PART I COMMON CARRIERSINTRODUCTION Public Utility, defined. A “public utility” is a business or service which is engaged in regularly supplying the public with some commodity or serv- ice of public consequences, such as electricity, gas, water, trans- portation, or telephone or telegraph service (64 Am Jur 2d, Public Utilities, Sec. 1). As its name indicates, the term “public utility” implies a public use and service to the public, and indeed, the principal determinative characteristic of a public utility is that of serv- ice to, or readiness to serve, an indefinite public (or portion of the public as such) which has a legal right to demand and re- ceive its services or commodities. There must be a dedication or holding out, either express or implied, of produce or serv- ices to the public as a class (64 Am Jur 2d, Public Utilities, Sec. 1). Public Service, extent of use or service. In respect of the public service or use of public utilities, the word “public” does not mean the whole public nor does it mean all the people in a certain area or political subdivision. Rather, it means individuals in general without restriction or selection to the extent that the capacity of the utility may ad- mit of such service or use. Accordingly, the use and enjoyment of the utility service may be local and limited in the territory served, and the fact that the service is limited to a particular district or a part of a town does not prevent the organization or business from being a public utility (64 Am Jur 2d, Public Utilities, Sec. 2). The number of people actually served does not determine whether a person or company is a public utility. Such a person or company which holds himself or itself out to serve all who 3THE LAW ON TRANSPORTATION wish to avail themselves of the service may be a public utility even though only one or two people actually receive service. Furthermore, the mere fact that service is rendered only un- der contract does not prevent a company from being a public utility (64 Am Jur 2d, Public Utilities, Sec. 2). Transportation, defined. Transportation is simply defined, as ita etymology would indicate, and as its derivation would denote, as a movement of things or persons from one place to another; a carrying across; and it is immaterial whether the carrying be by rail, by water, or by air (87 C.J.S. Transportation). The word “transportation” in its practical signification in- cludes waiting time, loading and unloading, stopping in tran- sit, and all other accessorial services in connection with the loaded movement (87 C.J.S. Transportation). The word “transportation” is defined in the Interstate Commerce Act, 49 U.S.C.A, Section 1, also known as the Hepburn Act, and as used in this act the word has a meaning broader in scope than that which attaches to its ordinary us- age, and includes locomotives and cars and other vehicles and all instrumentalities and facilities of shipment or carriage, ir- respective of ownership or of any contract, express or implied, for the use thereof, and all services in connection with the re- ceipt, delivery, elevation, and transfer in transit, ventilation, refrigerating or icing, storage, and handling of property trans- port (87 C.J.S. Transportation). The word “transportation” in the Act was intended to in- clude every phase logically or reasonably connected with the transportation of property, from the time of its initial delivery to the carrier until its final redelivery by the carrier to the consignee (87 C.J.S. Transportation). State Regulations of Public Utilities including the Trans- portation Industry. The basis for the State to regulate public utilities, includ- ing those engaged in transportation, is police power. Since a state may, under the police power, regulate a busi- ness affected with a public interest, and since the prime char-INTRODUCTION 6 acteristic of a public utility is that of public use or service, it is clear that a state may regulate and control public utilities to protect the public interests and to promote the health, comfort, safety, and welfare of the people. In the exercise of its police power the legislature may interfere with the management of public utilities whenever public interests demand, and it has a large discretion to determine not only what the interests of the public require, but also what measures are necessary for the protection of such interests. The state may thus regulate the manner in which public utility corporations shall construct their systems and carry on their business within the state (64 Am Jur 2d, Public Utilities, Sec. 9). A rightful exercise of the police power in the supervision of public utilities does not deprive them of their property with- out due process of law, or deny compensation, nor does it im- pair the obligation of any contract. Therefore, by granting a franchise to a public utility, a state does not abrogate its right to exercise the police power of the state over it (64 Am Jur 2d, Public Utilities, Sec. 9). In short, the right to regulate a public utility under the police power does not extend beyond: (1) the right to regulate rates, and charges; (2) the right to prevent discrimination upon the part of the public utility against those who employ it; and (3) the right to make orders governing the conduct of the pub- lic utility, to the ends that its efficiency may be built up and maintained and that the public and its employees be accorded desirable safeguards and conveniences (64 Am Jur 2d, Public Utilities, Sec. 9). The State may delegate to public service commissions the power to regulate public utilities. Under Commonwealth Act 103, a Public Service Commission was established to regulate public utilities. This was later replaced by the Land Transpor- tation Franchising and Regulatory Board, the Maritime Indus- try Authority and the Civil Aeronautics Board which regulate land, water and air transportation, respectively. The power of the State to regulate public utilities includ- ing transportation is expressly provided for under Sections 11, 17, 18 and 19 of the 1987 Constitution to wit: “Sec. 11. No franchise, certificate, or any other form of au- thorization for the operation of a public utility shall be grantedTHE LAW ON TRANSPORTATION except to citizens of the Philippines or to corporations or asso- ciations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclu- sive in character or for a longer period than fifty years. Nei- ther shall any franchise or right to be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good requires. The State shall encourage equity participation in public utilities by the General Public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all executive and managing officers of such corporation or association must be citizens of the Philippines. SEC. 17. In times of national emergency, when the pub- lic interest so requires, the state may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public util- ity or business affected with public interest. SEC. 18. The State may, in the interest of national wel- fare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government, SEC. 19. The States shall regulate or prohibit monopo- lies when the public interest so require. No combinations in restraint of trade or unfair competition shall be allowed.” Common Carrier, defined. 1. Common Law definition. Acommon carrier may be defined, very generally, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for com- pensation, offering his services to the public generally. x x x The dominant and controlling factor in determining the sta- tus of one, as a common carrier, is his public profession or hold- ing, by words or by a course of conduct as to the service offered or performed, with the result the he may be held liable for refusal, if there is no valid excuse, to carry for all who apply. xxx The distinctive characteristics of a common carrier is thatINTRODUCTION 7 he undertakes to carry for all people indifferently, and he is regarded in some aspects a public servant. Hence, one perform- ing transportation service for himself only is not a common carrier. One does not have the status of common carrier where he undertakes carriage for a particular group or class of per- sons under special contractual agreements, or for a particular person only. Nor, although one solicits patronage from the pub- lic generally, is a common carrier, where he reserves the right to accept or reject the offered business (13 Am Jur 2d, Sec. 2). 2. Civil Code definition. Art. 1732, of the New Civil Code defines common carrier as persons, corporations, firms, or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation offering their services to the public.Chapter | COMMON CARRIERS IN GENERAL A. Definition; liability of registered owner. Art. 1732, NCC. Common carriers are persons, corpora- tions, firms or associations engaged in the business of car- rying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. 1, Civil Code definition of common carrier. BASCOS v. CA 221 SCRA 318, April 7, 1993 Campos, Jr., J. FACTS: Rodolfo Cipriano representing Cipriano Trading En- terprise (CIPTRADE)entered into a hauling contract with dJibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's 2,000M/tons of soya bean meal from Manila to Laguna. CIPTRADE, through Cipriano, sub- contracted with petitioner Estrellita M. Bascos doing business under the name A.M. Bascos Trucking to deliver 400 sacks of soya bean meal from Manila to Laguna. Petitioner failed to deliver the cargo. Consequently, Cipriano paid Jibfair the amount of the lost goods. Cipriano demanded reimbursement from petitioner but the latter refused to pay, causing him to file a complaint. Trial court rendered a decision in favor of Cipriano, which order was affirmed by the C.A. HELD: in disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she alleged in thisCOMMON CARRIERS 9 Common Carriers in General petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE, was lease of the truck. She cited as evidence certain affidavits and testimonies which referred to the contract ae “lease.” She said that she does business under the same style of A.M. Bascos Trucking, offering her trucks for lease to those who gave cargo to move, not to the general pub- lic but a few customers only in view of the fact that it is only a small business. We agree with the respondent Court in its finding that petitioner is a common carrier. Article 1732 of the Civil Code defines a common carrier. The test to determine a common carrier is “whether the given undertaking is a part of the business engaged in by the car- rier which he has held out to the general public as his occupa- tion rather than the quantity or extent of the business trans- acted.” Petitioner herself has made the admission that she was in the trucking business, offering her trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the same. But petitioner argues that there was only a contract of lease because they offer their services only to a select group of people and because the private respondents, plaintiffs in the lower court, did not object to the presentation of affidavits by petitioner where the transaction was referred to as a lease con- tract. Regarding the first contention, the holding of the Court in De Guzman us. Court of Appeals, 168 SCRA 612, is in- structive. In referring to Article 1732 of the Civil Code, it held thus: “The above article makes no distinction between one whose principal business activity is the carrying of per- sons 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10 THE LAW ON TRANSPORTATION general community or population, and one who offers serv- ices or solicits business only from a narrow segment of the general population. We think that Article 1732 deliber- ately refrained from making such distinctions.” CA decision is AFFIRMED. NATIONAL STEEL CORP. v. CA 283 SCRA 45, December 12, 1997 Panganiban, J. FACTS: On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire whereby NSC hired VSI's vessel, the MV ‘“VLASONS I’ to make one (1) voyage to load steel products at Iligan City and dis- charge them at North Harbor, Manila. When the vessel’s three (3) hatches containing the ship- ment were opened by plaintiff’s agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by steve- dores hired by the plaintiff. Plaintiff filed with the defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18 but defendant VSI refused and failed to pay. Hence, this suit. HELD: It is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier. The resolu- tion of this preliminary question determines the law, standard of diligence and burden of proof applicable to the present case. Article 1732 of the Civil Code defines a common carrier. It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a fee. A carrier which does not qualify under the above test is deemed a private carrier. Generally, private carriage is under- taken by special agreement and the carrier does not hold him- self out to carry goods for the general public. The most typi- cal, although not the only form of private carriage, is theCOMMON CARRIERS i Common Carriers in General charter party, a maritime contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages. In the instant case, it is undisputed that VSI did not of- fer its services to the general public. It carried passengers or goods only for those it chose under a special contract of char- ter party. MV Vlasons I was not a common but a private car- rier. It is a private carrier that renders tramping service and, as such, does not transport cargo or shipment for the general public. Its services are available only to specific persons who enter into a special contract of charter party with its owner. Consequently, the rights and obligations of VSI and NSC, in- cluding their respective liability for damage to the cargo, are determined primarily by stipulations in their contract of pri- vate carriage or charter party. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the strin- gent provisions of the Civil Code on common carriers protect- ing the general public cannot justifiably be applied to a ship transporting commercial goods as a private carrier. It is clear from the parties’ Contract of Voyage Charter Hire, dated July 17, 1974, that VSI “shall nct be responsible for losses except on proven willful negligence of the officers of the vessel.” The NANYOZAI Charter Party, which was incor- porated in the parties’ contract of transportation, further pro- vided that the shipowner shall not be liable for loss of or dam- age to the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the same was “properly manned, equipped and supplied.” In view of the above, NSC must prove that the damage to its shipment was caused by VSI’s willful negligence or fail- ure to exercise due diligence in making MV Vlasons I seawor- thy and fit for holding, carrying and safekeeping the cargo. In- eluctably, the burden of proof was placed on NSC by the par- ties’ agreement. The CA decision, affirming the RTC decision in favor of defendant and dismissing the complaint is AFFIRMED.12 THE LAW ON TRANSPORTATION FIRST PHILIPPINE INDUSTRIAL CORP. v. CA 300 SCRA 661, December 29, 1998 Martinez, J. FACTS: Petitioner is a grantee of a pipeline concession under R.A. 387 to contract, install and operate oil pipelines. The first pipeline concession was granted in 1967 and was renewed by the Energy Regulatory Board in 1992. In 1995, petitioner ap- plied for a Mayor's permit in Batangas City. Respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year in 1993 pursuant to the Local Government Code. To avoid hampering its operations, petitioner paid the amount of tax for the first quarter under protest. Petitioner argued that as a pipeline operator with a government conces- sion engaged in transporting petroleum products via pipeline and as such, it is exempted from payment of tax based on gross receipts as provided under Section 133 of the Local Government Code. Respondent, however, refused to make reimbursement on the ground that petitioner is not a common carrier engaged in transportation business by land, water or air. HELD: Based on Article 1732 of the Civil Code, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e., petroleum prod- ucts, 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 clien- tele does not exclude it from the definition of a common car- rier. In De Guzman v. Court of Appeals, 168 SCRA 617, we Tuled that: “The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activ- ity 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 x x x avoids mak- ing any distinction between a person or enterprise offer- ing transportation service on a regular or scheduled ba- sis and one offering such service on an occasional episodic or unscheduled basis. Neither does Article 1732 distin- guish between a carrier offering its services to the ‘gen- eral public,’ i.e., the general community or population, andCOMMON CARRIERS 13 Common Carriers in General 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 dis- tinctions.” Also, respondent's argument that the term “common car- rier” as used in Section 133(j) of the Local Government Code refers only to common carriers transporting goods and passen- gers through moving vehicles or vessels either by land, sea or water, is erroneous. 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 trans- porting of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are con- sidered common carriers. Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a “common carrier.” Petitioner is already paying three percent (3%) common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again on its gross receipts in its transportation of petroleum business would de- feat the purpose of the Local Government Code. CALVO v. UCPB GENERAL INSURANCE TERMINAL SERVICES, INC. G.R. No. 148496, March 19, 2002 Mendoza, J. FACTS: Petitioner Virgines Calvo, the owner of Transorient Container Terminal Services, Inc. (TCTSI), which is a customs broker, 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 re- spondent 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.THE LAW ON TRANSPORTATION From July 23 to July 25, 1990, petitioner, pursuant to her con- tract with SMC, withdrew the cargo from the arrastre opera- tor and delivered it to SMC’s warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo Sur- veyors, 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 RTC, Makati City, which, on December 20, 1995, ren- dered judgment finding petitioner liable to respondent for the damage to the shipment. This was affirmed by the CA. HELD: 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 vigi- lance over the goods transported by her, would require. Con- sequently, 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 car- rier 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. Art. 1732 makes no distinction between one whose prin- cipal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary ac- tivity. 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 popula- tion, and one who offers services or solicits business only from a narrow segment of the general population. We think that Ar- ticle 1732 deliberately refrained from making such distinctions (De Guzman v. CA, 68 SCRA 612 [1988]). So understood, the concept of “common carrier” under Article 1732 may be seen to coincide neatly with the notion ofCOMMON CARRIERS 16 Common Carriers in General “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 serv- ice” 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 steam- ship 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-refrig- eration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sew- erage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. . .” There is greater reason for holding petitioner to be a com- mon 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. FGU INSURANCE CORPORATION v. G.P. SARMIENTO TRUCKING CORPORATION G.R. No. 141910, August 6, 2002 Vitug, J. FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was tra- versing the north diversion road along McArthur highway in16 THE LAW ON TRANSPORTATION Barangay Anupol, Bamban, Tarlac, it collided with an uniden- tified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the ship- ment, paid to Concepcion Industries, Inc., the value of the cov- ered cargoes in the sum of P204,450.00 and sued GPS and Eroles. FGU presented its evidence, establishing the extent of damage to the cargoes and the amount it had paid to the as- sured. GPS, instead of submitting its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. The trial court, in its order of 30 April 1996, granted the motion to dismiss. The CA affirmed the RTC ruling. HELD: The Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS, being an ex- clusive contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or en- tity. cannot be considered a common carrier. 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 hire or compensation, offering their services to the public, whether to the public in general or to a limited clientele in particular, but never on an exclu- sive basis. The true test of a common carrier is the carriage of passengers or goods, providing space for those who opt to avail themselves of its transportation service for a fee. Given ac- cepted standards, GPS scarcely falls within the term “common carrier.” The above conclusion notwithstanding, GPS cannot escape from liability. In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of re- lief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contraven- tion of the tenor thereof. A breach upon the contract confersCOMMON CARRIERS 7 Common Carriers in General upon the injured party a valid cause for recovering that which may have been lost or suffered. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioner's assured, and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation — in this case, the delivery of the goods in its cuatody to the place of destination — gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioner's principal and defendant, may not be held liable under the agreement. Petitioner’s civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for dam- ages to prove negligence or fault on the part of the defendant. If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant shall be deemed to have waived the right to present evidence. Thus, respondent corporation may no longer offer proof to establish that it has exercised due care in transporting the cargoes of the assured so as to still warrant a remand of the case to the trial court. The RTC and CA decisions are AFFIRMED only insofar as respondent Eroles is concerned, but are REVERSED as re- gards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of P204,450.00. 2. Can acommon carrier become a private carrier? HOME INSURANCE CO. v. AMERICAN STEAMSHIP AGENCIES 23 SCRA 24, April 4, 1968 Bengzon, J.P., J. FACTS: A Peruvian firm shipped fishmeal through the ss Crowborough consigned to the San Miguel Brewery and insuredTHE LAW ON TRANSPORTATION by the Home Insurance Co. The cargo arrived with shortages. SMB demanded and Home Insurance Co. paid P14,000 in set- tlement for SMB’s claim. Home Insurance Co. filed for recov- ery of P14,000 from Luzon Stevedoring and American Steam- ship Agencies. CFI absolved Luzon Stevedoring but ordered the American Steamship Agencies to reimburse the P14,000 to HIC, declaring that Art. 587 of Code of Commerce makes the ship agent civilly liable for damages in favor of third persons due to the conduct of carrier’s captain and that the stipulation in the charter party exempting owner from liability is against public policy under Art. 1744, of NCC. ASA appealed. HELD: The NCC provisions on common carriers should not apply where the common carrier is not acting as such but as a private carrier. Under American Jurisprudence, a common car- rier undertaking to carry a special cargo or chartered to a spe- cial person only becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negli- gence of its agent is valid. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if strict public policy governing common carrier is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. The stipulation exempting the owner from liability for negligence of its agent is not against public policy and is deemed valid. Recovery can’t be had, for loss or damage to the cargo against shipowners, unless the same is due to per- sonal acts or negligence of said owner or its managers, as dis- tinguished from agents or employees. Judgment REVERSED. ARADA v. CA 210 SCRA 624, July 1, 1992 Paras, J. FACTS: Petitioner Alejandro Arada operates the South Negros Enterprises which was engaged in small scale shipping busi- ness. It entered into a contract with San Miguel Corporation to transport cargoes of the latter from San Carlos City to Mandaue City. Arada’s vessel sank after encountering a ty- phoon. SMC’s cargoes were lost.COMMON CARRIERS 19 Common Carriers in General HELD: Petitioner contends that it was not in the exercise of its function as a common carrier when it entered into a con- tract with private respondent, but was then acting as a pri- vate carrier not bound by the requirement of extraordinary diligence. The petition is devoid of merit. Common carriers are persons, corporations, firms or as- sociations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compen- sation offering their services to the public (Art. 1732 of the New Civil Code). In the case at bar, there is no doubt that petitioner was exercising its function as a common carrier when it entered into contract with private respondent to carry and transport the latter's cargoes. This fact is best supported by the admission of petitioner’s son, Mr. Eric Arada, who testified as the officer- in-charge for operations of South Negros Enterprises in Cebu City. Q__ How many vessels are you operating? A There were all in all around five (5). Q_ And you were entering to service hauling of cargoes to different companies, is that correct? A Yes, Sir. Q__Inone word, the South Negros Enterprises is engaged in the business of common carriers, is that correct? A Yes, Sir. Q And in fact, at the time of the hauling of the San Miguel Beer, it was also in the same category as a common car- rier? A Yes, sir. A common carrier, both from the nature of its business and for insistent reasons of public is burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers but in caring for the goods transported by it. The loss or destruction or deterioration of goods turned over to common carrier for the conveyance to a designated desti-THE LAW ON TRANSPORTATION nation raises instantly a presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or damage arises from extreme circumstances such as a natu- ral disaster or calamity x x x (Benedicto v. IAC, G.R. No 708776, duly 19, 1990, 187 SCRA 547). PLANTERS PRODUCTS, INC. v. CA 226 SCRA 476, September 15, 1993 Bellosillo, J. FACTS: Planters Products, Inc. (PPI) purchased from Mitsu- bishi International Corp. of USA metric tons of Urea fertilizer which the latter shipped aboard the cargo vessel owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from America to Poro Point in La Union. Prior to its voyage, a time charter-party on the vessel was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner. The report submitted by private marine and cargo sur- veyor revealed a shortage in the cargo of 106,726 M/T and that a portion of the Urea fertilizer was contaminated with dirt, rendering the same unfit for commerce. PPI filed an action for damages with the CFI of Manila which sustained PPIs claim for damages. Court of Appeals absolved the carrier from liabil- ity. HELD: It is not disputed that respondent carrier, in the ordi- nary course of business, operates as a common carrier, trans- porting goods indiscriminately for all persons. When petitioner chartered the veasel M/V “Sun Plum,” the ship captain, its of- ficers 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 deter- mination of the course of the voyage and other technical inci- dents of maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the ship- owner.COMMON CARRIERS 21 Common Carriers in General It is therefore imperative that a public carrier shall re- main as such, notwithstanding the charter of the whole or por- tion 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 voy- age covering the charter-party is concerned. Indubitably, a ship- owner in a time or voyage charter retains possession and con- trol of the ship, although her holds may, for the moment, be the property of the charterer. Respondent carrier’s heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, 23 SCRA 24, is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charger-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, does not find application in our juris- diction, 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 admi- ralty laws, more particularly, the rules governing common car- Tiers. ‘To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption of negligence. 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 re- mained close and tightly sealed while the ship was in transit as the weight of the steel covers made it impossible for a per- gon to open without the use of the ship’s boom. It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of spill- age of the cargo into the sea or seepage of water inside the hull of the veasel. Indeed, we agree with respondent carrier that bulk ship- ment of highly soluble goods like fertilizer carries with it the22 THE LAW ON TRANSPORTATION risk of loss or damage. More so, with a variable weather con- dition 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 inher- ent 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 remiss in the exercise of due diligence in order to minimize the loss or damage to the goods it carried. VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY v. CA 274 SCRA 642, June 30, 1997 Panganiban, J. FACTS: Plaintiff shipped at Maconcon Port, Isabela 940 round logs on board M/V Seven Ambassador, a vessel owned by de- fendant Seven Brothers Shipping Corporation. Plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the lat- ter issued its Marine Cargo Insurance Policy on said date. In the meantime, the M/V Seven Ambassador sank resulting in the loss of the plaintiff's insured logs. Plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff like- wise filed a formal claim with defendant Seven Brothers Ship- ping Corporation for the value of the lost logs but the latter denied the claim. HELD: The charter party between the petitioner and private respondent stipulated that the owners shall not be responsi- ble for loss, split, short-landing, breakages and any kind of damages to the cargo. The validity of this stipulation is the lis mota of this case. There is no dispute between the parties that the proxi- mate cause of the sinking of M/V Seven Ambassadors result- ing in the loss of its cargo was the snapping of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing and securing the logsCOMMON CARRIERS 23 Common Carriers in General on board the vessel and not due to fortuitous event. Likewise undisputed is the status of Private Respondent Seven Broth- ers as a private carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the latter admits this in its petition. In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such stipu- lation is valid because it is freely entered into by the parties and the same is not contrary to law, morals, good customs, public order, or public policy. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on com- mon carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a pri- vate carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in contacts involving com- mon carriers. LOADSTAR SHIPPING CO. v. CA 315 SCRA 339, September 28, 1999 Davide, Jr., C.J. FACTS: On 19 November 1984, LOADSTAR received on board its M/V “Cherokee” goods for shipment. The goods, amounting to P6,067,178, were insured for the same amount with Manila Insurance Co. (MIC) against various risks including “TOTAL LOSS BY TOTAL LOSS OF THE VESSEL.” The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (here- after PGAI) for P4 million. On 20 November 1984, on its way to Manila from Nasipit, Agusan del Norte, the vessel sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full settle- ment of its claim.24 THE LAW ON TRANSPORTATION On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. LOADSTAR claimed force majeure. PGAI averred that MIC had no cause of action against it, LOADSTAR being the party insured. PGAI was later dropped as a party defend- ant after it paid the insurance proceeds to LOADSTAR. The trial court rendered judgment for MIC, prompting LOADSTAR to go to the CA which affirmed the decision. HELD: LOADSTAR submits that the vessel was a private car- rier because it was not issued a certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only “one shipper, one consignee for a special cargo.” We hold that LOADSTAR is a common carrier. It is not necessary that the carrier be issued a certificate of public con- venience, and this character is not altered by the fact that the carriage of the goods in question was periodic, occasional, epi- sodic or unscheduled. In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc., 23 SCRA 24, where this Court held that a common car- rier transporting special cargo or chartering the vessel to a spe- cial person becomes a private carrier that is not subject to the provisions of the Civil Code. LOADSTAR also cited Valenzuela Hardwood and Indus- trial Supply, Inc. v. Court of Appeals, 274 SCRA 642 and Na- tional Steel Corp. v. Court of Appeals, 283 SCRA 45, both of which upheld the Home Insurance doctrine. These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the actual settings are different. The records do not disclose that the M/V “Cherokee,” on the date in question, undertook to carry a special cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to show any special arrange- ment, but only a general provision to the effect that the M/V “Cherokee” was a “general cargo carrier.” Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from a common to a private car-COMMON CARRIERS 25 Common Carriers in General rier, especially where, as in this case, it was shown that the vessel was also carrying passengers. Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Ar- ticle 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, 168 SCRA 612, the Court juxtaposed the statutory definition of “common carriers” with the peculiar circumstances of that case, viz.: “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 an- cillary 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 sched- uled basis and one offering such service on an occasional, epi- sodic or unscheduled basis. Neither does Article 1732 distin- guish 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 deliber- ately refrained from making such distinctions.” The CA decision is AFFIRMED. 3. Registered owner liable for operation of common carriers. BENEDICTO v. IAC 187 SCRA 547, July 19, 1990 Feliciano, J. FACTS: Private respondent Greenhills Wood Industries Com- pany, Inc. a lumber manufacturing firm in Dagupan City, op- erates a sawmill in Maddela, Quirino. In May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany, Inc. 100,000 board feet of sawn lumber with the understanding that an initial delivery would be made on 15 May 1980. To effect its first delivery, private respondent's resident manager in Maddela, Dominador Cruz, contracted Virgilio Licuden, the driver of a cargo truck to trans- port ita sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo truck was registered in the name of peti-26 THE LAW ON TRANSPORTATION tioner Ma. Luis Benedicto, the proprietor of Macoven Truck- ing, a business enterprise engaged in hauling freight, with main office in B.F. Homes, Paranaque. On 15 May 1980, Cruz in the presence and with the con- sent of driver Licuden, supervised the loading of 7,690 board feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck. The cargo never reached Blue Star. HELD: Petitioner urges that she could not be held answerable for the loss of the cargo, because the doctrine which makes the registered owner of a common carrier vehicle answerable to the public for the negligence of the driver despite the sale of the vehicle to another person, applies only to cases involving death of or injury to passengers. There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in the business of hauling of transporting goods for hire or compensation. Peti- tioner Benedicto is in brief, a common carrier. The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the op- erations of the carrier, even though the specific vehicle involved may already have been transferred to another person. This doctrine rests upon the principle that in dealing with vehicles registered under the Public Service Law, the public has the right to assume that the registered owner is the actual or law- ful owner thereof. It would be very difficult and often impossi- ble as a practical matter, for members of the general public to enforce the rights of action that they may have for injuries inflicted by the vehicles being negligently operated if they should be required to prove who the actual owner is. The reg- istered owner is not allowed to deny liability by proving the identity of the alleged transferee. Thus, contrary to petition- er’s claim, private respondent is not required to go beyond the vehicle's certificate of registration to ascertain the owner of the carrier. Clearly, to permit a common carrier to escape its respon- sibility for the passengers or good transported by it by proving a prior sale of the vehicle or means of transportation to an al- leged vendee would be to attenuate drastically the carrier's duty of extraordinary diligence.COMMON CARRIERS 27 Common Carriers in General BA FINANCE CORP. v. CA 215 SCRA 715, November 13, 1992 Melo, J. FACTS: The Isuzu ten-wheeler truck is registered in the name of petitioner BA Finance Corp. which it leased to Rock Compo- nent, Inc. At the time of the accident, it was driven by Rogelio Villar an employee of Lino Castro. Is BA Finance liable for the resulting damages even if neither the driver nor Castro appears to be connected with it. HELD: The lesson imparted by Justice Labrador in Erezo v. depte, 102 Phil. 103, is still good law, thus: “In previous decisions, We already have held that the registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers or third persons caused by the operations of said vehicle, even though the same had been trans- ferred to a third person (Montoya v. Ignacio, 94 Phil. 182; Roque v. Malibay Transit, Inc., G.R. No. L-8561, Novem- ber 18, 1955; Vda. de Medina v. Cresencia, 99 Phil. 506). The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they may have for injuries caused to them by the vehi- cles being negligently operated if the public should be required to prove who the actual owner is x x x.” “Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily be responsible to the public or to third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members of the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-appellant was no longer the owner of the vehicle at the time of the damage because he had previously sold it to another.” If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had been alienated or sold G8b8I C2 HNU TAGBIGARAN28 B. THE LAW ON TRANSPORTATION to another, there certainly can be no serious exception against utilizing the same rationale to the antecedents of this case where the subject vehicle was merely leased by petitioner to Rock Component, Philippines, Inc. with petitioner retaining ownership over the vehicle. State Regulation of Common Carriers Art. 1765, NCC. The Public Service Commission may, on its own motion or on petition of any interested party, after due hearing, cancel the certificate of public convenience granted to any common carrier thaf repeatedly fails to com- ply with his or its duty to observe extraordinary diligence as prescribed in this Section. (Note: The Public Service Commission has been replaced by the Land Transportation Franchising and Regulatory Board, Maritime Industry Authority and Civil Aeronautics Board.) FISHER v. YANGCO STEAMSHIP CO. 31 Phil. 5 November 5, 1914 and March 31, 1915 Carson, J. FACTS: The board of Yangco Steamship Co. adopted a resolu- tion which was ratified by the stockholders declaring classes of merchandise which are not to be carried by the vessels of the company and prohibiting the employees to carry dynamite, powder or other explosives. The Collector of Customs suspended the issuance of clearances for the vessels unless they carry the explosives. Fisher, a stockholder of YSC, filed a petition for prohibition. ELD: In construing and applying the statute (Act 98 of the Philippine Commission), for alleged violation, the question in- volves a consideration as to whether the refusal of YSC to carry the explosives without conditions may have the effect of sub- jecting any person or locality or the traffic in such explosives to an undue, unreasonable or unnecessary prejudice or discrimi- nation. Common carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for carriage to the prejudice of the traffic in those goods unless it appears that‘COMMON CARRIERS 29 ‘Common Carriers in General for some sufficient reason the discrimination for such is rea- sonable and necessary. YSC has not met these conditions. The nature of the business of a common carrier as a pub- lic employment is such that it is within the power of the State to impose such just regulations in the interest of the public as the legislator may deem proper. Petition DISMISSED. PANTRANCO v. PSC 70 Phil. 221, June 26, 1940 Laurel, J. FACTS: Pantranco has been engaged for 20 years in transport- ing passengers in certain provinces by means of a public trans- portation utility in accordance with the certificates of public convenience and their terms. In 1939, Pantranco applied for authorization to operate 10 additional trucks. The application was granted with two conditions: that the service can be ac- quired by the government upon payment of the cost price less depreciation, and, that the certificate shall be valid only for a definite period of time. Not being agreeable to the new condi- tions incorporated in its certificates, Pantranco filed a motion for reconsideration which PSC denied. Certiorari. HELD: The constitutionality and applicability of Common- wealth Act 454 authorizing the imposition of such conditions are in question. Statutes enacted for the regulation of public utilities, being proper exercise by the State of its police power, are applicable not only to those public utilities coming into existence after its passage, but likewise to those already estab- lished and in operation. There is no merit in petitioner's con- tention that because of its establishment prior to May 1, 1937, they are not subject to the regulation of the Commission. The right of the State to regulate public utilities ie founded upon its police power, and statutes for the control and regulation of utilities are a legitimate exercise thereof, for the protection of the public as well as of the utilities themselves. Such statutes are therefore not unconstitutional, either as impairing the obligation of contracts, taking property without due process, or denying equal protection of the laws; and the consequent burdens assumed is ordinarily for the owners toTHE LAW ON TRANSPORTATION decide; and if he voluntarily places his property in public serv- ice, he cannot complain that it becomes subject to the regula- tory powers of the State. This is more so in the light of authori- ties which hold that a certificate of public convenience consti- tutes neither a franchise nor a contract confers no property rights and is a mere license or privilege. Commonwealth Act 454 is constitutional and applicable. PHILIPPINE AIRLINES, INC. v. CIVIL AERONAUTICS BOARD 270 SCRA 538, March 26, 1997 Torres, Jr., J. FACTS: Private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with the Board. The CAB issued a Notice of Hearing setting the application for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to all sched- uled Philippine Domestic operators. GrandAir filed its Compli- ance, and requested for the issuance of a Temporary Operat- ing Permit. Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an Opposition to the application. Petitioner argued that the respondent Board acted beyond its powers in taking cognizance of GrandAir’s application and in issuing a temporary operating permit, since GrandAir has not been granted a legislative franchise to engage in scheduled domestic air transportation. HELD: The Civil Aeronautics Board has the authority to is- sue a Certificate of Public Convenience and Necessity, or Tem- porary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such require- ments were enumerated in Section 21 of R.A. No. 776. There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable re- quirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress’ control over any franchise, certificate or authority to operate a public utility, it does not mean Congress has exclusive author-COMMON CARRIERS: 31 Common Carriers in General ity to issue the same. Franchises issued by Congress are not required before each and every public utility may operate. In many instances, Congress has seen it fit to delegate thus func- tion to government agencies, specialized particularly in their respective areas of public service. A reading of Section 10 of the same R.A. No. 776 reveals the clear intent of Congress to delegate the authority to regu- late the issuance of a license to operate domestic air transport services. Petitioner argues that since R.A. No. 776 gives the Board the authority to issue “Certificates of Public Convenience and Necessity,” this, according to petitioner, means that a legisla- tive franchise is an absolute requirement. It cites a number of authorities supporting the view that a Certificate of Public Convenience and Necessity is issued to a public service for which a franchise is required by law, as distinguished from a “Certificate of Public Convenience” which is an authorization issued for the operation of public services for which no fran- chise, either municipal or legislative, is required by law. Many and varied are the definitions of certificates of pub- lic convenience which courts and legal writers have drafted. Some statutes use the terms “convenience and necessity” while others use only the words “public convenience.” The terms “con- venience and necessity,” if used together in a statute, are usu- ally held not to be separable, but are construed together. Both words modify each other and must be construed together. The word ‘necessity’ is so connected, not as an additional require- ment but to modify and qualify what might otherwise be taken as the atrict significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable thing. The use of the word “necessity,” in con- junction with “public convenience” in a certificate of authori- zation to a public service entity to operate, does not in any way modify the nature of such certification, or the requirements for the issuance of the same. It is the law which determines the requisites for the issuance of such certification, and not the title indicating the certificate.32 c THE LAW ON TRANSPORTATION The CAB is hereby DIRECTED to CONTINUE hearing the application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public Convenience and Necessity. Nature and basis of liability Art. 1733, NCC. 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 the vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756. CANGCO v. MANILA RAILROAD CO. 38 Phil. 768, October 14, 1918 Fisher, J. FACTS: Plaintiff Cangco, an employee of MRR, was riding on its train. As it drew up to the station, the plaintiff made his exit. As he alighted, his foot stepped on a sack of watermelons causing him to slip and his right arm was crushed. This oc- curred between 7 and 8 p.m. and, as the railroad station was lighted dimly by a single light, object on the platform were dif- ficult to see. Plaintiff sought to recover damages. CFI dismissed the case. HELD: Culpa aquiliana should be distinguished from culpa contractual. In this case, the foundation of the legal liability of the defendants is the contract of carriage and the obligation arises from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. MRR failed to exercise due care in not providing for safe exit of its passen- gers. The watermelons could have been removed from the plat- form. MRR also failed to provide adequate lighting for its sta- tion. Failure to perform a contract cannot be excused upon the ground that the breach was due to the negligence of a servantCOMMON CARRIERS 33 Common Carriers in General of the obligor, and that the latter exercised due diligence in the selection and control of the servant. Cangco entitled to damages. Judgment REVERSED. MEDINA v. CRESENCIA 99 Phil 506, July 11, 1956 Reyes, J.B.L., J. FACTS: A passenger jeepney driven by Brigido Avorque smashed into a Meralco post resulting in the death of Vicente Medina, one of its passengers. In a criminal case of homicide through reckless imprudence. Avorque pleaded guilty. The right to file a separate action for damages was reserved. Cresencia was still the registered operator of the jeepney in the records of the Motor Vehicles Office and the Public Service Commis- sion, while Rosario Avorque was the owner at the time of the accident. CFI ordered Cresencia to pay. ELD: In culpa contractual arising from a contract of carriage, the liability of the carrier is not merely subsidiary or second- ary but direct, immediate and primary. This present action is not based on employer's subsidiary liability under the Revised Penal Code but on culpa contractual. The sale of a franchise, or any privilege pertaining thereto, without the approval of the PSC, is not binding against the public or the PSC; and in contemplation by law, the grantee of record continues to be responsible under the franchise in rela- tion to the PSC and to the public. Judgment AFFIRMED. PAL v. CA 106 SCRA 391, July 31, 1981 Guerrero, J. FACTS: Plaintiff Jesus Samson, a licensed aviator, was em- ployed by PAL a few years prior to January 8, 1951 as a regu- lar co-pilot at P750.00 a month. He was paired with pilot Delfin Bustamante. In December 1950, Samson complained to PAL about the slow reaction and poor judgment of Bustamante. PAL allowed the pilot to continue flying.THE LAW ON TRANSPORTATION On January 8, 1951, the two manned the regular PAL af- ternoon flight from Manila to Legaspi, with stops at Daet, Camarines Norte, and Pili, Camarines Sur. Upon making a landing at Daet, the pilot, with his slow reaction and poor judg- ment, overshot the airfield and, as a result of and notwithstand- ing diligent efforts of Samson to avert an accident, the airplane crash-landed beyond the runway into a mangrove. The jolt and impact caused plaintiff to hit his head upon the front windshield of the plane thereby causing his brain concussions and wounds on the forehead, with concomitant intense pain. HELD: We find the imputation of gross negligence by the CA to PAL for having allowed Capt. Delfin Bustamante to fly on that fateful day of the accident on January 8, 1951 to be cor- rect: “The pilot was sick. He admittedly had tumor of the nasopharynx (nose). His is now in the Great Beyond. The spot is very near the brain and the eyes. Tumor on the spot will affect the sinus, the breathing, the eyes which are very near it. No one will certify the fitness to fly a plane of one suffering from the disease.” The fact that Bustamante has a long standing tumor of the nasopharynx for which reason he was grounded since No- vember 1947 is admitted in the letter of Dr. Bernardo, PAL company doctor, to the Medical Director of the CAA request- ing waiver of physical standards. PAL is a common carrier of as defined in Art. 1732, New Civil Code. The law is clear in requiring a common carrier to exercise the highest degree of care in the diligence of its duty and business of carriage and transportation under Arts. 1733, 1756 of the New Civil Code. The duty to exercise the utmost diligence on the part of common carriers is for the safety of passengers as well as for the members of the crew or the complement operating the car- rier, the airplane in the case at bar. And this must be so for any omission, lapse or neglect thereof will certainly result to the damage, prejudice, many injuries and even death to all aboard the plane, passengers and crew members alike. Judgment AFFIRMED with slight modification.COMMON CARRIERS. 36 Common Carriers in General D. Laws applicable Art. 1753, NCC. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration. PHILIPPINE AIRLINES vy. CA 207 SCRA 100, March 6, 1992 Grino-Aquino, J. FACTS: Plaintiff Isidro Co, accompanied by his wife and son, arrived at the Manila International Airport aboard PAL flight No. 107 from California, U.S.A. Plaintiff, upon proceeding to the baggage retrieval area, was able to claim his 8 luggages, but despite diligent search, he failed to locate his ninth lug- gage. The plaintiff's lost luggage was a Samsonite suitcase worth about US$200.00 and containing various personal effects worth US$1,243.01, in addition to the presents entrusted to them by their friends, amounting from US$500.00 to US $600.00. It appeared, however, that plaintiff surrendered all the nine claim checks corresponding to the nine baggages, includ- ing the one that was missing, to the PAL officer. Co sued the airline for damages. Trial court found PAL liable. Such deci- sion was affirmed by the CA. HELD: In Alitalia v. IAC (192 SCRA 9, 18, citing Pan Ameri- can World Airways, Inc. v. IAC, 164 SCRA 268), the Warsaw Convention limiting the carrier's liability was applied because of a simple loss of baggage without any improper conduct on the part of the officials or employees of the airline, or other special injury situated by the passengers. The petitioner therein did not declare a higher value for his luggage, much less did he pay an additional transportation charge. Petitioner contends that under the Warsaw convention, its liability, if any, cannot exceed US$20.00 based on weight as private respondent Co did not declare the contents of his bag- gage nor pay additional charges before the flight. We find no merit in that contention. In Samar Mining Company, Inc. v. Nordeutscher Lloyd (132 SCRA 529), this court ruled:36 THE LAW ON TRANSPORTATION “The liability of the common carrier for the loss, de- struction, or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by Spe- cial Laws. The provisions of the New Civil Code on common carri- ers are Articles 1733, 1735, and 1753. Since the passenger's destination in this case was the Philippines, Philippine law governs the liability of the carrier for the loss of the passen- ger’s luggage. In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the private respondent's evidence, proving that the carrier’s negligence was the proxi- mate cause of the loss of his baggage. Furthermore, petitioner acted in bad faith in faking a retrieval receipt to bail itself out of having to pay Co's claim. The C.A. therefore did not err in disregarding the limits of liability under the Warsaw Convention. Art. 1766, NCC. In all matters not regulated by this Code, the rights and obligations of common carriers shall be gov- erned by the Code of Commerce and by special laws. AMERICAN HOME ASSURANCE COMPANY v. CA 208 SCRA 343, May 5, 1992 Paras, J. FACTS: Both petitioner American Home Assurance Co. and re- spondent National Marine Corporation are foreign corporations licensed to do business in the Philippines. On June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales of kraft bulb from Taiwan on board “SS Kaunlaran” owned by NMC. Such shipment was consigned to Mayleen Paper, Inc. of Manila which insured the shipment with AHA. On June 22, 1988, the ship- ment arrived in Manila and was discharged into the custody of Marina Port Services for delivery to the consignee-assured. However, upon delivery to Mayleen Paper, Inc., it was dis- covered that 122 bales had either been damaged or lost. TheCOMMON CARRIERS 37 Common Carriers in General loss had an estimated value of P61,263.41. Petitioner AHA paid Mayleen Paper, Inc. the adjusted amount of P31,506.75. As subrogee, AHA brought suit against respondent NMC for the recovery of the amount it paid Mayleen Paper, Inc. The RTC dismissed the complaint. The Court of Appeals affirmed the HELD: Petitioner avers that respondent NMC being a common carrier, in conducting its business, it is regulated by the Civil Code primarily and suppletorily by the Code of Commerce. Private respondent countered that the law of averages under Articles 806, 809 and 848 of the Code of Commerce should be applied as they provide for the extent of the com- mon carriers’ liability. In National Development Co. v. C.A. (164 SCRA 593 [1988], citing Eastern Shipping Lines, Inc. v. 1.A.C., 150 SCRA 469, 470 [1987]), it was held that “the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or dete- Tioration” (Article 1753, Civil Code). Thus, for cargoes trans- ported to the Philippines as in the case at bar, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code). The Court ruled that common carriers cannot limit their liability for injury or loss of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on averages under the Code of Commerce cannot be applied in determining liability where there is negligence. Under the foregoing principle and in line with the Civil Code’s mandatory requirement of extraordinary diligence on common carriers in the care of goods placed in their stead, it is but reasonable to conclude that the issue of negligence must first be addressed before the proper provisions of the Code of Commerce on the extent of liability may be applied. The records show that upon delivery of the shipment in question of Mayleen’s warehouse in Manila, 122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called “percentage method” at 4,360 kilograms and38 THE LAW ON TRANSPORTATION amounting to P61,263.41. Instead of presenting proof of the exercise of extraordinary diligence as required by law, NMC filed its Motion to dismiss dated August 7, 1989, hypothetically admitting the truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was due to the negligence or fault of NMC. Such being the case, it is evident that the Code of Commerce provisions on averages cannot ap- ply. On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible for loss, destruction or deterioration of the goods, unless due to any of uses enu- merated therein. It is obvious that the case at oes not fall under any of the exceptions. Thus, AHA company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer. NMC is hereby ordered to reimburse the subrogee, peti- tioner AHA the amount of P31,506.75.Chapter I COMMON CARRIER OF GOODS A. Definitions; responsibility over goods Art. 1733, NCC. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735 and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756. B. Liability for loss; presumption of negligence Art. 1734, NCC. 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 natu- ral disaster or calamity; (2) Act of the public enemy in war, whether interna- tional or civil; (8) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the pack- ing or in the containers; (6) Order or act competent public authority. Art. 1735, NCC. In all cases other than those mentioned in Nos. 1, 2, 8, 4 and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are pre- 3940 THE LAW ON TRANSPORTATION sumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. YNCHAUSTI STEAMSHIP CO. v. DEXTER 41 Phil 289, December 14, 1920 Street, J. FACTS: The Philippine Government employed the services of Ynchausti Steamship Co., a common carrier, for the transpor- tation from Manila to Appari consignments of mineral oil. Upon arrival, two cases of oil were delivered empty. HELD: Proof of delivery of the goods in good order to the car- rier, and of their arrival at the place of destination short or in bad order, makes out a prima facie case; and it is incumbent on the carrier, in order to exonerate itself, to prove that the loss or injury was due to some circumstances inconsistent with its liability. When government property is transported by a common carrier, it is the duty of the consignee under Sec. 646 of the Administrative Code to make a notation of any loss, shortage or damage upon the bill of lading or receipt before accomplish- ing it; and where a shortage is noted by the consignee upon the bill of lading at the time of delivery, such notation is com- petent evidence to show that the shortage in fact existed. Without a showing that the loss of damage suffered by the goods while in the carrier’s hands for transportation resulted from some other cause than its own fault or negligence, the Internal Auditor may properly deduct from freight due to car- rier any such sum which the carrier is liable to the government for loss or damage occurring in the course of transportation of said goods. Petition DISMISSED. MIRASOL v. ROBERT DOLLAR CO. 63 Phil. 124, March 27, 1928 Johnson, J. FACTS: Plaintiff Amando Mirasol shipped in good condition two cases of books on board defendant Robert Dollar Co.'s shipCOMMON CARRIERS 41 Common Carrier of Goods for Manila. Said books arrived in damaged condition. Plaintiff filed claims but defendant refused to pay. HELD: Where it appears that a bill of lading was issued to a shipper containing a clause limiting the carrier’s liability, printed in fine letters on the back of the bill of lading, which the shipper did not sign and of which he was not advised, in an action for damages, the shipper is not bound by the clause which limits the carrier’s liability. The stipulation is void or against public policy, and the plaintiff was not legally bound by the clause limiting the defendant's liability to US$250.00. Shippers who are forced to ship goods in an ocean liner have legal rights, and when goods are delivered on board the ship in good condition and the carrier delivers them to the shipper in bad order, in an action for damages, the burden of proof shifted and it devolves upon the carrier to both allege and prove that the goods were damaged by reason of some act which legally exempt it from liability. Because as to when and how goods were damaged in transit is a matter peculiarly within the knowledge of the carrier and its employees. To require the plaintiff to prove as to when and how the damage was done would force him to rely upon the employees of defendant car- rier which in legal effect would be to say that he cannot re- cover damages for any reason. Judgment for plaintiff AFFIRMED. STANVAC v. LUZTEVECO 98 Phil. 817, April 18, 1956 Bautista, Angelo, J. FACTS: Pursuant to a contract, the barge of the defendant LUZTEVECO was laden with gasoline of the plaintiff STANVAC to be transported from Manila to Iloilo. Said barge was towed by a tugboat. While on the way, the tugboat suffered engine trouble resulting into a complete stoppage of the voy- age. The crew informed the main office. While waiting for the rescue, sea conditions became worse dashing the barge against the rocks off Banton Island and causing in a hole in the tug- boat eventually sinking it. Upon the arrival of the rescue tug- boat, the barge was already badly damaged and the gasoline was leaking out. Plaintiff brought an action for recovery of damages. Lower court dismissed the action.42 THE LAW ON TRANSPORTATION HELD: Though Luzteveco is engaged in a limited contract of carriage in the sense that it chooses its customers and is not open to the public, nevertheless, the continuity of its operations in this kind of business have earned for it the level of a public utility. The contract therefore, falls under the provisions of the Code of Commerce. The tugboat was a surplus property, has not been dry- docked, and was not provided with the requisite equipments to make it seaworthly. This showed that the defendant did not use reasonable diligence in putting the tugboat in such a con- dition as would make its use safe for operation. Under Art. 361 of the Code of Commerce, “merchandise transported in the sea by virtue of a contract between the ship- per and carrier, is deemed transported at the risk and venture of the shipper, if the contrary is not stipulated, and all dam- ages suffered by the merchandise during the transportation by reason of accident or force majeure shall be for the account and risk of the shipper, but proof of these accidents is incumbent on the carrier.” The gas was delivered in accordance with the contract but the defendant failed to transport it to its destination, not be- cause of accident or force majeure or cause beyond its control, but due to the unseaworthiness of the tugboat, lack of neces- sary spare parts, and deficiency or incompetence in the tug- boats manpower. The loss was also caused because the defend- ant did not have in readiness any tugboat sufficient in tonnage and equipment to attend to the rescue. Defendant is not ex- empt from liability under the law. FIREMEN’S FUND INSURANCE CO. v. METRO PORT SERVICE, INC. 182 SCRA 455, February 21, 1990 Gutierrez, Jr., J. FACTS: Vulcan Industrial and Mining Corporation (VIMC) im- ported from the United States several machineries and equip- ment which were loaded on board the S/S Albert Maersk at the port of Philadelphia, U.S.A. and transhipped for Manila through the vessel S/S Maersk Tempo. The shipment arrived in Manila, and was turned over complete and in good condition to the arrastre operator E.‘COMMON CARRIERS 43 Common Carrier of Goods Razon, Inc. (now Metro Port Service, Inc. and referred to as the ARRASTRE). Days later, a tractor operator, named Danilo Librando and employed by the ARRASTRE, was ordered to transfer the ship- ment to the Equipment yard at Pier 3. While Librando was maneuvering the tractor (of Maersk Line) to the left, the cargo fell from the chassis and hit one of the container vans of Ameri- can President Lines. It was discovered that there were no twist lock at the rear end of the chassis where the cargo was loaded. There was heavy damage to the cargo as the parts of the machineries were broken, dented, cracked and no longer use- ful for their purposes. The value of the damage was estimated at P187,500.00 which amount was paid by the petitioner in- surance company to the consignee, VIMC. The petitioner, under its subrogation rights, then filed a suit against Maersk Line, Compania General de Tobacos (as agent) and E. Razon, Inc. for the recovery of the amount it paid the assured under the covering insurance policy. HELD: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouse- man (Lua Kian v. Manila Railroad Co., 19 SCRA 5 (1967). The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre op- erator (Northern Motors, Inc. v. Prince Line, 107 Phil. 253 (1960}). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligated to deliver the goods in good condition to the consignee. To carry out its duties, the ARRASTRE, is required to provide cargo handling equipment which includes among oth- ers, trailers, chassis for containers. In some cases, however, the shipping line has its own cargo handling equipment. In this particular instance, the records reveal that Maersk Line provided the chassis and the tractor which carried the subject shipment. It merely requested the ARRASTRE to dis- patch a tractor operator to drive the tractor in as much as the foreign shipping line did not have any truck operator in its44 THE LAW ON TRANSPORTATION employ. Such arrangement is allowed between the ARRASTRE and the CARRIER pursuant to the Management Contract, it was clearly one of the services offered by ARRASTRE. It is the ARRASTRE which had the sole discretion and prerogative to hire and assign Librando to operate the tractor. It was also the ARRASTRE’s sole decision to detail and deploy Librando for the particular task from among its pool tractor operates or drivers. It is, therefore inaccurate to state that Librando should be considered an employee of Maersk Line on that specific occasion. Whether or not the twist lock can be seen by the naked eye when the cargo has been loaded on the chassis, an efficient and diligent tractor operator must nevertheless check if the cargo is securely loaded on the chassis. We, therefore, find Metro Port Services, Inc. solidarily li- able with Maersk Lines for the negligence of its employee. ABOITIZ SHIPPING CORP. v. CA 188 SCRA 387, August 6, 1990 Gancayco, J. FACTS: On October 28, 1980, M/V P. Aboitiz took on board in Hongkong for shipment to Manila one (1) twenty-footer con- tainer holding 271 rolls of goods for apparel covered by Bill of Lading No. 515-M and one forty-footer container holding 447 rolls, 10 bulk and 95 cartons of goods for apparel covered by Bill of Lading No. 505-M. The total value amounts to US$39,885.85 for the first shipment while that of second ship- ment amounts to US$94,190.55. Both shipments were con- signed to the Philippine Apparel, Inc. and insured with the General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC). The vessel is owned and operated by Aboitiz Ship- ping Corporation. On October 31, 1980 on its way to Manila the vessel sunk and it was declared lost with all its cargoes. GAFLAC paid the consignee the amounts US$39,885.85 or ®319,086.80 and US$94,190.55 or 753,524.40 for the lost cargo. As GAFLAC was subrogated to all the rights, interests and actions of the consignee against Aboitiz, it filed an action for damages against Aboitiz in the RTC of Manila.COMMON CARRIERS 45 Common Carrier of Goods HELD: Petitioner Aboitiz states that the sinking of the vessel was the subject of an administrative investigation conducted by the Board of Marine Inquiry (BMI) whereby in a decision dated December 26, 1984, it was found that the sinking of the vessel was due to typhoon. Petitioner contends that these find- ings are conclusive on the courts. We disagree with the conclusion of the BMI exonerating the captain from any negligence since it obviously had not taken into account the legal responsibility of a common carrier towards the security of the passengers involved. Moreover, said administrative investigation was con- ducted unilaterally. Private respondent GAFLAC was not no- tified or given an opportunity to participate therein. It cannot thereby be bound said findings and conclusions of the BMI. The trial court and the appellate court found that the sinking of the M/VP. Aboitiz was not due to the waves caused by tropical storm Yoning but due to the fault and negligence of petitioner, its master and crew. In accordance with Article 1732 of the Civil Code, the de- fendant common carrier, from the nature of its business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers, transported by it according to all the circum- stances of each case. While the goods are in the possession of the carrier, it is but fair that it exercise extraordinary diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was due to the carrier's fault of negligence. In the case at bar, the defendant failed to prove that the loss of the subject cargo was not due to its fault or negligence. BANKERS AND MANUFACTURES ASSURANCE CORP. v. CA 214 SCRA 433, October 2, 1992 Melo, J. FACTS: Cases of copper tubings were imported by Ali Trad- ing Company. The shipment was “containerized.” The goods under this arrangement are stuffed, packed, and loaded by the shipper at a place of his choice, usually his own warehouse, in the absence of the carrier. The container is sealed by the ship-46 THE LAW ON TRANSPORTATION per and thereafter picked up by the carrier. A shipment under this arrangement is not inspected by the carrier whose only duty is to transport the containers in the same condition as when the carrier received and acceptance them. In the instant case, the tubings were placed in three containers. Upon arrival in Manila, said shipment was discharged in apparent good order and condition. One of the container vans was stripped in the presence of petitioner's surveyors, and three cases were found to be in bad order. The other two container vans were then released to the care of the consignee’s author- ized customs broker who accepted the shipment without excep- tion as to bad order. The broker caused the delivery of the vans to the consignee’s warehouse where the contents of the two containers were inspected by the importer who found that the shipment was short of seven cases. HELD: Verily, if any of the vans were found in bad condition, or if any inspection of the goods was to be done in order to determine the condition thereof, the same should have been done at pier-side, the pier warehouse, or at any time and place while the arrastre operator. Unfortunately for petitioner, even as one of the three vans was inspected and stripped, the two other vans were not similarly gone over. Rather, these two vans and the contents of the one previously stripped were accepted without exception as to any supposed bad order or condition by petitioner’s own broker. To all appearances, therefore, the shipment was accepted by petitioner in good order. It logically follows that, the case at bar presents no occa- sion for the necessity of discussing the diligence required of a carrier or the theory of prima facie liability of the carrier, since the shipment did not suffer loss or damage while it was under the care of the carrier, of the arrastre operator. Consider fur- ther that the stripping of the container was done at the con- signee’s warehouse where the loss was discovered. TABACALERA INSURANCE CoO. v. NORTH FRONT SHIPPING, INC. 272 SCRA 527, May 16, 1997 Bellosillo, J. FACTS: Sacks of corn grains valued at P3,500,640.00 were shipped on board a vessel owned by North Front Shipping Serv-COMMON CARRIERS a ‘Common Carrier of Goods ices, Inc. consigned to Republic Flour Mills Corporation (RFM) in Manila and insured with petitioner. The vessel was inspected prior to actual loading by representatives of the shipper and was found fit to carry the merchandise. The cargo was covered with tarpaulins and wooden boards. The hatches were sealed and could only be opened by representatives of RFM. When the cargo was eventually unloaded there was a shortage of 26.333 metric tons. The remaining merchandise was already moldy, rancid and deteriorating. RFM rejected the en- tire cargo and formally demanded from North Front Shipping Services, Inc., payment for the damages suffered by it. The demands however were unheeded, prompting petitioner to pay RFM. Petitioner sued for damages the North Front Shipping Service, Inc. HELD: The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills Corporation did not in any way convert the common carrier into a private carrier. We have already resolved this issue with finality in Planters Products, Inc. v. Court of Appeals (226 SCRA 476). North Front Shipping Services, Inc., is a corporation en- gaged in the transporting of cargo and offers its services in- discriminately to the public. It is without doubt a common car- rier. If therefore has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo. The carrier failed to volunteer any explanation why there was spoilage and how it occurred. On the other hand, it was shown during the trial that the veasel had rusty bulkheads and the wooden boards and tarpaulins bore heavy concentration of molds. The tarpaulins used were not new, contrary to the claim of North Front Shipping Services, Inc., as there were already several patches on them, hence, making it highly probable for water to enter. Laboratory analysis revealed that the corn grains were contaminated with salt water. The carrier failed to rebut all these arguments. It did not even endeavor to establish that the loss, destruction or deterioration of the goods was due to the causes mentioned under Art. 1734. This is a closed list. If the cause of destruction, loss or deterioration is other than the48 THE LAW ON TRANSPORTATION enumerated circumstances, then the carrier is rightly liable therefor. However, we cannot attribute the destruction, loss or de- terioration of the cargo solely to the carrier. We find the con- signee Republic Flour Mills Corporation guilty of contributory negligence. It was seasonably notified of the arrival of the barge but did not immediately start the unloading operations. No explanation was proffered by the consignee as to why there was a delay of six (6) days. Had the unloading been commenced immediately, the loss could have been completely avoided or at least minimized. As testified to by the chemist who analyzed the corn samples, the mold growth was only at its incipient stage and could still be arrested by drying. The corn grains were not yet toxic or unfit for consumption. For its contribu- tory negligence, Republic Flour Mills Corporation should share at least 40% of the loss. Respondent North Front is ordered to pay petitioners Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc., and New Zealand Insurance Co. Ltd., P1,303,660.00 which is 60% of the amount paid by the insurance companies to RFM, plus interest at the rate of 12% per annum from the time this judgment becomes final until full payment. CALVO v. UCPB GENERAL INSURANCE TERMINAL SERVICES, INC. G.R. No. 148496, March 19, 2002 Mendoza, J. FACTS: (Supra) HELD: Petitioner Calvo, owner of Transorient Container Ter- minal Services, Inc. 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. Contrary to petitioner’s assertion, the Survey Report of the Marine Cargo Surveyors indicates that when the shipperCOMMON CARRIERS 49 Common Carrier of Goods 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 ei- ther with regard to the condition of container vans or their contents. On July 23, 1990, shipment housed onto 30' x 20' cargo containers was (withdrawn) by Transorient Container Services, Inc. without exception. From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre, Marina Port Services, Inc., in good order and condition as evidenced by clean Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a report to that effect made by the arrastre operator. The cargoes were with- drawn by the defendant-appellant from the arrastre still in good order and condition as the same were received by the former without exception, that is, without any report of dam- age or loss. Surely, if the container vans were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately to the consignee or make an exception on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these took place. To put it simply, the de- fendant-appellant received the shipment in good order and condition and delivered the same to the consignee damaged. We can only conclude that the damages to the cargo oc- curred while it was in the possession of the defendant-appel- lant. Whenever the thing is lost (or damaged) in the posses- sion 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 pre- sumption and the presumption of negligence attached to a com- mon carrier in case of loss or damage to the goods. C. Exemption from liability 1. Natural disaster Art. 1734(1), NCC. (1) Flood, storm, earthquake, lightning, or other natu- ral disaster or calamity;xxx xxx XXX50 THE LAW ON TRANSPORTATION TAN CHIONG SIAN v. YNCHAUSTI & CO. 22 Phil. 152, March 18, 1912 Torres, J. FACTS: The defendant received in Manila from Ong Bieng Siap, bundles and cases of goods to be conveyed by the steamer Sorsogon to Gubat, Sorsogon where they were to be transhipped to another vessel of the defendant for transportation to Catarman, Samar, then to be delivered to a Chinese shipper with whom the defendant made a shipping contract. The steamer Sorsogon arrived at Gubat with the goods, and as the lorcha Pilar was not yet there, the goods were unloaded and stored in the defendants warehouse. Several days later, the lorcha Pilar arrived and the goods were taken aboard. Before Pilar could leave for its destination, a storm arose from the Pacific passing Gubat and driving Pi- lar and its cargo upon the shore and wrecked it. The laborers of the defendant proceeded to gather up the merchandise of the plaintiff, and as it was impossible to preserve it, it was sold at public auction for P1,693.37. Plaintiff filed an action for dam- ages of P20,000. Lower court decided that plaintiff was enti- tled only to P14,642.63. Defendant appealed. HELD: Pilar was stranded and wrecked on the coast of Gubat as a result of a violent storm from the Pacific, and that the loss or damage of the goods was due to force majeure which caused the wreckage of said craft. According to Art. 361 of the Code of Commerce “merchandise shall be transported at the risk and venture of the shipper, unless the contrary be expressly stipu- lated.” No such stipulation appears on record, therefore, all damages and impairment suffered by the goods by reason of accident, force majeure or by virtue of the nature or defect of articles are for the account and risk of the shipper. Defendant, therefore, is not liable for the damage occasioned as a result of the stranding of Pilar because of the hurricane that over- took it. The record discloses that Pilar was manned by an expe- rienced patron and a sufficient number of crewmen plus the fact that it was fully equipped. The crewmen took all the pre- cautions that any diligent man should have taken whose duty it was to save the boat and its cargo, and by the instinct of self- preservation, of their lives.COMMON CARRIERS 51 Common Carrier of Goods Considering, therefore, the conduct of the men of the de- fendant in Pilar and of its agents during the disaster, the de- fendant has not incurred any liability whatsoever for the loss of the goods, inasmuch as such loss was the result of a fortui- tous event or force majeure, and there was no negligence or lack of care or diligence on the part of the defendant or its agent. Judgment REVERSED. G. MARTINI, LTD. v. MACONDRAY & CO. 39 Phil. 934, July 28, 1919 Street, J. FACTS: The plaintiff arranged with defendant for the ship- ment of chemical products from Manila to Kobe, Japan. Plain- tiff discovered that the bills of lading contained the words “on deck at the shippers risk.” Two letters were sent by the plain- tiff to defendant to protest, stating that “we must hold you responsible for any loss.” Defendant received these letters and informed the plaintiff that if it is dissatisfied, the cargo could be discharged. Plaintiff did not order its discharge. The goods were embarked at Manila and were carried to Kobe on the deck of the ship. Upon arrival, it was found that the chemicals had suffered damage from the effects of both fresh and salt water. Plaintiff instituted en action for damages. Lower court decided for the plaintiff. Defendant appealed. HELD: Although the plaintiff would have greatly preferred for the cargo to be carried under the hatches, they nevertheless consented for it to go on deck. If attentive to their interest, the plaintiff must have known the tenor of the guaranty to which their signature is affixed that defendant had reserved the right to carry it on deck, and when the bills of lading were delivered to them they plainly showed that the cargo would be so car- ried. It must, therefore, be considered that the plaintiff was duly affected with notice as to the manner in which the cargo was shipped. No complaint however, was made until after the bills of lading had been negotiated. The result is that the plain- tiff must be held to have assented to the shipment of the cargo on deck and that they were bound by the bills of lading in the form in which they were issued.52 THE LAW ON TRANSPORTATION Where cargo is, with owners consent, transported on the deck of a sea-going vessel upon a bill of lading exempting the carrier from liability for damage, the risk of any damage re- sulting from carriage on deck, such as damage caused by rain or the splashing aboard of sea water, must be borne by the owner of the cargo. Defendant is not liable. Judgment REVERSED. EASTERN SHIPPING LINES, INC. v. LAC 150 SCRA 463, May 29, 1987 Melencio-Herrera, J. FACTS: These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo. HELD: Common carriers are responsible for the loss, destruc- tion, or deterioration of the goods unless the same is due to any of the following causes only (Art. 1734, Civil Code). “(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; x x x” The Carrier claims that the loss of the vessel by fire ex- empts it from liability under the phrase “natural disaster or calamity.” However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means. It does not fail within the category of an act of God unless caused by lightning or by other natural disaster or ca- lamity. It may even be caused by the actual fault or privity of the carrier. As the peril of fire is not comprehended within the excep- tions in Article 1734, supra, Article 1735 of the Civil Code pro- vides that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law. The respective Insurers, as subrogees of the cargo ship- pers, have proven that the transported goods have been lost. Petitioner Carrier has also proven that the loss was caused by fire. The burden then is upon Petitioner Carrier to prove thatCOMMON CARRIERS 63 Common Carrier of Goods it has exercised the extraordinary diligence requit which it failed to do. igonce required By law, And even if fire were to be considered a “natural disas- ter” within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the “natu- ral disaster” must have been the “proximate and only cause of the loss,” and that the carrier has “exercised due diligence to prevent or minimize the loss before, during or after the occur- rence of the disaster.” This Petitioner Carrier has also failed to establish satisfactory. Nor may Petitioner Carrier seek refuge from liability Under the Carriage of Goods by Sea Act. It is provided therein ti “Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from: XxX XXX EXX ‘(b) Fire, unless caused by the actual fault or priv- ity of the carrier.” Both the Trial Court and the Appellate Court, in effect, found, as fact, that there was “actual fault” of the carrier shown by “lack of diligence” in that “when the smoke was noticed, the fire was already big that the fire must have started twenty- four (24) hours before the same was noticed;” and that “after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage.” The circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its serv- ants were negligent in connection therewith. The complete defense affirmed by the COGSA when logs results from fire is unavailing to Petitioner Carrier. EASTERN SHIPPING LINES, INC. v. CA 196 SCRA 570, April 30, 1991 Gancayco, J. FACTS: Thirteen coils of uncoated wire strand were shipped on board the vessel owned by Eastern Shipping Lines, Inc. at Kobe, Japan for delivery to the Philippines as evidenced by a Bill of Lading. On September 16, 1978, the carrying vessel ar- rived in Manila and discharged the cargo to the custody of E.THE LAW ON TRANSPORTATION Razon, Inc. from whom the consignee’s customs broker received it for delivery to the consignee’s warehouse. It appears that while enroute from Kobe to Manila, the carrying vessel encoun- tered very rough seas and stormy weather for three days, more or less, which caused it to roll and pound heavily. Upon survey conducted at the consignee’s warehouse, it was discovered that the wetting of the cargo was caused by fresh water that entered the hatch when the vessel encountered heavy weather enroute to Manila. The thirteen coils were ex- tremely rusty and totally unsuitable for the intended purpose. HELD: Petitioner Eastern Shipping claims it should not be held liable as the shipment was discharged and delivered com- plete into the custody of the arrastre operator under clean tally sheets. While it is true the cargo was delivered to the arrastre operator in apparent good order condition, it is also undisputed that while en route from Kobe to Manila, the vessel encoun- tered “very rough seas and stormy weather.” The heavy seas and rains referred to in the master’s re- port were not caso fortuito, but normal occurrences that an ocean-going vessel, particularly in the month of September which, in our area, is a month of rains and heavy seas would encounter as a matter of routine. They are not unforeseen nor unforeseeable. These are conditions that ocean-going vessels would encounter and provide for, in the ordinary course of a voyage. That rain water (not sea water) found its way into the holds at the Jupri Venture is a clear indication that care and foresight did not attend the closing of the ship’s hatches so that rain water would not find its way into the cargo holds of the ship. Since the carrier had failed to establish any caso fortuito, the presumption by law of fault or negligence on the part of the carrier applies; and the carrier must present evidence that it has observed the extraordinary diligence required by Article 1733 of the Civil Code in order to escape liability for damage or destruction to the goods that it had admittedly carried in this case. No such evidence exists of record. Thus, the carrier cannot escape liability. Petition DISMISSED.COMMON CARRIERS 55 Common Carrier of Goods DELSAN TRANSPORT LINES, INC. v. CA G.R. No. 127897, November 15, 2001 De Leon, Jr., J. FACTS: Caltex Philippines entered into a contract of affreight- ment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. HELD: Petitioner attributes the sinking of MT Maysun to for- tuitous event or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respec- tively of the ill-fated vessel, it appears that a sudden and un- expected change of weather condition occurred in the early morning of August 16, 1986; that at around 3:15 o'clock in the morning a squall (“unos”) carrying strong winds with an ap- proximate velocity of 30 knots per hour and big waves averag- ing eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. This tale of strong winds and big waves by the said offic- ers of the petitioner however, was effectively rebutted and be- lied by the weather report from the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), the independent government agency charged with monitoring weather and sea conditions, showing that from 2:00 o'clock to 8:00 o'clock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, petitioner's vessel, MT Maysun, sank with its en- tire cargo for the reason that it was not seaworthy. There was56 THE LAW ON TRANSPORTATION no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank. Neither may petitioner escape liability by presenting in evidence certificates that tend to show that at the time of dry- docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As cor- rectly observed by the C.A.: “At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness trig- gered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to their pro- bative value, (thus): Seaworthiness relates to a vessel's actual condition. Nei- ther the granting of classification or the issuance of certificates establishes seaworthiness (2-A Benedict on Admiralty, 7-3, Sec. 62).” Additionally, the exoneration of MT Maysun’s officers and crew by the Board of Marine Inquiry merely concerns their re- spective administrative liabilities. It does not in any way op- erate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary dili- gence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the deter- mination of which properly belongs to the courts. Petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier oc- casioned by the unexplained sinking of its vessel, MT Maysun, while in transit. Art. 1739. NCC. 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 com- mon carrier may be exempted from liability for the loss, de-COMMON CARRIERS 87 Common Carrier of Goods struction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in Article 1734, No. 2. ARADA v. CA 210 SCRA 624, July 1, 1992 Paras, J. FACTS: Petitioner Alejandro Arada operates the South Negros Enterprises which was engaged in small scale, shipping busi- ness. It entered into a contract with San Miguel Corporation to transport cargoes of the latter from San Carlos City to Mandaue City. Arada’s vessel sank after encountering a ty- phoon. SMC's cargoes were lost. HELD: 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 minimized the loss before, during and after the occurrence of the flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the destruction or deterioration of the goods (Art. 1739, New Civil Code). Babao knew of the impending typhoon on March 24, 1982 when the Philippine Coast Guard denied him the issuance of aclearance to sail. Less than 24 hours, having elapsed, a clear- ance was finally issued on March 25, 1982. Records show the Babao did not ascertain where the ty- phoon was headed by the use of his vessel’s barometer and radio. Neither did he monitor and record the weather condi- tions everyday as required by Art. 612 of the Code of Commerce. Had he done so, he could have anticipated the strong winds and big waves and taken shelter. Furthermore, the crew of M/L Maya did not have the qualifications provided for in P.D. No. 97 or the Philippine Merchant Marine Officers Law, all of whom were unlicensed. While it is true that they were given special permit to man the vessel, such permit was issued at the risk and responsibility of the owner. Therefore, Arada is liable to SMC for the cargoes lost.58 THE LAW ON TRANSPORTATION PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. v. MCG MARINE SERVICES, INC. G.R. No. 135645, March 8, 2002 Kapunan, J. FACTS: This petition for review seeks the reversal of the De- cision of the Court of Appeals which absolved private respond- ents MCG Marine Services, Inc. and Doroteo Gaerlan of any liability regarding the loss of the cargo belonging to San Miguel Corporation due to the sinking of the M/V Peatheray Patrick- G owned by Gaerlan with MCG Marine Services, Inc., as agent. Petitioner paid SMC the full amount of P5,836,222.80 representing the value of the beer bottles that sank with the vessel. As subrogee, petitioner filed with the RTC a case for collection against respondents to recover the amount it paid to SMC. ISSUES: Whether the loss of the Cargo was due to the occur- rence of a natural disaster, and if so, whether such natural disaster was the sole and proximate cause of the loss. HELD: It was adequately shown that before the M/V Peatheray Patrick-G left the port of Mandaue City, the Captain confirmed with the Coast Guard that the weather condition would per- mit the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he could not be expected to have foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves which caused the vessel to list, keel over, and conse- quently lost the cargo contained therein. The appellate court likewise found that there was no negligence on the part of the crew of the M/V Peatheray Patrick-G citing the decision of the Board of Marine Inquiry. Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3, 1987 was shown to be the proximate and only cause of the sinking of the M/V Peatheray Patrick-G and the loss of the cargo belonging to San Miguel Corporation, private respondents cannot be held liable for the said loss. Decision AFFIRMED.COMMON CARRIERS 59 Common Carrier of Goods Art. 1740, NCC. If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility. PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. v. CA 222 SCRA 155, May 17, 1893 Padilla, J. FACTS: Davao Union Marketing Corporation shipped on board MY “Crazy Horse” operated by Transpacific Towage, Inc. cargo consisting of GI sheets and union Portland Cement. The cargo was consigned to Bicol Union Center of Pasacao, Camarines Sur, with Pedro Olivan as “notify-party.” The cargo was insured by the Philippine American General Insurance, Co. A month after the arrival of the cargo at the port of Pasacao, a super typhoon hit the town at storm signal no. 3. The discharging of the cargo was thus suspended. The ship- master ordered the vessel to be moved about 300 meters sea- ward in order that it would not hit the catwalk, or bridge, or wharf or the rocks. The vessel's lines snapped, causing her to be dragged against the rocks, by which the vessel sustained holes and the engine broke down. The shipmaster had no choice but to order the ship to be abandoned. The total number of cement bags damaged and/or lost was 26,424, while there were 4,000 pieces of GI sheets unrecovered. Because the cargo was insured by it the Philippine American General Insurance Co., Inc. paid the shipper the sum of P1,511,210. Thereafter, said insurer made demands upon Transpacific Towage, Inc., for the payment of said amount as subrogee of the insured. Since the latter refused to pay, peti- tioner filed a complaint. HELD: While it is true that there was a delay in discharging the cargo from the vessel, the parties could not be faulted for the delay, for the delay was due not to negligence but to sev- eral factors, to wit: first, the bouys were installed only on Sep- tember 11, 1985, the fourth day after the arrival of the cargo; second, the consignee secured the discharge permit only on September 13 third, a catwalk and wharf extension had to be made which was completed only on September 16, 1985; fourth, there were intermittent rains.60 THE LAW ON TRANSPORTATION The cargo having been lost due to typhoon “Saling” and the delay incurred in unloading not being due to negligence, private respondent is exempt from liability for the loss of the cargo, pursuant to Article 1740 of the Civil Code. The records also show that before, during and after the occurrence of typhoon “Saling,” private respondent through its shipmaster exercised due diligence to prevent or minimize the loss of the cargo, as shown by the following facts: (1) at 5:20 a.m. of 18 October 1985, as typhoon “Saling continued to bat- ter the Pasacao, area, the shipmaster tried to maneuver the vessel amidst strong winds and rough seas; (2) when water started to enter the engine room and later the engine broke down, the shipmaster ordered the ship to be abandoned, but he sought police assistance to prevent pilferage of the vessel and its cargo; (3) after the vessel broke into two (2) parts and sank partially, the shipmaster reported the incident to the Philippine Coast Guard, but unfortunately, despite the pres- ence of three coast guards, nothing could be done to stop the pilferage as almost the entire barrio folk came to loot the ves- sel and its cargo, including the G.I. sheets. 2. Act of public enemy Art. 1734(2), NCC. (2) Act of the public enemy in war, whether interna- tional or civil; x x x Art. 1739, NCC. 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 com- mon carrier may be exempted from liability for the loss, de- struction, deterioration of the goods. The same duty is incum- bent upon the common carrier in case of an act of the pub- lic enemy referred to in Article 1834, No. 2. 3. Act of shipper Art. 1734(3), NCC. (3) Act or omission of the shipper or owner of the goods;COMMON CARRIERS 61 Common Carrier of Goods Art. 1741, NCC. if the shipper or owner merely contrib- uted to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the com- mon carrier, the latter shall be liable in damages, which how- ever, shall be equitably reduced. COMPANIA MARITIMA v. CA 164 SCRA 685, August 29, 1988 Fernan, C.J. FACTS: Vicente E. Concepcion shipped his construction equip- ment consisting of one (1) unit payloader, four (4) units 6 x 6 Reo trucks and two (2) pieces of water tanks to Cagayan de Oro City aboard the M/V Cebu of Compania Maritima. The Reo trucks and water tanks were safely unloaded within a few hours after arrival in Cagayan de Oro. While unloading the payloader, the swivel pin of the heel block of the port block of Hatch No. 2 gave way, causing the payloader to fall and was damaged. ISSUE: Whether or not the act of Concepcion in furnishing Compania Maritima with an inaccurate weight of 2.5 tons in- stead of the payloader’s actual weight of 7.5 tons was the proxi- mate and only cause of the damage on the Payloader when it fell while being unloaded by petitioner's crew, as would abso- lutely exempt petitioner from liability for damages under para- graph 3 of Article 1734 of the Civil Code. HELD: The fact is that petitioner Compania Maritima used a 6-ton capacity lifting apparatus to lift and unload a visibly heavy cargo like a payloader. Concepcion has, likewise, suffi- ciently established the laxity and carelessness of petitioner's crew in their methods of ascertaining the weight of heavy car- goes offered for shipment before loading and unloading them, as in customary among careful persons. While petitioner has proven that Concepcion did furnish it with an inaccurate weight of the payloader, petitioner is nonetheless liable, for the damage caused to the machinery could have been avoided by the exercise of reasonable skill and attention on its part in overseeing the unloading of such a heavy equipment.62 THE LAW ON TRANSPORTATION Acknowledging that there was a “jumbo” in the M/V Cebu which has the capacity of lifting 20 to 25 tons cargoes, the boom operator of Compania Maritima chose not to use it, because ac- cording to him, since the ordinary boom has a capacity of 5 tons while the payloader was only 2.5 tons, he did not bother to use of the “jumbo” anymore. While the act of Conception in furnishing petitioner with an inaccurate weight of the payloader cannot successfully be used as an excuse by petitioner to avoid liability for the dam- age thus caused, said act constitutes a contributory circum- stance to the damage caused on the payloader, which mitigates the liability for damages of petitioner in accordance with Arti- cle 1741 of the Civil Code. 4. Character of Goods Art. 1734(4), NCC. (4) The character of the goods or defects in the pack- ing or in the containers; Art. 1742, NCC. Even if the loss, destruction, or deterio- ration of the goods should be caused by the character of the goods, or the faulty nature of the packing or of the contain- ers, the common carrier must exercise due diligence to fore- stall or lessen the loss. GOVERNMENT OF THE PHILS. v. YNCHAUSTI & CO. 40 Phil. 219, September 29, 1919 Johnson, J. FACTS: The plaintiff shipped roofing tiles from Manila to Noilo on the vessel of the defendant. The tiles were delivered to the consignee at Iloilo who found out that some of the tiles had been damaged. Defendant proved, without dispute from the plaintiff, that there was no negligence on its part, the tiles being discharged by handlabor not by mechanical device. Lower court absolved the defendant from all liability. Plaintiff appealed. HELD: The defendant, to free itself from liability, was only obliged to prove that the damage suffered by the tiles were byCOMMON CARRIERS 63 Common Carrier of Goods virtue of the nature or defect of the articles. The Plaintiff, to hold the defendant liable, was obliged to prove that the dam- age to the titles, by virtue of their nature, occurred on account of the defendant’s negligence or because the latter did not take precaution usually adopted by careful persons. The defendant proved, and the plaintiff did not attempt to dispute, that the tiles were of a brittle and fragile nature and that they were delivered to the defendant without any packing or protective covering. The plaintiff, not having proved negligence on the part of the defendant, is not entitled to re- cover damages. Judgment AFFIRMED. SOUTHERN LINES, INC. v. CA 4 SCRA 258, January 31, 1962 De Leon, J. FACTS: The City of Iloilo requisitioned for rice from NARIC. Pursuant to such order, NARIC shipped 1,726 sacks of rice on board a vessel of petitioner Southern Lines, Inc. Each sack weighed 75 kilograms and the shipment had a total weight of 129,450 kilograms. According to the bill of lading, the cost of shipment was P63,115.50. The City of Iloilo received the ship- ment and paid the amount. However, at the foot of the bill of lading was noted that the merchandise was received in the same condition as shipped save that it actually received 1,685 sacks or with a total shortage of 41 sacks valued at P6,486.35. The City of Iloilo filed an action against the petitioner and NARIC for the recovery of the amount representing the short- age. Petitioner claims exemption from liability contending that the shortage in the shipment was due to such factors as shrink- age, leakage or spillage of the rice on account of the bad condi- tion of the sacks at the time it received the same. HELD: Under Art. 361 of the Code of Commerce, the carrier, in order to free itself from liability, was only obliged to prove that the damage suffered by the goods were by virtue of de- fects of the articles. Under Art. 362 of the Code of Commerce, the plaintiff in order to hold the carrier liable was obliged to prove that the damage to the goods by virtue of their nature,THE LAW ON TRANSPORTATION occurred on account of the carrier’s negligence or because the carrier did not take the precaution adopted by careful persons. The petitioner’s (Southern Lines, Inc.) contention is un- tenable, for if the fact of improper packing is known to the carrier or its servants of apparent upon ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved of liability or loss or injury resulting therefrom. Furthermore, the petitioner itself frankly, admitted that the strings tying the bags of rice were spilled inside the hull of the vessel, and that the boat personnel collected 26 sacks of rice which they distributed among themselves. This shows that the shortage resulted from the negligence of the petitioner. The petitioner is, therefore, liable and the City of Doilo is entitled to a refund of the amount paid in excess. Judgment AFFIRMED. CALVO vs. UCPB GENERAL INSURANCE TERMINAL SERVICES, INC. G.R. No. 148496, March 19, 2002 Mendoza, J. HELD: Nor is there basis to exempt petitioner carrier from li- ability under Art. 1734(4), which provides — Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (4) The character of the goods or defects in the packing or in the containers. For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known to the carrier or his employees or apparent upon ordi- nary observation, but he nevertheless accepts the same with- out protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting therefrom. In this case, petitioner accepted the cargo without excep- tion despite the apparent defects in some of the container vans.COMMON CARRIERS 65 Common Carrier of Goods Hence, for failure of petitioner to prove that she exercised ex- traordinary diligence in the carriage of goods in this case or that she is exempt from liability, the presumption of negligence as provided under Art. 1735 holds. BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. v. PHILIPPINE FIRST INSURANCE CO., INC. GR. No. 143133, June 5, 2002 Panganiban, J. FACTS: On June 13, 1990, CMC Trading A.G. shipped on board the M/V ‘Anangel Sky’ at Hamburg, Germany 242 coils of vari- ous Prime Cold Rolled Steel sheets for transportation to Ma- nila 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, and the consignee declared the same as total loss. HELD: 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 (Art. 1742). Having been in the serv- ice 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. 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 un- dertaken precautionary measures to avoid possible deteriora- tion of the cargo. But none of these measures was taken. Hav- ing failed to discharge the burden of proving that they have exercised the extraordinary diligence required by law, petition- ers cannot escape liability for the damage to the four coils. 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.66 THE LAW ON TRANSPORTATION From the evidence on record, it cannot be reasonably con- cluded that the damage to the four coils was due to the condi- tion noted on the Bill of Lading. The aforecited exception re- fers to cases when goods are lost or damaged while in transit as a result of the natural decay of perishable goods or the fer- mentation 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 propensi- ties of animals. 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 ob- servation, it is not relieved of liability for loss or injury result- ing therefrom, once it accepts the goods notwithstanding such condition. Thus, petitioners have not successfully proven the application of any of the aforecited exceptions in the present case. 5. Order of competent authority (5) Order or act of competent authority. Art. 1743, NCC. If through the order of public authority the goods are seized or destroyed, the common carrier is not responsible, provided said public authority had power to issue the order. Art. 1744(5), NCC. GANZON v. CA 161 SCRA 646, May 30, 1988 (infra) FACTS: (see infra) HELD: Petitioner Ganzon has failed to show that the loss of the scraps was due to any of the causes enumerated in Article 1734 of the Civil Code. We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that the loss of the scraps was due to an “order or act of competent public authority,” and this contention was correctly passed upon by the Court of. Ap peals which ruled that:COMMON CARRIERS 67 Common Carrier of Goods “It must be shown that Acting Mayor Basilio Rub had the power to issue the disputed order, or that it was lawful, or that it was issued under legal process of author- ity. The appellee failed to establish this. x x x. “The order given by the acting mayor to dump the scrap iron into the sea was part of the pressure applied by Mayor Jose Advincula to shakedown appellant Tumambing for P5,000.00. The order of the acting mayor did not constitute valid authority for appellee Mauro Ganzon and representatives to carry out.” In any case, the intervention of the municipal officials was not of a character that would render impossible the fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover, there is absence of sufficient proof that the is- suance of the same order was attended with such force or in- timidation as to completely overpower the will of the petition- er’s employees. MELENCIO-HERRERA, J., dissenting. It is my view that petitioner cannot be held liable in dam- ages for the loss and destruction of the scrap iron. The loss of said cargo was due to an excepted cause — an “order or act of competent public authority” (Article 1734[5], Civil Code). The loading of the scrap iron on the lighter had to be sus- pended because of Municipal Mayor Jose Advincula’s interven- tion, who was a “competent public authority.” Petitioner had no control over the situation as in fact, Tamambing himself, the owner of the cargo, was impotent to stop the “act” of said official and even suffered a gunshot wound on the occasion. When loading was resumed, this time it was Acting Mayor Bazilio Rub, accompanied by three policeman, who ordered the dumping of the scrap into the sea right where the lighter was docked in three feet of water. Again, could the captain of the lighter and his crew have defied said order? Through the “order” or “act” of “competent public author- ity,” therefore, the performance of a contractual obligation was rendered impossible. The scrap iron that was dumped into the68 THE LAW ON TRANSPORTATION sea was “destroyed” while the rest of the cargo was “seized.” The seizure is evidenced by the receipt issued by Acting Mayor Rub stating that the Municipality of Mariveles had taken cus- tody of the scrap iron. Apparently, therefore the seizure and destruction of the goods was done under legal process or au- thority so that petitioner should be freed from responsibility. 6. Other Cases of Force Majeure QUISUMBING, SR. v. CA 189 SCRA 605, September 14, 1990 Narvasa, J. FACTS: The petitioners seek to recover from the Philippine Air- lines, Inc. the value of jewelry, other valuables and money taken from them by four (4) armed robbers on board one of the airplanes while on a flight from Mactan City to Manila, as well as moral and exemplary damages, attorney’s fees and expenses of litigation. HELD: The CFI rendered judgment dismissing plaintiffs com- plaint. The Court opined that since the plaintiffs did not no- tify defendant or its employees that they were in possession of the cash, jewelries, and the wallet they are now claiming, the very provision of law invoked by them, Article 1998 of the Civil Code, denies them any recourse against PAL. The Court also pointed out that — “x x x while it is true that the use of arms was not well taken advantage of by the robbers in gaining en- trance to defendant's ill-fated plane, the armed robbery that took place constitutes force majeure.” The CA affirmed the trial court’s judgment, observing that — “x x x hijackers do not board an airplane through a blatant display of firepower and violent fury. Firearms, hand grenades, dynamite, and explosives are introduced into the airplane surreptitiously and with the utmost cun- ning and stealth x x x” The CA also ruled that PAL could not be faulted for want of diligence, particularly for failing to take positive measuresCOMMON CARRIERS 69 Common Carrier of Goods to implement Civil Aeronautics Administration regulations prohibiting civilians from carrying firearms on board aircraft's and that the absence of coded transmissions, the allegedly open cockpit door, and the failure to return to Mactan, in the light of the circumstances of the case x x x, were not negligent acta sufficient to overcome the force majeure nature of the armed robbery. The Court went to say: “x x x it is illusive to assume that had these precau- tions been taken, the hijacking or the robbery would not have succeeded. The mandatory use of the most sophisti- cated electronic detection devices and magneteometers, the imposition of severe penalties the development of screening procedures, the compilation of hijacker behav- ioural profiles, the assignment of sky marshalls, and the weight of outraged world opinion may have minimized hijackings but all these have proved ineffective against truly determined hijackers.” The petition is DENIED and the appealed C.A. Decision is AFFIRMED. D. Duration of liability Art. 1736, NCC. The extraordinary responsibility of the common carrier lasts from the time the goods are uncondi- tionally placed in the possession of, and received by the car- rier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. Art. 1737, NCC. The common carrier's duty to observe extraordinary diligence in the vigilance over the goods re- mains in full force and effect even when they are temporar- ily unloaded or stored in transit, unless the shipper or owner has made use of the right of stoppage in transit. Art. 1738, NCC. The extraordinary liability of the com- mon carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has reasonable opportunity thereafter to remove them or otherwise dispose of them.70 THE LAW ON TRANSPORTATION COMPANIA MARITIMA v. INSURANCE Co. OF NORTH AMERICA 12 SCRA 213, October 30, 1964 Bautista, Angelo, J. FACTS: Macleod & Co. contracted, first by telephone and later confirmed by a formal written booking issued by Macleod & Co., the services of the petitioner Compania Maritima for the ship- ment of bales of hemp from Davao to Manila. Two lighters of the petitioner loaded said cargo from Mackeods wharf at Davao awaiting the arrival of another vessel of the petitioner for re- loading. One of the lighters sunk of which Macleod suffered a total damage of P64,018.55. Petitioner denied liability on the grounds that there was no bill of lading issued thereby result- ing to the non-existence of carriage contract, that the sinking was due to a fortuitous event and that the respondent has no personality. HELD: There was a complete contract of carriage the consum- mation of which has already begun when the shipper delivered the cargo to the carrier and the latter took possession of the same by placing it on a lighter manned by its authorized em- ployees, under which Macleod became entitled to the privilege secured to him by law. The responsibility of the carrier com- menced on the actual delivery to, or receipt by, the carrier or its authorized agent, of the goods. The barges or lighters were merely employed as the first step of the voyage. As to the issuance of a bill of lading, although Art. 350 of the Code of Commerce provides that the shipper as well as the carrier may mutually demand that a bill of lading be issued, it is not indispensable. As regards to the form of the contract of carriage, it can be said that provided there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to form. A bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations or as a condition imposed in the con- tract by the agreement of the parties themselves. The Code of Commerce does not demand, as a necessary requisite in the contract of transportation, the delivery of a bill of lading to the shipper, but gives the right to both the shipper and carrier to mutually demand of each other the delivery of said bill. Judgment against petitioner is AFFIRMED.COMMON CARRIERS n ‘Common Carrier of Goods LU DO v. BINAMIRA 101 Phil. 120, April 22, 1957 Bautista, Angelo, J. FACTS: Delta Company of New York shipped six cases of films and photographic supplies to Binamira. The ship arrived in Cebu and discharged her cargo, placing it in the custody of the arrastre operator appointed by the Bureau of Customs. The cargo was checked both by the stevedoring company and the arrastre operator and was found in good order. In the contract of carriage, however, it was stipulated that the carrier is no longer liable for the cargo upon its delivery to the hands of the customs authorities. The cargo was later delivered to Binamira and a marine surveyor found that some were missing valued at P324.63. Lower court held the carrier liable. HELD: While delivery of the cargo to the customs authorities is not delivery to the consignee or to the person who has a right to receive them as contemplated in Art. 1736, NCC because in such case the goods are still in the hands of the government and the owner cannot exercise dominion over them, however, the parties may agree to limit the liability of the carrier con- sidering that the goods have still to go through the inspection of the customs authorities before they are actually turned over to the consignee. These stipulations limiting liability is not contrary to morals or public policy. This is a situation where the carrier loses control of the goods because of a custom regulation and it is unfair that it be made responsible for any loss or damage that may be caused to the goods during the interregnum. Judgment REVERSED. SERVANDO v. PHIL. STEAM NAVIGATION CO. 117 SCRA 832, October 23, 1982 Escolin, J. FACTS: Clara Uy Bico and Amparo Servando loaded on board the Phil. Steam Navigation vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, cargoes of rice and colored paper as evidenced by the corresponding bills of lad- ing issued by the carrier.712 THE LAW ON TRANSPORTATION Upon arrival of the vessel at Pulupandan in the morning of November 18, 1963, the cargoes were discharged, complete and in good order, unto the warehouse of the Bureau of Cus- toms. At about 2:00 p.m. of the same day, said warehouse was razed by a fire of unknown origin, destroying Servando’s car- goes. HELD: The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of Customs is not the delivery contemplated by Article 1736; and since the burn- ing of the warehouse occurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable against the appellant. However, that in the bills of lading issued for the cargoes in question, parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to the ship- ment by inserting therein the following stipulation. “Clause 14. Carrier shall not be responsible for loss or damage to shipments billed “owner risk” unless such loss of damage is due to negligence of carrier. Nor shall carrier be responsible for loss or damage caused by force majeure, dangers or accidents of the sea or other waters; war; public enemies; x x x fire x x x.” We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or public policy. Appellees would contend that the above stipulation does not bind them because it was printed in fine letters on the back of the bills of lading; and that they did not sign the same. This argument overlooks the pronouncement of this Court in Ong Yiu us. Court of Appeals, 91 SCRA 224 (June 29, 1979): “While it may be true that petitioner had not signed the plane ticket (Exh. ‘12’) he is nevertheless bound by the provisions thereof. Such provisions have been held to be a part of the contract of carriage, and valid and bind- ing upon the passenger regardless of the latter's lack of knowledge or assent to the regulation.’ There is nothing in the record to show that appellant car- rier incurred in delay in the performance of its obligation nor that the cause of the fire that broke out in the Custom’s ware-COMMON CARRIERS 13 Common Carrier of Goods house was in anyway attributable to the negligence of the ap- pellant or its employees. Judgment against the carrier is SET ASIDE. SAMAR MINING CO., INC. v. NORDEUTSCHER LLOYD 132 SCRA 535, October 23, 1984 Cuevas, J. FACTS: The case arose from an importation made by plaintiff Samar Mining Company, Inc., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN, a ves- sel owned by defendant NORDEUTSCHER LLOYDS (repre- sented in the Philippines by its agent, C. F SHARP & CO., INC.), which shipment was covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival at the port of Manila, the importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. The goods were however never delivered to, nor received by, the consignee at the port of des- tination — Davao. Bill of lading, No. 18 sets forth in the page 2 thereof that the goods were received by NORDEUTSCHER LLOYD at the “port of loading” at Bremen, Germany, while the freight had been prepaid up to port of destination or the “port of discharge of goods” — Davao, the.carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN, only up to the “port of discharge from ship” — Manila. Thereafter, the goods were to be transhipped by the carrier to the port of destination or “port of discharge of goods.” Section 1, paragraph 3 of Bill of Lading No. 18, states: “The carrier shall not be liable in any capacity what- soever for any delay, loss or damage occurring before the goods enter ship’s tackle to be loaded or after the goods leave ship's tackle to be discharged, transhipped or for- warded x x x.” HELD: The validity of stipulations in bills of lading exempt- ing the carrier from liability for loss or damage to the goods74 THE LAW ON TRANSPORTATION when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before Us, provides. “The carrier shall not be liable in any capacity what- soever for any loss or damage to the goods while the goods are not in its actual custody. (Par. 2, last subpar.) Xxx xxx ~ XXX The carrier or master, in making arrangements with any person for or in connection with all transhipping or forward- ing of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof x x x (Par. 16.)” Finding the above stipulations not contrary to law, mor- als, good customs, public order or public policy, we sustained their validity. A careful perusal of the provisions of the New Civil Code on common carriers directs our attention to Articles 1736 and 1738. There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transhipment to their port of desti- nation, and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsi- bility for loss or damage of the goods upon actual or construc- tive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. There is actual delivery in contracts for the transport of goods when posses- sion has been turned over to the consignee or to his duly au- thorized agent and a reasonable time is given him to removeCOMMON CARRIERS % Common Carrier of Goods the goods. The court a quo found that there was actual deliv- ery to the consignee through its authorized agent, the carrier. Two undertakings appeared embodied and/or provided for in the Bill of Lading in question. The first is for the transport of goods from Bremen, Germany to Manila. The second, THE TRANSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. At the hiatus between these two undertakings of appel- lant Nordeutscher Lloyd which is the moment when the sub- ject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant’s possession also changes, from posses- sion in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant as erstwhile carrier, ceases to be respon- sible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as ap- plied to the case before Us. The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipula- tions of Bill of Lading No. 18 and in conformity with the pro- visions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question. Decision reversed, Complaint DISMISSED. GANZON v. CA 161 SCRA 646, May 30, 1988 Sarmiento, J. FACTS: Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT “Bat- man.” Ganzon then sent his lighter “Batman” to Mariveles where it docked. On December 1, 1956, Gelacio Tamambing delivered the ecrap iron to defendant Filomeno Niza, captain of the lighter,76 THE LAW ON TRANSPORTATION for loading which was actually began on the same date by the crew of the lighter. When about half of the scrap iron was already loaded, Mayor Jose Advincula of Mariveles, Bataan, arrived and de- manded P5,000.00 from Tumambing. The latter resisted the shakedown and after a heated ar- gument, Mayor Advincula drew his gun and fired at Tumambing. The gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment. After sometime, the loading of the scrap iron was re- sumed. But on December 4, 1956, Acting Mayor Basillo Rub, accompanied by the three policemen, ordered Captain Filomeno Niza and his crew to dump the scrap iron where the lighter was docked. The rest was brought to the compound of NASSCO. Act- ing Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken custody of the scrap iron. HELD: Petitioner Ganzon insists that the scrap iron had not been unconditionally placed under his custody and control to make him liable. However, he completely agrees with the re- spondent Court’s finding that on December 1, 1956, the private respondent delivered the scraps to Captain Niza for loading in the lighter “Batman.” That the petitioner, thru his employees, actually received the scraps is freely admitted. By the said act of delivery, the scraps were uncondition- ally placed in the possession and control of the common car- rier, and upon their receipt by the carrier for transportation, the contract of carriage was deemed perfected. Consequently, the petitioner-carrier’s extraordinary responsibility for the loss, destruction, or deterioration of the goods commenced. Pursuant to Art. 1738, such extraordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee, or to the person who has a right to receive them. The fact that part of the shipment had not been loaded on board the lighter did not impair the said contract of transportation as the goods remained in the custody and con- trol of the carrier, albeit still unloaded.COMMON CARRIERS 7 Common Carrier of Goods MACAM v. CA 313 SCRA 77, August 25, 1999 Bellosillo, J. FACTS: Petitioner Benito Macam shipped on board the vessel Nen Jiang, through local agent respondent Wallem Philippines Shipping, Inc. watermelons valued at US$5,950.00 and fresh mangoes valued at US$14,273.46. The shipment was bound for Hongkong with PAKISTAN BANK as consignee and Great Prospect Company of Kowloon, Hongkong (GPC) as notify party. Petitioner's depository bank, Consolidated Banking Corpora- tion (SOLIDBANK) paid petitioner in advance the total value of the shipment of US$20,223.46. Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not to PAKISTAN BANK, and without the required bill of lading having been sur- rendered. Subsequently, GPC failed to pay PAKISTAN BANK such that the latter, still in possession of the original bills of lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK already pre-paid petitioner the value of the ship- ment, it demanded payment from respondent WALLEM but was refused. Petitioner returned the amount involved to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail. Henee, petitioner sought collection of the value of the ship- ment of US$20,223.46 from respondents before the RTC of Manila, based on delivery of the shipment to GPC without pres- entation of the bills of lading and bank guarantee. HELD: Under Art. 1736 of the Civil Code, the extraordinary responsibility of the common carriers lasts until actual or con- structive delivery of the cargoes to the consignee or to the per- son who has a right to receive them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC was the notify party. However, in the export invoices GPC was clearly named as buyer/importer. Petitioner also referred to GPC as such in his demand letter to respondent WALLEM and in his complaint before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as buyer/ importer which, conformably with Art. 1736 had, other than the consignee, the right to receive them was proper.78 THE LAW ON TRANSPORTATION The real issue is whether respondents are liable to peti- tioner for releasing the goods to GPC without the bills of lad- ing or bank guarantee. From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer for around two (2) or (3) years already. When mangoes and watermelons are in season, his shipment to GPC using the facilities of respond- ents is twice or thrice a week. The goods are released to GPC. It has been the practice of petitioner to request the shipping lines to immediately release perishable cargoes such as water- melons and fresh mangoes through telephone calls by himself or his “people.” In transactions covered by a letter of credit, bank guarantee is normally required by the shipping lines prior to releasing the goods. But for buyers using telegraphic trans- fers, petitioner dispenses with the bank guarantee because the goods are already fully paid. In his several years of business relationship with GPC and respondents, there was not a sin- gle instance when the bill of lading was first presented before the release of the cargoes. The CA decision dismissing Macam’s complaint is AF- FIRMED. Agreement limiting liability 1. As to diligence required Art, 1744, NCC. A stipulation between the common car- rier and the shipper or owner limiting the liability of the former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided it be: (1) In writing, signed by the shipper or owner; (2) Supported by a valuable consideration other than the service rendered by the common carrier; and (3) Reasonable, just and not contrary to public policy. Art. 1745, NCC. Any of the following or similar stipula- tions shall be considered unreasonable, unjust and contrary to public policy:COMMON CARRIERS 9 Common Carrier of Goods () That the goods are transported at the risk of the owner of shipper; (2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods; (8) That the common carrier need to observe any dili- gence in the custody of the goods; (4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary prudence in the vigilance over the movable transported; (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 commit- ted by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or di- minished; (7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage. HOME INSURANCE CO. v. AMERICAN STEAMSHIP AGENCIES 23 SCRA 24, April 4, 1968 Bengzon, J.P., J. FACTS: A Peruvian firm shipped fishmeal through the SS Crowborough consigned to the San Miguel Brewery and insured by the Home Insurance Co. The cargo arrived with shortages. San Miguel Brewery demanded payment of said shortages and Home Insurance Co. paid P14,000 in settlement of said de- mand. Home Insurance Co. then filed an action for recovery of said amount from Luzon Stevedoring Co. and American Steam- ship Agencies. Trial court absolved Luzteveco but ordered American Steamship Agencies to reimburse P14,000 to Home Insurance Co., declaring that Art. 587 of the Code of Commerce makes the ship agent civilly liable for damages in favor of third per-80 THE LAW ON TRANSPORTATION sons due to the conduct of the carrier’s captain, and that the stipulation in the charter party exempting the owner of the ship from liability is against public policy under Art. 1744, NCC. American Steamship Agencies appealed. HELD: The stipulation in the charter party absolving the ship owner from liability for loss due to the negligence of its agent would be void only if strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of ship totally chartered for the use of a single party. The stipulation exempting the shipowner from liability for negligence of its agent is not against public policy and is deemed valid. Recovery cannot be had for loas or damage to the cargo against the shipowner un- less the same is due to personal acts or negligence of said ship- owner or its manager, as distinguished from agents or employ- ees. Judgment REVERSED. 2. As to amount of liability Art. 1749, NCC. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Art. 1750, NCC. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon. HELE. HEACOCK CO. v. MACONDRAY & CO. 42 Phil. 205, October 3, 1921 Johnson, J. FACTS: The plaintiff shipped Edmonton clocks from New York to Manila on board a vessel of the defendant. It was agreed in the bill of lading that the value of the goods receipted do not exceed US$500 per freight on or in proportion for any part of a ton, unless the value be expressly stated in the bill and freight paid. It was also agreed that in the event of claims for short-COMMON CARRIERS 81 Common Carrier of Goods age or damage the carrier shall not be liable for more than the net invoice price plus freight and insurance less charges, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on said basis. The clocks were not delivered despite demands. Plaintiff claimed P420.00, the market value of the clocks, while defend- ant tendered only P76.36, the proportionate freight ton value. Trial court decided for the plaintiff for P226.02, the invoice value plus freight and insurance. Both parties appealed. HELD: Three kinds of stipulations have often been made in a bill of lading. First, one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. Second, one providing for an unqualified limitation of such li- ability to an agreed valuation. Third, one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform weight for authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. A stipulation in a bill of lading which limits the liability of the carrier to a specified amount unless the shipper declares a higher value and pays a higher freight is valid and enforce- able. Thus, if a carrier gives to a shipper the choice for two rates, the lower of them conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the carrier’s negligence, if the shipper makes the choice under- standingly and freely, and names his valuation, he cannot thereafter recover more than the value which he thus places upon his property. Judgment AFFIRMED. EASTERN SHIPPING LINES, INC. v. LAC 150 SCRA 463 (supra) FACTS: (supra) HELD: Petitioner Carrier avers that its liability if any, should not exceed US$500 per package as provided in Section 4(5) of the COGSA, which reads:82 THE LAW ON TRANSPORTATION “(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding US$500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.” Article 1749 of the New Civil Code also allows the limi- tations of liability in this wise: “Art. 1749, A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.” It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per pack- age although the Code expressly permits a stipulation limit- ing such liability. Thus, the COGSA, which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the carrier's li- ability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as much a part thereof as though placed therein by agreement of the parties. In these cases there is no stipulation in the respective Bills of Lading limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier’s liability should not exceed US$500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case “more than the amount of damage actually sustained.” In respect of the shipment of 128 cartons of garment fab- rics in two (2) containers, the Appellate Court also limited Pe- titioner Carrier's liability to US$500 per package. However it multiplied 128 cartons (considered as COGSA packages) by US$500 to arrive at the figure of US$64,000.COMMON CARRIERS 83 Common Carrier of Goods We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit. SEA-LAND SERVICE, INC. v. IAC 153 SCRA 652, August 31, 1987 Narvasa, J. FACTS: Sea-Land, a foreign shipping and forwarding company licensed to do business in the Philippines, received from Sea- borne Trading Company in California a shipment consigned to Sen Hiap Hing, the business name used by Cue. The shipper not having declared the value of the shipment, no value was indicated in the bill of lading. The shipment was discharged in Manila, and while awaiting transhipment to Cebu the cargo was stolen and never recovered. The trial court sentenced Sea-Land to pay Cue P186,048 representing the Philippine currency value of the lost cargo, P55,814 for unrealized profit and P25,000 for attorney's fees. The CA affirmed the trial court. HELD: There is no question of the right of a consignee in a bill of lading to recover from the carrier or shipper for loss of, or damage to, goods being transported under said bill, although that document may have been drawn up only by the consignor and the carrier without the intervention of the consignee. Since the liability of a common carrier for loss of or dam- age to goods transported by it under a contract of carriage is governed by the laws of the country of destination and the goods in question were shipped from the United States to the Philippines, the liability of Sea-Land to Cue is governed pri- marily by the Civil Code, and as ordained by the said Code, suppletorily, in all matters not deterred thereby, by the Code of Commerce an special laws. One of these suppletory special laws is the Carriage of Goods by Sea Act (Public Act 521), made applicable to all contracts for the carriage of goods by sea to and from the Philippine Ports in Foreign Trade by Com. Act 65. Even if Sec. 4(5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of the liability limita- tion clause in the bill of lading here are fully sustainable on the basis alone of Articles 1749 and 1750 of the Civil Code. The84 THE LAW ON TRANSPORTATION justness of such stipulation is implicit in its giving the owner or shipper the option of avoiding accrual of liability limitation by the simple expedient of declaring the value of the shipment in the bill of lading. The stipulation in the bill of lading limiting Sea-Land’s liability for loss of or damage to the shipment covered by said bill to US$500 per package unless the shipper declares the value of the shipment and pays additional charges is valid and binding on Cue. CA judgment is REVERSED. CITADEL LINES, INC. v. CA 184 SCRA 544, April 25, 1990 Regalado, J. FACTS: Petitioner Citadel Line, Inc. (CARRIER) is the gen- eral agent of vessel “Cardigan Bay/Strait Enterprise,” while respondent Manila Wine Merchants, Inc. (CONSIGNEE) is the importer of the subject shipment of Dunhill cigarettes from England where 90 cases of which were missing. HELD: The award of damages in the amount of P312,800.00 for the value of the goods lost, based on the alleged market value thereof, is erroneous. It is clearly and expressly provided under Clause 6 of the bills of lading issued by the CARRIER that its liability is limited to US$2.00 per kilo. Basic is the rule, long since enshrined as a statutory provision, that a stipula- tion limiting the liability of the carrier to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Further, a contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or destruction of the goods is valid, if it is rea- sonable and just under the circumstances, and has been fairly and freely agreed upon. The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does not appear in the bills of lading. Hence, the stipulation on the carrier’s limited liability applies. There is no question that the stipulation is just and reasonable under the circumstances and have been fairly and freely agreed upon. .COMMON CARRIERS 85 Common Carrier of Goods The bill of lading shows that 120 cartons weigh 2,978 ki- los or 24.82 kilos per carton. Since 90 cartons were lost and the weight of said cartons is 2,233.80 kilos, at US$2.00 per kilo the CARRIER’s liability amounts to only US$4,467.60. EVERETT STEAMSHIP CORP. v. CA 297 SCRA 496, October 8, 1998 Martinez, J. FACTS: Private respondent Hernandez Trading Co. imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd., a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board “ADELFAEVERETTE,” a vessel owned by petitioner's principal, Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN. Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was miasing. This was con- firmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two Thousand Five Hundred Yen (Y1,552,500.00). However, petitioner offered to pay only One Hundred Thousand Yen (Y100,000.00), the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner. HELD: A stipulation in the bill of lading which limits the li- ability of the common carrier for loss or destruction of a cargo unless the shipper or owner declares a greater value is sanc- tioned by law particularly Articles 1749 and 1750 of the Civil Code. Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Pursuant to the aforequoted provisions of law, it is re- quired that the stipulation limiting the common carrier's liabil- ity for loss must be “reasonable and just under the circum- stances, and has been freely and fairly agreed upon.” The bill of lading subject of the present controversy spe- cifically provides, among others:THE LAW ON TRANSPORTATION “18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper’s net invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any consequential logs. “The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Cur- rency (¥100,000.00) or its equivalent in any other cur- rency per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before re- ceipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.” The above stipulations are reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to One Hundred Thousand Yen (¥100,000.00). However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. Private respondent, however, insists that the carrier should be liable for the full value of the lost cargo in the amount of ¥1,552,500.00, considering that the shipper, Maruman Trad- ing, had “fully declared the shipment x x x, the contents of each crate, the dimensions, weight and value of the contents,” as shown in the commercial Invoice No. MTM-941. To defeat the carrier’s limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in the bill of lading, with the extra freight paid. These require- ments in the bill of lading were never complied with by the shipper, hence, the liability of the carrier under the limited li- ability clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that peti- tioner has knowledge of the value of the cargo as contended by private respondent.COMMON CARRIERS 87 ‘Common Carrier of Goods The liability of petitioner for the loss of the cargo is lim- ited to One Hundred Thousand (¥100,000.00) Yen, pursuant to Clause 18 of the bill of lading. 3. Factors affecting agreement; presumption of negligence. Art, 1746, NCC. An agreement limiting the common car- rier’s liability may be annulled by the shipper or owner if the common carrier refused to carry the goods unless the former agreed to such stipulation. Art. 1747, NCC. If the common carrier, without just cause, delays the transportation of the goods or changes the stipulated or usual route, the contract limiting the common carrier's liability cannot be availed of in case of the loss, destruction, or deterioration of the goods. Art. 1748, NCC. An agreement limiting the common carrier’s liability for delay on account of strikes or riots is valid. Art. 1751, NCC. The fact that the common carrier has no competitor along the line or route, or a part thereof, to which the contract refers shall be taken into consideration of the question of whether or not a stipulation limiting the common carrier's liability is reasonably just and in accordance with public policy. Art. 1752, NCC. Even when there is an agreement limit- ing the liability of the common carrier in the vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of their loss, destruction or de- terioration. 4. Passenger’s baggage Art. 1764, NCC. The provisions of Articles 1733 to 1753 shall apply to the passenger’s baggage which is not in his per- sonal custody or in that of his employees. As to other bag- gage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable.THE LAW ON TRANSPORTATION ROBLES v. SANTOS 44 O.G. 2268 (C.A.), September 6, 1947 Montemayor, J. FACTS: Plaintiff boarded the vehicle operated by the defend- ant as a common carrier from Bocaue to Manila. Plaintiff had then with her as baggage a large buri containing 2 bales of cloth valued at P400.00 and other goods valued at P50.00 or a total of P450.00. She had the bag with her in the front seat, but possibly because of its bulk defendant placed it in the rumble- seat. Plaintiff at first did not want to give up her bag, but upon defendant's assurance that the rumble-seat would be locked, plaintiff yielded her bag. Defendant gave it to his assistant who placed the bag in the rumble-seat which was never locked. When the car reached Manila and plaintiff had to disem- bark, she found that the bag was gone. HELD: Under Art. 349 of the Code of Commerce, the operator of a public utility vehicle being habitually engaged in trans- portation for the public, is bound and governed by the provi- sions of the Code of Commerce in his relations and responsi- bility to his passengers and their baggage or goods. There is nothing in Art. 361 of the Code of Commerce exempting a car- rier from liability incurred in case of loss of the goods trans- ported due to his own negligence. The last paragraph of said article, placing upon the carrier the burden of proof to show that loss or damage was caused by fortuitous event force ma- Jeure, or inherent nature and defect of the goods, implies that if the damage or loss was not due to any of these accidents or circumstances, but was traceable to his own negligence, then he is liable. The loss of the merchandise in this case can easily be at- tributed to the negligence and lack of care on the part of the defendant. Had he allowed the plaintiff to keep her bag near her and guard it, the loss would never have occurred. The bag- gage compartment, where the bag was placed upon instruction of the defendant, had to be opened everytime the passengera disembarked from the vehicle along the way. It was presum- ably misdelivered or taken by a passenger by mistake. In other words, there was miadelivery on the part of the defendant, re- sulting in the complete loas to the plaintiff.COMMON CARRIERS 89 Common Carrier of Goods The defendant as a carrier failed to exercise the neces- sary supervision and care to prevent the loss. Defendant is li- able for the value of the contents of the bag amounting to P450.00. PAN AMERICAN WORLD AIRWAYS, INC. v. IAC 164 SCRA 268, August 11, 1988 Cortez, J. FACTS: This is a petition filed by Pan American World Air- ways, an international air carrier, seeking to limit its liability for lost baggage, containing promotional and advertising ma- terials for films to be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings of Rene Pangan to the amount specified in the airlines ticket absent a declara- tion of a higher valuation and the payment of additional On the basis of certain stipulations printed at the back of the ticket, petitioner Pan Am contends that its liability for the lost baggage of private respondent Pangan is limited to US$600.00 (US$20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and pay the corresponding ad- ditional charges. HELD: To support this contention, petitioner Pan Am cites the case of Ong Yiu v. Court of Appeals, 91 SCRA 223, where the Court sustained the validity of a printed stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage to a specified amount P100 per baggage and ruled that the carrier's liability was limited to said amount since the pas- senger did not declare a higher value, much less pay additional charges. We find the ruling in Ong Yiu squarely applicable to the instant case. On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc., 17 SCRA 606, where the Court held that the stipulation, limiting the carriers liability to a specified amount. was invalid, finds no application in the instant case, as the ruling in said case was premised on the finding that the con- ditions printed at the back of the ticket were so small and hard to read that they would not warrant the presumption that the90 THE LAW ON TRANSPORTATION passenger was aware of the conditions and that he had freely and fairly agreed thereto. In the instant case, similar facts that would make the case fall under the exception have not been alleged, much less shown to exist. In view thereof, petitioner’s liability for the lost baggage is limited to US$20.00 per kilo or US$600.00 as stipulated at the back of the ticket. The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court of Appeals, award- ing respondents damages as and for lost profits when their contracts to show the films in Guam and San Francisco, Cali- fornia were cancelled. The rule laid down in Mendoza v. Philippine Air Lines, Inc. (90 Phil. 836 [1952]) cannot be any clearer: “Before defendant could be held to special damages, such as the present alleged loss of profits on account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery to him of the par- ticular circumstances attending the shipment, and which probably would lead to such special loss if he defaulted.” Applying the Mendoza ruling to the facts of the instant case, in the absence of a showing that petitioner’s attention was called to the special circumstances requiring prompt delivery of Pangan’s luggages, petitioner cannot be held liable for the cancellation of respondents’ contracts as it could not have fore- seen such an eventuality when it accepted the luggages for transit. ALITALIA v. LAC 192 SCRA 9, December 4, 1990 Narvasa, J. FACTS: Dr. Felipa Pablo, an associate professor in UP, was invited to a meeting of the Department of Research and Iso- topes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the UN in Ispra, Italy. She was invited in view of her specialized knowledge in foreign substances in food and the agriculture environment. She was to read a paper on “The Fate of Radioactive Fusion Productions ContaminatingCOMMON CARRIERS 1 Common Carrier of Goods Vegetable Crops.” To fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA. She arrived in Milan on the day before the meeting in ac- cordance with the itinerary and time table set for her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her luggage was delayed inasmuch as the same x x x (was) in one of the succeeding flights from Rome to Milan. Her luggage consisted of two (2) suitcases; one contained her clothing and other personal items; the other, her scientific papers, slides and other research materials. But the other flights arriving from Rome did not have her baggage on board. The suitcases were not actually restored to Prof. Pablo by ALITALIA until eleven months later, and four months after in- stitution of her action. HELD: Under the Warsaw Convention, an air carrier is made liable for damages for: 1. the death, wounding or other bodily injury of a passenger if the accident causing it took place on board the aircraft or in the course of its operations of embark- ing or disembarking; 2. the destruction or loss of, or damage to any reg- istered luggage or goods, if the occurrence causing it took place during the carriage by air; and 3. delay in the transportation by air of passengers, luggage or goods. In these cases, it is provided in the Convention that the action for damages, however founded, can only be brought sub- ject to the conditions and limits set our therein. The Convention also purports to limit the monetary liabil- ity of the carriers under Art. 22 thereof. The Warsaw Convention however denies to the carrier availment of the provisions which exclude or limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court seized of the case, is considered to be equivalent to wilfull mis- conduct, or if the damage is (similarly) caused x x x by any agent of the carrier acting within the scope of his employment (Art. 25). The Hague Protocol amended the Warsaw Conven-92 THE LAW ON TRANSPORTATION tion by removing the provision that if the airline took all nec- essary steps to avoid the damage, it could exculpate itself com- pletely, and declaring the stated limits of liability not applica- ble if it is proved that the damage resulted from an act or omission of the carrier, its servants or agents done with intent to cause damage or recklessly and with knowledge that dam- age would probably result. The same deletion was effected by the Montreal Agreement of 1966, with the result that a pas- senger could recover unlimited damages upon proof of wilfull misconduct. In Pan American World Airways, Inc. v. LAC. (164 SCRA 268) for example, the Warsaw Convention was applied as re- gards the limitation on the carrier's liability, there being a sim- ple loss of baggage without any otherwise improper conduct on the part of the officials or employees of the airline or other special injury sustained by the passenger. On the other hand, the Warsaw Convention has invari- ably been held inapplicable, or as not restrictive of the carri- er’s liability, where there was satisfactory evidence of malice or bad faith attributable to its officers and employees (See KLM Royal Dutch Airlines v. Tuller, 119 App. DEC 282 F2d 775, cert. den 368 US 921, 7 L Ed 2D 136, 82 S Ct. 243) thus an air car- Tier was sentenced to pay not only compensatory but also moral and exemplary damages, and attorney’s fees, for instance, where its employees rudely put a passenger holding a first-class ticket in the tourist or economy section (Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1063; Lopez v. Pan Am, 16 SCRA 43) or ousted a brown Asiatic from the plane to give his seat to a white man (Air France v. Carrascoso, 18 SCRA 155) or gave the seat of a passenger with a confirmed reservation to another or sub- jected a passenger to extremely rude, even barbaric treatment, as by calling him a monkey. {n the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of petitioner airline; and Dr. Pablo’s luggage was eventually returned to her, belat- edly, it is true but without appreciable damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed, a breach of its contract of carriage, to be sure — with the result that