FIRST DIVISION 2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it
[G.R. No. 71929 : December 4, 1990.] took place during the carriage by air;" 18 and
192 SCRA 9
ALITALIA​, Petitioner, vs. I
​ NTERMEDIATE APPELLATE COURT and FELIPA E. PABLO​, Respondents.
Dr. Felipa Pablo — an associate professor in the University of the Philippines, 1 and a research
grantee of the Philippine Atomic Energy Agency — was invited to take part at a meeting of the Department
of Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the
United Nations in Ispra, Italy. 2 She was invited in view of her specialized knowledge in "foreign substances
in food and the agriculture environment." She accepted the invitation, and was then scheduled by the
organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops." 3
The program announced that she would be the second speaker on the first day of the meeting. 4 To fulfill
this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set for
her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her luggage was
"delayed inasmuch as the same . . . (was) in one of the succeeding flights from Rome to Milan." 5 Her
luggage consisted of two (2) suitcases: one contained her clothing and other personal items; the other, her
scientific papers, slides and other research material. But the other flights arriving from Rome did not have
her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired
about her suitcases in the domestic and international airports, and filled out the forms prescribed by
ALITALIA for people in her predicament. However, her baggage could not be found. Completely distraught
and discouraged, she returned to Manila without attending the meeting in Ispra, Italy. :
Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered
by her. ALITALIA offered her "free airline tickets to compensate her for any alleged damages. . . ." She
rejected the offer, and forthwith commenced the action 6 which has given rise to the present appellate
proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on the
day after her scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr. Pablo was
no longer there to accept delivery; she was already on her way home to Manila. And for some reason or
other, the suitcases were not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later,
and four (4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's favor:
10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS
(P20,000.00), Philippine Currency, by way of nominal damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine
Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment. 11
Indeed, the Appellate Court not only affirmed the Trial Court's decision but also increased the award of
nominal damages payable by ALITALIA to P40,000.00. 12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed by defendant, the
amount of P20,000.00 under present inflationary conditions as awarded . . . to the plaintiff as nominal
damages, is too little to make up for the plaintiff's frustration and disappointment in not being able to
appear at said conference; and for the embarrassment and humiliation she suffered from the academic
community for failure to carry out an official mission for which she was singled out by the faculty to
represent her institution and the country. After weighing carefully all the considerations, the amount
awarded to the plaintiff for nominal damages and attorney's fees should be increased to the cost of her
round trip air fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on ​Certiorari​. Here, it seeks to make basically the same
points it tried to make before the Trial Court and the Intermediate Appellate Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and attorney's
fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have
refused to pass on all the assigned errors and in not stating the facts and the law on which its decision is
based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on board
the aircraft or in the course of its operations of embarking or disembarking; 17
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however, founded, can only be
brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of
250,000 francs . . . Nevertheless, by special contract, the carrier and the passenger may agree to a higher
limit of liability.: nad
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250
francs per kilogramme, unless the passenger or consignor has made, at the time when the package was
handed over to the carrier, a special declaration of interest in delivery at destination and has paid a
supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding
the declared sum, unless he proves that sum is greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained
therein, the weight to be taken into consideration in determining the amount to which the carrier's liability is
limited shall be only the total weight of the package or packages concerned. Nevertheless, when the loss,
damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affects the
value of other packages covered by the same baggage check or the same air way bill, the total weight of
such package or packages shall also be taken into consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to
5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in
addition, the whole or part of the court costs and of the other expenses of litigation incurred by the plaintiff.
The foregoing provision shall not apply if the amount of the damages awarded, excluding court costs and
other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the
plaintiff within a period of six months from the date of the occurrence causing the damage, or before the
commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions which exclude
or limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered to be equivalent to wilful misconduct,"
or "if the damage is (similarly) caused . . by any agent of the carrier acting within the scope of his
employment." 22 The Hague Protocol amended the Warsaw Convention by removing the provision that if
the airline took all necessary steps to avoid the damage, it could exculpate itself completely, 23 and
declaring the stated limits of liability not applicable "if it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with
knowledge that damage would probably result." The same deletion was effected by the Montreal Agreement
of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful misconduct.
24
The Convention does not thus operate as an exclusive enumeration of the instances of an airline's
liability, or as an absolute limit of the extent of that liability. Such a proposition is not borne out by the
language of the Convention, as this Court has now, and at an earlier time, pointed out. 25 Moreover, slight
reflection readily leads to the conclusion that it should be deemed a limit of liability only in those cases
where the cause of the death or injury to person, or destruction, loss or damage to property or delay in its
transport is not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise
improper conduct on the part of any official or employee for which the carrier is responsible, and there is
otherwise no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not
"regulate or exclude liability for other breaches of contract by the carrier" 26 or misconduct of its officers
and employees, or for some particular or exceptional type of damage. Otherwise, "an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a
contract of carriage, which is absurd." 27 Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously destroy or damage
the latter's property, the Convention might successfully be pleaded as the sole gauge to determine the
carrier's liability to the passenger. Neither may the Convention be invoked to justify the disregard of some
extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set
by said Convention. It is in this sense that the Convention has been applied, or ignored, depending on the
peculiar facts presented by each case.:-cralaw
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was
applied as regards the limitation on the carrier's liability, there being a simple loss of baggage without any
otherwise improper conduct on the part of the officials or employees of the airline or other special injury
sustained by the passenger.
 On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not
restrictive of the carrier's liability, where there was satisfactory evidence of malice or bad faith attributable
to its officers and employees. 29 Thus, an air carrier was sentenced to pay not only compensatory but also
moral and exemplary damages, and attorney's fees, for instance, where its employees rudely put a
passenger holding a first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic from
the plane to give his seat to a white man, 31 or gave the seat of a passenger with a confirmed reservation
to another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by calling him a
"monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees
of petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without
appreciable damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo
because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed — a
breach of its contract of carriage, to be sure — with the result that she was unable to read the paper and
make the scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations) that
she had painstakingly labored over, at the prestigious international conference, to attend which she had
traveled hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of
the organizers. She felt, not unreasonably, that the invitation for her to participate at the conference,
extended by the Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations,
was a singular honor not only to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of its
contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which
gradually turned to panic and finally despair, from the time she learned that her suitcases were missing up
to the time when, having gone to Rome, she finally realized that she would no longer be able to take part in
the conference. As she herself put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be
restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As already
mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitled
to nominal damages — which, as the law says, is adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered — and this Court agrees that the respondent Court of Appeals
correctly set the amount thereof at P40,000.00. As to the purely technical argument that the award to her
of such nominal damages is precluded by her omission to include a specific claim therefor in her complaint,
it suffices to draw attention to her general prayer, following her plea for moral and exemplary damages and
attorney's fees, "for such other and further just and equitable relief in the premises," which certainly is
broad enough to comprehend an application as well for nominal damages. Besides, petitioner should have
realized that the explicit assertion, and proof, that Dr. Pablo's right had been violated or invaded by it —
absent any claim for actual or compensatory damages, the prayer thereof having been voluntarily deleted
by Dr. Pablo upon the return to her of her baggage — necessarily raised the issue of nominal damages.: rd
This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr.
Pablo, and the amount of P5,000.00 set by it is reasonable in the premises. The law authorizes recovery of
attorney's fees inter alia where, as here, "the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest," 34 or "where the court deems it just
and equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it appearing on
the contrary to be entirely in accord with the facts and the law, said decision is hereby AFFIRMED, with costs
against the petitioner.
SO ORDERED.
G.R. No. 94149 May 5, 1992
AMERICAN HOME ASSURANCE, COMPANY, petitioner,
vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or NATIONAL MARINE
CORPORATION (Manila), respondents.
​ hich seeks to annul and set aside the (a) decision 1​
This is a petition for review on ​certiorari w
dated May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled "American Home Assurance
Company v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila, Branch 41 and National
Marine Corporation and/or National Marine Corporation (Manila)", dismissing petitioner's petition for
certiorari​, and (b) resolution 2​ dated June 29, 1990 of the Court of Appeals denying petitioner's motion for
reconsideration.
The undisputed facts of the case are follows:
Both petitioner American Home Assurance Co. and the respondent National Marine Corporation
are foreign corporations licensed to do business in the Philippines, the former through its branch. The
American Home Assurance Company (Philippines), Inc. and the latter through its branch. The National
Marine Corporation (Manila) (​Rollo,​ p. 20, Annex L, p.1).
That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT)
of bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned and operated by
herein respondent National Marine Corporation with Registration No. PID-224. The said shipment was
consigned to Mayleen Paper, Inc. of Manila, which insured the shipment with herein petitioner American
Home Assurance Co. as evidenced by Bill of Lading No. HLMN-01.
On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the
Marina Port Services, Inc., for eventual delivery to the consignee-assured. However, upon delivery of the
shipment to Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The loss was
calculated to be 4,360 kilograms with an estimated value of P61,263.41.
Mayleen Paper, Inc. then duly demanded indemnification from respondent National Marine
Corporation for the aforesaid damages/losses in the shipment but, for apparently no justifiable reason, said
demand was not heeded (Petition, p. 4).
As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen Paper, Inc.
sought recovery from the former. Upon demand and submission of proper documentation, American Home
Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the damages/losses suffered by
the shipment, hence, the former was subrogated to the rights and interests on Mayleen Paper, Inc.
On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for the
recovery of the amount of P31.506.75 and 25% of the total amount due as attorney's fees, by filing a
complaint for recovery of sum of money (Petition, p. 4).
Respondent, National Marine Corporation, filed a motion to dismiss dated August 7, 1989 stating
that American Home Assurance Company had no cause of action based on Article 848 of the Code of
Commerce which provides "that claims for averages shall not be admitted if they do not exceed 5% of the
interest which the claimant may have in the vessel or in the cargo if it be gross average and 1% of the
goods damaged if particular average, deducting in both cases the expenses of appraisal, unless there is an
agreement to the contrary." It contended that based on the allegations of the complaint, the loss sustained
in the case was P35,506.75 which is only .18% of P17,420,000.00, the total value of the cargo.
On the other hand, petitioner countered that Article 848 does not apply as it refers to averages and that a
particular average presupposes that the loss or damages is due to an inherent defect of the goods, an
accident of the sea, or a ​force majeure or the negligence of the crew of the carrier, while claims for
damages due to the negligence of the common carrier are governed by the Civil Code provisions on
Common Carriers.
In its order dated November 23, 1989, the Regional Trial Court sustained private respondent's
contention. In part it stated:
Before the Court for resolution is a motion for reconsideration filed by defendant through counsel dated
October 6, 1989.
The record shows that last August 8, 1989, defendant through counsel filed a motion to dismiss
plaintiff's complaint.
Resolving the said motion last September 18, 1989, the court ruled to defer resolution thereof until after
trial on the merits. In the motion now under consideration, defendant prays for the reconsideration of the
order of September 18, 1989 and in lieu thereof, another order be entered dismissing plaintiff's complaint.
There appears to be good reasons for the court to take a second look at the issues raised by the
defendant.
xxx xxx xxx
It is not disputed defendants that the loss suffered by the shipment is only .18% or less that 1%
of the interest of the consignee on the cargo Invoking the provision of the Article 848 of the Code of
Commerce which reads:
Claims for average shall not be admitted if they do not exceed five percent of the interest which the
claimant may have in the vessels or cargo if it is gross average, and ​one percent of the goods damaged if
particular average, ​deducting in both cases the expenses of appraisal, unless there is an agreement to the
contrary. (Emphasis supplied) defendant claims that plaintiff is barred from suing for recovery.

Decisive in this case in whether the loss suffered by the cargo in question is a "particular
average."
Particular average, is a loss happening to the ship, freight, or cargo which is not be (​sic​) shared
by contributing among all those interested, but must be borne by the owner of the subject to which it
occurs. (Black's Law Dictionary, Revised Fourth Edition, p. 172, citing Bargett v. Insurance Co. 3 Bosw.
[N.Y.] 395).
as distinguished from general average which is a contribution by the several interests engaged in the
maritime venture to make good the loss of one of them for the voluntary sacrifice of a part of the ship or
cargo to save the residue of the property and the lives of those on board, or for extraordinary expenses
necessarily incurred for the common benefit and safety of all (​Ibid.​ ​, citing California Canneries Co. v. Canton
Ins. Office 25 Cal. App. 303, 143 p. 549-553).
From the foregoing definition, it is clear that the damage on the cargo in question, is in the nature
of the "particular average." Since the loss is less than 1% to the value of the cargo and there appears to be
no allegations as to any agreement defendants and the consignee of the goods to the contrary, by express
provision of the law, plaintiff is barred from suing for recovery.
WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of action. (​Rollo, p. 27; Annex A, pp.
3-4).
The petitioner then filed a motion for reconsideration of the order of dismissal but same was
denied by the court in its order dated January 26, 1990 (​supra​).
Instead of filing an appeal from the order of the court ​a quo dismissing the complaint for recovery
of a sum of money, American Home Assurance Company filed a petition for certiorari with the Court of
Appeals to set aside the two orders or respondent judge in said court (​Rollo,​ p. 25).
But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as constituting
plain errors of law and not grave abuse of discretion correctible by ​certiorari (a Special Civil Action). If at all,
respondent court ruled that there are errors of judgment subject to correction by ​certiorari as a mode of
appeal but the appeal is to the Supreme Court under Section 17 of the Judiciary Act of 1948 as amended by
Republic Act No. 5440. Otherwise stated, respondent Court opined that the proper remedy is a petition for
review on ​certiorari​ with the Supreme Court on pure questions of law (​Rollo​, p. 30).
Hence, this petition.
In a resolution dated December 10, 1990, this Court gave due course to the petition and required
both parties to file their respective memoranda (​Rollo​, p. 58).
The procedural issue in this case is whether or not ​certiorari was the proper remedy in the case before the
Court of Appeals.
The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are final orders within the meaning of Rule 41,
Section 2 of the Rules of Court, subject petition raised questions which if at all, constituting grave abuse of
discretion correctible by​ certiorari​.
Evidently, the Court of Appeals did not err in dismissing the petition for ​certiorari for as ruled by
this Court, an order of dismissal whether right or wrong is a final order, hence, a proper subject of appeal,
not ​certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]). However, where the fact remains that respondent
Court of Appeals obviously in the broader interests of justice, nevertheless proceeded to decide the petition
for ​certiorari and ruled on specific points raised therein in a manner akin to what would have been done on
assignments of error in a regular appeal, the petition therein was therefore disposed of on the merits and
not on a dismissal due to erroneous choice of remedies or technicalities (Cruz v. I.A.C., 169 SCRA 14
(1989]). Hence, a review of the decision of the Court of Appeals on the merits against the petitioner in this
case is in order.
On the main controversy, the pivotal issue to be resolved is the application of the law on averages
(Articles 806, 809 and 848 of the Code of Commerce).
Petitioner avers that respondent court failed to consider that respondent National Marine Corporation being
a common carrier, in conducting its business is regulated by the Civil Code primarily and suppletorily by the
Code of Commerce; and that respondent court refused to consider the Bill of Lading as the law governing
the parties.
Private respondent countered that in all matters not covered by the Civil Code, the rights and
obligations of the parties shall be governed by the Code of Commerce and by special laws as provided f​ or in
Article 1766 of the Civil Code; that Article 806, 809 and 848 of the Code of Commerce should be applied
suppletorily as they provide for the extent of the common carriers' liability.
This issue has been resolved by this Court in ​National Development Co​. v​. C.​ ​A​. (164 SCRA 593
[1988]; citing ​Eastern Shipping Lines, Inc​. v​. I.​ ​A​.​C.​ , 150 SCRA 469, 470 [1987] where it was held that "the
law of the country to which the goods are to be transported persons the liability of the common carrier in
case of their loss, destruction or deterioration." (Article 1753, Civil Code). Thus, for cargoes transported to
the Philippines as in the case at bar, the liability of the carrier is governed primarily by the Civil Code and in
all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by
the Code of Commerce and by special laws (Article 1766, Civil Code).
Corollary thereto, the Court held further that under Article 1733 of the Civil Code, 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 passengers transported by them
according to all circumstances of each case. Thus, under Article 1735 of the same Code, in all cases other
than those mentioned in Article 1734 thereof, the common carrier shall be presumed to have been at fault
or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by
law (​Ibid.​ , p. 595).
But more importantly, the Court ruled that common carriers cannot limit their liability for injury or
loss of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in determining liability where there is negligence
(​Ibid.​ , p. 606).
Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their stead, it is but
reasonable to conclude that the issue of negligence must first be addressed before the proper provisions of
the Code of Commerce on the extent of liability may be applied.
The records show that upon delivery of the shipment in question of Mayleen's warehouse in
Manila, 122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called
"percentage method" at 4,360 kilograms and amounting to P61,263.41 (​Rollo, p. 68). Instead of presenting
proof of the exercise of extraordinary diligence as required by law, National Marine Corporation (NMC) filed
its Motion to Dismiss dated August 7, 1989, hypothetically admitting the truth of the facts alleged in the
complaint to the effect that the loss or damage to the 122 bales was due to the negligence or fault of NMC
(​Rollo​, p. 179). As ruled by this Court, the filing of a motion to dismiss on the ground of lack of cause of
action carries with it the admission of the material facts pleaded in the complaint (Sunbeam Convenience
Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such being the case, it is evident that the Code of Commerce
provisions on averages cannot apply.
On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible
for loss, destruction or deterioration of the goods, unless due to any of the causes enumerated therein. It is
obvious that the case at bar does not fall under any of the exceptions. Thus, American Home Assurance
Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.
Accordingly, it is evident that the findings of respondent Court of Appeals, affirming the findings and
conclusions of the court ​a quo ​are not supported by law and jurisprudence.
PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the Regional Trial
Court of Manila, Branch 41, appealed from are REVERSED; and (2) private respondent National Marine
Corporation is hereby ordered to reimburse the subrogee, petitioner American Home Assurance Company,
the amount of P31,506.75.
SO ORDERED.
G.R. No. 166250 July 26, 2010
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner,
vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION, Respondents.
For review is the Court of Appeals (CA) Decision​1 dated April 29, 2004 and Resolution​2 dated
November 26, 2004. The assailed Decision affirmed the Regional Trial Court (RTC) decision​3 dated February
22, 2001; while the assailed Resolution denied petitioner Unsworth Transport International (Philippines),
Inc., American President Lines, Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s) motion for
reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27
drums of various raw materials for pharmaceutical manufacturing, consisting of: "1) 3 drums (of) extracts,
flavoring liquid, flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine
oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex Extract."​4 UTI
issued Bill of Lading No. C320/C15991-2,​5​covering the aforesaid shipment. The subject shipment was
insured with private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all risks
in the amount of ₱1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 92​6 and
Open Cargo Policy No. HO-022-RIU.​7
On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40
container van, with no. APLU-982012, boarded on APL’s vessel M/V "Pres. Jackson," Voyage 42, and
transshipped to APL’s M/V "Pres. Taft"​8 for delivery to petitioner in favor of the consignee United
Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992, petitioner received
the said shipment in its warehouse after it stamped the Permit to Deliver Imported Goods​9 procured by the
Champs Customs Brokerage.​10 Three days thereafter, or on October 9, 1992, Oceanica Cargo Marine
Surveyors Corporation (OCMSC) conducted a stripping survey of the shipment located in petitioner’s
warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed
19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling of 1%​11
On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate
Pass No. 7614​12 which stated that "22 drums​13 Raw Materials for Pharmaceutical Mfg." were loaded on a
truck with Plate No. PCK-434 facilitated by Champs for delivery to Unilab’s warehouse. The materials were
noted to be complete and in good order in the gate pass.​14 On the same day, the shipment arrived in
Unilab’s warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas Adjusters &
Surveyors, Inc. (J.G. Bernas). The Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery​15
On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys
which yielded the same results. Consequently, Unilab’s quality control representative rejected one paper bag
containing dried yeast and one steel drum containing Vitamin B Complex as unfit for the intended purpose.​16
On November 7, 1992, Unilab filed a formal claim​17 for the damage against private respondent
and UTI. On November 20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that the
goods were in complete and good condition; while private respondent paid the claimed amount on March 23,
1993. By virtue of the Loss and Subrogation Receipt​18 issued by Unilab in favor of private respondent, the
latter filed a complaint for Damages against APL, UTI and petitioner with the RTC of Makati.​19 The case was
docketed as Civil Case No. 93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits ensued. On February 22,
2001, the RTC decided in favor of private respondent and against APL, UTI and petitioner, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE & SURETY
CORPORATION and against the defendants AMERICAN PRESIDENT LINES and UNSWORTH TRANSPORT
INTERNATIONAL (PHILS.), INC. (now known as JUGRO TRANSPORT INT’L., PHILS.), ordering the latter to
pay, jointly and severally, the former the following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100 (Php76,231.27) with
interest at the legal rate of 6% per annum to be computed starting from September 30, 1993 until fully
paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.​20
On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s defense that
it was merely a forwarder, declaring instead that it was a common carrier. The appellate court added that by
issuing the Bill of Lading, UTI acknowledged receipt of the goods and agreed to transport and deliver them
at a specific place to a person named or his order. The court further concluded that upon the delivery of the
subject shipment to petitioner’s warehouse, its liability became similar to that of a depositary. As such, it
ought to have exercised ordinary diligence in the care of the goods. And as found by the RTC, the CA agreed
that petitioner failed to exercise the required diligence. The CA also rejected petitioner’s claim that its
liability should be limited to $500 per package pursuant to the Carriage of Goods by Sea Act (COGSA)
considering that the value of the shipment was declared pursuant to the letter of credit and the pro forma
invoice. As to APL, the court considered it as a common carrier notwithstanding the non-issuance of a bill of
lading inasmuch as a bill of lading is not indispensable for the execution of a contract of carriage.​21
Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the following
issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE DECISION OF THE REGIONAL
TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE SUM OF SEVENTY SIX THOUSAND TWO
HUNDRED THIRTY ONE AND 27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST AT 6% PER ANNUM AS
ACTUAL DAMAGES AND 25% AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE ALLEGED DAMAGE TO
ITS CARGO.​22
Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a common
carrier. It also questions the appellate court’s findings that it failed to establish that it exercised
extraordinary or ordinary diligence in the vigilance over the subject shipment. As to the damages allegedly
suffered by private respondent, petitioner counters that they were not sufficiently proven. Lastly, it insists
that its liability, in any event, should be limited to $500 pursuant to the package limitation rule. Indeed,
petitioner wants us to review the factual findings of the RTC and the CA and to evaluate anew the evidence
presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:
Section 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly set forth.
Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm holding itself out
to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of
property for compensation and, in the ordinary course of its business, (1) to assemble and consolidate, or to
provide for assembling and consolidating, shipments, and to perform or provide for break-bulk and
distribution operations of the shipments; (2) to assume responsibility for the transportation of goods from
the place of receipt to the place of destination; and (3) to use for any part of the transportation a carrier
subject to the federal law pertaining to common carriers.​23​1
A freight forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their
destination instead of merely arranging for their transportation, it becomes liable as a common carrier for
loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes
the transport, even though the forwarder does not carry the merchandise itself.​24
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner
undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical manufacturing to
the consignee.
A bill of lading is a written acknowledgement 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 or her order.​25 It operates
both as a receipt and as a contract. It is a receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the
goods as to quantity, weight, dimensions, identification marks, condition, quality, and value. As a contract,
it names the contracting parties, which include the consignee; fixes the route, destination, and freight rate
or charges; and stipulates the rights and obligations assumed by the parties.​26
Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods.
In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they
observed such diligence.​27 Mere proof of delivery of the goods in good order to a common carrier and of
their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the
carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods
happened, the transporter shall be held responsible.​28
Though it is not our function to evaluate anew the evidence presented, we refer to the records of
the case to show that, as correctly found by the RTC and the CA, petitioner failed to rebut the prima facie
presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good
order and condition in New York, United States of America. Second, the OCMSC Survey Report stated that
one steel drum STC Vitamin B Complex Extract was discovered to be with a cut/hole on the side, with
approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine, noted that the subject
shipment was in good order and condition, it was specifically stated that there were 22 (should be 27 drums
per Bill of Lading No. C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G.
Bernas’ Survey Report stated that "1-s/drum was punctured and retaped on the bottom side and the
content was lacking, and there was a short delivery of 5-drums."
All these conclusively prove the fact of shipment in good order and condition, and the consequent
damage to one steel drum of Vitamin B Complex Extract while in the possession of petitioner which failed to
explain the reason for the damage. Further, petitioner failed to prove that it observed the extraordinary
diligence and precaution which the law requires a common carrier to exercise and to follow in order to avoid
damage to or destruction of the goods entrusted to it for safe carriage and delivery.​29
However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to
the RTC and the CA’s findings.
It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed amount per
package. In all matters not regulated by the Civil Code, the rights and obligations of common carriers are
governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code by
establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher
value in the bill of lading.​30​ Section 4(5) of the COGSA provides:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package of lawful money of
the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent
of that sum in other currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be
prima facie evidence, but shall not be conclusive on the carrier.
In the present case, the shipper did not declare a higher valuation of the goods to be shipped.
Contrary to the CA’s conclusion, the insertion of the words "L/C No. LC No. 1-187-008394/ NY 69867
covering shipment of raw materials for pharmaceutical Mfg. x x x" cannot be the basis of petitioner’s
liability.​31 Furthermore, the insertion of an invoice number does not in itself sufficiently and convincingly
show that petitioner had knowledge of the value of the cargo.​32
In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In this
case, as there was only one drum lost, private respondent is entitled to receive only $500 as damages for
the loss. In addition to said amount, as aptly held by the trial court, an interest rate of 6% per annum
should also be imposed, plus 25% of the total sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated April 29, 2004 and Resolution dated November 26, 2004 are AFFIRMED with MODIFICATION
by reducing the principal amount due private respondent Pioneer Insurance and Surety Corporation from
₱76,231.27 to $500, with interest of 6% per annum from date of demand, and 25% of the amount due as
attorney’s fees.
The other aspects of the assailed Decision and Resolution STAND.
G.R. No. 112287 December 12, 1997
NATIONAL STEEL CORPORATION, petitioner,
vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.
The Court finds occasion to apply the rules on the seaworthiness of ​private carrier, its owner's
responsibility for damage to the cargo and its liability for demurrage and attorney's fees. The Court also
reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals,
are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals.​1
The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in
Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff
dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the
counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal
rate on both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and
3. Costs of suit.
SO ORDERED.​2
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorney's fees and expenses of litigation. Except as
thus modified, the decision is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.​3
The Facts
The ​MV Vlasons I ​is a vessel which renders tramping service and, as such, does not transport
cargo or shipment for the general public. Its services are available only to specific persons who enter into a
special contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in
the capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of
voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit "B"; also Exhibit "1")
whereby NSC hired VSI's vessel, the MV "VLASONS I" to make one (1) voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila, under the following terms and conditions, ​viz​:
1. ...
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's
option.
3. ...
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading
within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. ...
9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not
responsible for losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of ​NONYAZAI C/P [​sic​] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the
NANYOZAI Charter Party which stands for "Freight In and Out including Stevedoring and Trading", which
means that the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, "Charterers to load, stow and discharge the cargo
free of risk and expenses to owners​. . . . (Emphasis supplied).
Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning of the
voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied
and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its
reception, carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to make
the vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make
the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage
and preservation; . . . ; perils, dangers and accidents of the sea or other navigable waters; . . . ; wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the cargo;
insufficiency of packing; . . . ; latent defects not discoverable by due diligence; any other cause arising
without the actual fault or privity of Owners or without the fault of the agents or servants of owners."
Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default of the master
and crew."
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
"VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons
for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo
Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed the
corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
following day, August 13, 1974, when the vessel's three (3) hatches containing the shipment were opened
by plaintiff's agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet
and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which
interrupted the unloading operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17,
1975 (Exhibit "G"), MASCO made a report of its ocular inspection conducted on the cargo, both while it was
still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo
was taken and stored. MASCO reported that it found wetting and rusting of the packages of hot rolled
sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents;
that container/metal casings of the skids were rusting all over. MASCO ventured the opinion that "rusting of
the tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit "F").
It was also reported that MASCO's surveyors drew at random samples of bad order packing materials of the
tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the
M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad
order samples of packing materials . . . shows that wetting was caused by contact with SEA WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the amount of
P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but defendant
VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18
as a result of the act, neglect and default of the master and crew in the management of the vessel as well
as the want of due diligence on the part of the defendant to make the vessel seaworthy and to make the
holds and all other parts of the vessel in which the cargo was carried, fit and safe for its reception, carriage
and preservation — all in violation of the defendant's undertaking under their Contract of Voyage Charter
Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV "VLASONS I"
was seaworthy in all respects for the carriage of plaintiff's cargo; that said vessel was not a "common
carrier" inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter
party; that in the course of the voyage from Iligan City to Manila, the MV "VLASONS I" encountered very
rough seas, strong winds and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its deck and hatch covers, that under
the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on
proven willful negligence of the officers of the vessel, that the officers of said MV "VLASONS I" exercised due
diligence and proper seamanship and were not willfully negligent; that furthermore the Voyage Charter
Party provides that loading and discharging of the cargo was on FIOST terms which means that the vessel
was free of risk and expense in connection with the loading and discharging of the cargo; that the damage,
if any, was due to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to
latent defect of the cargo not discoverable by due diligence or to any other cause arising without the actual
fault or privity of defendant and without the fault of the agents or servants of defendant; consequently,
defendant is not liable; that the stevedores of plaintiff who discharged the cargo in Manila were negligent
and did not exercise due care in the discharge of the cargo; land that the cargo was exposed to rain and
seawater spray while on the pier or in transit from the pier to plaintiff's warehouse after discharge from the
vessel; and that plaintiff's claim was highly speculative and grossly exaggerated and that the small stain
marks or sweat marks on the edges of the tin plates were magnified and considered total loss of the cargo.
Finally, defendant claimed that it had complied with all its duties and obligations under the Voyage Charter
Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the
Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00
despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant
the sum of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila
waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant
demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered
to pay defendant attorney's fees and all expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings
which were set forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the tramping service
and is available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh.
"1"), the MV VLASONS I" was covered by the required seaworthiness certificates including the Certification
of Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. "4");
Coastwise License from the Board of Transportation (Exh. "5"); International Loadline Certificate from the
Philippine Coast Guard (Exh. "6"); Cargo Ship Safety Equipment Certificate also from the Philippine Coast
Guard (Exh. "7"); Ship Radio Station License (Exh. "8"); Certificate of Inspection by the Philippine Coast
Guard (Exh. "12"); and Certificate of Approval for Conversion issued by the Bureau of Customs (Exh. "9").
That being a vessel engaged in both overseas and coastwise trade, the MV "VLASONS I" has a higher degree
of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of
Voyage Charter Hire, the MV "VLASONS I" underwent drydocking in Cebu and was thoroughly inspected by
the Philippine Coast Guard. In fact, subject voyage was the vessel's first voyage after the drydocking. The
evidence shows that the MV "VLASONS I" was seaworthy and properly manned, equipped and supplied
when it undertook the voyage. It has all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch
openings were covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch
covers were water tight. Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers pursuant to which there exists
a presumption of negligence in case of loss or damage to the cargo are not applicable. As to the damage to
the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted testimony of
witness Vicente Angliongto that tinplates "sweat" by themselves when packed even without being in contract
(​sic)​ with water from outside especially when the weather is bad or raining. The trust caused by sweat or
moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be held liable
for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the "character of the goods . . ." All the 1,769 skids of the tinplates could not have
been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates
themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected by water
from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent
in not closing the hatch openings of the MV "VLASONS I" when rains occurred during the discharging of the
cargo thus allowing rainwater to enter the hatches. It was proven that the stevedores merely set up
temporary tents to cover the hatch openings in case of rain so that it would be easy for them to resume
work when the rains stopped by just removing the tent or canvas. Because of this improper covering of the
hatches by the stevedores during the discharging and unloading operations which were interrupted by rains,
rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [​sic]​
Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading, stowing
and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant carrier has no
liability for whatever damage may occur or maybe [​sic]​ caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while
en route from Iligan City to Manila causing sea water to splash on the ship's deck on account of which the
master of the vessel (Mr. Antonio C. Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh. "15"); which
can be invoked by defendant as a​ force majeure​ that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage
Charter Hire contract that it was to insure the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from the insurer. Plaintiff also violated the
charter party contract when it loaded not only "steel products", ​i.​ ​e​. steel bars, angular bars and the like but
also tinplates and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff
was able to ship grade cargo at a lower freight rate.
 (i) As regards defendant's counterclaim, the contract of voyage charter hire under
Paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon
presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight due of
P75,000.00 despite demands. The evidence also showed that the plaintiff was required and bound under
paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in
the unloading of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to pay
defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessel's officers.
II
The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent nature or
character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSC's
shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V does not hold himself out to carry goods for the general public. The most typical, although not the only form
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI.​4
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of
litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution​5 dated October 20, 1993,
the appellate court denied both motions. Undaunted, NSC and VSI filed their respective petitions for review
before this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation of these
petitions.​6
The Issues
In its petition​7​ and memorandum,​8​ NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8", "9",
"11" and "12") were admissible in evidence and constituted evidence of the vessel's seaworthiness at the
beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability for
cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted on their
own; and
4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of NSC's
tinplates.
In its separate petition,​9 VSI submits for the consideration of this Court the following alleged errors of the
CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of
P100,000 for attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum:​10
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
pursuant to which there exist[s] a presumption of negligence against the common carrier in case of loss or
damage to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the
demurrage.
Preliminary Matter​: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or
as a private carrier. The resolution of this preliminary question determines the law, standard of diligence
and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public." It has been held that the true test of a
common carrier is the carriage of passengers or goods, provided it has space, for ​all who opt to avail
themselves of its transportation service for a fee.​11 A carrier which does not qualify under the above test is
deemed a private carrier. "Generally, private carriage is undertaken by special agreement and the carrier
of private carriage, is the charter party, a maritime contract by which the charterer, a party other than the
shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or
voyages."​12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As
found by the Regional Trial Court, it carried passengers or goods only for those it chose under a "special
contract of charter party." ​13 As correctly concluded by the Court of Appeals, the ​MV Vlasons I "was not a
common but a private carrier."​14​Consequently, the rights and obligations of VSI and NSC, including their
respective liability for damage to the cargo, are determined primarily by stipulations in their contract of
private carriage or charter party.​15 Recently, in ​Valenzuela Hardwood and Industrial Supply, Inc​., vs.​ Court
of Appeals and Seven Brothers Shipping Corporation​,16​ ​ the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving common carriers.​17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall
not be responsible for losses except on proven willful negligence of the officers of the vessel." The
NANYOZAI Charter Party, which was incorporated in the parties' contract of transportation further provided
that the shipowner shall not be liable for loss of or a damage to the cargo arising or resulting from
unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel seaworthy or
to ensure that the same was "properly manned, equipped and supplied," and to "make the holds and all
other parts of the vessel in which cargo [was] carried, fit and safe for its reception, carriage and
preservation."​18 The NANYOZAI Charter Party also provided that "[o]wners shall not be responsible for split,
chafing and/or any damage unless caused by the negligence or default of the master or crew."​19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSI's willful negligence or failure to exercise due diligence in making ​MV Vlasons I
seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was
placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary
has not been expressly stipulated​.
 Therefore, the damage and impairment suffered by the goods during the transportation, due to
fortuitous event, force majeure,​ or the nature and inherent defect of the things, shall be for the account and
risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his omission
to take the precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of
lading, making him to believe that the goods were of a class or quality different from what they really were.
Because the ​MV Vlasons I ​was a private carrier, the shipowner's obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the
prima facie ​presumption of negligence on a common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff
to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged
while in the carrier's custody does not put the burden of proof on the carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a breach of that duty
rests on plaintiff and proof of loss of, or damage to, cargo while in the carrier's possession does not cast on
it the burden of proving proper care and diligence on its part or that the loss occurred from an excepted
cause in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the
benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee,
and since the carrier is in a better position to know the cause of the loss and that it was not one involving its
liability, the law requires that it come forward with the information available to it, and its failure to do so
warrants an inference or presumption of its liability. However, such inferences and presumptions, while they
may affect the burden of coming forward with evidence, do not alter the burden of proof which remains on
plaintiff, and, where the carrier comes forward with evidence explaining the loss or damage, the burden of
going forward with the evidence is again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof
that the goods were lost or damaged while in the carrier's possession does not cast on it the burden of
proving seaworthiness. . . . Where the contract of carriage exempts the carrier from liability for
unseaworthiness not discoverable by due diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy.​20
In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct
position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing
Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's]
interpretation of Clause 12 is not even correct), it argues that 'a careful examination of the evidence will
show that VSI miserably failed to comply with any of these obligation's as if defendant-appellee [VSI] had
the burden of
proof."​21
First Issue:​ Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making ​MV Vlasons I seaworthy for the intended
purpose under the charter party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the
rusting of the tin plates was caused by its own "sweat" or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties' conflicting claims and to carefully weigh their respective evidence. The
findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings of
both the trial court and the Court of Appeals coincide, the same are binding on this Court.​22 We stress that,
subject to some exceptional instances,​23​only questions of law — not questions of fact — may be raised
before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough review of the
case at bar, we find no reason to disturb the lower court's factual findings, as indeed NSC has not
successfully proven the application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and
fit for the carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked and
inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the
contract of voyage charter hire.​24​The vessel's voyage from Iligan to Manila was the vessel's first voyage
after drydocking.​ The Philippine Coast Guard Station in Cebu cleared it as ​seaworthy, fitted and equipped​; it
met all requirements for trading as cargo vessel.​ 25
​ The Court of Appeals itself sustained the conclusion of the
trial court that ​MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the
trial and the appellate courts.
Who Were Negligent:​
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by
the negligence of the officers and the crew of ​MV Vlasons I ​in making their vessel seaworthy and fit for the
carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that ​MV Vlasons I ​had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the
Court of Appeals for failing to consider such claim as an "uncontroverted fact"​26 and denies that ​MV Vlasons
I "​ was equipped with new canvas covers in tandem with the old ones as indicated in the Marine Protest . .
."​27​ We disagree.
The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in
addition to the new one used primarily to make the ship's hatches watertight. The foregoing are clear from
the marine protest of the master of the ​MV Vlasons I​, Antonio C. Dumlao, and the deposition of the ship's
boatswain, Jose Pascua. The salient portions of said marine protest read:
. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that
before departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about
August 9, 1974, while in the vicinity of the western part of Negros and Panay, we encountered very rough
seas and strong winds and Manila office was advised by telegram of the adverse weather conditions
encountered; that in the morning of August 10, 1974, the weather condition changed to worse and strong
winds and big waves continued pounding the vessel at her port side causing sea water to overflow on deck
andhatch (​sic)​ covers and which caused the first layer of the canvass covering to give way while the new
canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that
we re-secured the canvass covering back to position; that in the afternoon of August 10, 1974, while
entering Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while
approaching Fortune Island, we encountered again rough seas, strong winds and big waves which caused
the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx 28
​
And the relevant portions of Jose Pascua's deposition are as follows:
q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we
place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a stopper so that the
canvas could not be removed.
ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the width of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch opening?
a There is a hatch board.
ATTY DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material there to cover the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in the hatch opening covering the whole hatch opening?
a No, sir.
q How many hatch beams were there placed across the opening?
a There are five beams in one hatch opening.
ATTY DEL ROSARIO
q And on top of the beams you said there is a hatch board. How many pieces of wood are put on
top?
a Plenty, sir, because there are several pieces on top of the hatch beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards, according to you, is the canvass cover. How many canvas
covers?
a Two, sir.​29
That due diligence was exercised by the officers and the crew of the ​MV Vlasons I w ​ as further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give
way and the ship's hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals, ".
. . we find no reason not to sustain the conclusion of the lower court based on overwhelming evidence, that
the ​MV 'VLASONS I' was seaworthy when it undertook the voyage on August 8, 1974 carrying on board
thereof plaintiff-appellant's shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a
total of 1,769 packages from NSC's pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on
August 12, 1974; . . .​30
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of ​MV Vlasons I​. On the contrary, the records reveal that it was the stevedores of NSC who were
negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was
clearly inadequate for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an
officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on August 14 you went on board
the vessel upon notice from the National Steel Corporation in order to conduct the inspection of the cargo.
During the course of the investigation, did you chance to see the discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier
but majority of the tinplates were inside the hall, all the hatches were opened.
Q In connection with these cargoes which were unloaded, where is the place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the transcript of
stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of
the hatches.
Q You also stated that the hatches were already opened and that there were tents constructed at
the opening of the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the
tents constructed.
A The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the
middle with the whole side separated down to the hatch, the size of the hatch and it is soaks [​sic​] at the
middle because of those weather and this can be used only to temporarily protect the cargo from getting
wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents proper?
A No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the
hatch tent was not good enough to hold all of it to prevent the water soaking through the canvass and enter
the cargo.​
Q In the course of your inspection, Mr.​ Anglingto [sic], did you see in fact the water enter and soak
into the canvass and tinplates.​
A Yes, sir, the second time I went there, I saw it.​
Q As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure
adopted by its stevedores in discharging the cargo particularly in this tent covering of the hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did
not mind at all, so, called the attention of the representative of the National Steel but nothing was done,
just the same. Finally, I wrote a letter to them.​31
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores' negligence on the first day of unloading, pointing out that he wrote his
letter to petitioner only seven days later.​32 The Court is not persuaded. Angliongto's candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he first called the
attention of the stevedores, then the NSC's representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with
common sense and ordinary human experience. Vicente Angliongto could not be blamed for calling the
stevedores' attention first and then the NSC's representative on location before formally informing NSC of
the negligence he had observed, because he was not responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts' findings and conclusions on this point, ​viz:​
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores
hired by NSC were negligent in the unloading of NSC's shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of ​MV
'VLASONS I' when rains occurred during the discharging of the cargo thus allowing rain water and seawater
spray to enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores merely set
up temporary tents or canvas to cover the hatch openings when it rained during the unloading operations so
that it would be easier for them to resume work after the rains stopped by just removing said tents or
canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC]
calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on rainy days and
the improper closing of the hatches which allowed continuous heavy rain water to leak through and drip to
the tinplates' covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos rains with
strong winds that the hatches be totally closed down and covered with canvas and the hatch tents lowered.
(Exh. "13"). This letter was received by [NSC] on 22 August 1974 while discharging operations were still
going on (Exhibit "13-A").​33
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be noted
that the NSC may seek indemnification, subject to the laws on prescription, from the stevedoring company
at fault in the discharge operations. "A stevedore company engaged in discharging cargo . . . has the duty
to load the cargo . . . in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its
negligence . . . and where the officers and members and crew of the vessel do nothing and have no
responsibility in the discharge of cargo by stevedores . . . the vessel is not liable for loss of, or damage to,
the cargo caused by the negligence of the stevedores . . ."​34​ as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat'
by themselves when packed even without being in contact with water from outside especially when the
weather is bad or raining . . ."​35​ The Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater
which the stevedores negligently allowed to seep in during the unloading.
Second Issue​: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and the crew of ​MV Vlasons I​. Clearly,
therefore, NSC's failure to insure the cargo will not affect its right, as owner and real party in interest, to file
an action against VSI for damages caused by the latter's willful negligence. We do not find anything in the
charter party that would make the liability of VSI for damage to the cargo contingent on or affected in any
manner by NSC's obtaining an insurance over the cargo.
Third Issue​: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that ​MV Vlasons I w ​ as not seaworthy is anchored on the alleged inadmissibility
of the certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs​36
NSC argues that the certificates are hearsay for not having been presented in accordance with the
Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of public
officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official publications or certified true
copies" as required by Sections 25 and 26, Rule 132, of the Rules of Court.​37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and
12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates
issued by private parties, but they have not been proven by one who saw the writing executed, or by
evidence of the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits, 5, 6, 7,
8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule
per Section 44 of Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made in
the performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts therein stated."​38 Exhibit 11 is an original
certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the
effect that "the vessel 'VLASONS I' was drydocked . . . and PCG Inspectors were sent on board for
inspection . . . After completion of drydocking and duly inspected by PCG Inspectors, the vessel 'VLASONS
I', a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for trading as a
cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974." (​sic​)
NSC's claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that ​MV Vlasons I w ​ as not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation
of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of
proving the willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing
the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy.
Fourth Issue​: Demurrage and Attorney's Fees
The contract of voyage charter hire provides ​inter alia:​
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's
option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.​39
The Court defined demurrage in its strict sense as the compensation provided for in the contract
of affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo.​40​It is given to compensate the shipowner for the nonuse of the vessel. On
the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed in "running
days," this means days when the ship would be run continuously, and holidays are not excepted. A
qualification of "weather permitting" excepts only those days when bad weather reasonably prevents the
work contemplated.​41
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included.​42 The running of laytime
was thus made subject to the weather, and would cease to run in the event unfavorable weather interfered
with the unloading of cargo.​43 Consequently, NSC may not be held liable for demurrage as the four-day
laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view of the
WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court of
Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in unloading the
cargo. The trial court arrived at this erroneous finding by subtracting from the twelve days, specifically
August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable weather or rain,
which was August 22, 1974. Based on our previous discussion, such finding is a reversible error. As
mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI for demurrage,
even if it reduced the amount by half.
Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an award
of attorney's fees under Article 2208 of the Civil Code when ". . . 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 . . ."​44 Moreover, attorney's fees may not be awarded to a party for the reason alone that the
judgment rendered was favorable to the latter, as this is tantamount to imposing a premium on one's right
to litigate or seek judicial redress of legitimate grievances.​45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to
the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage
was brought about during the unloading process when rain and seawater seeped through the cargo due to
the fault or negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial
court, when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled
exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement between
the parties — the Contract of Voyage Charter Hire — placed the burden of proof for such loss or damage
upon the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid because
the parties entered into a contract of private charter, not one of common carriage. Basic too is the doctrine
that courts cannot relieve a parry from the effects of a private contract freely entered into, on the ground
that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial contract and
its stipulations are agreed upon in consideration of many factors, not the least of which is the transport price
which is determined not only by the actual costs but also by the risks and burdens assumed by the shipper
in regard to possible loss or damage to the cargo. In recognition of such factors, the parties even stipulated
that the shipper should insure the cargo to protect itself from the risks it undertook under the charter party.
That NSC failed or neglected to protect itself with such insurance should not adversely affect VSI, which had
nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage
awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.
G.R. No. 184300 July 11, 2012
MALAYAN INSURANCE CO., INC., Petitioner,
vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES, INC.,
Respondents.
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co.,
lnc. (Malayan) assailing the Decision​1 ​dated February 29, 2008 and Resolution​2 ​dated August 28, 2008 of the
Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with modification the decision of the
Regional Trial Court (RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc.
(Reputable) had been annually executing a contract of carriage, whereby the latter undertook to transport
and deliver the former’s products to its customers, dealers or salesmen.​3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own
products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products usual or
incidental to the insured’s business while the same were being transported or shipped in the Philippines. The
policy covers all risks of direct physical loss or damage from any external cause, if by land, and provides a
limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned
out, however, that the contract was not signed by Wyeth’s representative/s.​4 ​Nevertheless, it was
admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the parties and,
as previously stated, the same contract of carriage had been annually executed by the parties every year
since 1989.​5
Under the contract, Reputable undertook to answer for "all risks with respect to the goods and
shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due to
any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other
force majeure while the goods/products are in transit and until actual delivery to the customers, salesmen,
and dealers of the COMPANY".​6
7 ​
The contract also required Reputable to secure an insurance policy on Wyeth’s goods.​ Thus, on
February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for
the amount of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received
from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to
Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s
products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his
helpers should they refuse to turn over the truck and its contents to the said highway robbers. The hijacked
truck was recovered two weeks later without its cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the
Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded reimbursement
from Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter,
however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against Reputable on August
12, 1996.​8 ​In its complaint, Philippines First stated that Reputable is a "private corporation engaged in the
business of a common carrier." In its answer,​9 ​Reputable claimed that it is a private carrier. It also claimed
that it cannot be made liable under the contract of carriage with Wyeth since the contract was not signed by
Wyeth’s representative and that the cause of the loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the
amount covered in the SR Policy. According to Reputable, "it was validly insured with Malayan for
P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy No. SR-0001-02577
effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of robbery or
hijacking.​10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy,
the insurance does not cover any loss or damage to property which at the time of the happening of such
loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party
liability.
After trial, the RTC rendered its Decision​11 ​finding Reputable liable to Philippines First for the amount of
indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC to be liable to Reputable
to the extent of the policy coverage. The dispositive portion of the RTC decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable for
the loss of the Wyeth products and orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth for the loss of
the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to hired
adjusters/surveyors;
3. the amount of P50,000.00 as attorney’s fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorney’s fees; and
3. the costs of suit.
SO ORDERED.​12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was
binding despite Wyeth’s failure to sign the same. Reputable further contended that the provisions of the
contract are unreasonable, unjust, and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to
property which at the time of the happening of such loss or damage is insured by or would but for the
existence of this policy, be insured by any Fire or Marine policy or policies except in respect of any excess
beyond the amount which would have been payable under the Fire or Marine policy or policies had this
insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines First
securing the same subject matter against loss and that since the monetary coverage/value of the Marine
Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed
that it be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based on the
amount covered by the policy, subject to the provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby
insured, there be any other subsisting insurance or insurances, whether effected by the insured or by any
other person or persons, covering the same property, the company shall not be liable to pay or contribute
more than its ratable proportion of such loss or damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC, the
decretal portion of which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as
modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award of attorney’s
fees in favor of Reputable is DELETED.
SO ORDERED.​13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the
contract of carriage on the ground of lack of signature of Wyeth’s representative/s; (2) Reputable is liable
under the contract for the value of the goods even if the same was lost due to fortuitous event; and (3)
Section 12 of the SR Policy prevails over Section 5, it being the latter provision; however, since the ratable
proportion provision of Section 12 applies only in case of double insurance, which is not present, then it
should not be applied and Malayan should be held liable for the full amount of the policy coverage, that is,
P1,000,000.00.​14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was denied
by the CA in its Resolution dated August 28, 2008.​15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on the
liability of common carriers" and the "difference between an ‘other insurance clause’ and an ‘over insurance
clause’."
Malayan also contends that the CA erred when it held that Reputable is a private carrier and
should be bound by the contractual stipulations in the contract of carriage. This argument is based on its
assertion that Philippines First judicially admitted in its complaint that Reputable is a common carrier and as
such, Reputable should not be held liable pursuant to Article 1745(6) of the Civil Code.​16 ​Necessarily, if
Reputable is not liable for the loss, then there is no reason to hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the CA failed to
apply the express provisions of Section 5 (referred to by Malayan as over insurance clause) and Section 12
(referred to by Malayan as other insurance clause) of its SR Policy as these provisions could have been read
together there being no actual conflict between them.
Reputable, meanwhile, contends that it is exempt from liability for acts committed by
thieves/robbers who act with grave or irresistible threat whether it is a common carrier or a private/special
carrier. It, however, maintains the correctness of the CA ruling that Malayan is liable to Philippines First for
the full amount of its policy coverage and not merely a ratable portion thereof under Section 12 of the SR
Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private carrier should
be accorded the highest degree of respect and must be considered conclusive between the parties, and that
a review of such finding by the Court is not warranted under the circumstances. As to its alleged judicial
admission that Reputable is a common carrier, Philippines First proffered the declaration made by Reputable
that it is a private carrier. Said declaration was allegedly reiterated by Reputable in its third party complaint,
which in turn was duly admitted by Malayan in its answer to the said third-party complaint. In addition,
Reputable even presented evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the ruling
of the CA. Philippines First, however, prayed for a slight modification of the assailed decision, praying that
Reputable and Malayan be rendered solidarily liable to it in the amount of P998,000.00, which represents
the balance from the P1,000.000.00 coverage of the SR Policy after deducting P2,000.00 under Section 10
of the said SR Policy.​17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it
should be liable for any risk of loss or damage, for any cause whatsoever, including that due to theft or
robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to
Philippines First.
The Court’s Ruling
On the first issue – Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate
court, are accorded the highest degree of respect and considered conclusive between the parties, save for
certain exceptional and meritorious circumstances, none of which are present in this case.​18
Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a
common carrier.​19 ​Invoking Section 4, Rule 129 of the Rules on Evidence that "an admission verbal or
written, made by a party in the course of the proceeding in the same case, does not require proof," it is
Malayan’s position that the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the
liability of Reputable for the loss of Wyeth’s goods should be dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do not require proof,
and need not be offered to be considered by the court. "The court, for the proper decision of the case, may
and should consider, without the introduction of evidence, the facts admitted by the parties."​20 ​The rule on
judicial admission, however, also states that such allegation, statement, or admission is conclusive as
against the pleader,​21 ​and that the facts alleged in the complaint are deemed admissions of the plaintiff and
binding upon him.​22 ​In this case, the pleader or the plaintiff who alleged that Reputable is a common carrier
was Philippines First. It cannot, by any stretch of imagination, be made conclusive as against Reputable
whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and
Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under the terms of
the contract of carriage. Philippines First is not in any position to make any admission, much more a
definitive pronouncement, as to the nature of Reputable’s business and there appears no other connection
between Philippines First and Reputable which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was essentially
disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a private or
special carrier.​23 ​In addition, Reputable stated in paragraph 2 of its third-party complaint that it is "a private
carrier engaged in the carriage of goods."​24 ​Such allegation was, in turn, admitted by Malayan in paragraph
2 of its answer to the third-party complaint.​25 ​There is also nothing in the records which show that
Philippines First persistently maintained its stance that Reputable is a common carrier or that it even
contested or proved otherwise Reputable’s position that it is a private or special carrier.
Hence, in the face of Reputable’s contrary admission as to the nature of its own business, what
was stated by Philippines First in its complaint is reduced to nothing more than mere allegation, which must
be proved for it to be given any weight or value. The settled rule is that mere allegation is not proof.​26
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is warranted by
the evidence on record, primarily, the unrebutted testimony of Reputable’s Vice President and General
Manager, Mr. William Ang Lian Suan, who expressly stated in open court that Reputable serves only one
customer, Wyeth.​27
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or both by land, water
or air for compensation, offering their services to the public. On the other hand, a private carrier is one
wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry
goods for the general public.​28 ​A common carrier becomes a private carrier when it undertakes to carry a
special cargo or chartered to a special person only.​29 ​For all intents and purposes, therefore, Reputable
operated as a private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue – Reputable is bound by the terms of the contract of carriage.
The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered
into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good customs,
public order, or public policy. "The Civil Code provisions on common carriers should not be applied where
the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no
force where the public at large is not involved."​30
Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the
goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure
while the goods/products are in transit and until actual delivery to Wyeth’s customers, salesmen and
dealers.​31
On the third issue – other insurance vis-à-vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a
"modified ‘other insurance’ clause".​32 ​In rendering inapplicable said provisions in the SR Policy, the CA ruled
in this wise:
Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be sufficient to cover
the entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for a pro-rated
contribution between the two insurers. Being the later provision, and pursuant to the rules on interpretation
of contracts, Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12
of their contract, as it was intended by the parties to operate only in case of double insurance, or where the
benefits of the policies of both plaintiff-appellee and Malayan should pertain to Reputable alone. But since
the court a quo correctly ruled that there is no double insurance in this case inasmuch as Reputable was not
privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of
Wyeth, then Malayan’s stand should be rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to
recover said amount for the simple reason that the same property is covered by another insurance policy, a
policy to which it was not a party to and much less, from which it did not stand to benefit. Plainly, this unfair
situation could not have been the intention of both Reputable and Malayan in signing the insurance contract
in question.​33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions
applicable under distinct circumstances. Malayan argues that "it will not be completely absolved under
Section 5 of its policy if it were the assured itself who obtained additional insurance coverage on the same
property and the loss incurred by Wyeth’s cargo was more than that insured by Philippines First’s marine
policy. On the other hand, Section 12 will not completely absolve Malayan if additional insurance coverage
on the same cargo were obtained by someone besides Reputable, in which case Malayan’s SR policy will
contribute or share ratable proportion of a covered cargo loss."​34
Malayan’s position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional insurance" and "double
insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA,​35 ​which validity was upheld by the Court
as a warranty that no other insurance exists. The Court ruled that Condition No. 3​36 ​is a condition which is
not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It
was also the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not absolutely
declare void any violation thereof but expressly provides that the condition "shall not apply when the total recover said amount for the simple reason that the same property is covered by another insurance policy, a
insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." policy to which it was not a party to and much less, from which it did not stand to benefit. x x x​41

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of On the fourth issue – Reputable is not solidarily liable with Malayan.
the SR Policy but simply limits the liability of Malayan only up to the excess of the amount that was not
covered by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the Court There is solidary liability only when the obligation expressly so states, when the law so provides or
ruled that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute when the nature of the obligation so requires.
a violation of the clause, the other insurance must be upon same subject matter, the same interest therein, In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,​42 ​the Court ruled that:
and the same risk. Thus, even though the multiple insurance policies involved were all issued in the name of
the same assured, over the same subject matter and covering the same risk, it was ruled that there was no Where the insurance contract provides for indemnity against liability to third persons, the liability of the
violation of the "other insurance clause" since there was no double insurance. insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer under
indemnity contracts against third party[- ]liability does not mean, however, that the insurer can be held
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it solidarily liable with the insured and/or the other parties found at fault, since they are being held liable
covers the situation where there is over insurance due to double insurance. In such case, Section 15 under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in
provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly,
or damage." This is in accord with the principle of contribution provided under Section 94(e) of the the insurance policy:​43 ​(Citation omitted and emphasis supplied)
Insurance Code,​37 ​which states that "where the insured is over insured by double insurance, each insurer is Suffice it to say that Malayan's and Reputable's respective liabilities arose from different
bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.
amount for which he is liable under his contract."
All told, the Court finds no reversible error in the judgment sought to be reviewed.
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and
question that now arises is whether there is double insurance in this case such that either Section 5 or Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.
Section 12 of the SR Policy may be applied. Cost against petitioner Malayan Insurance Co., Inc.
By the express provision of Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and interest. The requisites
in order for double insurance to arise are as follows:​38 G.R. No. 121824 January 29, 1998
BRITISH AIRWAYS, petitioner,
1. The person insured is the same; vs.
2. Two or more insurers insuring separately; COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.
3. There is identity of subject matter;
4. There is identity of interest insured; and In this appeal by ​certiorari​, petitioner British Airways (BA) seeks to set aside the decision of
5. There is identity of the risk or peril insured against. respondent Court of Appeals​1 promulgated on September 7, 1995, which affirmed the award of damages
and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of
In the present case, while it is true that the Marine Policy and the SR Policy were both issued over private respondent GOP Mahtani as well as the dismissal of its third-party complaint against Philippine
the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it Airlines (PAL).​2
is, however, beyond cavil that the said policies were issued to two different persons or entities. It is The material and relevant facts are as follows:
undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while Reputable On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he
is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a
Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its contract of carriage ticket from BA where the following itinerary was indicated:​3
with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts is also CARRIER FLIGHT DATE TIME STATUS
different and distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of
the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by MANILA MNL PR 310 16 1730 OK
Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may Y APR.
become the basis of the latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.​39 HONGKONG HKG BA 20 M 16 2100 OK
APR.
Therefore, even though the two concerned insurance policies were issued over the same goods
and cover the same risk, there arises no double insurance since they were issued to two different
BOMBAY BOM BA 19 M 23 0840 OK
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance cannot
APR.
likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR
Policy can be applied.
HONGKONG HKG PR 311
Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of Y
the SR Policy against Malayan.1âwphi1 This is in keeping with the rule that:
MANILA MNL
"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong
the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations."​40 Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be
Moreover, the CA correctly ruled that: transferred to the BA flight bound for Bombay.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and
that upon inquiry from the BA representatives, he was told that the same might have been diverted to
London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by
accomplishing the "Property Irregularity Report."​4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
attorney's fees 5​​ against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim​6 to the complaint raising, as special
and affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on November 9,
1990, BA filed a third-party complaint 7​ against PAL alleging that the reason for the non-transfer of the
luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the proper transfer
of Mahtani's luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any
liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in Hongkong.
Furthermore, the transfer of the luggage to Hongkong authorities should be considered as transfer to BA.​8
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in
favor of Mahtani, 9​​ the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the
defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for
the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing the value of the
contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty
percent (20%) of the total amount imposed against the defendant for attorney's fees and costs of this
action.
The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack
of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's
findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in
accordance with law and evidence, the same is hereby AFFIRMED ​in toto​, with costs against
defendant-appellant.
SO ORDERED. 10 ​
BA is now before us seeking the reversal of the Court of Appeals' decision.
In essence, BA assails the award of compensatory damages and attorney's fees, as well as the dismissal of
its third-party complaint against PAL.​11
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the
separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since Mahtani
in his complaint​12​ stated the following as the value of his personal belongings:
8. On the said travel, plaintiff took with him the following items and its corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided
for in the ticket, which reads:​13
Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in
advance and additional charges are paid:
1. For most international travel (including domestic corporations of international journeys) the
liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) per kilo for checked baggage and U.S.
$400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's
contract of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its
destination and a contract to transport passengers to their destination. A business intended to serve the
traveling public primarily, it is imbued with public interest, hence, the law governing common carriers
imposes an exacting standard.​14 Neglect or malfeasance by the carrier's employees could predictably furnish
bases for an action for damages.​15
In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of
cases​16 we have assessed the airlines' culpability in the form of damages for breach of contract involving
misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the
claimant satisfactorily prove during the trial the existence of the factual basis of the damages and its causal
connection to defendant's acts.​17
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed to show
receipts of the alleged gifts for the members of his family in Bombay, the most that can be expected for
compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value
of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand
(P7,000.00) Pesos representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no separate award
for the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the
18​
luggage,​ and therefore, its liability is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to
recover a greater amount. Article 22(1) of the Warsaw Convention,​19​ provides as follows:
xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to
a sum of 250 francs per kilogram, unless the consignor has made, at time the package was handed over to
the carrier, a special declaration of the value at delivery and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that the sum is greater than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an
amount in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff
being binding, on the passenger regardless of the passenger's lack of knowledge thereof or assent thereto.​20
This doctrine is recognized in this jurisdiction.​21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify that they should be disregarded.​22
In addition, we have held that benefits of limited liability are subject to waiver such as when the
air carrier failed to raise timely objections during the trial when questions and answers regarding the actual
claims and damages sustained by the passenger were asked.​23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of
limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the
misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript of
stenographic notes of Mahtani's direct testimony:​24
Q — How much are you going to ask from this court?
A — P100,000.00.
Q — What else?
A — Exemplary damages.
Q — How much?
A — P100,000.00.
Q — What else?
A — The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.
Q — What about the filing of this case?
A — The court expenses and attorney's fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel
of the adverse party to be inadmissible for any reason, the latter has the right to object. However, such
right is a mere privilege which can be waived. Necessarily, the objection must be made at the earliest
opportunity, lest silence when there is opportunity to speak may operate as a waiver of objections.​25 BA has
precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well.​26​ In the early case of ​Abrenica v.​ ​Gonda,​ 27​
​ we ruled that:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the
admission of any evidence must be made at the proper time, and that if not so made it will be understood to
have been waived. The proper time to make a protest or objection is when, from the question addressed to
the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is,
or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are
entitled to great respect.​28 Since the actual value of the luggage involved appreciation of evidence, a task
within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of
fact, thus, a finding not reviewable by this Court.​29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals
justified its ruling in this wise, and we quote:​30
Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by appellant to
plaintiff-appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA. When plaintiff
boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a subcontractor or agent of BA.
This is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically provided
on the "Conditions of Contract," paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single
operation.
The rule that carriage by plane although performed by successive carriers is regarded as a single
operation and that the carrier issuing the passenger's ticket is considered the principal party and the other
carrier merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In ​Firestone Tire and Rubber Company of the Philippines v​. ​Tempengko,​ 31
​ we expounded on the
nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither
a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave
of court, by the defendant, who acts, as third-party plaintiff to enforce against such third-party defendant a
right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The
third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint.
Were it not for this provision of the Rules of Court, it would have to be filed independently and separately
from the original complaint by the defendant against the third-party. But the Rules permit defendant to
bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's
claim against a third-party in the original and principal case with the object of avoiding circuitry of action
and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject
matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the latter
naturally denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively
between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's journey to
PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of Contracts" of the
ticket​32​issued by BA to Mahtani confirms that the contract was one of continuous air transportation from
Manila to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single
operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from
Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an
agent is also responsible for any negligence in the performance of its function.​33 and is liable for damages
which the principal may suffer by reason of its negligent act.​34 Hence, the Court of Appeals erred when it
opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air Transport
Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their relationship.​35 Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being the principal, since it was the one which
issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in ​Lufthansa German
​ ourt of Appeals.​ 36
Airlines v.​ C ​ In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering
five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry
Antiporda to a specific destination "bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any liability,
contending that its responsibility towards its passenger is limited to the occurrence of a mishap on its own
line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa's argument, we ruled:
In the very nature of their contract, ​Lufthansa is clearly the principal in the contract of carriage with
Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed by
various carriers.​ The issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg
trip abroad successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA
alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is
relieved from any liability due to any of its negligent acts. In ​China Air Lines, Ltd.​ v.​ Court of Appeals,​ 37
​
while not exactly in point, the case, however, illustrates the principle which governs this particular situation.
In that case, we recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its
own negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the
purpose of ultimately determining who was primarily at fault as between them, is without legal basis. After
all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving
the same or similar evidence for both cases and enforcing separate judgments therefor. It must be borne in
mind that the purpose of a third-party complaint is precisely to avoid delay and circuitry of action and to
enable the controversy to be disposed of in one suit.​38 It is but logical, fair and equitable to allow BA to sue
PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of Mahtani's
unfortunate experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No.
43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No costs.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, ​petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, ​respondents.
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring
such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the
material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent
charged freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the
hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970, respondent
loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent
himself, while 600 cartons were placed on board the other truck which was driven by Manuel Estrada,
respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages
and attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to
exercise the extraordinary diligence required of him by the law, should be held liable for the value of the
undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could
not be held responsible for the value of the lost goods, such loss having been due to ​force majeure​.
On 10 December 1975, the trial court rendered a Decision ​1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P
4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking services to the public;
in not exempting him from liability on the ground of ​force majeure; and in ordering him to pay damages and
attorney's fees.
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;
2. that the hijacking of respondent's truck was ​force majeure​; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose ​principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ​ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a ​regular or scheduled basis and one offering such service on
an ​occasional, episodic or unscheduled basis.​ Neither does Article 1732 distinguish between a carrier
offering its services to the "​general public,​ " i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, ​with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such
back-hauling was done on a periodic or occasional rather than regular or scheduled manner, and even
though private respondent's ​principal o ​ ccupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods; that fee frequently fell
below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of public
convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common
carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to
whether or not such carrier has also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that would be to
reward private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being and property
of those members of the general community who happen to deal with such carrier. The law imposes duties
and liabilities upon common carriers for the safety and protection of those who utilize their services and the
law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2​ are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of
passengers. The specific import of extraordinary diligence in the care of goods transported by a common
carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and
7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "​unless the same is due to ​any of the following
causes only:​
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing
list, even if they appear to constitute a species of force majeure fall within the scope of Article 1735, which
provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are
lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.
(Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged
in the instant case — the hijacking of the carrier's truck — does not fall within any of the five (5) categories
of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's
vehicle must be dealt with under the provisions of Article 1735, in other words, that the private respondent
as common carrier is presumed to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should have
hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We
do not believe, however, that in the instant case, the standard of extraordinary diligence required private
respondent to retain a security guard to ride with the truck and to engage brigands in a firelight at the risk
of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or armed
robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4,
5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public
policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of r​obbers who do​not act with
grave or irresistible​ t​hreat, violence or force,​ is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on
account of the defective condition of the car vehicle, ship, airplane or other equipment used in the contract
of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or robbers, ​except where
such thieves or robbers in fact acted "with grave or irresistible threat, violence or force." We believe and so
hold that the limits of the duty of extraordinary diligence in the vigilance over the goods carried are reached
where the goods are lost as a result of a robbery which is attended by "grave or irresistible threat, violence
or force."
In the instant case, armed men held up the second truck owned by private respondent which
carried petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "​People of the Philippines v. Felipe
Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe​." There, the accused were
charged with willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel
Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in
Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with grave, if not
irresistible, threat, violence or force.​3 Three (3) of the five (5) hold-uppers were armed with firearms. The
robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining
them for several days and later releasing them in another province (in Zambales). The hijacked truck was
subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of
robbery, though not of robbery in band.​ 4​
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary
to recall that even common carriers are not made absolute insurers against all risks of travel and of
transport of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable,
provided that they shall have complied with the rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an event
entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
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.
This petition for review on certiorari a
​ ssails the Decision of the Court of Appeals dated November
29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City,
Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax refund imposed
by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install
and operate oil pipelines. The original pipeline concession was granted in 1967​1 and renewed by the Energy
Regulatory Board in 1992. 2​
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of
Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer required
petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local
Government Code​3​. The respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the
fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations, petitioner paid
the tax under protest in the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer,
the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the
Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying
tax on gross receipts under Section 133 of the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131,
Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax "on contractors and
other independent contractors" under Section 143, Paragraph (e) of the Local Government Code does not
include the power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee authorized under Section 147
of the Local Government Code. The said section limits the imposition of fees and charges on business to
such amounts as may be commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof based on gross receipts is
violative of the aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is already a revenue raising
measure, and not a mere regulatory imposition.​4
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133
(j) of the Local Government Code.​5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint​6 for
tax refund with prayer for writ of preliminary injunction against respondents City of Batangas and Adoracion
Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia​, that: (1) the
imposition and collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts of
"contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax paid.​7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to "transportation
contractors and persons engaged in the transportation by hire and common carriers by air, land and water."
Respondents assert that pipelines are not included in the term "common carrier" which refers solely to
ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term "common
carrier" under the said code pertains to the mode or manner by which a product is delivered to its
destination.​8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to
be strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor
the deed of concession grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local
Tax Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only ​common carriers s ​ o as not to
overburden the riding public or commuters with taxes. Plaintiff ​is not a common carrier, but a special carrier
extending its services and facilities to a single specific or "special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to
local governments than the previous enactments, to make them economically and financially viable to serve
the people and discharge their functions with a concomitant obligation to accept certain devolution of
powers, . . . So, consistent with this policy even franchise grantees are taxed (Sec. 137) and contractors are
also taxed under Sec. 143 (e) and 151 of the Code.​9
Petitioner assailed the aforesaid decision before this Court via ​a petition for review. On February
27, 1995, we referred the case to the respondent Court of Appeals for consideration and adjudication. 10 ​ On
November 29, 1995, the respondent court rendered a decision 11 ​ affirming the trial court's dismissal of
12
petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18, 1996. ​
 Hence, this petition. At first, the petition was denied due course in a Resolution dated November
11, 1996. 13​
​ Petitioner moved for a reconsideration which was granted by this Court in a Resolution 14 ​ of
January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is
not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not
clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation, offering
his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment, and
must hold himself out as ready to engage in the transportation of goods for person generally as a business
and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his
established roads; and
4. The transportation must be for hire. 15
​ to wit:
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.​ ​e.​ petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to
employ its services, and transports the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common carrier. In ​De Guzman vs. Court of
Appeals 16​
​ we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in
local idiom, as a "sideline").
Article 1732 . . . avoids making any distinction between a person or enterprise offering
transportation service on a regular o ​ r 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 p ​ assengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat
and power, water supply and ​power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers through moving
vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes
no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that
the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil
pipe line operators are considered common carriers. 17
​
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common
carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to
utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the
remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered
by others for transport, and to charge without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7
thereof provides:
that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to
the manufacture, refining, storage, or ​transportation by special methods of petroleum​, is hereby declared to
be a​ public utility.​ (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it
is considered a common carrier under Republic Act No. 387 . . . . Such being the case, it is not subject to
withholding tax prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government Code,
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.​ — Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except as
provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government Code of
1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local
Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be
one of those being deemed to be exempted from the taxing powers of the local government units. May we
know the reason why the transportation business is being excluded from the taxing powers of the local
government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may not impose taxes on the business of transportation,
except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there
that provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than
one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a
franchise would be subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government
units on the carrier business. Local government units may impose taxes on top of what is already being
imposed by the National Internal Revenue Code which is the so-called "common carriers tax." We do not
want a duplication of this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a
province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18
​
 It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the so-called
"common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings
under the National Internal Revenue Code. 19 ​ To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals
dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC., ​petitioner,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., ​respondents.
On appeal is the Court of Appeals' May 11, 2000 Decision​1 in CA-G.R. CV No. 49195 and February
21, 2001 Resolution​2 affirming with modification the April 6, 1994 Decision​3 of the Regional Trial Court of
Manila which found petitioner liable to pay private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.35​4 was shipped by Marubeni American Corporation of Portland, Oregon on board the vessel
M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in Manila, evidenced by
Bill of Lading No. PTD/Man-4.​5​The shipment was insured by the private respondent Prudential Guarantee
and Assurance, Inc. against loss or damage for P14,621,771.75 under Marine Cargo Risk Note RN
11859/90.​6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the
custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee
as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced
by Lighterage Receipt No. 0364​7​ for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning
of an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering
Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other barges
which arrived ahead of it while weathering out the storm that night. A few days after, the barge developed a
list because of a hole it sustained after hitting an unseen protuberance underneath the water. The petitioner
filed a Marine Protest on August 28, 1990.​8 It likewise secured the services of Gaspar Salvaging Corporation
which refloated the barge.​9​ The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's
wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to
strong current. To avoid the complete sinking of the barge, a portion of the goods was transferred to three
other barges.​10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the
total loss of the remaining cargo.​11​ A second Marine Protest was filed on September 7, 1990.​12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges.​13 The total proceeds from the sale of the salvaged cargo was
P201,379.75.​14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter
dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount of
P4,104,654.22.​15​Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to no
avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount
of indemnity, attorney's fees and cost of suit.​16​ Petitioner filed its answer with counterclaim.​17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE​, premises considered, judgment is hereby rendered ordering defendant Asia
Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum of
P4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until fully satisfied plus 10%
of the amount awarded as and for attorney's fees. Defendant's counterclaim is hereby DISMISSED. With
costs against defendant.​18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate
court affirmed the decision of the trial court with modification. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that
the salvage value of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against
appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate
court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate court, ​viz:​ 19
​
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A
COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE
LOWER COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO
COMMON CARRIERS, "​THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES
EXCEPT IN THE FIVE (5) CASES ENUMERATED​."
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT
PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY
OF THE CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care and
custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines ​common carriers as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed
and publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to
carry indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it does not
hold out its services to the general public.​20
We disagree.
In ​De Guzman vs. Court of Appeals​,21 ​ we held that the definition of ​common carriers in Article
1732 of the 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. We also did not
distinguish 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. Further, we ruled that Article
1732 does not distinguish between a carrier offering its services to the ​general public​, and one who offers
services or solicits business only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage​22 and
it offers its barges to the public for carrying or transporting goods by water for compensation. Petitioner is
clearly a common carrier. In ​De Guzman​, ​supra​,​23 we considered private respondent Ernesto Cendaña to be
a common carrier even if his principal occupation was not the carriage of goods for others, but that of
buying used bottles and scrap metal in Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not have
fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets.
 To be sure, petitioner fits the test of a common carrier as laid down in ​Bascos vs. Court of xxx xxx xxx
Appeals​.24​ The test to determine a common carrier is "whether the given undertaking is a part of the q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I correct?
business engaged in by the carrier which he has held out to the general public as his occupation rather than a - The next day, in the morning, we hired for additional two (2) tugboats as I have stated.
the quantity or extent of the business transacted."​25 In the case at bar, the petitioner admitted that it is q - Despite of the threats of an incoming typhoon as you testified a while ago?
engaged in the business of shipping and lighterage,​26 offering its barges to the public, despite its limited a - It is already in an inner portion of Pasig River. The typhoon would be coming and it would be
clientele for carrying or transporting goods by water for compensation.​27 dangerous if we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise a - Yes.
extraordinary diligence in its care and custody of the consignee's goods. q - And yet as a standard operating procedure of your Company, you have to secure a sort of
Certification to determine the weather condition, am I correct?
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods a - Yes, sir.
transported by them.​28 They are presumed to have been at fault or to have acted negligently if the goods q - So, more or less, you had the knowledge of the incoming typhoon, right?
are lost, destroyed or deteriorated.​29 To overcome the presumption of negligence in the case of loss, a - Yes, sir.
destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary q - And yet you proceeded to the premises of the GMC?
diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are already
instances when the presumption of negligence does not attach: inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to
the same is due to any of the following causes only: escape liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls
short of due diligence required from a common carrier. More importantly, the officers/employees themselves
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; of petitioner admitted that when the towing bits of the vessel broke that caused its sinking and the total loss
(2) Act of the public enemy in war, whether international or civil; of the cargo upon reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is
(3) Act or omission of the shipper or owner of the goods; not the proximate cause of the loss of the cargo; a human factor, ​i.e.,​ negligence had intervened.
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority. IN VIEW THEREOF​, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV
No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss against petitioner.
of its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the
loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause of
the loss of the goods, and that it has exercised due diligence before, during and after the occurrence of the G.R. No. 101089. April 7, 1993.
typhoon to prevent or minimize the loss.​30 The evidence show that, even before the towing bits of the barge ESTRELLITA M. BASCOS, petitioners,
broke, it had already previously sustained damage when it hit a sunken object while docked at the vs.
Engineering Island. It even suffered a hole. Clearly, this could not be solely attributed to the typhoon. The COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
partly-submerged vessel was refloated but its hole was patched with only clay and cement. The patch work Modesto S. Bascos for petitioner.
was merely a provisional remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to Pelaez, Adriano & Gregorio for private respondent.
proceed with the voyage, it recklessly exposed the cargo to further damage. A portion of the
cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states: 1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. — Article
1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association engaged
31
CROSS-EXAMINATION BY ATTY. DONN LEE:​ in the business of carrying or transporting passengers or goods or both, by land, water or air, for
xxx xxx xxx compensation, offering their services to the public." The test to determine a common carrier is "whether the
q - Can you tell us what else transpired after that incident? given undertaking is a part of the business engaged in by the carrier which he has held out to the general
a - After the first accident, through the initiative of the barge owners, they tried to pull out the barge public as his occupation rather than the quantity or extent of the business transacted." . . . The holding of
from the place of the accident, and bring it to the anchor terminal for safety, then after deciding if the the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of the Civil Code, it
vessel is stabilized, they tried to pull it to the consignee's warehouse, now while on route another accident held thus: "The above article makes no distinction between one whose principal business activity is the
occurred, now this time the barge totally hitting something in the course. carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
q - You said there was another accident, can you tell the court the nature of the second accident? idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction between a person or
a - The sinking, sir. enterprise offering transportation service on a regular or scheduled basis and one offering such service on
q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking? an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguished between a carrier
a - Mostly it was related to the first accident because there was already a whole ​(sic) on the bottom offering its services to the "general public," i.e., the general community or population, and one who offers
part of the barge. services or solicits business only from a narrow segment of the general population. We think that Article
xxx xxx xxx 1732 deliberately refrained from making such distinctions."
This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming typhoon.
During the time that the barge was heading towards the consignee's wharf on September 5, 1990, typhoon 2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN
"Loleng" has already entered the Philippine area of responsibility.​32 A part of the testimony of Robert Boyd, PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN PRESUMPTION MADE
Cargo Operations Supervisor of the petitioner, reveals: ABSOLUTE. — Common carriers are obliged to observe extraordinary diligence in the vigilance over the
goods transported by them. Accordingly, they are presumed to have been at fault or to have acted
DIRECT-EXAMINATION BY ATTY. LEE:​33 negligently if the goods are lost, destroyed or deteriorated. There are very few instances when the
xxx xxx xxx presumption of negligence does not attach and these instances are enumerated in Article 1734. In those
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie where she cases where the presumption is applied, the common carrier must prove that it exercised extraordinary
was instead of towing it? diligence in order to overcome the presumption . . . The presumption of negligence was raised against
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the consignee) as I petitioner. It was petitioner's burden to overcome it. Thus, contrary to her assertion, private respondent
have said was in a hurry for their goods to be delivered at their Wharf since they needed badly the wheat need not introduce any evidence to prove her negligence. Her own failure to adduce sufficient proof of
that was loaded in PSTSI-3. It was needed badly by the consignee. extraordinary diligence made the presumption conclusive against her.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir. 3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED
xxx xxx xxx FROM LIABILITY. — In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in
CROSS-EXAMINATION BY ATTY. IGNACIO:​34 the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the
common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising
from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat,
violence, or force. This is in accordance with Article 1745 of the Civil Code which provides: "Art. 1745. Any
of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy
. . . (6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with
grave or irresistible threat, violences or force, is dispensed with or diminished"; In the same case, the
Supreme Court also held that: "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 of irresistible threat, violence of
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."
4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In this case, petitioner
herself has made the admission that she was in the trucking business, offering her trucks to those with
cargo to move. Judicial admissions are conclusive and no evidence is required to prove the same.
5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. — Petitioner presented
no other proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it.
6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS
WITNESSES. — While the affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented
as evidence in court, he himself was a witness as could be gleaned from the contents of the petition.
Affidavits are not considered the best evidence if the affiants are available as witnesses.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE. —
Granting that the said evidence were not self-serving, the same were not sufficient to prove that the
contract was one of lease. It must be understood that a contract is what the law defines it to be and not
what it is called by the contracting parties.
DECISION
This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO
A. CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee, vs.
ESTRELLITA M. BASCOS, doing business under the name of BASCOS TRUCKING, defendant-appellant,"
C.A.-G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:
"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby affirmed
in toto. Costs against appellant." 1
The facts, as gathered by this Court, are as follows:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a
hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the
latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of
Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano,
subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal
worth P156,404.00 from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton.
Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping
Agency the amount of the lost goods in accordance with the contract which stated that:
"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and
non-delivery or damages to the cargo during transport at market value, . . ." 3
Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and damages with writ of preliminary attachment 4 for breach
of a contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit 5
which contained the following allegations:
"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court,
whereby a writ of preliminary attachment may lawfully issue, namely:
"(e) in an action against a party who has removed or disposed of his property, or is about to do so,
with intent to defraud his creditors;"
5. That there is no sufficient security for the claim sought to be enforced by the present action;
6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"
The trial court granted the writ of preliminary attachment on February 17, 1987.
In her answer, petitioner interposed the following defenses: that there was no contract of carriage
since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE
was liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck carrying the cargo
was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was
immediately reported to CIPTRADE and that petitioner and the police exerted all efforts to locate the
hijacked properties; that after preliminary investigation, an information for robbery and carnapping were
filed against Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any
liability to CIPTRADE.
After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering
the latter to pay the former:
1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to be counted
from December 4, 1986 until fully paid;
2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and
3. The costs of the suit.
The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.
SO ORDERED." 6
Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's
judgment.
Consequently, petitioner filed this petition where she makes the following assignment of errors; to
wit:
"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP
BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT LEASE OF CARGO
TRUCK.
II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT THAT THE
CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE THEREUNDER BECAUSE
THE LOSS OF THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING.
III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT THAT
PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN RENDERED
MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7
The petition presents the following issues for resolution: (1) was petitioner a common carrier?;
and (2) was the hijacking referred to a force majeure?
The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in
her answer that she did business under the name A.M. Bascos Trucking and that said admission dispensed
with the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner was a common
carrier. The respondent Court also adopted in toto the trial court's decision that petitioner was a common
carrier, Moreover, both courts appreciated the following pieces of evidence as indicators that petitioner was
a common carrier: the fact that the truck driver of petitioner, Maximo Sanglay, received the cargo consisting
of 400 bags of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that the
truck helper, Juanito Morden, was also an employee of petitioner; and the fact that control of the cargo was
placed in petitioner's care.
In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier,
she alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE,
was lease of the truck. She cited as evidence certain affidavits which referred to the contract as "lease".
These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She further averred that Jesus
Bascos confirmed in his testimony his statement that the contract was a lease contract. 10 She also stated
that: she was not catering to the general public. Thus, in her answer to the amended complaint, she said
that she does business under the same style of A.M. Bascos Trucking, offering her trucks for lease to those
who have cargo to move, not to the general public but to a few customers only in view of the fact that it is
only a small business. 11
We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or 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 to determine a common carrier is
"whether the given undertaking is a part of the business engaged in by the carrier which he has held out to
the general public as his occupation rather than the quantity or extent of the business transacted." 12 In
this case, petitioner herself has made the admission that she was in the trucking business, offering her
trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove
the same. 13
But petitioner argues that there was only a contract of lease because they offer their services only
to a select group of people and because the private respondents, plaintiffs in the lower court, did not object
to the presentation of affidavits by petitioner where the transaction was referred to as a lease contract.
Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is instructive.
In referring to Article 1732 of the Civil Code, it held thus:
"The above article makes no distinction between one whose principal business activity is the
carrying of 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
1732 deliberately refrained from making such distinctions."
Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts
have dismissed them as self-serving and petitioner contests the conclusion. We are bound by the appellate
court's factual conclusions. Yet, granting that the said evidence were not self-serving, the same were not
sufficient to prove that the contract was one of lease. It must be understood that a contract is what the law
defines it to be and not what it is called by the contracting parties. 15 Furthermore, petitioner presented no
other proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it. 16
Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to
force majeure.
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted negligently
if the goods are lost, destroyed or deteriorated. 18 There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. 19 In those cases where the
presumption is applied, the common carrier must prove that it exercised extraordinary diligence in order to
overcome the presumption.
In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from
liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not
being included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and
thus, the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from
liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or
irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil Code which provides:
"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy;
xxx xxx xxx
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violences or force, is dispensed with or diminished;"
In the same case, 21 the Supreme Court also held that:
"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."
To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus
Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay".
However, both the trial court and the Court of Appeals have concluded that these affidavits were
not enough to overcome the presumption. Petitioner's affidavit about the hijacking was based on what had
been told her by Juanito Morden. It was not a first-hand account. While it had been admitted in court for
lack of objection on the part of private respondent, the respondent Court had discretion in assigning weight
to such evidence. We are bound by the conclusion of the appellate court. In a petition for review on
certiorari, We are not to determine the probative value of evidence but to resolve questions of law.
Secondly, the affidavit of Jesus Bascos did not dwell on how the hijacking took place. Thirdly, while the
affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as evidence in court, he
himself was a witness as could be gleaned from the contents of the petition. Affidavits are not considered
the best evidence if the affiants are available as witnesses. 25 The subsequent filing of the information for
carnapping and robbery against the accused named in said affidavits did not necessarily mean that the
contents of the affidavits were true because they were yet to be determined in the trial of the criminal
cases.
The presumption of negligence was raised against petitioner. It was petitioner's burden to
overcome it. Thus, contrary to her assertion, private respondent need not introduce any evidence to prove
her negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption
conclusive against her.
Having affirmed the findings of the respondent Court on the substantial issues involved, We find no reason
to disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment has been
rendered moot and academic by the decision on the merits.
In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be
sustained. The petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.
G.R. No. 148496 March 19, 2002
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., ​petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) ​respondent.
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.1âwphi1.nêt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a
sole proprietorship customs broker. At the time material to this case, petitioner entered into a contract with
San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and 124 reels of
kraft liner board from the Port Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez
St., Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on
board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the
arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her
contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC's warehouse in
Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that 15
reels of the semi-chemical fluting paper were "wet/stained/torn" and 3 reels of kraft liner board were
likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the
Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding
petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F") with
entries appearing therein, classified as "TED" and "TSN", which the claims processor, Ms. Agrifina De Luna,
claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes respectively,
coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A") confirms the fact of the damaged
condition of the subject cargoes. The surveyor[s'] report (Exh. "H-4-A") in particular, which provides among
others that:

" . . . we opine that damages sustained by shipment is attributable to improper handling in transit
presumably whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are
not liable. Defendant by reason of the nature of [her] business should have devised ways and means in
order to prevent the damage to the cargoes which it is under obligation to take custody of and to forthwith
deliver to the consignee. Defendant did not present any evidence on what precaution [she] performed to
prevent [the] said incident, hence the presumption is that the moment the defendant accepts the cargo
[she] shall perform such extraordinary diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the extraordinary diligence required by law. The
burden of the plaintiff, therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has exercised the
extraordinary diligence required by law. Thus, it has been held that the mere proof of delivery of goods in
good order to a carrier, and of their arrival at the place of destination in bad order, makes out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be
held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other
circumstances inconsistent with its liability." (cited in Commercial Laws of the Philippines by Agbayani, p.
31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary responsibility
lasts from the time the goods are unconditionally placed in the possession of and received by the carrier for
transportation until the same are delivered actually or constructively by the carrier to the consignee or to
the person who has the right to receive the same.​3
Accordingly, the trial court ordered petitioner to pay the following amounts --
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.​4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on
certiorari.​
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE CASE NOT
ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN
INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE
PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS
SERVICES TO THE PUBLIC.​5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is indeed
not liable beyond what ordinary diligence in the vigilance over the goods transported by her, would require.​6
Consequently, any damage to the cargo she agrees to transport cannot be presumed to have been due to
her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is
not a common carrier but a private carrier because, as a customs broker and warehouseman, she does not
indiscriminately hold her services out to the public but only offers the same to select parties with whom she
may contract in the conduct of her business.
The contention has no merit. In ​De Guzman v. Court of Appeals,7​ the Court dismissed a similar
contention and held the party to be a common carrier, thus -
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their
services to the public."
The above article makes no distinction between one whose ​principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ​ancillary activity . . .
Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a ​regular or scheduled basis a ​ nd 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:
" x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, ​with general or limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, r​ ailroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. x x x" 8​
There is greater reason for holding petitioner to be a common carrier because the transportation
of goods is an integral part of her business. To uphold petitioner's contention would be to deprive those with
whom she contracts the protection which the law affords them notwithstanding the fact that the obligation
to carry goods for her customers, as already noted, is part and parcel of petitioner's business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. . . .
In ​Compania Maritima v. Court of Appeals,​9 ​the meaning of "extraordinary diligence in the
vigilance over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the
greatest skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods
as their nature requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
"spoilage or wettage" took place while the goods were in the custody of either the carrying vessel "M/V
Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator, to whom the goods were
unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998
notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged, as
noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.​10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has
no personal knowledge on whether the container vans were first stored in petitioner's warehouse prior to
their delivery to the consignee. She likewise claims that after withdrawing the container vans from the
arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMC's warehouse in
Ermita, Manila, which is a mere thirty-minute drive from the Port Area where the cargo came from. Thus,
the damage to the cargo could not have taken place while these were in her custody.​11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these were
covered by clean Equipment Interchange Report (EIR) and, when petitioner's employees withdrew the cargo
from the arrastre operator, they did so without exception or protest either with regard to the condition of
container vans or their contents. The Survey Report pertinently reads --
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier #13
South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal vans, covered by clean
EIRs. ​Except for slight dents and paint scratches on side and roof panels, these containers were deemed to
have [been] received in good condition​.
....
Transfer/Delivery:
On July 23, 1990, ​shipment housed onto 30' x 20' cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . ​without exception​.
[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:
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:
....
(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.
GR 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.​
On Petition for Review is the June 27, 2001 Decision​1 of the Court of Appeals, as well as its
Resolution​2 dated 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. 92-63132​3 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,
7​
Rizal,​ 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 receipt​15​ 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 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 morning​39 is, however, a material fact which the appellate court failed to properly consider and
appreciate​40 - ​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 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?
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."​42 That 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?
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?
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?
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?
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?
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?
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?
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?
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
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 handler​48 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
​ Alexander Saveliev" and into barges, for which reason the consignee contracted the services of petitioner.
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 1739​53 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.
54 55
While petitioner sent checkers​ and a supervisor​ 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 liable​56 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 constituted the source of a quasi-delictual liability
had no contract existed between the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.​57
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
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 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.
SO ORDERED.
G.R. No. 147079 December 21, 2004
A.F. SANCHEZ BROKERAGE INC.,​ petitioners,
vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION,​ respondents.
Before this Court on a petition for ​Certiorari is the appellate court’s Decision​1 ​of August 10, 2000
reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil Case
No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU Insurance)
against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).
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 Blisters
Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the 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 cartons.​3

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk
Note No. 4995 pursuant to Marine Open Policy No. 138.​4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA),​5 ​it was
discharged "without exception"​6 ​and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI)
located also at the NAIA for safekeeping.​7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs,
Wyeth-Suaco engaged the services of Sanchez Brokerage which had been its licensed broker since 1984.​8 ​As
its customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees for
the cargo and thereafter delivers it to Wyeth-Suaco.​9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid
PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,​10 ​was issued. On
the receipt, another representative of Sanchez Brokerage, M. Sison,​11 ​acknowledged that he received the
cargoes consisting of ​three pieces​ ​in good condition​.12
​ Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good
13 ​
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes​ which
were thereupon stripped from the aluminum containers​14 ​and loaded inside two transport vehicles hired by
Sanchez Brokerage.​15
Among those who witnessed the release of the cargoes from the PSI warehouse were
Ruben Alonso 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 Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo 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
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of
the cargoes by affixing his signature on the delivery receipt.​19 ​Upon inspection, however, he, together with
Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol tablets were in
bad order.​20 ​He thus placed a note above his signature on the delivery receipt stating 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.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report​21 ​dated July 31,
1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (​sic​)​.​22
The Elite Surveyors later issued Certificate No. CS-0731-1538/92​23 ​attached to which was an
"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, which could account
for the wetting of the 44 cartons of Femenal and Nordiol tablets.​25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report​26 ​confirming that 38 x 700
blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister packs of
Nordiol tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection​27 ​of 38 cartons of Femenal
and 3 cartons of Nordiol on the ground that they were "delivered to Hizon Laboratories with heavy water
damaged (​sic​) causing the cartons to sagged (​sic)​ emitting a foul order and easily attracted flies."​28
Wyeth-Suaco later demanded, by letter​29 ​of August 25, 1992, from Sanchez Brokerage the
payment of P191,384.25 representing the value of its loss arising from the damaged tablets.
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 Receipt​30 ​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 letter​31 ​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 Decision​34 ​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
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; and
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.
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
41 ​
certiorari.​ ​ The supervisory jurisdiction of this Court to issue a ​cert w
​ rit 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?
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
​ Q: HOW IS IT?
The concept of "extraordinary 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 Receipt​50 ​issued by petitioner, and as
indicated in the Survey Report of Elite Surveyors​51 ​and 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 goods​53 ​; 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
55 ​
While paragraph No. 4 of Article 1734​ 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 prove that, indeed, part of the cargoes
was already damaged when the container was allegedly opened outside the warehouse.​59
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
The 4-page weather data furnished by PAGASA​61 ​on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.
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 testified that in the past, there was a similar instance when the shipment of Wyeth-Suaco was also
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?
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:
WITNESS:
A: ​We experienced, there was a time that we experienced that there was a cartoon (​sic​) w​ etted (​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.
Costs against petitioner.
SO ORDERED.
G.R. No. 141910 August 6, 2002
FGU INSURANCE CORPORATION, ​petitioner,
vs.
G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES, ​respondents.
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units
of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant
site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila, to the Central
Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur
highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a
deep canal, resulting in damage to the cargoes.

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc.,
the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights
and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter
from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and
breach of contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court,
Branch 66, of Makati City. In its answer, respondents asserted that GPS was the exclusive hauler only of
Concepcion Industries, Inc., since 1988, and it was not so engaged in business as a common carrier.
Respondents further claimed that the cause of damage was purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its evidence,
filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence on the ground
that petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996,​1​ granted the motion to dismiss, explaining thusly:
"Under Section 1 of Rule 131 of the Rules of Court, it is provided that ‘Each party must prove his
own affirmative allegation, xxx.’
"In the instant case, plaintiff did not present any single evidence that would prove that defendant
is a common carrier.
"x x x xxx xxx
"Accordingly, the application of the law on common carriers is not warranted and the presumption
of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of goods
during transport under 1735 of the Civil Code is not availing.
"Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was
subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and contract
of the Civil Code as well as the law on quasi delicts.
"Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi
delict provides for some presumption of negligence but only upon the attendance of some circumstances.
Thus, Article 2185 provides:
‘Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has
been negligent if at the time of the mishap, he was violating any traffic regulation.’
"Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation.
Hence, the presumption of negligence is not obtaining.
"Considering that plaintiff failed to adduce evidence that defendant is a common carrier and defendant’s
driver was the one negligent, defendant cannot be made liable for the damages of the subject cargoes."​2
The subsequent motion for reconsideration having been denied,​3 plaintiff interposed an appeal to
the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee corporation
was not a common carrier defined under the law and existing jurisprudence; and (b) in dismissing the
complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate
court, in its decision of 10 June 1999,​4​ discoursed, among other things, that -
"x x x in order for the presumption of negligence provided for under the law governing common carrier
(Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a common carrier.
Should the appellant fail to prove that the appellee is a common carrier, the presumption would not arise;
consequently, the appellant would have to prove that the carrier was negligent.
"x x x xxx xxx
"Because it is the appellant who insists that the appellees can still be considered as a common carrier,
despite its `limited clientele,’ (assuming it was really a common carrier), it follows that it (appellant) has the
burden of proving the same. It (plaintiff-appellant) `must establish his case by a preponderance of
evidence, which means that the evidence as a whole adduced by one side is superior to that of the other.’
(Summa Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant
failed to do -- hence, the dismissal of the plaintiff’s complaint by the trial court is justified.
"x x x xxx xxx
"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking
corporation has been `its exclusive contractor, hauler since 1970, defendant has no choice but to comply
with the directive of its principal,’ the inevitable conclusion is that the appellee is a private carrier.
"x x x xxx xxx
"x x x the lower court correctly ruled that 'the application of the law on common carriers is not warranted
and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or
deterioration of good[s] during transport under [article] 1735 of the Civil Code is not availing.' x x x.
"Finally, We advert to the long established rule that conclusions and findings of fact of a trial court
are entitled to great weight on appeal and should not be disturbed unless for strong and valid reasons."​5
Petitioner's motion for reconsideration was likewise denied;​6 hence, the instant petition,​7 raising
the following issues:
I
WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER THE LAW
AND EXISTING JURISPRUDENCE.
II
WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED
TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE
SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION.
III
WHETHER THE DOCTRINE OF ​RES IPSA LOQUITUR​ IS APPLICABLE IN THE INSTANT CASE.
On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be
amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or
offering its services to no other individual or entity, cannot be considered a common carrier. Common
carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for hire or compensation, offering their services to the
public​,8​ whether to the public in general or to a limited clientele in particular, but never on an exclusive
basis.​9 The true test of a common carrier is the carriage of passengers or goods, providing space for those
who opt to avail themselves of its transportation service for a fee.​10​Given accepted standards, GPS scarcely
falls within the term "common carrier."
The above conclusion nothwithstanding, GPS cannot escape from liability.
In ​culpa contractual,​ upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance
justify, ​prima facie​, a corresponding right of relief.​11 The law, recognizing the obligatory force of contracts,​12
will not permit a party to be set free from liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof.​13 A breach upon the contract confers upon the injured
party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve
the interests of the promisee that may include his "expectation interest," which is his interest in having the
benefit of his bargain by being put in as good a position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract not been made;
or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred
on the other party.​14 Indeed, agreements can accomplish little, either for their makers or for society, unless
they are made the basis for action.​15 The effect of every infraction is to create a new duty, that is, to make
recompense to the one who has been injured by the failure of another to observe his contractual obligation​16
unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of
the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of
common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him
from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of carriage between it and
petitioner’s assured, and admits that the cargoes it has assumed to deliver have been lost or damaged while
in its custody. In such a situation, a default on, or failure of compliance with, the obligation – in this case,
the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of
care and corresponding liability on the part of the contractual obligor the burden being on him to establish
otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between
petitioner’s principal and defendant, may not be held liable under the agreement. A contract can only bind
the parties who have entered into it or their successors who have assumed their personality or their juridical
position.​17 Consonantly with the axiom ​res inter alios acta aliis neque nocet prodest​, such contract can
neither favor nor prejudice a third person. Petitioner’s civil action against the driver can only be based on
culpa aquiliana, which, unlike ​culpa contractual, w
​ ould require the claimant for damages to prove negligence
or fault on the part of the defendant.​18
A word in passing. ​Res ipsa loquitur, ​a doctrine being invoked by petitioner, holds a defendant
liable where the thing which caused the injury complained of is shown to be under the latter’s management
and the accident is such that, in the ordinary course of things, cannot be expected to happen if those who
have its management or control use proper care. It affords reasonable evidence, in the absence of
explanation by the defendant, that the accident arose from want of care.​19 It is not a rule of substantive law
and, as such, it does not create an independent ground of liability. Instead, it is regarded as a mode of
proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the plaintiff of, the
burden of producing specific proof of negligence. The maxim simply places on the defendant the burden of
going forward with the proof.​20 Resort to the doctrine, however, may be allowed only when (a) the event is
of a kind which does not ordinarily occur in the absence of negligence; (b) other responsible causes,
including the conduct of the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c)
the indicated negligence is within the scope of the defendant's duty to the plaintiff.​21 Thus, it is not
applicable when an unexplained accident may be attributable to one of several causes, for some of which
the defendant could not be responsible.​22
Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the circumstances and
nature of the occurrence and not from the nature of the relation of the parties.​23 Nevertheless, the
requirement that responsible causes other than those due to defendant’s conduct must first be eliminated,
for the doctrine to apply, should be understood as being confined only to cases of pure (non-contractual)
tort since obviously the presumption of negligence in ​culpa contractual,​ as previously so pointed out,
immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose liability
in a civil action is predicated on ​culpa acquiliana,​ while he admittedly can be said to have been in control
and management of the vehicle which figured in the accident, it is not equally shown, however, that the
accident could have been exclusively due to his negligence, a matter that can allow, forthwith, ​res ipsa
loquitur t​ o work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant
shall be deemed to have waived the right to present evidence.​24 Thus, respondent corporation may no
longer offer proof to establish that it has exercised due care in transporting the cargoes of the assured so as
to still warrant a remand of the case to the trial court.
WHEREFORE​, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati
City, and the decision, dated 10 June 1999, of the Court of Appeals, are ​AFFIRMED ​only insofar as
respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and decision of the
appellate court are ​REVERSED ​as regards G.P. Sarmiento Trucking Corporation which, instead, is hereby
ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of
P204,450.00. No costs.
SO ORDERED.
G.R. No. 138334 August 25, 2003
ESTELA L. CRISOSTOMO, ​Petitioner,
vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL, INC., ​Respondents.
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel
and Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour
dubbed "Jewels of Europe". The package tour included the countries of England, Holland, Germany, Austria,
Liechstenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a 5% discount on
the amount, which included airfare, and the booking fee was also waived because petitioner’s niece, Meriam
Menor, was respondent company’s ticketing manager.
Pursuant to said contract, Menor went to her aunt’s residence on June 12, 1991 – a Wednesday –
to deliver petitioner’s travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment
for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on
Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to
take the flight for the first leg of her journey from Manila to Hongkong. To petitioner’s dismay, she
discovered that the flight she was supposed to take had already departed the previous day. She learned that
her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour – the "British Pageant" –
which included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked
anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave
respondent US$300 or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioner’s return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for "Jewels of Europe" and the amount
she owed respondent for the "British Pageant" tour. Despite several demands, respondent company refused
to reimburse the amount, contending that the same was non-refundable.​1 ​Petitioner was thus constrained to
file a complaint against respondent for breach of contract of carriage and damages, which was docketed as
Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
In her complaint,​2 ​petitioner alleged that her failure to join "Jewels of Europe" was due to
respondent’s fault since it did not clearly indicate the departure date on the plane ticket. Respondent was
also negligent in informing her of the wrong flight schedule through its employee Menor. She insisted that
the "British Pageant" was merely a substitute for the "Jewels of Europe" tour, such that the cost of the
former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioner’s failure to join the first tour. Chipeco insisted that petitioner was informed of the
correct departure date, which was clearly and legibly printed on the plane ticket. The travel documents were
given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to blame for missing the
flight, as she did not bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe",
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which
had already billed the same even if petitioner did not join the tour. Lotus’ European tour organizer, Insight
International Tours Ltd., determines the cost of a package tour based on a minimum number of projected
participants. For this reason, it is accepted industry practice to disallow refund for individuals who failed to
take a booked tour.​3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour
that petitioner missed. This tour was independently procured by petitioner after realizing that she made a
mistake in missing her flight for "Jewels of Europe". Petitioner was allowed to make a partial payment of
only US$300.00 for the second tour because her niece was then an employee of the travel agency.
Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the
"British Pageant" package tour.
After due proceedings, the trial court rendered a decision,​4 ​the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine
Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of
twelve percent (12%) per annum starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for
reasonable attorney’s fees;
3. Dismissing the defendant’s counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.​5
The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut petitioner’s
testimony. However, petitioner should have verified the exact date and time of departure by looking at her
ticket and should have simply not relied on Menor’s verbal representation. The trial court thus declared that
petitioner was guilty of contributory negligence and accordingly, deducted 10% from the amount being
claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault.
However, the appellate court held that petitioner is more negligent than respondent because as a lawyer
and well-traveled person, she should have known better than to simply rely on what was told to her. This
being so, she is not entitled to any form of damages. Petitioner also forfeited her right to the "Jewels of
Europe" tour and must therefore pay respondent the balance of the price for the "British Pageant" tour. The
dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26,
1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the
plaintiff-appellee to pay to the defendant-appellant the amount of P12,901.00, representing the balance of
the price of the British Pageant Package Tour, the same to earn legal interest at the rate of SIX PERCENT
(6%) per annum, to be computed from the time the counterclaim was filed until the finality of this decision.
After this decision becomes final and executory, the rate of TWELVE PERCENT (12%) interest per annum
shall be additionally imposed on the total obligation until payment thereof is satisfied. The award of
attorney’s fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED.​6
Upon denial of her motion for reconsideration,​7 ​petitioner filed the instant petition under Rule 45
on the following grounds:
I In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled to a
refund of the cost of unavailed "Jewels of Europe" tour she being equally, if not more, negligent than the
private respondent, for in the contract of carriage the common carrier is obliged to observe utmost care and
extra-ordinary diligence which is higher in degree than the ordinary diligence required of the passenger.
Thus, even if the petitioner and private respondent were both negligent, the petitioner cannot be considered
to be equally, or worse, more guilty than the private respondent. At best, petitioner’s negligence is only
contributory while the private respondent [is guilty] of gross negligence making the principle of pari delicto
inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe" tour was not
indivisible and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as
8
a result of breach of contract of carriage.​
Petitioner contends that respondent did not observe the standard of care required of a common
carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent than
respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment of its
obligation. If she were negligent at all, the same is merely contributory and not the proximate cause of the
damage she suffered. Her loss could only be attributed to respondent as it was the direct consequence of its
employee’s gross negligence.
Petitioner’s contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place to another
for a fixed price.​9 ​Such person or association of persons are regarded as carriers and are classified as private
or special carriers and common or public carriers.​10 ​A common carrier is defined under Article 1732 of the
Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant with its
customers is simply to make travel arrangements in their behalf. Respondent’s services as a travel agency
include procuring tickets and facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company,
this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an
agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe. Respondent’s
obligation to petitioner in this regard was simply to see to it that petitioner was properly booked with the
airline for the appointed date and time. Her transport to the place of destination, meanwhile, pertained
directly to the airline.
The object of petitioner’s contractual relation with respondent is the latter’s service of arranging
and facilitating petitioner’s booking, ticketing and accommodation in the package tour. In contrast, the
object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the
contract between the parties in this case was an ordinary one for services and not one of carriage.
Petitioner’s submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the
degree of care required in the performance of the latter’s obligation under the contract. For reasons of
public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as
human care and foresight can provide using the utmost diligence of very cautious persons and with due
regard for all the circumstances.​11 ​As earlier stated, however, respondent is not a common carrier but a
travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance of
its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil Code.​12 ​This
connotes reasonable care consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable
care and caution which an ordinarily prudent person would have used in the same situation? If not, then he
is guilty of negligence.​13
of the wrong day of departure. Petitioner’s testimony was accepted as indubitable evidence of Menor’s
alleged negligent act since respondent did not call Menor to the witness stand to refute the allegation. The
lower court applied the presumption under Rule 131, Section 3 (e)​14 ​of the Rules of Court that evidence
willfully suppressed would be adverse if produced and thus considered petitioner’s uncontradicted testimony
to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains
that petitioner’s assertion is belied by the evidence on record. The date and time of departure was legibly
written on the plane ticket and the travel papers were delivered two days in advance precisely so that
petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join the tour and
exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondent’s failure to present Menor as witness to rebut petitioner’s testimony could not give
rise to an inference unfavorable to the former. Menor was already working in France at the time of the filing
of the complaint,​15 ​thereby making it physically impossible for respondent to present her as a witness. Then
too, even if it were possible for respondent to secure Menor’s testimony, the presumption under Rule 131,
Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor’s testimony belonged
to both parties, considering that Menor was not just respondent’s employee, but also petitioner’s niece. It
was thus error for the lower court to invoke the presumption that respondent willfully suppressed evidence
under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence is not
intentionally omitted but is simply unavailable, or when the same could have been obtained by both
parties.​16
In sum, we do not agree with the finding of the lower court that Menor’s negligence concurred
with the negligence of petitioner and resultantly caused damage to the latter. Menor’s negligence was not
sufficiently proved, considering that the only evidence presented on this score was petitioner’s
uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of
proving it and a mere allegation cannot take the place of evidence.​17 ​If the plaintiff, upon whom rests the
burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense.​18
Contrary to petitioner’s claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in rendering its
services to petitioner. As correctly observed by the lower court, the plane ticket​19 ​issued to petitioner clearly
reflected the departure date and time, contrary to petitioner’s contention. The travel documents, consisting
of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the
trip. Respondent also properly booked petitioner for the tour, prepared the necessary documents and
procured the plane tickets. It arranged petitioner’s hotel accommodation as well as food, land transfers and
sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in
the conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after
the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care of her
concerns. This undoubtedly would require that she at least read the documents in order to assure herself of
the important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages
for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation as the nature of the obligation so
demands.​20 ​There is no fixed standard of diligence applicable to each and every contractual obligation and
each case must be determined upon its particular facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been negligent is a question of fact that is to
be determined after taking into account the particulars of each case.​21
The lower court declared that respondent’s employee was negligent. This factual finding, however,
is not supported by the evidence on record. While factual findings below are generally conclusive upon this
court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or
misapplied some facts or circumstances of weight and substance which will affect the result of the case.​22
In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her
own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in
CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of
P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest
thereon at the rate of 6% per annum, to be computed from the time the counterclaim was filed until the
finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be
imposed until the obligation is fully settled, this interim period being deemed to be by then an equivalent to
a forbearance of credit.​23
SO ORDERED.
G.R. No. 157917 August 29, 2012
SPOUSES TEODORO​1 ​and NANETTE PERENA, ​Petitioners,
vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the COURT
OF APPEALS ​Respondents.
The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to
observe extraordinary diligence in the conduct of his business. He is presumed to be negligent when death
occurs to a passenger. His liability may include indemnity for loss of earning capacity even if the deceased
passenger may only be an unemployed high school student at the time of the accident.
The Case
By petition for review on ​certiorari​, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA) affirmed with
modification the decision rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch 260, in
Parañaque City that had decreed them jointly and severally liable with Philippine National Railways (PNR),
their co-defendant, to Spouses Nicolas and Teresita Zarate (Zarates) for the death of their 15-year old son,
Aaron John L. Zarate (Aaron), then a high school student of Don Bosco Technical Institute (Don Bosco).
Antecedents
The Pereñas were engaged in the business of transporting students from their respective
residences in Parañaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the
Pereñas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the capacity to transport 14
students at a time, two of whom would be seated in the front beside the driver, and the others in the rear,
with six students on either side. They employed Clemente Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On
August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the Zarates’
residence. Aaron took his place on the left side of the van near the rear door. The van, with its
air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14 student riders on
their way to Don Bosco. Considering that the students were due at Don Bosco by 7:15 a.m., and that they
were already running late because of the heavy vehicular traffic on the South Superhighway, Alfaro took the
van to an alternate route at about 6:45 a.m. by traversing the narrow path underneath the Magallanes
Interchange that was then commonly used by Makati-bound vehicles as a short cut into Makati. At the time,
the narrow path was marked by piles of construction materials and parked passenger jeepneys, and the
railroad crossing in the narrow path had no railroad warning signs, or watchmen, or other responsible
persons manning the crossing. In fact, the bamboo barandilla was up, leaving the railroad crossing open to
traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling northbound.
As the train neared the railroad crossing, Alfaro drove the van eastward across the railroad tracks, closely
tailing a large passenger bus. His view of the oncoming train was blocked because he overtook the
passenger bus on its left side. The train blew its horn to warn motorists of its approach. When the train was
about 50 meters away from the passenger bus and the van, Alano applied the ordinary brakes of the train.
He applied the emergency brakes only when he saw that a collision was imminent. The passenger bus
successfully crossed the railroad tracks, but the van driven by Alfaro did not. The train hit the rear end of
the van, and the impact threw nine of the 12 students in the rear, including Aaron, out of the van. Aaron
landed in the path of the train, which dragged his body and severed his head, instantaneously killing him.
Alano fled the scene on board the train, and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their respective answers,
with cross-claims against each other, but Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
(2) Spouses Zarate engaged the services of spouses Pereña for the adequate and safe transportation
carriage of the former spouses' son from their residence in Parañaque to his school at the Don Bosco
Technical Institute in Makati City;
(3) During the effectivity of the contract of carriage and in the implementation thereof, Aaron, the minor son
of spouses Zarate died in connection with a vehicular/train collision which occurred while Aaron was riding
the contracted carrier Kia Ceres van of spouses Pereña, then driven and operated by the latter's
employee/authorized driver Clemente Alfaro, which van collided with the train of PNR, at around 6:45 A.M.
of August 22, 1996, within the vicinity of the Magallanes Interchange in Makati City, Metro Manila,
Philippines;
(4) At the time of the vehicular/train collision, the subject site of the vehicular/train collision was a railroad
crossing used by motorists for crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no appropriate and safety warning signs
and railings at the site commonly used for railroad crossing;
(6) At the material time, countless number of Makati bound public utility and private vehicles used on a
daily basis the site of the collision as an alternative route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on board the commuter train involved without
waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in fact intended by the railroad
operator for railroad crossing at the time of the vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
(10) PNR refused to acknowledge any liability for the vehicular/train collision;
(11) The eventual closure of the railroad crossing alleged by PNR was an internal arrangement between the
former and its project contractor; and
(12) The site of the vehicular/train collision was within the vicinity or less than 100 meters from the
Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable for negligence
constituting the proximate cause of the vehicular collision, which resulted in the death of plaintiff spouses'
son;
(2) Whether or not the defendant spouses Pereña being the employer of defendant Alfaro are liable for any
negligence which may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of the railroad system is liable
for negligence in failing to provide adequate safety warning signs and railings in the area commonly used by
motorists for railroad crossings, constituting the proximate cause of the vehicular collision which resulted in
the death of the plaintiff spouses' son;
(4) Whether or not defendant spouses Pereña are liable for breach of the contract of carriage with
plaintiff-spouses in failing to provide adequate and safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary damages, and
attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Pereña observed the diligence of employers
and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the commuter train involved in the
accident, in allowing or tolerating the motoring public to cross, and its failure to install safety devices or
equipment at the site of the accident for the protection of the public;
(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any and whatever
amount the latter may be held answerable or which they may be ordered to pay in favor of plaintiffs by
reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts claimed by the
latter in their Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and exemplary
damages and attorney's fees.​2
The Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.
 In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro had been
issued a driver’s license and had not been involved in any vehicular accident prior to the collision; that their
own son had taken the van daily; and that Teodoro Pereña had sometimes accompanied Alfaro in the van’s
trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow path
traversed by the van had not been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,​3 disposing:
​
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants ordering them to jointly and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorney’s fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,​4 ​reiterating that the
cooperative gross negligence of the Pereñas and PNR had caused the collision that led to the death of
Aaron; and that the damages awarded to the Zarates were not excessive, but based on the established
circumstances.
The CA’s Ruling
Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:​5
The Court ​a quo​ erred in:
1. In finding the defendant-appellant Philippine National Railways jointly and severally liable together with
defendant-appellants spouses Teodorico and Nanette Pereña and defendant-appellant Clemente Alfaro to
pay plaintiffs-appellees for the death of Aaron Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite overwhelming
documentary evidence on record, supporting the case of defendants-appellants Philippine National Railways.
The Pereñas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral
and exemplary damages and attorney’s fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorney’s fees.
The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the absence
of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC did not state
the factual and legal bases, to wit:​6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260
of Parañaque City is AFFIRMED with the modification that the award of Actual Damages is reduced to ₱
59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling
in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,​7 ​wherein the Court gave the
heirs of Cariaga a sum representing the loss of the deceased’s earning capacity despite Cariaga being only a
medical student at the time of the fatal incident. Applying the formula adopted in the American Expectancy
Table of Mortality:–
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy from
age of 21 (the age when he would have graduated from college and started working for his own livelihood)
instead of 15 years (his age when he died). Considering that the nature of his work and his salary at the
time of Aaron’s death were unknown, it used the prevailing minimum wage of ₱ 280.00/day to compute
Aaron’s gross annual salary to be ₱ 110,716.65, inclusive of the thirteenth month pay. Multiplying this
annual salary by Aaron’s life expectancy of 39.3 years, his gross income would aggregate to ₱ 4,351,164.30,
from which his estimated expenses in the sum of ₱ 2,189,664.30 was deducted to finally arrive at P
2,161,500.00 as net income. Due to Aaron’s computed net income turning out to be higher than the amount
claimed by the Zarates, only ₱ 2,109,071.00, the amount expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.​8
Issues
In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and severally
liable to pay damages with Philippine National Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning capacity
of a minor who was only a high school student at the time of his death in the absence of sufficient basis for
such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming petitioners are
liable at all.
Ruling
The petition has no merit.
1.
Were the Pereñas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the Pereñas and the PNR,
basing their claim against the Pereñas on breach of contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a driver’s
license and that he had not been involved in any vehicular accident prior to the fatal collision with the train;
that they even had their own son travel to and from school on a daily basis; and that Teodoro Pereña
himself sometimes accompanied Alfaro in transporting the passengers to and from school. The RTC gave
scant consideration to such defense by regarding such defense as inappropriate in an action for breach of
contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas
operated as a common carrier; and that their standard of care was extraordinary diligence, not the ordinary
diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,​9​primarily because he only caters to some specific or privileged individuals, and his operation
is neither open to the indefinite public nor for public use, the exact nature of the operation of a school bus
service has not been finally settled. This is the occasion to lay the matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special carrier or as
a common/public carrier.​10 ​A private carrier is one who, without making the activity a vocation, or without
holding himself or itself out to the public as ready to act for all who may desire his or its services,
undertakes, by special agreement in a particular instance only, to transport goods or persons from one place
to another either gratuitously or for hire.​11 ​The provisions on ordinary contracts of the Civil Code govern the
contract of private carriage.The diligence required of a private carrier is only ordinary, that is, the diligence
of a good father of the family. In contrast, a common carrier is a 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 such services to the public.​12 ​Contracts of common carriage are governed by the
provisions on common carriers of the Civil Code, the Public Service Act,​13 ​and other special laws relating to
transportation. A common carrier is required to observe extraordinary diligence, and is presumed to be at
fault or to have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.​14
 In relation to common carriers, the Court defined public use in the following terms in United
States v. Tan Piaco,​15​viz:
"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted
quality that gives it its public character. In determining whether a use is public, we must look not only to the
character of the business to be done, but also to the proposed mode of doing it. If the use is merely optional
with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the exercise of
the jurisdiction of the public utility commission. There must be, in general, a right which the law compels the
owner to give to the general public. It is not enough that the general prosperity of the public is promoted.
Public use is not synonymous with public interest. The true criterion by which to judge the character of the
use is whether the public may enjoy it by right or only by permission.
In ​De Guzman v. Court of Appeals,16 ​ ​the Court noted that Article 1732 of the Civil Code avoided
any distinction between a person or an enterprise offering transportation on a regular or an isolated basis;
and has not distinguished a carrier offering his services to the general public, that is, the general community
or population, from one offering his services only to a narrow segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides
neatly with the notion of public service under the Public Service Act, which supplements the law on common
carriers found in the Civil Code. Public service, according to Section 13, paragraph (b) of the Public Service
Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientèle, whether permanent or occasional, and done for the
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, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply
and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. x x x.​17
Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators,​18 ​custom brokers and warehousemen,​19 ​and barge
20 ​
operators​ even if they had limited clientèle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used in the activity, but
whether the undertaking is a part of the activity engaged in by the carrier that he has held out to the
general public as his business or occupation. If the undertaking is a single transaction, not a part of the
general business or occupation engaged in, as advertised and held out to the general public, the individual
or the entity rendering such service is a private, not a common, carrier. The question must be determined
by the character of the business actually carried on by the carrier, not by any secret intention or mental
reservation it may entertain or assert when charged with the duties and obligations that the law imposes.​21
Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a business, not
just as a casual occupation; (b) undertaking to carry passengers over established roads by the method by
which the business was conducted; and (c) transporting students for a fee. Despite catering to a limited
clientèle, the Pereñas operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living within or near where they
operated the service and for a fee.
The common carrier’s standard of care and vigilance as to the safety of the passengers is defined
by law. Given the nature of the business and for reasons of public policy, the common carrier is 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."​22 ​Article 1755 of the Civil Code
specifies that the common carrier should "carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action upon the death or injury to a passenger, the
common carrier must prove his or its observance of that extraordinary diligence; otherwise, the legal
presumption that he or it was at fault or acted negligently would stand.​23 ​No device, whether by stipulation,
posting of notices, statements on tickets, or otherwise, may dispense with or lessen the responsibility of the
common carrier as defined under Article 1755 of the Civil Code. 24
​ terms, the proper criterion for determining the existence of negligence in a given case is this: Conduct is
And, secondly, the Pereñas have not presented any compelling defense or reason by which the
Court might now reverse the CA’s findings on their liability. On the contrary, an examination of the records
shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent
at the time of the accident because death had occurred to their passenger.​25 ​The presumption of negligence,
being a presumption of law, laid the burden of evidence on their shoulders to establish that they had not
been negligent.​26 ​It was the law no less that required them to prove their observance of extraordinary
diligence in seeing to the safe and secure carriage of the passengers to their destination. Until they did so in
a credible manner, they stood to be held legally responsible for the death of Aaron and thus to be held liable
for all the natural consequences of such death.
There is no question that the Pereñas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in the
selection and supervision of their driver was not legally sufficient. According to Article 1759 of the Civil
Code, their liability as a common carrier did not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employee. This was the reason why the RTC
treated this defense of the Pereñas as inappropriate in this action for breach of contract of carriage.
The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier.​27 ​In this
connection, the records showed their driver’s actual negligence. There was a showing, to begin with, that
their driver traversed the railroad tracks at a point at which the PNR did not permit motorists going into the
Makati area to cross the railroad tracks. Although that point had been used by motorists as a shortcut into
the Makati area, that fact alone did not excuse their driver into taking that route. On the other hand, with
his familiarity with that shortcut, their driver was fully aware of the risks to his passengers but he still
disregarded the risks. Compounding his lack of care was that loud music was playing inside the
air-conditioned van at the time of the accident. The loudness most probably reduced his ability to hear the
warning horns of the oncoming train to allow him to correctly appreciate the lurking dangers on the railroad
tracks. Also, he sought to overtake a passenger bus on the left side as both vehicles traversed the railroad
tracks. In so doing, he lost his view of the train that was then coming from the opposite side of the
passenger bus, leading him to miscalculate his chances of beating the bus in their race, and of getting clear
of the train. As a result, the bus avoided a collision with the train but the van got slammed at its rear,
causing the fatality. Lastly, he did not slow down or go to a full stop before traversing the railroad tracks
despite knowing that his slackening of speed and going to a full stop were in observance of the right of way
at railroad tracks as defined by the traffic laws and regulations.​28​He thereby violated a specific traffic
regulation on right of way, by virtue of which he was immediately presumed to be negligent.​29
The omissions of care on the part of the van driver constituted negligence,​30 ​which, according to
Layugan v. Intermediate Appellate Court,​31 ​is "the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would not do,​32 ​or as Judge Cooley defines it, ‘(t)he
failure to observe for the protection of the interests of another person, that degree of care, precaution, and
vigilance which the circumstances justly demand, whereby such other person suffers injury.’"​33
The test by which to determine the existence of negligence in a particular case has been aptly
stated in the leading case of Picart v. Smith,​34 ​thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The
law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet
paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference
to the personal judgment of the actor in the situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must
of course be always determined in the light of human experience and in view of the facts involved in the
particular case. Abstract speculation cannot here be of much value but this much can be profitably said:
Reasonable men govern their conduct by the circumstances which are before them or known to them. They
are not, and are not supposed to be, omniscient of the future. Hence they can be expected to take care only
when there is something before them to suggest or warn of danger. Could a prudent man, in the case under
consideration, foresee harm as a result of the course actually pursued? If so, it was the duty of the actor to
take precautions to guard against that harm. Reasonable foresight of harm, followed by the ignoring of the
suggestion born of this prevision, is always necessary before negligence can be held to exist. Stated in these
said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect
harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its
consequences. (Emphasis supplied)
Pursuant to the ​Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when
he traversed the railroad tracks at a point not allowed for a motorist’s crossing despite being fully aware of
the grave harm to be thereby caused to his passengers; and when he disregarded the foresight of harm to
his passengers by overtaking the bus on the left side as to leave himself blind to the approach of the
oncoming train that he knew was on the opposite side of the bus.
Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court,​35 ​where the
Court held the PNR solely liable for the damages caused to a passenger bus and its passengers when its
train hit the rear end of the bus that was then traversing the railroad crossing. But the circumstances of that
case and this one share no similarities. In Philippine National Railways v. Intermediate Appellate Court, no
evidence of contributory negligence was adduced against the owner of the bus. Instead, it was the owner of
the bus who proved the exercise of extraordinary diligence by preponderant evidence. Also, the records are
replete with the showing of negligence on the part of both the Pereñas and the PNR. Another distinction is
that the passenger bus in Philippine National Railways v. Intermediate Appellate Court was traversing the
dedicated railroad crossing when it was hit by the train, but the Pereñas’ school van traversed the railroad
tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same complaint as
defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the alternative,
in respect to or arising out of the accident, and questions of fact and of law were common as to the
Zarates.​36 ​Although the basis of the right to relief of the Zarates (i.e., breach of contract of carriage) against
the Pereñas was distinct from the basis of the Zarates’ right to relief against the PNR (i.e., quasi-delict
under Article 2176, Civil Code), they nonetheless could be held jointly and severally liable by virtue of their
respective negligence combining to cause the death of Aaron. As to the PNR, the RTC rightly found the PNR
also guilty of negligence despite the school van of the Pereñas traversing the railroad tracks at a point not
dedicated by the PNR as a railroad crossing for pedestrians and motorists, because the PNR did not ensure
the safety of others through the placing of crossbars, signal lights, warning signs, and other permanent
safety barriers to prevent vehicles or pedestrians from crossing there. The RTC observed that the fact that a
crossing guard had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the
PNR was aware of the risks to others as well as the need to control the vehicular and other traffic there.
Verily, the Pereñas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aaron’s earning capacity proper?
The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with the RTC
on the liability, the CA modified the amount. Both lower courts took into consideration that Aaron, while only
a high school student, had been enrolled in one of the reputable schools in the Philippines and that he had
been a normal and able-bodied child prior to his death. The basis for the computation of Aaron’s earning
capacity was not what he would have become or what he would have wanted to be if not for his untimely
death, but the minimum wage in effect at the time of his death. Moreover, the RTC’s computation of Aaron’s
life expectancy rate was not reckoned from his age of 15 years at the time of his death, but on 21 years, his
age when he would have graduated from college.
We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1âwphi1 They cited People v. Teehankee, Jr.,​37 ​where the Court deleted the indemnity for victim
Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having graduated from high
school at the International School in Manila only two years before the shooting, and was at the time of the
shooting only enrolled in the first semester at the Manila Aero Club to pursue his ambition to become a
professional pilot. That meant, according to the Court, that he was for all intents and purposes only a high
school graduate.
We reject the Pereñas’ submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron would be
some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician, or a lawyer).
Instead, the computation of Aaron’s earning capacity was premised on him being a lowly minimum wage
earner despite his being then enrolled at a prestigious high school like Don Bosco in Makati, a fact that
would have likely ensured his success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings should not be taken
against his parents and in favor of the defendants whose negligence not only cost Aaron his life and his right
to work and earn money, but also deprived his parents of their right to his presence and his services as well.
Our law itself states that the loss of the earning capacity of the deceased shall be the liability of the guilty
party in favor of the heirs of the deceased, and shall in every case be assessed and awarded by the court
"unless the deceased on account of permanent physical disability not caused by the defendant, had no
earning capacity at the time of his death."​38 ​Accordingly, we emphatically hold in favor of the indemnification
for Aaron’s loss of earning capacity despite him having been unemployed, because compensation of this
nature is awarded not for loss of time or earnings but for loss of the deceased’s power or ability to earn
money.​39
This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company,​40 ​fourth-year medical student Edgardo Carriaga’s
earning capacity, although he survived the accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he dreamed to become. The Court considered
his scholastic record sufficient to justify the assumption that he could have finished the medical course and
would have passed the medical board examinations in due time, and that he could have possibly earned a
modest income as a medical practitioner. Also, in People v. Sanchez,​41 ​the Court opined that murder and
rape victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed good-paying jobs had
they graduated in due time, and that their jobs would probably pay them high monthly salaries from ₱
10,000.00 to ₱ 15,000.00 upon their graduation. Their earning capacities were computed at rates higher
than the minimum wage at the time of their deaths due to their being already senior agriculture students of
the University of the Philippines in Los Baños, the country’s leading educational institution in agriculture.
3.
Were the amounts of damages excessive?
The Pereñas plead for the reduction of the moral and exemplary damages awarded to the Zarates
in the respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that such amounts were
excessive.
The plea is unwarranted.
The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates’ deep mental
anguish over their son’s unexpected and violent death, and their moral shock over the senseless accident.
That amount would not be too much, considering that it would help the Zarates obtain the means,
diversions or amusements that would alleviate their suffering for the loss of their child. At any rate, reducing
the amount as excessive might prove to be an injustice, given the passage of a long time from when their
mental anguish was inflicted on them on August 22, 1996.
Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if
only to render effective the desired example for the public good. As a common carrier, the Pereñas needed
to be vigorously reminded to observe their duty to exercise extraordinary diligence to prevent a similarly
senseless accident from happening again. Only by an award of exemplary damages in that amount would
suffice to instill in them and others similarly situated like them the ever-present need for greater and
constant vigilance in the conduct of a business imbued with public interest.
WHEREFORE​, we ​DENY the petition for review on ​certiorari;​ ​AFFIRM the decision promulgated
on November 13, 2002; and ​ORDER​ the petitioners to pay the costs of suit.
SO ORDERED.
G.R. No. 102316 June 30, 1997
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., ​petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, ​respondents.
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of damages to the cargo" 1​ valid? This is the main question raised in
this petition for review assailing the Decision of Respondent Court of Appeals 2​ in CA-G.R. No. CV-20156
promulgated on October 15, 1991. The Court of Appeals modified the judgment of the Regional Trial Court
of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to
pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the
lost logs with legal interest thereon from the date of demand on February 2, 1984 until the amount is fully
paid or in the alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the amount of
TWO MILLION PESOS (2,000,000.00) representing the value of lost logs plus legal interest from the date of
demand on April 24, 1984 until full payment thereof; the reasonable attorney's fees in the amount
equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight
charges.
Defendant South Sea Surety and Insurance Company's counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (​sic)​ as the liability of the Seven
Brothers Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3​
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.)
entered into an agreement with the defendant Seven Brothers (Shipping Corporation) whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the former's lauan round logs numbering 940
at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South
Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance
Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance
policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of
the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and
documentary stamps due on the policy was tendered due to the insurer but was not accepted. Instead, the
South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of the
inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc.
the payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise
filed a formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but
the latter denied the claim.
After due hearing and trial, the court ​a quo rendered judgment in favor of plaintiff and against
defendants. Both defendants shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (​sic)​ to the court ​a quo the
following assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven
Ambassadors, was not due to fortuitous event but to the negligence of the captain in stowing and securing
the logs on board, causing the iron chains to snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping
Corporation from logs (​sic)​ of the cargo stipulated in the charter party is void for being contrary to public
policy invoking article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable
in the alternative and ordering/directing it to pay plaintiff-appellee the amount of two million (2,000,000.00)
pesos representing the value of the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay
appellee reasonable attorney's fees in the amount equivalent to 5% of the amount of the claim and the
costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its
counter-claim for attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping
Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea
Surety and Insurance Company, Inc. and likewise erred in not holding that he was the representative of the
insurance broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the
premiums paid on the policies issued by the defendant-appellant South Sea Surety and Insurance Company,
Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to and forming part
of the Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and
documentary stamps to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy due to
non-payment of premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company,
Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the policy with legal interest from 2
February 1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney's fees alleged and
proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety
company are liable to the plaintiff for the latter's lost logs. ​4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea
Surety and Insurance Company ("South Sea"), but modified it by holding that Seven Brothers Shipping
Corporation ("Seven Brothers") was not liable for the lost cargo. 5​ In modifying the RTC judgment, the
respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted
from liability in case of loss.
The court ​a quo erred in applying the provisions of the Civil Code on common carriers to establish
the liability of the shipping corporation. The provisions on common carriers should not be applied where the
carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is
valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. 6​
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela")
filed separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court denied
the petition of South Sea. 7​ There the Court found no reason to reverse the factual findings of the trial court
and the Court of Appeals that Chua was indeed an authorized agent of South Sea when he received
Valenzuela's premium payment for the marine cargo insurance policy which was thus binding on the insurer.
8
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA
Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent
Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in the charter
party executed between the petitioner and the private respondent exempting the latter from liability for the
loss of petitioner's logs arising from the negligence of its (Seven Brothers') captain." 9​
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
 The charter party between the petitioner and private respondent stipulated that the "(o)wners
shall not be responsible for loss, split, short-landing, breakages and any kind of damages to the cargo." 10
​ in this case of a ship totally chartered for the used of a single party​. 19​
The validity of this stipulation is the ​lis mota​ of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate
cause of the sinking of ​M/V Seven Ambassadors resulting in the loss of its cargo was the "snapping of the
iron chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in
stowing and securing the logs on board the vessel and not due to fortuitous event." 11
​ Likewise undisputed is
the status of Private Respondent Seven Brothers as a private carrier when it contracted to transport the
cargo of Petitioner Valenzuela. Even the latter admits this in its petition. ​12
The trial court deemed the charter party stipulation void for being contrary to public policy, ​13
citing Article 1745 of the Civil Code which provides:
Art. 1745.Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary
to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a
family, or of a man of ordinary prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on
account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract
of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of
the Code of Commerce 14 ​ and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1,
Article 1409 of the Civil Code, 15
​ petitioner further contends that said stipulation "gives no duty or obligation
to the private respondent to observe the diligence of a good father of a family in the custody and
transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other Civil Code
provisions on common carriers which were cited by petitioner may not be applied unless expressly stipulated
by the parties in their charter party. 16
​ Other Arguments
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo
rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo
caused even by the negligence of the ship captain. Pursuant to Article 1306 ​17 of the Civil Code, such
stipulation is valid because it is freely entered into by the parties and the same is not contrary to law,
morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a
contract of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their
duties and obligations which perforce would be binding on them. Unlike in a contract involving a common
carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code
on common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public policy embodied therein is not contravened
by stipulations in a charter party that lessen or remove the protection given by law in contracts involving
common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in ​Home Insurance Co.​ vs​. American Steamship Agencies, Inc​. 18 ​ In that
case, the trial court similarly nullified a stipulation identical to that involved in the present case for being
contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code of Commerce.
Consequently, the trial court held the shipowner liable for damages resulting for the partial loss of the cargo.
This Court reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon, the following
well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. ​As a private carrier, a stipulation exempting the owner from liability
for the negligence of its agent is not against public policy, and is deemed valid.​
Such doctrine We find reasonable.​ The Civil Code provisions on common carriers should not be applied
where the carrier is not acting as such but as a private carrier.​ The stipulation in the charter party absolving
the owner from liability for loss due to the negligence of its agent would be void if the strict public policy
governing common carriers is applied.​ Such policy has no force where the public at large is not involved, as
​ (Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the preparation
thereof. The riding public merely adheres to the contract; even if the public wants to, it cannot submit its
own stipulations for the approval of the common carrier. Thus, the law on common carriers extends its
protective mantle against one-sided stipulations inserted in tickets, invoices or other documents over which
the riding public has no understanding or, worse, no choice. Compared to the general public, a charterer in
a contract of private carriage is not similarly situated. It can — and in fact it usually does — enter into a free
and voluntary agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's
obligations and liabilities over the shipment which, in turn, determine the price or consideration of the
charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside the protection of
the law on common carriers. When the charterer decides to exercise this option, he takes a normal business
risk.
Petitioner contends that the rule in ​Home Insurance is not applicable to the present case because
it "covers only a stipulation exempting a private carrier from liability for the negligence of his agent, but it
does not apply to a stipulation exempting a private carrier like private respondent from the negligence of his
employee or servant which is the situation in this case." 20
​ This contention of petitioner is bereft of merit, for
it raises a distinction without any substantive difference. The case ​Home Insurance specifically dealt with
"the liability of the shipowner for acts or negligence of its captain and crew" 21 ​ and a charter party
stipulation which "exempts the owner of the vessel from any loss or damage or delay arising from any other
source, even from the neglect or fault of the captain or crew or some other person employed by the owner
on board, for whose acts the owner would ordinarily be liable except for said paragraph." 22 ​ Undoubtedly,
Home Insurance​ is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in ​Home Insurance is not the
rule in the Philippines ​23 deserves scant consideration. The Court there categorically held that said rule was
"reasonable" and proceeded to apply it in the resolution of that case. Petitioner miserably failed to show
such circumstances or arguments which would necessitate a departure from a well-settled rule.
Consequently, our ruling in said case remains a binding judicial precedent based on the doctrine of ​stare
decisis and Article 8 of the Civil Code which provides that "(j)udicial decisions applying or interpreting the
laws or the Constitution shall form part of the legal system of the Philippines."
In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a stipulation
exempting the owner from liability even for the negligence of its agents is valid." 24
​
On the basis of the foregoing alone, the present petition may already be denied; the Court,
however, will discuss the other arguments of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587
of the Code of Commerce which confer on petitioner the right to recover damages from the shipowner and
ship agent for the acts or conduct of the captain. 25
​ We are not persuaded. Whatever rights petitioner may
have under the aforementioned statutory provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to
law, public order, public policy, morals, or good customs, or prejudicial to a person with a right recognized
by law." As a general rule, patrimonial rights may be waived as opposed to rights to personality and family
rights which may not be made the subject of waiver. 26 ​ Being patently and undoubtedly patrimonial,
petitioner's right conferred under said articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible or any damage to the cargo, thereby exempting the
private carrier from any responsibility for loss or damage thereto. Furthermore, as discussed above, the
contract of private carriage binds petitioner and private respondent alone; it is not imbued with public policy
considerations for the general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary
to Articles 1170 and 1173 of the Civil Code 27​
​ which read:
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 WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, shall apply. SO ORDERED.

If the law does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in respect of
the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the charter party. This
shifting of responsibility, as earlier observed, is not void. The provisions cited by petitioner are, therefore,
inapplicable to the present case.

Moreover, the factual milieu of this case does not justify the application of the second paragraph
of Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the event the
law or the contract is silent. In the instant case, Article 362 of the Code of Commerce 28 ​ provides the
standard of ordinary diligence for the carriage of goods by a carrier. The standard of diligence under this
statutory provision may, however, be modified in a contract of private carriage as the petitioner and private
respondent had done in their charter party.

Cases Cited by Petitioner Inapplicable

Petitioner cites ​Shewaram vs.​ Philippine Airlines, Inc.​ 29

​ which, in turn, quoted ​Juan Ysmael & Co​.
vs​. Gabino Barreto & Co.​ 30 ​ and argues that the public policy considerations stated there ​vis-a-vis
contractual stipulations limiting the carrier's liability be applied "with equal force" to this case. 31
​ It also cites
Manila Railroad Co​. vs.​ ​Compañia Transatlantica ​32 and contends that stipulations exempting a party from
liability for damages due to negligence "should not be countenanced" and should be "strictly construed"
against the party claiming its benefit. 33​
​ We disagree.

The cases of ​Shewaram and ​Ysmael both involve a common carrier; thus, they necessarily justify
the application of such policy considerations and concomitantly stricter rules. As already discussed above,
the public policy considerations behind the rigorous treatment of common carriers are absent in the case of
private carriers. Hence, the stringent laws applicable to common carriers are not applied to private carries.
The case of ​Manila Railroad is also inapplicable because the action for damages there does not involve a
contract for transportation. Furthermore, the defendant therein made a "promise to use due care in the
lifting operations" and, consequently, it was "bound by its undertaking"'; besides, the exemption was
intended to cover accidents due to hidden defects in the apparatus or other unforeseeable occurrences" not
caused by its "personal negligence." This promise was thus constructed to make sense together with the
stipulation against liability for damages. 34
​ In the present case, we stress that the private respondent made
no such promise. The agreement of the parties to exempt the shipowner from responsibility for any damage
to the cargo and place responsibility over the same to petitioner is the lone stipulation considered now by
this Court.

Finally, petitioner points to ​Standard Oil Co.​ of New York vs.​ Lopez Costelo,​ ​35 ​Walter A.​ Smith &
Co​. vs.​ ​Cadwallader Gibson Lumber Co​., ​36 ​N.​ T ​. Hashim and Co.​ vs​. Rocha and Co.​ , ​37 ​Ohta Development
Co​. vs.​ ​Steamship "Pompey" 38 ​ and ​Limpangco Sons vs.​ Yangco Steamship Co.​ ​39 in support of its contention
that the shipowner be held liable for damages. 40 ​ These however are not on all fours with the present case
because they do not involve a similar factual milieu or an identical stipulation in the charter party expressly
exempting the shipowner form responsibility for any damage to the cargo.

Effect of the South Sea Resolution

In its memorandum, Seven Brothers argues that petitioner has no cause of action against it
because this Court has earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private
respondent submits that petitioner is not legally entitled to collect twice for a single loss. 41
​ In view of the
above disquisition upholding the validity of the questioned charter party stipulation and holding that
petitioner may not recover from private respondent, the present issue is moot and academic. It suffices to
state that the Resolution of this Court dated June 2, 1995 42
​ affirming the liability of South Sea does not, by
itself, necessarily preclude the petitioner from proceeding against private respondent. An aggrieved party
may still recover the deficiency for the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the Civil Code provides:

Art. 2207.If the plaintiff's property has been insured, and he has received indemnity for the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.