p.m.).10 He paid a total amount of P42,957.00 using his credit card.

11 He alleged that after paying for

the tickets, Alou printed the tickets,12 which consisted of three (3) pages, and recapped only the first
page to him.13 Since the first page contained the details he specified to Alou, he no longer read the
other pages of the flight information.14

On July 20, 2008, Jose and his 19 companions boarded the 0820 Cebu Pacific flight to Palawan and
had an enjoyable stay.15

On the afternoon of July 22, 2008, the group proceeded to the airport for their flight back to
Manila.16During the processing of their boarding passes, they were informed by Cebu Pacific
SECOND DIVISION personnel that nine (9)17 of them could not be admitted because their tickets were for the 1005 (or
10:05 a.m.)18 flight earlier that day.19 Jose informed the ground personnel that he personally
G.R. No. 210621, April 04, 2016 purchased the tickets and specifically instructed the ticketing agent that all 20 of them should be on
the 4:15 p.m. flight to Manila.20
ALFREDO MANAY, JR., FIDELINO SAN LUIS, ADRIAN SAN LUIS, ANNALEE SAN LUIS, MARK
ANDREW JOSE, MELISSA JOSE, CHARLOTTE JOSE, DAN JOHN DE GUZMAN, PAUL MARK Upon checking the tickets, they learned that only the first two (2) pages had the schedule Jose
BALUYOT, AND CARLOS S. JOSE, Petitioners, v. CEBU AIR,INC, Respondent. specified.21 They were left with no other option but to rebook their tickets. 22 They then learned that
their return tickets had been purchased as part of the promo sales of the airline, and the cost to
rebook the flight would be P7,000.00 more expensive than the promo tickets.23 The sum of the new
DECISION
tickets amounted to P65,000.00.24
LEONEN, J.: They offered to pay the amount by credit card but were informed by the ground personnel that they
only accepted cash.25 They then offered to pay in dollars, since most of them were balikbayans and
The Air Passenger Bill of Rights1 mandates that the airline must inform the passenger in writing of all had the amount on hand, but the airline personnel still refused. 26
the conditions and restrictions in the contract of carriage.2 Purchase of the contract of carriage binds
the passenger and imposes reciprocal obligations on both the airline and the passenger. The airline Eventually, they pooled enough cash to be able to buy tickets for five (5) of their companions.27
must exercise extraordinary diligence in the fulfillment of the terms and conditions of the contract of
carriage. The passenger, however, has the correlative obligation to exercise ordinary diligence in the
conduct of his or her affairs.

This resolves a Petition for Review on Certiorari3 assailing the Court of Appeals Decision4 dated
December 13, 2013 in CA-G.R. SP. No. 129817. In the assailed Decision, the Court of Appeals
reversed the Metropolitan Trial Court Decision5 dated December 15, 2011 and the Regional Trial
Court Decision6 dated November 6, 2012 and dismissed the Complaint for Damages filed by
petitioners Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee San Luis, Mark Andrew
Jose, Melissa Jose, Charlotte Jose, Dan John De Guzman, Paul Mark Baluyot, and Carlos S. Jose
against respondent Cebu Air, Incorporated (Cebu Pacific).7

On June 13, 2008, Carlos S. Jose (Jose) purchased 20 Cebu Pacific round-trip tickets from Manila to
Palawan for himself and on behalf of his relatives and friends.8 He made the purchase at Cebu
Pacific's branch office in Robinsons Galleria.9

Jose alleged that he specified to "Alou," the Cebu Pacific ticketing agent, that his preferred date and
time of departure from Manila to Palawan should be on July 20, 2008 at 0820 (or 8:20 a.m.) and that
his preferred date and time for their flight back to Manila should be on July 22, 2008 at 1615 (or 4:15

1

THIRD DIVISION
G.R. No. 184513, March 09, 2016
DESIGNER BASKETS, INC., Petitioner, v. AIR SEA TRANSPORT, INC. AND ASIA CARGO
CONTAINER LINES, INC., Respondents.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 of the August 16, 2007 Decision2 and September 2, 2008
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 79790, absolving respondents Air Sea
Transport, Inc. (ASTI) and Asia Cargo Container Lines, Inc. (ACCLI) from liability in the complaint for
sum of money and damages filed by petitioner Designer Baskets, Inc. (DBI).
The Facts
DBI is a domestic corporation engaged in the production of housewares and handicraft items for
export.4Sometime in October 1995, Ambiente, a foreign-based company, ordered from DBI5 223
cartons of assorted wooden items (the shipment).6 The shipment was worth Twelve Thousand Five
Hundred Ninety and Eighty-Seven Dollars (US$12,590.87) and payable through telegraphic
transfer.7 Ambiente designated ACCLI as the forwarding agent that will ship out its order from the
Philippines to the United States (US). ACCLI is a domestic corporation acting as agent of ASTI, a US
based corporation engaged in carrier transport business, in the Philippines.8
On January 7, 1996, DBI delivered the shipment to ACCLI for sea transport from Manila and delivery
to Ambiente at 8306 Wilshire Blvd., Suite 1239, Beverly Hills, California. To acknowledge receipt and
to serve as the contract of sea carriage, ACCLI issued to DBI triplicate copies of ASTI Bill of Lading
No. AC/MLLA601317.9 DBI retained possession of the originals of the bills of lading pending the
payment of the goods by Ambiente.10
On January 23, 1996, Ambiente and ASTI entered into an Indemnity Agreement
(Agreement).11 Under the Agreement, Ambiente obligated ASTI to deliver the shipment to it or to its
order "without the surrender of the relevant bill(s) of lading due to the non-arrival or loss thereof."12 In
exchange, Ambiente undertook to indemnify and hold ASTI and its agent free from any liability as a
result of the release of the shipment.13 Thereafter, ASTI released the shipment to Ambiente without
the knowledge of DBI, and without it receiving payment for the total cost of the shipment.14
DBI then made several demands to Ambiente for the payment of the shipment, but to no avail. Thus,
on October 7, 1996, DBI filed the Original Complaint against ASTI, ACCLI and ACCLFs
incorporators-stockholders15 for the payment of the value of the shipment in the amount of
US$12,590.87 or Three Hundred Thirty-Three and Six Flundred Fifty-Eight Pesos (P333,658.00),
plus interest at the legal rate from January 22, 1996, exemplary damages, attorney's fees and cost of
suit.16
In its Original Complaint, DBI claimed that under Bill of Lading Number AC/MLLA601317, ASTI
and/or ACCLI is "to release and deliver the cargo/shipment to the consignee, x x x, only after the
original copy or copies of [the] Bill of Lading is or are surrendered to them; otherwise, they become
liable to the shipper for the value of the shipment."17 DBI also averred that ACCLI should be jointly
and severally liable with its co-defendants because ACCLI failed to register ASTI as a foreign
corporation doing business in the Philippines. In addition, ACCLI failed to secure a license to act as
agent of ASTI.18
On February 20, 1997, ASTI, ACCLI, and ACCLI's incorporators-stockholders filed a Motion to
Dismiss.19They argued that: (a) they are not the real parties-in-interest in the action because the
cargo was delivered and accepted by Ambiente. The case, therefore, was a simple case of
non�payment of the buyer; (b) relative to the incorporators-stockholders of ACCLI, piercing the
corporate veil is misplaced; (c) contrary to the allegation of DBI, the bill of lading covering the
shipment does not contain a proviso exposing ASTI to liability in case the shipment is released
without the surrender of the bill of lading; and (d) the Original Complaint did not attach a certificate of
non-forum shopping.20
DBI filed an Opposition to the Motion to Dismiss,21 asserting that ASTI and ACCLI failed to exercise
the required extraordinary diligence when they allowed the cargoes to be withdrawn by the
consignee without the surrender of the original bill of lading. ASTI, ACCLI, and ACCLI's
incorporators-stockholders countered that it is DBI who failed to exercise extraordinary diligence in
protecting its own interest. They averred that whether or not the buyer-consignee pays the seller is
already outside of their concern.22
Before the trial court could resolve the motion to dismiss, DBI filed an Amended
Complaint23 impleading Ambiente as a new defendant and praying that it be held solidarity liable with
ASTI, ACCLI, and ACCLFs incorporators-stockholders for the payment of the value of the shipment.
DBI alleged that it received reliable information that the shipment was released merely on the basis
of a company guaranty of Ambiente.24 Further, DBI asserted that ACCLI's incorporators-stockholders
have not yet fully paid their stock subscriptions; thus, "under the circumstance of [the] case," they
should be held liable to the extent of the balance of their subscriptions.25cralawred
In their Answer,26 ASTI, ACCLI, and ACCLI's incorporators-stockholders countered that DBI has no
cause of action against ACCLI and its incorporators-stockholders because the Amended Complaint,
on its face, is for collection of sum of money by an unpaid seller against a buyer. DBI did not allege
any act of the incorporators-stockholders which would constitute as a ground for piercing the veil of
2
corporate fiction.27ACCLI also reiterated that there is no stipulation in the bill of lading restrictively
subjecting the release of the cargo only upon the presentation of the original bill of lading. 28 It
regarded the issue of ASTI's lack of license to do business in the Philippines as "entirely foreign and
irrelevant to the issue of liability for breach of contract" between DBI and Ambiente. It stated that the
purpose of requiring a license (to do business in the Philippines) is to subject the foreign corporation
to the jurisdiction of Philippine courts.29
On July 22, 1997, the trial court directed the service of summons to Ambiente through the
Department of Trade and Industry.30 The summons was served on October 6, 199731 and December
18, 1997.32Ambiente failed to file an Answer. Hence, DBI moved to declare Ambiente in default,
which the trial court granted in its Order dated September 15, 1998.33
The Ruling of the Trial Court
In a Decision34 dated July 25, 2003, the trial court found ASTI, ACCLI, and Ambiente solidarity liable
to DBI for the value of the shipment. It awarded DBI the following:
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1. US$12,590.87, or the equivalent of [P]333,658.00 at the time of the shipment, plus 12%
interest per annum from 07 January 1996 until the same is fully paid;
2. [P]50,000.00 in exemplary damages;
3. [P]47,000.00 as and for attorney's fees; and,
4. [P]10,000.00 as cost of suit.35
The trial court declared that the liability of Ambiente is "very clear." As the buyer, it has an obligation
to pay for the value of the shipment. The trial court noted that "[the case] is a simple sale transaction
which had been perfected especially since delivery had already been effected and with only the
payment for the shipment remaining left to be done."36
With respect to ASTI, the trial court held that as a common carrier, ASTI is bound to observe
extraordinary diligence in the vigilance over the goods. However, ASTI was remiss in its duty when it
allowed the unwarranted release of the shipment to Ambiente.37 The trial court found that the
damages suffered by DBI was due to ASTI's release of the merchandise despite the non-
presentation of the bill of lading. That ASTI entered into an Agreement with Ambiente to release the
shipment without the surrender of the bill of lading is of no moment. 38 The Agreement cannot save
ASTI from liability because in entering into such, it violated the law, the terms of the bill of lading and
the right of DBI over the goods.39
The trial court also added that the Agreement only involved Ambiente and ASTI. Since DBI is not
privy to the Agreement, it is not bound by its terms.40cralawred
The trial court found that ACCLI "has not done enough to prevent the defendants Ambiente and
[ASTI] from agreeing among themselves the release of the goods in total disregard of [DBFs] rights
and in contravention of the country's civil and commercial laws."41 As the forwarding agent, ACCLI
was "well aware that the goods cannot be delivered to the defendant Ambiente since [DBI] retained
possession of the originals of the bill of lading."42 Consequently, the trial court held ACCLI solidarily
liable with ASTI.
As regards ACCLFs incorporators-stockholders, the trial court absolved them from liability. The trial
court ruled that the participation of ACCLFs incorporators-stockholders in the release of the cargo is
not as direct as that of ACCLI.43
DBI, ASTI and ACCLI appealed to the CA. On one hand, DBI took issue with the order of the trial
court awarding the value of the shipment in Philippine Pesos instead of US Dollars. It also alleged
that even assuming that the shipment may be paid in Philippine Pesos, the trial court erred in
pegging its value at the exchange rate prevailing at the time of the shipment, rather than at the
exchange rate prevailing at the time of payment.44
On the other hand, ASTI and ACCLI questioned the trial court's decision finding them solidarily liable
with DBI for the value of the shipment. They also assailed the trial court's award of interest,
exemplary damages, attorney's fees and cost of suit in DBFs favor.45
The Ruling of the Court of Appeals
The CA affirmed the trial court's finding that Ambiente is liable to DBI, but absolved ASTI and ACCLI
from liability. The CA found that the pivotal issue is whether the law requires that the bill of lading be
surrendered by the buyer/consignee before the carrier can release the goods to the former. It then
answered the question in the negative, thus:
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There is nothing in the applicable laws that require the surrender of bills of lading before the
goods may be released to the buyer/consignee. In fact, Article 353 of the Code of Commerce
suggests a contrary conclusion, viz �
"Art. 353. After the contract has been complied with, the bill of lading which the carrier has issued
shall be returned to him, and by virtue of the exchange of this title with the thing transported, the
respective obligations shall be considered canceled xxx 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."
The clear import of the above article is that the surrender of the bill of lading is not an absolute and
mandatory requirement for the release of the goods to the consignee. The fact that the carrier is
given the alternative option to simply require a receipt for the goods delivered suggests that
the surrender of the bill of lading may be dispensed with when it cannot be produced by the
consignee for whatever cause.46 (Emphasis supplied.)
The CA stressed that DBI failed to present evidence to prove its assertion that the surrender of the
bill of lading upon delivery of the goods is a common mercantile practice.47 Further, even assuming
that such practice exists, it cannot prevail over law and jurisprudence.48
3

As for ASTI, the CA explained that its only obligation as a common carrier was to deliver the
shipment in good condition. It did not include looking beyond the details of the transaction between
the seller and the consignee, or more particularly, ascertaining the payment of the goods by the
buyer Ambiente.49
Since the agency between ASTI and ACCLI was established and not disputed by any of the parties,
neither can ACCLI, as a mere agent of ASTI, be held liable. This must be so in the absence of
evidence that the agent exceeded its authority.50
The CA, thus, ruled:
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WHEREFORE, in view of the foregoing, the Decision dated July 25, 2003 of Branch 255 of the
Regional Trial court of Las [Pi�as] City in Civil Case No. LP-96-0235 is hereby AFFIRMED with the
following MODIFICATIONS:
1. Defendants-appellants Air Sea Transport, Inc. and Asia Cargo Container Lines, Inc. are
hereby ABSOLVED from all liabilities;
2. The actual damages to be paid by defendant Ambiente shall be in the amount of
US$12,590.87. Defendant Ambiente's liability may be paid in Philippine currency,
computed at the exchange rate prevailing at the time of payment;51 and
3. The rate of interest to be imposed on the total amount of US$12,590.87 shall be 6% per
annum computed from the filing of the complaint on October 7, 1996 until the finality of this
decision. After this decision becomes final and executory, the applicable rate shall be 12%
per annum until its full satisfaction.
SO ORDERED.52ChanRoblesVirtualawlibrary
Hence, this petition for review, which raises the sole issue of whether ASTI and ACCLI may be held
solidarily liable to DBI for the value of the shipment.
Our Ruling
We deny the petition.
A common carrier may release the goods to the consignee even without the surrender of the
hill of lading.
This case presents an instance where an unpaid seller sues not only the buyer, but the carrier and
the carrier's agent as well, for the payment of the value of the goods sold. The basis for ASTI and
ACCLI's liability, as pleaded by DBI, is the bill of lading covering the shipment.
A bill of lading is defined as "a written acknowledgment of the receipt of goods and an agreement to
transport and to deliver them at a specified place to a person named or on his order."53 It may also be
defined as an instrument in writing, signed by a carrier or his agent, describing the freight so as to
identify it, stating the name of the consignor, the terms of the contract of carriage, and agreeing or
directing that the freight be delivered to bearer, to order or to a specified person at a specified
place.54
Under Article 350 of the Code of Commerce, "the shipper as well as the carrier of the merchandise or
goods may mutually demand that a bill of lading be made." A bill of lading, when issued by the carrier
to the shipper, is the legal evidence of the contract of carriage between the former and the latter. It
defines the rights and liabilities of the parties in reference to the contract of carriage. The stipulations
in the bill of lading are valid and binding unless they are contrary to law, morals, customs, public
order or public policy.55
Here, ACCLI, as agent of ASTI, issued Bill of Lading No. AC/MLLA601317 to DBI. This bill of lading
governs the rights, obligations and liabilities of DBI and ASTI. DBI claims that Bill of Lading No.
AC/MLLA601317 contains a provision stating that ASTI and ACCLI are "to release and deliver the
cargo/shipment to the consignee, x x x, only after the original copy or copies of the said Bill of Lading
is or are surrendered to them; otherwise they become liable to [DBI] for the value of the
shipment."56Quite tellingly, however, DBI does not point or refer to any specific clause or provision on
the bill of lading supporting this claim. The language of the bill of lading shows no such requirement.
What the bill of lading provides on its face is:
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Received by the Carrier in apparent good order and condition unless otherwise indicated hereon, the
Container(s) and/or goods hereinafter mentioned to be transported and/or otherwise forwarded from
the Place of Receipt to the intended Place of Delivery upon and [subject] to all the terms and
conditions appearing on the face and back of this Bill of Lading. If required by the Carrier this Bill
of Lading duly endorsed must be surrendered in exchange for the Goods of delivery
order.57 (Emphasis supplied.)
There is no obligation, therefore, on the part of ASTI and ACCLI to release the goods only upon the
surrender of the original bill of lading.
Further, a carrier is allowed by law to release the goods to the consignee even without the latter's
surrender of the bill of lading. The third paragraph of Article 353 of the Code of Commerce is
enlightening:
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Article 353. The legal evidence of the contract between the shipper and the carrier shall be the bills
of lading, by the contents of which the disputes which may arise regarding their execution and
performance shall be decided, no exceptions being admissible other than those of falsity and
material error in the drafting.
After the contract has been complied with, the bill of lading which the carrier has issued shall be
returned to him, and by virtue of the exchange of this title with the thing transported, the respective
obligations and actions shall be considered cancelled, unless in the same act the claim which the
parties may wish to reserve be reduced to writing, with the exception of that provided for in Article
366.
4

In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed
by the carrier, because of its loss or any other cause, he must give the latter a receipt for the
goods delivered, this receipt producing the same effects as the return of the bill of
lading. (Emphasis supplied.)
The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to the
carrier and their respective obligations are considered canceled. The law, however, provides two
exceptions where the goods may be released without the surrender of the bill of lading because the
consignee can no longer return it. These exceptions are when the bill of lading gets lost or for other
cause. In either case, the consignee must issue a receipt to the carrier upon the release of the
goods. Such receipt shall produce the same effect as the surrender of the bill of lading.
We have already ruled that the non-surrender of the original bill of lading does not violate the carrier's
duty of extraordinary diligence over the goods.58 In Republic v. Lorenzo Shipping Corporation,59 we
found that the carrier exercised extraordinary diligence when it released the shipment to the
consignee, not upon the surrender of the original bill of lading, but upon signing the delivery receipts
and surrender of the certified true copies of the bills of lading. Thus, we held that the surrender of the
original bill of lading is not a condition precedent for a common carrier to be discharged of its
contractual obligation.
Under special circumstances, we did not even require presentation of any form of receipt by the
consignee, in lieu of the original bill of lading, for the release of the goods. In Macam v. Court of
Appeals,60 we absolved the carrier from liability for releasing the goods to the consignee without the
bills of lading despite this provision on the bills of lading:
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"One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery
order."61 (Citations omitted.)
In clearing the carrier from liability, we took into consideration that the shipper sent a telex to the
carrier after the goods were shipped. The telex instructed the carrier to deliver the goods without
need of presenting the bill of lading and bank guarantee per the shipper's request since "for prepaid
shipt ofrt charges already fully paid our end x x x."62 We also noted the usual practice of the shipper
to request the shipping lines to immediately release perishable cargoes through telephone calls.
Also, in Eastern Shipping Lines v. Court of Appeals,63 we absolved the carrier from liability for
releasing the goods to the supposed consignee, Consolidated Mines, Inc. (CMI), on the basis of an
Undertaking for Delivery of Cargo but without the surrender of the original bill of lading presented by
CMI. Similar to the factual circumstance in this case, the Undertaking in Eastern Shipping
Lines guaranteed to hold the carrier "harmless from all demands, claiming liabilities, actions and
expenses."64 Though the central issue in that case was who the consignee was in the bill of lading, it
is noteworthy how we gave weight to the Undertaking in ruling in favor of the carrier:
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But assuming that CMI may not be considered consignee, the petitioner cannot be faulted for
releasing the goods to CMI under the circumstances, due to its lack of knowledge as to who was the
real consignee in view of CMI's strong representations and letter of undertaking wherein it stated that
the bill of lading would be presented later. This is precisely the situation covered by the last
paragraph of Art. 353 of the [Code of Commerce] to wit:
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"If in case of loss or for any other reason whatsoever, the consignee cannot return upon receiving the
merchandise the bill of lading subscribed by the carrier, he shall give said carrier a receipt of the
goods delivered this receipt producing the same effects as the return of the bill of
lading."65ChanRoblesVirtualawlibrary
Clearly, law and jurisprudence is settled that the surrender of the original bill of lading is not absolute;
that in case of loss or any other cause, a common carrier may release the goods to the consignee
even without it.
Here, Ambiente could not produce the bill of lading covering the shipment not because it was lost,
but for another cause: the bill of lading was retained by DBI pending Ambiente's full payment of the
shipment. Ambiente and ASTI then entered into an Indemnity Agreement, wherein the former asked
the latter to release the shipment even without the surrender of the bill of lading. The execution of
this Agreement, and the undisputed fact that the shipment was released to Ambiente pursuant to it,
to our mind, operates as a receipt in substantial compliance with the last paragraph of Article 353 of
the Code of Commerce.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable.
DBI, however, challenges the Agreement, arguing that the carrier released the goods pursuant to it,
notwithstanding the carrier's knowledge that the bill of lading should first be surrendered. As such,
DBI claims that ASTI and ACCLI are liable for damages because they failed to exercise extraordinary
diligence in the vigilance over the goods pursuant to Articles 1733, 1734, and 1735 of the Civil
Code.66
DBI is mistaken.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable in this case. The Articles state:
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Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735,
and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is
further set forth in Articles 1755 and 1756.
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
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(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
5
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article,
if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary diligence as required
in Article 1733.
Articles 1733, 1734, and 1735 speak of the common carrier's responsibility over the goods. They
refer to the general liability of common carriers in case of loss, destruction or deterioration of
goods and the presumption of negligence against them. This responsibility or duty of the common
carrier lasts from the time the goods are unconditionally placed in the possession of, and received by
the carrier for transportation, until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them.67 It is, in fact, undisputed that the
goods were timely delivered to the proper consignee or to the one who was authorized to receive
them. DBFs only cause of action against ASTI and ACCLI is the release of the goods to Ambiente
without the surrender of the bill of lading, purportedly in violation of the terms of the bill of lading. We
have already found that Bill of Lading No. AC/MLLA601317 does not contain such express
prohibition. Without any prohibition, therefore, the carrier had no obligation to withhold release of the
goods. Articles 1733, 1734, and 1735 do not give ASTI any such obligation.
The applicable provision instead is Article 353 of the Code of Commerce, which we have previously
discussed. To reiterate, the Article allows the release of the goods to the consignee even without his
surrender of the original bill of lading. In such case, the duty of the carrier to exercise extraordinary
diligence is not violated. Nothing, therefore, prevented the consignee and the carrier to enter into an
indemnity agreement of the same nature as the one they entered here. No law or public policy is
contravened upon its execution.
Article 1503 of the Civil Code does not apply to contracts for carriage of goods.
In its petition, DBI continues to assert the wrong application of Article 353 of the Code of Commerce
to its Amended Complaint. It alleges that the third paragraph of Article 1503 of the Civil Code is the
applicable provision because: (a) Article 1503 is a special provision that deals particularly with the
situation of the seller retaining the bill of lading; and (b) Article 1503 is a law which is later in point of
time to Article 353 of the Code of Commerce.68 DBI posits that being a special provision, Article 1503
of the Civil Code should prevail over Article 353 of the Code of Commerce, a general provision that
makes no reference to the seller retaining the bill of lading.69
DBFs assertion is untenable. Article 1503 is an exception to the general presumption provided in the
first paragraph of Article 1523, which reads:
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Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to
send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer
or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to
the buyer, except in the cases provided for in Articles 1503, first, second and third
paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on
behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in the
course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or
may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in
which the seller knows or ought to know that it is usual to insure, the seller must give such notice to
the buyer as may enable him to insure them during their transit, and, if the seller fails to do so, the
goods shall be deemed to be at his risk during such transit. (Emphasis supplied.)
Article 1503, on the other hand, provides:
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Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of
the contract, reserve the right of possession or ownership in the goods until certain conditions have
been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the
delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the
buyer.
Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his
agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the
goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer
on shipment of the goods, the seller's property in the goods shall be deemed to be only for the
purpose of securing performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to order of the
buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent,
the seller thereby reserves a right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill
of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is
bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains
the bill of lading he acquires no added right thereby. If, however, the bill of lading provides that the
goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer
by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or
goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not
been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the
consignee named therein, or of the goods, without notice of the facts making the transfer wrongful.
(Emphasis supplied.)
Articles 1523 and 1503, therefore, refer to a contract of sale between a seller and a buyer. In
particular, they refer to who between the seller and the buyer has the right of possession or
ownership over the goods subject of the sale. Articles 1523 and 1503 do not apply to a contract of
carriage between the shipper and the common carrier. The third paragraph of Article 1503, upon
6
which DBI relies, does not oblige the common carrier to withhold delivery of the goods in the event before the trial court is undecipherable, the New Civil Code and the Code of Commerce shall govern
that the bill of lading is retained by the seller. Rather, it only gives the seller a better right to the the contract between the parties.72 (Emphasis supplied; citations omitted.)
possession of the goods as against the mere inchoate right of the buyer. Thus, Articles 1523 and In view of the foregoing, we hold that under Bill of Lading No. AC/MLLA601317 and the pertinent law
1503 find no application here. The case before us does not involve an action where the seller asserts and jurisprudence, ASTI and ACCLI are not liable to DBI. We sustain the finding of the CA that only
ownership over the goods as against the buyer. Instead, we are confronted with a complaint for sum Ambiente, as the buyer of the goods, has the obligation to pay for the value of the shipment.
of money and damages filed by the seller against the buyer and the common carrier due to the non- However, in view of our ruling in Nacar v. Gallery Frames,73 we modify the legal rate of interest
payment of the goods by the buyer, and the release of the goods by the carrier despite non- imposed by the CA. Instead of 12% per annum from the finality of this judgment until its full
surrender of the bill of lading. A contract of sale is separate and distinct from a contract of carriage. satisfaction, the rate of interest shall only be 6% per annum.chanrobleslaw
They involve different parties, different rights, different obligations and liabilities. Thus, we quote with
approval the ruling of the CA, to wit: WHEREFORE, the petition is DENIED for lack of merit. The August 16, 2007 Decision and the
chanRoblesvirtualLawlibrary September 2, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 79790 are
On the third assigned error, [w]e rule for the defendants-appellants [ASTI and ACCLI]. They are hereby AFFIRMEDwith the MODIFICATION that from the finality of this decision until its full
correct in arguing that the nature of their obligation with plaintiff [DBI] is separate and distinct satisfaction, the applicable rate of interest shall be 6% per annum.
from the transaction of the latter with defendant Ambiente. As carrier of the goods
transported by plaintiff, its obligation is simply to ensure that such goods are delivered on SO ORDERED.cralawlawlibrary
time and in good condition. In the case [Macam v. Court of Appeals], the Supreme Court
emphasized that "the extraordinary responsibility of the common carriers lasts until actual or Velasco, Jr., (Chairperson), Peralta, Perez, and Reyes, JJ., concur.chanroblesvirtuallawlibrary
constructive delivery of the cargoes to the consignee or to the person who has the right to receive
them." x x x
G.R. No. 194121, July 11, 2016 - TORRES-MADRID BROKERAGE, INC., Petitioner, v. FEB MITSUI
It is therefore clear that the moment the carrier has delivered the subject goods, its MARINE INSURANCE CO., INC. AND BENJAMIN P. MANALASTAS, DOING BUSINESS UNDER
responsibility ceases to exist and it is thereby freed from all the liabilities arising from the THE NAME OF BMT TRUCKING SERVICES, Respondents.
transaction. Any question regarding the payment of the buyer to the seller is no longer the
concern of the carrier. This easily debunks plaintiffs theory of joint liability.70 x x x (Emphasis
supplied; citations omitted.)
The contract between DBI and ASTI is a contract of carriage of goods; hence, ASTI's liability should
be pursuant to that contract and the law on transportation of goods. Not being a party to the contract
of sale between DBI and Ambiente, ASTI cannot be held liable for the payment of the value of the
goods sold. In this regard, we cite Loadstar Shipping Company, Incorporated v. Malayan Insurance
Company, Incorporated,71 thus:
chanRoblesvirtualLawlibrary
Malayan opposed the petitioners' invocation of the Philex-PASAR purchase agreement, stating that
the contract involved in this case is a contract of affreightment between the petitioners and PASAR,
not the agreement between Philex and PASAR, which was a contract for the sale of copper
concentrates.

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

7

SECOND DIVISION
G.R. No. 194121, July 11, 2016
TORRES-MADRID BROKERAGE, INC., Petitioner, v. FEB MITSUI MARINE INSURANCE CO.,
INC. AND BENJAMIN P. MANALASTAS, DOING BUSINESS UNDER THE NAME OF BMT
TRUCKING SERVICES, Respondents.
DECISION
BRION, J.:
We resolve the petition for review on certiorari challenging the Court of Appeals' (CA) October 14,
2010 decision in CA-G.R. CV No. 91829. 1chanrobleslaw
The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case No. 01-1596, and found
petitioner Torres-Madrid Brokerage, Inc. (TMBI) and respondent Benjamin P. Manalastas jointly and
solidarily liable to respondent FEB Mitsui Marine Insurance Co., Inc. (Mitsui) for damages from the
loss of transported cargo.
Antecedents
On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at
the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the
services of TMBI to facilitate, process, withdraw, and deliver the shipment from the port to its
warehouse in Binan, Laguna.2chanrobleslaw
TMBI - who did not own any delivery trucks - subcontracted the services of Benjamin Manalastas'
company, BMT Trucking Services (BMT), to transport the shipment from the port to the Binan
warehouse.3 Incidentally, TMBI notified Sony who had no objections to the
arrangement.4chanrobleslaw
Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of October 7, 2000.
However, BMT could not immediately undertake the delivery because of the truck ban and because
the following day was a Sunday. Thus, BMT scheduled the delivery on October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT's garage for Laguna.5 However, only
three trucks arrived at Sony's Binan warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found abandoned
along the Diversion Road in Filinvest, Alabang, Muntinlupa City.6 Both the driver and the shipment
were missing.
Later that evening, BMT's Operations Manager Melchor Manalastas informed Victor Torres, TMBI's
General Manager, of the development.7 They went to Muntinlupa together to inspect the truck and to
report the matter to the police.8chanrobleslaw
Victor Torres also filed a complaint with the National Bureau of Investigation (NBI) against Lapesura
for "hijacking." 9 The complaint resulted in a recommendation by the NBI to the Manila City
Prosecutor's Office to prosecute Lapesura for qualified theft.10chanrobleslaw
TMBI notified Sony of the loss through a letter dated October 10, 2000,11 It also sent BMT a letter
dated March 29, 2001, demanding payment for the lost shipment. BMT refused to pay, insisting that
the goods were "hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods. After
evaluating the merits of the claim, Mitsui paid Sony PHP7,293,386.23 corresponding to the value of
the lost goods.12chanrobleslaw
After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter dated August 30, 2001 for
payment of the lost goods. TMBI refused to pay Mitsui's claim. As a result, Mitsui filed a complaint
against TMBI on November 6, 2001,
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party defendant.
TMBI alleged that BMT's driver, Lapesura, was responsible for the theft/hijacking of the lost cargo
and claimed BMT's negligence as the proximate cause of the loss. TMBI prayed that in the event it is
held liable to Mitsui for the loss, it should be reimbursed by BMT,
At the trial, it was revealed that BMT and TMBI have been doing business with each other since the
early 80's. It also came out that there had been a previous hijacking incident involving Sony's cargo
in 1997, but neither Sony nor its insurer filed a complaint against BMT or TMBI. 13chanrobleslaw
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly and solidarity liable to pay
Mitsui PHP 7,293,386.23 as actual damages, attorney's fees equivalent to 25% of the amount
claimed, and the costs of the suit.14 The RTC held that TMBI and Manalastas were common carriers
and had acted negligently.
Both TMBI and BMT appealed the RTC's verdict.
TMBI denied that it was a common carrier required to exercise extraordinary diligence. It maintains
that it exercised the diligence of a good father of a family and should be absolved of liability because
the truck was "hijacked" and this was a fortuitous event.
8

BMT claimed that it had exercised extraordinary diligence over the lost shipment, and argued as well
that the loss resulted from a fortuitous event.
On October 14, 2010, the CA affirmed the RTC's decision but reduced the award of attorney's fees to
PHP 200,000.
The CA held: (1) that "hijacking" is not necessarily a fortuitous event because the term refers to the
general stealing of cargo during transit;15 (2) that TMBI is a common carrier engaged in the business
of transporting goods for the general public for a fee; 16 (3) even if the "hijacking" were a fortuitous
event, TMBI's failure to observe extraordinary diligence in overseeing the cargo and adopting
security measures rendered it liable for the loss; 17 and (4) even if TMBI had not been negligent in the
handling, transport and the delivery of the shipment, TMBI still breached its contractual obligation to
Sony when it failed to deliver the shipment.18chanrobleslaw
TMBI disagreed with the CA's ruling and filed the present petition on December 3, 2010.
The Arguments
TMBI's Petition
TMBI insists that the hijacking of the truck was a fortuitous event. It contests the CA's finding that
neither force nor intimidation was used in the taking of the cargo. Considering Lapesura was never
found, the Court should not discount the possibility that he was a victim rather than a
perpetrator.19chanrobleslaw
TMBI denies being a common carrier because it does not own a single truck to transport its shipment
and it does not offer transport services to the public for compensation.20 It emphasizes that Sony
knew TMBI did not have its own vehicles and would subcontract the delivery to a third-party.
Further, TMBI now insists that the service it offered was limited to the processing of paperwork
attendant to the entry of Sony's goods. It denies that delivery of the shipment was a part of its
obligation.21chanrobleslaw
TMBI solely blames BMT as it had full control and custody of the cargo when it was lost.22 BMT, as a
common carrier, is presumed negligent and should be responsible for the loss.
BhtT's Comment
BMT insists that it observed the required standard of care.23Like the petitioner, BMT maintains that
the hijacking was a fortuitous event - a force majeure - that exonerates it from liability.24 It points out
that Lapesura has never been seen again and his fate remains a mystery. BMT likewise argues that
the loss of the cargo necessarily showed that the taking was with the use of force or
intimidation.25cralawredchanrobleslaw
If there was any attendant negligence, BMT points the finger on TMBI who failed to send a
representative to accompany the shipment.26 BMT further blamed TMBI for the latter's failure to
adopt security measures to protect Sony's cargo.27chanrobleslaw
Mitsui's Comment
Mitsui counters that neither TMBI nor BMT alleged or proved during the trial that the taking of the
cargo was accompanied with grave or irresistible threat, violence, or force.28 Hence, the incident
cannot be considered "force majeure" and TMBI remains liable for breach of contract.
Mitsui emphasizes that TMBI's theory - that force or intimidation must have been used because
Lapesura was never found - was only raised for the first time before this Court.29 It also discredits the
theory as a mere conjecture for lack of supporting evidence.
Mitsui adopts the CA's reasons to conclude that TMBI is a common carrier. It also points out Victor
Torres' admission during the trial that TMBI's brokerage service includes the eventual delivery of the
cargo to the consignee.30chanrobleslaw
Mitsui invokes as well the legal presumption of negligence against TMBI, pointing out that TMBI
simply entrusted the cargo to BMT without adopting any security measures despite: (1) a previous
hijacking incident, when TMBI lost Sony's cargo; and (2) TMBI's knowledge that the cargo was worth
more than 10 million pesos.31chanrobleslaw
Mitsui affirms that TMBI breached the contract of carriage through its negligent handling of the cargo,
resulting in its loss.
The Court's Ruling
A brokerage may be considered a common
carrier if it also undertakes to deliver the
goods for its customers
Common carriers are persons, corporations, firms or associations engaged in the business of
transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public.32 By the nature of their business and for reasons of public policy, they are
bound to observe extraordinary diligence in the vigilance over the goods and in the safety of their
passengers.33chanrobleslaw
In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a customs broker - whose
principal business is the preparation of the correct customs declaration and the proper shipping
documents - is still considered a common carrier if it also undertakes to deliver the goods for its
customers. The law does not distinguish between one whose principal business activity is the
carrying of goods and one who undertakes this task only as an ancillary activity.35 This ruling has
been reiterated in Schmitz Transport &Brokerage Corp. v. Transport Venture, Inc.,36 Loadmasters
Customs Services, Inc. v. Glodel Brokerage Corporation,37 and Wesrwind
9
Shipping Corporation v. UCPB General Insurance Co., Inc.38chanrobleslaw
Despite TMBI's present denials, we find that the delivery of the goods is an integral, albeit ancillary,
part of its brokerage services. TMBI admitted that it was contracted to facilitate, process, and clear
the shipments from the customs authorities, withdraw them from the pier, then transport and deliver
them to Sony's warehouse in Laguna.39chanrobleslaw
Further, TMBI's General Manager Victor Torres described the nature of its services as follows:
chanRoblesvirtualLawlibrary
ATTY. VIRTUDAZO: Could you please tell the court what is the nature of the business of [TMBI]?
Witness MR. Victor Torres of Torres Madrid: We are engaged in customs brokerage business. We
acquire the release documents from the Bureau of Customs and eventually deliver the cargoes to
the consignee's warehouse and we are engaged in that kind of business, sir. 40
That TMBI does not own trucks and has to subcontract the delivery of its clients' goods, is immaterial.
As long as an entity holds itself to the public for the transport of goods as a business, it is considered
a common carrier regardless of whether it owns the vehicle used or has to actually hire
one.41chanrobleslaw
Lastly, TMBI's customs brokerage services - including the transport/delivery of the cargo - are
available to anyone willing to pay its fees. Given these circumstances, we find it undeniable that
TMBI is a common carrier.
Consequently, TMBI should be held responsible for the loss, destruction, or deterioration of the
goods it transports unless it results from:
chanRoblesvirtualLawlibrary
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.42chanroblesvirtuallawlibrary
For all other cases - such as theft or robbery - a common carrier is presumed to have been at fault
or to have acted negligently, unless it can prove that it observed extraordinary
diligence.43chanrobleslaw
Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force
majeure. Nevertheless, a common carrier may absolve itself of liability for a resulting loss: (1) if it
proves that it exercised extraordinary diligence in transporting and safekeeping the goods;44 or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence.45chanrobleslaw
However, a stipulation diminishing or dispensing with the common carrier's liability for acts committed
by thieves or robbers who do not act with grave or irresistible threat, violence, or force is void under
Article 1745 of the Civil Code for being contrary to public policy. 46Jurisprudence, too, has
expanded Article 1734's five exemptions. De Guzman v. Court of Appeals47 interpreted Article 1745
to mean that a robbery attended by "grave or irresistible threat, violence or force" is a fortuitous event
that absolves the common carrier from liability.
In the present case, the shipper, Sony, engaged the services of TMBI, a common carrier, to facilitate
the release of its shipment and deliver the goods to its warehouse. In turn, TMBI subcontracted a
portion of its obligation - the delivery of the cargo - to another common carrier, BMT.
Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736, a common
carrier's extraordinary responsibility over the shipper's goods lasts from the time these goods are
unconditionally placed in the possession of, and received by, the carrier for transportation, until they
are delivered, actually or constructively, by the carrier to the consignee. 48chanrobleslaw
That the cargo disappeared during transit while under the custody of BMT - TMBI's subcontractor -
did not diminish nor terminate TMBFs responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not
a common carrier bound to observe extraordinary diligence. Its failure to successfully establish this
premise carries with it the presumption of fault or negligence, thus rendering it liable to Sony/Mitsui
for breach of contract.
Specifically, TMBI's current theory - that the hijacking was attended by force or intimidation - is
untenable.
First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was responsible for
hijacking the shipment.49 Further, Victor Torres filed a criminal complaint against Lapesura with the
NBI.50 These actions constitute direct and binding admissions that Lapesura stole the cargo. Justice
and fair play dictate that TMBI should not be allowed to change its legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory through evidence. Thus, the
theory remained an unsupported allegation no better than speculations and conjectures. The CA
therefore correctly disregarded the defense of force majeure.
TMBI and BMT are not solidarity liable
to Mitsui�
We disagree with the lower courts" ruling that TMBI and BMT are solidarity liable to Mitsui for the loss
10
as joint tortfeasors. The ruling was based on Article 2194 of the Civil Code: of their contract of carriage

chanRoblesvirtualLawlibrary We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery to BMT,
Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary. TMBI entered into its own contract of carriage with a fellow common carrier.

Notably, TMBI's liability to Mitsui does not stem from a quasi-delict (culpa aquiliana) but from its
breach of contract (culpa contractual). The tie that binds TMBI with Mitsui is contractual, albeit one
that passed on to Mitsui as a result of TMBI's contract of carriage with Sony to which Mitsui had been
subrogated as an insurer who had paid Sony's insurance claim. The legal reality that results from this
contractual tie precludes the application of quasi-delict based Article 2194.
A third party may recover from a
common carrier for quasi-delict
but must prove actual n egligence
The cargo was lost after its transfer to BMT's custody based on its contract of carriage with TMBI.
Following Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that it
observed extraordinary diligence in the performance of its obligation to TMBI, it is liable to TMBI for
breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage. In
turn, TMBI is entitled to reimbursement from BMT due to the latter's own breach of its contract of
carriage with TMBI. The proverbial buck stops with BMT who may either: (a) absorb the loss, or (b)
proceed after its missing driver, the suspected culprit, pursuant to Article 2181,55chanrobleslaw

We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the loss of the WHEREFORE, the Court hereby ORDERS petitioner Torres- Madrid Brokerage, Inc. to pay the
cargo. While it is undisputed that the cargo was lost under the actual custody of BMT (whose respondent FEB Mitsui Marine Insurance Co., Inc. the following:
employee is the primary suspect in the hijacking or robbery of the shipment), no direct contractual
relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui's cause of action against chanRoblesvirtualLawlibrary
BMT could only arise from quasi-delict, as a third party suffering damage from the action of another
due to the latter's fault or negligence, pursuant to Article 2176 of the Civil Code.51chanrobleslaw a. Actual damages in the amount of PHP 7,293,386.23 plus legal interest from the time the
complaint was filed until it is fully paid;
We have repeatedly distinguished between an action for breach of contract {culpa contractual) and
an action for quasi-delict (culpa aquiliana). b. Attorney's fees in the amount of PHP 200,000.00; and cralawlawlibrary

In culpa contractual, the plaintiff only needs to establish the existence of the contract and the c. Costs of suit.
obligor's failure to perform his obligation. It is not necessary for the plaintiff to prove or even allege
that the obligor's non- compliance was due to fault or negligence because Article 1735 already
presumes that the common carrier is negligent. The common carrier can only free itself from liability
Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE Torres-Madrid
by proving that it observed extraordinary diligence. It cannot discharge this liability by shifting the
Brokerage, Inc. of the above-mentioned amounts.
blame on its agents or servants.52chanrobleslaw
SO ORDERED
On the other hand, the plaintiff in culpa aquiliana must clearly establish the defendant's fault or
negligence because this is the very basis of the action.53 Moreover, if the injury to the plaintiff
Carpio, (Chairperson), Del Castillo, and Leonen, JJ., concur.
resulted from the act or omission of the defendant's employee or servant, the defendant may absolve
Mendoza, J., on official leave.
himself by proving that he observed the diligence of a good father of a family to prevent the
damage,54chanrobleslaw

In the present case, Mitsui's action is solely premised on TMBl's breach of contract. Mitsui did not
even sue BMT, much less prove any negligence on its part. If BMT has entered the picture at all, it 'is
because TMBI sued it for reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold BMT liable to Mitsui for
quasi-delict.

BMT is liable to TMBI for breach

11

THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, Petitioner, vs. COURT OF APPEALS and ERNESTO
CENDANA, Respondents.
Vicente D. Millora for petitioner.chanrobles virtual law library
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would
bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial
rates.chanroblesvirtualawlibrary chanrobles virtual law library
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and
employee.chanroblesvirtualawlibrary chanrobles virtual law library
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.chanroblesvirtualawlibrary chanrobles virtual law library
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.chanroblesvirtualawlibrary chanrobles
virtual law library
In his Answer, private respondent denied that he was a common carrier and argued that he could not
be held responsible for the value of the lost goods, such loss having been due to force
majeure.chanroblesvirtualawlibrary chanrobles virtual law library
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's
fees.chanroblesvirtualawlibrary chanrobles virtual law library
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.chanroblesvirtualawlibrary chanrobles virtual law library
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation - a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:
1. that private respondent was not a common carrier; chanrobles virtual law library
2. that the hijacking of respondent's truck was force majeure; and chanrobles virtual law library
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common
carrier.chanroblesvirtualawlibrarychanrobles virtual law library
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
12
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such
distinctions.chanroblesvirtualawlibrary chanrobles virtual law library
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant
here.chanroblesvirtualawlibrary chanrobles virtual law library
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.chanroblesvirtualawlibrary chanrobles virtual law
library
We turn then to the liability of private respondent as a common
carrier.chanroblesvirtualawlibrary chanrobles virtual law library
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.chanroblesvirtualawlibrary chanrobles virtual law library
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligenceas required in
Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case - the hijacking of the carrier's truck - does not fall within any of the five (5) categories
of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's
vehicle must be dealt with under the provisions of Article 1735, in other words, that the private
respondent as common carrier is presumed to have been at fault or to have acted negligently. This
presumption, however, may be overthrown by proof of extraordinary diligence on the part of private
respondent.chanroblesvirtualawlibrary chanrobles virtual law library
13
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should
have hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled
milk. We do not believe, however, that in the instant case, the standard of extraordinary diligence
required private respondent to retain a security guard to ride with the truck and to engage brigands in
a firelight at the risk of his own life and the lives of the driver and his
helper.chanroblesvirtualawlibrary chanrobles virtual law library
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.chanroblesvirtualawlibrary chanrobles virtual law library
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4,
5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy: chanrobles virtual law library
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its
employees; chanrobles virtual law library
(6) that the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violence or force, is dispensed with or diminished; and chanrobles
virtual law library
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-
uppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4chanrobles virtual law library
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.chanroblesvirtualawlibrary chanrobles virtual law library
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.chanroblesvirtualawlibrary chanrobles virtual law
library
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to
costs.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on
account of the defective condition of the car vehicle, ship, airplane or other equipment used in the
contract of carriage. (Emphasis supplied) Endnotes:

Under Article 1745 (6) above, a common carrier is held responsible - and will not be allowed to divest
or to diminish such responsibility - even for acts of strangers like thieves or robbers, except where
such thieves or robbers in fact acted "with grave or irresistible threat, violence or force." We believe
and so hold that the limits of the duty of extraordinary diligence in the vigilance over the goods
carried are reached where the goods are lost as a result of a robbery which is attended by "grave or
irresistible threat, violence or force." chanrobles virtual law library

In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the

14
 [G.R. No. 125948. December 29, 1998]
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,
HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C.
ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of
Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a
business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 [1] and
renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor
of Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to
the Local Government Code.[3] The respondent City Treasurer assessed a business tax on the
petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for
products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not
to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the
first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession granted
under the Petroleum Act. It is engaged in the business of transporting petroleum products from the
Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is
exempt from paying tax on gross receipts under Section 133 of the Local Government Code of 1991
xxxx
"Moreover, Transportation contractors are not included in the enumeration of contractors under
Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on
contractors and other independent contractors' under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under Section 147
of the Local Government Code. The said section limits the imposition of fees and charges on
business to such amounts as may be commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition thereof
based on gross receipts is violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition."[4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents City of
Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a
tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation contractors for, as defined
under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City
Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the immediate
refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common carriers
by air, land and water." Respondents assert that pipelines are not included in the term "common
carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term "common carrier" under the said code pertains to the mode or manner by
which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions
are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said
law nor the deed of concession grant any tax exemption upon the plaintiff.
15
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local
Tax Code. Such being the situation obtained in this case (exemption being unclear and equivocal)
resort to distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only common
carriers so as not to overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special carrier extending
its services and facilities to a single specific or "special customer"
under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective
local autonomy to local governments than the previous enactments, to
make them economically and financially viable to serve the people and
discharge their functions with a concomitant obligation to accept certain
devolution of powers, x x x So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and contractors are also taxed
under Sec. 143 (e) and 151 of the Code."[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication.[10]On November 29, 1995, the respondent court rendered a decision [11] affirming the trial
court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July
18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in a
Resolution[14]of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is
not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is
not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation,
offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the transportation
of goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and
over his established roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for
hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons
who choose to employ its services, and transports the goods by land and for compensation. The fact
that petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the 'general public,'
i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1877 deliberately
refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly
with the notion of 'public service,' under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services.' "(Underscoring Supplied)
16
 Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers through
moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not
provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the
United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential
right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize
the remaining transportation capacity pro rata for the transportation of such other petroleum as may
be offered by others for transport, and to charge without discrimination such rates as may have been
approved by the Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
"that everything relating to the exploration for and exploitation of petroleum x x and everything
relating to the manufacture, refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum
products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it
is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government
Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following :
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131].
Common Limitations on the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one
of those being deemed to be exempted from the taxing powers of the local government units. May
we know the reason why the transportation business is being excluded from the taxing
powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line
16, paragraph 5. It states that local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that
provinces have the power to impose a tax on business enjoying a franchise at the rate of not more
than one-half of 1 percent of the gross annual receipts. So, transportation contractors who are
enjoying a franchise would be subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the so-
called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
17

SECOND DIVISION
[G.R. No. 148496. March 19, 2002.]
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., Petitioner, v. UCPB GENERAL INSURANCE CO., INC. (formerly
Allied Guarantee Ins. Co., Inc.), Respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision, 1 dated May 31, 2001, of the Court of Appeals, affirming
the decision 2 of the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay
respondent, as subrogee, the amount of P93,112.00 with legal interest, representing the value of
damaged cargo handled by petitioner, 25% thereof as attorney’s fees, and the cost of the
suit.chanrob1es virtua1 law library
The facts are as follows:chanrob1es virtual 1aw library
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a
sole proprietorship customs broker. At the time material to this case, petitioner entered into a contract
with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and
124 reels of kraft liner board from the Port Area in Manila to SMC’s warehouse at the Tabacalera
Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General
Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board
"M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the
arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, Petitioner, pursuant to
her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC’s
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo
Surveyors, who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn" and 3
reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned
amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional
Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding
petitioner liable to respondent for the damage to the shipment.
The trial court held:chanrob1es virtual 1aw library
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F")
with entries appearing therein, classified as "TED" and "TSN", which the claims processor, Ms.
Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the subject
damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A")
confirms the fact of the damaged condition of the subject cargoes. The surveyor[s’] report (Exh. "H-4-
A") in particular, which provides among others that:jgc:chanrobles.com.ph
". . . we opine that damages sustained by shipment is attributable to improper handling in transit
presumably whilst in the custody of the broker . . . ."cralaw virtua1aw library
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not
liable. Defendant by reason of the nature of [her] business should have devised ways and means in
order to prevent the damage to the cargoes which it is under obligation to take custody of and to
forthwith deliver to the consignee. Defendant did not present any evidence on what precaution [she]
performed to prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the nature of the
cargo.
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the extraordinary diligence required by law.
The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of
delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove
that the loss was due to accident or some other circumstances inconsistent with its liability." (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and
received by the carrier for transportation until the same are delivered actually or constructively by the
carrier to the consignee or to the person who has the right to receive the same. 3
18
Accordingly, the trial court ordered petitioner to pay the following amounts —
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer’s fee;
3. Costs of suit. 4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:chanrob1es virtual 1aw library
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING
THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS
AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL
CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC. 5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is
indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her,
would require. 6 Consequently, any damage to the cargo she agrees to transport cannot be
presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not
a common carrier but a private carrier because, as a customs broker and warehouseman, she does
not indiscriminately hold her services out to the public but only offers the same to select parties with
whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals, 7 the Court dismissed a similar
contention and held the party to be a common carrier, thus —
The Civil Code defines "common carriers" in the following terms:jgc:chanrobles.com.ph
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public."cralaw virtua1aw library
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity. Article
1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population. We think
that Article 1732 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:jgc:chanrobles.com.ph
". . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services. . ." 8
There is greater reason for holding petitioner to be a common carrier because the transportation of
goods is an integral part of her business. To uphold petitioner’s contention would be to deprive those
with whom she contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for her customers, as already noted, is part and parcel of petitioner’s
business.
Now, as to petitioner’s liability, Art. 1733 of the Civil Code provides:chanrob1es virtual 1aw library
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals, 9 the meaning of "extraordinary diligence in the vigilance
over goods" was explained thus:chanrob1es virtual 1aw library
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature
and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires."cralaw virtua1aw library
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
19
"spoilage or wettage" took place while the goods were in the custody of either the carrying vessel
"M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator, to whom the
goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23,
1998 notwithstanding the fact that some of the containers were deformed, cracked, or otherwise
damaged, as noted in the Marine Survey Report (Exh. H), to wit:chanrob1es virtual 1aw library
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly
detached loosened. 10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no
personal knowledge on whether the container vans were first stored in petitioner’s warehouse prior to
their delivery to the consignee. She likewise claims that after withdrawing the container vans from the
arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMC’s warehouse
in Ermita, Manila, which is a mere thirty-minute drive from the Port Area where the cargo came from.
Thus, the damage to the cargo could not have taken place while these were in her custody. 11
Contrary to petitioner’s assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these were
covered by clean Equipment Interchange Report (EIR) and, when petitioner’s employees withdrew
the cargo from the arrastre operator, they did so without exception or protest either with regard to the
condition of container vans or their contents. The Survey Report pertinently reads —
Details of Discharge:chanrob1es virtual 1aw library
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier
#13 South Harbor, Manila on 14 July 1990, containerized onto 30’ x 20’ secure metal vans, covered
by clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers
were deemed to have [been] received in good condition.
Transfer/Delivery:chanrob1es virtual 1aw library
On July 23, 1990, shipment housed onto 30’ x 20’ cargo containers was [withdrawn] by Transorient
Container Services, Inc.... without exception.
[The cargo] was finally delivered to the consignee’s storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990. 12
As found by the Court of Appeals:chanrob1es virtual 1aw library
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment
Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a
report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant-
appellant from the arrastre still in good order and condition as the same were received by the former
without exception, that is, without any report of damage or loss. Surely, if the container vans were
deformed, cracked, distorted or dented, the defendant-appellant would report it immediately to the
consignee or make an exception on the delivery receipt or note the same in the Warehouse Entry
Slip (WES). None of these took place. To put it simply, the defendant-appellant received the
shipment in good order and condition and delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to
the contrary. No proof was proffered to rebut this legal presumption and the presumption of
negligence attached to a common carrier in case of loss or damage to the goods. 13
Anent petitioner’s insistence that the cargo could not have been damaged while in her custody as
she immediately delivered the containers to SMC’s compound, suffice it to say that to prove the
exercise of extraordinary diligence, petitioner must do more than merely show the possibility that
some other party could be responsible for the damage. It must prove that it used "all reasonable
means to ascertain the nature and characteristic of goods tendered for [transport] and that [it]
exercise[d] due care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides —
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:chanrob1es virtual 1aw library
(4) The character of the goods or defects in the packing or in the containers.
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the
container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception notwithstanding such condition, he is not
relieved of liability for damage resulting therefrom. 14 In this case, petitioner accepted the cargo
without exception despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of goods in this case or
that she is exempt from liability, the presumption of negligence as provided under Art. 1735 15 holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.chanrob1es
virtua1 1aw 1ibrary
20
 issued. On the receipt, another representative of Sanchez Brokerage, M. Sison, 11 acknowledged that
he received the cargoes consisting of three piecesin good condition.12

Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes13 which
were thereupon stripped from the aluminum containers14 and loaded inside two transport vehicles
hired by Sanchez Brokerage.15
THIRD DIVISION
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso
[G.R. NO. 147079 : December 21, 2004] and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine and
cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
A.F. SANCHEZ BROKERAGE INC., Petitioners, v. THE HON. COURT OF APPEALS and FGU Insurance.
INSURANCE CORPORATION, Respondents.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo
DECISION City for quality control check.17 The delivery receipt, bearing No. 07037 dated July 29, 1992,
indicated that the delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1
pallet containing Trinordiol.18
CARPIO MORALES, J.:
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the
Before this Court on a petition for Certiorari is the appellate court's Decision1 of August 10, 2000
cargoes by affixing his signature on the delivery receipt.19 Upon inspection, however, he, together
reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil
with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol
Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU
tablets were in bad order.20 He thus placed a note above his signature on the delivery receipt stating
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).
that 44 cartons of oral contraceptives were in bad order. The remaining 160 cartons of oral
contraceptives were accepted as complete and in good order.
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at
Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report21 dated July 31,
Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the
1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic).22
consignee, Wyeth-Suaco Laboratories, Inc.2 The Femenal tablets were placed in 124 cartons and the
Nordiol tablets were placed in 20 cartons which were packed together in one (1) LD3 aluminum
container, while the Trinordial tablets were packed in two pallets, each of which contained 30 The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an
cartons.3 "Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to the broker's
trucks at the NAIA, they were inspected and found to be in "apparent good condition."24 Also noted
was that at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell,
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk
which could account for the wetting of the 44 cartons of Femenal and Nordiol tablets.25
Note No. 4995 pursuant to Marine Open Policy No. 138.4
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that 38 x
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA),5 it
700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister
was discharged "without exception"6 and delivered to the warehouse of the Philippine Skylanders,
packs of Nordiol tablets were heavily damaged with water and emitted foul smell.
Inc. (PSI) located also at the NAIA for safekeeping.7
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of Femenal
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco
and 3 cartons of Nordiol on the ground that they were "delivered to Hizon Laboratories with heavy
engaged the services of Sanchez Brokerage which had been its licensed broker since 1984.8 As its
water damaged (sic) causing the cartons to sagged (sic) emitting a foul order and easily attracted
customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees
flies."28
for the cargo and thereafter delivers it to Wyeth-Suaco.9
Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the payment
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid
of P191,384.25 representing the value of its loss arising from the damaged tablets.
PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,10 was

21
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim
against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its
claim under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the damaged goods,
positing that the damage was due to improper and insufficient export packaging; that when the
sealed containers were opened outside the PSI warehouse, it was discovered that some of the loose
cartons were wet,32 prompting its (Sanchez Brokerage's) representative Morales to inform the Import-
Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the
latter advised to still deliver them to Hizon Laboratories where an adjuster would assess the
damage.33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of
Makati City against the Sanchez Brokerage.
The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the Survey
Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork.35
On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez
Brokerage engaged not only in the business of customs brokerage but also in the transportation and
delivery of the cargo of its clients, hence, a common carrier within the context of Article 1732 of the
New Civil Code.36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good
order and condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate court
held that Sanchez Brokerage is presumed negligent and upon it rested the burden of proving that it
exercised extraordinary negligence not only in instances when negligence is directly proven but also
in those cases when the cause of the damage is not known or unknown.37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision
of the Court a quo is REVERSED. Another Decision is hereby rendered in favor of the Appellant and
against the Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181, 431.49, with
interest thereupon at the rate of 6% per annum, from the date of the Decision of the Court, until the
said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as and by way
of attorney's fees; andcralawlibrary
3. The counterclaims of the Appellee are DISMISSED.38
Sanchez Brokerage's Motion for Reconsideration having been denied by the appellate court's
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes to
this Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a "common carrier" within the context of
Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner
should have taken was to file a Petition for Review on Certiorari since the sole office of a writ
of certiorari is the correction of errors of jurisdiction including the commission of grave abuse of
discretion amounting to lack or excess of jurisdiction and does not include correction of the appellate
court's evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to
overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition.39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this
Court by filing a Petition for Review , which would be but a continuation of the appellate process over
the original case.40
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5, 2001.
Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate
court's decision had become final and executory. The filing by petitioner of a petition for certiorari on
March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari , the petitioner must prove not
merely reversible error but also grave abuse of discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial
court based on its finding that petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the
subject of an ordinary appeal.
22
Where the issue or question involves or affects the wisdom or legal soundness of the decision - not
the jurisdiction of the court to render said decision - the same is beyond the province of a Petition
for Certiorari.41 The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in
order to review the judgment of lower courts as to its intrinsic correctness, either upon the law or the
facts of the case.42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier,
as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified
that the services the firm offers include the delivery of goods to the warehouse of the consignee or
importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs
broker?chanroblesvirtualawlibrary
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those upon approval of
the importer, we prepare the entry together for processing and claims from customs and
finally deliver the goods to the warehouse of the importer.43
Article 1732 does not distinguish between one whose principal business activity is the carrying of
goods and one who does such carrying only as an ancillary activity. 44 The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required by law is bereft of merit.
It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of the Civil
Code, extraordinary diligence in the vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.46
The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of Appeals:47
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature
and characteristics of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires."48
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in
NAIA in good order and condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc.,
some of the cargoes were found to be in bad order, as noted in the Delivery Receipt50 issued by
petitioner, and as indicated in the Survey Report of Elite Surveyors51and the Destruction Report of
Hizon Laboratories, Inc.52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they
were damaged due to the fault or negligence of the shipper for failing to properly pack them and to
the inherent characteristics of the goods53; and that it should not be faulted for following the
instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite information conveyed to
the latter that some of the cartons, on examination outside the PSI warehouse, were found to be
wet.54
While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from liability if
the loss or damage is due to the character of the goods or defects in the packing or in the containers,
the rule is that if the improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for the resulting damage.56
If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true,
then it should naturally have received the cargo under protest or with reservations duly noted on the
receipt issued by PSI. But it made no such protest or reservation.57
Moreover, as observed by the appellate court, if indeed petitioner's employees only examined the
cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone back
to PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.58 Or, petitioner would have presented, as
witness, the employees of the PSI from whom Morales and Domingo took delivery of the cargo to
23
prove that, indeed, part of the cargoes was already damaged when the container was allegedly
opened outside the warehouse.59 WITNESS:

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead,
it asserts that some of the cargoes were already wet on delivery by PSI outside the PSI warehouse
but such notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon
Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992, he
failed to specifically declare what time he received the call. As to whether the call was made at the
PSI warehouse when the shipment was stripped from the airport containers, or when the cargoes
were already in transit to Antipolo, it is not determinable. Aside from that phone call, petitioner
admitted that it had no documentary evidence to prove that at the time it received the cargoes, a part
of it was wet, damaged or in bad condition.60
A: We experienced, there was a time that we experienced that there was a cartoon (sic) wetted (sic)
up to the bottom are wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they were turned
over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof
was found to be in bad order, it was incumbent on petitioner to prove that it exercised extraordinary
diligence in the carriage of the goods. It did not, however. Hence, its presumed negligence under
Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly Costs against petitioner.
impresses, no witness having identified it and interpreted the technical terms thereof.
SO ORDERED.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives
were damaged by rainwater while in transit to Antipolo City is more likely then. Sanchez himself Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.
testified that in the past, there was a similar instance when the shipment of Wyeth-Suaco was also Corona, J.,on leave.
found to be wet by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at the
NAIA were damaged and claimed by the Wyeth-Suaco without any
question?chanroblesvirtualawlibrary

WITNESS:

A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco did not
claim anything against us.

ATTY. FLORES:

Q: HOW IS IT?chanroblesvirtualawlibrary

24

THIRD DIVISION
[G.R. NO. 150255. April 22, 2005]
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners, v. TRANSPORT
VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING AND
DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.
DECISION
CARPIO-MORALES, J.:
On Petition for Review is the June 27, 2001 Decision1 of the Court of Appeals, as well as its
Resolution2dated September 28, 2001 denying the motion for reconsideration, which affirmed that of
Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-631323 holding petitioner
Schmitz Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping
Corporation (Black Sea), represented by its ship agent Inchcape Shipping Inc. (Inchcape), and
Transport Venture (TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were
washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on
board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black Sea) 545 hot
rolled steel sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant
Steel Pipe Corporation (Little Giant),4 were insured against all risks with Industrial Insurance
Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA)
assigned it a place of berth at the outside breakwater at the Manila South Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to
receive the cargoes from the shipside, and to deliver them to its (the consignee's) warehouse at
Cainta, Rizal,7 in turn engaged the services of TVI to send a barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVI's tugboat "Lailani" towed the barge "Erika V" to
shipside.8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel,
left and returned to the port terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal Services Inc.
commenced to unload 37 of the 545 coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to
an approaching storm, the unloading unto the barge of the 37 coils was accomplished.10 No tugboat
pulled the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge abandoned it
and transferred to the vessel. The barge pitched and rolled with the waves and eventually capsized,
washing the 37 coils into the sea.12 At 7:00 a.m., a tugboat finally arrived to pull the already empty
and damaged barge back to the pier.13
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the
lost cargoes proved futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount
of P5,246,113.11. Little Giant thereupon executed a subrogation receipt15 in favor of Industrial
Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its
representative Inchcape (the defendants) before the RTC of Manila, for the recovery of the amount it
paid to Little Giant plus adjustment fees, attorney's fees, and litigation expenses.16
Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while
typhoon signal No. 1 was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for
unloading the cargoes outside of the breakwater notwithstanding the storm signal.18 The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the
defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with interest from the date
the complaint was filed until fully satisfied, as well as the sum of P5,000.00 representing the
adjustment fee plus the sum of 20% of the amount recoverable from the defendants as attorney's
fees plus the costs of suit. The counterclaims and cross claims of defendants are hereby
DISMISSED for lack of [m]erit.19
To the trial court's decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of excessive
25
attorney's fees of more than P1,000,000. And they argued that they were not motivated by gross or
evident bad faith and that the incident was caused by a fortuitous event.20
By resolution of February 4, 1998, the trial court denied the motion for reconsideration.21
All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in
toto the decision of the trial court, 22 it finding that all the defendants were common carriers - Black
Sea and TVI for engaging in the transport of goods and cargoes over the seas as a regular business
and not as an isolated transaction,23 and Schmitz Transport for entering into a contract with Little
Giant to transport the cargoes from ship to port for a fee.24
In holding all the defendants solidarily liable, the appellate court ruled that "each one was essential
such that without each other's contributory negligence the incident would not have happened and so
much so that the person principally liable cannot be distinguished with sufficient accuracy."25
In discrediting the defense of fortuitous event, the appellate court held that "although defendants
obviously had nothing to do with the force of nature, they however had control of where to anchor the
vessel, where discharge will take place and even when the discharging will commence."26
The defendants' respective motions for reconsideration having been denied by Resolution 27 of
September 28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present
petition against TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal,
consignee Little Giant, hence, the transportation contract was by and between Little Giant and TVI. 28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI
were required to file their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee through
petitioner in good order, hence, it cannot be faulted, it having had no control and supervision
thereover.30
For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and
transferred them unto the barge upon the instruction of petitioner.31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all
liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute the caso
fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to
render it impossible for the debtor to fulfill his obligation in any manner; and (4) the obligor must be
free from any participation in the aggravation of the injury resulting to the creditor.32
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded from creating or entering into
the cause of the mischief. When the effect is found to be in part the result of the participation of man,
whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.33
The appellate court, in affirming the finding of the trial court that human intervention in the form of
contributory negligence by all the defendants resulted to the loss of the cargoes, 34 held that
unloading outside the breakwater, instead of inside the breakwater, while a storm signal was up
constitutes negligence.35 It thus concluded that the proximate cause of the loss was Black Sea's
negligence in deciding to unload the cargoes at an unsafe place and while a typhoon was
approaching.36
From a review of the records of the case, there is no indication that there was greater risk in loading
the cargoes outside the breakwater. As the defendants proffered, the weather on October 26, 1991
remained normal with moderate sea condition such that port operations continued and proceeded
normally.37
The weather data report,38 furnished and verified by the Chief of the Climate Data Section of PAG-
ASA and marked as a common exhibit of the parties, states that while typhoon signal No. 1 was
hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00
p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that the
defendants were negligent in not unloading the cargoes upon the barge on October 26, 1991 inside
the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30
in the morning39 is, however, a material fact which the appellate court failed to properly consider and
appreciate40 - the proximate cause of the loss of the cargoes. Had the barge been towed back
promptly to the pier, the deteriorating sea conditions notwithstanding, the loss could have been
26
avoided. But the barge was left floating in open sea until big waves set in at 5:30 a.m., causing it to
sink along with the cargoes.41 The loss thus falls outside the "act of God doctrine."
The proximate cause of the loss having been determined, who among the parties is/are responsible
therefor?chanroblesvirtualawlibrary
Contrary to petitioner's insistence, this Court, as did the appellate court, finds that petitioner is a
common carrier. For it undertook to transport the cargoes from the shipside of "M/V Alexander
Saveliev" to the consignee's warehouse at Cainta, Rizal. As the appellate court put it, "as long as a
person or corporation holds [itself] to the public for the purpose of transporting goods as [a] business,
[it] is already considered a common carrier regardless if [it] owns the vehicle to be used or has to hire
one."42That petitioner is a common carrier, the testimony of its own Vice-President and General
Manager Noel Aro that part of the services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and
General Manager of said Company?chanroblesvirtualawlibrary
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the
company. I also handle the various division heads of the company for operation matters, and all other
related functions that the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the
Honorable Court if you came to know the company by the name Little Giant Steel Pipe
Corporation?chanroblesvirtualawlibrary
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can
recall?chanroblesvirtualawlibrary
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you
perform in behalf of this company?chanroblesvirtualawlibrary
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-
charged of the delivery of the goods to their warehouses. We also handled the clearances of their
shipment at the Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with
regards to this shipment? What work did you do with this shipment?chanroblesvirtualawlibrary
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the]
cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform,
what equipment do (sic) you require or did you use in order to effect this unloading, transfer and
delivery to the warehouse?chanroblesvirtualawlibrary
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter,
and on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] in-charged
(sic) of the barges. Also, in BASECO compound we are leasing cranes to have the cargo unloaded
from the barge to trucks, [and] then we used trucks to deliver [the cargoes] to the consignee's
warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignee's
warehouse?chanroblesvirtualawlibrary
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for
the barges of Transport Ventures Incorporated in this particular operation?chanroblesvirtualawlibrary
A: Firstly, we don't own any barges. That is why we hired the services of another firm whom we know
[al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a common carrier.
Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier,
as defined under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
xxx
27
Article 1732 does not distinguish between one whose principal business activity is the carrying of
goods and one who does such carrying only as an ancillary activity. The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required by law is bereft of merit.
It suffices that petitioner undertakes to deliver the goods for pecuniary consideration. 45
And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation of
goods is an integral part of a customs broker, the customs broker is also a common carrier. For to
declare otherwise "would be to deprive those with whom [it] contracts the protection which the law
affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is part and
parcel of petitioner's business."47
As for petitioner's argument that being the agent of Little Giant, any negligence it committed was
deemed the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In
effecting the transportation of the cargoes from the shipside and into Little Giant's warehouse,
however, petitioner was discharging its own personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler48 to
provide the barge and the tugboat. In their Service Contract,49 while Little Giant was named as the
consignee, petitioner did not disclose that it was acting on commission and was chartering the vessel
for Little Giant.50 Little Giant did not thus automatically become a party to the Service Contract and
was not, therefore, bound by the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can
maintain a cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper and
careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and
2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent person would have used in the
same situation exercised by TVI?52
This Court holds not.
TVI's failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation, but was the proximate cause of the loss. A
man of ordinary prudence would not leave a heavily loaded barge floating for a considerable number
of hours, at such a precarious time, and in the open sea, knowing that the barge does not have any
power of its own and is totally defenseless from the ravages of the sea. That it was nighttime and,
therefore, the members of the crew of a tugboat would be charging overtime pay did not excuse TVI
from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 173953 of the Civil Code,
prove that it exercised due diligence to prevent or minimize the loss, before, during and after the
occurrence of the storm in order that it may be exempted from liability for the loss of the goods.
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the
operations of TVI, it failed to take all available and reasonable precautions to avoid the loss. After
noting that TVI failed to arrange for the prompt towage of the barge despite the deteriorating sea
conditions, it should have summoned the same or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable56 for the loss of the cargoes. The
following pronouncement of the Supreme Court is instructive:
The foundation of LRTA's liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required
of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a
carrier may choose to hire its own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x
x x [O]ne might ask further, how then must the liability of the common carrier, on one hand, and an
independent contractor, on the other hand, be described? It would be solidary. A contractual
obligation can be breached by tort and when the same act or omission causes the injury, one
resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well
apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the
contract. Stated differently, when an act which constitutes a breach of contract would have itself
28
constituted the source of a quasi-delictual liability had no contract existed between the parties, the SO ORDERED.
contract can be said to have been breached by tort, thereby allowing the rules on tort to apply. 57
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.
As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation until they
were delivered actually or constructively to consignee Little Giant.58

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the
services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment
provides that delivery be made "to the port of discharge or so near thereto as she may safely get,
always afloat."59 The delivery of the goods to the consignee was not from "pier to pier" but from the
shipside of "M/V Alexander Saveliev" and into barges, for which reason the consignee contracted the
services of petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant,
through petitioner, it had discharged its duty.60

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorney's fees in an amount over P1,000,000.00 to Industrial Insurance, for
lack of factual and legal basis, this Court sets it aside. While Industrial Insurance was compelled to
litigate its rights, such fact by itself does not justify the award of attorney's fees under Article 2208 of
the Civil Code. For no sufficient showing of bad faith would be reflected in a party's persistence in a
case other than an erroneous conviction of the righteousness of his cause.61 To award attorney's
fees to a party just because the judgment is rendered in its favor would be tantamount to imposing a
premium on one's right to litigate or seek judicial redress of legitimate grievances.62

On the award of adjustment fees: The adjustment fees and expense of divers were incurred by
Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo.
They do not constitute actual damages.63

As for the court a quo's award of interest on the amount claimed, the same calls for modification
following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals64 that when the demand
cannot be reasonably established at the time the demand is made, the interest shall begin to run not
from the time the claim is made judicially or extrajudicially but from the date the judgment of the court
is made (at which the time the quantification of damages may be deemed to have been reasonably
ascertained).65

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

Costs against petitioner.

29
 the Goods and the Carrier shall be under no responsibility whatsoever in respect of such description
or particulars.

13. The shipper, whether principal or agent, represents and warrants that the goods are properly
described, marked, secured, and packed and may be handled in ordinary course without damage to
the goods, ship, or property or persons and guarantees the correctness of the particulars, weight or
SECOND DIVISION each piece or package and description of the goods and agrees to ascertain and to disclose in
writing on shipment, any condition, nature, quality, ingredient or characteristic that may cause
damage, injury or detriment to the goods, other property, the ship or to persons, and for the failure to
[G.R. NO. 161833. July 8, 2005] do so the shipper agrees to be liable for and fully indemnify the carrier and hold it harmless in respect
of any injury or death of any person and loss or damage to cargo or property. The carrier shall be
PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioners, v. UNKNOWN OWNER OF responsible as to the correctness of any such mark, descriptions or representations.4
THE VESSEL M/V "NATIONAL HONOR," NATIONAL SHIPPING CORPORATION OF THE
PHILIPPINES and INTERNATIONAL CONTAINER SERVICES, INC., Respondents. The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2, complete
and in good order condition, covered by Commercial Invoice No. YJ-73564 DTD5 and a Packing
DECISION List.6 There were no markings on the outer portion of the crates except the name of the
consignee.7 Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs. It contained the following
CALLEJO, SR., J.: articles: one (1) unit Lathe Machine complete with parts and accessories; one (1) unit Surface
Grinder complete with parts and accessories; and one (1) unit Milling Machine complete with parts
This is a Petition for Review under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing and accessories. On the flooring of the wooden crates were three wooden battens placed side by
the Decision1 dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 57357 which side to support the weight of the cargo. Crate No. 2, on the other hand, measured 10 cubic meters
affirmed the Decision dated February 17, 1997 of the Regional Trial Court (RTC) of Manila, Branch and weighed 2,060 kgs. The Lathe Machine was stuffed in the crate. The shipment had a total
37, in Civil Case No. 95-73338. invoice value of US$90,000.00 C&F Manila.8 It was insured for P2,547,270.00 with the Philippine
Charter Insurance Corporation (PCIC) thru its general agent, Family Insurance and Investment
Corporation,9 under Marine Risk Note No. 68043 dated October 24, 1994.10
The Antecedent

The M/V "National Honor" arrived at the Manila International Container Terminal (MICT) on
On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts
November 14, 1995. The International Container Terminal Services, Incorporated (ICTSI) was
and accessories in the port of Pusan, Korea, on board the vessel M/V "National Honor," represented
furnished with a copy of the crate cargo list and bill of lading, and it knew the contents of the
in the Philippines by its agent, National Shipping Corporation of the Philippines (NSCP). The
crate.11 The following day, the vessel started discharging its cargoes using its winch crane. The
shipment was for delivery to Manila, Philippines. Freight forwarder, Samhwa Inter-Trans Co., Ltd.,
crane was operated by Olegario Balsa, a winchman from the ICTSI,12 the exclusive arrastre operator
issued Bill of Lading No. SH94103062 in the name of the shipper consigned to the order of
of MICT.
Metropolitan Bank and Trust Company with arrival notice in Manila to ultimate consignee Blue Mono
International Company, Incorporated (BMICI), Binondo, Manila.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of the
ICTSI, conducted an inspection of the cargo.13 They inspected the hatches, checked the cargo and
NSCP, for its part, issued Bill of Lading No. NSGPBSML5125653 in the name of the freight forwarder,
found it in apparent good condition.14 Claudio Cansino, the stevedore of the ICTSI, placed two sling
as shipper, consigned to the order of Stamm International Inc., Makati, Philippines. It is provided
cables on each end of Crate No. 1.15 No sling cable was fastened on the mid-portion of the crate. In
therein that:
Dauz's experience, this was a normal procedure.16 As the crate was being hoisted from the vessel's
hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from
12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent good the vessel's twin deck, sending all its contents crashing down hard,17 resulting in extensive damage
order and condition except as, otherwise, noted of the total number of Containers or other packages to the shipment.
or units enumerated overleaf. Proof to the contrary shall be admissible when this Bill of Lading has
been transferred to a third party acting in good faith. No representation is made by the Carrier as to
BMICI's customs broker, JRM Incorporated, took delivery of the cargo in such damaged
the weight, contents, measure, quantity, quality, description, condition, marks, numbers, or value of
condition.18 Upon receipt of the damaged shipment, BMICI found that the same could no longer be

30
used for the intended purpose. The Mariners' Adjustment Corporation hired by PCIC conducted a
survey and declared that the packing of the shipment was considered insufficient. It ruled out the
possibility of taxes due to insufficiency of packing. It opined that three to four pieces of cable or wire
rope slings, held in all equal setting, never by-passing the center of the crate, should have been
used, considering that the crate contained heavy machinery.19
BMICI subsequently filed separate claims against the NSCP,20 the ICTSI,21 and its insurer, the
PCIC,22 for US$61,500.00. When the other companies denied liability, PCIC paid the claim and was
issued a Subrogation Receipt23 for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint for
Damages24 against the "Unknown owner of the vessel M/V National Honor," NSCP and ICTSI, as
defendants.
PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed, among
others'
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered ordering
defendants to pay plaintiff, jointly or in the alternative, the following:
1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of the filing of this
complaint until fully paid;
2. Attorney's fees in the amount of P100,000.00;
3. Cost of suit.25
ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-defendant
NSCP, claiming that the loss/damage of the shipment was caused exclusively by the defective
material of the wooden battens of the shipment, insufficient packing or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden battens placed
on the wooden flooring of the crate was of good material but was not strong enough to support the
weight of the machines inside the crate. He averred that most stevedores did not know how to read
and write; hence, he placed the sling cables only on those portions of the crate where the arrow
signs were placed, as in the case of fragile cargo. He said that unless otherwise indicated by arrow
signs, the ICTSI used only two cable slings on each side of the crate and would not place a sling
cable in the mid-section.26 He declared that the crate fell from the cranes because the wooden batten
in the mid-portion was broken as it was being lifted.27 He concluded that the loss/damage was
caused by the failure of the shipper or its packer to place wooden battens of strong materials under
the flooring of the crate, and to place a sign in its mid-term section where the sling cables would be
placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage to the
cargo could be attributed to insufficient packing and unbalanced weight distribution of the cargo
inside the crate as evidenced by the types and shapes of items found.28
The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two defendants
are dismissed, with costs against the plaintiff.
SO ORDERED.29
According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the internal
defect and weakness of the materials used in the fabrication of the crates. The middle wooden batten
had a hole (bukong-bukong). The trial court rejected the certification30 of the shipper, stating that the
shipment was properly packed and secured, as mere hearsay and devoid of any evidentiary weight,
the affiant not having testified.
Not satisfied, PCIC appealed31 to the CA which rendered judgment on January 19, 2004 affirming in
totothe appealed decision, with this fallo'
WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated February 17,
1997, is AFFIRMED.
SO ORDERED.32
The appellate court held, inter alia, that it was bound by the finding of facts of the RTC, especially so
where the evidence in support thereof is more than substantial. It ratiocinated that the loss of the
shipment was due to an excepted cause - "[t]he character of the goods or defects in the packing or in
the containers" and the failure of the shipper to indicate signs to notify the stevedores that extra care
should be employed in handling the shipment.33 It blamed the shipper for its failure to use materials
of stronger quality to support the heavy machines and to indicate an arrow in the middle portion of
the cargo where additional slings should be attached.34 The CA concluded that common carriers are
not absolute insurers against all risks in the transport of the goods.35
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING THAT
RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY THE
SHIPMENT IN THE POSSESSION OF THE ARRASTRE OPERATOR.
31
 II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING THE
STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT BAR.
III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING THAT THE
DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE PACKING AND NOT
TO THE FAULT AND NEGLIGENCE OF THE RESPONDENTS.36
The petitioner asserts that the mere proof of receipt of the shipment by the common carrier (to the
carrier) in good order, and their arrival at the place of destination in bad order makes out a prima
faciecase against it; in such case, it is liable for the loss or damage to the cargo absent satisfactory
explanation given by the carrier as to the exercise of extraordinary diligence. The petitioner avers
that the shipment was sufficiently packed in wooden boxes, as shown by the fact that it was accepted
on board the vessel and arrived in Manila safely. It emphasizes that the respondents did not contest
the contents of the bill of lading, and that the respondents knew that the manner and condition of the
packing of the cargo was normal and barren of defects. It maintains that it behooved the respondent
ICTSI to place three to four cables or wire slings in equal settings, including the center portion of the
crate to prevent damage to the cargo:
'[A] simple look at the manifesto of the cargo and the bill of lading would have alerted respondents of
the nature of the cargo consisting of thick and heavy machinery. Extra-care should have been made
and extended in the discharge of the subject shipment. Had the respondent only bothered to check
the list of its contents, they would have been nervous enough to place additional slings and cables to
support those massive machines, which were composed almost entirely of thick steel, clearly
intended for heavy industries. As indicated in the list, the boxes contained one lat[h]e machine, one
milling machine and one grinding machine-all coming with complete parts and accessories. Yet, not
one among the respondents were cautious enough. Here lies the utter failure of the respondents to
observed extraordinary diligence in the handling of the cargo in their custody and possession, which
the Court of Appeals should have readily observed in its appreciation of the pertinent facts.37
The petitioner posits that the loss/damage was caused by the mishandling of the shipment by therein
respondent ICTSI, the arrastre operator, and not by its negligence.
The petitioner insists that the respondents did not observe extraordinary diligence in the care of the
goods. It argues that in the performance of its obligations, the respondent ICTSI should observe the
same degree of diligence as that required of a common carrier under the New Civil Code of the
Philippines. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,38 it posits that respondents are
liable in solidum to it, inasmuch as both are charged with the obligation to deliver the goods in good
condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not solidarily liable
with it. It further avers that the "carrier cannot discharge directly to the consignee because cargo
discharging is the monopoly of the arrastre." Liability, therefore, falls solely upon the shoulder of
respondent ICTSI, inasmuch as the discharging of cargoes from the vessel was its exclusive
responsibility. Besides, the petitioner is raising questions of facts, improper in a Petition for Review
on Certiorari .39
Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45 of the
Rules of Court. It claims that it is merely a depository and not a common carrier; hence, it is not
obliged to exercise extraordinary diligence. It reiterates that the loss/damage was caused by the
failure of the shipper or his packer to place a sign on the sides and middle portion of the crate that
extra care should be employed in handling the shipment, and that the middle wooden batten on the
flooring of the crate had a hole. The respondent asserts that the testimony of Anthony Abarquez, who
conducted his investigation at the site of the incident, should prevail over that of Rolando Balatbat.
As an alternative, it argues that if ever adjudged liable, its liability is limited only to P3,500.00 as
expressed in the liability clause of Gate Pass CFS-BR-GP No. 319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that only questions of law may be entertained by this
Court in a Petition for Review on Certiorari . This rule, however, is not ironclad and admits certain
exceptions, such as when (1) the conclusion is grounded on speculations, surmises or conjectures;
(2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6)
there is no citation of specific evidence on which the factual findings are based; (7) the findings of
absence of facts are contradicted by the presence of evidence on record; (8) the findings of the Court
of Appeals are contrary to those of the trial court; (9) the Court of Appeals manifestly overlooked
certain relevant and undisputed facts that, if properly considered, would justify a different conclusion;
(10) the findings of the Court of Appeals are beyond the issues of the case; and (11) such findings
are contrary to the admissions of both parties.40
We have reviewed the records and find no justification to warrant the application of any exception to
the general rule.
We agree with the contention of the petitioner that common carriers, from the nature of their business
and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.41 The Court has defined extraordinary diligence in the vigilance over the
goods as follows:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature
32
and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires."42
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to, or until the lapse of a reasonable time for their
acceptance, by the person entitled to receive them.43 When the goods shipped are either lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable.44 To overcome the
presumption of negligence in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence.45
However, under Article 1734 of the New Civil Code, the presumption of negligence does not apply to
any of the following causes:
1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts the
common carrier for the loss or damage to the cargo is a closed list. 46 To exculpate itself from liability
for the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove
any of the aforecited causes claimed by it by a preponderance of evidence. If the carrier succeeds,
the burden of evidence is shifted to the shipper to prove that the carrier is negligent.47
"Defect" is the want or absence of something necessary for completeness or perfection; a lack or
absence of something essential to completeness; a deficiency in something essential to the proper
use for the purpose for which a thing is to be used.48 On the other hand, inferior means of poor
quality, mediocre, or second rate.49 A thing may be of inferior quality but not necessarily defective. In
other words, "defectiveness" is not synonymous with "inferiority."
In the present case, the trial court declared that based on the record, the loss of the shipment was
caused by the negligence of the petitioner as the shipper:
The same may be said with respect to defendant ICTSI. The breakage and collapse of Crate No. 1
and the total destruction of its contents were not imputable to any fault or negligence on the part of
said defendant in handling the unloading of the cargoes from the carrying vessel, but was due solely
to the inherent defect and weakness of the materials used in the fabrication of said crate.
The crate should have three solid and strong wooden batten placed side by side underneath or on
the flooring of the crate to support the weight of its contents. However, in the case of the crate in
dispute, although there were three wooden battens placed side by side on its flooring, the middle
wooden batten, which carried substantial volume of the weight of the crate's contents, had a knot
hole or "bukong-bukong," which considerably affected, reduced and weakened its strength. Because
of the enormous weight of the machineries inside this crate, the middle wooden batten gave way and
collapsed. As the combined strength of the other two wooden battens were not sufficient to hold and
carry the load, they too simultaneously with the middle wooden battens gave way and collapsed
(TSN, Sept. 26, 1996, pp. 20-24).
Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing in the
record which would indicate that defendant ICTSI had any role in the choice of the materials used in
fabricating this crate. Said defendant, therefore, cannot be held as blame worthy for the loss of the
machineries contained in Crate No. 1.50
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code,
particularly number (4) thereof, i.e., the character of the goods or defects in the packing or in the
containers. The trial court found that the breakage of the crate was not due to the fault or negligence
of ICTSI, but to the inherent defect and weakness of the materials used in the fabrication of the said
crate.
Upon examination of the records, We find no compelling reason to depart from the factual findings of
the trial court.
It appears that the wooden batten used as support for the flooring was not made of good materials,
which caused the middle portion thereof to give way when it was lifted. The shipper also failed to
indicate signs to notify the stevedores that extra care should be employed in handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and responsibilities:
"Q: With regard to crates, what do you do with the crates?chanroblesvirtualawlibrary
A: Everyday with the crates, there is an arrow drawn where the sling is placed, Ma'am.
Q: When the crates have arrows drawn and where you placed the slings, what do you do with these
crates?chanroblesvirtualawlibrary
A: A sling is placed on it, Ma'am.
33
Q: After you placed the slings, what do you do with the crates?chanroblesvirtualawlibrary
A: After I have placed a sling properly, I ask the crane (sic) to haul it, Ma'am.
Q: Now, what, if any, were written or were marked on the crate?chanroblesvirtualawlibrary
The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The petitioner
failed to rebut the testimony of Dauz, that the crates were sealed and that the contents thereof could
not be seen from the outside.52 While it is true that the crate contained machineries and spare parts,
it cannot thereby be concluded that the respondents knew or should have known that the middle
wooden batten had a hole, or that it was not strong enough to bear the weight of the shipment.

A: The thing that was marked on the cargo is an arrow just like of a chain, Ma'am.
Q: And where did you see or what parts of the crate did you see those
arrows?chanroblesvirtualawlibrary
A: At the corner of the crate, Ma'am.
Q: How many arrows did you see?chanroblesvirtualawlibrary
A: Four (4) on both sides, Ma'am.
Q: What did you do with the arrows?chanroblesvirtualawlibrary
There is no showing in the Bill of Lading that the shipment was in good order or condition when the
carrier received the cargo, or that the three wooden battens under the flooring of the cargo were not
defective or insufficient or inadequate. On the other hand, under Bill of Lading No.
NSGPBSML512565 issued by the respondent NSCP and accepted by the petitioner, the latter
represented and warranted that the goods were properly packed, and disclosed in writing the
"condition, nature, quality or characteristic that may cause damage, injury or detriment to the goods."
Absent any signs on the shipment requiring the placement of a sling cable in the mid-portion of the
crate, the respondent ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to
sustain a finding of absence of defects in the merchandise. Case law has it that such statement will
create a prima facie presumption only as to the external condition and not to that not open to
inspection.53

A: When I saw the arrows, that's where I placed the slings, Ma'am. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.

Q: Now, did you find any other marks on the crate?chanroblesvirtualawlibrary SO ORDERED.

A: Nothing more, Ma'am. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where there are no
arrows?chanroblesvirtualawlibrary

A: You can not place slings if there are no arrows, Ma'am."

Appellant's allegation that since the cargo arrived safely from the port of [P]usan, Korea without
defect, the fault should be attributed to the arrastre operator who mishandled the cargo, is without
merit. The cargo fell while it was being carried only at about five (5) feet high above the ground. It
would not have so easily collapsed had the cargo been properly packed. The shipper should have
used materials of stronger quality to support the heavy machines. Not only did the shipper fail to
properly pack the cargo, it also failed to indicate an arrow in the middle portion of the cargo where
additional slings should be attached. At any rate, the issue of negligence is factual in nature and in
this regard, it is settled that factual findings of the lower courts are entitled to great weight and
respect on appeal, and, in fact, accorded finality when supported by substantial evidence. 51

We agree with the trial and appellate courts.

34
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 charter 6 wherein petitioner
was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu Santo 7 at Ayungon,
Negros Occidental for transport to and discharge at Tagoloan, Misamis Oriental to consignee
Ferrochrome Phils., Inc.8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric tons of
silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next day. 9 The
shipment never reached its destination, however, because the M/T Espiritu Santo sank in the
afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting in the total loss of
the cargo.10
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was subrogated
to the rights of MCCII.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
35
Petitioner next contends that if there was a contract of carriage, then it was between MCCII and ALS Costs against petitioner.
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.

36
G.R. No. 186312 June 29, 2010
SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,
vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished with
his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en route
to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach
Island Resort (Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was
by virtue of a tour package-contract with respondent that included transportation to and from
the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for another
night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners’ son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and
into the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and
the captain to step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing
the captain, Matute and the other passengers who reached the surface asked him what they
could do to save the people who were still trapped under the boat. The captain replied "Iligtas
niyo na lang ang sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners’ son and his wife, died during the incident.
At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the
death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondent’s offer, they filed the Complaint, as earlier reflected, alleging
that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III
to sail notwithstanding storm warning bulletins issued by the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of
September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners’ allegation, there was no storm on September 11, 2000 as
the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity
and had sufficient life jackets for its passengers. By way of Counterclaim, respondent alleged
that it is entitled to an award for attorney’s fees and litigation expenses amounting to not less
than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is
clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is
clearance from the Resort’s assistant manager.8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners’
Complaint and respondent’s Counterclaim.
Petitioners’ Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.
37
By Decision of August 19, 2008,13 the appellate court denied petitioners’ appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier which
is only required to observe ordinary diligence; that respondent in fact observed extraordinary
diligence in transporting its guests on board M/B Coco Beach III; and that the proximate cause
of the incident was a squall, a fortuitous event.
Petitioners’ Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of its
resort business. They inform that another division of the appellate court in fact held respondent
liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove
that it is a common carrier; that the Resort’s ferry services for guests cannot be considered as
ancillary to its business as no income is derived therefrom; that it exercised extraordinary
diligence as shown by the conditions it had imposed before allowing M/B Coco Beach III to sail;
that the incident was caused by a fortuitous event without any contributory negligence on its
part; and that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as
a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the "general public," i.e.,
the general community or population, and one who offers services or solicits business only
from a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth in
the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger,
or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public
services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondent’s ferry
services in its resort operations is underscored by its having its own Coco Beach boats. And
the tour packages it offers, which include the ferry services, may be availed of by anyone who
can afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It
would be imprudent to suppose that it provides said services at a loss. The Court is aware of
the practice of beach resort operators offering tour packages to factor the transportation fee in
arriving at the tour package price. That guests who opt not to avail of respondent’s ferry
services pay the same amount is likewise inconsequential. These guests may only be deemed
to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods is
the carrier’s principal business, whether it is offered on a regular basis, or whether it is offered
to the general public. The intent of the law is thus to not consider such distinctions. Otherwise,
there is no telling how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to avoid the legal
obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case.19 They are bound to
carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances.20
38
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed
that the common carrier is at fault or negligent. In fact, there is even no need for the court to
make an express finding of fault or negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier exercised extraordinary
diligence.21
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of
voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondent’s
position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical depressions
in Northern Luzon which would also affect the province of Mindoro.22 By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under such
weather condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other people’s lives at risk. The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if they
were their own. This respondent failed to do.
Respondent’s insistence that the incident was caused by a fortuitous event does not impress
either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal manner;
and (d) the obligor must have been free from any participation in the aggravation of the
resulting injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should have exercised due diligence to prevent
or minimize the loss before, during and after the occurrence of the fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows that
M/B Coco Beach III suffered engine trouble before it capsized and sank.26 The incident was,
therefore, not completely free from human intervention.
The Court need not belabor how respondent’s evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the occurrence
of the squall.
Article 176427 vis-à-vis Article 220628 of the Civil Code holds the common carrier in breach of
its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 — age of deceased at the time of death]30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 — age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the entire
earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33
In computing the third factor – necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja34teaches that when, as in this case, there is no showing that the living expenses
constituted the smaller percentage of the gross income, the living expenses are fixed at half of
the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange rate
of $1 = P44 in 2000,36 amounts to P39,600. Ruelito’s net earning capacity is thus computed as
follows:
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Net Earning = life expectancy x (gross annual income - reasonable and
Capacity necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning
= P8,316,000
Capacity
Respecting the award of moral damages, since respondent common carrier’s breach of
contract of carriage resulted in the death of petitioners’ son, following Article 1764 vis-à-vis
Article 2206 of the Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as
moral damages andP100,000 as exemplary damages.381avvphi1
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the rate
of 12% per annum until satisfaction, in accordance with paragraph number 3 of the immediately
cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the
following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity
for Ruelito’s loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys
fees; and (6) the costs of suit.

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where The total amount adjudged against respondent shall earn interest at the rate of 12% per annum
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged computed from the finality of this decision until full payment.
against respondent is reasonable for the purpose.
SO ORDERED.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit —

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest

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