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.

MARTINEZ, J.:

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.

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.

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

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 or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a narrow segment of
the general population. We think that Article 1877 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

every person that now or hereafter may own, operate. manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and
other similar public services. (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, to wit:

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.

G.R. No. 179446 January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,

vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE CORPORATION, Respondents.
MENDOZA, J.:

On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to insure the
shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the cargoes were
shipped on board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on
the same date.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the
subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of
its delivery trucks to transport the cargoes to Columbia’s warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed drivers and
accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes were to be delivered to Balagtas,
Bulacan, while the other six (6) truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six
truckloads for Lawang Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks en route to
Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or 232
pieces of copper cathodes, failed to deliver its cargo.

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper cathodes. Because
of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the amount of
₱1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid Columbia the amount of
₱1,896,789.62 as insurance indemnity.

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the Regional
Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of the amount
it had paid to Columbia for the loss of the subject cargo. It claimed that it had been subrogated "to the right of the
consignee to recover from the party/parties who may be held legally liable for the loss." 2

The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount of the
indemnity it paid Columbia.

At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to determine
their liability for the loss of the subject cargo. 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.

Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business of
transporting goods by land, through its trucking service. It is a common carrier as distinguished from a private
carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry
goods for the general public.10 The distinction is significant in the sense that "the rights and obligations of the
parties to a contract of private carriage are governed principally by their stipulations, not by the law on common
carriers."11

In the present case, there is no indication that the undertaking in the contract between Loadmasters and Glodel
was private in character. There is no showing that Loadmasters solely and exclusively rendered services to Glodel.

In fact, Loadmasters admitted that it is a common carrier.12

In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its
Memorandum,13 it states that it "is a corporation duly organized and existing under the laws of the Republic of the
Philippines and is engaged in the business of customs brokering." It cannot be considered otherwise because as
held by this Court in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,14 a customs broker is
also regarded as a common carrier, the transportation of goods being an integral part of its business.

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for
reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case, as required by Article 1733 of the Civil Code. When the Court
speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual
prudence and circumspection observe for securing and preserving their own property or rights.15 This exacting
standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the
shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. 16 Thus, in case
of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently. 17 This
presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed
extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of
extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and received
by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them.18

Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R
& B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code, "the responsibility of two
or more persons who are liable for a quasi-delict is solidary."

Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or
R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual relation with Columbia, but
it is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts which expressly provide:

ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.

In connection therewith, Article 2180 provides:

ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but
also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.

It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck
driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters
should be made answerable for the damages caused by its employees who acted within the scope of their assigned
task of delivering the goods safely to the warehouse.

Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption juris
tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or
supervision (culpa in vigilando) of its employees.20 To avoid liability for a quasi-delict committed by its employee,
an employer must overcome the presumption by presenting convincing proof that he exercised the care and
diligence of a good father of a family in the selection and supervision of his employee. 21 In this regard,
Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that Loadmasters
would fully comply with the undertaking to safely transport the subject cargo to the designated destination. It
should have been more prudent in entrusting the goods to Loadmasters by taking precautionary measures, such as
providing escorts to accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.

G.R. No. 147079 December 21, 2004

A.F. SANCHEZ BROKERAGE INC., petitioners,

vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

CARPIO MORALES, J.:

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

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

Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes13 which were thereupon
stripped from the aluminum containers14 and loaded inside two transport vehicles hired by Sanchez Brokerage. 15

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-0731-1538/9223 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 Report26 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 Rejection27 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 letter29 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 Receipt30 in favor of FGU Insurance.

On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage,
by letter31 of January 7, 1993, disclaimed liability for the damaged goods, positing that the damage was due to
improper and insufficient export packaging; that when the sealed containers were opened outside the PSI
warehouse, it was discovered that some of the loose cartons were wet, 32 prompting its (Sanchez Brokerage’s)
representative Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition
of the cargoes but that the latter advised to still deliver them to Hizon Laboratories where an adjuster would
assess the damage.33

Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of Makati City
against the Sanchez Brokerage.

he 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

The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of Appeals:47

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the
greatest skill and foresight and "to use all reasonable means to ascertain the nature and characteristics of
goods tendered for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires."48

In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in NAIA in good
order and condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were
found to be in bad order, as noted in the Delivery Receipt 50 issued by petitioner, and as indicated in the Survey
Report of Elite Surveyors51 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 goods53 ; and that it should not be faulted for following the instructions of Calicdan of Wyeth-
Suaco to proceed with the delivery despite information conveyed to the latter that some of the cartons, on
examination outside the PSI warehouse, were found to be wet. 54

While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from liability if the loss or
damage is due to the character of the goods or defects in the packing or in the containers, the rule is that if the
improper packing is known to the carrier or his employees or is apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of
liability for the resulting damage.56

If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true, then it
should naturally have received the cargo under protest or with reservations duly noted on the receipt issued by
PSI. But it made no such protest or reservation.57

Moreover, as observed by the appellate court, if indeed petitioner’s employees only examined the cargoes outside
the PSI warehouse and found some to be wet, they would certainly have gone back to PSI, showed to the
warehouseman the damage, and demanded then and there for Bad Order documents or a certification confirming
the damage.58 Or, petitioner would have presented, as witness, the employees of the PSI from whom Morales and
Domingo took delivery of the cargo to 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 PAGASA61 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.

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.

G.R. No. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is rendered
in favor of petitioners ordering respondent to pay petitioners the following: (1) ₱50,000 as indemnity for the death
of Ruelito Cruz; (2) ₱8,316,000 as indemnity for Ruelito’s loss of earning capacity; (3) ₱100,000 as moral damages;
(4) ₱100,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys fees;
and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed from
the finality of this decision until full payment.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue of a tour
package-contract with respondent that included transportation to and from the Resort and the point of departure
in Batangas.

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account of the incident
that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the Resort in the
afternoon of September 10, 2000, but was advised to stay for another night because of strong winds and heavy
rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners’ son and his
wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded
M/B Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open
seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward to
the front, leaving the wheel to one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B Coco Beach
III capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain,
Matute and the other passengers who reached the surface asked him what they could do to save the people who
were still trapped under the boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the
capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four
crew members, who were brought to Pisa Island. Eight passengers, including petitioners’ son and his wife, died
during the incident.

At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for Mitsui Engineering &
Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900. 3

Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death of their son
in the amount of at least ₱4,000,000.

Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public.

The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and
other similar public services . . .18 (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be
properly considered ancillary thereto. The constancy of respondent’s ferry services in its resort operations is
underscored by its having its own Coco Beach boats. And the tour packages it offers, which include the ferry
services, may be availed of by anyone who can afford to pay the same. These services are thus available to the
public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be
imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of beach resort
operators offering tour packages to factor the transportation fee in arriving at the tour package price. That guests
who opt not to avail of respondent’s ferry services pay the same amount is likewise inconsequential. These guests
may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately refrained from
making distinctions on whether the carrying of persons or goods is the carrier’s principal business, whether it is
offered on a regular basis, or whether it is offered to the general public. The intent of the law is thus to not
consider such distinctions. Otherwise, there is no telling how many other distinctions may be concocted by
unscrupulous businessmen engaged in the carrying of persons or goods in order to avoid the legal obligations and
liabilities of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence for the safety of the passengers transported by them, according to all the
circumstances of each case.19 They are bound to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. 20

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the common
carrier is at fault or negligent. In fact, there is even no need for the court to make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that
the carrier exercised extraordinary diligence.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage before it
allowed M/B Coco Beach III to sail on September 11, 2000. Respondent’s position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for
shipping on September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which would also affect
the province of Mindoro.22 By the testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls
are to be expected under such weather condition.23

A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other
people’s lives at risk. The extraordinary diligence required of common carriers demands that they take care of the
goods or lives entrusted to their hands as if they were their own. This respondent failed to do.

Respondent’s insistence that the incident was caused by a fortuitous event does not impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or the
failure of the debtors to comply with their obligations, must have been independent of human will; (b) the event
that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c)
the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury to
the creditor.24

To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only
cause of the loss. And it should have exercised due diligence to prevent or minimize the loss before, during and
after the occurrence of the fortuitous event.25

Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned M/B Coco
Beach III. As reflected above, however, the occurrence of squalls was expected under the weather condition of
September 11, 2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble before it capsized
and sank.26 The incident was, therefore, not completely free from human intervention.

The Court need not belabor how respondent’s evidence likewise fails to demonstrate that it exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the squall.

Article 176427 vis-à-vis Article 220628 of the Civil Code holds the common carrier in breach of its contract of
carriage that results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity
for loss of earning capacity and (3) moral damages.

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

FELICIANO, J.:

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.

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.

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 occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight
rates is not relevant here.

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 robbers who do not act with grave or
irresistible threat, 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.

G.R. No. 160088 July 13, 2011

AGUSTIN P. DELA TORRE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE
TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA TORRE, Respondents.

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

G.R. No. 160565

PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA TORRE, Petitioners,

vs.
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON "BOY" LARRAZABAL, Respondents.

WHEREFORE, the petitions are DENIED.

Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with the Philippine
Coast Guard. On February 1, 1984, Concepcion entered into a "Preliminary Agreement" 5 with Roland de la Torre
(Roland) for the dry-docking and repairs of the said vessel as well as for its charter afterwards. 6 Under this
agreement, Concepcion agreed that after the dry-docking and repair of LCT-Josephine, it "should" be chartered for
₱ 10,000.00 per month with the following conditions:

1. The CHARTERER will be the one to pay the insurance premium of the vessel

2. The vessel will be used once every three (3) months for a maximum period of two (2) weeks

3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by the FIRST
PARTY (referring to Roland) for the maximum period of two (2) years

4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel. [Underscoring
Supplied]

On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation 7 (PTSC), represented by Roland,
entered into a "Contract of Agreement,"8 wherein the latter would charter LCT-Josephine retroactive to May 1,
1984, under the following conditions:

a. Chartered amount of the vessel – ₱ 20,000.00 per month effective May 1, 1984;

j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the vessel and
the balance shall be paid every month in the amount of ₱ 10,000.00, to be deducted from the rental
amount of the vessel;

k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY (PTSC/
Roland) has the option for first priority to purchase the vessel. If the SECOND PARTY (PTSC/Roland)
 refuses the offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY (PTSC/Roland) enough
time to turn over the vessel so as not to disrupt previous commitments;

l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of the
SECOND PARTY (PTSC/Roland) decide to stop operating;

m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such termination of contract;

n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY
(PTSC/Roland); (Underscoring Supplied]

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single
proprietorship owned by Roland’s father, Agustin de la Torre (Agustin).9 The following are the terms and
conditions of that "Contract of Agreement:"10

a. Chartered amount of the vessel ₱ 30,000.00 per month effective August, 1984;

b. Downpayment of the 50% upon signing of the contract and the balance every end of the month;

c. Any cost for the additional equipment to be installed on the vessel will be borne by the FIRST PARTY
(PTSC/ Roland) and the cost of the equipment will be deductible from the monthly rental of the vessel;

d. In the event the vessel is grounded or other [force majeure] that will make the vessel non-opera[xx]ble,
the rental of the vessel shall be suspended from the start until the vessel will be considered operational;

e. The cost for the dry-docking and/or repair of vessel shall not exceed ₱ 200,000.00, any excess shall be
borne by the SECOND PARTY (TSL/Agustin);

f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the duration of the
usage;

g. All cost for the necessary repair of the vessel shall be on the account of the SECOND PARTY
(TSL/Agustin);

h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the event the
SECOND PARTY (TSL/Agustin) decides to stop operating;

j. The FIRST PARTY (PTSC/Roland) will terminate the services of all vessel’s crew and the SECOND PARTY
(TSL/Agustin) shall have the right to replace and rehire the crew of the vessel.

k. Insurance premium of the vessel will be divided equally between the FIRST PARTY (PTSC/Rolando) and
the SECOND PARTY (TSL/ Agustin). [Underscoring supplied]

On November 22, 1984, TSL, this time represented by Roland per Agustin’s Special Power of Attorney, 11 sub-
chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo consisting of sand and gravel
to Leyte. The following were agreed upon in that contract,12 to wit:

1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the SECOND PARTY
(Larrazabal) for and in consideration on the sum of FIVE THOUSAND FIVE HUNDRED (₱ 5,500.00) PESOS,
Philippine currency per day charter with the following terms and conditions.
 2. That the CHARTERER should pay ₱ 2,000.00 as standby pay even that will made (sic) the vessel non-
opera[xx]ble cause[d] by natur[al] circumstances.

3. That the CHARTERER will supply the consumed crude oil and lube oil per charter day.

4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and unloading of
cargo load on the vessel.

5. That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of contract.

6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in advance and the
balance should be paid weekly. [Underscoring Supplied]

On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte. The
vessel was beached near the NDC Wharf. With the vessel’s ramp already lowered, the unloading of the vessel’s
cargo began with the use of Larrazabal’s payloader. While the payloader was on the deck of the LCT-Josephine
scooping a load of the cargo, the vessel’s ramp started to move downward, the vessel tilted and sea water rushed
in. Shortly thereafter, LCT-Josephine sank.13

Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that negotiations
were underway for the refloating of his vessel.14 Unfortunately, this did not materialize.

For this reason, Concepcion was constrained to institute a complaint for "Sum of Money and Damages" against
PTSC and Roland before the RTC. PTSC and Roland filed their answer together with a third-party complaint against
Agustin. Agustin, in turn, filed his answer plus a fourth-party complaint against Larrazabal. The latter filed his
answer and counterclaim but was subsequently declared in default by the RTC. 15 Eventually, the fourth-party
complaint against Larrazabal was dismissed when the RTC rendered its decision in favor of Concepcion on July 10,
1991.16 In said RTC decision, the following observations were written:

The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show: (1) that the payloader was used
to unload the cargo of sand and gravel; (2) that the payloader had to go inside the vessel and scoop up a load; (3)
that the ramp according to Roland de la Torre, "was not properly put into peak (sic) such that the front line will
touch the bottom, particularly will touch the sea x x x"; (4) that "the tires (of the payloader) will be submerged to
(sic) the sea"; (5) that according to Sungayan "the ramp of the vessel was moving down"; (6) that the payloader
had to be maneuvered by its operator who dumped the load at the side of the vessel; (7) that the dumping of the
load changed the stability of the vessel and tilted it to the starboard side; and (8) that the tilting caused the sliding
of the cargo toward that side and opened the manhole through which seawater rushed in. 17

Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin, also admitted at
the trial that it was TSL/Agustin, through its crew, who was in-charge of LCT-Josephine’s operations although the
responsibility of loading and unloading the cargo was under Larrazabal. Thus, the RTC declared that the "efficient
cause of the sinking of the LCT-JOSEPHINE was the improper lowering or positioning of the ramp," which was well
within the charge or responsibility of the captain and crew of the vessel.

We are not persuaded that the trial Court finding should be set aside. The Court a quo sifted through the records
and arrived at the fact that clearly, there was improper lowering or positioning of the ramp, which was not at
"peak," according to de la Torre and "moving down" according to Sungayan when the payloader entered and
scooped up a load of sand and gravel. Because of this, the payloader was in danger of being lost (‘submerged’) and
caused Larrazabal to order the operator to go back into the vessel, according to de la Torre’s version, or back off to
the shore, per Sungayan. Whichever it was, the fact remains that the ramp was unsteady (moving) and compelled
action to save the payloader from submerging, especially because of the conformation of the sea and the shore. x
The contract executed on June 20, 1984, between plaintiff-appellee and defendants-appellants showed that the
services of the crew of the owner of the vessel were terminated. This allowed the charterer, defendants-
appellants, to employ their own. The sub-charter contract between defendants-appellants Philippine Trigon
Shipyard Corp. and third-party defendant-appellant Trigon Shipping Lines showed similar provision where the crew
of Philippine Trigon had to be terminated or rehired by Trigon Shipping Lines. As to the agreement with fourth-
party Larrazabal, it is silent on who would hire the crew of the vessel. Clearly, the crew manning the vessel when it
sunk belonged to third-party defendant-appellant. Hubart Sungayan, the acting Chief Mate, testified that he was
hired by Agustin de la Torre, who in turn admitted to hiring the crew. The actions of fourth-party defendant,
Larrazabal and his payloader operator did not include the operation of docking where the problem
arose.23 [Underscoring supplied]

Similarly, the Court has examined the records at hand and completely agree with the CA that the factual findings of
the RTC are in order.

With respect to petitioners’ position that the Limited Liability Rule under the Code of Commerce should be applied
to them, the argument is misplaced. The said rule has been explained to be that of the real and hypothecary
doctrine in maritime law where the shipowner or ship agent’s liability is held as merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction. 24 In this jurisdiction, this rule is provided
in three articles of the Code of Commerce. These are:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from
the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage.

---

Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund
for the results of the acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the
vessel belonging to him.

---

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as
limited to the value of the vessel with all its appurtenances and freightage served during the voyage.

Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to abandon
the vessel given to the shipowner or ship agent under the first provision – Article 587. Similarly, Article 590 is a
reiteration of Article 587, only this time the situation is that the vessel is co-owned by several persons.25 Obviously,
the forerunner of the Limited Liability Rule under the Code of Commerce is Article 587. Now, the latter is quite
clear on which indemnities may be confined or restricted to the value of the vessel pursuant to the said Rule, and
these are the – "indemnities in favor of third persons which may arise from the conduct of the captain in the care
of the goods which he loaded on the vessel." Thus, what is contemplated is the liability to third persons who may
have dealt with the shipowner, the agent or even the charterer in case of demise or bareboat charter.

The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited
Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense. In Yangco v.
Laserna,26 this Court, through Justice Moran, wrote:
The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in maritime
commerce.

‘Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they thereby
incurred the apprehension of being rendered liable to an indefinite amount by the acts of the master, x x x.’ 27

Later, in the case of Monarch Insurance Co., Inc. v. CA, 28 this Court, this time through Justice Sabino R. De Leon, Jr.,
again explained:

‘No vessel, no liability,’ expresses in a nutshell the limited liability rule. The shipowner’s or agent’s liability is merely
coextensive with his interest in the vessel such that a total loss thereof results in its extinction. The total
destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach. This
doctrine is based on the real and hypothecary nature of maritime law which has its origin in the prevailing
conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and
perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it was
deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any.29

In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be supported and
encouraged to pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability Rule against him
who, in the first place, should be the one benefitting from the said rule. In distinguishing the rights between the
charterer and the shipowner, the case of Yueng Sheng Exchange and Trading Co. v. Urrutia & Co. 30 is most
enlightening. In that case, no less than Chief Justice Arellano wrote:

The whole ground of this assignment of errors rests on the proposition advanced by the appellant company that
‘the charterer of a vessel, under the conditions stipulated in the charter party in question, is the owner pro hac
vice of the ship and takes upon himself the responsibilities of the owner.’

If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of the Cebu, then they must
respond for the damages claimed, because the owner and the agent are civilly responsible for the acts of the
captain.

But G. Urrutia & Co. could not in any way exercise the powers or rights of an agent. They could not represent the
ownership of the vessel, nor could they, in their own name and in such capacity, take judicial or extrajudicial steps
in all that relates to commerce; thus if the Cebu were attached, they would have no legal capacity to proceed to
secure its release; speaking generally, not even the fines could or ought to be paid by them, unless such fines were
occasioned by their orders. x x x.

The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia & Co., as charterers of the
vessel, did not put the latter in the place of the former, nor make them agents of the owner or owners of the
vessel. With relation to those agents, they retained opposing rights derived from the charter party of the vessel,
and at no time could they be regarded by the third parties, or by the authorities, or by the courts, as being in the
place of the owners or the agents in matters relating to the responsibilities pertaining to the ownership and
possession of the vessel. x x x.31

In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step into the shoes
of the shipowner or even the ship agent because there remains conflicting rights between the former and the real
shipowner as derived from their charter agreement. The Court again quotes Chief Justice Arellano:
Their (the charterer’s) possession was, therefore, the uncertain title of lease, not a possession of the owner, such
as is that of the agent, who is fully subrogated to the place of the owner in regard to the dominion, possession,
free administration, and navigation of the vessel.32

Therefore, even if the contract is for a bareboat or demise charter where possession, free administration and even
navigation are temporarily surrendered to the charterer, dominion over the vessel remains with the shipowner.
Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the former, can never set up the
Limited Liability Rule against the very owner of the vessel. Borrowing the words of Chief Justice Artemio V.
Panganiban, "Indeed, where the reason for the rule ceases, the rule itself does not apply." 33

The Court now comes to the issue of the liability of the charterer and the sub-charterer.

In the present case, the charterer and the sub-charterer through their respective contracts of agreement/charter
parties, obtained the use and service of the entire LCT-Josephine. The vessel was likewise manned by the charterer
and later by the sub-charterer’s people. With the complete and exclusive relinquishment of possession, command
and navigation of the vessel, the charterer and later the sub-charterer became the vessel’s owner pro hac vice.
Now, and in the absence of any showing that the vessel or any part thereof was commercially offered for use to
the public, the above agreements/charter parties are that of a private carriage where the rights of the
contracting parties are primarily defined and governed by the stipulations in their contract.34

Although certain statutory rights and obligations of charter parties are found in the Code of Commerce, these
provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none of the
provisions found in the Code of Commerce deals with the specific rights and obligations between the real
shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil Code to supply the
deficiency.35 Thus, the RTC and the CA were both correct in applying the statutory provisions of the New Civil Code
in order to define the respective rights and obligations of the opposing parties.

Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion for the dry-
docking and repair of LCT-Josephine, is liable under Article 118936 of the New Civil Code. There is no denying that
the vessel was not returned to Concepcion after the repairs because of the provision in the Preliminary Agreement
that the same "should" be used by Roland for the first two years. Before the vessel could be returned, it was lost
due to the negligence of Agustin to whom Roland chose to sub-charter or sublet the vessel.

PTSC is liable to Concepcion under Articles 166537 and 166738 of the New Civil Code. As the charterer or lessee
under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return the thing leased and it
was liable for the deterioration or loss of the same.

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under Article 1651
of the New Civil Code.39 Although he was never privy to the contract between PTSC and Concepcion, he remained
bound to preserve the chartered vessel for the latter. Despite his non-inclusion in the complaint of Concepcion, it
was deemed amended so as to include him because, despite or in the absence of that formality of amending the
complaint to include him, he still had his day in court40 as he was in fact impleaded as a third-party defendant by
his own son, Roland – the very same person who represented him in the Contract of Agreement with
Larrazabal.1avvphi1

(S)ince the purpose of formally impleading a party is to assure him a day in court, once the protective mantle of
due process of law has in fact been accorded a litigant, whatever the imperfection in form, the real litigant may be
held liable as a party.41

In any case, all three petitioners are liable under Article 1170 of the New Civil Code. 42 The necessity of insuring the
LCT-Josephine, regardless of who will share in the payment of the premium, is very clear under the Preliminary
Agreement and the subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984, respectively. The
August 17, 1984 letter of Concepcion’s representative, Rogelio L. Martinez, addressed to Roland in his capacity as
the president of PTSC inquiring about the insurance of the LCT-Josephine as well as reiterating the importance of
insuring the said vessel is quite telling.

Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the time when it
was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in clear
contravention of their respective agreements. Certainly, they should now all answer for the loss of the vessel.

G.R. No. 200289 November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,

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

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

G.R. No. 200314

ORIENT FREIGHT INTERNATIONAL INC., Petitioner,

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

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

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

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

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

On September 7, 1993, Orient Freight International, Inc. (OFII), the customs broker of SMC, withdrew from ATI the
197 containers/skids, including the six in damaged condition, and delivered the same at SMC’s warehouse in
Calamba, Laguna through J.B. Limcaoco Trucking (JBL). It was discovered upon discharge that additional nine
containers/skids valued at Philippine Pesos: One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine and
Sixty-Eight Centavos (₱175,639.68) were also damaged due to the forklift operations; thus, making the total
number of 15 containers/skids in bad order.
Almost a year after, on August 15, 1994, SMC filed a claim against UCPB, Westwind, ATI, and OFII to recover the
amount corresponding to the damaged 15 containers/skids. When UCPB paid the total sum of Philippine Pesos:
Two Hundred Ninety-Two Thousand Seven Hundred Thirty-Two and Eighty Centavos (₱292,732.80), SMC signed
the subrogation receipt. Thereafter, in the exercise of its right of subrogation, UCPB instituted on August 30, 1994
a complaint for damages against Westwind, ATI, and OFII.6