Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 200289 November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.

x-----------------------x

G.R. No. 200314

ORIENT FREIGHT INTERNATIONAL INC., Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.

DECISION

PERALTA, J.:

These two consolidated cases challenge, by way of petition for certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, September 13, 2011 Decision1 and January 19, 2012 Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 86752, which reversed and set aside the January 27, 2006 Decision3 of the Manila
City Regional Trial Court Branch (RTC) 30. The facts, as established by the records, are as follows:

On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197 metal
containers/skids of tin-free steel for delivery to the consignee, San Miguel Corporation (SMC). The shipment,
covered by Bill of Lading No. KBMA-1074,4 was loaded and received clean on board M/V Golden Harvest
Voyage No. 66, a vessel owned and operated by Westwind Shipping Corporation (Westwind).

SMC insured the cargoes against all risks with UCPB General Insurance Co., Inc. (UCPB) for US Dollars:
One Hundred Eighty-Four Thousand Seven Hundred Ninety-Eight and Ninety-Seven Centavos
(US$184,798.97), which, at the time, was equivalent to Philippine Pesos: Six Million Two Hundred Nine
Thousand Two Hundred Forty-Five and Twenty-Eight Centavos (₱6,209,245.28).

The shipment arrived in Manila, Philippines on August 31, 1993 and was discharged in the custody of the
arrastre operator, Asian Terminals, Inc. (ATI), formerly Marina Port Services, Inc.5 During the unloading
operation, however, six containers/skids worth Philippine Pesos: One Hundred Seventeen Thousand Ninety-
Three and Twelve Centavos (₱117,093.12) sustained dents and punctures from the forklift used by the
stevedores of Ocean Terminal Services, Inc. (OTSI) in centering and shuttling the containers/skids. As a
consequence, the local ship agent of the vessel, Baliwag Shipping Agency, Inc., issued two Bad Order
Cargo Receipt dated September 1, 1993.

On September 7, 1993, Orient Freight International, Inc. (OFII), the customs broker of SMC, withdrew from
ATI the 197 containers/skids, including the six in damaged condition, and delivered the same at SMC’s
warehouse in Calamba, Laguna through J.B. Limcaoco Trucking (JBL). It was discovered upon discharge
that additional nine containers/skids valued at Philippine Pesos: One Hundred Seventy-Five Thousand Six
Hundred Thirty-Nine and Sixty-Eight Centavos (₱175,639.68) were also damaged due to the forklift
operations; thus, making the total number of 15 containers/skids in bad order.

Almost a year after, on August 15, 1994, SMC filed a claim against UCPB, Westwind, ATI, and OFII to
recover the amount corresponding to the damaged 15 containers/skids. When UCPB paid the total sum of
Philippine Pesos: Two Hundred Ninety-Two Thousand Seven Hundred Thirty-Two and Eighty Centavos
(₱292,732.80), SMC signed the subrogation receipt. Thereafter, in the exercise of its right of subrogation,
UCPB instituted on August 30, 1994 a complaint for damages against Westwind, ATI, and OFII.6

After trial, the RTC dismissed UCPB’s complaint and the counterclaims of Westwind, ATI, and OFII. It ruled
that the right, if any, against ATI already prescribed based on the stipulation in the 16 Cargo Gate Passes
issued, as well as the doctrine laid down in International Container Terminal Services, Inc. v. Prudential
Guarantee & Assurance Co. Inc.7 that a claim for reimbursement for damaged goods must be filed within 15
days from the date of consignee’s knowledge. With respect to Westwind, even if the action against it is not
yet barred by prescription, conformably with Section 3 (6) of the Carriage of Goods by Sea Act (COGSA)
and Our rulings in E.E. Elser, Inc., et al. v. Court of Appeals, et al.8 and Belgian Overseas Chartering and
Shipping N.V. v. Phil. First Insurance Co., Inc.,9 the court a quo still opined that Westwind is not liable, since
the discharging of the cargoes were done by ATI personnel using forklifts and that there was no allegation
that it (Westwind) had a hand in the conduct of the stevedoring operations. Finally, the trial court likewise
absolved OFII from any liability, reasoning that it never undertook the operation of the forklifts which caused
the dents and punctures, and that it merely facilitated the release and delivery of the shipment as the
customs broker and representative of SMC.

On appeal by UCPB, the CA reversed and set aside the trial court. The fallo of its September 13, 2011
Decision directed:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The Decision dated January
27, 2006 rendered by the court a quo is REVERSED AND SET ASIDE. Appellee Westwind Shipping
Corporation is hereby ordered to pay to the appellant UCPB General Insurance Co., Inc., the amount of One
Hundred Seventeen Thousand and Ninety-Three Pesos and Twelve Centavos (Php117,093.12), while
Orient Freight International, Inc. is hereby ordered to pay to UCPB the sum of One Hundred Seventy-Five
Thousand Six Hundred Thirty-Nine Pesos and Sixty-Eight Centavos (Php175,639.68). Both sums shall bear
interest at the rate of six (6%) percent per annum, from the filing of the complaint on August 30, 1994 until
the judgment becomes final and executory. Thereafter, an interest rate of twelve (12%) percent per annum
shall be imposed from the time this decision becomes final and executory until full payment of said amounts.

SO ORDERED.10

While the CA sustained the RTC judgment that the claim against ATI already prescribed, it rendered a
contrary view as regards the liability of Westwind and OFII. For the appellate court, Westwind, not ATI, is
responsible for the six damaged containers/skids at the time of its unloading. In its rationale, which
substantially followed Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc.,11 it concluded that
the common carrier, not the arrastre operator, is responsible during the unloading of the cargoes from the
vessel and that it is not relieved from liability and is still bound to exercise extraordinary diligence at the time
in order to see to it that the cargoes under its possession remain in good order and condition. The CA also
considered that OFII is liable for the additional nine damaged containers/skids, agreeing with UCPB’s
contention that OFII is a common carrier bound to observe extraordinary diligence and is presumed to be at
fault or have acted negligently for such damage. Noting the testimony of OFII’s own witness that the delivery
of the shipment to the consignee is part of OFII’s job as a cargo forwarder, the appellate court ruled that
Article 1732 of the New Civil Code (NCC) does not distinguish between one whose principal business
activity is the carrying of persons or goods or both and one who does so as an ancillary activity. The
appellate court further ruled that OFII cannot excuse itself from liability by insisting that JBL undertook the
delivery of the cargoes to SMC’s warehouse. It opined that the delivery receipts signed by the inspector of
SMC showed that the containers/skids were received from OFII, not JBL. At the most, the CA said, JBL was
engaged by OFII to supply the trucks necessary to deliver the shipment, under its supervision, to SMC.

Only Westwind and OFII filed their respective motions for reconsideration, which the CA denied; hence, they
elevated the case before Us via petitions docketed as G.R. Nos. 200289 and 200314, respectively.

Westwind argues that it no longer had actual or constructive custody of the containers/skids at the time they
were damaged by ATI’s forklift operator during the unloading operations. In accordance with the stipulation
of the bill of lading, which allegedly conforms to Article 1736 of the NCC, it contends that its responsibility
already ceased from the moment the cargoes were delivered to ATI, which is reckoned from the moment the
goods were taken into the latter’s custody. Westwind adds that ATI, which is a completely independent entity
that had the right to receive the goods as exclusive operator of stevedoring and arrastre functions in South
Harbor, Manila, had full control over its employees and stevedores as well as the manner and procedure of
the discharging operations.

As for OFII, it maintains that it is not a common carrier, but only a customs broker whose participation is
limited to facilitating withdrawal of the shipment in the custody of ATI by overseeing and documenting the
turnover and counterchecking if the quantity of the shipments were in tally with the shipping documents at
hand, but without participating in the physical withdrawal and loading of the shipments into the delivery
trucks of JBL. Assuming that it is a common carrier, OFII insists that there is no need to rely on the
presumption of the law – that, as a common carrier, it is presumed to have been at fault or have acted
negligently in case of damaged goods – considering the undisputed fact that the damages to the
containers/skids were caused by the forklift blades, and that there is no evidence presented to show that
OFII and Westwind were the owners/operators of the forklifts. It asserts that the loading to the trucks were
made by way of forklifts owned and operated by ATI and the unloading from the trucks at the SMC
warehouse was done by way of forklifts owned and operated by SMC employees. Lastly, OFII avers that
neither the undertaking to deliver nor the acknowledgment by the consignee of the fact of delivery makes a
person or entity a common carrier, since delivery alone is not the controlling factor in order to be considered
as such.

Both petitions lack merit.

The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc.12 applies, as it settled the
query on which between a common carrier and an arrastre operator should be responsible for damage or
loss incurred by the shipment during its unloading. We elucidated at length:

Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions
enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction,
or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a
right to receive them.

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for the
cargo from the time it is turned over to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port of unloading, unless agreed
otherwise. In Standard Oil Co. of New York v. Lopez Castelo, the Court interpreted the ship captain’s liability
as ultimately that of the shipowner by regarding the captain as the representative of the shipowner.
Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the carrier in
relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the Act.
Section 3 (2) thereof then states that among the carriers’ responsibilities are to properly and carefully load,
handle, stow, carry, keep, care for, and discharge the goods carried.

xxxx

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf
or between the establishment of the consignee or shipper and the ship's tackle. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn
them over to the party entitled to their possession.

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and damage to shipments under its
custody.

In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc., the Court explained the relationship and
responsibility of an arrastre operator to a consignee of a cargo, to quote:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman. The relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods
that are in its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and
obligated to deliver the goods in good condition to the consignee. (Emphasis supplied) (Citations omitted)

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of Appeals with
the clarification that the arrastre operator and the carrier are not always and necessarily solidarily liable as
the facts of a case may vary the rule.

Thus, in this case, the appellate court is correct insofar as it ruled that an arrastre operator and a carrier may
not be held solidarily liable at all times. But the precise question is which entity had custody of the shipment
during its unloading from the vessel?

The aforementioned Section 3 (2) of the COGSA states that among the carriers’ responsibilities are to
properly and carefully load, care for and discharge the goods carried. The bill of lading covering the subject
shipment likewise stipulates that the carrier’s liability for loss or damage to the goods ceases after its
discharge from the vessel. Article 619 of the Code of Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery at the port of unloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M/V Farland, it was ruled that like the duty
of seaworthiness, the duty of care of the cargo is non-delegable, and the carrier is accordingly responsible
for the acts of the master, the crew, the stevedore, and his other agents. It has also been held that it is
ordinarily the duty of the master of a vessel to unload the cargo and place it in readiness for delivery to the
consignee, and there is an implied obligation that this shall be accomplished with sound machinery,
competent hands, and in such manner that no unnecessary injury shall be done thereto. And the fact that a
consignee is required to furnish persons to assist in unloading a shipment may not relieve the carrier of its
duty as to such unloading.

xxxx
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the
custody of the carrier x x x.13

In Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co. (Philippines), Inc.14 and
Asian Terminals, Inc. v. Philam Insurance Co., Inc.,15 the Court echoed the doctrine that cargoes, while being
unloaded, generally remain under the custody of the carrier. We cannot agree with Westwind’s disputation
that "the carrier in Wallem clearly exercised supervision during the discharge of the shipment and that is why
it was faulted and held liable for the damage incurred by the shipment during such time." What Westwind
failed to realize is that the extraordinary responsibility of the common carrier lasts until the time the goods
are actually or constructively delivered 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 possession has been
turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove
the goods.16 In this case, since the discharging of the containers/skids, which were covered by only one bill
of lading, had not yet been completed at the time the damage occurred, there is no reason to imply that
there was already delivery, actual or constructive, of the cargoes to ATI. Indeed, the earlier case of Delsan
Transport Lines, Inc. v. American Home Assurance Corp.17 serves as a useful guide, thus:

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

To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. The mere proof of delivery of goods in
good order to the carrier, and their arrival in the place of destination in bad order, make out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be
held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other
circumstances inconsistent with its liability.18

The contention of OFII is likewise untenable. A customs broker has been regarded as a common carrier
because transportation of goods is an integral part of its business.19 In Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,20 the Court already reiterated: It is settled that under a given set of
facts, a customs broker may be regarded as a common carrier. Thus, this Court, in A.F. Sanchez
1âw phi 1

Brokerage, Inc. v. The Honorable Court of Appeals held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as
defined under Article 1732 of the Civil Code, to wit, Art. 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.

xxxx
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and
one who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not
a common carrier but a customs broker whose principal function is to prepare the correct customs
declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner
undertakes to deliver the goods for pecuniary consideration.

And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the transportation of goods is an
integral part of a customs broker, the customs broker is also a common carrier. For to declare otherwise
"would be to deprive those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of petitioner’s
business."21

That OFII is a common carrier is buttressed by the testimony of its own witness, Mr. Loveric Panganiban
Cueto, that part of the services it offers to clients is cargo forwarding, which includes the delivery of the
shipment to the consignee.22 Thus, for undertaking the transport of cargoes from ATI to SMC’s warehouse in
Calamba, Laguna, OFII is considered a common carrier. As long as a person or corporation holds itself to
the public for the purpose of transporting goods as a business, it is already considered a common carrier
regardless of whether it owns the vehicle to be used or has to actually hire one.

As a common carrier, OFII is mandated to observe, under Article 1733 of the Civil Code,23 extraordinary
diligence in the vigilance over the goods24 it transports according to the peculiar circumstances of each case.
In the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at fault or to have
acted negligently unless it proves that it observed extraordinary diligence.25 In the case at bar it was
established that except for the six containers/skids already damaged OFII received the cargoes from ATI in
good order and condition; and that upon its delivery to SMC additional nine containers/skids were found to
be in bad order as noted in the Delivery Receipts issued by OFII and as indicated in the Report of Cares
Marine Cargo Surveyors. Instead of merely excusing itself from liability by putting the blame to ATI and SMC
it is incumbent upon OFII to prove that it actively took care of the goods by exercising extraordinary diligence
in the carriage thereof. It failed to do so. Hence its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.

WHEREFORE, premises considered the petitions of Westwind and OFII in G.R. Nos. 200289 and 200314
respectively are DENIED. The September 13 2011 Decision and January 19 2012 Resolution of the Court of
Appeals in CA-G.R. CV No. 86752 which reversed and set aside the January 27 2006 Decision of the
Manila City Regional Trial Court Branch 30 are AFFIRMED.

SO ORDERED
 FIRST DIVISION

G.R. No. 153563 February 07, 2005

NATIONAL TRUCKING AND FORWARDING CORPORATION, petitioner,

vs.
LORENZO SHIPPING CORPORATION, Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 16, 2002, of the Court of Appeals, in CA-G.R. CV
No. 48349, and its Resolution,2 of May 13, 2002, denying the motion for reconsideration of herein petitioner
National Trucking and Forwarding Corporation (NTFC). The impugned decision affirmed in toto the
judgment3 dated November 14, 1994 of the Regional Trial Court (RTC) of Manila, Branch 53, in Civil Case
No. 90-52102.

The undisputed facts, as summarized by the appellate court, are as follows:

On June 5, 1987, the Republic of the Philippines, through the Department of Health (DOH), and the
Cooperative for American Relief Everywhere, Inc. (CARE) signed an agreement wherein CARE would
acquire from the United States government donations of non-fat dried milk and other food products from
January 1, 1987 to December 31, 1989. In turn, the Philippines would transport and distribute the donated
commodities to the intended beneficiaries in the country.

The government entered into a contract of carriage of goods with herein petitioner National Trucking and
Forwarding Corporation (NTFC). Thus, the latter shipped 4,868 bags of non-fat dried milk through herein
respondent Lorenzo Shipping Corporation (LSC) from September to December 1988. The consignee named
in the bills of lading issued by the respondent was Abdurahman Jama, petitioner’s branch supervisor in
Zamboanga City.

On reaching the port of Zamboanga City, respondent’s agent, Efren Ruste4 Shipping Agency, unloaded the
4,868 bags of non-fat dried milk and delivered the goods to petitioner’s warehouse. Before each delivery,
Rogelio Rizada and Ismael Zamora, both delivery checkers of Efren Ruste Shipping Agency, requested
Abdurahman to surrender the original bills of lading, but the latter merely presented certified true copies
thereof. Upon completion of each delivery, Rogelio and Ismael asked Abdurahman to sign the delivery
receipts. However, at times when Abdurahman had to attend to other business before a delivery was
completed, he instructed his subordinates to sign the delivery receipts for him.

Notwithstanding the precautions taken, the petitioner allegedly did not receive the subject goods. Thus, in a
letter dated March 11, 1989, petitioner NTFC filed a formal claim for non-delivery of the goods shipped
through respondent.
In its letter of April 26, 1989, the respondent explained that the cargo had already been delivered to
Abdurahman Jama. The petitioner then decided to investigate the loss of the goods. But before the
investigation was over, Abdurahman Jama resigned as branch supervisor of petitioner.

Noting but disbelieving respondent’s insistence that the goods were delivered, the government through the
DOH, CARE, and NTFC as plaintiffs filed an action for breach of contract of carriage, against respondent as
defendant, with the RTC of Manila.

After trial, the RTC resolved the case as follows:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiffs, dismissing
the latter’s complaint, and ordering the plaintiffs, pursuant to the defendant’s counterclaim, to pay, jointly and
solidarily, to the defendant, actual damages in the amount of ₱50,000.00, and attorney’s fees in the amount
of ₱70,000.00, plus the costs of suit.

SO ORDERED.5

Dissatisfied with the foregoing ruling, herein petitioner appealed to the Court of Appeals. It faulted the lower
court for not holding that respondent failed to deliver the cargo, and that respondent failed to exercise the
extraordinary diligence required of common carriers. Petitioner also assailed the lower court for denying its
claims for actual, moral, and exemplary damages, and for awarding actual damages and attorney’s fees to
the respondent.6

The Court of Appeals found that the trial court did not commit any reversible error. It dismissed the appeal,
and affirmed the assailed decision in toto.

Undaunted, petitioner now comes to us, assigning the following errors:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE AND APPLY THE
LEGAL STANDARD OF EXTRAORDINARY DILIGENCE IN THE SHIPMENT AND DELIVERY OF GOODS
TO THE RESPONDENT AS A COMMON CARRIER, AS WELL AS THE ACCOMPANYING LEGAL
PRESUMPTION OF FAULT OR NEGLIGENCE ON THE PART OF THE COMMON CARRIER, IF THE
GOODS ARE LOST, DESTROYED OR DETERIORATED, AS REQUIRED UNDER THE CIVIL CODE.

II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT SUSTAINED THE BASELESS AND ARBITRARY
AWARD OF ACTUAL DAMAGES AND ATTORNEY’S FEES INASMUCH AS THE ORIGINAL COMPLAINT
WAS FILED IN GOOD FAITH, WITHOUT MALICE AND WITH THE BEST INTENTION OF PROTECTING
THE INTEREST AND INTEGRITY OF THE GOVERNMENT AND ITS CREDIBILITY AND RELATIONSHIP
WITH INTERNATIONAL RELIEF AGENCIES AND DONOR STATES AND ORGANIZATION. 7

The issues for our resolution are: (1) Is respondent presumed at fault or negligent as common carrier for the
loss or deterioration of the goods? and (2) Are damages and attorney’s fees due respondent?

Anent the first issue, petitioner contends that the respondent is presumed negligent and liable for failure to
abide by the terms and conditions of the bills of lading; that Abdurahman Jama’s failure to testify should not
be held against petitioner; and that the testimonies of Rogelio Rizada and Ismael Zamora, as employees of
respondent’s agent, Efren Ruste Shipping Agency, were biased and could not overturn the legal
presumption of respondent’s fault or negligence.

For its part, the respondent avers that it observed extraordinary diligence in the delivery of the goods. Prior
to releasing the goods to Abdurahman, Rogelio and Ismael required the surrender of the original bills of
lading, and in their absence, the certified true copies showing that Abdurahman was indeed the consignee of
the goods. In addition, they required Abdurahman or his designated subordinates to sign the delivery
receipts upon completion of each delivery.

We rule for respondent.

Article 17338 of the Civil Code demands that a common carrier observe extraordinary diligence over the
goods transported by it. Extraordinary diligence is that extreme measure of care and caution which persons
of unusual prudence and circumspection use for securing and preserving their own property or rights.9 This
exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the
scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged
for shipment. Hence, in case of loss of goods in transit, the common carrier is presumed under the law to
have been at fault or negligent.10 However, the presumption of fault or negligence, may be overturned by
competent evidence showing that the common carrier has observed extraordinary diligence over the goods.

In the instant case, we agree with the court a quo that the respondent adequately proved that it exercised
extraordinary diligence. Although the original bills of lading remained with petitioner, respondent’s agents
demanded from Abdurahman the certified true copies of the bills of lading. They also asked the latter and in
his absence, his designated subordinates, to sign the cargo delivery receipts.

This practice, which respondent’s agents testified to be their standard operating procedure, finds support in
Article 353 of the Code of Commerce:

ART. 353. . . .

After the contract has been complied with, the bill of lading which the carrier has issued shall be returned to
him, and by virtue of the exchange of this title with the thing transported, the respective obligations and
actions shall be considered cancelled, ….

In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the
carrier, because of its loss or of any other cause, he must give the latter a receipt for the goods
delivered, this receipt producing the same effects as the return of the bill of lading. (Emphasis
supplied)

Conformably with the aforecited provision, the surrender of the original bill of lading is not a condition
precedent for a common carrier to be discharged of its contractual obligation. If surrender of the original bill
of lading is not possible, acknowledgment of the delivery by signing the delivery receipt suffices. This is what
respondent did.

We also note that some delivery receipts were signed by Abdurahman’s subordinates and not by
Abdurahman himself as consignee. Further, delivery checkers Rogelio and Ismael testified that Abdurahman
was always present at the initial phase of each delivery, although on the few occasions when Abdurahman
could not stay to witness the complete delivery of the shipment, he authorized his subordinates to sign the
delivery receipts for him. This, to our mind, is sufficient and substantial compliance with the requirements.
We further note that, strangely, petitioner made no effort to disapprove Abdurahman’s resignation until after
the investigation and after he was cleared of any responsibility for the loss of the goods. With Abdurahman
outside of its reach, petitioner cannot now pass to respondent what could be Abdurahman’s negligence, if
indeed he were responsible.

On the second issue, petitioner submits there is no basis for the award of actual damages and attorney’s
fees. It maintains that its original complaint for sum of money with damages for breach of contract of
carriage was not fraudulent, in bad faith, nor malicious. Neither was the institution of the action rash nor
precipitate. Petitioner avers the filing of the action was intended to protect the integrity and interest of the
government and its relationship and credibility with international relief agencies and donor states.

On the other hand, respondent maintains that petitioner’s suit was baseless and malicious because instead
of going after its absconding employee, petitioner wanted to recoup its losses from respondent. The trial
court and the Court of Appeals were justified in granting actual damages and reasonable attorney’s fees to
respondent.

On this point, we agree with petitioner.

The right to litigate should bear no premium. An adverse decision does not ipso facto justify an award of
attorney’s fees to the winning party.11 When, as in the instant case, petitioner was compelled to sue to protect
the credibility of the government with international organizations, we are not inclined to grant attorney’s fees.
We find no ill motive on petitioner’s part, only an erroneous belief in the righteousness of its claim.

Moreover, an award of attorney’s fees, in the concept of damages under Article 2208 of the Civil
Code,12 requires factual and legal justifications. While the law allows some degree of discretion on the part of
the courts in awarding attorney’s fees and expenses of litigation, the discretion must be exercised with great
care approximating as closely as possible, the instances exemplified by the law.13 We have searched but
found nothing in petitioner’s suit that justifies the award of attorney’s fees.

Respondent failed to show proof of actual pecuniary loss, hence, no actual damages are due in favor of
respondent.14

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 48349 dated January 16, 2002 and May 13, 2002 respectively, denying
petitioner’s claim for actual, moral and exemplary damages are AFFIRMED. The award of actual damages
and attorney’s fees to respondent pursuant to the latter’s counterclaim in the trial court is DELETED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 150403 January 25, 2007

CEBU SALVAGE CORPORATION, Petitioner,

vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.

DECISION

CORONA, J.:

May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not own?

This is the issue presented for the Court’s resolution in this petition for review on certiorari1 assailing the
March 16, 2001 decision2 and September 17, 2001 resolution3 of the Court of Appeals (CA) in CA-G.R. CV
No. 40473 which in turn affirmed the December 27, 1989 decision4 of the Regional Trial Court (RTC),
Branch 145, Makati, Metro Manila.5

The pertinent facts follow.

On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina Chemicals
Industries, Inc. [MCCII] (as charterer) entered into a voyage charter6 wherein petitioner was to load 800 to
1,100 metric tons of silica quartz on board the M/T Espiritu Santo7 at Ayungon, Negros Occidental for
transport to and discharge at Tagoloan, Misamis Oriental to consignee Ferrochrome Phils., Inc.8

Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric tons of silica
quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next day.9 The shipment never
reached its destination, however, because the M/T Espiritu Santo sank in the afternoon of December 24,
1984 off the beach of Opol, Misamis Oriental, resulting in the total loss of the cargo.10

MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home Assurance
Corporation.11 Respondent paid the claim in the amount of P211,500 and was subrogated to the rights of
MCCII.12Thereafter, it filed a case in the RTC13 against petitioner for reimbursement of the amount it paid
MCCII.

After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorney’s fees equivalent to 25% of the award and costs of suit.

On appeal, the CA affirmed the decision of the RTC. Hence, this petition.

Petitioner and MCCII entered into a "voyage charter," also known as a contract of affreightment wherein the
ship was leased for a single voyage for the conveyance of goods, in consideration of the payment of
freight.14 Under a voyage charter, the shipowner retains the possession, command and navigation of the
ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of
freight.15 An owner who retains possession of the ship remains liable as carrier and must answer for loss or
non-delivery of the goods received for transportation.16
Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it entered into
with MCCII was a contract of carriage.17 It insists that the agreement was merely a contract of hire wherein
MCCII hired the vessel from its owner, ALS Timber Enterprises (ALS).18 Not being the owner of the M/T
Espiritu Santo, petitioner did not have control and supervision over the vessel, its master and crew.19 Thus, it
could not be held liable for the loss of the shipment caused by the sinking of a ship it did not own.

We disagree.

Based on the agreement signed by the parties and the testimony of petitioner’s operations manager, it is
clear that it was a contract of carriage petitioner signed with MCCII. It actively negotiated and solicited
MCCII’s account, offered its services to ship the silica quartz and proposed to utilize the M/T Espiritu Santo
in lieu of the M/T Seebees or the M/T Shirley (as previously agreed upon in the voyage charter) since these
vessels had broken down.20

There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo, it was engaged
in the business of carrying and transporting goods by water, for compensation, and offered its services to
the public.21

From the nature of their business and for reasons of public policy, common carriers are bound to observe
extraordinary diligence over the goods they transport according to the circumstances of each case.22 In the
event of loss of the goods, common carriers are responsible, unless they can prove that this was brought
about by the causes specified in Article 1734 of the Civil Code.23 In all other cases, common carriers are
presumed to be at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.24

Petitioner was the one which contracted with MCCII for the transport of the cargo. It had control over what
vessel it would use. All throughout its dealings with MCCII, it represented itself as a common carrier. The
fact that it did not own the vessel it decided to use to consummate the contract of carriage did not negate its
character and duties as a common carrier. The MCCII (respondent’s subrogor) could not be reasonably
expected to inquire about the ownership of the vessels which petitioner carrier offered to utilize. As a
practical matter, it is very difficult and often impossible for the general public to enforce its rights of action
under a contract of carriage if it should be required to know who the actual owner of the vessel is.25 In fact, in
this case, the voyage charter itself denominated petitioner as the "owner/operator" of the vessel.26

Petitioner next contends that if there was a contract of carriage, then it was between MCCII and ALS as
evidenced by the bill of lading ALS issued.27

Again, we disagree.

The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had been received
for transportation. It was not signed by MCCII, as in fact it was simply signed by the supercargo of
ALS.28 This is consistent with the fact that MCCII did not contract directly with ALS. While it is true that a bill
of lading may serve as the contract of carriage between the parties,29 it cannot prevail over the express
provision of the voyage charter that MCCII and petitioner executed:

[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard a vessel under
a charter party, and the charterer is also the holder of the bill of lading, "the bill of lading operates as the
receipt for the goods, and as document of title passing the property of the goods, but not as varying the
contract between the charterer and the shipowner." The Bill of Lading becomes, therefore, only a receipt and
not the contract of carriage in a charter of the entire vessel, for the contract is the Charter Party, and is the
law between the parties who are bound by its terms and condition provided that these are not contrary to
law, morals, good customs, public order and public policy. 30
Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage charter
stipulated that cargo insurance was for the charterer’s account.31 This deserves scant consideration. This
simply meant that the charterer would take care of having the goods insured. It could not exculpate the
carrier from liability for the breach of its contract of carriage. The law, in fact, prohibits it and condemns it as
unjust and contrary to public policy.32

To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on board the
vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove that it exercised
extraordinary diligence to prevent such loss or that it was due to some casualty or force majeure. The
voyage charter here being a contract of affreightment, the carrier was answerable for the loss of the goods
received for transportation.33

The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a carrier that
enters into a contract of carriage is not liable to the charterer or shipper if it does not own the vessel it
chooses to use. MCCII never dealt with ALS and yet petitioner insists that MCCII should sue ALS for
reimbursement for its loss. Certainly, to permit a common carrier to escape its responsibility for the goods it
agreed to transport (by the expedient of alleging non-ownership of the vessel it employed) would radically
derogate from the carrier's duty of extraordinary diligence. It would also open the door to collusion between
the carrier and the supposed owner and to the possible shifting of liability from the carrier to one without any
financial capability to answer for the resulting damages.34

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.