABLE FOR THE LOSS OF THE
CARGOES. — As for petitioner, for it to be relieved of liability, it should,
following Article 1739 of the Civil Code, prove that it exercised due
diligence to prevent or minimize the loss, before, during and after the
occurrence of the storm in order that it may be exempted from liability
for the loss of the goods. While petitioner sent checkers and a
supervisor on board the vessel to counter-check the operations of TVI,
it failed to take all available and reasonable precautions to avoid the
loss. After noting that TVI failed to arrange for the prompt towage of
the barge despite the deteriorating sea conditions, it should have
summoned the same or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable for
the loss of the cargoes. SECIcT
5. ID.; ID.; ID.; DUTY AS A COMMON CARRIER EXTENDED ONLY
FROM THE TIME THE GOODS WERE SURRENDERED OR
UNCONDITIONALLY PLACED IN ITS POSSESSION AND RECEIVED
FOR TRANSPORTATION UNTIL THEY WERE DELIVERED ACTUALLY
OR CONSTRUCTIVELY TO CONSIGNEE. — As for Black Sea, its duty
as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received
for transportation until they were delivered actually or constructively
to consignee Little Giant. Parties to a contract of carriage may,
however, agree upon a definition of delivery that extends the services
rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering
the shipment provides that delivery be made "to the port of discharge
or so near thereto as she may safely get, always afloat." The delivery of
the goods to the consignee was not from "pier to pier" but from the
shipside of "M/V Alexander Saveliev" and into barges, for which reason
the consignee contracted the services of petitioner. Since Black Sea
had constructively delivered the cargoes to Little Giant, through
petitioner, it had discharged its duty. In fine, no liability may thus
attach to Black Sea.
6. ID.; ID.; ID.; UNDER A GIVEN SET OF FACTS, A CUSTOMS
BROKER MAY BE REGARDED AS A COMMON CARRIER. — Contrary
to petitioner's insistence, this Court, as did the appellate court, finds
that petitioner is a common carrier. For it undertook to transport the
cargoes from the shipside of "M/V Alexander Saveliev" to the
consignee's warehouse at Cainta, Rizal. As the appellate court put it,
"as long as a person or corporation holds [itself] to the public for the
purpose of transporting goods as [a] business, [it] is already considered
a common carrier regardless if [it] owns the vehicle to be used or has
to hire one." That petitioner is a common carrier, the testimony of its
own Vice-President and General Manager Noel Aro that part of the
services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so. It is settled that under a given set
of facts, a customs broker may be regarded as a common carrier.
aATEDS
7. ID.; ID.; ID.; NOT BEING A PARTY TO THE SERVICE
CONTRACT, THE CONSIGNEE IS NOT BOUND BY THE TERMS AND
CONDITIONS THEREIN. — As for petitioner's argument that being the
agent of Little Giant, any negligence it committed was deemed the
negligence of its principal, it does not persuade. True, petitioner was
the broker-agent of Little Giant in securing the release of the cargoes.
In effecting the transportation of the cargoes from the shipside and into
Little Giant's warehouse, however, petitioner was discharging its own
personal obligation under a contract of carriage. Petitioner, which did
not have any barge or tugboat, engaged the services of TVI as handler
to provide the barge and the tugboat. In their Service Contract, while
Little Giant was named as the consignee, petitioner did not disclose
that it was acting on commission and was chartering the vessel for
Little Giant. Little Giant did not thus automatically become a party to
the Service Contract and was not, therefore, bound by the terms and
conditions therein. Not being a party to the service contract, Little
Giant cannot directly sue TVI based thereon but it can maintain a
cause of action for negligence.
8. CIVIL LAW; DAMAGES; ATTORNEY'S FEES; SET ASIDE FOR
LACK OF FACTUAL AND LEGAL BASIS. — Respecting the award of
attorney's fees in an amount over P1,000,000.00 to Industrial
Insurance, for lack of factual and legal basis, this Court sets it aside.
While Industrial Insurance was compelled to litigate its rights, such
fact by itself does not justify the award of attorney's fees under Article
2208 of the Civil Code. For no sufficient showing of bad faith would be
reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause. To award attorney's fees
to a party just because the judgment is rendered in its favor would be
tantamount to imposing a premium on one's right to litigate or seek
judicial redress of legitimate grievances.
9. ID.; ID.; ADJUSTMENT FEES OF INSURANCE COMPANIES DO
NOT CONSTITUTE ACTUAL DAMAGES. — On the award of adjustment
fees: The adjustment fees and expense of divers were incurred by
Industrial Insurance in its voluntary but unsuccessful efforts to locate
and retrieve the lost cargo. They do not constitute actual damages.
10. ID.; ID.; INTEREST; WHEN DEMAND CANNOT BE
REASONABLY ESTABLISHED AT THE TIME DEMAND IS MADE, THE
INTEREST SHALL BEGIN TO RUN FROM THE DATE THE JUDGMENT
OF THE COURT IS MADE. — As for the court a quo's award of interest
on the amount claimed, the same calls for modification following the
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals that when
the demand cannot be reasonably established at the time the demand
is made, the interest shall begin to run not from the time the claim is
made judicially or extrajudicially but from the date the judgment of the
court is made (at which the time the quantification of damages may be
deemed to have been reasonably ascertained). IcSEAH
DECISION
CARPIO MORALES, J p:
On petition for review is the June 27, 2001 Decision 1 of the Court of
Appeals, as well as its Resolution 2 dated September 28, 2001 denying
the motion for reconsideration, which affirmed that of Branch 21 of the
Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132 3
holding petitioner Schmitz Transport Brokerage Corporation (Schmitz
Transport), together with Black Sea Shipping Corporation (Black Sea),
represented by its ship agent Inchcape Shipping Inc. (Inchcape), and
Transport Venture Inc. (TVI), solidarily liable for the loss of 37 hot
rolled steel sheets in coil that were washed overboard a barge. CHcTIA
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the
port of Ilyichevsk, Russia on board M/V "Alexander Saveliev" (a vessel
of Russian registry and owned by Black Sea) 545 hot rolled steel sheets
in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor
of the consignee, Little Giant Steel Pipe Corporation (Little Giant), 4
were insured against all risks with Industrial Insurance Company Ltd.
(Industrial Insurance) under Marine Policy No. M-91-3747-TIS. 5
The vessel arrived at the port of Manila on October 24, 1991 and the
Philippine Ports Authority (PPA) assigned it a place of berth at the
outside breakwater at the Manila South Harbor. 6
Schmitz Transport, whose services the consignee engaged to secure the
requisite clearances, to receive the cargoes from the shipside, and to
deliver them to its (the consignee's) warehouse at Cainta, Rizal, 7 in
turn engaged the services of TVI to send a barge and tugboat at
shipside.
On October 26, 1991, around 4:30 p.m., TVI's tugboat "Lailani" towed
the barge "Erika V" to shipside. 8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning
the barge alongside the vessel, left and returned to the port terminal.
9 At 9:00 p.m., arrastre operator Ocean Terminal Services Inc.
commenced to unload 37 of the 545 coils from the vessel unto the
barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition
had become inclement due to an approaching storm, the unloading
unto the barge of the 37 coils was accomplished. 10 No tugboat pulled
the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves, 11 the
crew of the barge abandoned it and transferred to the vessel. The barge
pitched and rolled with the waves and eventually capsized, washing
the 37 coils into the sea. 12 At 7:00 a.m., a tugboat finally arrived to
pull the already empty and damaged barge back to the pier. 13
Earnest efforts on the part of both the consignee Little Giant and
Industrial Insurance to recover the lost cargoes proved futile. 14
Little Giant thus filed a formal claim against Industrial Insurance
which paid it the amount of P5,246,113.11. Little Giant thereupon
executed a subrogation receipt 15 in favor of Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport,
TVI, and Black Sea through its representative Inchcape (the
defendants) before the RTC of Manila, for the recovery of the amount it
paid to Little Giant plus adjustment fees, attorney's fees, and litigation
expenses. 16
Industrial Insurance faulted the defendants for undertaking the
unloading of the cargoes while typhoon signal No. 1 was raised in Metro
Manila. 17
By Decision of November 24, 1997, Branch 21 of the RTC held all the
defendants negligent for unloading the cargoes outside of the
breakwater notwithstanding the storm signal. 18 The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in
favor of the plaintiff, ordering the defendants to pay plaintiff jointly and
severally the sum of P5,246,113.11 with interest from the date the
complaint was filed until fully satisfied, as well as the sum of P5,000.00
representing the adjustment fee plus the sum of 20% of the amount
recoverable from the defendants as attorney's fees plus the costs of
suit. The counterclaims and cross claims of defendants are hereby
DISMISSED for lack of [m]erit. 19
To the trial court's decision, the defendants Schmitz Transport and TVI
filed a joint motion for reconsideration assailing the finding that they
are common carriers and the award of excessive attorney's fees of more
than P1,000,000. And they argued that they were not motivated by
gross or evident bad faith and that the incident was caused by a
fortuitous event. 20
By resolution of February 4, 1998, the trial court denied the motion for
reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision
of June 27, 2001, affirmed in toto the decision of the trial court, 22 it
finding that all the defendants were common carriers — Black Sea and
TVI for engaging in the transport of goods and cargoes over the seas as
a regular business and not as an isolated transaction, 23 and Schmitz
Transport for entering into a contract with Little Giant to transport the
cargoes from ship to port for a fee. 24
In holding all the defendants solidarily liable, the appellate court ruled
that "each one was essential such that without each other's
contributory negligence the incident would not have happened and so
much so that the person principally liable cannot be distinguished with
sufficient accuracy." 25
In discrediting the defense of fortuitous event, the appellate court held
that "although defendants obviously had nothing to do with the force
of nature, they however had control of where to anchor the vessel,
where discharge will take place and even when the discharging will
commence." 26
The defendants' respective motions for reconsideration having been
denied by Resolution 27 of September 28, 2001, Schmitz Transport
(hereinafter referred to as petitioner) filed the present petition against
TVI, Industrial Insurance and Black Sea. AaSIET
Petitioner asserts that in chartering the barge and tugboat of TVI, it
was acting for its principal, consignee Little Giant, hence, the
transportation contract was by and between Little Giant and TVI. 28
By Resolution of January 23, 2002, herein respondents Industrial
Insurance, Black Sea, and TVI were required to file their respective
Comments. 29
By its Comment, Black Sea argued that the cargoes were received by
the consignee through petitioner in good order, hence, it cannot be
faulted, it having had no control and supervision thereover. 30
For its part, TVI maintained that it acted as a passive party as it merely
received the cargoes and transferred them unto the barge upon the
instruction of petitioner. 31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event,
independent of any act of negligence on the part of petitioner Black Sea
and TVI, and
(2) If there was negligence, whether liability for the loss may attach
to Black Sea, petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves
any party from any and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which
though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of
the unforeseen and unexpected occurrence, or the failure of the debtor
to comply with his obligation, must be independent of human will; (2)
it must be impossible to foresee the event which constitute the caso
fortuito, or if it can be foreseen it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free
from any participation in the aggravation of the injury resulting to the
creditor. 32
[T]he principle embodied in the act of God doctrine strictly requires
that the act must be occasioned solely by the violence of nature.
Human intervention is to be excluded from creating or entering into
the cause of the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his active
intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.
33
The appellate court, in affirming the finding of the trial court that
human intervention in the form of contributory negligence by all the
defendants resulted to the loss of the cargoes, 34 held that unloading
outside the breakwater, instead of inside the breakwater, while a storm
signal was up constitutes negligence. 35 It thus concluded that the
proximate cause of the loss was Black Sea's negligence in deciding to
unload the cargoes at an unsafe place and while a typhoon was
approaching. 36
From a review of the records of the case, there is no indication that
there was greater risk in loading the cargoes outside the breakwater.
As the defendants proffered, the weather on October 26, 1991
remained normal with moderate sea condition such that port
operations continued and proceeded normally. 37
The weather data report, 38 furnished and verified by the Chief of the
Climate Data Section of PAG-ASA and marked as a common exhibit of
the parties, states that while typhoon signal No. 1 was hoisted over
Metro Manila on October 23-31, 1991, the sea condition at the port of
Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It
cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the
breakwater. cASEDC
That no tugboat towed back the barge to the pier after the cargoes were
completely loaded by 12:30 in the morning 39 is, however, a material
fact which the appellate court failed to properly consider and
appreciate 40 — the proximate cause of the loss of the cargoes. Had
the barge been towed back promptly to the pier, the deteriorating sea
conditions notwithstanding, the loss could have been avoided. But the
barge was left floating in open sea until big waves set in at 5:30 a.m.,
causing it to sink along with the cargoes. 41 The loss thus falls outside
the "act of God doctrine."
The proximate cause of the loss having been determined, who among
the parties is/are responsible therefor?
Contrary to petitioner's insistence, this Court, as did the appellate
court, finds that petitioner is a common carrier. For it undertook to
transport the cargoes from the shipside of "M/V Alexander Saveliev" to
the consignee's warehouse at Cainta, Rizal. As the appellate court put
it, "as long as a person or corporation holds [itself] to the public for the
purpose of transporting goods as [a] business, [it] is already considered
a common carrier regardless if [it] owns the vehicle to be used or has
to hire one." 42 That petitioner is a common carrier, the testimony of
its own Vice-President and General Manager Noel Aro that part of the
services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so.
Atty. Jubay:
Will you please tell us what [are you] functions . . . as Executive
Vice-President and General Manager of said Company?
Mr. Aro:
Well, I oversee the entire operation of the brokerage and
transport business of the company. I also handle the various division
heads of the company for operation matters, and all other related
functions that the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you
mentioned, will you please tell the Honorable Court if you came to
know the company by the name Little Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that
company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company.
What work or duty did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau
of Customs. We [are] also in-charged of the delivery of the goods to
their warehouses. We also handled the clearances of their shipment at
the Bureau of Customs, Sir.
xxx xxx xxx
Q: Now, what precisely [was] your agreement with this Little Giant
Steel Pipe Corporation with regards to this shipment? What work did
you do with this shipment? aHcDEC
A: We handled the unloading of the cargo[es] from vessel to lighter
and then the delivery of [the] cargo[es] from lighter to BASECO then to
the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr.
Witness, you are supposed to perform, what equipment do (sic) you
require or did you use in order to effect this unloading, transfer and
delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this
unloading [from] vessel to lighter, and on this we hired or we sub-
contracted with [T]ransport Ventures, Inc. which [was] in-charged (sic)
of the barges. Also, in BASECO compound we are leasing cranes to
have the cargo unloaded from the barge to trucks, [and] then we used
trucks to deliver [the cargoes] to the consignee's warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the
consignee's warehouse?
A: We utilized of (sic) our own trucks and we have some other
contracted trucks, Sir.
xxx xxx xxx
ATTY. JUBAY:
Will you please explain to us, to the Honorable Court why is it
you have to contract for the barges of Transport Ventures Incorporated
in this particular operation?
A: Firstly, we don't own any barges. That is why we hired the
services of another firm whom we know [al]ready for quite sometime,
which is Transport Ventures, Inc. (Emphasis supplied) 43
It is settled that under a given set of facts, a customs broker may be
regarded as a common carrier. Thus, this Court, in A.F. Sanchez
Brokerage, Inc. v. The Honorable Court of Appeals, 44 held:
The appellate court did not err in finding petitioner, a customs broker,
to be also a common carrier, as defined under Article 1732 of the Civil
Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
xxx xxx xxx
Article 1732 does not distinguish between one whose principal
business activity is the carrying of goods and one who does such
carrying only as an ancillary activity. The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and
proper shipping documents as required by law is bereft of merit. It
suffices that petitioner undertakes to deliver the goods for pecuniary
consideration. 45
And in Calvo v. UCPB General Insurance Co. Inc., 46 this Court held
that as the transportation of goods is an integral part of a customs
broker, the customs broker is also a common carrier. For to declare
otherwise "would be to deprive those with whom [it] contracts the
protection which the law affords them notwithstanding the fact that
the obligation to carry goods for [its] customers, is part and parcel of
petitioner's business." 47
As for petitioner's argument that being the agent of Little Giant, any
negligence it committed was deemed the negligence of its principal, it
does not persuade. DHECac
True, petitioner was the broker-agent of Little Giant in securing the
release of the cargoes. In effecting the transportation of the cargoes
from the shipside and into Little Giant's warehouse, however,
petitioner was discharging its own personal obligation under a contact
of carriage.
Petitioner, which did not have any barge or tugboat, engaged the
services of TVI as handler 48 to provide the barge and the tugboat. In
their Service Contract, 49 while Little Giant was named as the
consignee, petitioner did not disclose that it was acting on commission
and was chartering the vessel for Little Giant. 50 Little Giant did not
thus automatically become a party to the Service Contract and was
not, therefore, bound by the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly
sue TVI based thereon but it can maintain a cause of action for
negligence. 51
In the case of TVI, while it acted as a private carrier for which it was
under no duty to observe extraordinary diligence, it was still required
to observe ordinary diligence to ensure the proper and careful
handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father of
a family shall be required.
Was the reasonable care and caution which an ordinarily prudent
person would have used in the same situation exercised by TVI? 52
This Court holds not.
TVI's failure to promptly provide a tugboat did not only increase the
risk that might have been reasonably anticipated during the shipside
operation, but was the proximate cause of the loss. A man of ordinary
prudence would not leave a heavily loaded barge floating for a
considerable number of hours, at such a precarious time, and in the
open sea, knowing that the barge does not have any power of its own
and is totally defenseless from the ravages of the sea. That it was
nighttime and, therefore, the members of the crew of a tugboat would
be charging overtime pay did not excuse TVI from calling for one such
tugboat.
As for petitioner, for it to be relieved of liability, it should, following
Article 1739 53 of the Civil Code, prove that it exercised due diligence
to prevent or minimize the loss, before, during and after the occurrence
of the storm in order that it may be exempted from liability for the loss
of the goods. EHIcaT
While petitioner sent checkers 54 and a supervisor 55 on board the
vessel to counter-check the operations of TVI, it failed to take all
available and reasonable precautions to avoid the loss. After noting
that TVI failed to arrange for the prompt towage of the barge despite
the deteriorating sea conditions, it should have summoned the same
or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable 56
for the loss of the cargoes. The following pronouncement of the
Supreme Court is instructive:
The foundation of 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 2176 and related
provisions, in conjunction with Article 2180 of the Civil Code. . . . [O]ne
might ask further, how then must the liability of the common carrier,
on one hand, and an independent contractor, on the other hand, be
described? It would be solidary. A contractual obligation can be
breached by tort and when the same act or omission causes the injury,
one resulting in culpa contractual and the other in culpa aquiliana,
Article 2194 of the Civil Code can well apply. In fine, a liability for tort
may arise even under a contract, where tort is that which breaches the
contract. Stated differently, when an act which constitutes a breach of
contract would have itself constituted the source of a quasi-delictual
liability had no contract existed between the parties, the contract can
be said to have been breached by tort, thereby allowing the rules on
tort to apply. 57
As for Black Sea, its duty as a common carrier extended only from the
time the goods were surrendered or unconditionally placed in its
possession and received for transportation until they were delivered
actually or constructively to consignee Little Giant. 58
Parties to a contract of carriage may, however, agree upon a definition
of delivery that extends the services rendered by the carrier. In the case
at bar, Bill of Lading No. 2 covering the shipment provides that delivery
be made "to the port of discharge or so near thereto as she may safely
get, always afloat." 59 The delivery of the goods to the consignee was
not from "pier to pier" but from the shipside of "M/V Alexander
Saveliev" and into barges, for which reason the consignee contracted
the services of petitioner. Since Black Sea had constructively delivered
the cargoes to Little Giant, through petitioner, it had discharged its
duty. 60
In fine, no liability may thus attach to Black Sea. TIDcEH
Respecting the award of attorney's fees in an amount over
P1,000,000.00 to Industrial Insurance, for lack of factual and legal
basis, this Court sets it aside. While Industrial Insurance was
compelled to litigate its rights, such fact by itself does not justify the
award of attorney's fees under Article 2208 of the Civil Code. For no
sufficient showing of bad faith would be reflected in a party's
persistence in a case other than an erroneous conviction of the
righteousness of his cause. 61 To award attorney's fees to a party just
because the judgment is rendered in its favor would be tantamount to
imposing a premium on one's right to litigate or seek judicial redress
of legitimate grievances. 62

On the award of adjustment fees: The adjustment fees and expense of

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

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

WHEREFORE, judgment is hereby rendered ordering petitioner

Schmitz Transport & Brokerage Corporation, and Transport Venture
Incorporation jointly and severally liable for the amount of
P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT
per annum of the amount due should be computed from the
promulgation on November 24, 1997 of the decision of the trial court.
aSITDC

Costs against petitioner.

Panganiban, Sandoval-Gutierrez, Corona and Garcia, JJ., concur.

SECOND DIVISION
[G.R. No. 161833. July 8, 2005.]
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs.
UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL HONOR,"
NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES and
INTERNATIONAL CONTAINER SERVICES, INC., respondents.
Astorga and Repol Law Offices for petitioner.
Florencio L. Aquino for ICTSI.
Francis M. Egenias for NSCP.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; ONLY
QUESTIONS OF LAW PROPER; EXCEPTIONS. — 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.
CDISAc
2. COMMERCIAL LAW; TRANSPORTATION; COMMON
CARRIERS; DUTY TO OBSERVE EXTRAORDINARY DILIGENCE IN
THE VIGILANCE OVER THE GOODS; ELUCIDATED. — 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. 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 services 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." 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. 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. 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. DCHIAS
3. CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIERS;
VIGILANCE OF GOODS; PRESUMPTION OF NEGLIGENCE; WHEN
NOT APPLICABLE; DISCUSSED. — 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. 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.
4. ID.; ID.; ID.; ID.; DEFECT DISTINGUISHED FROM
INFERIORITY. — "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. On the other hand, inferior means of poor quality, mediocre, or
second rate. A thing may be of inferior quality but not necessarily
defective. In other words, "defectiveness" is not synonymous with
"inferiority." The statement in the Bill of Lading, that the shipment was
in apparent good condition, is sufficient to sustain a finding of absence
of defects in the merchandise. Case law has it that such statement will
create a prima facie presumption only as to the external condition and
not to that not open to inspection. ECTHIA
DECISION
CALLEJO, SR., J p:
This is a petition for review under Rule 45 of the 1997 Revised Rules
of Civil Procedure assailing the Decision 1 dated January 19, 2004 of
the Court of Appeals (CA) in CA-G.R. CV No. 57357 which affirmed the
Decision dated February 17, 1997 of the Regional Trial Court (RTC) of
Manila, Branch 37, in Civil Case No. 95-73338. TCcDaE
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 MN "National Honor," represented in the
Philippines by its agent, National Shipping Corporation of the
Philippines (NSCP). The shipment was for delivery to Manila,
Philippines. Freight forwarder, Samhwa Inter-Trans Co., Ltd., issued
Bill of Lading No. SH9410306 2 in the name of the shipper consigned
to the order of Metropolitan Bank and Trust Company with arrival
notice in Manila to ultimate consignee Blue Mono International
Company, Incorporated (BMICI), Binondo, Manila.
NSCP, for its part, issued Bill of Lading No. NSGPBSML512565 3 in
the name of the freight forwarder, as shipper, consigned to the order
of Stamm International Inc., Makati, Philippines. It is provided therein
that:
12. This Bill of Lading shall be prima facie evidence of the receipt
of the Carrier in apparent good order and condition except as,
otherwise, noted of the total number of Containers or other packages
or units enumerated overleaf. Proof to the contrary shall be admissible
when this Bill of Lading has been transferred to a third party acting in
good faith. No representation is made by the Carrier as to the weight,
contents, measure, quantity, quality, description, condition, marks,
numbers, or value of the Goods and the Carrier shall be under no
responsibility whatsoever in respect of such description or particulars.
HTacDS
13. The shipper, whether principal or agent, represents and
warrants that the goods are properly described, marked, secured, and
packed and may be handled in ordinary course without damage to the
goods, ship, or property or persons and guarantees the correctness of
the particulars, weight or each piece or package and description of the
goods and agrees to ascertain and to disclose in writing on shipment,
any condition, nature, quality, ingredient or characteristic that may
cause damage, injury or detriment to the goods, other property, the
ship or to persons, and for the failure to do so the shipper agrees to be
liable for and fully indemnify the carrier and hold it harmless in respect
of any injury or death of any person and loss or damage to cargo or
property. The carrier shall be responsible as to the correctness of any
such mark, descriptions or representations. 4
The shipment was contained in two wooden crates, namely, Crate No.
1 and Crate No. 2, complete and in good order condition, covered by
Commercial Invoice No. YJ-73564 DTD 5 and a Packing List. 6 There
were no markings on the outer portion of the crates except the name
of the consignee. 7 Crate No. 1 measured 24 cubic meters and weighed
3,620 kgs. It contained the following articles: one (1) unit Lathe
Machine complete with parts and accessories; one (1) unit Surface
Grinder complete with parts and accessories; and one (1) unit Milling
Machine complete with parts and accessories. On the flooring of the
wooden crates were three wooden battens placed side by side to
support the weight of the cargo. Crate No. 2, on the other hand,
measured 10 cubic meters and weighed 2,060 kgs. The Lathe Machine
was stuffed in the crate. The shipment had a total invoice value of
US$90,000.00 C&F Manila. 8 It was insured for P2,547,270.00 with
the Philippine Charter Insurance Corporation (PCIC) thru its general
agent, Family Insurance and Investment Corporation, 9 under Marine
Risk Note No. 68043 dated October 24, 1994. 10
The M/V "National Honor" arrived at the Manila International
Container Terminal (MICT) on November 14, 1995. The International
Container Terminal Services, Incorporated (ICTSI) was furnished with
a copy of the crate cargo list and bill of lading, and it knew the contents
of the crate. 11 The following day, the vessel started discharging its
cargoes using its winch crane. The crane was operated by Olegario
Balsa, a winchman from the ICTSI, 12 the exclusive arrastre operator
of MICT. cIaCTS
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the
crew and the surveyor of the ICTSI, conducted an inspection of the
cargo. 13 They inspected the hatches, checked the cargo and found it
in apparent good condition. 14 Claudio Cansino, the stevedore of the
ICTSI, placed two sling cables on each end of Crate No. 1. 15 No sling
cable was fastened on the mid-portion of the crate. In 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 Receipt 23 for P1,740,634.50. aIEDAC
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila,
Branch 35, a Complaint for Damages 24 against the "Unknown owner
of the vessel M/V National Honor," NSCP and ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the
defendants. It prayed, among others —
WHEREFORE, it is respectfully prayed of this Honorable Court that
judgment be rendered ordering defendants to pay plaintiff, jointly or in
the alternative, the following:
1. Actual damages in the amount of P1,740,634.50 plus legal
interest at the time of the filing of this complaint until fully paid;
2. Attorney's fees in the amount of P100,000.00;
3. Cost of suit 25
ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim
against its co-defendant NSCP, claiming that the loss/damage of the
shipment was caused exclusively by the defective material of the
wooden battens of the shipment, insufficient packing or acts of the
shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified
that the wooden battens placed on the wooden flooring of the crate was
of good material but was not strong enough to support the weight of
the machines inside the crate. He averred that most stevedores did not
know how to read and write; hence, he placed the sling cables only on
those portions of the crate where the arrow signs were placed, as in
the case of fragile cargo. He said that unless otherwise indicated by
arrow signs, the ICTSI used only two cable slings on each side of the
crate and would not place a sling cable in the mid-section. 26 He
declared that the crate fell from the cranes because the wooden batten
in the mid-portion was broken as it was being lifted. 27 He concluded
that the loss/damage was caused by the failure of the shipper or its
packer to place wooden battens of strong materials under the flooring
of the crate, and to place a sign in its mid-term section where the sling
cables would be placed. AIaDcH
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co.,
Inc. that the damage to the cargo could be attributed to insufficient
packing and unbalanced weight distribution of the cargo inside the
crate as evidenced by the types and shapes of items found. 28
The trial court rendered judgment for PCIC and ordered the complaint
dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective
counterclaims of the two defendants are dismissed, with costs against
the plaintiff.
SO ORDERED. 29
According to the trial court, the loss of the shipment contained in Crate
No. 1 was due to the internal defect and weakness of the materials
used in the fabrication of the crates. The middle wooden batten had a
hole (bukong-bukong). The trial court rejected the certification 30 of
the shipper, stating that the shipment was properly packed and
secured, as mere hearsay and devoid of any evidentiary weight, the
affiant not having testified. cIaHDA
Not satisfied, PCIC appealed 31 to the CA which rendered judgment on
January 19 2004 affirming in toto the appealed decision, with this fallo
— absent satisfactory explanation given by the carrier as to the exercise
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. ATCaDE
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
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. aETDIc
The petitioner insists that the respondents did not observe
extraordinary diligence in the care of the goods. It argues that in the
performance of its obligations, the respondent ICTSI should observe
the same degree of diligence as that required of a common carrier
under the New Civil Code of the Philippines. Citing Eastern Shipping
Lines, Inc. v. Court of Appeals, 38 it posits that respondents are liable
in solidum to it, inasmuch as both are charged with the obligation to
deliver the goods in good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged
liable, it is not solidarily liable with it. It further avers that the "carrier
cannot discharge directly to the consignee because cargo discharging
is the monopoly of the arrastre." Liability, therefore, falls solely upon
the shoulder of respondent ICTSI, inasmuch as the discharging of
cargoes from the vessel was its exclusive responsibility. Besides, the
petitioner is raising questions of facts, improper in a petition for review
on certiorari. 39
Respondent ICTSI avers that the issues raised are factual; hence,
improper under Rule 45 of the Rules of Court. It claims that it is merely
a depository and not a common carrier; hence, it is not obliged to
exercise extraordinary diligence. It reiterates that the loss/damage was
caused by the failure of the shipper or his packer to place a sign on the
sides and middle portion of the crate that extra care should be
employed in handling the shipment, and that the middle wooden
batten on the flooring of the crate had a hole. The respondent asserts
that the testimony of Anthony Abarquez, who conducted his
investigation at the site of the incident, should prevail over that of
Rolando Balatbat. As an alternative, it argues that if ever adjudged
liable, its liability is limited only to P3,500.00 as expressed in the
liability clause of Gate Pass CFS-BR-GP No. 319773. aSITDC
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. DcITaC
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; aSDCIE
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. CcADHI
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. AIDTSE
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.
xxx xxx xxx
Q: Now, what, if-any, were written or were marked on the crate?
cDACST
A: The thing that was marked on the cargo is an arrow just like of seen from the outside. 52 While it is true that the crate contained
a chain, Ma'am. machineries and spare parts, it cannot thereby be concluded that the
respondents knew or should have known that the middle wooden
Q: And where did you see or what parts of the crate did you see batten had a hole, or that it was not strong enough to bear the weight
those arrows? of the shipment.
A: At the corner of the crate, Ma'am. There is no showing in the Bill of Lading that the shipment was in good
Q: How many arrows did you see? 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
A: Four (4) on both sides, Ma'am. insufficient or inadequate. On the other hand, under Bill of Lading No.
NSGPBSML512565 issued by the respondent NSCP and accepted by
xxx xxx xxx
the petitioner, the latter represented and warranted that the goods
Q: What did you do with the arrows? were properly packed and disclosed in writing the "condition, nature,
quality or characteristic that may cause damage, injury or detriment
A.: When I saw the arrows, that's where I placed the slings, Ma'am. to the goods." Absent any signs on the shipment requiring the
placement of a sling cable in the mid-portion of the crate, the
xxx xxx xxx
respondent ICTSI was not obliged to do so.
Q: Now, did you find any other marks on the crate?
The statement in the Bill of Lading, that the shipment was in apparent
A: Nothing more, Ma'am. 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
Q: Now, Mr. Witness, if there are no arrows, would you place slings prima facie presumption only as to the external condition and not to
on the parts where there are no arrows? that not open to inspection. 53
A: You can not place slings , if there are no arrows, Ma'am." IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack
Appellant's allegation that since the cargo arrived safely from the port of merit. ISCDEA
of [P]usan, Korea without defect, the fault should be attributed to the SO ORDERED.
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 Puno, Austria-Martinez, Tinga and Chico-Nazario, JJ., concur.
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. IAcTaC

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
THIRD DIVISION
[G.R. No. 161745. September 30, 2005.]
LEA MER INDUSTRIES, INC., petitioner, vs. MALAYAN INSURANCE
CO., INC., * respondent.
DECISION
PANGANIBAN, J p:
Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods entrusted to them, as required by the nature
of their business and for reasons of public policy. Consequently, the
law presumes that common carriers are at fault or negligent for any
loss or damage to the goods that they transport. In the present case,
the evidence submitted by petitioner to overcome this presumption was
sorely insufficient. ICDSca
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court,
assailing the October 9, 2002 Decision 2 and the December 29, 2003
Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 66028. The
challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999
decision of the Regional Trial Court of Manila, Branch 42 in Civil Case
No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is
ordered to pay the [herein respondent] the value of the lost cargo in the
amount of P565,000.00. Costs against the [herein petitioner]." 4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer
Industries, Inc., for the shipment of 900 metric tons of silica sand
valued at P565,000. 5 Consigned to Vulcan Industrial and Mining
Corporation, the cargo was to be transported from Palawan to Manila.
On October 25, 1991, the silica sand was placed on board Judy VII, a
barge leased by Lea Mer. 6 During the voyage, the vessel sank,
resulting in the loss of the cargo. 7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the
lost cargo. 8 To recover the amount paid and in the exercise of its right
of subrogation, Malayan demanded reimbursement from Lea Mer,
which refused to comply. Consequently, Malayan instituted a
Complaint with the Regional Trial Court (RTC) of Manila on September
4, 1992, for the collection of P565,000 representing the amount that
respondent had paid Vulcan. 9
On October 7, 1999, the trial court dismissed the Complaint, upon
finding that the cause of the loss was a fortuitous event. 10 The RTC
noted that the vessel had sunk because of the bad weather condition
brought about by Typhoon Trining. The court ruled that petitioner had
no advance knowledge of the incoming typhoon, and that the vessel
had been cleared by the Philippine Coast Guard to travel from Palawan
to Manila. 11
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy
when it sailed for Manila. Thus, the loss of the cargo was occasioned
by petitioner's fault, not by a fortuitous event. 12
Hence, this recourse. 13
The Issues
Petitioner states the issues in this wise:
"A. Whether or not the survey report of the cargo surveyor, Jesus
Cortez, who had not been presented as a witness of the said report
during the trial of this case before the lower court can be admitted in
evidence to prove the alleged facts cited in the said report. cDCIHT
"B. Whether or not the respondent, Court of Appeals, had validly
or legally reversed the finding of fact of the Regional Trial Court which
clearly and unequivocally held that the loss of the cargo subject of this
case was caused by fortuitous event for which herein petitioner could
not be held liable.
"C. Whether or not the respondent, Court of Appeals, had
committed serious error and grave abuse of discretion in disregarding
the testimony of the witness from the MARINA, Engr. Jacinto Lazo y
Villegal, to the effect that the vessel 'Judy VII' was seaworthy at the
time of incident and further in disregarding the testimony of the PAG-
ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that
typhoon 'Trining' did not hit Metro Manila or Palawan." 14
In the main, the issues are as follows: (1) whether petitioner is liable
for the loss of the cargo, and (2) whether the survey report of Jesus
Cortez is admissible in evidence.
The Court's Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the
cargo was due to a fortuitous event. This issue involves primarily a
question of fact, notwithstanding petitioner's claim that it pertains only
to a question of law. As a general rule, questions of fact may not be
raised in a petition for review. 15 The present case serves as an
exception to this rule, because the factual findings of the appellate and
the trial courts vary. 16 This Court meticulously reviewed the records,
but found no reason to reverse the CA. STEacI
Rule on Common Carriers
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 — when this service is offered
to the public for compensation. 17 Petitioner is clearly a common
carrier, because it offers to the public its business of transporting
goods through its vessels. 18
Thus, the Court corrects the trial court's finding that petitioner became
a private carrier when Vulcan chartered it. 19 Charter parties are
classified as contracts of demise (or bareboat) and affreightment, which
are distinguished as follows:
"Under the demise or bareboat charter of the vessel, the charterer will
generally be considered as owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages
caused by negligence. To create a demise, the owner of a vessel must
completely and exclusively relinquish possession, command and
navigation thereof to the charterer; anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or
not a charter party at all." 20
The distinction is significant, because a demise or bareboat charter
indicates a business undertaking that is private in character. 21
Consequently, the rights and obligations of the parties to a contract of
private carriage are governed principally by their stipulations, not by
the law on common carriers. 22
The Contract in the present case was one of affreightment, as shown
by the fact that it was petitioner's crew that manned the tugboat M/V
Ayalit and controlled the barge Judy VII. 23 Necessarily, petitioner was
a common carrier, and the pertinent law governs the present factual
circumstances. TEacSA
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods and the safety of the passengers they
transport, as required by the nature of their business and for reasons
of public policy. 24 Extraordinary diligence requires rendering service
with the greatest skill and foresight to avoid damage and destruction
to the goods entrusted for carriage and delivery. 25
Common carriers are presumed to have been at fault or to have acted
negligently for loss or damage to the goods that they have transported.
26 This presumption can be rebutted only by proof that they observed
extraordinary diligence, or that the loss or damage was occasioned by
any of the following causes: 27
"(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." 28
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be
responsible for a fortuitous event which could not be foreseen, or
which, though foreseen, was inevitable." Thus, if the loss or damage
was due to such an event, a common carrier is exempted from liability.
EcSaHA
Jurisprudence defines the elements of a "fortuitous event" as follows: during his cross-examination, as shown by the following brief
(a) the cause of the unforeseen and unexpected occurrence, or the exchange:
failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso "Atty. Baldovino, Jr.:
fortuito must have been impossible to foresee or, if foreseeable, Other than be[a]ching the barge Judy VII, were there other
impossible to avoid; (c) the occurrence must have been such as to precautionary measure[s] exercised by you and the crew of Judy VII so
render it impossible for the debtors to fulfill their obligation in a normal as to prevent the los[s] or sinking of barge Judy VII?
manner; and (d) the obligor must have been free from any participation
in the aggravation of the resulting injury to the creditor. 29 xxx xxx xxx

To excuse the common carrier fully of any liability, the fortuitous event Atty. Baldovino, Jr.:
must have been the proximate and only cause of the loss. 30 Moreover,
Your Honor, what I am asking [relates to the] action taken by
it should have exercised due diligence to prevent or minimize the loss
the officers and crew of tugboat Ayalit and barge Judy VII . . . to prevent
before, during and after the occurrence of the fortuitous event. 31
the sinking of barge Judy VII?
Loss in the Instant Case
xxx xxx xxx
There is no controversy regarding the loss of the cargo in the present
Court:
case. As the common carrier, petitioner bore the burden of proving that
it had exercised extraordinary diligence to avoid the loss, or that the Mr. witness, did the captain of that tugboat give any instruction
loss had been occasioned by a fortuitous event -- an exempting on how to save the barge Judy VII?
circumstance.
Joey Draper:
It was precisely this circumstance that petitioner cited to escape
liability. Lea Mer claimed that the loss of the cargo was due to the bad I can no longer remember sir, because that happened [a] long
weather condition brought about by Typhoon Trining. 32 Evidence was time ago." 37
presented to show that petitioner had not been informed of the
Second, the alleged fortuitous event was not the sole and proximate
incoming typhoon, and that the Philippine Coast Guard had given it
cause of the loss. There is a preponderance of evidence that the barge
clearance to begin the voyage. 33 On October 25, 1991, the date on
was not seaworthy when it sailed for Manila. 38 Respondent was able
which the voyage commenced and the barge sank, Typhoon Trining
to prove that, in the hull of the barge, there were holes that might have
was allegedly far from Palawan, where the storm warning was only
caused or aggravated the sinking. 39 Because the presumption of
"Signal No. 1." 34
negligence or fault applied to petitioner, it was incumbent upon it to
The evidence presented by petitioner in support of its defense of show that there were no holes; or, if there were, that they did not
fortuitous event was sorely insufficient. As required by the pertinent aggravate the sinking. DTcASE
law, it was not enough for the common carrier to show that there was
Petitioner offered no evidence to rebut the existence of the holes. Its
an unforeseen or unexpected occurrence. It had to show that it was
witness, Domingo A. Luna, testified that the barge was in "tip-top" or
free from any fault — a fact it miserably failed to prove. cAEaSC
excellent condition, 40 but that he had not personally inspected it
First, petitioner presented no evidence that it had attempted to when it left Palawan. 41
minimize or prevent the loss before, during or after the alleged
The submission of the Philippine Coast Guard's Certificate of
fortuitous event. 35 Its witness, Joey A. Draper, testified that he could
Inspection of Judy VII, dated July 31, 1991, did not conclusively prove
no longer remember whether anything had been done to minimize loss
that the barge was seaworthy. 42 The regularity of the issuance of the
when water started entering the barge. 36 This fact was confirmed
Certificate is disputably presumed. 43 It could be contradicted by
competent evidence, which respondent offered. Moreover, this evidence
did not necessarily take into account the actual condition of the vessel
at the time of the commencement of the voyage. 44
Second Issue:
Admissibility of the Survey Report
An exception to the foregoing rule is that on "independently relevant
statements." A report made by a person is admissible if it is intended
to prove the tenor, not the truth, of the statements. 54 Independent of
the truth or the falsity of the statement given in the report, the fact
that it has been made is relevant. Here, the hearsay rule does not
apply. 55

Petitioner claims that the Survey Report 45 prepared by Jesus Cortez,
the cargo surveyor, should not have been admitted in evidence. The
Court partly agrees. Because he did not testify during the trial, 46 then
the Report that he had prepared was hearsay and therefore
inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortez's Survey Report was used in the
testimonies of respondent's witnesses — Charlie M. Soriano; and
Federico S. Manlapig, a cargo marine surveyor and the vice-president
of Toplis and Harding Company. 47 Soriano testified that the Survey
Report had been used in preparing the final Adjustment Report
conducted by their company. 48 The final Report showed that the
barge was not seaworthy because of the existence of the holes.
Manlapig testified that he had prepared that Report after taking into
account the findings of the surveyor, as well as the pictures and the
sketches of the place where the sinking occurred. 49 Evidently, the
existence of the holes was proved by the testimonies of the witnesses,
not merely by Cortez' Survey Report. ESacHC
In the instant case, the challenged Survey Report prepared by Cortez
was admitted only as part of the testimonies of respondent's witnesses.
The referral to Cortez's Report was in relation to Manlapig's final
Adjustment Report. Evidently, it was the existence of the Survey Report
that was testified to. The admissibility of that Report as part of the
testimonies of the witnesses was correctly ruled upon by the trial court.
AICTcE
At any rate, even without the Survey Report, petitioner has already
failed to overcome the presumption of fault that applies to common
carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and
Resolution are AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur.

Rule on Independently

Relevant Statement

That witnesses must be examined and presented during the trial, 50

and that their testimonies must be confined to personal knowledge is
required by the rules on evidence, from which we quote:

"Section 36. Testimony generally confined to personal knowledge;

hearsay excluded. — A witness can testify only to those facts which he
knows of his personal knowledge; that is, which are derived from his
own perception, except as otherwise provided in these rules." 51

On this basis, the trial court correctly refused to admit Jesus Cortez's
Affidavit, which respondent had offered as evidence. 52 Well-settled is
the rule that, unless the affiant is presented as a witness, an affidavit
is considered hearsay. 53
FIRST DIVISION
[G.R. No. 150403. January 25, 2007.]
CEBU SALVAGE CORPORATION, petitioner, vs. PHILIPPINE HOME
ASSURANCE CORPORATION, respondent.
DECISION
CORONA, J p:
May a carrier be held liable for the loss of cargo resulting from the
sinking of a ship it does not own?
This is the issue presented for the Court's resolution in this petition
for review on certiorari 1 assailing the March 16, 2001 decision 2 and
September 17, 2001 resolution 3 of the Court of Appeals (CA) in CA-
G.R. CV No. 40473 which in turn affirmed the December 27, 1989
decision 4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro
Manila. 5
The pertinent facts follow. DSETcC
On November 12, 1984, petitioner Cebu Salvage Corporation (as
carrier) and Maria Cristina Chemicals Industries, Inc. [MCCII] (as
charterer) entered into a voyage charter 6 wherein petitioner was to
load 800 to 1,100 metric tons of silica quartz on board the M/T
Espiritu Santo 7 at Ayungon, Negros Occidental for transport to and
discharge at Tagoloan, Misamis Oriental to consignee Ferrochrome
Phils., Inc. 8
Pursuant to the contract, on December 23, 1984, petitioner received
and loaded 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo which left Ayungon for Tagoloan the next day. 9 The shipment
never reached its destination, however, because the M/T Espiritu
Santo sank in the afternoon of December 24, 1984 off the beach of
Opol, Misamis Oriental, resulting in the total loss of the cargo. 10
MCCII filed a claim for the loss of the shipment with its insurer,
respondent Philippine Home Assurance Corporation. 11 Respondent
paid the claim in the amount of P211,500 and was subrogated to the
rights of MCCII. 12 Thereafter, it filed a case in the RTC 13 against
petitioner for reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It
ordered petitioner to pay respondent P211,500 plus legal interest,
attorney's fees equivalent to 25% of the award and costs of suit.
TCDHaE
On appeal, the CA affirmed the decision of the RTC. Hence, this
petition.
Petitioner and MCCII entered into a "voyage charter," also known as a
contract of affreightment wherein the ship was leased for a single
voyage for the conveyance of goods, in consideration of the payment of
freight. 14 Under a voyage charter, the shipowner retains the
possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for his
payment of freight. 15 An owner who retains possession of the ship
remains liable as carrier and must answer for loss or non-delivery of
the goods received for transportation. 16
Petitioner argues that the CA erred when it affirmed the RTC finding
that the voyage charter it entered into with MCCII was a contract of
carriage. 17 It insists that the agreement was merely a contract of hire
wherein MCCII hired the vessel from its owner, ALS Timber Enterprises
(ALS). 18 Not being the owner of the M/T Espiritu Santo, petitioner did
not have control and supervision over the vessel, its master and crew.
19 Thus, it could not be held liable for the loss of the shipment caused
by the sinking of a ship it did not own.
We disagree.
Based on the agreement signed by the parties and the testimony of
petitioner's operations manager, it is clear that it was a contract of
carriage petitioner signed with MCCII. It actively negotiated and
solicited MCCII's account, offered its services to ship the silica quartz
and proposed to utilize the M/T Espiritu Santo in lieu of the M/T
Seebees or the M/T Shirley (as previously agreed upon in the voyage
charter) since these vessels had broken down. 20
There is no dispute that petitioner was a common carrier. At the time
of the loss of the cargo, it was engaged in the business of carrying and
transporting goods by water, for compensation, and offered its services
to the public. 21
From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence over the
goods they transport according to the circumstances of each case. 22
In the event of loss of the goods, common carriers are responsible,
unless they can prove that this was brought about by the causes
specified in Article 1734 of the Civil Code. 23 In all other cases,
common carriers are presumed to be at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence. 24
Petitioner was the one which contracted with MCCII for the transport
of the cargo. It had control over what vessel it would use. All
throughout its dealings with MCCII, it represented itself as a common
carrier. The fact that it did not own the vessel it decided to use to
consummate the contract of carriage did not negate its character and
duties as a common carrier. The MCCII (respondent's subrogor) could
not be reasonably expected to inquire about the ownership of the
vessels which petitioner carrier offered to utilize. As a practical matter,
it is very difficult and often impossible for the general public to enforce
its rights of action under a contract of carriage if it should be required
to know who the actual owner of the vessel is. 25 In fact, in this case,
the voyage charter itself denominated petitioner as the
"owner/operator" of the vessel. 26
Petitioner next contends that if there was a contract of carriage, then
it was between MCCII and ALS as evidenced by the bill of lading ALS
issued. 27
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the
fact that the goods had been received for transportation. It was not
signed by MCCII, as in fact it was simply signed by the supercargo of
ALS. 28 This is consistent with the fact that MCCII did not contract
directly with ALS. While it is true that a bill of lading may serve as the
contract of carriage between the parties, 29 it cannot prevail over the
express provision of the voyage charter that MCCII and petitioner
executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering
goods shipped aboard a vessel under a charter party, and the charterer
is also the holder of the bill of lading, "the bill of lading operates as the
receipt for the goods, and as document of title passing the property of
the goods, but not as varying the contract between the charterer and
the shipowner." The Bill of Lading becomes, therefore, only a receipt
and not the contract of carriage in a charter of the entire vessel, for the
contract is the Charter Party, and is the law between the parties who
are bound by its terms and condition provided that these are not
contrary to law, morals, good customs, public order and public policy.
30
Finally, petitioner asserts that MCCII should be held liable for its own
loss since the voyage charter stipulated that cargo insurance was for
the charterer's account. 31 This deserves scant consideration. This
simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the breach
of its contract of carriage. The law, in fact, prohibits it and condemns
it as unjust and contrary to public policy. 32
To summarize, a contract of carriage of goods was shown to exist; the
cargo was loaded on board the vessel; loss or non-delivery of the cargo
was proven; and petitioner failed to prove that it exercised
extraordinary diligence to prevent such loss or that it was due to some
casualty or force majeure. The voyage charter here being a contract of
affreightment, the carrier was answerable for the loss of the goods
received for transportation. 33
The idea proposed by petitioner is not only preposterous, it is also
dangerous. It says that a carrier that enters into a contract of carriage
is not liable to the charterer or shipper if it does not own the vessel it
chooses to use. MCCII never dealt with ALS and yet petitioner insists
that MCCII should sue ALS for reimbursement for its loss. Certainly,
to permit a common carrier to escape its responsibility for the goods it
agreed to transport (by the expedient of alleging non-ownership of the
vessel it employed) would radically derogate from the carrier's duty of
extraordinary diligence. It would also open the door to collusion
between the carrier and the supposed owner and to the possible
shifting of liability from the carrier to one without any financial
capability to answer for the resulting damages. 34
WHEREFORE, the petition is hereby DENIED. DHITCc
Costs against petitioner.
Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.
THIRD DIVISION
[G.R. No. 186312. June 29, 2010.]
SPOUSES DANTE CRUZ and LEONORA CRUZ, petitioners, vs. SUN
HOLIDAYS, INC., respondent.
DECISION
CARPIO MORALES, J p:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on
January 25, 2001 1 against Sun Holidays, Inc. (respondent) with the
Regional Trial Court (RTC) of Pasig City for damages arising from the
death of their son Ruelito C. Cruz (Ruelito) who perished with his wife
on September 11, 2000 on board the boat M/B Coco Beach III that
capsized en route to Batangas from Puerto Galera, Oriental Mindoro
where the couple had stayed at Coco Beach Island Resort (Resort)
owned and operated by respondent. CAIaHS
The stay of the newly wed Ruelito and his wife at the Resort from
September 9 to 11, 2000 was by virtue of a tour package-contract with
respondent that included transportation to and from the Resort and
the point of departure in Batangas.
Miguel C. Matute (Matute), 2 a scuba diving instructor and one of the
survivors, gave his account of the incident that led to the filing of the
complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was
originally scheduled to leave the Resort in the afternoon of September
10, 2000, but was advised to stay for another night because of strong
winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other
Resort guests including petitioners' son and his wife trekked to the
other side of the Coco Beach mountain that was sheltered from the
wind where they boarded M/B Coco Beach III, which was to ferry them
to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away
from Puerto Galera and into the open seas, the rain and wind got
stronger, causing the boat to tilt from side to side and the captain to
step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which
came one after the other, M/B Coco Beach III capsized putting all
passengers underwater.
The passengers, who had put on their life jackets, struggled to get out
of the boat. Upon seeing the captain, Matute and the other passengers
who reached the surface asked him what they could do to save the
people who were still trapped under the boat. The captain replied
"Iligtas niyo na lang ang sarili niyo" (Just save yourselves). AcCTaD
Help came after about 45 minutes when two boats owned by Asia
Divers in Sabang, Puerto Galera passed by the capsized M/B Coco
Beach III. Boarded on those two boats were 22 persons, consisting of
18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners' son and his wife, died
during the incident.
At the time of Ruelito's death, he was 28 years old and employed as a
contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd.
in Saudi Arabia, with a basic monthly salary of $900. 3
Petitioners, by letter of October 26, 2000, 4 demanded indemnification
from respondent for the death of their son in the amount of at least
P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any
responsibility for the incident which it considered to be a fortuitous
event. It nevertheless offered, as an act of commiseration, the amount
of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondent's offer, they filed the Complaint, as
earlier reflected, alleging that respondent, as a common carrier, was
guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine
Atmospheric, Geophysical and Astronomical Services Administration
(PAGASA) as early as 5:00 a.m. of September 11, 2000. 6
In its Answer, 7 respondent denied being a common carrier, alleging
that its boats are not available to the general public as they only ferry
Resort guests and crew members. Nonetheless, it claimed that it
exercised the utmost diligence in ensuring the safety of its passengers;
contrary to petitioners' allegation, there was no storm on September
11, 2000 as the Coast Guard in fact cleared the voyage; and M/B Coco
Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is
entitled to an award for attorney's fees and litigation expenses
amounting to not less than P300,000. IcAaEH
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
customarily requires four conditions to be met before a boat is allowed
to sail, to wit: (1) the sea is calm, (2) there is clearance from the Coast
Guard, (3) there is clearance from the captain and (4) there is clearance
from the Resort's assistant manager. 8 He added that M/B Coco Beach
III met all four conditions on September 11, 2000, 9 but a subasco or
squall, characterized by strong winds and big waves, suddenly
occurred, causing the boat to capsize. 10
By Decision of February 16, 2005, 11 Branch 267 of the Pasig RTC
dismissed petitioners' Complaint and respondent's Counterclaim.
Petitioners' Motion for Reconsideration having been denied by Order
dated September 2, 2005, 12 they appealed to the Court of Appeals.
By Decision of August 19, 2008, 13 the appellate court denied
petitioners' appeal, holding, among other things, that the trial court
correctly ruled that respondent is a private carrier which is only
required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco
Beach III; and that the proximate cause of the incident was a squall, a
fortuitous event.
Petitioners' Motion for Reconsideration having been denied by
Resolution dated January 16, 2009, 14 they filed the present Petition
for Review. 15
Petitioners maintain the position they took before the trial court,
adding that respondent is a common carrier since by its tour package,
the transporting of its guests is an integral part of its resort business.
They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to
present evidence to prove that it is a common carrier; that the Resort's
ferry services for guests cannot be considered as ancillary to its
business as no income is derived therefrom; that it exercised
extraordinary diligence as shown by the conditions it had imposed
before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on
its part; and that the other case wherein the appellate court held it
liable for damages involved different plaintiffs, issues and evidence. 16
The petition is impressed with merit. ETDHSa
Petitioners correctly rely on De Guzman v. Court of Appeals 17 in
characterizing respondent 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 deliberately refrained from
making such distinctions.
So understood, the concept of "common carrier" under Article 1732
may be seen to coincide neatly with the notion of "public service,"
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:
. . . every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, 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 . . . 18 (emphasis and underscoring
supplied.) TaCSAD
Indeed, respondent is a common carrier. Its ferry services are so
intertwined with its main business as to be properly considered
ancillary thereto. The constancy of respondent's ferry services in its
resort operations is underscored by its having its own Coco Beach
boats. And the tour packages it offers, which include the ferry services,
may be availed of by anyone who can afford to pay the same. These
services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry
services is of no moment. It would be imprudent to suppose that it
provides said services at a loss. The Court is aware of the practice of
beach resort operators offering tour packages to factor the
transportation fee in arriving at the tour package price. That guests
who opt not to avail of respondent's ferry services pay the same amount
is likewise inconsequential. These guests may only be deemed to have
overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining
"common carriers" has deliberately refrained from making distinctions
on whether the carrying of persons or goods is the carrier's principal
business, whether it is offered on a regular basis, or whether it is
offered to the general public. The intent of the law is thus to not
consider such distinctions. Otherwise, there is no telling how many
other distinctions may be concocted by unscrupulous businessmen
engaged in the carrying of persons or goods in order to avoid the legal
obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case. 19 They are
bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. 20
When a passenger dies or is injured in the discharge of a contract of
carriage, it is presumed that the common carrier is at fault or
negligent. In fact, there is even no need for the court to make an
express finding of fault or negligence on the part of the common carrier.
This statutory presumption may only be overcome by evidence that the
carrier exercised extraordinary diligence. 21
Respondent nevertheless harps on its strict compliance with the earlier
mentioned conditions of voyage before it allowed M/B Coco Beach III
to sail on September 11, 2000. Respondent's position does not
impress. ITcCaS
The evidence shows that PAGASA issued 24-hour public weather
forecasts and tropical cyclone warnings for shipping on September 10
and 11, 2000 advising of tropical depressions in Northern Luzon which
would also affect the province of Mindoro. 22 By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA, squalls are to
be expected under such weather condition. 23
A very cautious person exercising the utmost diligence would thus not
brave such stormy weather and put other people's lives at risk. The
extraordinary diligence required of common carriers demands that
they take care of the goods or lives entrusted to their hands as if they
were their own. This respondent failed to do.
Respondent's insistence that the incident was caused by a fortuitous
event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen
and unexpected occurrence, or the failure of the debtors to comply with
their obligations, must have been independent of human will; (b) the
event that constituted the caso fortuito must have been impossible to
foresee or, if foreseeable, impossible to avoid; (c) the occurrence must
have been such as to render it impossible for the debtors to fulfill their
obligation in a normal manner; and (d) the obligor must have been free
from any participation in the aggravation of the resulting injury to the
creditor. 24
To fully free a common carrier from any liability, the fortuitous event
must have been the proximate and only cause of the loss. And it should
have exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the fortuitous event. 25
Respondent cites the squall that occurred during the voyage as the
fortuitous event that overturned M/B Coco Beach III. As reflected
above, however, the occurrence of squalls was expected under the
weather condition of September 11, 2000. Moreover, evidence shows
that M/B Coco Beach III suffered engine trouble before it capsized and
sank. 26 The incident was, therefore, not completely free from human
intervention.
The Court need not belabor how respondent's evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the
loss before, during and after the occurrence of the squall.
Article 1764 27 vis-à-vis Article 2206 28 of the Civil Code holds the
common carrier in breach of its contract of carriage that results in the
death of a passenger liable to pay the following: (1) indemnity for death,
(2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is
fixed at P50,000. 29 aDHScI
As for damages representing unearned income, the formula for its
computation is:
Net Earning Capacity = life expectancy x (gross annual income -
reasonable and necessary living expenses).
Life expectancy is determined in accordance with the formula:
2/3 x [80 — age of deceased at the time of death] 30
The first factor, i.e., life expectancy, is computed by applying the
formula (2/3 x [80 — age at death]) adopted in the American
Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality. 31
The second factor is computed by multiplying the life expectancy by
the net earnings of the deceased, i.e., the total earnings less expenses
necessary in the creation of such earnings or income and less living
and other incidental expenses. 32 The loss is not equivalent to the
entire earnings of the deceased, but only such portion as he would
have used to support his dependents or heirs. Hence, to be deducted
from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs. 33
In computing the third factor — necessary living expense, Smith Bell
Dodwell Shipping Agency Corp. v. Borja 34 teaches that when, as in
this case, there is no showing that the living expenses constituted the
smaller percentage of the gross income, the living expenses are fixed
at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life
expectancy as follows:
Life expectancy = 2/3 x [80 — age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly
salary of $900 35 which, when converted to Philippine peso applying
the annual average exchange rate of $1 = P44 in 2000, 36 amounts to
P39,600. Ruelito's net earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income -
reasonable
and necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning Capacity = P8,316,000
Respecting the award of moral damages, since respondent common
carrier's breach of contract of carriage resulted in the death of
petitioners' son, following Article 1764 vis-à-vis Article 2206 of the Civil
Code, petitioners are entitled to moral damages. DAETHc
Since respondent failed to prove that it exercised the extraordinary
diligence required of common carriers, it is presumed to have acted
recklessly, thus warranting the award too of exemplary damages,
which are granted in contractual obligations if the defendant acted in
a wanton, fraudulent, reckless, oppressive or malevolent manner. 37
Under the circumstances, it is reasonable to award petitioners the
amount of P100,000 as moral damages and P100,000 as exemplary
damages. 38
Pursuant to Article 2208 39 of the Civil Code, attorney's fees may also
be awarded where exemplary damages are awarded. The Court finds
that 10% of the total amount adjudged against respondent is
reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches
that when an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit —
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is
REVERSED and SET ASIDE. Judgment is rendered in favor of
petitioners ordering respondent to pay petitioners the following: (1)
P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as
indemnity for Ruelito's loss of earning capacity; (3) P100,000 as moral
damages; (4) P100,000 as exemplary damages; (5) 10% of the total
amount adjudged against respondent as attorneys fees; and (6) the
costs of suit.
The total amount adjudged against respondent shall earn interest at
the rate of 12% per annum computed from the finality of this decision
until full payment. IHcSCA
SO ORDERED.

2. When an obligation, not constituting a loan or forbearance of Brion, Bersamin, Abad * and Villarama, Jr., JJ., concur.
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged. TcaAID

3. When the judgment of the court awarding a sum of money

becomes final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
(emphasis supplied).

Since the amounts payable by respondent have been determined with

certainty only in the present petition, the interest due shall be
computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, in accordance with paragraph number 3 of
the immediately cited guideline in Easter Shipping Lines, Inc.