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Keng Hua Paper Products vs. CA, RTC of Manila and SeaLand Service Inc.

rise to the presumption that the same was a perfected and

binding contract.


In this case, Section 17 of the bill of lading provides:

Sea-Land Service (private respondent), a shipping

company, is a foreign corporation licensed to do
business in the Philippines.
On June 29, 1982, Sea-land received at its Hong
Kong terminal a sealed container, containing 76 bales
of unsorted waste paper for shipment to Keng Hua
Paper Products in Manila. A bill of lading was issued
by Sea-Land to cover the shipment.
On July 9. 1982, the shipment was discharged at the
Manila International Container Port. Notices of arrival
were transmitted to Keng Hua but it failed to
discharge the shipment from the container during the
free time period or grace period. The shipment thus
remained inside Sea-Lands container from July 29,
1982the date the free time period expireduntil
November 22, 1983. In total, it stayed with Sea-land
for 481 days.
Demurrage charges amounting to P67,340.00
accrued during the 481-day period. Letters as well as
numerous demands were sent to Keng Hua who
refused to settle its obligation.
For its part, Keng Hua alleges that:
o It purchased 50 tons of waste paper from the
shipper in Hong Kong, Ho Kee Waste Paper
as manifested in a Letter of Credit issued by
Equitable Banking Corporation. Partial
shipment was permitted under said letter,
and the remaining balance of the shipment
was only 10 metric tons.
o The shipment Sea-Land was asking Keng
Hua to accept is 20 metric tons, which is 10
more than the remaining balance.
o Sea-Land had no cause of action against
Keng Hua because it did not hire Sea-Land
to carry the merchandise. Instead its cause
of action should have been against the
o Keng Hua duly notified Sea-land about the
wrong shipment in a letter dated January 24,
RTC found Keng Hua liable for demurrage, attorneys
fees and expenses of litigation.
Upon appeal with the CA, the petition was still denied.

Issue: Whether Keng Hua is bound by the bill of lading. YES

Two functions to be served by the bill of lading:
1. It is a receipt for the goods shipped.
2. It is a contract by which three parties, namely the shipper,
carrier and consignee undertake specific responsibilities and
assume stipulated obligations.
A bill of lading delivered and accepted constitutes the contract
of carriage even though not signed, because the acceptance of
a paper containing the terms of a proposed contract generally
constitutes an acceptance of the contract and of all its terms
and conditions of which the acceptor has actual or constructive
Simply put, the acceptance of a bill of lading by the shipper
and the consignee, with full knowledge of its contents, gives

17. COOPERAGE FINES. The shipper and consignee shall

be liable for, indemnify the carrier and ship and hold them
harmless against, and the carrier shall have a lien on the
goods for, all expenses and charges for mending cooperage,
baling, repairing or reconditioning the goods, or the van,
trailers or containers, and all expenses incurred in protecting,
caring for or otherwise made for the benefit of the goods,
whether the goods be damaged or not, and for any payment,
expense, penalty fine, dues, duty, tax or impost, loss, damage,
detention, demurrage, or liability of whatsoever nature,
sustained or incurred by or levied upon the carrier or the ship
in connection with the goods or by reason of the goods being
or having been on board, or because of shippers failure to
procure consular or other proper permits, certificates or any
papers that may be required at any port or place or shippers
failure to supply information or otherwise to comply with all
laws, regulations and requirements of law in connection with
the goods of from any other act or omission of the shipper or
consignee: (Underscoring supplied.)
Keng Hua argues that it should not be bound by the bill of
lading because it never gave its consent thereto. It further
argues that the demurrage was a consequence of Sea-lands
mistake of shipping more than what was bought. This
discrepancy, it alleges, justifies its refusal to accept the
Both arguments are wrong.
Keng Hua, having been afforded an opportunity to examine the
bill of lading, did not immediately object to any term or
stipulation therein. It was only 6 months later, on January 24,
1983, that it sent a letter to Sea-Land saying it could not accept
the shipment. This inaction for such a long period conveys the
clear inference that it accepted the terms and conditions of the
bill of lading.
Moreover, the letter of refusal it supposedly sent to Sea-Land
only indicates Keng Huas inability to use the delivery permit
because the bill of lading and other shipping documents were
returned by the banks to Ho Kee. It merely proved Keng Huas
refusal to pick up the cargo, not its rejection of the bill of lading.
The Notice of Refused or On Hand Freight presented by Keng
Hua as proof of its nonacceptance is likewise of no
consequence. It was not written by Keng Hua. It was sent by
Sea-Land to Keng Hua four months after the latter received the
bill of lading. If it is to be accorded any legal significance at all,
it is to highlight Keng Huas prolonged failure to object to the
bill of lading.
Keng Hua should thus be bound to pay demurrage to SeaLand. In The Apollon, Justice Story made the following relevant
comment on the nature of demurrage:
In truth, demurrage is merely an allowance or compensation
for the delay or detention of a vessel. It is often a matter of
contract, but not necessarily so. The very circumstance that in
ordinary commercial voyages, a particular sum is deemed by
the parties a fair compensation for delays, is the very reason
why it is, and ought to be, adopted as a measure of
compensation, in cases ex delicto. What fairer rule can be
adopted than that which founds itself upon mercantile usage as

to indemnity, and fixes a recompense upon the deliberate

consideration of all the circumstances attending the usual
earnings and expenditures in common voyages? It appears to
us that an allowance, by way of demurrage, is the true
measure of damages in all cases of mere detention, for that
allowance has reference to the ships expenses, wear and tear,
and common employment.
On overshipment
The contract of carriage must be treated independently of the
contract of sale between the seller and the buyer, and the
contract for the issuance of a letter of credit between the buyer
and the issuing bank. Any discrepancy between the amount of
goods described in the commercial invoice in the contract of
sale and the amount allowed in the letter of credit will not affect
the validity and enforceability of the contract of carriage as
embodied in the bill of lading.
The carrier cannot be expected to go beyond the
representations of the shipper in the bill of lading and to verify
their accuracy vis--vis the commercial invoice and letter of
credit. Thus, the discrepancy cannot negate Keng Huas
obligation to Sea-Land arising from the contract of
transportation. Furthermore, Sea-Land had no knowledge of
the contents of the container. The contract of carriage was
under the arrangement known as Shippers Load And Count,
and the shipper was solely responsible for the loading of the
container while the carrier was oblivious to the contents of the
shipment. Petitioners remedy in case of overshipment lies
against the seller/shipper, not against the carrier.
On payment of interest
The present case involves an obligation not arising from a loan
or forbearance of money; thus, pursuant to Article 2209 of the
Civil Code, the applicable interest rate is six percent per
annum. Since the bill of lading did not specify the amount of
demurrage, and the sum claimed by private respondent
increased as the days went by, the total amount demanded
cannot be deemed to have been established with reasonable
certainty until the trial court rendered its judgment. Indeed,
(u)nliquidated damages or claims, it is said, are those which
are not or cannot be known until definitely ascertained,
assessed and determined by the courts after presentation of
proof. Consequently, the legal interest rate is six percent, to
be computed from September 28, 1990, the date of the trial
courts decision. And in accordance with Philippine Natonal
Bank and Eastern Shipping, the rate of twelve percent per
annum shall be charged on the total then outstanding, from the
time the judgment becomes final and executory until its
Magellan Manufacturing Corp vs. CA and Orient Overseas
Container Lines and F.E. Zuellig

On May 20, 1980, Magellan Manufacturing entered

into a contract with Choju Co. of Yokohama, Japan to
export 136,000 anahaw fans for $23,220.
As payment thereof, a letter of creit was issued to
Magellan Manufacturing by Choju Co.
James Cu, president of Magellan Manufacturing, then
contracted F.E. Zuellig, a shipping agent, to ship the
anahaw fans through Orient Overseas Container.
James Cu specified that he needed an on-board bill of
lading and that transshipment is not allowed under the
letter of credit.
Magellan Manufacturing paid F.E. Zuelling the freight
charges and secured a copy of the bill of lading,

which was presented to Allied Bank. The bank then

credited the amount of $23,220 to Magellan
Manufacturings account.
When James Cu however went to the bank later, he
was informed that the payment was refused by Choju
Co. because there was no on-board bill of lading, and
there was a transshipment of goods. As a result, the
anahaw fans were shipped back to Manila, for which
Choju demanded from Magellan Manufacturing
payment of P246,043.43. James Cu abandoned the
whole cargo and demanded damages from Choju.
When Magellan Manufacturing informed Overseas
Orient of what happened, the latter issued a certificate
stating that its bill of lading is an on board bill of lading
and that there was no actual transshipment of the
fans. According to Overseas, when the goods are
transferred from one vessel to another which both
belong to the same owner which was what happened
to the Anahaw fans, there is no transshipment.
This certification was sent to Choju Co., but the
company still refused to accept the goods which
arrived on Japan on July 19, 1980.
Overseas Orient billed Magellan Manufacturing the
amount of P16,342. 21 for such shipment and
P34,928.71 for demurrage in Japan from July 26 to
August 31, 1980. (This totals to P51, 271.02)
In a letter, Overseas gave Magellan Manufacturing
the option to pay the sum or to abandon the anahaw
fans to enable Overseas to sell them at public auction
to cover the cost of shipment and demurrages.
Magellan Manufacturing chose to abandon the goods.
However, in a letter dated June 22, 1981 Overseas
Orient demanded for payment of P298,150.93 from
Magellan Manufacturing which represents the freight
charges from Japan to Manila, demurrage incurred in
Japan and Manila from October 22, 1980 up to May
20, 1981; and charges for stripping the container van
of the Anahaw fans on May 20, 1981.
Subsequently Magellan Manufacturing filed the
complaint in this case against F.E. Zuellig and
Overseas Orient, praying that the latter pay whatever
Magellan Manufacturing was not able to earn from
Choju Co., amounting to P174,150.00.
In answer, F.E. Zuellig and Overseas Orient allege
that the bill of lading clearly shows that there will be a
transshipment and that Magellan Manufacturing was
well aware that MV Pacific Dispatcher was only up to
Hongkong where the subject cargo will be transferred
to another vessel for Japan.
RTC decided in favor of F.E. Zuelling and Overseas
Orient, ruling that Magellan Manufacturing had given
its consent to the contents of the bill of lading.
The CA likewise affirmed the findings of the RTC.
However, it reduced the freight charges and
demurrages to be paid by Magellan Manufacturing to
P52,102.45, which represents the costs incurred in
Japan but not in Manila. This is because there was no
timely notice to Magellan Manufacturing that the
goods were already in Manila in addition to the fact
that Overseas had given Magellan Manufacturing the
option of abandoning the goods in exchange for

Issues: Whether or not there was transshipment. YES.

Whether or not Magellan Manufacturing is bound by the bill of
lading. YES

Transshipment, in maritime law, is defined as "the act of taking
cargo out of one ship and loading it in another," or "the transfer
of goods from the vessel stipulated in the contract of
affreightment to another vessel before the place of destination
named in the contract has been reached," or "the transfer for
further transportation from one ship or conveyance to another."
Clearly, either in its ordinary or its strictly legal acceptation,
there is transshipment whether or not the same person, firm or
entity owns the vessels. Transshipment is not dependent upon
the ownership of the transporting ships or conveyances or in
the change of carriers, but rather on the fact of actual physical
transfer of cargo from one vessel to another.
That there was transshipment in this case is the inescapable
conclusion, as there unmistakably appears on the face of the
bill of lading the entry Hong Kong in the blank space labeled
Magellan Manufacturing is saying that since there was a
mistake in documentation on the part of Overseas Orient, such
mistake militates against the conclusiveness of the bill of lading
insofar as it reflects the terms of the contract between the
parties. This would be an exception to the parol evidence rule
and would therefore permit it to explain or present evidence to
contract the terms of the bill of lading.
However, in the light of the series of events that transpired in
this case, there can be no other logical conclusion other than
that Magellan Manufacturing had full knowledge of, and
actually consented to the terms and conditions of the bill of
lading thereby making the same conclusive as to it.
Records show that James Cu himself, in his capacity as
president of Magellan Manufacturing, received and signed the
bill of lading. There is no better way to significy consent than
by voluntarily signing the document which embodies the
agreement. As found by the Court of Appeals, there clearly
appears on the face of the bill of lading under column PORT
OF TRANSHIPMENT an entry HONGKONG. Despite said
entries, James Cu still delivered his voucher and the
corresponding check-in payment of the freight, implying that he
consented to the transshipment.
Furthermore in his testimony, James Cu categorically stated
that he knew for a fact the shipment was to be unloaded in
Hong Kong from MV Pacific Dispatcher to be transferred to a
mother vessel, the MV Oriental Researcher.
Magellan Manufacturings argument that it cannot be deemed
to have agreed thereto even if it signed the bill of lading
because it had made known to Overseas that transshipment
was not allowed under the letter of credit weighs less in
comparison to the contents of the bill of lading evidencing the
intention of the parties. Magellan Manufacturing, in citing
Article 1371 of the New Civil Code, forgets that the first
paragraph of the very same article provides that if the terms of
the contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of the stipulations
shall control. In addition, the same provision states that in
order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
The terms of the contract as embodied in the bill of lading are
clear and thus obviates the need for any interpretation. The
intention of the parties which is the carriage of the cargo under

the terms specified thereunder and the wordings of the bill of

lading do not contradict each other. The terms of the contract
being conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of petitioner, to
wit, personally receiving and signing the bill of lading and
paying the freight charges, there is no doubt that petitioner
must necessarily be charged with full knowledge and
unqualified acceptance of the terms of the bill of lading and
that it intended to be bound thereby.
Moreover, it is a well-known commercial usage that
transshipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is made,
is a violation of the contract and an infringement of the right of
the shipper, and subjects the carrier to liability if the freight is
lost even by a cause otherwise excepted. 26 It is highly
improbable to suppose that private respondents, having been
engaged in the shipping business for so long, would be
unaware of such a custom of the trade as to have undertaken
such transshipment without petitioner's consent and
unnecessarily expose themselves to a possible liability. Verily,
they could only have undertaken transshipment with the
shipper's permission, as evidenced by the signature of James
As to the on board bill of lading
An on board bill of lading is one in which it is stated that the
goods have been received on board the vessel which is to
carry the goods, whereas a received for shipment bill of lading
is one in which it is stated that the goods have been received
for shipment with or without specifying the vessel by which the
goods are to be shipped. Received for shipment bills of lading
are issued whenever conditions are not normal and there is
insufficiency of shipping space. An on board bill of lading is
issued when the goods have been actually placed aboard the
ship with every reasonable expectation that the shipment is as
good as on its way. It is, therefore, understandable that a party
to a maritime contract would require an on board bill of lading
because of its apparent guaranty of certainty of shipping as
well as the seaworthiness of the vessel which is to carry the
It will be recalled that Magellan Manufacturing entered into the
contract with Choju Co., Ltd. way back on May 20,1980 or over
a month before the expiry date of the letter of credit on June 30,
1980, thus giving it more than ample time to find a carrier that
could comply with the requirements of shipment under the
letter of credit. It is conceded that bills of lading constitute a
class of contracts of adhesion. However, as ruled in the earlier
case of Ong Yiu vs. Court of Appeals, et al. and reiterated in
Servando, et al. vs. Philippine Steam Navigation Co., plane
tickets as well as bills of lading are contracts not entirely
prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent.
The respondent court correctly observed in the present case
that "when the appellant received the bill of lading, it was
tantamount to appellant's adherence to the terms and
conditions as embodied therein.
In sum, Magellan Manufacturing had full knowledge that the bill
issued to it contained terms and conditions clearly violative of
the requirements of the letter of credit. Nonetheless, perhaps in
its eagerness to conclude the transaction with its Japanese
buyer and in a race to beat the expiry date of the letter of credit,
petitioner took the risk of accepting the bill of lading even if it
did not conform with the indicated specifications, possibly
entertaining a glimmer of hope and imbued with a touch of
daring that such violations may be overlooked, if not

disregarded, so long as the cargo is delivered on time.

Unfortunately, the risk did not pull through as hoped for. Any
violation of the terms and conditions of the letter of credit as
would defeat its right to collect the proceeds thereof was,
therefore, entirely of the petitioner's making for which it must
bear the consequences. As finally averred F.E. Zuellig and
Overseas Orient, , "... the questions of whether or not there
was a violation of the terms and conditions of the letter of credit,
or whether or not such violation was the cause or motive for
the rejection by the Japanese buyer should not affect them
since they were not privies to the terms and conditions of
Magellan Manufacturing's letter of credit and cannot therefore
be held liable for any violation thereof by any of the parties

As to demurrage
Normally, the shipper is liable for freightage due to the fact that
the shipment was made for its benefit or under its direction,
and correspondingly, the carrier is entitled to collect charges
for its shipping services. However, there is no dispute that F.E.
Zuellig and Overseas Orient expressly and on their own
volition granted Magellan Manufacturing an option with respect
to the satisfaction of freightage and demurrage charges.
Having given such option, especially since it was accepted by
Magellan Manufacturing, F.E. Zuellig and Overseas are
estopped from reneging thereon. Petitioner, on its part, was
well within its right to exercise said option. F.E. Zuellig and
Overseas, in giving the option, and Magellan Manufacturing, in
exercising that option, are concluded by their respective
actions. To allow either of them to unilaterally back out on the
offer and on the exercise of the option would be to
countenance abuse of rights as an order of the day, doing
violence to the long entrenched principle of mutuality of
It will be remembered that in overland transportation, an
unreasonable delay in the delivery of transported goods is
sufficient ground for the abandonment of goods. By analogy,
this can also apply to maritime transportation. Further, with
much more reason can petitioner in the instant case properly
abandon the goods, not only because of the unreasonable
delay in its delivery but because of the option which was
categorically granted to and exercised by it as a means of
settling its liability for the cost and expenses of reshipment.
And, said choice having been duly communicated, the same is
binding upon the parties on legal and equitable considerations
of estoppel.
Magellan Manufacturing cannot therefore be made liable to
pay even the P52,102.45 as costs. The counterclaim of F.E.
Zuellig and Overseas Orient are likewise set aside.
Maersk Lines vs. CA and Efren Castillo, doing business
under the name and style of Ethegal Laboratories

Issue: Whether the contract of adhesion is valid. YES

Whether or not Castillo is entitled to damages under the bill of
lading. YES
The bill of lading in this case reads:

Maersk Line is engaged in the transportation of goods

by sea, doing business in the Philippines through its
agent Compania General de Tabacos de Filipinas.
Efren Castillo is the proprietor of Ethegal Laboratories,
a firm engaged in the manufacture of pharmaceutical
On November 12, 1976, Castillo ordered from Eli Lilly
Inc. of Puerto Rico through its agent in the Philippines,
Elanco Products, 600,000 empty gelatin capsules for
the manufacture of his pharmaceutical products. The

capsules were placed in 6 drums of 100,000 capsules

each valued at $1,668.71.
Through a Memorandum of Shipment, the shipper Eli
Lilly, Inc. advised Castillo that the 600,000 empty
gelatin capsules were already shipped on board MV
Anders Maerskine for shipment to Philippines via
Oakland, California. In the Memorandum, shipper Eli
Lilly specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo was mishipped and
diverted to Richmond, Virginia, USA and then
transported back to Oakland, California.
The goods only arrived in the Philippines on June 10,
1977 or 2 months after the date specified in the
Castillo refused to take delivery of the goods on
account of its failure to arrive on time. Alleging gross
negligence and undue delay in the delivery of the
goods, Castillo filed an action for rescission of
contract with damages against Maersk and Eli Lilly
Maersk denies that it committed breach of contract,
stating that the shipment was transported in
accordance with the provisions of the bill of lading and
that its liability under the law on transportation of
goods attaches only in case of loss, destruction or
deterioration of the goods as provided in Art. 1734.
Eli alleges that the delay in the arrival of the goods
was due solely to the gross negligence of Maersk
RTC dismissed the complaint against Eli Lilly. It held
Maersk Line liable for damages, as follows:
o P369,000 as unrealized profit
o P200,000 as moral damages
o P10,000 as exemplary damages
o P11,680.97 as cost of credit line
o P50,000 as attorneys fees
CA upheld the RTCs decision but modified the
damages awarded as such:
o P11,680.97 as compensatory damages
o P50,000 as moral damages
o P20,000 as exemplary damages
o P30,000 for attorneys fees
o 30% of the total damages awarded except
for attorneys fees


The Carrier does not undertake that the goods shall
arrive at the port of discharge or the place of delivery at any
particular time or to meet any particular market or use and
save as is provided in clause 4 the Carrier shall in no
circumstances be liable for any direct, indirect or consequential
loss or damage caused by delay. If the Carrier should
nevertheless be held legally liable for any such direct or
indirect or consequential loss or damage caused by delay,
such liability shall in no event exceed the freight paid for the
transport covered by this Bill of Lading.

It is not disputed that the provision at the back of the bill of

lading is a contract of adhesion. Generally, contracts of
adhesion are considered void since these types of contracts
are prepared and drafted only by one party, usually the carrier;
and the only participation left of the other party is to affix his
signature thereto.
Nonetheless, it is settled that bills of lading are not entirely
prohibited. One who adheres to the contract is in reality free to
reject it in its entirety; and if he adheres, he gives his consent.
Citing Magellan, the Supreme Court ruled:
It is a long standing jurisprudential rule that a bill of lading
operates both as a receipt and as contract to transport and
deliver the same a therein stipulated. As a contract, it names
the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the
rights and obligations assumed by the parties. Being a contract,
it is the law between the parties who are bound by its terms
and conditions provided that these are not contrary to law,
morals, good customs, public order and public policy. A bill of
lading usually becomes effective upon its delivery to and
acceptance by the shipper. It is presumed that the stipulations
of the bill were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is generally
bound by his acceptance whether he reads the bill or not.
However, this ruling only applies if such contracts will not
create an absurd situation as in this case.
The provision in Section 6 of the bill of lading has the effect of
practically leaving the date of arrival of the shipment on the
sole determination and will of the carrier. While it is true that
common carriers are not obligated by law to carry and deliver
merchandise, and persons are not vested with the right to
prompt delivery unless such common carriers previously
assume the obligation to deliver at a given date or time,
delivery of shipment or cargo should at least be made within a
reasonable time.

arises no need to execute another contract for that purpose as

it would be a mere superfluity.
The facts in the case show that a delay in the delivery of the
goods spanning a period of 2 months and 7 days is beyond the
realm of reasonableness. Through Maersk Lines negligence,
the goods were mishipped to Richmond, Virginia. Its insistence
that it cannot be held liable for the delay is without merit.
As to damages
Actual and compensatory damages require substantial proof.
Castillo here was able to prove through an invoice the amount
he paid as costs of the credit line for the subject goods. The
award of actual damages in the amount of P11,680.97 is thus
Under Art. 2220 of the Civil Code, moral damages may be
awarded in breaches of contract where the defendant acted
fraudulently or in bad faith. Maersk Line never even bothered
to explain the reason for the delay in the delivery of the subject
shipment. The award of moral damages is therefore proper.
It is also proper to award exemplary damages to Castillo.
Exemplary damages may be awarded if the defendant acted in
a wanton, fraudulent, reckless, oppressive or malevolent
manner. There was gross negligence on the part of Maersk in
mishipping the goods destined for Manila but was inexplicably
shipped to Richmond, Virginia, USA. Gross carelessness or
negligence constitutes wanton misconduct.
The award of attorneys fees is likewise proper for the
abovementioned reasons.
The award however of 30% of the total damages is
unconscionable and should be deleted.
Reyma Brokerage vs. Philippine Home Assurance

In Saludo Jr. vs. CA, the Court held:

The oft-repeated rule regarding a carrier's liability for delay is
that in the absence of a special contract, a carrier is not an
insurer against delay in transportation of goods. When a
common carrier undertakes to convey goods, the law implies a
contract that they shall be delivered at destination within a
reasonable time, in the absence, of any agreement as to the
time of delivery. But where a carrier has made an express
contract to transport and deliver properly within a specified
time, it is bound to fulfill its contract and is liable for any delay,
no matter from what cause it may have arisen. This result
logically follows from the well-settled rule that where the law
creates a duty or charge, and the default in himself, and has no
remedy over, then his own contract creates a duty or charge
upon himself, he is bound to make it good notwithstanding any
accident or delay by inevitable necessity because he might
have provided against it by contract. Whether or not there has
been such an undertaking on the part of the carrier is to be
determined from the circumstances surrounding the case and
by application of the ordinary rules for the interpretation of
While there was no special contract entered into by the parties
indicating the date of arrival, Maersk Lines was nevertheless
aware of the specific date when the goods were expected to
arrive as indicated in the bill of lading itself. In this regard, there

On October 2, 1979, MS Malmros Monsoon received

onboard at Fremantle, Brisbane Queensland Australia,
a shipment of 2,680 cartons of hard frozen boneless
beef contained in 5 containers. This was from shipper
Craig Mostyn & Co., Pty. Ltd, for transport to Manila,
in favor of consignee RFM Corp. The transaction was
covered by Bill of Lading No. 53149.
On October 13, 1979, MS Malmros Monsoon arrived
at Pier 3 of the Port of Manila and discharged the
shipment into the possession of Reyma Brokerage,
the arrastre operator.
The shipment was transferred from Pier 3 to the
Reefer Van Area of Pier 13.
On October 22, 1979, Reyma Brokerage loaded the
containers in 2 trucks and delivered them to Grech
Food Industries Cold Storage in Pasig, arriving there
at 1:00am of October 23.
On the same day, at 9:00am, the containers were
stripped and the representative of Reyma Brokerage
and RFM Corp. counted the contents of the 5
After an inventory of a certain container, it was
discovered that 203 cartons were found short out of
the loaded 2,680 cartons of hard frozen boneless beef.
This shortage, according to RFM is attributable to
Reyma Brokerage as the loss occurred while the
container was in the custody and responsibility of

RFMs claim for recovery having been denied, it filed

a claim with PHAC under its Marine Cargo Insurance
Policy. PHAC paid RFM P88,658.22 and thus
subrogated RFM in this claim for the recovery of the
said amount.
RTC and CA ruled against Reyma Brokerage.
Reyma Brokerage argues:
o A said-to-contain bill of lading for sealed
containers is receipt only of the containers
but not of their contents which the carrier
was not in a position to verify
o Since there is no evidence of tampering
seals, presumptions cannot take the place of
proof in a due-process system where the
burden of proof relies on plaintiff
o If the tampering was ingeniously done and
the tampered seal cannot be determined
unless separated from the container, plaintiff
virtually admits that the containers could
have been tampered even before Reyma
Brokerage took possession of them
o That the carrier should have been joined with
them as defendants

Issue: Whether Reyma Brokerage is liable for the shortage of

230 cartons. YES
Reyma Brokerage insists that the case of US Lines Inc. vs.
Commissioner finds application in this case because the
transactions are identical since in both cases the cargoes are
(By containerized, it means that the shipper loads his cargoes
in a specially designed container, seals the container and
delivers it to the carrier for transportation. The carrier does not
participate in the counting of the merchandise for loading into
the container, the actual loading thereof nor the sealing of the
container. Having no actual knowledge of the kind, quantity or
condition of the contents of the container, the carrier issues the
corresponding bill of lading based on the declaration of the
shipper. The bill of lading describes the cargo as a container
simply and it states the contents of the container either as
advised by the shipper or prefaced by the phrase said to
contain. Clearly the matter quantity, description and conditions
of the cargo is the sole responsibility of the shipper.)
Moreover, looking at the bill of lading in this case, it contains
the following stipulations:
Weight, measurement marks and numbers (except loading
marks for which the carrier is only responsible if stamped or
otherwise shown clearly in letters at least 50 mm high) quality
contents and value shown above are furnished by the
Merchant and have not been checked and are to be
considered unknown, unless expressly acknowledged and
agreed to.

lading. This conclusion is further bolstered by the stipulation

printed in the bill of lading, unless expressly acknowledged
and agreed to. Therefore, the phrase said to contain also
appearing in the bill of lading must give way to reality.
This express acknowledgement makes the case at bar an
exception to the United States Line doctrine. The said doctrine
applies only where the carrier of the containerized cargo simply
admits the information furnished by the shipper with regard to
the goods, but not where the carrier makes an explicit
admission to the weight, measurement marks, numbers, etc.
and inscribes these admissions as stipulations in the bill of
lading itself. In short what governs is the dictum that the bill of
lading shall be prima facie evidence of the receipt by the
carrier of the goods as therein described.
Furthermore, Reyma Brokerages contention that the shortage
occurred before it came into its custody is without merit. It even
contradicts itself because contrary to these arguments, it
included allegations in its answer that all the containerized
shipments arrived in Manila with the seals intact, and that it
received the said sealed containers of the shipments,
particularly container No.. BROU-4306561 which sustained the
loss of 203 cartons from the arrastre operator also with the
seals intact.
As Reyma prima facie received all the shipments in the sealed
containers, it has the burden to rebut the conclusion that it
received the same without shortage. There was no such effort
on the part of Reyma in this case. In fact, the Court of Appeals
found that:
Tthe containers were delivered to the consignee's warehouse
at Grech Food Industries Cold Storage in Pasig, Rizal after
more than nine (9) hours which is highly auspicious as the trip
from the piers to Pasig, takes only one (1) hours and there
were (sic) no heavy traffic along the route. This will militate
against the stand of the defendant that the loss of the 203
cartons of hard frozen boneless beef meat occurred while it
was outside its custody as the contrary had been proven by
On prescription (just in case)
The action has not prescribed as Reyma being the broker and
PHAC being the insurer, the prescriptive period is 10 years. 10
years have not yet lapsed from the delivery of the shipment.
Samar Mining Company vs. Nordeutshcer Lloyd & C.F.
Sharp & Company Inc.

Also, the bottom portion of the bill of lading provides:

This bill of lading is a receipt only for the number of packages

shown above.

Evidently, the carrier, by signifying in the bill of lading that it is

a receipt for the number of packages shown above, had
explicitly admitted the containerized shipments actually had the
number of packages declared by the shipper in the bill of

Samar Mining Company Inc. imported one crate of

Optima welded wedge wire sieves through M/S
Schwabenstein, a vessel owned by Nordeutscher
Lloyd. The shipment is covered by a Bill of Lading
duly issued to Samar Mining.
Upon arrival of the aforesaid vessel at the port of
Manila, the goods were unloaded and delivered in
good order and condition to the bonded warehouse of
The goods however were never delivered to, nor
received Samar Mining at the port of destination,
which is Davao.
After failing to elicit a response from Lloyd, Samar
Mining filed a formal claim for P1,691.93 or $424 but
neither paid. Hence the instant suit.
RTC rendered judgment in favor of Samar Mining.

Issue: Whether Lloyd can be held liable under the bill of lading.

In the said case, the court found the following stipulations as

not being contrary to law, morals, good customs, public order
or public policy and sustained their validity:

A close scrutiny of the bill of lading reveals that one crate of
Optima welded wedge wire sieves was received by the carrier
at the port of loading, which is Bremen Germany, while the
freight had been prepaid up to the port of destination or the
port of discharge of goods, which in this case is Davao. The
carrier undertook to transport the goods in its vessel, M/S
Schwabenstein, only up to Manila. Thereafter, the goods were
to be transshipped by the carrier to the port of destination.
As instructed above, the following words appeared typewritten
under the column for description of contents:
It is clear that in discharging the goods from the ship at the port
of Manila, Lloyd was acting in full accord with the stipulations in
the bill of lading. The delivery of the goods to AMCYL was part
of their duty to transship the goods from Manila to Davao.
However, Lloyd et. al now seek refuge under Section 1,
paragraph 3, and Section 11 of the same bill, which provides
The carrier shall not be liable in any capacity whatsoever 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, transshipped or forwarded ...
Whenever the carrier or master may deem it advisable or in
any case where the goods are placed at carrier's disposal at or
consigned to a point where the ship does not expect to load or
discharge, the carrier or master may, without notice, forward
the whole or any part of the goods before or after loading at the
original port of shipment, ... This carrier, in making
arrangements for any transshipping or forwarding vessels or
means of transportation not operated by this carrier shall be
considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the
freight for the whole transport has been collected by him. ...
Pending or during forwarding or transshipping the carrier may
store the goods ashore or afloat solely as agent of the shipper
and at risk and expense of the goods and the carrier shall not
be liable for detention nor responsible for the acts, neglect,
delay or failure to act of anyone to whom the goods are
entrusted or delivered for storage, handling or any service
incidental thereto
Under this provision, they claim that they have discharged the
same in full and good condition unto the custody of AMCYL at
the port of discharge from the ship, and are therefore absolved
from any responsibility for the cargo.
The case finds similarity with Phoenix Assurance Co., Ltd vs.
United States Lines. Said case matches the controversy not
only as to the material facts, but as to the stipulations
contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were
destined for Davao, but were discharged from ship in Manila, in
accordance with their respective bills of lading. (Sorry, funny
lang ang awesome likeness.)

The carrier or master, in making arrangements with any

person for or in connection with all transshipping or forwarding
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
Applying this to the case at bar, and in conformity with the
provisions of the New Civil Code, Section 11 of the bill of
lading and the third paragraph of Section 1 thereof are valid
stipulations between the parties insofar as they exempt the
carrier from liability for loss or damage to the goods while the
same are not in the latters actual custody.
The liability of the common carrier for the loss, destruction 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 special laws. A careful perusal of the
provisions of the New Civil Code on common carriers (Section
4, Title VIII, Book IV) directs our attention to Article 1736
thereof, which reads:
Article 1736. The extraordinary responsibility of the common
carrier lasts from the time the goods are unconditionally placed
in the possession of, and received by the carrier for
transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the
provisions of article 1738.
Article 1738.
The extraordinary liability of the common
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 had reasonable opportunity thereafter to
remove them or otherwise dispose of them.
Article 1738 finds no applicability to the instant case. The
article contemplates a situation where the goods had already
reached their place of destination and are stored in the
warehouse of the carrier. The goods were still awaiting
transshipment to their port of destination, and were stored in
the warehouse of a third party when last seen and/or heard of.
Article 1736 however is applicable to the instant suit. Under
said article, the carrier may be relieved of the responsibility for
loss or damage to the goods upon actual or constructive
delivery of the same by the carrier to the consignee, or to the
person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal
possession by the seller, and the actual apprehension of
corporeal possession by the buyer or by some person
authorized by him to receive the goods as his representative
for the purpose of custody or disposal. Similarly, there is actual
delivery in contracts for the transport of goods when
possession has been turned over to the consignee or his duly
authorized agent and a reasonable time is given to him to
remove the goods. Here, there was actual delivery to the
consignee through its duly authorized agent, the carrier.

Here, there were two undertakings that appeared on the bill of

lading in question.
1. The first is for the transport of goods from Bremen, Germany
to Manila.
2. The second is for the transshipment of the same goods from
Manila to Davao, with Lloyd acting as agent of the consignee.

At the hiatus between these two undertakings, which is the

moment when the goods are discharged in Manila, its
personality changes from that of carrier to agent of the
consignee. Thus the character of defendants possession also
changes, from possession in its own name as carrier, to
possession in the name of consignee as agent. Such being the
case, there was actual delivery of the goods from defendant as
carrier to the same defendant as agent of the consignee. Upon
such delivery, the defendant ceases to be responsible for any
loss or damage that may befall the goods from that point
onwards. This is how 1736 applies.
But even as agent of Samar Mining, defendants cannot be
made answerable for the value of the missing goods.
Defendants had commenced the performance of its duty as
agent, the completion of which was aborted by circumstances
beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence,
deceit or fraud, cannot be held responsible for the failure of the
principal to accomplish the object of the agency.
The records fail to reveal proof of negligence, deceit or fraud
committed by defendant or by its representative in the
Philippines. Neither is there any showing of notorious
incompetence or insolvency on the part of AMCYT, which
acted as defendant's substitute in storing the goods awaiting
The actions of defendant carrier and of its representative in the
Philippines being in full faith with the lawful stipulations of Bill
of Lading No. 18 and in conformity with the provisions of the
New Civil Code on common carriers, agency and contracts,
they incur no liability for the loss of the goods in question.
United States Lines Inc. vs. Commissioner of Customs

Issue: Whether or not the carrier of a containerized cargo

should be held liable for a fine under Sec. 2521 in relation to
Sec. 1005 of the Tarrif and Customs Code upon a clerical error
imputable to the Shipper alone. NO
The pertinent provisions are as follows:
Sec. 1124 of Customs Administrative Order No. 8-75 reads as
follows: .
Shipper's 'Load and Count' a container packed with cargo by
one shipper where the quantity, description and conditions of
the cargo is the sole responsibility of the shipper. (emphasis
supplied); .
and quoted hereunder are the relevant provisions of the Tariff
and Customs Code: .
SEC. 1005. Every vessel from a foreign port must have on
board a complete manifest of all her cargo. .


On October 15, 1976, the vessel American Venture

arrived in Manila from HongKong.
Among the shipment on board were cargoes
consigned by the same shipper and from the same
loading port consisting of 2 containers, which were
described in the respective bills of lading No. 38 and
39 as follows:
o Shippers Load and Count
1 Container 38 cases 100% Cotton brushed
1 Container 40 cases 100% Cotton sulphur
dyed denim
Total: One container only
The aforestated information as furnished by the
Shipper was copied or entered into the vessels
Inward Foreign Manifest.
Upon opening of the containers by the Bureau of
Customs, it was discovered that the first container
contained 34 cases instead of 38 cases, and that the
second container contained 44 cases instead of 40
cases. The total number of cases in the two
containers was the save however, which is 78 cases.

With the consent of the customs authorities, US Lines

accordingly amended the Manifest to reflect the actual
quantity of the cases in each container.
Subsequently, the Collector of Customs instituted
proceedings against US Lines Inc. for violation of Sec.
1005 in relation to Sec. 2521 of the Tariff and
Customs Code. It found US Lines guilty of violating
said provisions, and ordered it to pay P10,000.
On appeal, the Commissioner of Customs affirmed
the decision in toto.
A petition to review with the Court of Tax Appeals also
ended with the CTA affirming the assailed decision. In
its decision, the CTA ruled that the term Shippers
Load and Count as defined in Customs
Administrative Order No. 8-75 cannot be viewed as
an exception to the provisions of Sections 1005 and
2521 of the Tarrif and Customs Code.



Each manifest shall include the port of departure and the port
of delivery with the marks, numbers, quantity and description of
the packages and the names of the consignee thereof. .



A cargo manifest shall in no case be changed or altered after

entry of the vessel except by means of an amendment by the
master, consignee or agent thereof, under oath, and attached
to the original manifest: Provided, however, that after the
invoice and/or entry covering an importation have been
received and recorded in the office of the Appraiser, no
amendment of the Manifest shall be allowed, except when it is
obvious that a clerical error or any other discrepancy has been
committed in the preparation of the manifest without any
fraudulent intent, discovery of which could not have been made
until after examination of the importation has been completed.
(Emphasis supplied)
SEC. 2521. Failure to Supply Requisite Manifests. - If any
vessel or aircraft enters or departs from a port of entry without
submitting the proper manifests to the customs authorities, or
shall enter or depart conveying unmanifested cargo other than
as stated in the next preceding section hereof, such vessel or
aircraft shall be fined in a sum not less than ten thousand

pesos (P10,000.00) but not exceeding thirty thousand

P30,000.00 pesos.
The same fine shall be imposed upon any arriving or departing
vessel or aircraft if the master or pilot in command shall fail to
deliver or mail to the Commission on Audit a true copy of the
manifest of the incoming or outgoing cargo, as required by law

US Lines contends that Sec. 24 of Customs Admin Order NO.
8-75 was promulgated in line with the government policy of
encouraging containerization which results in the decongestion
of ports of entry.
Under the system of containerization, the shipper loads his
cargoes in a specially designed container, seals the container
and delivers it to the carrier for transportation. The carrier does
not participate in the counting of the merchandise for loading
into the container, the actual loading thereof nor the sealing of
the container. Having no actual knowledge of the kind, quantity
or condition of the contents of the container, the carrier issues
the corresponding bill of lading based on the declaration of the
shipper. The bill of lading describes the cargo as a container
simply and it states the contents of the container either as
advised by the shipper or prefaced by the phrase "said to
contain." Clearly then, the matter quantity, description and
conditions of the cargo is the sole responsibility of the shipper.
The case at bar is exactly the situation intended to be covered
by Sec. 24 of CAO No. 8-75. The order provides, in relation to
Sec. 1005 and Sec. 2521, that containerized cargoes on
Shippers Load and Count shipping arrangement do not need
to be checked and inventoried by the carrier at the port of
loading or before it enters the port of unloading in the
Philippines, since it is the shipper who has the sole
responsibility for the quantity, description and condition of the
cargoes shipped in container vans, each container van being
considered as a unit of transport.
The vessel American Venture faithfully complied with the
requirements of Sec. 1005 of the Tarrif and Customs Code.
While there was a slight error in its manifest, there was no
fraudulent intent or negligence on the part of the vessel. The
vessel relied on the information submitted by the shipper on
the bill of lading, and there was no way for it to discover the
contents of the containers until after they opened it.
Considering therefore, that the total number of cases of cotton
denims as declared by the shipper in the manifest is 78 as
borne on two containers, and considering the undisputed fact
that the same total number of 78 cases of cotton denims were
found by the Bureau of Customs on board petitioner's vessel, it
is clear that the vessel's Manifest reflects a complete and
substantially accurate statement of the cargoes contained
therein in accordance with the requirement of Sec. 1005 in
relation to Sec. 2521 of the Tariff and Customs Code.
No violation could therefore be attributed to US Lines Inc. The
fine is lifted.
Caltex Philippines vs. Sulpicio Lines Inc.

On December 19, 1987, MT Vector left Limay, Bataan

at about 8:00pm, enroute to Masbate. It was loaded
with 8,800 barrels of petroleum products shipped by

MT Vector is a tramping motor tanker owned and

operated by Vector Shipping Corporation, engaged in
the business of transporting fuel products such as
gasoline, kerosene, diesel and crude oil.
During this particular voyage, MT Vector carried on
board gasoline and other oil products owned by
Caltex by virtue of a charter contract.
On December 20, 1987, the passenger ship MV Doa
Paz, left the port of Tacloban at about 6:30am. It was
headed for Manila with a complement of 59 crew
members and 1,493 passengers.
The MV Doa Paz is a passenger and cargo vessel
owned and operated by Sulpicio Lines, plying the
route of Manila-Tacloban-Catbalogan-ManilaCatbalogan-Tacolban-Manila, making trips twice a
At about 10:30pm of December 20, 1987, the two
vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental
Mindoro. All crewmembers of Doa Paz died, while
the two survivors from MT Vector claimed that they
were sleeping at the time of the incident.
It was later found out that Doa Paz carried an
estimated 4,000 passengers, many of whom were not
in the passenger manifest. Only 24 survived the
tragedy. Among those who perished were a public
school teacher (Sebastian Caezal) and his daughter
who was only 11 years old. (Tinanong kasi to ni
Maam sa recit dati.)
On March 22, 1988 the Board of Marine Inquiry found
that MT Vector, its registered operator Francisco
Soriano and its owner and actual operator Vector
Shipping were at fault for the collision.
On February 13, 1989, the relatives of the deceased
filed with the RTC a complaint for Damages Arising
from Breach of Contract of Carriage against Sulpicio
Lines. Sulpicio in turn filed a third party complaint
against Francisco Soriano, Vector Shipping and
Sulpicio alleged that Caltex chartered MT Vector with
gross and evident bad faith knowing fully well that MT
Vector was improperly manned, ill-equipped,
unseaworthy and a hazard to safe navigation; as a
result, it rammed against MV Doa Paz in the open
sea setting MT Vectors highly flammable cargo
The RTC dismissed the third party complaint against
Caltex and held Sulpicio lines liable.
The CA modified the trial courts ruling and included
Caltex as one of those liable for damages.
o P100,000 as compensatory damages for the
death of Sebastian Caezal and his
o P306,480 for the unrealized income of the
Sebastian Caezal
o P300,000 as moral damages
o P50,000 as attorneys fees
o Cost of the suit
Caltex was held equally liable with Sulpicio, being
made to pay half of the above-mentioned damages.

Issues: Whether or not MT Vector can be considered a

common carrier. YES
Whether or not Caltex can be held liable. NO

Caltex and Vector entered into a contract of affreightment

also known as a voyage charter.

Caltex cannot be held liable for damages under the Civil


A contract of affreightment may be either time charter, wherein

the leased vessel is leased to the charterer for a fixed period of
time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire
of the vessel only, either for a determinate period of time or for
a single or consecutive voyage, the ship owner to supply the
ships store, pay for the wages of the master of the crew, and
defray the expenses for the maintenance of the ship.

The charterer of a vessel has no obligation before transporting

its cargo to ensure that the vessel it chartered complied with all
legal requirements. The duty rests upon the common carrier
simply for being engaged in public service. The Civil Code
demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances
of the persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector, the
liability as found by the Court of Appeals is without basis.

Under a demise or bareboat charter on the other hand, the

charterer mans the vessel with his own people and becomes,
in effect, the owner for the voyage or service stipulated, subject
to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the
general owner in possession of the ship as owner for the
voyage, the rights and the responsibilities of ownership rest on
the owner. The charterer is free from liability to third persons
in respect of the ship.
MT Vector is a common carrier.
In determining liability, it is important to answer the question:
does a charter party agreement turn the common carrier into a
private one?
In this case it did not. The parties entered into a voyage charter,
which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, the Supreme
Court said:
It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited
to the ship only, as in the case of a time-charter or voyage
charter. It is only when the charter includes both the vessel
and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage
covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be
the property of the charterer.
MT Vector still being under the possession of Vector Shipping,
and being thus a common carrier, under the Carriage of Goods
by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to -

The relationship between the parties in this case is governed

by special laws. Because of the implied warranty of
seaworthiness, shippers of goods, when transacting with
common carriers, are not expected to inquire into the vessels
seaworthiness, genuineness of its licenses and compliance
with all maritime laws. To demand more from shippers and
hold them liable in case of failure exhibits nothing but the futility
of our maritime laws insofar as the protection of the public in
general is concerned. By the same token, passengers cannot
be expected to inquire every time they board a common carrier,
whether the carrier possesses the necessary papers or that all
the carriers employees are qualified. Such a practice would
be an absurdity in a business where time is always of the
essence. Considering the nature of transportation business,
passengers and shippers alike customarily presume that
common carriers possess all the legal requisites in its
Thus, the nature of the obligation of Caltex demands ordinary
diligence like any other shipper in shipping his cargoes.
Furthermore, a cursory reading of the records show that Caltex
had reason to believe MT Vector could legally transport cargo
at that time of the year. During cross-examination, it was
shown that the representative of Caltex urged MT Vector to
renew the Certificate of Inspection several times, and was
assured that it would be sent a copy.
Caltex and Vector had been doing business since 1985. Past
services rendered showed no reason for Caltex to observe a
higher degree of diligence.
Caltex is therefore absolved from liability, but the liability of
Sulpicio Lines and Vector Shipping remain the same.
Fortune Express Inc vs. CA, Paulie Caorong and her minor
children Yasser King, Rose Heinni and Prince Alexander

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;




Thus, the carriers are deemed to warrant impliedly the

seaworthiness of the ship. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew. The failure
of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code.

Fortune Express is a bus company in northern

Mindanao. Paulie Caorong is the widow of Atty.
Caorong while Yasser King, Rose Heinni and Prince
Alexander are their minor children.
On November 18, 1989, a bus of Fortune Express
figured in an accident with a jeepney in Kauswagan,
Lanao del Norte. This resulted in the death of several
passengers, including two Maranaos.
Crisanto Generalao, a volunteer field agent of the
Constabulary Regional Security Unit conducted an
investigation of the accident and found that the owner
of the jeepney was a Maranao residing in Delabayan,
Lanao del Norte. He also found that certain Maranaos
were planning to take revenge on Fortune Express by
burning some of its buses.

Generalao submitted his report to Sgt. Bastasa of the

Philippine Constabulary Regional Headquarters at
Cagayan de Oro. He went to see Diosdado Bravo,
who assured him that the necessary precautions
would be taken to insure the safety of lives and
On November 22, 1989, at 6:45pm, 3 Maranaos who
pretended to be passengers seized a bus of Fortune
Express at Linamon, Lanao del Norte while on its way
to Iligan. Among the passengers was Atty. Caorong.
The bus driver was ordered by the leader to stop the
bus on the side of the highway. He was then shot in
the arm, and one Maranao started pouring gasoline
inside the bus while the other held the passengers at
bay with a handgun. The leader then ordered the
passengers to get off the bus.
The passengers, including Atty. Caorong, steped out
of the bus and went behind the bushes in a field some
distance from the highway.
However, Atty. Caorong returned to the bus to
retrieve something. At that time, one of the armed
men was pouring gasoline on the head of the driver.
The driver regained consciousness and heard Atty.
Caorong pleading with the armed men to spare the
drivers life, but they were adamant and repeated their
warning that they were going to burn the bus along
with its driver.
During this exchange the driver climbed out of the left
window of the bus and crawled to the canal on the
opposite side of the highway. He heard shots from
inside the bus. One of the passengers then saw Atty.
Caorong had been hit.
The bus was subsequently set on fire, but some
passengers were able to pull Atty. Caorong out of the
burning bus. He was rushed to the Mercy Community
Hospital in Iligan, but died while undergoing operation.
The private respondents brought a suit for breach of
contract of carriage with the RTC of Iligan City, but
the RTC denied its claim. It ratiocinated that Fortune
Express could not be faulted for its failure to accord
faith and credit to the report of Mr. Generalao, and the
fact that it did not provide security to its buses in light
of the circumstances. Furthermore it ruled that the
assailants did not have the least intention of harming
any passengers, and Atty. Caorongs death was an
unexpected and unforeseen occurrence over which
Fortune Express had no control.
On appeal, the Court of Appeals reversed the
decision of the RTC, holding that Fortune Express, in
not adopting even a single safety measure for the
protection of its passengers, failed to exercise the
degree of diligence required of common carriers. It
suggested that a simple frisking could have been
conducted to discover the handguns and the gallon of
gasoline that had been used in the shooting of the
victim and the burning of the bus.
The CA required Fortune Express to pay the
o P3,399,649.20 as death indemnity
o P50,000 and P500 per appearance as
attorneys fees

Issue: Whether Fortune Express can be held liable. YES

Whether the seizure of the bus can be considered force
majeure. NO

Whether there was contributory negligence on the part of the

deceased. NO
There was breach of contract of carriage.
Art. 1763 of the Civil Code provides that a common carrier is
responsible for injuries suffered by a passenger on account of
the wilful acts of other passengers, if the employees of the
common carrier could have prevented the act the exercise of
the diligence of a good father of a family. In the present case,
it is clear that because of the negligence of Fortune Express
employees, the seizure of the bus by Mananggolo and his men
was made possible.
Despite warning by the Philippine Constabulary at Cagayan de
Oro that the Maranaos were planning to take revenge on
Fortune Express by burning some of its buses and the
assurance of Fortune Expresss operation manager, Diosdado
Bravo, that the necessary precautions would be taken, Fortune
Express did nothing to protect the safety of its passengers.
Under the circumstances, simple precautionary measures to
protect the safety of passengers, such as frisking passengers
and inspecting their baggages, preferably with non-intrusive
gadgets such as metal detectors, before allowing them on
board could have been employed without violating the
passengers constitutional rights. As held in Gacal v.
Philippine Air Lines, Inc., a common carrier can be held liable
for failing to prevent a hijacking by frisking passengers and
inspecting their baggages.
From the foregoing, it is evident that Fortune Express
employees failed to prevent the attack on one of petitioners
buses because they did not exercise the diligence of a good
father of a family. Hence, it should be held liable for the death
of Atty. Caorong.
Seizure of bus not a case of force majeure.
Art. 1174 of the Civil Code defines a fortuitous even as an
occurrence which could not be foreseen or which though
foreseen, is inevitable.
In Yobido v. Court of Appeals, the following requisites were laid
down in order for an event to be considered force majeure:
(1) the cause of the breach of the obligation must be
independent of the human will;
(2) the event must be either unforeseeable or unavoidable;
(3) the occurrence must be such as to render it impossible for
the debtor to fulfill the obligation in a normal manner; and
(4) the obligor must be free of participation in, or aggravation of,
the injury to the creditor.
The absence of any of the requisites mentioned above would
prevent the obligor from being excused from liability.
In Vasquez vs. CA, a common carrier was held liable for its
failure to take the necessary precautions against an
approaching typhoon, of which it had been warned. The event
was foreseeable and thus the second requisite was not fulfilled.
The same applies in this case. Fortune Express had
knowledge that the Maranois were going to attack its buses but
it took no steps to safeguard the lives and properties of its
No contributory negligence on part of deceased.

Fortune Express contends that Atty. Caorong was guilty of

contributory negligence in returning to the bus to retrieve
something. But Atty. Caorong did not act recklessly. It should
be pointed out that the intended targets of the violence were
petitioner and its employees, not its passengers. The
assailants motive was to retaliate for the loss of life of two
Maranaos as a result of the collision between petitioners bus
and the jeepney in which the two Maranaos were riding.
Mananggolo, the leader of the group which had hijacked the
bus, ordered the passengers to get off the bus as they
intended to burn it and its driver. The armed men actually
allowed Atty. Caorong to retrieve something from the bus.
What apparently angered them was his attempt to help the
driver of the bus by pleading for his life. He was playing the
role of the good Samaritan. Certainly, this act cannot be
considered an act of negligence, let alone recklessness.
Computation of damages (just in case)
Death indemnity of P50,000 entitled.
Actual damages of P30,00 for the wake and burial of Atty.
Caorong entitled since Fortune Express does not question
this finding of the trial court.
Moral damages of P100,000 for the suffering caused by Atty.
Caorongs death to his widow entitled since this was not also
Exemplary damages of P100,000 since Fortune acted in a
wanton and reckless manner for failing to take the necessary
precautions to protect the safety of passengers entitled.
Attorneys fees of P50,000 entitled since there was an award
of exemplary damages.
Compensation for loss of earning capacity P2,121,404.90.
Computed as follows:

Net earning = Life


Annual - Living

Life expectancy is equivalent to two thirds (2/3) multiplied by

the difference of eighty (80) and the age of the deceased.
Since Atty. Caorong was 37 years old at the time of his death,
he had a life expectancy of 28 2/3 more years. His projected
gross annual income, computed based on his monthly salary of
P11,385.00[23] as a lawyer in the Department of Agrarian
Reform at the time of his death, was P148,005.00. Allowing for
necessary living expenses of fifty percent (50%) of his
projected gross annual income, his total earning capacity
amounts to P2,121,404.90.