G.R. No.
L-47822 December 22, 1988 The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material
to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which various
merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged
freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk
Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750
cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment
in Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati
the merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent himself, while
600 cartons were placed on board the other truck which was driven by Manuel Estrada, respondent's driver
and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur Highway
in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to
exercise the extraordinary diligence required of him by the law, should be held liable for the value of the
undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held
responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as
damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a
common carrier; in finding that he had habitually offered trucking services to the public; in not exempting
him from liability on the ground of force majeure; and in ordering him to pay damages and attorney's fees.
transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court
by way of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts
earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a
sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733 deliberaom making such
distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13,
paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight
or passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. ... (Emphasis
supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he
merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was
done on a periodic or occasional rather than regular or scheduled manner, and even though private
respondent'sprincipal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial
freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience,
and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions governing common carriers. That
liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such
carrier has also complied with the requirements of the applicable regulatory statute and implementing
regulations and has been granted a certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not secured the necessary certificate of
public convenience, would be offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements. The business of a common carrier
impinges directly and intimately upon the safety and well being and property of those members of the
general community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot allow a
common carrier to render such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high
degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The
specific import of extraordinary diligence in the care of goods transported by a common carrier is, according
to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or
deterioration of the goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the
common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if
they appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as
follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if
the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the
instant case the hijacking of the carrier's truck does not fall within any of the five (5) categories of
exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle
must be dealt with under the provisions of Article 1735, in other words, that the private respondent as
common carrier is presumed to have been at fault or to have acted negligently. This presumption, however,
may be overthrown by proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's
goods. Petitioner argues that in the circumstances of this case, private respondent should have hired a
security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not
believe, however, that in the instant case, the standard of extraordinary diligence required private
respondent to retain a security guard to ride with the truck and to engage brigands in a firelight at the risk of
his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary
diligence in the vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given
additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6,
Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:
xxx 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 donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to
diminish such responsibility even for acts of strangers like thieves or robbers, except where such thieves or
robbers in fact acted "with grave or irresistible threat, violence or force." We believe and so hold that the
limits of the duty of extraordinary diligence in the vigilance over the goods carried are reached where the
goods are lost as a result of a robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of First
Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno,
Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the accused were charged with
willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel Estrada and
loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave, if not irresistible, threat,
violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The robbers not only took
away the truck and its cargo but also kidnapped the driver and his helper, detaining them for several days
and later releasing them in another province (in Zambales). The hijacked truck was subsequently found by
the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of
robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond
the control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that
even common carriers are not made absolute insurers against all risks of travel and of transport of goods, and
are not held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have
complied with the rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not
liable for the value of the undelivered merchandise which was lost because of an event entirely beyond
private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of
Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 148496 March 19, 2002
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL
SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming the
decision2of 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.1wphi1.nt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole
proprietorship customs broker. At the time material to this case, petitioner entered into a contract with San
Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft
liner board from the Port Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez St.,
Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board "M/V
Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator,
Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC,
withdrew the cargo from the arrastre operator and delivered it to SMC's warehouse in Ermita, Manila. On July
25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical
fluting paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn. The damage was
placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount.
In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch
148, Makati City, which, on December 20, 1995, rendered judgment finding petitioner liable to respondent for
the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of defendants.
Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F") with entries
appearing therein, classified as "TED" and "TSN", which the claims processor, Ms. Agrifina De Luna,
claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes
respectively, coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A") confirms the fact of
the damaged condition of the subject cargoes. The surveyor[s'] report (Exh. "H-4-A") in particular,
which provides among others that:
" . . . we opine that damages sustained by shipment is attributable to improper handling in
transit presumably whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not
liable. Defendant by reason of the nature of [her] business should have devised ways and means in
order to prevent the damage to the cargoes which it is under obligation to take custody of and to
forthwith deliver to the consignee. Defendant did not present any evidence on what precaution
[she] performed to prevent [the] said incident, hence the presumption is that the moment the
defendant accepts the cargo [she] shall perform such extraordinary diligence because of the nature
of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the extraordinary diligence required by law.
The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been
lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of
delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove
that the loss was due to accident or some other circumstances inconsistent with its liability." (cited
in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and
received by the carrier for transportation until the same are delivered actually or constructively by
the carrier to the consignee or to the person who has the right to receive the same. 3
Accordingly, the trial court ordered petitioner to pay the following amounts --
 1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE
CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND
MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE
PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT
HOLD ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a common
carrier, although both the trial court and the Court of Appeals held otherwise, then she is indeed not liable
beyond what ordinary diligence in the vigilance over the goods transported by her, would
require.6 Consequently, any damage to the cargo she agrees to transport cannot be presumed to have been
due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a
common carrier but a private carrier because, as a customs broker and warehouseman, she does not
indiscriminately hold her services out to the public but only offers the same to select parties with whom she
may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar contention and
held the party to be a common carrier, thus -
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 aregular 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 narrowsegment of the general population. We think that
Article 1732 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
" x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight
or passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. x x x" 8
There is greater reason for holding petitioner to be a common carrier because the transportation of goods is
an integral part of her business. To uphold 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 --
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to
the contrary. No proof was proffered to rebut this legal presumption and the presumption of
negligence attached to a common carrier in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her custody as she
immediately delivered the containers to SMC's compound, suffice it to say that to prove the exercise of
extraordinary diligence, petitioner must do more than merely show the possibility that some other party
could be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature
and characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the handling
[thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
....

Details of Discharge: (4) The character of the goods or defects in the packing or in the containers.

Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier
#13 South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal vans, covered
by clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers
were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by Transorient
Container Services, Inc. . . . without exception.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the
container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception notwithstanding such condition, he is not
relieved of liability for damage resulting therefrom.14 In this case, petitioner accepted the cargo without
exception despite the apparent defects in some of the container vans. Hence, for failure of petitioner to prove
that she exercised extraordinary diligence in the carriage of goods in this case or that she is exempt from
liability, the presumption of negligence as provided under Art. 173515 holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.1wphi1.nt

[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera SO ORDERED.
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.12
SPOUSES DANTE CRUZ and G.R. No. 186312
As found by the Court of Appeals: LEONORA CRUZ,
Petitioners, Present:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the CARPIO MORALES, J.,
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment Chairperson,
Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a BRION,
report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant- - versus - BERSAMIN,
appellant from the arrastre still in good order and condition as the same were received by the ABAD,* and
former without exception, that is, without any report of damage or loss. Surely, if the container vans SUN HOLIDAYS, INC., VILLARAMA, JR., JJ.
were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately Respondent.
to the consignee or make an exception on the delivery receipt or note the same in the Warehouse Promulgated:
Entry Slip (WES). None of these took place. To put it simply, the defendant-appellant received the June 29, 2010
shipment in good order and condition and delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred while it was in the possession of the x-------------------------------------------------x
 The waves got more unwieldy. After getting hit by two big waves which came one after the

other, M/B Coco Beach IIIcapsized putting all passengers underwater.

DECISION
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
CARPIO MORALES, J.: who were still trapped under the boat. The captain replied Iligtas niyo na lang ang sarili niyo (Just save

yourselves).
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
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by
death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the
the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers
boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the
and four crew members, who were brought to Pisa Island. Eight passengers, including petitioners son and his
couple had stayed at Coco Beach Island Resort (Resort) owned and operated by respondent.
wife, died during the incident.

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 At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui

departure in Batangas. 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

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors, gave his account of the son in the amount of at least P4,000,000.

incident that led to the filing of the complaint as follows:

Replying, respondent, by letter dated November 7, 2000,[5] denied any responsibility for the incident which it

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the Resort in considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount

the afternoon of September 10, 2000, but was advised to stay for another night because of strong winds and of P10,000 to petitioners upon their signing of a waiver.

heavy rains.
As petitioners declined respondents 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
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners son and
notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
his wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.[6]
boarded M/B Coco Beach III, which was to ferry them to Batangas.

In its Answer,[7] respondent denied being a common carrier, alleging that its boats are not available to the
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised
seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward the utmost diligence in ensuring the safety of its passengers; contrary to petitioners allegation, there was no
to the front, leaving the wheel to one of the crew members. 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 attorneys fees and litigation expenses amounting to not less than P300,000.
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 Resorts 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
respondents 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 Resorts 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.
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 distinctionbetween 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.)
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 respondents ferry services in its resort
operations is underscored by its having its ownCoco 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 The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for

thus available to the public. 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

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It PAGASA, squalls are to be expected under such weather condition.[23]

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 A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put

price. That guests who opt not to avail of respondents ferry services pay the same amount is likewise other peoples lives at risk.The extraordinary diligence required of common carriers demands that they take

inconsequential. These guests may only be deemed to have overpaid. care of the goods or lives entrusted to their hands as if they were their own. This respondent failed to do.

As De Guzman instructs, Article 1732 of the Civil Code defining common carriers has deliberately refrained Respondents insistence that the incident was caused by a fortuitous event does not impress either.

from making distinctions on whether the carrying of persons or goods is the carriers principal business, The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or the

whether it is offered on a regular basis, or whether it is offered to the general public. The intent of the law is failure of the debtors to comply with their obligations, must have been independent of human will; (b) the

thus to not consider such distinctions. Otherwise, there is no telling how many other distinctions may be event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to

concocted by unscrupulous businessmen engaged in the carrying of persons or goods in order to avoid the avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their

legal obligations and liabilities of common carriers. 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]

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are
To fully free a common carrier from any liability, the fortuitous event must have been the proximate and
bound to observe extraordinary diligence for the safety of the passengers transported by them, according to
only cause of the loss.And it should have exercised due diligence to prevent or minimize the loss before,
all the circumstances of each case.[19]They are bound to carry the passengers safely as far as human care and
during and after the occurrence of the fortuitous event.[25]
foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the

circumstances.[20] 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
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the
capsized and sank.[26] The incident was, therefore, not completely free from human intervention.
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 The Court need not belabor how respondents evidence likewise fails to demonstrate that it exercised due
by evidence that the carrier exercised extraordinary diligence.[21] diligence to prevent or minimize the loss before, during and after the occurrence of the squall.

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. Respondents position does not impress.
 2/3 x [52]
Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common carrier in breach of its
Life expectancy = 35
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.
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
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.[29]
2000,[36] amounts to P39,600. Ruelitos net earning capacity is thus computed as follows:

As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income -
Net Earning Capacity = life expectancy x (gross annual income - reasonable and reasonable and necessary living expenses).
necessary living expenses).
= 35 x (P475,200 - P237,600)
Life expectancy is determined in accordance with the formula: = 35 x (P237,600)

2 / 3 x [80 age of deceased at the time of death][30] Net Earning Capacity = P8,316,000

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 Respecting the award of moral damages, since respondent common carriers breach of contract of

Mortality.[31] carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206 of the Civil

The second factor is computed by multiplying the life expectancy by the net earnings of the Code, petitioners are entitled to moral damages.

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 Since respondent failed to prove that it exercised the extraordinary diligence required of common

only such portion as he would have used to support his dependents or heirs.Hence, to be deducted from his carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary damages, which

gross earnings are the necessary expenses supposed to be used by the deceased for his own needs. [33] are granted in contractual obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or

malevolent manner.[37]

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 Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral

smaller percentage of the gross income, the living expenses are fixed at half of the gross income. damages and P100,000 as exemplary damages.[38]

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
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
Life expectancy = 2/3 x [80 - age of deceased at the time of death] reasonable for the purpose.

2/3 x [80 - 28]

 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.
2. When an obligation, not constituting a loan or forbearance of 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.
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.
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 Ruelitos 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.
SO ORDERED.
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.
MARTINEZ, J.:
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.
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 onlycommon 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. 10On 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.
Art. 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:
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 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 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 Sec. 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.
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,
vs.
MALAYAN INSURANCE CO., INC.,* Respondent.
DECISION
PANGANIBAN, J.:
ommon 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.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002
Decision2and the December 29, 2003 Resolution3 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 petitioners 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.
"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 Courts 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 petitioners 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.
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 courts 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
isprivate 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 petitioners 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.
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.24Extraordinary 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.
Jurisprudence defines the elements of a "fortuitous event" as follows: (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.29
To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and
only cause of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the common carrier, petitioner
bore the burden of proving that it had exercised extraordinary diligence to avoid the loss, or that the loss had
been occasioned by a fortuitous event -- an exempting circumstance.
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 weather condition brought about by Typhoon Trining.32 Evidence was presented to
show that petitioner had not been informed of the incoming typhoon, and that the Philippine Coast Guard had
given it clearance to begin the voyage.33 On October 25, 1991, the date on which the voyage commenced and
the barge sank, Typhoon Trining was allegedly far from Palawan, where the storm warning was only "Signal
No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As
required by the pertinent law, it was not enough for the common carrier to show that there was an
unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a fact it miserably failed
to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during or
after the alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no longer remember
whether anything had been done to minimize loss when water started entering the barge. 36 This fact was
confirmed during his cross-examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s] exercised by you and
the crew of Judy VII so as to prevent the los[s] or sinking of barge Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit and
barge Judy VII x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a
preponderance of evidence that the barge was not seaworthy when it sailed for Manila.38 Respondent was
able to prove that, in the hull of the barge, there were holes that might have caused or aggravated the
sinking.39 Because the presumption of negligence or fault applied to petitioner, it was incumbent upon it to
show that there were no holes; or, if there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified that
the barge was in "tip-top" or excellent condition,40 but that he had not personally inspected it when it left
Palawan.41
The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July 31, 1991, did
not conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the 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
Petitioner claims that the Survey Report45 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 Cortezs Survey Report was used in the testimonies of respondents 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.
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 Cortezs 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
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
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the
testimonies of respondents witnesses. The referral to Cortezs Report was in relation to Manlapigs 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.
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.
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private one as
to negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New
York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June
1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha
(KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of
Lading No. KP-1 signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan. 3Riders to the aforesaid charter-party starting from par. 16 to 40 were attached
to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered
into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party
which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National
Cargo Bureau inspector or substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned
and dried at the vessel's expense and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper,
the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with
steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the
use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which
were parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and
conditions of the charter-partly (which provided for an F.I.O.S. clause). 6 The hatches remained open
throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to
the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the
trucks were made to pass through a weighing scale where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining occasionally while the discharge was in
progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening
at the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins
and GI sheets were placed in-between and alongside the trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and
18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI
to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after
discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a
shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated
18 July 1974 prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and
about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the
resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods
shipped and the diminution in value of that portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment because,
according to them, what they received was just a request for shortlanded certificate and not a formal claim,
and that this "request" was denied by them because they "had nothing to do with the discharge of the
shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of
Manila. The defendant carrier argued that the strict public policy governing common carriers does not apply
to them because they have become private carriers by reason of the provisions of the charter-party. The
court a quo however sustained the claim of the plaintiff against the defendant carrier for the value of the
goods lost or damaged when it ruled thus: 15
 . . . Prescinding from the provision of the law that a common carrier is presumed negligent
in case of loss or damage of the goods it contracts to transport, all that a shipper has to do
in a suit to recover for loss or damage is to show receipt by the carrier of the goods and to
delivery by it of less than what it received. After that, the burden of proving that the loss or
damage was due to any of the causes which exempt him from liability is shipted to the carrier,
common or private he may be. Even if the provisions of the charter-party aforequoted are
deemed valid, and the defendants considered private carriers, it was still incumbent upon
them to prove that the shortage or contamination sustained by the cargo is attributable to
the fault or negligence on the part of the shipper or consignee in the loading, stowing,
trimming and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants are
liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for
the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do
not find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to
adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in its
complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden
of proving his cause of action, fails to show in a satisfactory manner the facts upon which
he bases his claim, the defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil.
202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause
of action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was
under the impression that it did not have to establish defendant's negligence. Be that as it
may, contrary to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing its obligation . .
. 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the
issue raised therein is the validity of a stipulation in the charter-party delimiting the liability of the shipowner
for loss or damage to goods cause by want of due deligence on its part or that of its manager to make the
vessel seaworthy in all respects, and not whether the presumption of negligence provided under the Civil
Code applies only to common carriers and not to private carriers. 19 Petitioner further argues that since the
possession and control of the vessel remain with the shipowner, absent any stipulation to the contrary, such
shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the appellate court
in not applying the presumption of negligence against respondent carrier, and instead shifting the onus
probandi on the shipper to show want of due deligence on the part of the carrier, when he was not even at
hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason
of a charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had
exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it
fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; 20 a contract of affreightment by which the owner of a
ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods,
on a particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a)
contract of affreightment which involves the use of shipping space on vessels leased by the owner in part or
as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which
the whole vessel is let to the charterer with a transfer to him of its entire command and possession and
consequent control over its navigation, including the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed period of
time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party
provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive
voyage, the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray
the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a
casual occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies
in the character of the business, such that if the undertaking is a single transaction, not a part of the general
business or occupation, although involving the carriage of goods for a fee, the person or corporation offering
such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business,
should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private
carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case
of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to
have acted negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such
presumption applies to private carriers, for whosoever alleges damage to or deterioration of the goods
carried has the onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum",
the ship captain, its officers and compliment were under the employ of the shipowner and therefore
continued to be under its direct supervision and control. Hardly then can we charge the charterer, a stranger
to the crew and to the ship, with the duty of caring for his cargo when the charterer did not have any control
of the means in doing so. This is evident in the present case considering that the steering of the ship, the
manning of the decks, the determination of the course of the voyage and other technical incidents of maritime
navigation were all consigned to the officers and crew who were screened, chosen and hired by the
shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole
or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of
a time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering
the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra,
is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowners from liability for loss due to the negligence of its agent, and not the
effects of a special charter on common carriers. At any rate, the rule in the United States that a ship chartered
by a single shipper to carry special cargo is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for safety in the transportation of passengers and
/or carriage of goods by sea requires a more exacting interpretation of admiralty laws, more particularly, the
rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30
As a matter of principle, it is difficult to find a valid distinction between cases in which a
ship is used to convey the goods of one and of several persons. Where the ship herself is let
to a charterer, so that he takes over the charge and control of her, the case is different; the
shipowner is not then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or many. The master
and the crew are in each case his servants, the freighter in each case is usually without any
representative on board the ship; the same opportunities for fraud or collusion occur; and
the same difficulty in discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same was in
the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to
prove that he has exercised extraordinary diligence required by law or that the loss, damage or deterioration
of the cargo was due to fortuitous event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the
fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing
the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron
lids, then covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The
hatches remained close and tightly sealed while the ship was in transit as the weight of the steel covers made
it impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility
of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum"
docked at its berthing place, representatives of the consignee boarded, and in the presence of a
representative of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI,
opened the hatches and inspected the condition of the hull of the vessel. The stevedores unloaded the cargo
under the watchful eyes of the shipmates who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome
by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was
confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing its
obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses
clearly show absence of negligence by the defendant carrier; that the hull of the vessel at
the time of the discharge of the cargo was sealed and nobody could open the same except
in the presence of the owner of the cargo and the representatives of the vessel (TSN, 20
July 1977, p. 14); that the cover of the hatches was made of steel and it was overlaid with
tarpaulins, three layers of tarpaulins and therefore their contents were protected from the
weather (TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to
be broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).
The period during which private respondent was to observe the degree of diligence required of it as a public
carrier began from the time the cargo was unconditionally placed in its charge after the vessel's holds were
duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination and its
hull was reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed
upon by the parties in the Addendum to the standard "GENCON" time charter-party which provided for an
F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by the
charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the
cargo resulting from improper stowage only when the stowing is done by stevedores employed by him, and
therefore under his control and supervision, not when the same is done by the consignee or stevedores under
the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction
or deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the
containers. The Code of Commerce also provides that all losses and deterioration which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods,
shall be for the account and risk of the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding causes
if it is proved, as against him, that they arose through his negligence or by reason of his having failed to take
the precautions which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the
expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer,
described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide compounds
which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However, during
storage, nitrogen and ammonia do not normally evaporate even on a long voyage, provided that the
temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added
that in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during such operation
amounting to one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary
cause of these spillages is the clamped shell which does not seal very tightly. Also, the wind tends to blow
away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in water,
either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form still
remains potent and usable although no longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was
made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical
effects of the elements and the grimy condition of the various pieces of equipment used in transporting and
hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the
vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches were
tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she
was chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while
the same was being transported from the ship to the dump trucks and finally to the consignee's warehouse.
This may be gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised the
unloading. He explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was
just an approximation or estimate made by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It
rained from time to time at the harbor area while the cargo was being discharged according to the supply
officer of PPI, who also testified that it was windy at the waterfront and along the shoreline where the dump
trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries
with it the risk of loss or damage. More so, with a variable weather condition prevalent during its unloading,
as was the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent
carrier has sufficiently proved the inherent character of the goods which makes it highly vulnerable to
deterioration; as well as the inadequacy of its packaging which further contributed to the loss. On the other
hand, no proof was adduced by the petitioner showing that the carrier was remise in the exercise of due
diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the
trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now
Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
G.R. No. 131166 September 30, 1999
CALTEX (PHILIPPINES), INC., petitioner,
vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAEZAL, AND SOTERA E.
CAEZAL, respondents.
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel and
a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of Caltex
(Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV Doa Paz,
killing almost all the passengers and crew members of both ships, and thus resulting in one of the country's
worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly liable with
the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.'s passenger ship MV
Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate,
loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. 2 MT Vector is a tramping
motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting
fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector
carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of Tacloban headed
for Manila with a complement of 59 crew members including the master and his officers, and passengers
totaling 1,493 as indicated in the Coast Guard Clearance. 4 The MV Doa Paz is a passenger and cargo vessel
owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/
Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doa Paz died, while
the two survivors from MT Vector claimed that they were sleeping at the time of the incident.1wphi1.nt
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest.
Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to
distress calls. 5 Among those who perished were public school teacher Sebastian Caezal (47 years old) and
his daughter Corazon Caezal (11 years old), both unmanifested passengers but proved to be on board the
vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation found that the MT
Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping
Corporation, were at fault and responsible for its collision with MV Doa Paz. 6
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezal's wife and mother
respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for "Damages Arising from
Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third
party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio
alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector
was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doa Paz in the open sea setting MT Vector's highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing, the third party complaint against
petitioner. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:
 1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal,
including loss of future earnings of said Sebastian, moral and exemplary damages,
attorney's fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and
with costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge7
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of Appeal
modified the trial court's ruling and included petitioner Caltex as one of the those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial
Court is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E.
Caezal and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E. Caezal and Corazon Caezal the
total amount of ONE HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in
the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY
(P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P300,000.00);
4. Attorney's fees in the concept of actual damages in the amount of FIFTY THOUSAND
PESOS (P50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of
the above-mentioned damages, attorney's fees and costs which the latter is adjudged to
pay plaintiffs, the same to be shared half by Vector Shipping Co. (being the vessel at fault
for the collision) and the other half by Caltex (Phils.), Inc. (being the charterer that
negligently caused the shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED. JORGE S. IMPERIAL Associate JusticeWE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice. 8
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under
Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or
private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the
one hand, or a charter party or similar contract on the other. 9
Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter. 10
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or
other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight. 11
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for
a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the
charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or
consecutive voyage, the ship owner to supply the ship's store, pay for the wages of the master of the crew,
and defray the expenses for the maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and
becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by
negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner
for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter.
Does a charter party agreement turn the common carrier into a private one? We need to answer this question
in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private carrier. The
parties entered into a voyage charter, which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole portion of a vessel of one or more persons, provided the charter is
limited to the ship only, as in the case of a time-charter or the voyage charter. It is only
when the charter includes both the vessel and its crew, as in a bareboat or demise that a
common carrier becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a ship-owner in a time or voyage charter retains
possession and control of the ship, although her holds may, for the moment, be the
property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15
Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment . . .
A common carrier is a person or corporation whose regular business is to carry passengers or property for all
persons who may choose to employ and to remunerate him. 16 MT Vector fits the definition of a common
carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals, 17 we ruled:
The Civil Code defines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers for 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 services 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.
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, occasional rather than
regular or scheduled manner, and even though 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 the fee frequently fell below commercial
freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise
due diligence to
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in
its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of the business of common carriers. This business is
impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous. 19 For these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an unseaworthy
vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these deficiencies.
1. The master of M/T Vector did not posses the required Chief Mate license to command and navigate the
vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only in bays and
rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code, which
provide:
Art. 20. Every person who contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
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 Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly understood, is
conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe
that degree of care, precaution, and vigilance, which the circumstances justly demand, or the omission to do
something which ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered
complied with all legal requirements. The duty rests upon the common carrier simply for being engaged in
"public service." 22 The Civil Code demands diligence which is required by the nature of the obligation and
that which corresponds with the circumstances of the persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector, liability as found by the Court of Appeals is without
basis.1wphi1.nt
The relationship between the parties in this case is governed by special laws. Because of the implied warranty
of seaworthiness, 23 shippers of goods, when transacting with common carriers, are not expected to inquire
into the vessel's seaworthiness, genuineness of its licenses and compliance with all maritime laws. To
demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our
maritime laws insofar as the protection of the public in general is concerned. By the same token, we cannot
expect passengers to inquire every time they board a common carrier, whether the carrier possesses the
necessary papers or that all the carrier's employees are qualified. Such a practice would be an absurdity in a
business where time is always of the essence. Considering the nature of transportation business, passengers
and shippers alike customarily presume that common carriers possess all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his
cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could legally
transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the
entries here under "VESSEL'S DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and
Expires December 7, 1987", Mr. Witness, what steps did you take
regarding the impending expiry of the C.I. or the Certificate of
Inspection No. 1290-85 during the hiring of MT Vector?
Apolinario Ng: At the time when I extended the Contract, I did nothing
because the tanker has a valid C.I. which will expire on December 7,
1987 but on the last week of November, I called the attention of Mr.
Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn,
assured me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr.
Abalos, and said they were going to send me a copy as soon as possible,
sir. 24
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the
first place, because of our long business relation, we trust Mr. Abalos
and the fact that the vessel was able to sail indicates that the documents
are in order. . . . 25
On cross examination
Atty. Sarenas: This being the case, and this being an admission by you,
this Certificate of Inspection has expired on December 7. Did it occur to
you not to let the vessel sail on that day because of the very approaching
date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager
assured us that they were able to secure a renewal of the Certificate of
Inspection and that they will in time submit us a
copy. 26
Finally, on Mr. Ng's redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of
the Certificate of Inspection in the coastwise license on December 7,
 1987. What was your assurance for the record that this document was
renewed by the MT Vector?
Atty. Sarenas: . . .
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business
partner; secondly, those three years; they were allowed to sail by the
Coast Guard. That are some that make me believe that they in fact were
able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect
that if it was allowed, referring to MV Vector, to sail, where it is loaded
and that it was scheduled for a destination by the Coast Guard, it means
that it has Certificate of Inspection extended as assured to this witness
by Restituto Abalos. That in no case MV Vector will be allowed to sail if
the Certificate of inspection is, indeed, not to be extended. That was his
repeated explanation to the cross-examination. So, there is no need to
clarify the same in the re-direct examination. 27
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before
the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a higher
degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the
Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal basis
to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit our ruling to the
liability of Caltex alone. However, we maintain the Court of Appeals' ruling insofar as Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of Appeals in
CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable under the third party
complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is adjudged to pay
plaintiffs-appellees. The Court AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio
Lines, Inc. to pay the heirs of Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-
party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to
reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys' fees and costs the latter is
adjudged to pay plaintiffs-appellees in the case.1wphi1.nt
No costs in this instance.
SO ORDERED.
G.R. No. 143133 June 5, 2002
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES,
INC.,petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their
destination constitutes prima facie fault or negligence on the part of the carrier. If no adequate explanation is
given as to how the loss, the destruction or the deterioration of the goods happened, the carrier shall be held
liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998
Decision1 and the May 2, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 53571. The decretal
portion of the Decision reads as follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby
REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally pay
plaintiffs-appellants the following:
'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as
actual damages, representing the value of the damaged cargo, plus interest at the legal rate
from the time of filing of the complaint on July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit.'"4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had
disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as
well as defendant's counterclaim."5
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg, Germany
242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the
Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky arrived at the port of
Manila and, within the subsequent days, discharged the subject cargo. Four (4) coils were found to
 be in bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to be
unfit for the intended purpose, the consignee Philippine Steel Trading Corporation declared the
same as total loss.1wphi1.nt
"Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee's
claim. Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six &
50/100 pesos (P506,086.50), and was subrogated to the latter's rights and causes of action against
defendants-appellees. Subsequently, plaintiff-appellant instituted this complaint for recovery of the
amount paid by them, to the consignee as insured.
"Impugning the propriety of the suit against them, defendants-appellees imputed that the damage
and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or
to perils, danger and accidents of the sea, or to insufficiency of packing thereof, or to the act or
omission of the shipper of the goods or their representatives. In addition thereto, defendants-
appellees argued that their liability, if there be any, should not exceed the limitations of liability
provided for in the bill of lading and other pertinent laws. Finally, defendants-appellees averred
that, in any event, they exercised due diligence and foresight required by law to prevent any
damage/loss to said shipment."6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of
proof required by law.7
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous or
primarily intended to harass them.8
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods
shipped, because they had failed to overcome the presumption of negligence imposed on common carriers.
The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the goods
was due to pre-shipment damage.9 It likewise opined that the notation "metal envelopes rust stained and
slightly dented" placed on the Bill of Lading had not been the proximate cause of the damage to the four (4)
coils.10
As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not
applicable, because the words "L/C No. 90/02447" indicated that a higher valuation of the cargo had been
declared by the shipper. The CA, however, affirmed the award of attorney's fees.
Hence, this Petition.11
Issues
In their Memorandum, petitioners raise the following issues for the Court's consideration:
I
"Whether or not plaintiff by presenting only one witness who has never seen the subject
shipment and whose testimony is purely hearsay is sufficient to pave the way for the applicability
of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required by
law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-
shipment damage and to exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is applicable
to the case at bar."12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the
basis of the lone testimony offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and
the passengers they transport.13 Thus, common carriers are required to render service with the greatest skill
and foresight and "to use all reason[a]ble means to ascertain the nature and characteristics of the goods
tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their
nature requires."14 The extraordinary responsibility lasts from the time the goods are unconditionally placed
in the possession of and received for transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to receive them.15
This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such A. BM Santos Checkers Agency, sir.
contract, the riding public enters into a contract of transportation with common carriers.16 Even if it wants to,
it cannot submit its own stipulations for their approval.17 Hence, it merely adheres to the agreement prepared Q. How is BM Santos checkers Agency related or connected with defendant Jardine Davies
by them. Transport Services?

Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to A. It is the company who contracts the checkers, sir.
have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. 18 That is,
unless they prove that they exercised extraordinary diligence in transporting the goods.19 In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that they observed such Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties
diligence.20 and responsibilities?

However, the presumption of fault or negligence will not arise21 if the loss is due to any of the following A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of
causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public cargoes.
enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the goods; (4)
the character of the goods or defects in the packing or the container; or (5) an order or act of competent xxx xxx xxx
public authority.22 This is a closed list. If the cause of destruction, loss or deterioration is other than the
enumerated circumstances, then the carrier is liable therefor.23 Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head
Checker?
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the A. Yes, sir.
carrier. If no adequate explanation is given as to how the deterioration, the loss or the destruction of the
goods happened, the transporter shall be held responsible.24
Q. And, on or about that date, do you recall having attended the discharging and inspection of
cold steel sheets in coil on board the MV/AN ANGEL SKY?
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a
review of the records and more so by the evidence adduced by respondent.25
A. Yes, sir, I was there.
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in
Hamburg, Germany.26 xxx xxx xxx

Second, prior to the unloading of the cargo, an Inspection Report27 prepared and signed by representatives of Q. Based on your inspection since you were also present at that time, will you inform this
both parties showed the steel bands broken, the metal envelopes rust-stained and heavily buckled, and the Honorable Court the condition or the appearance of the bad order cargoes that were unloaded from
contents thereof exposed and rusty. the MV/ANANGEL SKY?

Third, Bad Order Tally Sheet No. 15497928 issued by Jardine Davies Transport Services, Inc., stated that the ATTY. MACAMAY:
four coils were in bad order and condition. Normally, a request for a bad order survey is made in case there is
an apparent or a presumed loss or damage.29 Objection, Your Honor, I think the document itself reflects the condition of the cold steel
sheets and the best evidence is the document itself, Your Honor that shows the condition
Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested, the steel sheets of the steel sheets.
found in bad order were wet with fresh water.
COURT:
Fifth, petitioners -- in a
letter31
addressed to the Philippine Steel Coating Corporation and dated October 12,
1990 -- admitted that they were aware of the condition of the four coils found in bad order and condition. Let the witness answer.

These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on
portions of his testimony are reproduce hereunder: the sides."32

"Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable All these conclusively prove the fact of shipment in good order and condition and the consequent damage to
Court with what company you are connected? the four coils while in the possession of petitioner,33 who notably failed to explain why.34
Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the
law requires a common carrier to know and to follow to avoid damage to or destruction of the goods
entrusted to it for safe carriage and delivery.35
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading; however,
there is no showing that petitioners exercised due diligence to forestall or lessen the loss. 36 Having been in
the service for several years, the master of the vessel should have known at the outset that metal envelopes in
the said state would eventually deteriorate when not properly stored while in transit. 37 Equipped with the
proper knowledge of the nature of steel sheets in coils and of the proper way of transporting them, the master
of the vessel and his crew should have undertaken precautionary measures to avoid possible deterioration of
the cargo. But none of these measures was taken.38 Having failed to discharge the burden of proving that they
have exercised the extraordinary diligence required by law, petitioners cannot escape liability for the damage
to the four coils.39
In their attempt to escape liability, petitioners further contend that they are exempted from liability under
Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust stained and slightly dented"
printed on the Bill of Lading as evidence that the character of the goods or defect in the packing or the
containers was the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to
the condition noted on the Bill of Lading.40 The aforecited exception refers to cases when goods are lost or
damaged while in transit as a result of the natural decay of perishable goods or the fermentation or
evaporation of substances liable therefor, the necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural propensities of animals.41 None of these is present in the
instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon
ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the
goods notwithstanding such condition.42 Thus, petitioners have not successfully proven the application of any
of the aforecited exceptions in the present case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act44 (COGSA),
respondent should have filed its Notice of Loss within three days from delivery. They assert that the cargo
was discharged on July 31, 1990, but that respondent filed its Notice of Claim only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be
given if the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey.
As stated earlier, prior to unloading the cargo, an Inspection Report46 as to the condition of the goods was
prepared and signed by representatives of both parties.47
Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar
recovery if it is nonetheless filed within one year.48 This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading. 49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by prescription as long
as the one-year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive
period on the matter, the Carriage of Goods by Sea Act (COGSA)--which provides for a one-year
period of limitation on claims for loss of, or damage to, cargoes sustained during transit--may be
applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint51 was filed by respondent
on July 25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability should be
limited to US$500 per package as provided in the Bill of Lading and by Section 4(5) 52 of COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the
subject shipment was declared by petitioners beforehand, as evidenced by the reference to and the insertion
of the Letter of Credit or "L/C No. 90/02447" in the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a contract by
which three parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities
and assume stipulated obligations.56 In a nutshell, the acceptance of the bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise to the presumption that it constituted a perfected
and binding contract.57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or
destruction of a cargo -- unless the shipper or owner declares a greater value58 -- is sanctioned by
law.59 There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the
circumstances, and (2) it has been fairly and freely agreed upon by the parties.60 The rationale for this rule is
to bind the shippers by their agreement to the value (maximum valuation) of their goods.61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package.62 In all matters not regulated by the Civil Code, the right and the obligations of common
carriers shall be governed by the Code of Commerce and special laws.63 Thus, the COGSA, which is suppletory
to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the
carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading. 64 The
provisions on limited liability are as much a part of the bill of lading as though physically in it and as though
placed there by agreement of the parties.65
In the case before us, there was no stipulation in the Bill of Lading 66 limiting the carrier's liability. Neither did
the shipper declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of
the words "L/C No. 90/02447 cannot be the basis for petitioners' liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the
shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required by
the bill.67 That notation was made only for the convenience of the shipper and the bank processing the Letter
of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate from the
Other Letter of Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract of issuance
of a letter of credit between the amount of goods described in the commercial invoice in the contract
of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of
the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the
carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify
their accuracy vis--vis the commercial invoice and the letter of credit. Thus, the discrepancy
between the amount of goods indicated in the invoice and the amount in the bill of lading cannot
negate petitioner's obligation to private respondent arising from the contract of transportation." 70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per package and not
on the per metric ton price declared in the Letter of Credit.71 In Eastern Shipping Lines, Inc. v. Intermediate
Appellate Court,72 we explained the meaning of packages:
"When what would ordinarily be considered packages are shipped in a container supplied by the
carrier and the number of such units is disclosed in the shipping documents, each of those units and
not the container constitutes the 'package' referred to in the liability limitation provision of Carriage
of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly
disclosed the contents of the containers, the number of units, as well as the nature of the steel sheets, the four
damaged coils should be considered as the shipping unit subject to the US$500 limitation.1wphi1.nt
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners' liability is
reduced to US$2,000 plus interest at the legal rate of six percent from the time of the filing of the Complaint
on July 25, 1991 until the finality of this Decision, and 12 percent thereafter until fully paid. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 137775. March 31, 2005
FGU INSURANCE CORPORATION, Petitioners,
vs.
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI, represented by
LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO TO, Respondents.
G.R. No. 140704. March 31, 2005
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO
TO,Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE CORP., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision 1 of the Court of Appeals in CA-G.R. CV
No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang Gui, represented by
Lucio, Julian and Jaime, all surnamed Ang, and Co To, Defendants-Appellants, ThirdParty Plaintiffs versus
FGU Insurance Corporation, Third-Party Defendant-Appellant," which affirmed in toto the decision2 of the
Regional Trial Court of Cebu City, Branch 22. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6% per annum to be
reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees and an additional sum of
P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants the amount of
P632,700.00.3
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was
engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which were
operated as common carriers. Since the D/B Lucio had no engine of its own, it could not maneuver by itself
and had to be towed by a tugboat for it to move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B
Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing Division (BMD)-
Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by Bill of Lading No. 2
was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. The vessels
arrived at San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The tugboat M/T
ANCO left the barge immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the clouds
over the area were dark and the waves were already big. The arrastre workers unloading the cargoes of SMC
on board the D/B Lucio began to complain about their difficulty in unloading the cargoes. SMCs District Sales
Supervisor, Fernando Macabuag, requested ANCOs representative to transfer the barge to a safer place
because the vessel might not be able to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the barge could withstand the
waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at the wharf of San Jose,
Antique, as all other vessels already left the wharf to seek shelter. With the waves growing bigger and bigger,
only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were discharged into the custody of the
arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the vessel
because the barges rope attached to the wharf was cut off by the big waves. At around midnight, the barge
run aground and was broken and the cargoes of beer in the barge were swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten (29,210)
cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case of Pale Pilsen
was Forty-Five Pesos and Twenty Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven
Pesos and Ten Centavos (P47.10), hence, SMCs claim against ANCO amounted to One Million Three Hundred
Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages
against ANCO for the amount of One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven
Pesos (P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of the total claim as
attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a second
amended complaint which was admitted by the Court impleading the surviving partner, Co To and the Estate
of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted the
original answer with counterclaim of ANCO "since the substantial allegations of the original complaint and
the amended complaint are practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were indeed
loaded on the vessel belonging to ANCO. It claimed however that it had an agreement with SMC that ANCO
would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous event. Since the
cases of beer Pale Pilsen and Cerveza Negra were lost by reason of a storm, a fortuitous event which battered
and sunk the vessel in which they were loaded, they should not be held liable. ANCO further asserted that
there was an agreement between them and SMC to insure the cargoes in order to recover indemnity in case of
loss. Pursuant to that agreement, the cargoes to the extent of Twenty Thousand (20,000) cases was insured
with FGU Insurance Corporation (FGU) for the total amount of Eight Hundred Fifty-Eight Thousand Five
Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before the
vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent of Twenty
Thousand (20,000) cases, were insured with FGU for a total amount of Eight Hundred Fifty-Eight Thousand
Five Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO further alleged that on or
about 02 October 1979, by reason of very strong winds and heavy waves brought about by a passing typhoon,
the vessel run aground near the vicinity of San Jose, Antique, as a result of which, the vessel was totally
wrecked and its cargoes owned by SMC were lost and/or destroyed. According to ANCO, the loss of said
cargoes occurred as a result of risks insured against in the insurance policy and during the existence and
lifetime of said insurance policy. ANCO went on to assert that in the remote possibility that the court will
order ANCO to pay SMCs claim, the third-party defendant corporation should be held liable to indemnify or
reimburse ANCO whatever amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of the Insurance
Policy under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes covered by the
said insurance policy cannot be attributed directly or indirectly to any of the risks insured against in the said
insurance policy. According to FGU, it is only liable under the policy to Third-party Plaintiff ANCO and/or
Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise ordinary
diligence or the diligence of a good father of the family in the care and supervision of the cargoes insured to
prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for actual, moral,
and exemplary damages and attorneys fees.
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure on
ANCOs part, through their representatives, to observe the degree of diligence required that would exonerate
them from liability. The trial court thus held the Estate of Ang Gui and Co To liable to SMC for the amount of
the lost shipment. With respect to the Third-Party complaint, the court a quo found FGU liable to bear Fifty-
Three Percent (53%) of the amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was broken and
the beer cargoes on the said barge were swept away. It is the sense of this Court that the risk insured against
was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of the
policy was only for P858,500.00, defendants as assured, therefore, were considered co-insurers of third-party
defendant FGU Insurance Corporation to the extent of 975,405.00 value of the cargo. Consequently, inasmuch as
there was partial loss of only P1,346,197.00, the assured shall bear 53% of the loss4 [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for reconsideration
and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into two: 1) Whether
or not respondent Court of Appeals committed grave abuse of discretion in holding FGU liable under the
insurance contract considering the circumstances surrounding the loss of the cargoes; and 2) Whether or not
the Court of Appeals committed an error of law in holding that the doctrine of res judicata applies in the
instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate court based on
the following assignments of error: 1) The Court of Appeals committed grave abuse of discretion in affirming
the findings of the lower court that the negligence of the crewmembers of the D/B Lucio was the proximate
cause of the loss of the cargoes; and 2) The respondent court acted with grave abuse of discretion when it
ruled that the appeal was without merit despite the fact that said court had accepted the decision in Civil Case
No. R-19341, as affirmed by the Court of Appeals and the Supreme Court, as res judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their respective
petitions for review, that is, whether or not the doctrine of res judicata applies in the instant case.
It is ANCOs contention that the decision in Civil Case No. R-19341,5 which was decided in its favor,
constitutes res judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No. R-19341 and the case
at bar. In order for res judicata to be made applicable in a case, the following essential requisites must be
present: 1) the former judgment must be final; 2) the former judgment must have been rendered by a court
having jurisdiction over the subject matter and the parties; 3) the former judgment must be a judgment or
order on the merits; and 4)there must be between the first and second action identity of parties, identity of
subject matter, and identity of causes of action.6
There is no question that the first three elements of res judicata as enumerated above are indeed satisfied by
the decision in Civil Case No. R-19341. However, the doctrine is still inapplicable due to the absence of the last
essential requisite of identity of parties, subject matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the instant case,
SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang and Co
To as defendants, with the latter merely impleading FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO, the owner of
the vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the subject matter of litigation is
the loss of the cargoes of SMC, as shipper, loaded in the D/B Lucio and the resulting failure of ANCO to deliver
to SMCs consignees the lost cargo. Otherwise stated, the controversy in the first case involved the rights and
liabilities of the shipowner vis--vis that of the insurer, while the present case involves the rights and
liabilities of the shippervis--vis that of the shipowner. Specifically, Civil Case No. R-19341 was an action for
Specific Performance and Damages based on FGU Marine Hull Insurance Policy No. VMF-MH-13519 covering
the vessel D/B Lucio, while the instant case is an action for Breach of Contract of Carriage and Damages filed
by SMC against ANCO based on Bill of Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement
from FGU under Insurance Policy No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different from that in
Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance contract over the vessel while in
the former, the third-party complaint arose from the insurance contract covering the cargoes on board the
D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already passed upon by a
court of competent jurisdiction in a former judgment, in another action between the same parties based on a
different claim or cause of action. The judgment in the prior action operates as estoppel only as to those
matters in issue or points controverted, upon the determination of which the finding or judgment was
rendered.7 If a particular point or question is in issue in the second action, and the judgment will depend on
the determination of that particular point or question, a former judgment between the same parties or their
privies will be final and conclusive in the second if that same point or question was in issue and adjudicated in
the first suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341, only findings
with respect to matters passed upon by the court in the former judgment are conclusive in the disposition of
the instant case. A careful perusal of the decision in Civil Case No. R-19341 will reveal that the pivotal issues
resolved by the lower court, as affirmed by both the Court of Appeals and the Supreme Court, can be
summarized into three legal conclusions: 1) that the D/B Lucio before and during the voyage was seaworthy;
2) that there was proper notice of loss made by ANCO within the reglementary period; and 3) that the vessel
D/B Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was any
discussion regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court pass upon
the issue of the alleged negligence of the crewmembers of the D/B Lucio being the cause of the loss of the
cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of Appeals that there
isres judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding that the
negligence of ANCOs representatives was the proximate cause of the loss, said issue is a question of fact
assailing the lower courts appreciation of evidence on the negligence or lack thereof of the crewmembers of
the D/B Lucio. As a rule, findings of fact of lower courts, particularly when affirmed by the appellate court, are
deemed final and conclusive. The Supreme Court cannot review such findings on appeal, especially when they
are borne out by the records or are based on substantial evidence.9 As held in the case of Donato v. Court of
Appeals,10 in this jurisdiction, it is a fundamental and settled rule that findings of fact by the trial court are
entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because
the trial court is in a better position to examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case.11
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a showing that
the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute
palpable error or grave abuse of discretion.12
A careful study of the records shows no cogent reason to fault the findings of the lower court, as sustained by
the appellate court, that ANCOs representatives failed to exercise the extraordinary degree of diligence
required by the law to exculpate them from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine Thousand Two
Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had no engine of
its own and could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO left it to fend for itself
notwithstanding the fact that as the two vessels arrived at the port of San Jose, Antique, signs of the
impending storm were already manifest. As stated by the lower court, witness Mr. Anastacio Manilag testified
that the captain or patron of the tugboat M/T ANCO left the barge D/B Lucio immediately after it reached San
Jose, Antique, despite the fact that there were already big waves and the area was already dark. This is
corroborated by defendants own witness, Mr. Fernando Macabueg.13
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary diligence
in the vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO, representing the defendant
could have placed D/B Lucio in a very safe location before they left knowing or sensing at that time the
coming of a typhoon. The presence of big waves and dark clouds could have warned the patron or captain of
M/T ANCO to insure the safety of D/B Lucio including its cargo. D/B Lucio being a barge, without its engine,
as the patron or captain of M/T ANCO knew, could not possibly maneuver by itself. Had the patron or captain
of M/T ANCO, the representative of the defendants observed extraordinary diligence in placing the D/B Lucio
in a safe place, the loss to the cargo of the plaintiff could not have occurred. In short, therefore, defendants
through their representatives, failed to observe the degree of diligence required of them under the provision
of Art. 1733 of the Civil Code of the Philippines.14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of respondents
SMC and FGU that "the crewmembers of D/B Lucio should have left port at the onset of the typhoon is like
advising the fish to jump from the frying pan into the fire and an advice that borders on madness."15
The argument does not persuade. The records show that the D/B Lucio was the only vessel left at San Jose,
Antique, during the time in question. The other vessels were transferred and temporarily moved to
Malandong, 5 kilometers from wharf where the barge remained.16 Clearly, the transferred vessels were
definitely safer in Malandong than at the port of San Jose, Antique, at that particular time, a fact which
petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the typhoon Sisang, a
fortuitous event (caso fortuito), and there was no fault or negligence on their part. In fact, ANCO claims that
their crewmembers exercised due diligence to prevent or minimize the loss of the cargoes but their efforts
proved no match to the forces unleashed by the typhoon which, in petitioners own words was, by any
yardstick, a natural calamity, a fortuitous event, an act of God, the consequences of which petitioners could
not be held liable for.17
The Civil Code provides:
Art. 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 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster
must have been the proximate and only cause of the loss. However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) 18 by
definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which
though foreseen, were inevitable. It is therefore not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. 19
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable. In
fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance
which prompted SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to
no avail. The D/B Lucio had no engine and could not maneuver by itself. Even if ANCOs representatives
wanted to transfer it, they no longer had any means to do so as the tugboat M/T ANCO had already departed,
leaving the barge to its own devices. The captain of the tugboat should have had the foresight not to leave the
barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not
escape liability to respondent SMC. The records clearly show the failure of petitioners representatives to
exercise the extraordinary degree of diligence mandated by law. To be exempted from responsibility, the
natural disaster should have been the proximate and only cause of the loss.20 There must have been no
contributory negligence on the part of the common carrier. As held in the case of Limpangco Sons v. Yangco
Steamship Co.:21
. . . To be exempt from liability because of an act of God, the tug must be free from any previous negligence or
misconduct by which that loss or damage may have been occasioned. For, although the immediate or
proximate cause of the loss in any given instance may have been what is termed an act of God, yet, if the tug
unnecessarily exposed the two to such accident by any culpable act or omission of its own, it is not excused. 22
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part of M/T
ANCOs crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without the
assistance of the tugboat, and again in failing to heed the request of SMCs representatives to have the barge
transferred to a safer place, as was done by the other vessels in the port; thus, making said blatant negligence
the proximate cause of the loss of the cargoes.
We now come to the issue of whether or not FGU can be held liable under the insurance policy to reimburse
ANCO for the loss of the cargoes despite the findings of the respondent court that such loss was occasioned by
the blatant negligence of the latters employees.
One of the purposes for taking out insurance is to protect the insured against the consequences of his own
negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and negligence of
the insured or his agents constitute no defense on the part of the insurer.23 This rule however presupposes
that the loss has occurred due to causes which could not have been prevented by the insured, despite the
exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured or his agents
that will deprive him the right to recover under the insurance contract. We say there is. However, to what
extent such negligence must go in order to exonerate the insurer from liability must be evaluated in light of
the circumstances surrounding each case. When evidence show that the insureds negligence or recklessness
is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the
insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does not
absolve the insurer from liability. But willful exposure, gross negligence, negligence amounting to misconduct,
etc., have often been held to release the insurer from such liability.25 [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners of an
insured vessel attempted to put her across the bar at Hatteras Inlet. She struck on the bar and was wrecked.
The master knew that the depth of water on the bar was such as to make the attempted passage dangerous.
Judge Clifford held that, under the circumstances, the loss was not within the protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful acts are
hardly necessary, as the proposition involves an elementary principle of universal application. Losses may be
recovered by the insured, though remotely occasioned by the negligence or misconduct of the master or crew,
if proximately caused by the perils insured against, because such mistakes and negligence are incident to
navigation and constitute a part of the perils which those who engage in such adventures are obliged to
incur; but it was never supposed that the insured could recover indemnity for a loss occasioned by his own
wrongful act or by that of any agent for whose conduct he was responsible.26 [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a distinction between
ordinary negligence and gross negligence or negligence amounting to misconduct and its effect on the
insureds right to recover under the insurance contract. According to the Court, while mistake and negligence
of the master or crew are incident to navigation and constitute a part of the perils that the insurer is obliged
to incur, such negligence or recklessness must not be of such gross character as to amount to misconduct or
wrongful acts; otherwise, such negligence shall release the insurer from liability under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the evidence that the
crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when the patron
(operator) of the tug boat immediately left the barge at the San Jose, Antique wharf despite the looming bad
weather. Negligence was likewise exhibited by the defendants-appellants representative who did not heed
Macabuags request that the barge be moved to a more secure place. The prudent thing to do, as was done by
the other sea vessels at San Jose, Antique during the time in question, was to transfer the vessel to a safer
wharf. The negligence of the defendants-appellants is proved by the fact that on 01 October 1979, the only
simple vessel left at the wharf in San Jose was the D/B Lucio.27 [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the lower court,
as sustained by the Court of Appeals, that ANCOs representatives had failed to exercise extraordinary
diligence required of common carriers in the shipment of SMCs cargoes. Such blatant negligence being the
proximate cause of the loss of the cargoes amounting to One Million Three Hundred Forty-Six Thousand One
Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that the blatant
negligence of ANCOs employees is of such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is hereby
AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
G.R. No. 149019 August 15, 2006
DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan Transport
Lines, Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated July 16, 2001, of the Court of
Appeals (CA) in CA-G.R. CV No. 40951 affirming an earlier decision of the Regional Trial Court (RTC) of
Manila, Branch IX, in two separate complaints for damages docketed as Civil Case No. 85-29357 and Civil Case
No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other hand,
respondent American Home Assurance Corporation (AHAC for brevity) is a foreign insurance company duly
licensed to do business in the Philippines through its agent, the American-International Underwriters, Inc.
(Phils.). It is engaged, among others, in insuring cargoes for transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l Automotive
Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation and delivery to the bulk depot in
Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a Contract of Afreightment. The shipment was insured
by respondent AHAC against all risks under Inland Floater Policy No. AH-IF64-1011549P and Marine Risk
Note No. 34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading operations
commenced. The discharging of the diesel oil started at about 1:30 PM of the same day. However, at about
10:30 PM, the discharging had to be stopped on account of the discovery that the port bow mooring of the
vessel was intentionally cut or stolen by unknown persons. Because there was nothing holding it, the vessel
drifted westward, dragged and stretched the flexible rubber hose attached to the riser, broke the elbow into
pieces, severed completely the rubber hose connected to the tanker from the main delivery line at sea bed
level and ultimately caused the diesel oil to spill into the sea. To avoid further spillage, the vessels crew tried
water flushing to clear the line of the diesel oil but to no avail. In the meantime, the shore tender, who was
waiting for the completion of the water flushing, was surprised when the tanker signaled a "red light" which
meant stop pumping. Unaware of what happened, the shore tender, thinking that the vessel would, at any
time, resume pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the
diesel oil that was earlier discharged from the vessel into the shore tank backflowed. Due to non-availability
of a pump boat, the vessel could not send somebody ashore to inform the people at the depot about what
happened. After almost an hour, a gauger and an assistant surveyor from the Caltexs Bulk Depot Office
boarded the vessel. It was only then that they found out what had happened. Thereafter, the duo immediately
went ashore to see to it that the shore tank gate valve was closed. The loss of diesel oil due to spillage was
placed at 113.788 k/l while some 435,081 k/l thereof backflowed from the shore tank.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but the latter
refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage, pursuant to Marine Risk
Note No. 34-5093-6, and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy No.
AH-1F64-1011549P.
On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357 against Delsan before
the Manila RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be indemnified for damages
suffered in the amount of P652,432.57 plus legal interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559 against Delsan
for the loss caused by the backflow. It likewise prayed that it be awarded the amount of P1,939,575.37 for
damages and reasonable attorneys fees. As counterclaim in both cases, AHAC prayed for attorneys fees in the
amount ofP200,000.00 and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same issues, the two
were consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for the loss
of the cargo for its negligence in its duty as a common carrier. Dispositively, the decision reads:
WHEREFORE, judgment is hereby rendered:
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum of P1,939,575.37
with interest thereon at the legal rate from November 21, 1984 until fully paid and satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the legal rate from
February 6, 1985 until fully paid and satisfied;
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.
SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951.
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling, the CA declared
that Delsan failed to exercise the extraordinary diligence of a good father of a family in the handling of its
cargo. Applying Article 1736 4 of the Civil Code, the CA ruled that since the discharging of the diesel oil into
Caltex bulk depot had not been completed at the time the losses occurred, there was no reason to imply that
there was actual delivery of the cargo to Caltex, the consignee. We quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila, Branch 09 in
Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that attorneys fees awarded
in Civil Case Nos. 85-29357 and 85-30559 are hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the Civil Code
cannot exculpate it from liability for the loss of the subject cargo and in not applying the rule on contributory
negligence against Caltex, the shipper-owner of the cargo, and in not taking into consideration the fact that
the loss due to backflow occurred when the diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA, affirmatory
of those of the trial court, are binding on the Court unless there is a clear showing that such findings are
tainted with arbitrariness, capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds. First, the loss
through spillage was partly due to the contributory negligence of Caltex; and Second, the loss through
backflow should not be borne by Delsan because it was already delivered to Caltexs shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by
them. They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. 6 To overcome the presumption of negligence in case of loss, destruction or deterioration of the
goods, the common carrier must prove that it exercised extraordinary diligence. There are, however,
exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the presumption of
negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
1) Flood storm, earthquake, lightning, or other natural disaster or calamity; 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. 10
2) Act of the public enemy in war, whether international or civil;
All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the performance of
3) Act or omission of the shipper or owner of the goods; its duties. Consequently, it is obliged to prove that the damage to its cargo was caused by one of the excepted
causes if it were to seek exemption from responsibility. 11 Having failed to do so, Delsan must bear the
consequences.
4) The character of the goods or defects in the packing or in the containers;
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.
5) Order or act of competent public authority.
Cost against petitioner.
Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a
contributory negligence on the part of the owner of the goods Caltex. We see no reason to depart therefrom.
As aptly pointed out by the CA, it had been established that the proximate cause of the spillage and backflow SO ORDERED.
of the diesel oil was due to the severance of the port bow mooring line of the vessel and the failure of the
shore tender to close the storage tank gate valve even as a check on the drain cock showed that there was still
a product on the pipeline. To the two courts below, the actuation of the gauger and the escort surveyor, both
personnel from the Caltex Bulk Depot, negates the allegation that Caltex was remiss in its duties. As we see it,
the crew of the vessel should have promptly informed the shore tender that the port mooring line was cut off.
However, Delsan did not do so on the lame excuse that there was no available banca. As it is, Delsans
personnel signaled a "red light" which was not a sufficient warning because such signal only meant that the
pumping of diesel oil had been finished. Neither did the blowing of whistle suffice considering the distance of
more than 2 kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that it was not the
agreed signal. Had the gauger and the escort surveyor from Caltex Bulk Depot not gone aboard the vessel to
make inquiries, the shore tender would have not known what really happened. The crew of the vessel should
have exerted utmost effort to immediately inform the shore tender that the port bow mooring line was
severed.

To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by one of the
excepted causes if it were to seek exemption from responsibility. 7 Unfortunately, it miserably failed to
discharge this burden by the required quantum of proof.

Delsans argument that it should not be held liable for the loss of diesel oil due to backflow because the same
had already been actually and legally delivered to Caltex at the time it entered the shore tank holds no water.
It had been settled that the subject cargo was still in the custody of Delsan because the discharging thereof
has not yet been finished when the backflow occurred. Since the discharging of the cargo into the depot has
not yet been completed at the time of the spillage when the backflow occurred, there is no reason to imply
that there was actual delivery of the cargo to the consignee. Delsan is straining the issue by insisting that
when the diesel oil entered into the tank of Caltex on shore, there was legally, at that moment, a complete
delivery thereof to Caltex. To be sure, the extraordinary responsibility of 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 a person who has the
right to receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been finished, Delsan
still has the duty to guard and to preserve the cargo. The carrier still has in it the responsibility to guard and
preserve the goods, a duty incident to its having the goods transported.

To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. 9 The mere proof of delivery of goods in
good order to the carrier, and their arrival in the place of destination in bad order, make 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