TRANSPORTATION LAW: COMMON CARRIERS – VIGILANCE OVER THE and base manager Baharini negotiated with the police
ager Baharini negotiated with the police for the immediate release of the
GOODS
1. What law governs disputes involving transportation law
G.R. No. 122191 October 8, 1998
SAUDI ARABIAN AIRLINES, petitioner,  Indonesian authorities agreed to deport Thamer and Allah after two weeks of detention.
vs.
COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in
his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon
City, respondents.
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and
set aside the Resolution dated September 27, 1995 and the Decision  dated April 10,
1 2
1996 of the Court of Appeals  in CA-G.R. SP No. 36533,  and the Orders  dated August
3 4 5
29, 1994   and February 2, 1995  that were issued by the trial court in Civil Case No. Q-
6 7
93-18394. 8
The pertinent antecedent facts which gave rise to the instant petition, as stated in the
questioned Decision , are as follows:
9
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight
Attendant for its airlines based in Jeddah, Saudi Arabia. . . .
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went
to a disco dance with fellow crew members Thamer Al-Gazzawi and Allah
Al-Gazzawi, both Saudi nationals. Because it was almost morning when
they returned to their hotels, they agreed to have breakfast together at
the room of Thamer. When they were in te (sic) room, Allah left on some
pretext. Shortly after he did, Thamer attempted to rape plaintiff.
Fortunately, a roomboy and several security personnel heard her cries for
help and rescued her. Later, the Indonesian police came and arrested
Thamer and Allah Al-Gazzawi, the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA officials interrogated
her about the Jakarta incident. They then requested her to go back to Jakarta to help
arrange the release of Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad
1|T R A N S P O R T A T I O N L A W
detained crew members but did not succeed because plaintiff refused to cooperate. She
was afraid that she might be tricked into something she did not want because of her
inability to understand the local dialect. She also declined to sign a blank paper and a
document written in the local dialect. Eventually, SAUDIA allowed plaintiff to return to
Jeddah but barred her from the Jakarta flights.
Plaintiff learned that, through the intercession of the Saudi Arabian government, the
Eventually, they were again put in service by defendant SAUDI (sic). In September 1990,
defendant SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta incident was already
behind her, her superiors requested her to see Mr. Ali Meniewy, Chief Legal Officer of
SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he brought her to the police
station where the police took her passport and questioned her about the Jakarta incident.
Miniewy simply stood by as the police put pressure on her to make a statement dropping
the case against Thamer and Allah. Not until she agreed to do so did the police return
her passport and allowed her to catch the afternoon flight out of Jeddah.
One year and a half later or on lune 16, 1993, in Riyadh, Saudi Arabia, a few minutes
before the departure of her flight to Manila, plaintiff was not allowed to board the plane
and instead ordered to take a later flight to Jeddah to see Mr. Miniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a
Saudi court where she was asked to sign a document written in Arabic. They told her that
this was necessary to close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27, 1993. Plaintiff then returned
to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once
again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after
receiving assurance from SAUDIA's Manila manager, Aslam Saleemi, that the
investigation was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27,
1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated plaintiff
through an interpreter about the Jakarta incident. After one hour of interrogation, they let
her go. At the airport, however, just as her plane was about to take off, a SAUDIA officer
told her that the airline had forbidden her to take flight. At the Inflight Service Office
where she was told to go, the secretary of Mr. Yahya Saddick took away her passport
and told her to remain in Jeddah, at the crew quarters, until further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where
the judge, to her astonishment and shock, rendered a decision, translated to her in
English, sentencing her to five months imprisonment and to 286 lashes. Only then did
she realize that the Saudi court had tried her, together with Thamer and Allah, for what
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco,
dancing and listening to the music in violation of Islamic laws; and (3) socializing with the
male crew, in contravention of Islamic tradition.  10
Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the Philippine
Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to pay for her
upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah continued
to serve in the international
flights. 
11
Because she was wrongfully convicted, the Prince of Makkah dismissed the case against
her and allowed her to leave Saudi Arabia. Shortly before her return to Manila,   she was
12
terminated from the service by SAUDIA, without her being informed of the cause.
On November 23, 1993, Morada filed a Complaint   for damages against SAUDIA, and
13
Khaled Al-Balawi ("Al-Balawi"), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss   which raised the
14
following grounds, to wit: (1) that the Complaint states no cause of action against Saudia;
(2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or demand
set forth in the Complaint has been waived, abandoned or otherwise extinguished; and
(4) that the trial court has no jurisdiction to try the case.
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss)  . Saudia filed
15
a reply   thereto on March 3, 1994.
16
On June 23, 1994, Morada filed an Amended Complaint   wherein Al-Balawi was
17
dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and
Motion to Dismiss Amended Complaint  . 18
The trial court issued an Order   dated August 29, 1994 denying the Motion to Dismiss
19
Amended Complaint filed by Saudia.
From the Order of respondent Judge   denying the Motion to Dismiss, SAUDIA filed on
20
September 20, 1994, its Motion for Reconsideration   of the Order dated August 29,
21
1994. It alleged that the trial court has no jurisdiction to hear and try the case on the
2|T R A N S P O R T A T I O N L A W
basis of Article 21 of the Civil Code, since the proper law applicable is the law of the
Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her Opposition  (To 22
Defendant's Motion for Reconsideration).
In the Reply   filed with the trial court on October 24, 1994, SAUDIA alleged that since its
23
Motion for Reconsideration raised lack of jurisdiction as its cause of action, the Omnibus
Motion Rule does not apply, even if that ground is raised for the first time on appeal.
Additionally, SAUDIA alleged that the Philippines does not have any substantial interest
in the prosecution of the instant case, and hence, without jurisdiction to adjudicate the
same.
Respondent Judge subsequently issued another Order   dated February 2, 1995,
24
denying SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed
Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi Arabian
Airlines filed, thru counsel, on September 20, 1994, and the Opposition
thereto of the plaintiff filed, thru counsel, on October 14, 1994, as well as
the Reply therewith of defendant Saudi Arabian Airlines filed, thru
counsel, on October 24, 1994, considering that a perusal of the plaintiffs
Amended Complaint, which is one for the recovery of actual, moral and
exemplary damages plus attorney's fees, upon the basis of the applicable
Philippine law, Article 21 of the New Civil Code of the Philippines, is,
clearly, within the jurisdiction of this Court as regards the subject matter,
and there being nothing new of substance which might cause the reversal
or modification of the order sought to be reconsidered, the motion for
reconsideration of the defendant, is DENIED.
SO ORDERED.  25
Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and
Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary
Restraining Order   with the Court of Appeals.
26
Respondent Court of Appeals promulgated a Resolution with Temporary Restraining
Order   dated February 23, 1995, prohibiting the respondent Judge from further
27
conducting any proceeding, unless otherwise directed, in the interim.
In another Resolution   promulgated on September 27, 1995, now assailed, the appellate
28
court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary Injunction dated
February 18, 1995, to wit:
 The Petition for the Issuance of a Writ of Preliminary Injunction is hereby
DENIED, after considering the Answer, with Prayer to Deny Writ of
Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder, it
appearing that herein petitioner is not clearly entitled thereto (Unciano
Paramedical College, et. Al., v. Court of Appeals, et. Al., 100335, April 7,
1993, Second Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition   for 29
Review with Prayer for Temporary Restraining Order dated October 13, 1995.
However, during the pendency of the instant Petition, respondent Court of Appeals
rendered the Decision  dated April 10, 1996, now also assailed. It ruled that the
30
Philippines is an appropriate forum considering that the Amended Complaint's basis for
recovery of damages is Article 21 of the Civil Code, and thus, clearly within the
jurisdiction of respondent Court. It further held that certiorari is not the proper remedy in
a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded to
trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order   dated April 30, 1996, given due course by this Court.
31
After both parties submitted their Memoranda,   the instant case is now deemed
32
submitted for decision.
Petitioner SAUDIA raised the following issues:
I
The trial court has no jurisdiction to hear and try Civil Case No. Q-93-
18394 based on Article 21 of the New Civil Code since the proper law
applicable is the law of the Kingdom of Saudi Arabia inasmuch as this
case involves what is known in private international law as a "conflicts
problem". Otherwise, the Republic of the Philippines will sit in judgment of
the acts done by another sovereign state which is abhorred.
II
Leave of court before filing a supplemental pleading is not a jurisdictional
requirement. Besides, the matter as to absence of leave of court is now
moot and academic when this Honorable Court required the respondents
3|T R A N S P O R T A T I O N L A W
to comment on petitioner's April 30, 1996 Supplemental Petition For
Review With Prayer For A Temporary Restraining Order Within Ten (10)
Days From Notice Thereof. Further, the Revised Rules of Court should
be construed with liberality pursuant to Section 2, Rule 1 thereof.
III
Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-
G.R. SP NO. 36533 entitled "Saudi Arabian Airlines v. Hon. Rodolfo A.
Ortiz, et al." and filed its April 30, 1996 Supplemental Petition For Review
With Prayer For A Temporary Restraining Order on May 7, 1996 at 10:29
a.m. or within the 15-day reglementary period as provided for under
Section 1, Rule 45 of the Revised Rules of Court. Therefore, the decision
in CA-G.R. SP NO. 36533 has not yet become final and executory and
this Honorable Court can take cognizance of this case.  33
From the foregoing factual and procedural antecedents, the following issues emerge for
our resolution:
I.
WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING
THAT THE REGIONAL TRIAL COURT OF QUEZON CITY HAS
JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-93-18394
ENTITLED "MILAGROS P. MORADA V. SAUDI ARABIAN AIRLINES".
II.
WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING
THAT IN THIS CASE PHILIPPINE LAW SHOULD GOVERN.
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the
outset. It maintains that private respondent's claim for alleged abuse of rights occurred in
the Kingdom of Saudi Arabia. It alleges that the existence of a foreign element qualifies
the instant case for the application of the law of the Kingdom of Saudi Arabia, by virtue of
the lex loci delicti commissi rule.  34
On the other hand, private respondent contends that since her Amended Complaint is
based on Articles 19   and 21   of the Civil Code, then the instant case is properly a
35 36
matter of domestic law.  37
Under the factual antecedents obtaining in this case, there is no dispute that the interplay
of events occurred in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint   dated June 23, 1994:
38
2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines
corporation doing business in the Philippines. It may be served with
summons and other court processes at Travel Wide Associated Sales
(Phils.). Inc., 3rd Floor, Cougar Building, 114 Valero St., Salcedo Village,
Makati, Metro Manila.
x x x           x x x          x x x
6. Plaintiff learned that, through the intercession of the Saudi Arabian
government, the Indonesian authorities agreed to deport Thamer and
Allah after two weeks of detention. Eventually, they were again put in
service by defendant SAUDIA. In September 1990, defendant SAUDIA
transferred plaintiff to Manila.
7. On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors reauested her to see MR.
Ali Meniewy, Chief Legal Officer of SAUDIA in Jeddah, Saudi Arabia.
When she saw him, he brought her to the police station where the police
took her passport and questioned her about the Jakarta incident. Miniewy
simply stood by as the police put pressure on her to make a statement
dropping the case against Thamer and Allah. Not until she agreed to do
so did the police return her passport and allowed her to catch the
afternoon flight out of Jeddah.
8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia,
a few minutes before the departure of her flight to Manila, plaintiff was not
allowed to board the plane and instead ordered to take a later flight to
Jeddah to see Mr. Meniewy, the Chief Legal Officer of SAUDIA. When
she did, a certain Khalid of the SAUDIA office brought her to a Saudi
court where she was asked to sigh a document written in Arabic. They
told her that this was necessary to close the case against Thamer and
Allah. As it turned out, plaintiff signed a notice to her to appear before the
court on June 27, 1993. Plaintiff then returned to Manila.
9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to
Jeddah once again and see Miniewy on June 27, 1993 for further
4|T R A N S P O R T A T I O N L A W
investigation. Plaintiff did so after receiving assurance from SAUDIA's
Manila manger, Aslam Saleemi, that the investigation was routinary and
that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi
court on June 27, 1993. Nothing happened then but on June 28, 1993, a
Saudi judge interrogated plaintiff through an interpreter about the Jakarta
incident. After one hour of interrogation, they let her go. At the airport,
however, just as her plane was about to take off, a SAUDIA officer told
her that the airline had forbidden her to take that flight. At the Inflight
Service Office where she was told to go, the secretary of Mr. Yahya
Saddick took away her passport and told her to remain in Jeddah, at the
crew quarters, until further orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the
same court where the judge, to her astonishment and shock, rendered a
decision, translated to her in English, sentencing her to five months
imprisonment and to 286 lashes. Only then did she realize that the Saudi
court had tried her, together with Thamer and Allah, for what happened in
Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a
disco, dancing, and listening to the music in violation of Islamic laws; (3)
socializing with the male crew, in contravention of Islamic tradition.
12. Because SAUDIA refused to lend her a hand in the case, plaintiff
sought the help of the Philippines Embassy in Jeddah. The latter helped
her pursue an appeal from the decision of the court. To pay for her
upkeep, she worked on the domestic flights of defendant SAUDIA while,
ironically, Thamer and Allah freely served the international flights. 
39
Where the factual antecedents satisfactorily establish the existence of a foreign element,
we agree with petitioner that the problem herein could present a "conflicts" case.
A factual situation that cuts across territorial lines and is affected by the diverse laws of
two or more states is said to contain a "foreign element". The presence of a foreign
element is inevitable since social and economic affairs of individuals and associations
are rarely confined to the geographic limits of their birth or conception. 
40
The forms in which this foreign element may appear are many.   The foreign element
41
may simply consist in the fact that one of the parties to a contract is an alien or has a
foreign domicile, or that a contract between nationals of one State involves properties
situated in another State. In other cases, the foreign element may assume a complex
form. 42
In the instant case, the foreign element consisted in the fact that private respondent
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident foreign
corporation. Also, by virtue of the employment of Morada with the petitioner Saudia as a
flight stewardess, events did transpire during her many occasions of travel across
national borders, particularly from Manila, Philippines to Jeddah, Saudi Arabia, and vice
versa, that caused a "conflicts" situation to arise.
We thus find private respondent's assertion that the case is purely domestic, imprecise.
A conflicts problem presents itself here, and the question of jurisdiction   confronts the
43
court a quo.
After a careful study of the private respondent's Amended Complaint,   and the 44
Comment thereon, we note that she aptly predicated her cause of action on Articles 19
and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due and
observe honesty and good faith.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals,   this Court held that:
45
The aforecited provisions on human relations were intended to expand
the concept of torts in this jurisdiction by granting adequate legal remedy
for the untold number of moral wrongs which is impossible for human
foresight to specifically provide in the statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondent's assertion that violations of Articles
19 and 21 are actionable, with judicially enforceable remedies in the municipal forum.
5|T R A N S P O R T A T I O N L A W
Based on the allegations   in the Amended Complaint, read in the light of the Rules of
46
Court on jurisdiction   we find that the Regional Trial Court (RTC) of Quezon City
47
possesses jurisdiction over the subject matter of the suit.   Its authority to try and hear
48
the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the
"Judiciary Reorganization Act of 1980", is hereby amended to read as
follows:
Sec. 19. Jurisdiction in Civil Cases. — Regional Trial Courts shall
exercise exclusive jurisdiction:
x x x           x x x          x x x
(8) In all other cases in which demand, exclusive of
interest, damages of whatever kind, attorney's fees,
litigation expenses, and cots or the value of the property
in controversy exceeds One hundred thousand pesos
(P100,000.00) or, in such other cases in Metro Manila,
where the demand, exclusive of the above-mentioned
items exceeds Two hundred Thousand pesos
(P200,000.00). (Emphasis ours)
x x x           x x x          x x x
And following Section 2 (b), Rule 4 of the Revised Rules of Court — the venue, Quezon
City, is appropriate:
Sec. 2 Venue in Courts of First Instance. — [Now Regional Trial Court]
(a) xxx xxx xxx
(b) Personal actions. — All other actions may be commenced and tried
where the defendant or any of the defendants resides or may be found,
or where the plaintiff or any of the plaintiff resides, at the election of the
plaintiff.
Pragmatic considerations, including the convenience of the parties, also weigh heavily in
favor of the RTC Quezon City assuming jurisdiction. Paramount is the private interest of
the litigant. Enforceability of a judgment if one is obtained is quite obvious. Relative
advantages and obstacles to a fair trial are equally important. Plaintiff may not, by choice
of an inconvenient forum, "vex", "harass", or "oppress" the defendant, e.g. by inflicting
upon him needless expense or disturbance. But unless the balance is strongly in favor of
the defendant, the plaintiffs choice of forum should rarely be disturbed.  49
Weighing the relative claims of the parties, the court a quo found it best to hear the case
in the Philippines. Had it refused to take cognizance of the case, it would be forcing
plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in the Kingdom
of Saudi Arabia where she no longer maintains substantial connections. That would have
caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and
inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties herein.
By filing her Complaint and Amended Complaint with the trial court, private respondent
has voluntary submitted herself to the jurisdiction of the court.
The records show that petitioner SAUDIA has filed several motions   praying for the
50
dismissal of Morada's Amended Complaint. SAUDIA also filed an Answer In Ex
Abundante Cautelam dated February 20, 1995. What is very patent and explicit from the
motions filed, is that SAUDIA prayed for other reliefs under the premises. Undeniably,
petitioner SAUDIA has effectively submitted to the trial court's jurisdiction by praying for
the dismissal of the Amended Complaint on grounds other than lack of jurisdiction.
As held by this Court in Republic vs. Ker and Company, Ltd.:  51
We observe that the motion to dismiss filed on April 14, 1962, aside from
disputing the lower court's jurisdiction over defendant's person, prayed for
dismissal of the complaint on the ground that plaintiff's cause of action
has prescribed. By interposing such second ground in its motion to
dismiss, Ker and Co., Ltd. availed of an affirmative defense on the basis
of which it prayed the court to resolve controversy in its favor. For the
court to validly decide the said plea of defendant Ker & Co., Ltd., it
necessarily had to acquire jurisdiction upon the latter's person, who,
being the proponent of the affirmative defense, should be deemed to
have abandoned its special appearance and voluntarily submitted itself to
the jurisdiction of the court.
Similarly, the case of De Midgely vs. Ferandos, held that;
6|T R A N S P O R T A T I O N L A W
When the appearance is by motion for the purpose of objecting to the
jurisdiction of the court over the person, it must be for the sole and
separate purpose of objecting to the jurisdiction of the court. If his motion
is for any other purpose than to object to the jurisdiction of the court over
his person, he thereby submits himself to the jurisdiction of the court. A
special appearance by motion made for the purpose of objecting to the
jurisdiction of the court over the person will be held to be a general
appearance, if the party in said motion should, for example, ask for a
dismissal of the action upon the further ground that the court had no
jurisdiction over the subject matter.  52
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of Quezon
City. Thus, we find that the trial court has jurisdiction over the case and that its exercise
thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to answer
two important questions: (1) What legal system should control a given situation where
some of the significant facts occurred in two or more states; and (2) to what extent
should the chosen legal system regulate the situation.  53
Several theories have been propounded in order to identify the legal system that should
ultimately control. Although ideally, all choice-of-law theories should intrinsically advance
both notions of justice and predictability, they do not always do so. The forum is then
faced with the problem of deciding which of these two important values should be
stressed. 54
Before a choice can be made, it is necessary for us to determine under what category a
certain set of facts or rules fall. This process is known as "characterization", or the
"doctrine of qualification". It is the "process of deciding whether or not the facts relate to
the kind of question specified in a conflicts rule."  The purpose of "characterization" is to
55
enable the forum to select the proper law.  56
Our starting point of analysis here is not a legal relation, but a factual situation, event, or
operative fact.  An essential element of conflict rules is the indication of a "test" or
57
"connecting factor" or "point of contact". Choice-of-law rules invariably consist of a factual
relationship (such as property right, contract claim) and a connecting factor or point of
contact, such as the situs of the res, the place of celebration, the place of performance,
or the place of wrongdoing.  58
Note that one or more circumstances may be present to serve as the possible test for the
determination of the applicable law.   These "test factors" or "points of contact" or
59
"connecting factors" could be any of the following:
(1) The nationality of a person, his domicile, his residence, his place of
sojourn, or his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is deemed to
be situated. In particular, the lex situs is decisive when real rights are
involved;
(4) the place where an act has been done, the locus actus, such as the
place where a contract has been made, a marriage celebrated, a will
signed or a tort committed. The lex loci actus is particularly important in
contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the place
of performance of contractual duties, or the place where a power of
attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should govern
their agreement, thelex loci intentionis;
(7) the place where judicial or administrative proceedings are instituted or
done. The lex fori — the law of the forum — is particularly important
because, as we have seen earlier, matters of "procedure" not going to the
substance of the claim involved are governed by it; and because the lex
fori applies whenever the content of the otherwise applicable foreign law
is excluded from application in a given case for the reason that it falls
under one of the exceptions to the applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of practically all
legal relationships of the ship and of its master or owner as such. It also
covers contractual relationships particularly contracts of
affreightment.   (Emphasis ours.)
60
After a careful study of the pleadings on record, including allegations in the Amended
Complaint deemed admitted for purposes of the motion to dismiss, we are convinced that
there is reasonable basis for private respondent's assertion that although she was
7|T R A N S P O R T A T I O N L A W
already working in Manila, petitioner brought her to Jeddah on the pretense that she
would merely testify in an investigation of the charges she made against the two SAUDIA
crew members for the attack on her person while they were in Jakarta. As it turned out,
she was the one made to face trial for very serious charges, including adultery and
violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the "handing over" or "turning
over" of the person of private respondent to Jeddah officials, petitioner may have acted
beyond its duties as employer. Petitioner's purported act contributed to and amplified or
even proximately caused additional humiliation, misery and suffering of private
respondent. Petitioner thereby allegedly facilitated the arrest, detention and prosecution
of private respondent under the guise of petitioner's authority as employer, taking
advantage of the trust, confidence and faith she reposed upon it. As purportedly found by
the Prince of Makkah, the alleged conviction and imprisonment of private respondent
was wrongful. But these capped the injury or harm allegedly inflicted upon her person
and reputation, for which petitioner could be liable as claimed, to provide compensation
or redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one involving torts, the "connecting
factor" or "point of contact" could be the place or places where the tortious conduct or lex
loci actus occurred. And applying the torts principle in a conflicts case, we find that the
Philippines could be said as a situs of the tort (the place where the alleged tortious
conduct took place). This is because it is in the Philippines where petitioner allegedly
deceived private respondent, a Filipina residing and working here. According to her, she
had honestly believed that petitioner would, in the exercise of its rights and in the
performance of its duties, "act with justice, give her due and observe honesty and good
faith." Instead, petitioner failed to protect her, she claimed. That certain acts or parts of
the injury allegedly occurred in another country is of no moment. For in our view what is
important here is the place where the over-all harm or the totality of the alleged injury to
the person, reputation, social standing and human rights of complainant, had lodged,
according to the plaintiff below (herein private respondent). All told, it is not without basis
to identify the Philippines as the situs of the alleged tort.
Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi,
modern theories and rules on tort liability   have been advanced to offer fresh judicial
61
approaches to arrive at just results. In keeping abreast with the modern theories on tort
liability, we find here an occasion to apply the "State of the most significant relationship"
rule, which in our view should be appropriate to apply now, given the factual context of
this case.
In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated according
to their relative importance with respect to the particular issue: (a) the place where the
injury occurred; (b) the place where the conduct causing the injury occurred; (c) the
domicile, residence, nationality, place of incorporation and place of business of the
parties, and (d) the place where the relationship, if any, between the parties is
centered.  62
As already discussed, there is basis for the claim that over-all injury occurred and lodged
in the Philippines. There is likewise no question that private respondent is a resident
Filipina national, working with petitioner, a resident foreign corporation engaged here in
the business of international air carriage. Thus, the "relationship" between the parties
was centered here, although it should be stressed that this suit is not based on mere
labor law violations. From the record, the claim that the Philippines has the most
significant contact with the matter in this dispute,   raised by private respondent as
63
plaintiff below against defendant (herein petitioner), in our view, has been properly
established.
Prescinding from this premise that the Philippines is the situs of the tort complained of
and the place "having the most interest in the problem", we find, by way of recapitulation,
that the Philippine law on tort liability should have paramount application to and control in
the resolution of the legal issues arising out of this case. Further, we hold that the
respondent Regional Trial Court has jurisdiction over the parties and the subject matter
of the complaint; the appropriate venue is in Quezon City, which could properly apply
Philippine law. Moreover, we find untenable petitioner's insistence that "[s]ince private
respondent instituted this suit, she has the burden of pleading and proving the applicable
Saudi law on the matter."  As aptly said by private respondent, she has "no obligation to
64
plead and prove the law of the Kingdom of Saudi Arabia since her cause of action is
based on Articles 19 and 21" of the Civil Code of the Philippines. In her Amended
Complaint and subsequent pleadings, she never alleged that Saudi law should govern
this case.   And as correctly held by the respondent appellate court, "considering that it
65
was the petitioner who was invoking the applicability of the law of Saudi Arabia, then the
burden was on it [petitioner] to plead and to establish what the law of Saudi Arabia is".  66
Lastly, no error could be imputed to the respondent appellate court in upholding the trial
court's denial of defendant's (herein petitioner's) motion to dismiss the case. Not only
was jurisdiction in order and venue properly laid, but appeal after trial was obviously
available, and expeditious trial itself indicated by the nature of the case at hand.
Indubitably, the Philippines is the state intimately concerned with the ultimate outcome of
the case below, not just for the benefit of all the litigants, but also for the vindication of
the country's system of law and justice in a transnational setting. With these guidelines in
mind, the trial court must proceed to try and adjudge the case in the light of relevant
Philippine law, with due consideration of the foreign element or elements involved.
8|T R A N S P O R T A T I O N L A W
Nothing said herein, of course, should be construed as prejudging the results of the case
in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No. Q-
93-18394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby REMANDED
to Regional Trial Court of Quezon City, Branch 89 for further proceedings.
2. What is the test for determining whether a party is a common carrier of goods?
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.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional
Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed
petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline concession
was granted in 1967  and renewed by the Energy Regulatory Board in 1992. 
1 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 . The 3
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  for tax refund with prayer for writ of preliminary injunction against respondents
6
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
9|T R A N S P O R T A T I O N L A W
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 so
as not to overburden the riding public or commuters with taxes. Plaintiff is not a common
carrier, but a special carrier extending its services and facilities to a single specific or
"special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local
autonomy to local governments than the previous enactments, to make them
economically and financially viable to serve the people and discharge their functions with
a concomitant obligation to accept certain devolution of powers, . . . 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.   On November 29, 1995, the respondent court rendered
10
a decision   affirming the trial court's dismissal of petitioner's complaint. Petitioner's
11
motion for reconsideration was denied on July 18, 1996.  12
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.  Petitioner moved for a reconsideration which was granted by this
13
Court in a Resolution   of January 22, 1997. Thus, the petition was reinstated.
14
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
10 | T R A N S P O R T A T I O N L A W
clientele does not exclude it from the definition of a common carrier. In De Guzman vs.
Court of Appeals  we ruled that:
16
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 andpower 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:
x x x           x x x          x x x
(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.
11 | T R A N S P O R T A T I O N L A W
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.   To tax petitioner again on its
19
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.
SO ORDERED.
3. What is the nature and basis of liability for common carriers
Article 1733 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 the passengers transported by them,
according to all the circumstances of each case.
4. What is extra ordinary diligence?
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,  demanded reimbursement from Lea Mer, which refused to comply. Consequently,
vs.
MALAYAN INSURANCE CO., INC.,* Respondent.
DECISION
PANGANIBAN, J.:
ommon carriers are bound to observe extraordinary diligence in their vigilance over the
goods entrusted to them, as required by the nature of their business and for reasons of
public policy. Consequently, the law presumes that common carriers are at fault or
negligent for any loss or damage to the goods that they transport. In the present case,
the evidence submitted by petitioner to overcome this presumption was sorely
insufficient.
The Case
12 | T R A N S P O R T A T I O N L A W
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the
October 9, 2002 Decision2 and the December 29, 2003 Resolution3 of the Court of
Appeals (CA) in CA-GR CV No. 66028. The challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the
Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-63159 is
hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein
respondent] the value of the lost cargo in the amount of ₱565,000.00. Costs against the
[herein petitioner]."4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the
shipment of 900 metric tons of silica sand valued at ₱565,000. 5 Consigned to Vulcan
Industrial and Mining Corporation, the cargo was to be transported from Palawan to
Manila. On October 25, 1991, the silica sand was placed on board Judy VII, a barge
leased by Lea Mer.6 During the voyage, the vessel sank, resulting in the loss of the
cargo.7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To
recover the amount paid and in the exercise of its right of subrogation, Malayan
Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on
September 4, 1992, for the collection of ₱565,000 representing the amount that
respondent had paid Vulcan.9
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause
of the loss was a fortuitous event.10 The RTC noted that the vessel had sunk because of
the bad weather condition brought about by Typhoon Trining. The court ruled that
petitioner had no advance knowledge of the incoming typhoon, and that the vessel had
been cleared by the Philippine Coast Guard to travel from Palawan to Manila.11
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for
Manila. Thus, the loss of the cargo was occasioned by petitioner’s fault, not by a
fortuitous event.12
Hence, this recourse.13
The Issues
Petitioner states the issues in this wise:
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not
been presented as a witness of the said report during the trial of this case before the
lower court can be admitted in evidence to prove the alleged facts cited in the said
report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the
finding of fact of the Regional Trial Court which clearly and unequivocally held that the
loss of the cargo subject of this case was caused by fortuitous event for which herein
petitioner could not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious error and
grave abuse of discretion in disregarding the testimony of the witness from the MARINA,
Engr. Jacinto Lazo y Villegal, to the effect that the vessel ‘Judy VII’ was seaworthy at the
time of incident and further in disregarding the testimony of the PAG-ASA weather
specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon ‘Trining’ did not hit Metro
Manila or Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the
cargo, and (2) whether the survey report of Jesus Cortez is admissible in evidence.
The Court’s Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a
fortuitous event. This issue involves primarily a question of fact, notwithstanding
petitioner’s claim that it pertains only to a question of law. As a general rule, questions of
fact may not be raised in a petition for review. 15 The present case serves as an exception
to this rule, because the factual findings of the appellate and the trial courts vary. 16 This
Court meticulously reviewed the records, but found no reason to reverse the CA.
13 | T R A N S P O R T A T I O N L A W
Rule on Common Carriers
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
-- when this service is offered to the public for compensation. 17 Petitioner is clearly a
common carrier, because it offers to the public its business of transporting goods through
its vessels.18
Thus, the Court corrects the trial court’s finding that petitioner became a private carrier
when Vulcan chartered it.19Charter parties are classified as contracts of demise (or
bareboat) and affreightment, which are distinguished as follows:
"Under the demise or bareboat charter of the vessel, the charterer will generally be
considered as owner for the voyage or service stipulated. The charterer mans the vessel
with his own people and becomes, in effect, the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel
must completely and exclusively relinquish possession, command and navigation thereof
to the charterer; anything short of such a complete transfer is a contract of affreightment
(time or voyage charter party) or not a charter party at all."20
The distinction is significant, because a demise or bareboat charter indicates a business
undertaking that is privatein character. 21 Consequently, 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.22
The Contract in the present case was one of affreightment, as shown by the fact that it
was petitioner’s crew that manned the tugboat M/V Ayalit and controlled the barge Judy
VII.23 Necessarily, petitioner was a common carrier, and the pertinent law governs the
present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the
goods and the safety of the passengers they transport, as required by the nature of their
business and for reasons of public policy. 24Extraordinary diligence requires rendering
service with the greatest skill and foresight to avoid damage and destruction to the goods
entrusted for carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for
loss or damage to the goods that they have transported. 26 This presumption can be
rebutted only by proof that they observed extraordinary diligence, or that the loss or
damage was occasioned by any of the following causes:27
"(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
"(2) Act of the public enemy in war, whether international or civil;
"(3) Act or omission of the shipper or owner of the goods;
"(4) The character of the goods or defects in the packing or in the containers;
"(5) Order or act of competent public authority."28
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was inevitable."
Thus, if the loss or damage was due to such an event, a common carrier is exempted
from liability.
Jurisprudence defines the elements of a "fortuitous event" as follows: (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.29
To excuse the common carrier fully of any liability, the fortuitous event must have been
the proximate and only cause of the loss.30 Moreover, it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the
common carrier, petitioner bore the burden of proving that it had exercised extraordinary
diligence to avoid the loss, or that the loss had been occasioned by a fortuitous event --
an exempting circumstance.
14 | T R A N S P O R T A T I O N L A W
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed
that the loss of the cargo was due to the bad weather condition brought about by
Typhoon Trining.32 Evidence was presented to show that petitioner had not been
informed of the incoming typhoon, and that the Philippine Coast Guard had given it
clearance to begin the voyage. 33 On October 25, 1991, the date on which the voyage
commenced and the barge sank, Typhoon Trining was allegedly far from Palawan,
where the storm warning was only "Signal No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous event was
sorely insufficient. As required by the pertinent law, it was not enough for the common
carrier to show that there was an unforeseen or unexpected occurrence. It had to show
that it was free from any fault -- a fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the
loss before, during or after the alleged fortuitous event. 35 Its witness, Joey A. Draper,
testified that he could no longer remember whether anything had been done to minimize
loss when water started entering the barge.36 This fact was confirmed during his cross-
examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s]
exercised by you and the crew of Judy VII so as to prevent the los[s] or sinking of barge
Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of
tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge
Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of the loss.
There is a preponderance of evidence that the barge was not seaworthy when it sailed
for Manila.38 Respondent was able to prove that, in the hull of the barge, there were holes
that might have caused or aggravated the sinking.39 Because the presumption of
negligence or fault applied to petitioner, it was incumbent upon it to show that there were
no holes; or, if there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo
A. Luna, testified that the barge was in "tip-top" or excellent condition, 40 but that he had
not personally inspected it when it left Palawan.41
The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII,
dated July 31, 1991, did not conclusively prove that the barge was seaworthy. 42 The
regularity of the issuance of the Certificate is disputably presumed. 43 It could be
contradicted by competent evidence, which respondent offered. Moreover, this evidence
did not necessarily take into account the actual condition of  An exception to the foregoing rule is that on "independently relevant statements." A
the vessel at the time of the commencement of the voyage.44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor,
should not have been admitted in evidence. The Court partly agrees. Because he did not
testify during the trial,46 then the Report that he had prepared was hearsay and therefore
inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortez’s Survey Report was used in the testimonies of respondent’s
witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and
the vice-president of Toplis and Harding Company. 47 Soriano testified that the Survey
Report had been used in preparing the final Adjustment Report conducted by their
company.48 The final Report showed that the barge was not seaworthy because of the
existence of the holes. Manlapig testified that he had prepared that Report after taking
into account the findings of the surveyor, as well as the pictures and the sketches of the
place where the sinking occurred.49 Evidently, the existence of the holes was proved by
the testimonies of the witnesses, not merely by Cortez’ Survey Report.
15 | T R A N S P O R T A T I O N L A W
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial,50 and that their
testimonies must be confined to personal knowledge is required by the rules on
evidence, from which we quote:
"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. –A
witness can testify only to those facts which he knows of his personal knowledge; that is,
which are derived from his own perception, except as otherwise provided in these
rules."51
On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which
respondent had offered as evidence.52 Well-settled is the rule that, unless the affiant is
presented as a witness, an affidavit is considered hearsay.53
report made by a person is admissible if it is intended to prove the tenor, not the truth, of
the statements.54 Independent of the truth or the falsity of the statement given in the
report, the fact that it has been made is relevant. Here, the hearsay rule does not apply.55
In the instant case, the challenged Survey Report prepared by Cortez was admitted only
as part of the testimonies of respondent’s witnesses. The referral to Cortez’s Report was
in relation to Manlapig’s final Adjustment Report. Evidently, it was the existence of the
Survey Report that was testified to. The admissibility of that Report as part of the
testimonies of the witnesses was correctly ruled upon by the trial court.
At any rate, even without the Survey Report, petitioner has already failed to overcome
the presumption of fault that applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 168402             August 6, 2008
ABOITIZ SHIPPING CORPORATION, petitioner,  contained the notation "grounded outside warehouse."
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by
the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise
only those rights that the assured may have against the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA)
which reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner
Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and attorney's fees
in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of
London. The insurance was for a transshipment of certain wooden work tools and
workbenches purchased for the consignee Science Teaching Improvement Project (STIP),
Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-risk" open
marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and
conditions printed hereon, does insure for MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if any,
payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg,
Germany on board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which
stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
16 | T R A N S P O R T A T I O N L A W
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour
Singapore. On July 18, 1993, the ship arrived and docked at the Manila International
Container Port where the container van was again off-loaded. On July 26, 1993, the cargo
was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized
booking representative, Aboitiz Transport System. The bill of lading7 issued by Aboitiz
The container van was stripped and transferred to another crate/container van without any
notation on the condition of the cargo on the Stuffing/Stripping Report. 8 On August 1, 1993,
the container van was loaded on board petitioner's vessel, MV Super Concarrier I. The vessel
left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron
of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing
Corporation pending clearance from the Customs authorities. In the Stripping Report 9 dated
August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at
the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee,
Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High
School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13,
1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig
informing him that the cargo sustained water damage. Perez, upon receiving the call,
immediately went to the bonded warehouse and checked the condition of the container and
other cargoes stuffed in the same container. He found that the container van and other
cargoes stuffed there were completely dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself
appeared to be completely dry and had no water marks. But he confirmed that the tools which
were stored inside the crate were already corroded. He further explained that the "grounded
outside warehouse" notation in the bill of lading referred only to the container van bearing the
cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening
of the cargo.12 The letter stated that the crate was broken at its bottom part such that the
contents were exposed. The work tools and workbenches were found to have been
completely soaked in water with most of the packing cartons already disintegrating. The crate
was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized
metal bands were nailed onto all the edges. The letter concluded that apparently, the damage
was caused by water entering through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21,
1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and
survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds,
and corrosion which were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount
of P276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on
official weather report from the Philippine Atmospheric, Geophysical and Astronomical
Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused
water damage to the shipment. CAC noted that the shipment was placed outside the
warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The
shipment was placed outside the warehouse as can be gleaned from the bill of lading issued
by Aboitiz which contained the notation "grounded outside warehouse." It was only on July
31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount
of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA formally
advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups,
however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum
of P280,176.92, plus interest and attorney's fees.16 ICNA alleged that the damage sustained
by the shipment was exclusively and solely brought about by the fault and negligence of
Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It
countered that the complaint stated no cause of action, plaintiff ICNA had no personality to
institute the suit, the cause of action was barred, and the suit was premature there being no
claim made upon Aboitiz.
17 | T R A N S P O R T A T I O N L A W
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of
the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the
relief claimed in the complaint for being baseless and without merit. The complaint is
hereby DISMISSED. The defendant's counterclaims are, likewise, DISMISSED for
lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim
against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA
UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However,
complainant ICNA Phils. did not present any evidence to show that ICNA UK is its
predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils.
Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee must
fail because the subrogation receipt had no probative value for being hearsay evidence. The
RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance
Company of North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8
Lime Street, London EC3M 7NA, no evidence has been adduced which would show
that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance
Company of North America ICNA with office address at Cigna-Monarch Bldg., dela
Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK
assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy
appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature
below the name MSAS Cargo International is an endorsement of the marine policy in
favor of Science Teaching Improvement Project. Plaintiff's witness, however, failed to
identify whose signature it was and plaintiff did not present on the witness stand or
took (sic) the deposition of the person who made that signature. Hence, the claim
that there was an endorsement of the marine policy has no probative value as it is
hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of
Science Teaching Improvement Project as shown by the Subrogation Form (Exhibit
"K") allegedly signed by a representative of Science Teaching Improvement Project.
Such representative, however, was not presented on the witness stand. Hence, the
Subrogation Form is self-serving and has no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign
corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue
before Philippine Courts, to wit:
 Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign reimbursement from the defendant carrier by virtue of subrogation under the contract
insurance company duly authorized to do business in the Philippines. This of insurance and as recognized by Philippine courts. x x x
allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12
March 1996, one of the issues defined by the court is whether or not the plaintiff has xxxx
legal capacity to sue and be sued. Under Philippine law, the condition is that a
foreign insurance company must obtain licenses/authority to do business in the Plaintiff insurer, whether the foreign company or its duly authorized
Philippines. These licenses/authority are obtained from the Securities and Exchange Agent/Representative in the country, as subrogee of the claim of the insured under
Commission, the Board of Investments and the Insurance Commission. If it fails to the subject marine policy, is therefore the real party in interest to bring this suit and
obtain these licenses/authority, such foreign corporation doing business in the recover the full amount of loss of the subject cargo shipped by it from Manila to the
Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. consignee in Cebu City. x x x22
Mangaliman, 72 Phil. 524. (Emphasis supplied)
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was
CA Disposition not overcome by any countervailing evidence. Hence, the trial court erred in dismissing the
complaint and in not finding that based on the evidence on record and relevant provisions of
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.
action is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said
it is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Issues
Open Policy.20
The following issues are up for Our consideration:
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the
formal claim was not filed within the period required under Article 366 of the Code of
Commerce; that ICNA had no right of subrogation because the subrogation receipt should (1) THE HONORABLE COURT OF APPEALS COMMITTED A
have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF ACTION
representative of the consignee. AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT
WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ
THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows: PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO,
THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The
appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94- (2) THE HONORABLE COURT OF APPEALS COMMITTED A
1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff- REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE
appellant Insurance Company of North America the sum of P280,176.92 with interest LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF
thereon at the legal rate from the date of the institution of this case until fully paid, NORTH AMERICA (U.K.) ("ICNA UK").
and attorney's fees in the sum of P50,000, plus the costs of suit.21
(3) THE HONORABLE COURT OF APPEALS COMMITTED A
The CA opined that the right of subrogation accrues simply upon payment by the insurance REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER INDORSEMENT
company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO
Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled: INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND
THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS
At any rate, We find the ground invoked for the dismissal of the complaint as legally VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE
untenable. Even assuming arguendo that the plaintiff-insurer in this case is an AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE
unlicensed foreign corporation, such circumstance will not bar it from claiming OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND
AUTHENTICATE THE SAME.
18 | T R A N S P O R T A T I O N L A W
 (4) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF
DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT
OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent
ICNA the real party-in-interest that possesses the right of subrogation to claim reimbursement
from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required under
Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for
damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
"transacting" or "doing business" in the country will a license be necessary before it can
institute suits.24 It may, however, bring suits on isolated business transactions, which is not
prohibited under Philippine law.25 Thus, this Court has held that a foreign insurance company
may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no license to do
business in this country. It is the act of engaging in business without the prescribed license,
and not the lack of license per se, which bars a foreign corporation from access to our
courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which
issued the subject marine policy, the present suit was filed by the said company's authorized
agent in Manila. It was the domestic corporation that brought the suit and not the foreign
company. Its authority is expressly provided for in the open policy which includes the ICNA
office in the Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the
insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School,
the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be
brought against ICNA UK, the company who issued the insurance, or against any of its listed
agents worldwide.27 MSAS accepted said provision when it signed and accepted the policy.
The acceptance operated as an acceptance of the authority of the agents. Hence, a formal
indorsement of the policy to the agent in the Philippines was unnecessary for the latter to
exercise the rights of the insurer.
19 | T R A N S P O R T A T I O N L A W
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and
conditions printed hereon, does insure MSAS Cargo International Limited &/or
Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any,
payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may
file claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code
which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the
continuance of the risk, may become the owner of the interest insured. (Emphasis
added)
Respondent's cause of action is founded on it being subrogated to the rights of the
consignee of the damaged shipment. The right of subrogation springs from Article 2207 of
the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received
indemnity from 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. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of
Appeals,28 payment by the insurer to the assured operates as an equitable assignment of all
remedies the assured may have against the third party who caused the damage. Subrogation
is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's
entitlement to subrogation equipped it with a cause of action against petitioner in case of a
contractual breach or negligence.30 This right of subrogation, however, has its limitations.
First, both the insurer and the consignee are bound by the contractual stipulations under the
bill of lading.31 Second, the insurer can be subrogated only to the rights as the insured may
have against the wrongdoer. If by its own acts after receiving payment from the insurer, the
insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim
against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or
injury or the right to enforce the carrier's liability. Circumstances peculiar to this case
lead Us to conclude that the notice requirement was complied with. As held in the case
of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice
requirement protects the carrier by affording it an opportunity to make an investigation of the
claim while the matter is still fresh and easily investigated. It is meant to safeguard the carrier
from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours
from receipt of the cargo if the damage is not apparent from the outside of the package. For
damages that are visible from the outside of the package, the claim must be made
immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the
claim against the carrier for damages or average which may be found therein upon
opening the packages, may be made, provided that the indications of the damage or
average which give rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been
paid, no claim shall be admitted against the carrier with regard to the condition in
which the goods transported were delivered. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms of the
bill of lading, which is the contract between the parties. Notably, neither of the parties in this
case presented the terms for giving notices of claim under the bill of lading issued by
petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of
the damage was dated August 15, 1993, that letter, together with the notice of claim, was
received by petitioner only on September 21, 1993. But petitioner admits that even before it
received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was
informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the
warehouse and to the delivery site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage
Corporation,35 the notice was allegedly made by the consignee through telephone. The claim
for damages was denied. This Court ruled that such a notice did not comply with the notice
requirement under the law. There was no evidence presented that the notice was timely
given. Neither was there evidence presented that the notice was relayed to the responsible
authority of the carrier.
20 | T R A N S P O R T A T I O N L A W
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us
to rule differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be
made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right
of recovery from a carrier must be given a reasonable and practical construction, adapted to
the circumstances of the case under adjudication, and their application is limited to cases
falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the
information that the delivered goods were discovered to have sustained water damage to no
less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able to
investigate the claims himself and he confirmed that the goods were, indeed, already
corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be
given a reasonable and practical, rather than a strict construction.37 We give due
consideration to the fact that the final destination of the damaged cargo was a school
institution where authorities are bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary clearance had to be made
before the package was opened. Upon opening and discovery of the damaged condition of
the goods, a report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that
the goods could not have corroded instantly overnight such that it could only have sustained
the damage during transit. Moreover, petitioner was able to immediately inspect the damage
while the matter was still fresh. In so doing, the main objective of the prescribed time period
was fulfilled. Thus, there was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real
party in interest to institute the claim for damages against petitioner; and pro hac vice, that a
valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as
stated in Article 1735 of the Civil Code is that in cases where 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
required by law.38 Extraordinary diligence is that extreme measure of care and caution which
persons of unusual prudence and circumspection use for securing and preserving their own
property rights.39 This standard is intended to grant favor to the shipper who is at the mercy of
the common carrier once the goods have been entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the
findings of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School
by a representative from Trabajo Arrastre, and the crates opened, it was discovered
that the workbenches and work tools suffered damage due to "wettage" although by
then they were already physically dry. Appellee carrier having failed to discharge the
burden of proving that it exercised extraordinary diligence in the vigilance over such
goods it contracted for carriage, the presumption of fault or negligence on its part
from the time the goods were unconditionally placed in its possession (July 26, 1993)
up to the time the same were delivered to the consignee (August 11, 1993), therefore
stands. The presumption that the carrier was at fault or that it acted negligently was
not overcome by any countervailing evidence. x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July
26, 1993. On the same day, it was stripped from the container van. Five days later, on July
31, 1993, it was re-stuffed inside another container van. On August 1, 1993, it was loaded
onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the
shipment was outside a container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded
outside warehouse," suggesting that from July 26 to 31, the goods were kept outside the
warehouse. And since evidence showed that rain fell over Manila during the same period, We
can conclude that this was when the shipment sustained water damage.
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 the goods tendered
for transport and that it exercised due care in handling them.42 Extraordinary diligence must
include safeguarding the shipment from damage coming from natural elements such as
rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate
for shipment but only to the carrier van, petitioner failed to mention where exactly the goods
were stored during the period in question. It failed to show that the crate was properly stored
indoors during the time when it exercised custody before shipment to Cebu. As amply
explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed
that it was rainwater that seeped into the cargo based on official data from the
PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31,
1993. The Surveyor specifically noted that the subject cargo was under the custody
of appellee carrier from the time it was delivered by the shipper on July 26, 1993 until
21 | T R A N S P O R T A T I O N L A W
it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other
inevitable conclusion can be deduced from the foregoing established facts that
damage from "wettage" suffered by the subject cargo was caused by the negligence
of appellee carrier in grounding the shipment outside causing rainwater to seep into
the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage"
to the subject goods by claiming that the notation "GROUNDED OUTSIDE WHSE."
actually refers to the container and not the contents thereof or the cargoes. And yet it
presented no evidence to explain where did they place or store the subject goods
from the time it accepted the same for shipment on July 26, 1993 up to the time the
goods were stripped or transferred from the container van to another container and
loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for
Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside
prior to shipment to Cebu City, appellee provided no explanation as to where said
cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is
that the subject cargo was stripped from the container van of the shipper and
transferred to the container on August 1, 1993 and finally loaded into the appellee's
vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit
"D") at the Manila port did not indicate any such defect or damage, but when the
container was stripped upon arrival in Cebu City port after being discharged from
appellee's vessel, it was noted that only one (1) slab was slightly broken at the
bottom allegedly hit by a forklift blade (Exhibit "F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to
satisfactorily prove that it exercised the extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.
5. What does the shipper or consignee have to show in order to have prima facie case
against carrier
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
 (3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
G.R. No. L-15652 December 14, 1920
THE YNCHAUSTI STEAMSHIP COMPANY, petitioner,  attached, marked Exhibit B and made a part hereof.
vs.
I. B. DEXTER, as Auditor of the Philippine Islands, and C. E. UNSON, as Acting
Purchasing Agent of the Philippine Islands, respondents.
Cohn & Fisher for petitioner.
Attorney-General Paredes and Assistant Attorney-General A. Santos for respondents.
STREET, J.:
This a petition for a writ of mandamus filed in this court of the Ynchausti Steamship
Company to compel the Purchasing Agent of the Philippine Islands and the Insular
Auditor to sign, countersign, and deliver to the petitioner a warrant upon the Treasurer of
the Philippine Islands for the sum of P82.79 in satisfaction of a claim for that amount,
which is alleged to be due the petitioner as a common carrier for freight earned in
transporting for the Government two distinct consignments of mineral oil from Manila to
two other ports in the Philippine Islands. After the defendants had duly answered,
denying all the allegations of the petition except such as relate to the character and
places of residence of the parties to the petition (which are admitted) the controversy
was submitted for determination by this court upon an agreed statement of facts as
follows:
On July 23, 1918, the Government of the Philippine Islands, acting by and
through the respondent Insular Purchasing Agent, employed the services of the
petitioner, Ynchausti Steamship Co., a common carrier, for the transportation, on
board the steamship Venus, from the port of Manila to the port of Aparri,
Cagayan, of a consignment of merchandise, consisting of thirty (30) cases of
"White Rose" mineral oil of two five-gallon cans to the case; and on September
18, 1918, the said Government likewise employed the services of petitioner for
the transportation on board the steamship Venus, from Manila to Aparri,
Cagayan, of ninety-six cases of "Cock" Brand mineral oil, ten gallons to the case.
The goods were delivered by the shipper to the carrier, which accordingly
received them, and to evidence the contract of transportation, the parties duly
22 | T R A N S P O R T A T I O N L A W
executed and delivered what is popularly called the Government bill of lading
(General Form 9-A), hereto attached, marked Exhibit A and made a part hereof,
wherein and whereby it was stipulated that the carrier, the petitioner Ynchausti &
Co., received the above-mentioned supplies in apparent good condition,
obligating itself to carry said supplies to the place agreed upon, in accordance
with the authorized and prescribed rates and classifications, and subject to the
law of common carriers in force on the date of the shipment, and to the
conditions prescribed by the Insular Collector of Customs in Philippine Marine
Regulations at page 16 under the heading of "Bill of Lading Conditions," hereto
Upon the delivery of the said shipment of "Cock" brand oil and consignee claimed
that one case was delivered empty, and noted such claim upon the bill of lading;
and upon the delivery of the said shipment of "White Rose," brand oil the
consignee claimed that one case was delivered empty, and noted said claim
upon the bill of lading.
Thereafter, notwithstanding the protestations of the petitioner, Ynchausti
Steamship Co., that said shortages were due to causes entirely unknown to it,
and were not due to any fault or negligence on its part, or on the part of its
agents or servants, the Acting Insular Purchasing Agent of the Philippine Islands
notified the petitioners herein that after due investigation the Insular Auditor
found and decided that the leakages of the two whole cases were due to its
negligence and that the deduction of the sum of P22.53, the invoice value of the
goods lost, and held by the Auditor to be the true value thereof had been
authorized by the said Insular Auditor.
Petitioner thereupon protested against the threatened deduction, and demanded
that it be paid the full amount due for the transportation of the two said shipments
of merchandise, to wit, the sum of P82.79, as shown by its transportation voucher
presented in this cause, hereto attached. marked Exhibit C and made a part
hereof.
Thereafter, notwithstanding the protest and demand of the petitioner as
aforesaid, the Insular Auditor, in conformity with his ruling, declined and still
declines to issue to the petitioner a warrant for the full sum of P82.79, and has
tendered to it a warrant for the sum of P60.26, which the petitioner has refused to
accept.lawphi1.net
 The sum of P22.53 authorized to be deducted by the Insular Auditor, as appears
herein, has not at any time been liquidated by consent, agreement, or by the
judgment of any court of competent jurisdiction.
Upon a perusal of the foregoing agreed statement it will be seen that the present
litigation had its origin in a situation practically identical with that considered by this court
in Compañia General de Tabacos vs. French and Unson (39 Phil., 34). It will be noted,
however, that the case mentioned was decided upon demurrer, while the one now before
us is to be heard and determined upon the petition, answer, and the admitted facts.
We note that in this case, as in the case of Compañia General de Tabacos vs. French
and Unson (supra), the petition alleges that the leakage of the lost gasoline was due to
causes unknown to the petitioner and was not due to any fault or negligence of
petitioner, its agents, or servants. The respondents, by demurring to the petition in the
earlier case, admitted that allegation. In the case now before us that allegation is put in
issue, and we find nothing in the admitted statement of facts to support it. It results that if
that allegation is material to the relief here sought, the petition must fail.
We are of the opinion that the allegation in question is material and that the belief sought
in this case cannot be granted.
In section 646 of the Administrative Code it is provided that when Government property
is transmitted from one place to another by carrier, it shall be upon proper bill of lading,
or receipt, from such carrier, and it shall be the duty of the consignee, or his
representative, to make full notation of any evidence of loss, shortage, or damage, upon
the bill of lading, or receipt, before accomplishing it. It is admitted by the petitioner in the
agreed statement of facts that the consignee, at the time the oil was delivered, noted the
loss in the present case upon the two respective bills of lading. The notation of these
losses by the consignee, in obedience to the precept of section 646 of the Administrative
Code, is competent evidence to show that the shortage in fact existed. As the petitioner
admits that the oil was received by it for carriage and inasmuch as the fact of loss is
proved in the manner just stated, it results that there is a presumption that the petitioner
was to blame for the loss; and it was incumbent upon the petitioner in order to entitle it to
relief in the case to rebut that presumption by proving, as is alleged in the petition, that
the loss was not due to any fault or negligence of the petitioner.
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. (4 R. C. L., p. 917.) It is incumbent upon the carrier to prove that the loss
was due to accident or some other circumstance inconsistent with its liability. (Articles  a foreign insurance company duly licensed to do business in the Philippines through its
23 | T R A N S P O R T A T I O N L A W
361-363, Code of Commerce.) Indeed, if the Government of the Philippine Islands had
instituted an action in a court of law against the petitioner to recover the value of the oil
lost while these consignments were in the court of transportation, it would, upon the facts
appearing before us, have been entitled to judgment.
From this it is apparent that the mandamus prayed for cannot be granted. It is a rule of
universal application that a petition for extraordinary relief of the character here sought
must show merit. That is, the petitioner's right to relief must be clear. Such cannot be
said to be the case where, as here, a presumption of responsibility on the part of the
petitioner stands unrefuted upon the record.
We are of the opinion that, in the absence of proof showing that the carrier was not at
fault in respect to the matter under discussion, the Insular Auditor was entitled to
withhold, from the amount admittedly due to the petitioner for the freight charges, a sum
sufficient to cover the value of the oil lost in transit.
The petition will be dismissed, with costs against the petitioner. So ordered.
G.R. No. 149019 August 15, 2006
DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Delsan Transport Lines, Inc. (Delsan hereafter) assails and seeks to set aside the
Decision, 1 dated July 16, 2001, of the Court of Appeals (CA) in CA-G.R. CV No. 40951
affirming an earlier decision of the Regional Trial Court (RTC) of Manila, Branch IX, in
two separate complaints for damages docketed as Civil Case No. 85-29357 and Civil
Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On
the other hand, respondent American Home Assurance Corporation (AHAC for brevity) is
agent, the American-International Underwriters, Inc. (Phils.). It is engaged, among Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-
others, in insuring cargoes for transportation within the Philippines. 30559 against Delsan for the loss caused by the backflow. It likewise prayed that it be
awarded the amount of P1,939,575.37 for damages and reasonable attorney’s fees. As
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of counterclaim in both cases, AHAC prayed for attorney’s fees in the amount
1,986.627 k/l Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for of P200,000.00 and P500.00 for every court appearance.
transportation and delivery to the bulk depot in Bacolod City of Caltex Phils., Inc.
(Caltex), pursuant to a Contract of Afreightment. The shipment was insured by Since the cause of action in both cases arose out of the same incident and involved the
respondent AHAC against all risks under Inland Floater Policy No. AH-IF64-1011549P same issues, the two were consolidated and assigned to Branch 9 of the court.
and Marine Risk Note No. 34-5093-6.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, Delsan liable for the loss of the cargo for its negligence in its duty as a common carrier.
unloading operations commenced. The discharging of the diesel oil started at about 1:30 Dispositively, the decision reads:
PM of the same day. However, at about 10:30 PM, the discharging had to be stopped on
account of the discovery that the port bow mooring of the vessel was intentionally cut or WHEREFORE, judgment is hereby rendered:
stolen by unknown persons. Because there was nothing holding it, the vessel drifted
westward, dragged and stretched the flexible rubber hose attached to the riser, broke the A). In Civil Case No. 85-30559:
elbow into pieces, severed completely the rubber hose connected to the tanker from the
main delivery line at sea bed level and ultimately caused the diesel oil to spill into the
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the
sea. To avoid further spillage, the vessel’s crew tried water flushing to clear the line of
sum of P1,939,575.37 with interest thereon at the legal rate from November 21, 1984
the diesel oil but to no avail. In the meantime, the shore tender, who was waiting for the
until fully paid and satisfied; and
completion of the water flushing, was surprised when the tanker signaled a "red light"
which meant stop pumping. Unaware of what happened, the shore tender, thinking that
the vessel would, at any time, resume pumping, did not shut the storage tank gate valve. (2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorney’s fees.
As all the gate valves remained open, the diesel oil that was earlier discharged from the
vessel into the shore tank backflowed. Due to non-availability of a pump boat, the vessel For lack of merit, the counterclaim is hereby dismissed.
could not send somebody ashore to inform the people at the depot about what
happened. After almost an hour, a gauger and an assistant surveyor from the Caltex’s B). In Civil Case No. 85-29357:
Bulk Depot Office boarded the vessel. It was only then that they found out what had
happened. Thereafter, the duo immediately went ashore to see to it that the shore tank (1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at
gate valve was closed. The loss of diesel oil due to spillage was placed at 113.788 k/l the legal rate from February 6, 1985 until fully paid and satisfied;
while some 435,081 k/l thereof backflowed from the shore tank.
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorney’s fees.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from
Delsan, but the latter refused to pay. As insurer, AHAC paid Caltex the sum For lack of merit, the counterclaim is hereby dismissed.
of P479,262.57 for spillage, pursuant to Marine Risk Note No. 34-5093-6,
and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy No. Costs against the defendant.
AH-1F64-1011549P.
SO ORDERED.
On February 19, 1985, AHAC, as Caltex’s subrogee, instituted Civil Case No. 85-29357
against Delsan before the Manila RTC, Branch 9, for loss caused by the spillage. It
likewise prayed that it be indemnified for damages suffered in the amount In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV
of P652,432.57 plus legal interest thereon. No. 40951.
24 | T R A N S P O R T A T I O N L A W
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so
ruling, the CA declared that Delsan failed to exercise the extraordinary diligence of a
good father of a family in the handling of its cargo. Applying Article 1736 4 of the Civil
Code, the CA ruled that since the discharging of the diesel oil into Caltex bulk depot had
not been completed at the time the losses occurred, there was no reason to imply that
there was actual delivery of the cargo to Caltex, the consignee. We quote the fallo of the
CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court
of Manila, Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED
with a modification that attorney’s fees awarded in Civil Case Nos. 85-29357 and 85-
30559 are hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the
CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article
1734 of the Civil Code cannot exculpate it from liability for the loss of the subject cargo
and in not applying the rule on contributory negligence against Caltex, the shipper-owner
of the cargo, and in not taking into consideration the fact that the loss due to backflow
occurred when the diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of
the CA, affirmatory of those of the trial court, are binding on the Court unless there is a
clear showing that such findings are tainted with arbitrariness, capriciousness or palpable
error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two
grounds. First, the loss through spillage was partly due to the contributory negligence of
Caltex; and Second, the loss through backflow should not be borne by Delsan because it
was already delivered to Caltex’s shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 6 To overcome the
presumption of negligence in case of loss, destruction or deterioration of the goods, the
common carrier must prove that it exercised extraordinary diligence. There are, however,
25 | T R A N S P O R T A T I O N L A W
exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
1) Flood storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act or omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the containers;
5) Order or act of competent public authority.
Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that
there was a contributory negligence on the part of the owner of the goods – Caltex. We
see no reason to depart therefrom. As aptly pointed out by the CA, it had been
established that the proximate cause of the spillage and backflow of the diesel oil was
due to the severance of the port bow mooring line of the vessel and the failure of the
shore tender to close the storage tank gate valve even as a check on the drain cock
showed that there was still a product on the pipeline. To the two courts below, the
actuation of the gauger and the escort surveyor, both personnel from the Caltex Bulk
Depot, negates the allegation that Caltex was remiss in its duties. As we see it, the crew
of the vessel should have promptly informed the shore tender that the port mooring line
was cut off. However, Delsan did not do so on the lame excuse that there was no
available banca. As it is, Delsan’s personnel signaled a "red light" which was not a
sufficient warning because such signal only meant that the pumping of diesel oil had
been finished. Neither did the blowing of whistle suffice considering the distance of more
than 2 kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that
it was not the agreed signal. Had the gauger and the escort surveyor from Caltex Bulk
Depot not gone aboard the vessel to make inquiries, the shore tender would have not
known what really happened. The crew of the vessel should have exerted utmost effort
to immediately inform the shore tender that the port bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was
caused by one of the excepted causes if it were to seek exemption from
responsibility. 7 Unfortunately, it miserably failed to discharge this burden by the required
quantum of proof.
Delsan’s argument that it should not be held liable for the loss of diesel oil due to
backflow because the same had already been actually and legally delivered to Caltex at
the time it entered the shore tank holds no water. It had been settled that the subject
cargo was still in the custody of Delsan because the discharging thereof has not yet been
finished when the backflow occurred. Since the discharging of the cargo into the depot
has not yet been completed at the time of the spillage when the backflow occurred, there
is no reason to imply that there was actual delivery of the cargo to the consignee. Delsan
is straining the issue by insisting that when the diesel oil entered into the tank of Caltex
on shore, there was legally, at that moment, a complete delivery thereof to Caltex. To be
sure, the extraordinary responsibility of common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by, the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to a person who has the right to receive them. 8 The discharging of oil
products to Caltex Bulk Depot has not yet been finished, Delsan still has the duty to
guard and to preserve the cargo. The carrier still has in it the responsibility to guard and
preserve the goods, a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in vigilance over the goods
and for the safety of the passengers transported by them, according to all the
circumstances of each case. 9 The mere proof of delivery of goods in good order to the
carrier, and their arrival in the place of destination in bad order, make out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred,
the carrier must be held responsible. It is incumbent upon the carrier to prove that the
loss was due to accident or some other circumstances inconsistent with its liability.10
All told, Delsan, being a common carrier, should have exercised extraordinary diligence
in the performance of its duties. Consequently, it is obliged to prove that the damage to
its cargo was caused by one of the excepted causes if it were to seek exemption from
responsibility. 11 Having failed to do so, Delsan must bear the consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in
toto.
EXCEPTION:
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
26 | T R A N S P O R T A T I O N L A W
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
6. What are the effects when any of the five exceptions are present
7. Is fire a natural disaster?
G.R. No. 146018               June 25, 2003
EDGAR COKALIONG SHIPPING LINES, INC., Petitioner, 
vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of
lading, be limited to the value declared by the shipper. On the other hand, the liability
of the insurer is determined by the actual value covered by the insurance policy and
the insurance premiums paid therefor, and not necessarily by the value declared in
the bill of lading.
The Case
Before the Court is a Petition for Review under Rule 45 of the Rules of Court,
1 
seeking to set aside the August 31, 2000 Decision and the November 17, 2000
2 
Resolution of the Court of Appeals (CA) in CA-GR SP No. 62751. The dispositive
3  4 
part of the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision
appealed from is REVERSED. [Petitioner] is hereby condemned to pay to
[respondent] the total amount of ₱148,500.00, with interest thereon, at the rate of 6%
per annum, from date of this Decision of the Court. [Respondent’s] claim for
attorney’s fees [is] DISMISSED. [Petitioner’s] counterclaims are DISMISSED." 5
 The assailed Resolution denied petitioner’s Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s Decision, which was
6  7  required Marine Protest.
later reversed by the CA, states:
"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of
merit.
"No cost." 8 by him for the goods he received from Feliciana Legaspi valued in the amount of
The Facts
The facts of the case are summarized by the appellate court in this wise:
"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong
Shipping Lines, Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo
consisting of one (1) carton of Christmas décor and two (2) sacks of plastic toys, to
be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to
depart from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur.
[Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor
Angelia was both the shipper and consignee of the cargo valued, on the face thereof,
in the amount of ₱6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner],
consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor
mat and one (1) bundle of various or assorted goods for transportation thereof from
Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said voyage.
[Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face
thereof, was valued in the amount of ₱14,000.00. Under the Bill of Lading, Zosimo
Mercado was both the shipper and consignee of the cargo.
"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of
Lading No. 59, with the UCPB General Insurance Co., Inc., [respondent] for
brevity, for the amount of ₱100,000.00 ‘against all risks’ under Open Policy No.
002/9 1/254 for which she was issued, by [respondent], Marine Risk Note No.
18409 on said date. She also insured the cargo covered by Bill of Lading No. 58,
with [respondent], for the amount of ₱50,000.00, under Open Policy No. 002/9
1/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on
said date.
"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on
board, including the goods of Legaspi. After the vessel had passed by the Mandaue-
Mactan Bridge, fire ensued in the engine room, and, despite earnest efforts of the
27 | T R A N S P O R T A T I O N L A W
officers and crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The Captain filed the
"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of
the cargo insured under Marine Risk Note No. 18409 and covered by Bill of Lading
No. 59. She submitted, in support of her claim, a Receipt, dated December 11,
1991, purportedly signed by Zosimo Mercado, and Order Slips purportedly signed
₱110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and
issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of
₱99,000.00, in settlement of her claim after which she executed a Subrogation
Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the
value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent]
a Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor
Angelia for the goods he received from Feliciana Legaspi valued at ₱60,338.00.
[Respondent] approved her claim and remitted to Feliciana Legaspi the net amount
of ₱49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9,
1992, in favor of [respondent].
"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint
anchored on torts against [petitioner], with the Regional Trial Court of Makati City, for
the collection of the total principal amount of ₱148,500.00, which it paid to Feliciana
Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and
against the [petitioner] as follows:
‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due
hearing, judgment be rendered ordering [petitioner] to pay [respondent] the following.
1. Actual damages in the amount of ₱148,500.00 plus interest thereon at the legal
rate from the time of filing of this complaint until fully paid;
2. Attorney’s fees in the amount of ₱10,000.00; and
3. Cost of suit.
‘[Respondent] further prays for such other reliefs and remedies as this Honorable
Court may deem just and equitable under the premises.’
"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its
complaint was delivered to, and received by, [petitioner] for transportation to Tandag,
 Surigao del Sur under ‘Bill of Ladings,’ Annexes ‘A’ and ‘B’ of the complaint; that
the loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana
Legaspi had executed Subrogation Receipts/Deeds in favor of [respondent] after
paying to her the value of the cargo on account of the Marine Risk Notes it issued in
her favor covering the cargo.
"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared
by the Board of Marine Inquiry of any negligence in the burning of the vessel; (b) the
complaint stated no cause of action against [petitioner]; and (c) the
shippers/consignee had already been paid the value of the goods as stated in
the Bill of Lading and, hence, [petitioner] cannot be held liable for the loss of the
cargo beyond the value thereof declared in the Bill of Lading.
"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the
Court a quo, to take the depositions of Chester Cokaliong, the Vice-President and
Chief Operating Officer of [petitioner], and a resident of Cebu City, and of Noel
Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident
of Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional
Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of
deposition, before the Court and declared inter alia, that: [petitioner] is a family
corporation like the Chester Marketing, Inc.; Nestor Angelia had been doing
business with [petitioner] and Chester Marketing, Inc., for years, and incurred an
account with Chester Marketing, Inc. for his purchases from said corporation;
[petitioner] did issue Bills of Lading Nos. 58 and 59 for the cargo described therein
with Zosimo Mercado and Nestor Angelia as shippers/consignees, respectively; the
engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan
Bridge resulting in the total loss of the vessel and its cargo; an investigation was
conducted by the Board of Marine Inquiry of the Philippine Coast Guard which
rendered a Report, dated February 13, 1992 absolving [petitioner] of any
responsibility on account of the fire, which Report of the Board was approved by the
District Commander of the Philippine Coast Guard; a few days after the sinking of the
vessel, a representative of the Legaspi Marketing filed claims for the values of the
goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees,
Nestor Angelia and Zosimo Mercado; [petitioner] was able to ascertain, from the
shippers/consignees and the representative of the Legaspi Marketing that the cargo
covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned
to Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by
Nestor Angelia from the Legaspi Marketing; that [petitioner] approved the claim of
Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and
remitted to Legaspi Marketing the said amount under Equitable Banking Corporation
Check No. 20230486 dated August 12, 1992, in the amount of ₱14,000.00 for which
the representative of the Legaspi Marketing signed Voucher No. 4379, dated August
28 | T R A N S P O R T A T I O N L A W
12, 1992, for the said amount of ₱14,000.00 in full payment of claims under Bill of
Lading No. 59; that [petitioner] approved the claim of Nestor Angelia in the amount
of ₱6,500.00 but that since the latter owed Chester Marketing, Inc., for some
purchases, [petitioner] merely set off the amount due to Nestor Angelia under Bill of
Lading No. 58 against his account with Chester Marketing, Inc.; [petitioner]
lost/[misplaced] the original of the check after it was received by Legaspi Marketing,
hence, the production of the microfilm copy by Noel Tanyu of the Equitable Banking
Corporation; [petitioner] never knew, before settling with Legaspi Marketing and
Nestor Angelia that the cargo under both Bills of Lading were insured with
[respondent], or that Feliciana Legaspi filed claims for the value of the cargo with
[respondent] and that the latter approved the claims of Feliciana Legaspi and paid
the total amount of ₱148,500.00 to her; [petitioner] came to know, for the first time, of
the payments by [respondent] of the claims of Feliciana Legaspi when it was served
with the summons and complaint, on October 8, 1992; after settling his claim, Nestor
Angelia x x x executed the Release and Quitclaim, dated July 2, 1993,
and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was
absolved of any liability for the loss of the cargo covered by Bills of Lading Nos. 58
and 59; and even if it was, its liability should not exceed the value of the cargo as
stated in the Bills of Lading.
"[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x
x" (Citations omitted)
9 
Ruling of the Court of Appeals
The CA held that petitioner had failed "to prove that the fire which consumed the
vessel and its cargo was caused by something other than its negligence in the
upkeep, maintenance and operation of the vessel." 10
Petitioner had paid ₱14,000 to Legaspi Marketing for the cargo covered by Bill of
Lading No. 59. The CA, however, held that the payment did not extinguish
petitioner’s obligation to respondent, because there was no evidence that Feliciana
Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also
pointed out the impropriety of treating the claim under Bill of Lading No. 58 --
covering cargo valued therein at ₱6,500 -- as a setoff against Nestor Angelia’s
account with Chester Enterprises, Inc.
Finally, it ruled that respondent "is not bound by the valuation of the cargo under the
Bills of Lading, x x x nor is the value of the cargo under said Bills of Lading
conclusive on the [respondent]. This is so because, in the first place, the goods were
 insured with the [respondent] for the total amount of ₱150,000.00, which amount may Petitioner argues that the cause of the loss of the goods, subject of this case, was
be considered as the face value of the goods." 11
force majeure. It adds that its exercise of due diligence was adequately proven by
the findings of the Philippine Coast Guard.
Hence this Petition. 12

Issues
Petitioner raises for our consideration the following alleged errors of the CA:
"I
"The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in
holding that petitioner’s liability should be based on the ‘actual insured value’ of the
goods and not from actual valuation declared by the shipper/consignee in the bill of
We are not convinced. The uncontroverted findings of the Philippine Coast Guard
show that the M/V Tandag sank due to a fire, which resulted from a crack in the
auxiliary engine fuel oil service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into flames. The crack was
located on the side of the fuel oil tank, which had a mere two-inch gap from the
engine room walling, thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could
not have been caused by force majeure. Broadly speaking, force majeure generally
applies to a natural accident, such as that caused by a lightning, an earthquake, a
tempest or a public enemy. Hence, fire is not considered a natural disaster or
14 

lading.
calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, we 15 

"II
"The Court of Appeals erred in not affirming the findings of the Philippine Coast
Guard, as sustained by the trial court a quo, holding that the cause of loss of the
aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure and
due diligence was [exercised] by petitioner prior to, during and immediately after the
fire on [petitioner’s] vessel.
"III
"The Court of Appeals erred in not holding that respondent UCPB General Insurance
has no cause of action against the petitioner."13
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is
liable, what is the extent of its liability?
This Court’s Ruling
The Petition is partly meritorious.
explained:
"x x x. This must be so as it arises almost invariably from some act of man or by
human means. It does not fall within the category of an act of God unless caused by
lighting or by other natural disaster or calamity. It may even be caused by the actual
fault or privity of the carrier.
"Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous
event refers to leases or rural lands where a reduction of the rent is allowed when
more than one-half of the fruits have been lost due to such event, considering that
the law adopts a protective policy towards agriculture.
"As the peril of fire is not comprehended within the exceptions in Article 1734, supra,
Article 1735 of the Civil Code provides that in all cases other than those mentioned in
Article 1734, 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."
Where loss of cargo results from the failure of the officers of a vessel to inspect their
ship frequently so as to discover the existence of cracked parts, that loss cannot be
attributed to force majeure, but to the negligence of those officials.
16

First Issue:
The law provides that a common carrier is presumed to have been negligent if it fails
Liability for Loss to prove that it exercised extraordinary vigilance over the goods it transported.
Ensuring the seaworthiness of the vessel is the first step in exercising the required
29 | T R A N S P O R T A T I O N L A W
 vigilance. Petitioner did not present sufficient evidence showing what measures or
acts it had undertaken to ensure the seaworthiness of the vessel. It failed to show
when the last inspection and care of the auxiliary engine fuel oil service tank was
made, what the normal practice was for its maintenance, or some other evidence to
establish that it had exercised extraordinary diligence. It merely stated that constant
inspection and care were not possible, and that the last time the vessel was dry-
docked was in November 1990. Necessarily, in accordance with Article 1735 of the 17 
Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of
Lading Nos. 58 and 59.
Second Issue:
Extent of Liability
Respondent contends that petitioner’s liability should be based on the actual insured
value of the goods, subject of this case. On the other hand, petitioner claims that its
liability should be limited to the value declared by the shipper/consignee in the Bill of
Lading.
The records show that the Bills of Lading covering the lost goods contain the
18  of lading.’
stipulation that in case of claim for loss or for damage to the shipped merchandise or
property, "[t]he liability of the common carrier x x x shall not exceed the value of the
goods as appearing in the bill of lading." The attempt by respondent to make light of
19  limiting the common carrier’s liability for loss must be ‘reasonable and just under the
this stipulation is unconvincing. As it had the consignees’ copies of the Bills of
Lading, it could have easily produced those copies, instead of relying on mere
20 
allegations and suppositions. However, it presented mere photocopies thereof to
disprove petitioner’s evidence showing the existence of the above stipulation.
A stipulation that limits liability is valid as long as it is not against public policy.
21 
In Everett Steamship Corporation v. Court of Appeals, the Court stated:
22 
"A stipulation in the bill of lading limiting the common carrier’s liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.’
30 | T R A N S P O R T A T I O N L A W
‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been freely and fairly agreed upon.’
"Such limited-liability clause has also been consistently upheld by this Court in a
number of cases. Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate Court,
we ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did
not exist, the validity and binding effect of the liability limitation clause in the bill of
lading here are nevertheless fully sustainable on the basis alone of the cited Civil
Code Provisions. That said stipulation is just and reasonable is arguable from the
fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value
is not declared for the shipment in the bill of lading. To hold otherwise would amount
to questioning the justness and fairness of the law itself, and this the private
respondent does not pretend to do. But over and above that consideration, the just
and reasonable character of such stipulation is implicit in it giving the shipper or
owner the option of avoiding accrual of liability limitation by the simple and surely far
from onerous expedient of declaring the nature and value of the shipment in the bill
"Pursuant to the afore-quoted provisions of law, it is required that the stipulation
circumstances, and has been freely and fairly agreed upon.
"The bill of lading subject of the present controversy specifically provides, among
others:
’18. All claims for which the carrier may be liable shall be adjusted and settled on the
basis of the shipper’s net invoice cost plus freight and insurance premiums, if paid,
and in no event shall the carrier be liable for any loss of possible profits or any
consequential loss.
‘The carrier shall not be liable for any loss of or any damage to or in any connection
with, goods in an amount exceeding One Hundred Thousand Yen in Japanese
Currency (¥100,000.00) or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of the goods higher than
this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as required.’
 "The above stipulations are, to our mind, reasonable and just.  In the bill of lading,
1avvphi1
the carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to
declare a higher valuation if the value of its cargo was higher than the limited liability
of the carrier. Considering that the shipper did not declare a higher valuation, it had
itself to blame for not complying with the stipulations." (Italics supplied)
In the present case, the stipulation limiting petitioner’s liability is not contrary to public
policy. In fact, its just and reasonable character is evident. The shippers/consignees
may recover the full value of the goods by the simple expedient of declaring the true
value of the shipment in the Bill of Lading. Other than the payment of a higher freight,
there was nothing to stop them from placing the actual value of the goods therein. In
fact, they committed fraud against the common carrier by deliberately undervaluing
the goods in their Bill of Lading, thus depriving the carrier of its proper and just
transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect
the common carrier. Such stipulation obliges the shipper/consignee to notify the
common carrier of the amount that the latter may be liable for in case of loss of the
goods. The common carrier can then take appropriate measures -- getting insurance,
if needed, to cover or protect itself. This precaution on the part of the carrier is
reasonable and prudent. Hence, a shipper/consignee that undervalues the real worth
of the goods it seeks to transport does not only violate a valid contractual stipulation,
but commits a fraudulent act when it seeks to make the common carrier liable for
more than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the
goods in their respective Bills of Lading. Hence, petitioner was exposed to a risk that
was deliberately hidden from it, and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the
goods) the insurance company was paid the correct higher premium by Feliciana
Legaspi; while petitioner was paid a fee lower than what it was entitled to for
transporting the goods that had been deliberately undervalued by the shippers in the
Bill of Lading. Between the two of them, the insurer should bear the loss in excess of
the value declared in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals, the description of the nature and
23 
the value of the goods shipped were declared and reflected in the bill of lading, like in
the present case. The Court therein considered this declaration as the basis of the
carrier’s liability and ordered payment based on such amount. Following this ruling,
31 | T R A N S P O R T A T I O N L A W
petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the
owner of the goods covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the
goods were merely consigned to Nestor Angelia and Zosimo Mercado, respectively;
thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in
case of loss, to compensation therefor. There is no evidence showing that petitioner
paid her for the loss of those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods
under Bill of Lading No. 59, for which the latter subsequently paid ₱14,000. But
nothing in the records convincingly shows that the former was the owner of the
goods. Respondent was, however, able to prove that it was Feliciana Legaspi who
owned those goods, and who was thus entitled to payment for their loss. Hence, the
claim for the goods under Bill of Lading No. 59 cannot be deemed to have been
extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and
valued at ₱6,500, the parties have not convinced us to disturb the findings of the CA
that compensation could not validly take place. Thus, we uphold the appellate court’s
ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision
is MODIFIED in the sense that petitioner is ORDERED to pay respondent the sums
of ₱14,000 and ₱6,500, which represent the value of the goods stated in Bills of
Lading Nos. 59 and 58, respectively. No costs.
G.R. No. 135377             October 7, 2003
DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., petitioners, 
vs.
FEDERAL PHOENIX ASSURANCE CO., INC., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari assailing the Decision dated June 5, 1998
1  2 
of the Court of Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the
Regional Trial Court (RTC), Manila City, Branch 16, in Civil Case No. 94-69699, "Federal
Phoenix Assurance Company, Inc. vs. DSR-Senator Lines and C.F. Sharp & Co., Inc.," "WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff
for damages arising from the loss of cargo while in transit. and against the defendants who are hereby ordered jointly and severally to pay plaintiff:

Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and I. The amount of ₱941,439.61 (should be ₱941,429.61 ) with legal interest of 6%
6 

Company, Inc. (C.F. Sharp), the General Ship Agent of DSR-Senator Lines, a foreign per annum from the date of the letter of demand of February 8, 1993 (EXH. L)
shipping corporation, for transportation and delivery to the consignee, Al-Mohr and 12% per annum from the date the judgment becomes final and executory
International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of until its satisfaction (Eastern Shipping Lines vs. Court of Appeals, G.R. No.
Lading No. SENU MNL-26548 for the cargo with an invoice value of $34,579.60. Under
3 
97412, July 12, 1994);
the Bill of Lading, the port of discharge for the cargo was at the Khor Fakkan port and the
port of delivery was Riyadh, Saudi Arabia, via Port Dammam. The cargo was loaded in II. The amount of ₱15,000.00 by way of reasonable attorney’s fees; and
M/S "Arabian Senator."
III. To pay costs.
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the
cargo against all risks in the amount of ₱941,429.61.4
"The counterclaim of defendants is DISMISSED.

On June 7, 1993, M/S "Arabian Senator" left the Manila South Harbor for Saudi Arabia "SO ORDERED." 7

with the cargo on board. When the vessel arrived in Khor Fakkan Port, the cargo was
reloaded on board DSR-Senator Lines’ feeder vessel, M/V "Kapitan Sakharov," bound
On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the
for Port Dammam, Saudi Arabia. However, while in transit, the vessel and all its cargo
RTC Decision, thus:
caught fire.
"In the present recourse, the appellant carrier was presumed to have acted negligently
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V "Kapitan Sakharov"
for the fire that gutted the feeder vessel and the consequent loss or destruction of the
with its cargo was gutted by fire and sank on or about July 4, 1993. On December 16,
cargo. Hence, the appellant carrier is liable for appellee’s claim under the New Civil Code
1993, C.F. Sharp issued a certification to that effect.
of the Philippines.
Consequently, Federal Phoenix Assurance paid Berde Plants ₱941,429.61
"Contrary to C.F. Sharp and Co., Inc.’s pose, its liability as ship agent continued and
corresponding to the amount of insurance for the cargo. In turn Berde Plants executed in
remained until the cargo was delivered to the consignee. The status of the appellant as
its favor a "Subrogation Receipt" dated January 17, 1994.
5 

On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding
payment of ₱941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any
liability on the ground that such liability was extinguished when the vessel carrying the
cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16,
ship agent subsisted and its liability as a ship agent was co-terminous with and subsisted
as long as the cargo was not delivered to the consignee under the terms of the Bill of
Lading.
"IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The
Decision appealed from is affirmed. With costs against the appellants.
"SO ORDERED." 8

Manila a complaint for damages against DSR-Senator Lines and C.F. Sharp, praying that
the latter be ordered to pay actual damages of ₱941,429.61, compensatory damages of
₱100,000.00 and costs. On September 7, 1998, the Court of Appeals denied the motion for reconsideration of
DSR-Senator Lines and C.F. Sharp, prompting them to file with this Court the instant
petition.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix
Assurance, the dispositive portion of which reads:
32 | T R A N S P O R T A T I O N L A W
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
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 negligently if the goods are lost, destroyed or deteriorated. There are very
few instances when the presumption of negligence does not attach and these instances
are enumerated in Article 1734. In those cases where the presumption is applied, the
common carrier must prove that it exercised extraordinary diligence in order to overcome
the presumption. 12

(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;

Respondent Federal Phoenix Assurance raised the presumption of negligence against
petitioners. However, they failed to overcome it by sufficient proof of extraordinary
(2) Act of the public enemy in war, whether international or civil;
diligence.
(3) Act or omission of the shipper or owner of the goods;
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of
Appeals dated June 5, 1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED
(4) The character of the goods or defects in the packing or in the containers;
8. What if the loss, damage or destruction is caused by a typhoon?
(5) Order or act of competent public authority."
G.R. No. 147246            August 19, 2003
Fire is not one of those enumerated under the above provision which exempts a carrier
from liability for loss or destruction of the cargo.
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, 
vs.
In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, we ruled that since the
9 
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
peril of fire is not comprehended within the exceptions in Article 1734, then the common INC., respondents.
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.
PUNO, J.:
Even if fire were to be considered a natural disaster within the purview of Article 1734, it
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195
is required under Article 1739 of the same Code that the natural disaster must have
10 

and February 21, 2001 Resolution2 affirming with modification the April 6, 1994
been the proximate and only cause of the loss, and that the carrier has exercised due
Decision3 of the Regional Trial Court of Manila which found petitioner liable to pay
diligence to prevent or minimize the loss before, during or after the occurrence of the
private respondent the amount of indemnity and attorney's fees.
disaster.
First, the facts.
We have held that a common carrier’s duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation until delivered On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued
to or until the lapse of a reasonable time for their acceptance by the person entitled to at US$423,192.354 was shipped by Marubeni American Corporation of Portland,
receive them. When the goods shipped either are lost or arrive in damaged condition, a Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the
presumption arises against the carrier of its failure to observe that diligence, and there consignee, General Milling Corporation in Manila, evidenced by Bill of Lading No.
need not be an express finding of negligence to hold it liable. s
11  PTD/Man-4.5The shipment was insured by the private respondent Prudential
Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75 under
1awphi1.nét

Marine Cargo Risk Note RN 11859/90.6

33 | T R A N S P O R T A T I O N L A W
 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. 03647 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 P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said
amount from the petitioner, but to no avail.
34 | T R A N S P O R T A T I O N L A W
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
drayage22 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
35 | T R A N S P O R T A T I O N L A W
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 Appeals.24 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."25 In the case at bar, the petitioner admitted that it is engaged in
the business of shipping and lighterage, 26 offering its barges to the public, despite its
limited clientele for carrying or transporting goods by water for compensation.27
On the second issue, we uphold the findings of the lower courts that petitioner failed
to exercise extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over
the goods transported by them.28 They are presumed to have been at fault or to have
acted negligently if the goods are lost, destroyed or deteriorated.29 To overcome the
presumption of negligence in the case of loss, destruction or deterioration of the
goods, the common carrier must prove that it exercised extraordinary diligence.
There are, however, exceptions to this rule. Article 1734 of the Civil Code
enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
 In the case at bar, the barge completely sank after its towing bits broke, resulting in This is not all. Petitioner still headed to the consignee's wharf despite knowledge of
the total loss of its cargo. Petitioner claims that this was caused by a typhoon, hence, an incoming typhoon. During the time that the barge was heading towards the
it should not be held liable for the loss of the cargo. However, petitioner failed to consignee's wharf on September 5, 1990, typhoon "Loleng" has already entered the
prove that the typhoon is the proximate and only cause of the loss of the goods, and Philippine area of responsibility.32 A part of the testimony of Robert Boyd, Cargo
that it has exercised due diligence before, during and after the occurrence of the Operations Supervisor of the petitioner, reveals:
typhoon to prevent or minimize the loss.30 The evidence show that, even before the
towing bits of the barge broke, it had already previously sustained damage when it hit DIRECT-EXAMINATION BY ATTY. LEE:33
a sunken object while docked at the Engineering Island. It even suffered a hole.
Clearly, this could not be solely attributed to the typhoon. The partly-submerged x x x           x x x           x x x
vessel was refloated but its hole was patched with only clay and cement. The patch
work was merely a provisional remedy, not enough for the barge to sail safely. Thus,
q     -     Now, Mr. Witness, did it not occur to you it might be safer to just allow the
when petitioner persisted to proceed with the voyage, it recklessly exposed the cargo
Barge to lie where she was instead of towing it?
to further damage. A portion of the cross-examination of Alfredo Cunanan, cargo-
surveyor of Tan-Gatue Adjustment Co., Inc., states:
a     -     Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their goods to be
CROSS-EXAMINATION BY ATTY. DONN LEE:31
delivered at their Wharf since they needed badly the wheat that was loaded in
PSTSI-3. It was needed badly by the consignee.
x x x           x x x           x x x
q     -     And this is the reason why you towed the Barge as you did?
q     -     Can you tell us what else transpired after that incident?
a     -     Yes, sir.
a     -     After the first accident, through the initiative of the barge owners, they tried to
pull out the barge from the place of the accident, and bring it to the anchor terminal
x x x           x x x           x x x
for safety, then after deciding if the vessel is stabilized, they tried to pull it to the
consignee's warehouse, now while on route another accident occurred, now this time
the barge totally hitting something in the course. CROSS-EXAMINATION BY ATTY. IGNACIO:34

q     -     You said there was another accident, can you tell the court the nature of the x x x           x x x           x x x
second accident?
q     -     And then from ISLOFF Terminal you proceeded to the premises of the
a     -     The sinking, sir. GMC? Am I correct?

q     -     Can you tell the nature . . . can you tell the court, if you know what caused a     -     The next day, in the morning, we hired for additional two (2) tugboats as I
the sinking? have stated.

a     -     Mostly it was related to the first accident because there was already a q     -     Despite of the threats of an incoming typhoon as you testified a while ago?
whole (sic) on the bottom part of the barge.
a     -     It is already in an inner portion of Pasig River. The typhoon would be coming
x x x           x x x           x x x and it would be dangerous if we are in the vicinity of Manila Bay.

q     -     But the fact is, the typhoon was incoming? Yes or no?
36 | T R A N S P O R T A T I O N L A W
 a     -     Yes.
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?
a     -     Yes, sir.
q     -     So, more or less, you had the knowledge of the incoming typhoon, right?
a     -     Yes, sir.
q     -     And yet you proceeded to the premises of the GMC?
a     -     ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon
if you are already inside the vicinity or inside Pasig entrance, it is a safe place to tow
upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force
majeure to 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 of petitioner admitted
that when the towing bits of the vessel broke that caused its sinking and the total loss
of the cargo upon reaching the Pasig River, it was no longer affected by the typhoon.
The typhoon then is not the proximate cause of the loss of the cargo; a human
factor, i.e., negligence had intervened.
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 against petitioner.
SO ORDERED.
37 | T R A N S P O R T A T I O N L A W
G.R. No. 150751             September 20, 2004
CENTRAL SHIPPING COMPANY, INC., petitioner, 
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
PANGANIBAN, J.:
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss,
destruction or deterioration of its cargo, unless it can prove that the sole and proximate
cause of such event is one of the causes enumerated in Article 1734 of the Civil Code, or
that it exercised extraordinary diligence to prevent or minimize the loss. In the present
case, the weather condition encountered by petitioner’s vessel was not a "storm" or a
natural disaster comprehended in the law. Given the known weather condition prevailing
during the voyage, the manner of stowage employed by the carrier was insufficient to
secure the cargo from the rolling action of the sea. The carrier took a calculated risk in
improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for
the loss.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to
reverse and set aside the March 23, 2001 Decision2 of the Court of Appeals (CA) in CA-
GR CV No. 48915. The assailed Decision disposed as follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch
148 dated August 4, 1994 is hereby MODIFIED in so far as the award of
attorney’s fees is DELETED. The decision is AFFIRMED in all other respects."3
The CA denied petitioner’s Motion for Reconsideration in its November 7, 2001
Resolution.4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate
court, are as follows:
 "On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board
its vessel, the M/V ‘Central Bohol’, 376 pieces [of] Philippine Apitong Round Logs
and undertook to transport said shipment to Manila for delivery to Alaska Lumber
Co., Inc.
"The cargo was insured for ₱3,000,000.00 against total loss under [respondent’s]
Marine Cargo Policy No. MCPB-00170.
"On July 25, 1990, upon completion of loading of the cargo, the vessel left
Palawan and commenced the voyage to Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed
about 10 degrees starboardside, due to the shifting of logs in the hold.
"At about 0128 hours, after the listing of the vessel had increased to 15 degrees,
the ship captain ordered his men to abandon ship and at about 0130 hours of the
same day the vessel completely sank. Due to the sinking of the vessel, the cargo
was totally lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault
and negligence of the [petitioner] and its captain and as direct consequence
thereof the consignee suffered damage in the sum of ₱3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the
shipment to the [petitioner] but the latter failed and refused to settle the claim,
hence [respondent], being the insurer, paid said claim and now seeks to be
subrogated to all the rights and actions of the consignee as against the
[petitioner].
"[Petitioner], while admitting the sinking of the vessel, interposed the defense that
the vessel was fully manned, fully equipped and in all respects seaworthy; that all
the logs were properly loaded and secured; that the vessel’s master exercised
due diligence to prevent or minimize the loss before, during and after the
occurrence of the storm.
"It raised as its main defense that the proximate and only cause of the sinking of
its vessel and the loss of its cargo was a natural disaster, a tropical storm which
neither [petitioner] nor the captain of its vessel could have foreseen."5
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by
the weather or any other caso fortuito. It noted that monsoons, which were common
38 | T R A N S P O R T A T I O N L A W
occurrences during the months of July to December, could have been foreseen and
provided for by an ocean-going vessel. Applying the rule of presumptive fault or
negligence against the carrier, the trial court held petitioner liable for the loss of the
cargo. Thus, the RTC deducted the salvage value of the logs in the amount of ₱200,000
from the principal claim of respondent and found that the latter was entitled to be
subrogated to the rights of the insured. The court a quo disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [respondent] and against the [petitioner] ordering the latter to pay the
following:
1) the amount of ₱2,800,000.00 with legal interest thereof from the filing
of this complaint up to and until the same is fully paid;
2) ₱80,000.00 as and for attorney’s fees;
3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial court’s finding that the southwestern monsoon encountered by
the vessel was not unforeseeable. Given the season of rains and monsoons, the ship
captain and his crew should have anticipated the perils of the sea. The appellate court
further held that the weather disturbance was not the sole and proximate cause of the
sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold
that could have resulted only from improper stowage. Thus, the carrier was held
responsible for the consequent loss of or damage to the cargo, because its own
negligence had contributed thereto.
The CA found no merit in petitioner’s assertion of the vessel’s seaworthiness. It held that
the Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order
to consider a vessel to be seaworthy, it must be fit to meet the perils of the sea.
Found untenable was petitioner’s insistence that the trial court should have given greater
weight to the factual findings of the Board of Marine Inquiry (BMI) in the investigation of
the Marine Protest filed by the ship captain, Enriquito Cahatol. The CA further observed
that what petitioner had presented to the court a quo were mere excerpts of the
testimony of Captain Cahatol given during the course of the proceedings before the BMI,
not the actual findings and conclusions of the agency. Citing Arada v. CA,7 it said that
findings of the BMI were limited to the administrative liability of the owner/operator,
officers and crew of the vessel. However, the determination of whether the carrier
observed extraordinary diligence in protecting the cargo it was transporting was a
function of the courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of
petitioner’s negligence -- particularly its improper stowage of the logs.
Hence, this Petition.8
Issues
In its Memorandum, petitioner submits the following issues for our consideration:
"(i) Whether or not the weather disturbance which caused the sinking of the
vessel M/V Central Bohol was a fortuitous event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment
Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of
Court.
"(iii) Whether or not the finding of the Court of Appeals that ‘the logs in the hold
shifted and such shifting could only be due to improper stowage’ has a valid and
factual basis.
"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the
factual finding of the Board of Marine Inquiry (BMI), an independent government
agency tasked to conduct inquiries on maritime accidents.
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at
bar."9
The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and
(2) whether the doctrine of limited liability is applicable. These issues involve a
determination of factual questions of whether the loss of the cargo was due to the
occurrence of a natural disaster; and if so, whether its sole and proximate cause was
such natural disaster or whether petitioner was partly to blame for failing to exercise due
diligence in the prevention of that loss.
The Court’s Ruling
39 | T R A N S P O R T A T I O N L A W
The Petition is devoid of merit.
First Issue:
Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence over the goods they transport, according to all
the circumstances of each case.10 In the event of loss, destruction or deterioration of the
insured goods, common carriers are responsible; that is, unless they can prove that such
loss, destruction or deterioration was brought about -- among others -- by "flood, storm,
earthquake, lightning or other natural disaster or calamity."11 In all other cases not
specified under Article 1734 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by
claiming the occurrence of a "storm" under Article 1734(1). It attributes the sinking of its
vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and 1:25
a.m. on July 26, 1990.
At the outset, it must be stressed that only questions of law 13 may be raised in a petition
for review on certiorari under Rule 45 of the Rules of Court. Questions of fact are not
proper subjects in this mode of appeal,14 for "[t]he Supreme Court is not a trier of
facts."15 Factual findings of the CA may be reviewed on appeal 16 only under exceptional
circumstances such as, among others, when the inference is manifestly mistaken, 17 the
judgment is based on a misapprehension of facts,18 or the CA manifestly overlooked
certain relevant and undisputed facts that, if properly considered, would justify a different
conclusion.19
In the present case, petitioner has not given the Court sufficient cogent reasons to
disturb the conclusion of the CA that the weather encountered by the vessel was not a
"storm" as contemplated by Article 1734(1). Established is the fact that between 10:00
p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a
southwestern monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated
that he and his crew encountered a southwestern monsoon about 2200 hours on July 25,
1990, and another monsoon about 2400 hours on July 26, 1990. Even petitioner
admitted in its Answer that the sinking of M/V Central Bohol had been caused by the
strong southwest monsoon.21 Having made such factual representation, it cannot now be
allowed to retreat and claim that the southwestern monsoon was a "storm."
The pieces of evidence with respect to the weather conditions encountered by the vessel
showed that there was a southwestern monsoon at the time. Normally expected on sea
voyages, however, were such monsoons, during which strong winds were not unusual.
Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and
Astronomical Services Administration (PAGASA), testified that a thunderstorm might
occur in the midst of a southwest monsoon. According to her, one did occur between
8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA
Weather Bureau.22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at
the time as a "storm" within the absolutory causes enumerated in the law. Significantly,
no typhoon was observed within the Philippine area of responsibility during that period.23
According to PAGASA, a storm has a wind force of 48 to 55 knots, 24 equivalent to 55 to
63 miles per hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel
stated that the wind was blowing around force 7 to 8 on the Beaufort
Scale.25 Consequently, the strong winds accompanying the southwestern monsoon could
not be classified as a "storm." Such winds are the ordinary vicissitudes of a sea voyage.26
Even if the weather encountered by the ship is to be deemed a natural disaster under
Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or
calamity was the proximate and only cause of the loss. Human agency must be entirely
excluded from the cause of injury or loss. In other words, the damaging effects blamed
on the event or phenomenon must not have been caused, contributed to, or worsened by
the presence of human participation.27 The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human
precaution.28
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss before,
during and after the occurrence of the natural disaster, the carrier shall be deemed to
have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster
under Article 1734(1).29
We also find no reason to disturb the CA’s finding that the loss of the vessel was caused
not only by the southwestern monsoon, but also by the shifting of the logs in the hold.
Such shifting could been due only to improper stowage. The assailed Decision stated:
40 | T R A N S P O R T A T I O N L A W
"Notably, in Master Cahatol’s account, the vessel encountered the first
southwestern monsoon at about 1[0]:00 in the evening. The monsoon was
coupled with heavy rains and rough seas yet the vessel withstood the onslaught.
The second monsoon attack occurred at about 12:00 midnight. During this
occasion, the master ‘felt’ that the logs in the hold shifted, prompting him to order
second mate Percival Dayanan to look at the bodega. Complying with the
captain’s order, 2nd mate Percival Dayanan found that there was seawater in the
bodega. 2nd mate Dayanan’s account was:
‘14.T – Kung inyo pong natatandaan ang mga pangyayari, maari mo
bang isalaysay ang naganap na paglubog sa barkong M/V Central
Bohol?
‘S – Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng
umaga (dst) habang kami ay nagnanabegar patungong Maynila sa tapat
ng Cadlao Island at Cauayan Island sakop ng El Nido, Palawan, inutusan
ako ni Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay
nasa bodega, nakita ko ang loob nang bodega na maraming tubig at
naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob
ng bodega ng barko; agad bumalik ako kay Captain Enriquito Cahatol at
sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega
ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-
order si Captain Cahatol na standby engine at tinawag ang lahat ng mga
officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid
at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-
hawak na sa barandilla ng barko at di-nagtagal sumigaw nang
ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanya nang
talunan at languyan sa dagat na malakas ang alon at nang ako ay
lumingon sa barko ito ay di ko na nakita.’
"Additionally, [petitioner’s] own witnesses, boatswain Eduardo Viñas Castro and
oiler Frederick Perena, are one in saying that the vessel encountered two
weather disturbances, one at around 10 o’clock to 11 o’clock in the evening and
the other at around 12 o’clock midnight. Both disturbances were coupled with
waves and heavy rains, yet, the vessel endured the first and not the second.
Why? The reason is plain. The vessel felt the strain during the second onslaught
because the logs in the bodega shifted and there were already seawater that
seeped inside."30
The above conclusion is supported by the fact that the vessel proceeded through the first
southwestern monsoon without any mishap, and that it began to list only during the
second monsoon immediately after the logs had shifted and seawater had entered the
hold. In the hold, the sloshing of tons of water back and forth had created pressures that
eventually caused the ship to sink. Had the logs not shifted, the ship could have survived
and reached at least the port of El Nido. In fact, there was another motor launch that had
been buffeted by the same weather condition within the same area, yet it was able to
arrive safely at El Nido.31
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph
5 of the latter’s Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to
Manila, the M/V ‘Central Bohol’ listed about 10 degrees starboardside, due to the shifting
of logs in the hold." Further, petitioner averred that "[t]he vessel, while navigating through
this second southwestern monsoon, was under extreme stress. At about 0125 hours, 26
July 1990, a thud was heard in the cargo hold and the logs therein were felt to have
shifted. The vessel thereafter immediately listed by ten (10) degrees starboardside."32
Yet, petitioner now claims that the CA’s conclusion was grounded on mere speculations
and conjectures. It alleges that it was impossible for the logs to have shifted, because
they had fitted exactly in the hold from the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed
shift, and that they had been improperly loaded.
According to the boatswain’s testimony, the logs were piled properly, and the entire
shipment was lashed to the vessel by cable wire.33 The ship captain testified that out of
the 376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel
and 16 on deck. The logs stored in the lower hold were not secured by cable wire,
because they fitted exactly from floor to ceiling. However, while they were placed side by
side, there were unavoidable clearances between them owing to their round shape.
Those loaded on deck were lashed together several times across by cable wire, which
had a diameter of 60 millimeters, and were secured from starboard to port.34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold
was not sufficient to secure the logs in the event the ship should roll in heavy weather.
Notably, they were of different lengths ranging from 3.7 to 12.7 meters.35 Being clearly
prone to shifting, the round logs should not have been stowed with nothing to hold them
securely in place. Each pile of logs should have been lashed together by cable wire, and
the wire fastened to the side of the hold. Considering the strong force of the wind and the
roll of the waves, the loose arrangement of the logs did not rule out the possibility of their
shifting. By force of gravity, those on top of the pile would naturally roll towards the
bottom of the ship.
41 | T R A N S P O R T A T I O N L A W
The adjuster’s Report, which was heavily relied upon by petitioner to strengthen its claim
that the logs had not shifted, stated that "the logs were still properly lashed by steel
chains on deck." Parenthetically, this statement referred only to those loaded on deck
and did not mention anything about the condition of those placed in the lower hold. Thus,
the finding of the surveyor that the logs were still intact clearly pertained only to those
lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences
during the month of July. Thus, the officers and crew of M/V Central Bohol should have
reasonably anticipated heavy rains, strong winds and rough seas. They should then have
taken extra precaution in stowing the logs in the hold, in consonance with their duty of
observing extraordinary diligence in safeguarding the goods. But the carrier took a
calculated risk in improperly securing the cargo. Having lost that risk, it cannot now
escape responsibility for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce 36 is not
applicable to the present case. This rule does not apply to situations in which the loss or
the injury is due to the concurrent negligence of the shipowner and the captain.37 It has
already been established that the sinking of M/V Central Bohol had been caused by the
fault or negligence of the ship captain and the crew, as shown by the improper stowage
of the cargo of logs. "Closer supervision on the part of the shipowner could have
prevented this fatal miscalculation."38 As such, the shipowner was equally negligent. It
cannot escape liability by virtue of the limited liability rule.
WHEREFORE, the Petition is DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 150255. April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,  Terminal Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and
BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING
SERVICES, Respondents.
DECISION
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision of the Court of Appeals, as well as
1  finally arrived to pull the already empty and damaged barge back to the pier. 13
its Resolution dated September 28, 2001 denying the motion for reconsideration, which
2 
affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No.
92-63132 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz
3  recover the lost cargoes proved futile.14
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), were insured against all risks with
4 
Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-
3747-TIS. 5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports
Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila
South Harbor. 6
Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignee’s) warehouse at Cainta, Rizal, in turn engaged the services of TVI to send a
7 
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
42 | T R A N S P O R T A T I O N L A W
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. At 9:00 p.m., arrastre operator Ocean
9 
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. No tugboat pulled the barge back to the pier, however.
10 
At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the barge
11 
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. At 7:00 a.m., a tugboat
12 
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount
of ₱5,246,113.11. Little Giant thereupon executed a subrogation receipt in favor of
15 
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. The dispositive portion of the decision reads:
18 
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff,
ordering the defendants to pay plaintiff jointly and severally the sum of ₱5,246,113.11
with interest from the date the complaint was filed until fully satisfied, as well as the sum
of ₱5,000.00 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 ₱1,000,000. 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,  it finding that all the defendants were
22 
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, and 23 
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 of September 28, 2001, Schmitz Transport (hereinafter referred to as
27 
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
43 | T R A N S P O R T A T I O N L A W
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, held that unloading outside the breakwater, instead of inside the breakwater,
34 
while a storm signal was up constitutes negligence. It thus concluded that the proximate
35 
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 Q: Now, in connection [with] your duties and functions as you mentioned, will you please
risk in loading the cargoes outside the breakwater. As the defendants proffered, the tell the Honorable Court if you came to know the company by the name Little Giant Steel
weather on October 26, 1991 remained normal with moderate sea condition such that Pipe Corporation?
port operations continued and proceeded normally. 37

A: Yes, Sir. Actually, we are the brokerage firm of that Company.

The weather data report, furnished and verified by the Chief of the Climate Data Section
38 

of PAG-ASA and marked as a common exhibit of the parties, states that while typhoon Q: And since when have you been the brokerage firm of that company, if you can recall?
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, A: Since 1990, Sir.
therefore, be said that the defendants were negligent in not unloading the cargoes upon
the barge on October 26, 1991 inside the breakwater.
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?
That no tugboat towed back the barge to the pier after the cargoes were completely
loaded by 12:30 in the morning is, however, a material fact which the appellate court
39 

A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are]
failed to properly consider and appreciate — the proximate cause of the loss of the
40 

also in-charged of the delivery of the goods to their warehouses. We also handled the
cargoes. Had the barge been towed back promptly to the pier, the deteriorating sea
clearances of their shipment at the Bureau of Customs, Sir.
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. The loss thus falls outside the "act of God doctrine."
41  xxx

The proximate cause of the loss having been determined, who among the parties is/are Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation
responsible therefor? with regards to this shipment? What work did you do with this shipment?

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." That petitioner is
42  effect this unloading, transfer and delivery to the warehouse?
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?
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
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.

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of Q: And whose trucks do you use from BASECO compound to the consignee’s
the company. I also handle the various division heads of the company for operation warehouse?
matters, and all other related functions that the President may assign to me from time to
time, Sir. A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

44 | T R A N S P O R T A T I O N L A W
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, held:
44  thereon but it can maintain a cause of action for negligence.51
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., this Court held that as the
46  performance, that which is expected of a good father of a family shall be required.
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
45 | T R A N S P O R T A T I O N L A W
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 to provide the barge and the tugboat. In their Service Contract, while Little Giant
48  49 
was named as the consignee, petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little Giant. Little Giant did not thus
50 
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
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
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 of the
53 
Civil Code, prove that it exercised due diligence to prevent or minimize the loss, before,
during and after the occurrence of the storm in order that it may be exempted from
liability for the loss of the goods.
While petitioner sent checkers and a supervisor on board the vessel to counter-check
54  55  Sea had constructively delivered the cargoes to Little Giant, through petitioner, it had
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 for the loss of the
56 
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
46 | T R A N S P O R T A T I O N L A W
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." The delivery of the goods to the consignee
59 
was not from "pier to pier" but from the shipside of "M/V Alexander Saveliev" and into
barges, for which reason the consignee contracted the services of petitioner. Since Black
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 ₱1,000,000.00 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. To award attorney’s fees to a party just
61 
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 Appeals that64 
when the demand cannot be reasonably established at the time the demand is made, the
interest shall begin to run not from the time the claim is made judicially or extrajudicially
but from the date the judgment of the court is made (at which the time the quantification
of damages may be deemed to have been reasonably ascertained). 65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &
Brokerage Corporation, and Transport Venture Incorporation jointly and severally liable
for the amount of ₱5,246,113.11 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.
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
9. Does an act of the Public Enemy in war relieve a common carrier from liability
G.R. No. L-11515            July 29, 1918
INTERNATIONAL HARVESTER COMPANY IN RUSSIA, plaintiff-appellee, 
vs.
HAMBURG-AMERICAN LINE, defendant-appellant.
Crossfield & O'Brien for appellant.  with the defendant company a sum of money equivalent to 20 per cent of the value of
Lawrence & Ross for appellee.
STREET, J.:
In the spring of 1914, the plaintiff, the International Harvester Company in Russia, an
American corporation, organized under the laws of the State of Maine, delivered to
the defendant, the Hamburg-American Line, at Baltimore, Maryland, to be laden on
its steamer the Bulgaria, bound from that port to Hamburg, Germany, a large
consignment of agricultural machinery, consisting of 852 boxes, crates, and parcels,
all of which were to be delivered to the order of the consignor at Vladivostock,
Russia. The freight charges were then and there prepaid to the ultimate destination.
The bill of lading which was issued to the plaintiff at Baltimore provided, among other
things, that the goods should be forwarded by the defendant company from Hamburg
to Vladivostock at the ship's expense but at the risk of the owner of the goods. It was
also provided that goods thus destined for points beyond Hamburg should be subject
47 | T R A N S P O R T A T I O N L A W
to the terms expressed in the customary form of bill of lading in use at the time of
shipment by the carrier completing the transit.
When the shipment arrived at Hamburg the carrier company transferred the cargo to
the Suevia, a ship of its own line, and issued to itself therefor, as forwarding agent,
another bill of lading in the customary form then in use in the port of Hamburg,
covering the transportation from Hamburg to Vladivostock.
While the ship carrying said cargo was in the China Sea en route to Vladivostock war
broke out in Europe; and as the Suevia was a German vessel, the master considered
it necessary to take refuge in the nearest neutral port, which happened to be Manila.
Accordingly he put into this harbor on August 6, 1914, and at the date of the trial in
the court below the ship still remained in refuge in this port.
After it became apparent that the Suevia would be detained indefinitely in the port of
Manila, the plaintiff company, as owner of the cargo above described, in January,
1915, made demand upon the agent of the defendant company in Manila to the
effect that it should forward the cargo to Vladivostock, if not by the Suevia then by
some other steamer. This the defendant company refused to do except upon the
condition that the plaintiff would agree to subject said cargo to liability upon general
average to satisfy the costs and expenses of the Suevia incident to its stay in the port
of Manila. To this condition the plaintiff did not assent and on the contrary thereupon
demanded the immediate delivery of the cargo to it in Manila. The defendant
company replied with an offer to deliver the cargo provided the owner would deposit
said cargo, as security for the aforesaid costs and expenses to be adjusted as
general average. In this connection it may be stated that the costs and expenses
incurred by the Suevia from the date the ship entered the port of Manila until March
30, 1915, amounted to the sum of P63,024.50, which included port charges, repairs,
and wages and maintenance of officers and crew.
Having thus far failed in its efforts to obtain possession of its property, the plaintiff
company instituted the present action in the Court of First Instance of the city of
Manila upon February 13, 1915. The purpose of the proceeding is to recover the
possession of the cargo, together with damages for breach of contract and unlawful
detention of the property. At the time the action was instituted, or soon thereafter, the
plaintiff obtained the delivery of the property from the Suevia by means of a writ of
replevin and forwarded it to Vladivostock by another steamer. In its answer the
defendant company denies liability for damages and asserts that it has a lien on the
property for general average, as already indicated. In the court below judgment was
given in favor of the plaintiff, recognizing its right to the possession of the goods and
awarding damages to it in the sum of P5,421.28, the amount shown to have been
 expended in forwarding the goods to Vladivostock. From this judgment the defendant
appealed.
The two main questions raised by the appeal are, first whether the cargo belonging
to the plaintiff is liable to be made to contribute, by way of general average, to the
costs and expenses incurred by reason of the internment of the Suevia in the port of
Manila, and, secondly, whether the defendant is liable for the expenses of
transferring the cargo to another ship and transporting it to the port of destination.
Upon the first question it is clear that the cargo in question is not liable to a general
average. It is not claimed that this agricultural machinery was contraband of war; and
being neutral goods, it was not liable to forfeiture in the event of capture by the
enemies of the ship's flag. It follows that when the master of the Suevia decided to
take refuge in the port of Manila, he acted exclusively with a view to the protection of
his vessel. There was no common danger to the ship and cargo; and therefore it was
not a case for a general average. The point here in dispute has already been
determined by this court unfavorably to the contention of the appellant. (Compagnie
de Commerce et de Navigation D'Extreme Orient vs. Hamburg Amerika Packetfacht
Actien Gesselschaft, 36 Phil., 590.) The following provision contained in the York-
Antwerp Rules, as we interpret it, is conclusive against the appellant's contention:
When a ship shall have entered a port of refuge . . . in consequence of accident,
sacrifice, or other extraordinary circumstance which renders that necessary for the
common safety, the expense of entering such port shall be admitted as general
average. (York-Antwerp Rules, section 10.)
Upon the question of the liability of the defendant company for the expenses incident
to the transhipment and conveyance of the cargo to Vladivostock, it is noteworthy
that the original bill of lading issued to the shipper in Baltimore contained the
provision that the goods should be forwarded from Hamburn to Vladivostock at the
steamer's expense and this term appeared not only in the paragraph numbered 17 in
the body of the bill of lading but also conspicuously printed in the shipping direction
on the face of the instrument.
In the tenth paragraph of the General Rules contained in the bill of lading which was
issued at Hamburn upon account of the Suevia, for the forwarding of the cargo to
Vladivostock, there is found the following provision:
X. If on account of quarantine, threatening quarantine, ice blockade, war
disturbances, strike, lockout, boycott, or reason of a similar nature, the master is in
doubt as to whether he can safely reach the port of destination, there discharge in
48 | T R A N S P O R T A T I O N L A W
the usual manner, or proceed thence on his voyage unmolested he is at liberty to
discharge the goods at another place or harbour which he may consider safe,
whereby his obligations are fulfilled. . . . If the goods for any reason whatsoever
cannot be discharged . . . at the port of destination, the ship is at liberty to . . .
forward them by some other means to the port of destination, for ship's account but
not at ship's risk.
Further on in the same bill of lading under the head "Special Clauses" is found an
addendum to rule ten to the following effect:
Special — Condition to rule X. — The forwarding of through goods to be effected as
soon a possible, but the shipowner not to be responsible for delay in the conveyance.
The shipowner to have the liberty to store the goods at the expense and risk of the
owner, shipper or consignee. The shipowner further to be entitled to forward the
goods by rail from the port of discharge to the final place of destination, at his
expense, but at the risk of the owner, shipper or consignee.
It is now insisted for the appellant that inasmuch a war had broken out between
Germany and Russia and the mater had brought the cargo into a neutral harbor, all
the obligations of the company have been fulfilled. We think that this contention is
untenable. The outbreak of the war between Germany and Russia undoubtedly
absolved the defendant company from so much of the contract of affreightment as
required the defendant company to convey the goods to Vladivostock upon the ship
on which it was embarked; and no damages could be recovered by the plaintiff of the
defendant for its failure to convey the goods to the port of destination on that ship.
But by the terms of the contract of affreightment the defendant company was bound
to forward the cargo to Vladivostock at the steamer's expense, not necessarily by a
steamer belonging to the defendant company; and it does not by any means follow
that it is not liable for the expense incurred by the owner in completing the unfinished
portion of the voyage in another ship.
It will be noted that under paragraph X of the bill of lading, quoted above, the master
is given the election to discharge at another port, if war should interfere with the
completion of the voyage to the port of destination. No such election has been made
by the master. On the contrary, after arrival in Manila, he refused to discharge the
goods, and must be held to have elected to retain them, leaving the obligations of the
contract intact, except in so far as they were modified, under the general principle of
international law, by the fact that war existed. So far was the master from electing to
discharge the goods in the port of Manila even on the demand of the owner, that he
proposed to hold the cargo until such time as the Suevia might continue her voyage
without fear of molestation from her enemies.
 Furthermore, in the special condition to rule X, the defendant company recognizes its
responsibility with respect to the forwarding of goods; and where it is said in
paragraph X that the master's obligation will be fulfilled by discharge in another port,
it must be understood that reference is had to the obligations incident to the carriage
of the goods on the instant voyage.
It should be remembered that stipulations, in a bill of lading exempting a shipowner
from the liability which would ordinarily attach to him under the law are to be strictly
construed against him. (Cia. de Navigacion La Flecha vs.Brauer, 168 u. Ss., 104.)
This rule should be unhesitatingly applied in a case such as this where the bill of
lading under which the exemption is claimed was issued by the defendant company
to itself.
We find it stated in a well known treatise that where cargo has been taken aboard a
ship at a foreign port and war breaks out between the country to which the vessel
belongs and the country of the port of discharge, the neutral owner of the goods
cannot complain of her not going to her destination. (Carver, Carriage of Goods by
Sea, sec: 239.) The same learned author adds:
Where goods have been loaded and partly carried on the agreed voyage, though the
exact performance of the contract may become legally impossible, it will not be
regarded as completely at an end, if it can by any reasonable construction be treated
as still capable of being performed in substance. Thus, where a Prussian vessel,
carrying goods under charter, had been ordered to discharge at Dunkirk, and it
became impossible for her to do so, because war broke out between France and
Germany, it was held in the Privy Council, that the contract was not dissolved, and
that the shipowner might till hold the goods at Dover, where he had taken the ship,
for the freight which would have been payable under the charter-party had she been
ordered to that part. (The Teutonia (1872), L. R., 4 P. C., 171.)
In the case now before u we see no reason for holding that the defendant company
has been absolved by the outbreak of war from its contractual obligation to bear the
expenses of forwarding the goods to Vladivostock, even thought it is immediately
absolved from the duty to convey them on its own ship.
It must not be forgotten that the outbreak of the war between Germany and Russia
did not make the contract of affreightment absolutely illegal ass between the German
company and the American shipper. If war had broken out between Germany and
the United States, and refuge had been taken in some port in a neutral country, it
might be said that this contract was dissolved on both sides, and a different question
would thus have been presented; but even in that case, it could not be successfully
49 | T R A N S P O R T A T I O N L A W
maintained that the German company was wholly absolved from every duty to the
shipper.
There is another aspect of the case which is highly pertinent to the matter now under
consideration. The freight was prepaid by the shipper from Baltimore to destination,
but has been only in part earned. The defendant company has broken the voyage by
stopping at the intermediate port of Manila. Admitting that the defendant company is
absolved from the obligation to convey the cargo further on its course, it is
nevertheless clear that upon principles of equity the company should be bound to
restore so much of the freight a represents the unaccomplished portion of the
voyage. If the freight had not been paid, the most that could be claimed by the
defendant would be an amount pro rata itineris peracti, as was conceded in the case
of the Teutonia, to which reference has been already made; and now that the freight
has been prepaid, there is a clear obligation on the part of the company to refund the
excess, as money paid upon a consideration that has partially failed.
But it will be said that the contract to convey the cargo to Hamburg and to forward it
from there to Vladivostock was an entirety, and that inasmuch as the defendant
company is absolved from its obligation to proceed further with performance, there
can be no apportionment as between the voyage which has been accomplished and
that which was yet to be performed. The reply to this is that the break in the
continuity of the voyage was a result of the voluntary act of the master of the Suevia,
adopted with a view to the preservation of the ship; and it can not be permitted that
the defendant company should escape the consequences of that act, so far as
necessary to effect an equitable adjustment of the rights of the owner of the cargo.
There being no evidence before us with respect to the amount of freight which was
prepaid, nor with respect to the proportion earned and unearned, but only the fact
that the owner paid out a certain amount for transhipment to Vladivostock, it can be
assumed that this amount approximately represents the unearned portion of the
freight.
We have not overlooked the provision in the original bill of lading which provides that
freight paid in advance will not be returned, goods lost or not lost. There is also a
somewhat similar provision in the second bill of lading issued at Hamburg. These
provisions contemplate the special cae of the loss of the goods and can not be
extended to the situation which arises when the ship for purposes of its own
protection abandons the enterprise.
From what has been said it is apparent that the Court of First Instance was correct
not only in adjudging possession of the cargo to the plaintiff but also in imposing
upon the defendant company liability with respect to the amount expended by the
plaintiff in forwarding the goods to their destination.
 The only other point raised by the bill of exceptions, which we deem it necessary to
notice, is based on a provision in the bill of lading to the effect that all disputes arising
under the contract are, at the option of the defendant company, to be decided
according to German law and exclusively by the Hamburg courts. From this it is
argued that the Court of First Instance erred in assuming jurisdiction of the action
and that the case should have been decided in accordance with the principles of
German law.
It can not be admitted that a provision of this character has the effect of ousting the
jurisdiction of the court of the Philippine Islands in the matter now before it. An
express agreement tending to deprive a court of jurisdiction conferred on it by law is
of no effect. (Molina vs. De la Riva, 6 Phil., 12.) Besides, whatever the effect of this
provision, the benefit of it was waived when the defendant company appeared and
answered generally without objecting to the jurisdiction of the court.
As regards the contention that the rights of the parties should be determined in
accordance with the law of Germany, it is sufficient to say that when it is proposed to
invoke the law of a foreign country as supplying the proper rules for the solution of a
case, the existence of such law must be pleaded and proved. Defendant has done
neither. In such a case it is to be presumed that the law prevailing in the foreign
country is the same as that which prevails in our own.
The judgment appealed from is affirmed, with costs against the appellant. So
ordered.
G.R. No. L-10986            March 31, 1917
COMPAGNIE DE COMMERCE ET DE NAVIGATION D'EXTREME ORIENT, plaintiff-
appellant, 
vs.
THE HAMBURG AMERIKA PACKETFACHT ACTIEN GESELLSCHAFT, defendant-
appellant.
Gilbert, Cohn and Fisher for plaintiff-appellant.  that save and except for the negotiation of said bills of lading unto the Hongkong
Crossfield and O'Brien for defendant-appellant.
CARSON, J.:
For a statement of this case on appeal we cannot do better than to set forth the
substance of the carefully prepared opinion ion the court below, and the assignments of
error by counsel on the appeals brought here by both parties.
50 | T R A N S P O R T A T I O N L A W
This is an action by the Compagnie de Commerce et de Navigation D'Extreme
Orient, a corporation duly organized and existing under and by virtue of the laws
of the Republic of France, with its principal office in the city of Paris, France, and
a branch office in the city of Saigon, against the Hamburg Amerika Packetfacht
Actien Gesellschaft, a corporation duly organized under and by virtue of the laws
of the Empire of Germany, with its principal office in the city of Humburg,
Germany, and represented in the city of Manila by Behn, Meyer & Company
(Limited), a corporation. The plaintiff seeks to recover the full value if Saigon of a
certain cargo of the steamship Sambia, alleged to amounts to the sum of
P266,930, Philippine currency, and prays that certain proceeds of the sale of said
cargo, amounting to P135,766.01, now on deposit in this court, be applied on
said judgment, and that judgment be rendered in favor of the plaintiff and against
the defendant for such sum as may represent the difference between the said
amount and the value of the payment and delivery unto plaintiff from said
deposit, with legal interest and costs of suit.
This is essentially a suit for damages growing out of the "failure, refusal and
neglect of the defendant to safely carry the said merchandise and cargo as in
said charter party and bills of lading provided," as shown by paragraph XI of the
complaint and other allegations of said complaints.
The plaintiff alleges (1) that on June 17, 1914, the defendant chartered and hired
unto the plaintiff the steamship or vessel called the Sambia for the purpose of
carrying a full cargo of rice, rice bran and cargo meal from the port of Saigon to
the port of Dunkirk and Hamburg, via Suez Canal, upon the terms and conditions
set forth and contained in the written charter party made and executed between
the said parties on said date, a copy of which is attached to the complaint,
marked Exhibit A; (2) that about July 28, 1914, under and in pursuance of said
charter party, the plaintiff loaded and shipped on board the Sambia at said port of
Saigon, destined for said ports of Dunkirk and Hamburg, via Suez Canal, certain
merchandise and cargo as listed in Paragraph III of the complaint; (4) that upon
the loading and shipment of said cargo on board the Sambia the master thereof,
in due course, and in representation of said defendant, duly signed, executed
and delivered to the plaintiff good and sufficient bills of lading for the said cargo;
& Shanghai Banking Corporation as security for the due acceptance and
payment of certain bills of exchange drawn by plaintiff, the plaintiff has been and
still continues to be the sole and exclusive owner and holder of said bills of lading
and of the cargo described in the complaint which is evidenced thereby; (5) that
about August 2, 1914, the said steamship Sambia sailed from the said port of
Saigon bearing on board the said cargo, and acting under and in pursuance of
orders from the defendant, as owners of said vessel, but without the consent or
 approval of plaintiff as the character of said vessel and the owner of said cargo,
and against the protest of plaintiff, the said vessel wholly failed, omitted and
refused to sail unto said destinations of Dunkirk and Hamburg, or unto either of
them, or unto any of the ports of call in the due course of said stipulated voyage,
but wilfully and intentionally deviated from the said stipulated voyage and sailed
to the port of Manila, Philippine Islands; that said vessel arrived at Manila on or
about August 8, 1914, and has wilfully and intentionally abandoned the said
stipulated voyage and has remained at Manila continuously from the said 8th day
of August, 1914, until the present day; (6) that upon the arrival of said vessel at
Manila, the defendant wholly failed, omitted and refused to tranship the said
cargo of the plaintiff and to forward the same unto the stipulated destinations
thereof, as in duty bound, and, in the absence of plaintiff, as owner of the said
cargo, wrongfully and unlawfully detained the said cargo and the whole thereof at
said port of Manila; (7) that on September 10, 1914, the defendant in the
absence of plaintiff, sought and obtained by means of a petition filed in cause No.
12235 of this court, the authority of this court to discharge the said cargo of the
plaintiff from the said vessel, and to sell the same at private sale, and sought and
obtained the designation of Behn, Meyer & Company (Limited), of Manila, P. I.,
as agent of the said S. S. Sambia and the master thereof in making the said
discharge and sale of said cargo; (8) the defendant, purporting to act under and
in pursuance of said authority so obtained, has heretofore sold and disposed of
the said merchandise and cargo, or so much thereof as then and there remained,
and has paid and deposited in this court, as the proceeds of said sale, the sum of
P135,766.01, subject to the further order of this court upon the determination of
the person or persons who may be entitled thereto; (9) that plaintiff is informed
and verily believes, and therefore alleges, any and all claims and demands of
third persons in and to or against the said proceeds of said sale have been
wholly paid and satisfied and that no person or persons other than this plaintiff
has any right, title or interest in or to said deposit of P135,766.01; (10) that the
true value and market price of said merchandise and cargo above mentioned and
described f. o. b., Manila Bay, was and is not less than P266,930, and the true
value and market price of the same in the market of Manila was and is the said
value increased by the customs duties and landing charges thereof, and the
value and market price thereof in the markets of Dunkirk and Hamburg was and
is the said sum increased by the freight, insurance, interest, landing expenses,
and other costs and charges requisite and necessary for the transfer of said
merchandise and cargo unto said ports of destination thereof; (11) that under and
by virtue of said failure, refusal and neglect of the defendant to safely carry the
said merchandise and cargo as in said charter party and bills of lading provided,
there has been wholly lost unto the plaintiff the said sum of P266,930, Philippine
currency, and said loss has been diminished only in said sum of P135,766.01 so
deposited as aforesaid, or by so much thereof as shall be paid and delivered
51 | T R A N S P O R T A T I O N L A W
unto plaintiff free and discharged of any and all adverse claims, charges, or liens
of third persons.
The plaintiff prays:
1. That the proceedings known and designated as No. 12,235 in this court be
wholly merged and consolidated with this cause.
2. That the said deposit of P135,766.01, Philippine currency, be paid and
delivered unto this plaintiff free and discharged of any and all adverse claims,
charges or liens of third persons.
3. That the plaintiff have judgment against the defendant in the said sum of
P266,930, Philippine currency, or in such other sum as may represent the
difference between the said amount and the value of the payment and delivery
unto plaintiff from said deposit, together with interest thereon at the legal rate
until paid.
4. That plaintiff have judgment for its costs of suit and for such other and further
remedy and relief as may be proper in law and in equity.
The Exhibit A attached to the complaint is here referred to as the charter party
between the plaintiff and the defendant, dated June 17, 1914, without giving a
synopsis of its contents.
The defendant by its answer (1) makes a general denial, and (2) admits the first
paragraph of the complaint, except that portion which alleges that the defendant
has been represented in Manila by Ernest Vietmeyer, the master of the
steamship Sambia, and alleges that the said Vietmeyer does not and has not at
any time represented the defendant and has only represented the freight and
cargo of the said steamer to the extent of attempting to collect freight and to
make delivery and sale of the said steamer's cargo; (3) admits the second
paragraph of the complaint, except that portion which alleges that the cargo was
to be transported to the ports of Dunkirk and Hamburg, and in respect to that
portion alleges that the transportation contract between plaintiff and defendant,
which is made part of plaintiff's complaint, provides that said steamer should
proceed to Dunkirk and Hamburg "or so near thereunto as she may safety get;"
(4) admits paragraph 3 of said complaint; (5) admits paragraph 4 of said
complaint, except that portion which alleges that the bills of lading were
negotiated to the Hongkong and Shanghai Banking Corporation as security for
the acceptance and payment of bills of exchange drawn by plaintiff, and, having
 no information in relation thereto, denies the same, and except that portion of
said paragraph 4 which alleges that the plaintiff has been and still is the sole and
exclusive owner and holder of bills of lading of the cargo of the said steamer, and
alleges in respect to both of said portions of said paragraph 4 of said complaint
that in another proceeding in this court, numbered 12235, entitled In the matter of
the petition of Ernest Vietmeyer as captain of the German steamer Sambia for
judicial authority to sell and dispose of cargo," the said Hongkong & Shanghai
Banking Corporation made and presented a claim for the said cargo of the said
steamship Sambia and proceeds from the sales thereof, alleging that it was the
holder and owner of the said bills of lading of said cargo and was entitled to the
possession thereof; (6) further answering a portion of paragraphs 5 and 6 of the
complaint, the defendant specifically denies that through the sailing master, or
any other officer of the said steamship Sambia, or in any other way, by its orders,
or otherwise, it refused sailing of said steamship to the ports of Dunkirk and
Hamburg, or either of said ports, or any other ports of call, or that said steamship
wilfully deviated from the due course of her voyage, and specifically denies that
the said steamship abandoned the voyage which it was agreed should be made
in defendant's contract with the plaintiff, as set forth in the charter party, and
defendant specifically denies that it has ever refused to tranship the cargo of said
steamship or to forward the same to its destination, or that it has detained the
said cargo otherwise than as in its answer set forth, and that plaintiff, through its
representative in Saigon, not only knew of the intention of sailing said steamer
from Saigon to Manila, instead of upon its regular course, but consented thereto
and approved thereof as the sailing of the said steamer in stress to a port of
safety for the purpose of saving both the said steamship and its cargo from total
loss; that said steamship is ready to sail and will proceed upon its regular voyage
to Dunkirk and Hamburg as soon as the conditions of war now existing between
the Empire of Germany and other nations of Europe will permit, and that
defendant has never in any way been requested to tranship the cargo of the said
steamship or to forward the same to its destination, and has not detained said
cargo in Manila, or elsewhere, except as in the answer set forth; (7) the
defendant admits paragraph 7 of plaintiff's complaint, and alleges in respect
thereto, and calls attention to, the allegations contained in defendant's cross-
complaint and counterclaim.
The defendant files a cross-complaint and counterclaim, and (1) reiterates the
admissions made in paragraph 2 of the answer and makes the same a part of the
cross-complaint, and (2) alleges that the steamship Sambia was under charter to
the plaintiff to load cargo, as provided in the charter party which is made a part of
this cross-complaint, and was loading at Saigon, a French port, on the 2d day of
August, 1914, and it was rumored that war had been declared between the
Empire of Germany and the Republic of France, and thereupon the master of
52 | T R A N S P O R T A T I O N L A W
said steamship, fearing seizure because the said steamship was registered and
sailing under the German flag and the port she was then in was a French port,
desired to leave said port of Saigon, but was required by plaintiff to complete the
loading of the total cargo called for by the said charter party, which the said
master proceeded to do, and completed the loading so as to leave the said port
on the 4th day of August, 1914, which was done, and said rumors of the
declaration of war having been verified, the said master and the plaintiff's
representative at Saigon, one Ducasse, concluded that it would not be safe for
said steamship to proceed on its voyage to Dunkirk and Hamburg, nor to stay in
said port of Saigon, and thereupon the master and said representative went to
the French Governor at Saigon and asked for a pass or safe-conduct to the port
of Manila, but the said Governor refused to issue such pass or safe conduct for
the reason that he had not been officially notified of said declaration of war, and
thereupon plaintiff's agent at Saigon procured from the proper authorities the
necessary clearance papers for the said steamship and its bill of health for the
port of Manila, which the said master and said representative decided was the
nearest safe and neutral port of refuge, and thereupon the said master sailed the
said steamship to the said port of Manila where he arrived with said steamship on
the 8th day of August, 1914, where he, with said steamship, has been obliged to
remain continuously since, because of the conditions of war existing which
render the said steamship and cargo subject to seizure anywhere outside of a
neutral or German port by any hostile nation with which the Empire of Germany is
at was; (3) that almost immediately upon the arrival of said steamship at Manila,
the defendant, through its agent in Manila, cabled plaintiff in relation to the
steamship's cargo and sought instructions as to the disposal of it, but received no
answer, and again cabled and still received no answer, and then wrote the
plaintiff advising that the cargo had been inspected by the official surveyor, and
that it was becoming heated and weevily, and there was no immediate prospect
that the said steamship would be able to continue its voyage and that the said
cargo would be sold, and that the German consul at Manila had instructed its
sale, and that it was for the best interests of the plaintiff and for the insurers of
said cargo to do so in order to realize something from the said cargo, and asked
that the consular invoice of said cargo be sent to the plaintiff's agent in Manila in
order that the cargo might be discharged in Manila with the permission of the
Customs authorities; that still receiving no answer from the plaintiff, the defendant
applied to this court and obtained authority on the 10th day of September, 1914,
to dispose of the cargo as set forth in paragraph 7 of plaintiff's complaint, and
proceeded to the sale thereof, and again advised plaintiff by letter under date of
September 21, 1914, of the action taken, the amount of cargo sold at that time
and the difficulties attending the sale, and in October the defendant's said agent
received from plaintiff a letter, as follows:
 "Compagnie de Commerce et al Navigation d'Extreme-Orient. payment of general average in lieu of bond for general average against said cargo, and
the sum of P18,259.18 as compensation to Behn, Meyer & Company, which had been
authorized by this court to make sale of said cargo as agent for the master of said
"Saigon le 1 October, 1914. steamship and for the steamship itself, for its compensation in doing so; (4) that said
Behn, Meyer and Company deposited out of its own funds the total of said three amounts
"Messrs. Behn, Meyer & Co., Ltd., mentioned in the preceding paragraph, in all P97,359.68, of which the said Behn, Meyer
"Manila. & Company has already accounted to the defendant for the sum of P79,100.50 and
having so accounted in good faith, the defendant is bound to see said Behn, Meyer &
"Dear Sirs: Company safe from loss and to reimburse that corporation in the sum of P79,100.50; (5)
that said defendant has and claims a lien upon the said sum deposited in Court as
aforesaid to the amount of P79,100.50 on account of freight and general average
"We beg to acknowledge receipt of your favors of the 7 & 21 of
deposited as stated, and the amount of P18,259.18 as fees for the expenditures and
September. We have received none of your telegrams.
services performed by Behn, Meyer & Company in the sale of said cargo, which the
defendant is obligated to pay to Behn, Meyer & Company; (6) the defendant further
"SS. Sambia. Our opinion is that the matter of the ss. Sambia has to be alleges that in addition to the amount stated and claimed by the said master, Vietmeyer,
discussed between the owners of the steamer and the underwriters of the of said steamship Sambia he has spent the sum of P608.64 for internal revenue taxes
war risk. upon the sale of said cargo; (7) the defendant alleges that Behn, Meyer & Company in
obtaining discharge of said cargo, as agent of the said master and of the said steamship,
"Up to now we have not received any instructions either directly or and making sale hereof under the authority stated, was obliged to execute for
indirectly to interfere and we shall abstain from doing so without exact customhouse bonds in the sum of P100 each, conditioned for the production of consular
orders. invoices of said cargo sold, and this defendant is obliged to hold the said Behn, Meyer &
Company harmless on account of the execution of said bonds; and that plaintiff has
"Anyhow we shall be very much obliged for every information you might refused and still refuses to produce the said invoices as required by law; that the
be able to give us on the subject. customs authorities of the port of Manila now require the satisfaction of said bonds and
the defendant is obliged to pay the amount thereof in the sum of P400 and has and
"We are, dear sirs, claims a lien on the funds deposited in this court to the amount of P400; (8) that
defendant, since the steamship Sambia arrived at the port of Manila up to March 31,
"Yours faithfully, 1915, has incurred expense for wages and maintenance of the steamship's crew, the
court of entering the port of Manila, unloading of cargo, repairs of the steamer made
necessary because of her coming to a port of refuge, for the upkeep and other expenses
(Sgd.) "Compagnie de Commerce et de  incidental to the said steamer, sojourning in said port of Manila as a port of refuge,
Navigation de Extreme Orient.  amounting to P33,436.61 for which the defendant claims general average against the
"Le Directeur;" said cargo of the said steamer, and, as the said cargo has been disposed of, against the
proceeds of sale, the balance of which is on deposit with this court, and that the
defendant has and claim as lien upon said deposit in the sum of P33,436.61; (9) the
that the sale authorized was proceeded with and all of the cargo available was disposed
defendant further alleges that the said steamship Sambia is still in the port of Manila, as
of, and the balance which was putrid and unfit for sale was dumped into the sea by order
a port of refuge, and is unable to leave for the same reasons which caused her coming to
of the authorities of the port of Manila, and report was made to the court and the product
the port of Manila, which still exist; that she was obliged to enter this port; that there is no
of the sale of said cargo, amounting to P135,766.01, was deposited in court, under the
probability that said steamship will in the near future be able to resume her regular
order of the court, notwithstanding the fact that the master of said steamship making the
voyage which was interrupted by her entry in the port of Manila, and that defendant will
sale under the court's authority had paid of the amount deposited to Behn, Meyer &
be obliged to incur other and further expenses after the 31st of March, 1915, in the
Company, a corporation and defendant's agent at Manila, the sum of P60,841.32 for
payment of wages and maintenance of the ship's crew and maintenance of the
freight charges upon said cargo, the sum of P18,259.18 as a deposit to insure the
53 | T R A N S P O R T A T I O N L A W
steamship itself, and other things, and that such expenses will be a general average
charged against the said cargo of said steamship against the plaintiff, and, as the cargo
has been sold, against the proceeds thereof now on deposit with this court, and the
defendant claims a lien upon said deposit for such future expenses by way of general
average; (10) the defendant further alleges that the insurers of said cargo and the
amount of said insurance are known to the plaintiff and are unknown to the defendant,
and that such insurers are chargeable on the general average with the loss sustained by
the defendant as set forth in the foregoing cross-complaint and counterclaim, arising
from the fact that the said defendant was obliged to enter and remain in the port of
Manila as a port of refuge to save both said steamship and her cargo from entire loss,
occasioned by the capture and seizure thereof by one of the nations with which the
Empire of Germany was at war at the time when the said steamer sought refuge, and
with whom the said Empire of Germany has continuously since been at war; (11) the
defendant further alleges that the plaintiff if not now entitled to any judgment against the
defendant for any sum whatever or against the proceeds from sale of the cargo of said
steamer Sambia, and not until general average shall have been adjusted between the
defendants as owner of the said steamship and of the freight charges upon the cargo
and the plaintiff as owner of the cargo, or any other person or entities having an interest
in the transportation of said cargo from Saigon to the port of destination.
The defendant prays that the plaintiff take nothing by its action; that general
average be adjusted as set forth by defendant, and then only for such amount as
may appear due to the plaintiff from such adjustment; that defendant have
judgment against the plaintiff for freight due upon said cargo amounting to
P60,841.32 and for such further amount as ma be found due the defendant upon
the adjustment of general average; for the sum of P608.64 paid for Internal
Revenue taxes, and for the sum of P400 on account of bonds to produce
Consular invoices, and that all of said amounts be declared a lien upon said
deposit in court as far as the same shall be sufficient, and for such other and
further amounts as the said defendant shall hereafter be entitled to as expenses
for the maintenance and wages of crew of the said steamer, and for the
maintenance of the said steamer and any other expenses properly chargeable to
general average, and for the costs of this action.
The plaintiff denies each and every and all and singular the allegations of the
said cross-complaint and counterclaim, and the whole thereof. . . .
The pleadings in this case might indicate that there is considerable dispute about
the facts, but there is not. The principal and material facts are not in dispute, and
are substantially as follows:
54 | T R A N S P O R T A T I O N L A W
1. That the steamship Sambia, registered in Germany and sailing under the
German flag, and owned by the defendant, under and by virtue of a charter party
dated June 17, 1914, proceeded to the port of Saigon and was there taking on a
cargo belonging to the plaintiff when on the second day of August, 1914, there
were rumors of impending war between Germany and France and other nations
of Europe.
2. That on said second day of August, 1914, the master of the
steamship Sambia received an order from the owner of said steamship to
proceed at once to a neutral port for refuge, the port of Saigon being a French
port; that the plaintiff objected and insisted that the said steamship should load
the whole cargo in accordance with the terms of the charter party; that the master
complied and the said steamship remained in the port of Saigon and the loading
was completed during the night of the third day of August, 1914.
3. That the plaintiff did all within its power to prevent its property from leaving the
port of Saigon, and to that end made application to the judicial authorities at
Saigon for the compulsory detention of the vessel, which application failed, and
the Governor of Saigon refused to issue to the master of said steamship a safe-
conduct because he had not been officially notified of the declaration of war.
4. That on August 4, 1914, the said steamship sailed from Saigon, having
cleared officially for Dunkirk and Hamburg, but the master and the agent of said
steamship also obtained and took along a bill of health for Manila, issued by the
United States consul at Saigon.
5. That the steamship Sambia came directly from Saigon to Manila, where it
arrived on the 8th day of August, 1914, and where she has remained
continuously ever since owing to the condition of war existing between Germany,
France, Great Britain and Russia, and where the defendant says she will be
compelled to remain until said war conditions cease.
6. That upon and after the arrival of said steamship at Manila no attempt was
made by the owners, master and agent of the said steamship to complete the
voyage according to the charter party or to deliver the said cargo to the stipulated
destinations, or to tranship the said cargo to said destinations, or to conserve the
perishable merchandise composing the said cargo.
7. That on or about August 7, and 14, 1914, the defendant's agent in Manila,
Behn, Meyer & Company, attempted to communicate with the plaintiff by cable
messages to Saigon, making an offer to purchase the cargo on said steamship,
 but the messages were not received by the plaintiff and therefore were not
answered; that on September 7, 1914, the defendant's said agent wrote to the
plaintiff in relation to the cargo informing it of the condition of same.
8. That on September 10, 1914, a survey was made of the said cargo, and it was
found to be weevily and heating, and the master of said steamship thereupon
applied to this court for authority to sell said cargo, and under such authority the
cargo was sold for the sum of P182,591.46, and the balance of said cargo was
dumped into the sea by order of the port authorities as unfit for sale, and the
proceeds of the sale in the sum of P135,766.01 after deducting certain expenses
incident to the sale, were deposited in this court to await the orders of the court.
9. That on September 21, 1914, the defendant's said agent at Manila again wrote
to the plaintiff informing the said plaintiff of the disposition which had been made
of the said cargo, and thereafter, on October 1, 1914, received an answer to said
letters of September 7 and 21, 1914, in which the plaintiff said: "Up to now we
have not received any instructions either directly or indirectly to interfere, and we
shall abstain from doing so without exact orders."
10. That the value of the cargo which is the subject matter of this action, at the
time of its loading at Saigon was the invoice price of P266,930, and that at the
port of destination said cargo would have been worth its said invoice price plus
the freight thereon to the respective ports of destination.
11. That the freight on the cargo from Saigon to Dunkirk and Hamburg, according
to the charter party, amounted to P60,841.32 and no part of the freight on said
cargo has been paid by the plaintiff.
12. That no other person, company or entity than the plaintiff, so far as the
evidence shows, has any right, title, interest or claim in and to the said cargo of
the steamship Sambia, or to the proceed thereof, the subject-matter of this
action.
13. That the defendant claims that more than P33,000 have been expended by it
in the upkeep and maintenance of the said ship and crew since arrival in Manila
Bay, and that for this and future expenses of the same character the defendant
claims a lien upon the proceeds of the sale of said cargo by way of general
average.
55 | T R A N S P O R T A T I O N L A W
14. That the defendant claims a lien on the proceeds of the sale of said cargo for
the payment of the sum of P18,259.18 to Behn, Meyer & Company as its
commissions for making the sales of said cargo.
15. That the defendant claims a lien upon the proceeds of the sale of said cargo
for the freight claimed under the terms of the charter party, amounting to
P60,841.32 and for the sum of P608.46 for the internal revenue taxes on the sale
of said cargo, and for the sum of P400 to cover the amount of bonds given by its
agent to the customs authorities in Manila to guarantee the production of the
consular invoices for said cargo, which consular invoices the plaintiff refuses to
produce.
Upon a consideration of all the facts in evidence and of the arguments of
counsel, the authorities cited and other authorities pertinent to the questions at
issue in this cause, the court has reached the following conclusions as to the law:
1. That it was the duty of the defendant, under the terms of the charter party in
evidence, to transport the cargo in question from Saigon to Dunkirk and
Hamburg, via Suez Canal, under steam all the way (unless disabled), or so near
thereunto as she might safely get, and there to deliver the said cargo (always
afloat) in any safe dock or berth which the characters or their agents might
appoint.
2. That the freight on the cargo having been made payable on right and true
delivery of the cargo at Dunkirk and Hamburg, and the transportation of the cargo
having been abandoned by the defendant at Manila, no part of the freight was
earned without such delivery, in the absence of an agreement that the ship
owner should become entitled to a proportion of the freight on delivery of the
cargo in a port of refuge. (Carver on Carriage of Goods by Sea, section 307.)
3. That the fear of the owners and master of the seizure or capture of the said
steamship Sambia by one of the bellingerent powers at war with Germany was
not the result of force majeure and was not a legal or sufficient excuse for having
fled with a French cargo from Saigon, a French port, to Manila, or for the failure
of the defendant to transport and deliver the said cargo to the consignees at
Dunkirk and Hamburg, or for the failure to tranship the same and cause it to be
delivered in accordance with the terms of the charter party.
4. That the provision contained in the charter party requiring the ship to make
delivery of the cargo at Dunkirk and Hamburg, "or so near thereunto as she may
safely get" was no legal justification of authority for the deviation of the ship to
 enter Manila Bay in order to avoid the seizure or capture of the ship by an enemy
of Germany, since that cause was intended only to justify the master of the ship
in discharging the cargo at some outside anchorage, when by reason of her draft
or obstruction to navigation she could not reach the usual wharf or anchorage of
a designated port. (See Meissner vs. Brun, 128 U. S., 474; 32 Law. Ed., 496.)
5. That there can be no general average unless there has been a voluntary and
successful sacrifice of a part of the maritime adventure for the benefit of the
whole adventure, and for no other purpose; in other words, there must be an
intentional sacrifice of a part of the property on board the vessel for the purpose
of saving the remainder from a common peril, or extraordinary expenditures must
be incurred for the purpose of saving the property in peril.
(McAndrews vs. Thatcher, 3 Wall., 347, 366; The Star of Hope vs. Annan, 9 Wall., 203,
228; Fowler vs. Rathbone, 12 Wall., 102, 114; Hobson vs. Lord, 92 U. S., 397, 404;
Ralli vs. Troop, 157 U. S., 386, 393; Barnard et al. vs.Adams, 10 How., 270, 303;
Philippine Code of Commerce, articles 806, 808, 811 and 812.)
6. That inasmuch as the French cargo was absolutely safe in the French port of
Saigon, and the deviation of the steamship Sambia from her intended voyage to
Dunkirk and Hamburg and her entry into Manila Bay were induced by fear of the
capture of the vessel by one of the belligerents at war with Germany, the alleged
peril which induced the master of said vessel to enter Manila Bay was not
common to both ship and cargo as required by the York-Antwerp Rules as a
condition precedent to the levying of a general average; that this cargo under the
law of nations was not subject to confiscation by any enemy of Germany, and the
cargo not having been imperilled, the expense and loss to the ship and its
owners occasioned by the deviation and by taking refuge in Manila Bay during
the European war were not for the benefit of the cargo, but for the sole benefit of
the ship and its crew; and therefore the cargo should not in any event be called
upon for contribution under general average.
7. That it was the duty of the defendant under the charter party to transport said
cargo to Dunkirk and Hamburg in the steamer Sambia; but if for any reason, the
transportation could not be effected in that vessel within a reasonable time, it was
the legal duty of the owners of said vessel and of the master thereof to make the
shipment in another vessel. (Carver on Carriage of Goods by Sea, sections 304,
305.)
8. That Behn, Meyer & Company, agent for the defendant, having been
appointed by this Court as agent of the petitioner Ernest Vietmeyer (master of the
56 | T R A N S P O R T A T I O N L A W
steamship Sambia) and of the said ship in making the discharge and sale of said
cargo, the court is of the opinion that said Behn, Meyer & Company is entitled to
a reasonable compensation for its services in making the sale of said cargo
under the authority of the court. And the court is further of the opinion that five
per cent (5%) of the net proceeds of a large cargo of this kind is reasonable
compensation for said services in making the sale. Therefore, the clerk of this
court is hereby directed to retain five per cent (5%) of the amount of said deposit
in the court, subject to the further orders of the court of Civil case No. 12235 for
the services of said Behn, Meyer & Company in making the sale.
9. That the defendant is liable to the plaintiff for the damages caused to plaintiff in
not having delivered the said cargo to Dunkirk and Hamburg, in accordance with
the terms of the charter party; and the transportation of the cargo having been
abandoned by the defendant at Manila, and the defendant not having earned the
freight money, the value of the cargo at Saigon must be basis for determining the
damages suffered by the plaintiff; that since the proceeds of the sale of said
cargo, after deducting certain expenses of the sale as shown in said Civil cause
No. 12235, resulted in the sum of P135,766.01 having been deposits in this
court, and the court having allowed Behn, Meyer & Company the sum P6,788.30
for their services in making said sale, there now remains subject to the further
order of this court the sum of P128,977.71.
10. It having been alleged in the complaint and admitted in the trial of this case
that the value of the cargo at Saigon was the invoice price of P266,930 Philippine
currency, and the court being of the opinion that the value of the cargo in Manila
was the price at which it was sold under the authority of the court, P182,591.46
less the expenses of the sale and the commissions of the said Behn, Meyer &
Company, the court finds that the plaintiff is damaged by the acts of the
defendant complained of in the amount of the difference between the agreed
value of the cargo at Saigon (P266,930) and the net proceeds of the sale in
Manila (P128,977.71) or the sum of P137,952.29; but the court further finds that
by paragraph 28 of the charter party the penalty for nonperformance of said
agreement is proved damages not exceeding the estimated amount of freight,
and in this case the estimated amount of freight is P60,841.32.
Therefore let judgment be entered in this cause in favor of the plaintiff and
against the defendant for the said sum of P128,977.71, less any commissions of
the clerk of this court free and clear of all liens, claims, or charges asserted by
the defendant in this cause, with legal interest on said sum from the date of the
filing of the complaint in this case until paid; and further, that the plaintiff have
and recover from the defendant in this cause the sum of P60,841.32, as and for
actual damages suffered by the plaintiff by the defendant's breach of the charter
 party in evidence, with legal interest thereon from the date of the filing of the
complaint in this case until paid.
The defendant's cross-complaint is hereby dismissed with the costs of this case
against the defendant. It is so ordered.
Counsel for the defendant-appellant made the following assignments of error on appeal:
1. The trial court erred in finding that it had jurisdiction to determine the subject-
matter of this action.
2. The trial court erred in finding that the plaintiff did all within its power to prevent
its property from leaving the port of Saigon.
3. The trial court erred in finding that the owner of the steamship Sambia made
no attempt to complete the voyage, to tranship the cargo, or to conserve the
perishable merchandise composing the cargo.
4. The trial court erred in finding that the value of the cargo was its value at
Saigon plus the freight to destination.
5. The trial court erred in finding that the transportation of the cargo had been
abandoned at Manila, and that no part of the freight was due without delivery at
Dunkirk or Hamburg.
6. The trial court erred in concluding that the fear of seizure or capture by
belligerent powers at war with Germany was not force majeure and was not a
legal excuse for fleeing to the neutral port of Manila for refuge, or for failure to
deliver the cargo at its destination by transhipment or otherwise.
7. The trial court erred in concluding that "there can be no general average
unless there has been a voluntary and successful sacrifice of a part of the
maritime adventure for the benefit of the whole adventure, and for no other
purpose; in other words, there must be an intentional sacrifice of a part of the
property on board the vessel for the purpose of saving the remainder from a
common peril, or extraordinary expenditures must be incurred for the purpose of
saving the property in peril."
8. The trial court erred in concluding that the cargo was safe in Saigon and that
the entry into Manila Bay was alone induced by fear of capture of the vessel by
one of the belligerents at war with Germany, and that the peril was not common
57 | T R A N S P O R T A T I O N L A W
to both ship and cargo, and that the entry into Manila Bay was for the sole benefit
of the ship and its crew.
9. The trial court erred in concluding that defendant was liable to plaintiff for the
damages caused to plaintiff in not having delivered the cargo at Hamburg or
Dunkirk.
10. The trial court erred in concluding that the value of the cargo at Saigon must
be the basis for determining damages.
11. The trial court erred in finding that the estimated amount of freight as per
charter party was P60,841.32.
12. The trial court erred in entering judgment in favor of plaintiff and against the
defendant for any sum whatever.
13. The trial court erred in dismissing defendant's cross-complaint.
Counsel for the plaintiff appellant made the following assignments of error:
1. The trial court erred in holding that the right of plaintiff to recover the fill value
of the cargo was limited by the terms of the charter party.
2. The court erred in refusing to grant plaintiff's motion for a new trial.
3. The court erred in failing to give judgment for plaintiff for the full value of the
cargo of the steamship Sambia.
xxx           xxx           xxx
As counsel for the defendant appellant well says, "the various assignments of error are
so inextricably mixed on with the other" that it would be extremely inconvenient to deal
with each specification of error separately; and it will make for convenience and a clear
understanding of our rulings to follow the plan adopted by counsel in their briefs, and
discuss the various specifications of error under the general headings into which the
contentions of counsel naturally group themselves.
As indicated in the opinion of the trial judge, there is no real dispute as to the material
evidential facts of record in this case; and it will readily be seen that the vital issue raised
on this appeal is whether or not the master of the Sambia, when he fled from the port of
Saigon and took refuge in the port of Manila, had reasonable grounds to apprehend that
his vessel was in danger of seizure or capture by the public enemies of the flag under
which he sailed.
If it was his duty to remain in the port of Saigon under the circumstances existing at the
time when he completed the loading of the vessel, in the hope that he would be granted
a laissez-passer or safe-conduct by the French authorities, it is manifest that his flight
subjected the ship and her owners to liability for the resultant damages suffered by the
cargo.
If, on the other hand, the master had reasonable ground to believe that by remaining in
the port of Saigon he would expose the vessel to a real, and not a merely imaginary
danger of seizure by the French authorities from which he could secure her by taking
refuge in the port of Manila, his flight must be held to have been justified by the necessity
under which he was placed to elect that course which would secure the vessel from
danger of seizure by a public enemy of the country under whose flag she sailed; and the
ship-owner must be held to be relieved from liability for the deviation from the route
prescribed in the charter party and the resultant damages to the cargo, under the general
provisions of maritime law (Carver's Carriage of Goods by Sea, 5th Ed., sections 11 and
22), and the express provisions of article 7 of the charter party which is as follows:
The act of God, the king's enemies, arrests and restraints of princes, rulers and
people, perils of the seas, barratry of the master and crew, pirates, collisions,
strandings, loss or damage from fire on board, in hulk or craft, or on shore; and
act, neglect, default or error in judgment whatsoever of pilots, master, crew or
other servant of the shipowners in the navigation of the steamer; and all and
every the dangers and accidents of the seas, canals and rivers, and of navigation
of whatever nature or kind always mutually excepted.
Counsel for the cargo owner insist that having in mind accepted principles of public
international law, the established practice of nations, and the express terms of the Sixth
Hague Convention (1907), the master should have confidently relied upon the French
authorities at Saigon to permit him to sail to his port of destination under alaissez-
passer or safe-conduct, which would have secured both the vessel and her cargo from
all danger of capture by any of the belligerents. Counsel for the shipowner, on the
contrary, urge that in the light of the developments of the present war, the master was
fully justified in declining to leave his vessel in a situation in which it would be exposed to
danger of seizure by the French authorities, should they refuse to be bound by the
alleged rule of international law laid down by opposing counsel. When the case was
submitted we did not have at hand an authoritative report of the proceedings at the
Hague Conference touching the adoption of the sixth convention, and we were not fully
advised as to the final action taken by the world powers by way of ratification of, or
58 | T R A N S P O R T A T I O N L A W
adherence to its provisions. In the discussion of this branch of the case in the
consultation chamber, our lack of definite and authoritative information as to these
matters resulted in such a division of opinion as to the respective rights of the parties,
that it was at first impossible to secure a majority vote for the final disposition of this, as
well as some other important cases submitted at the same time, involving claims
amounting to nearly half a million pesos. Recently, however, our library was furnished
with a copy of Stockton's "Outlines of International Law" which briefly and as we think
authoritatively sets forth what we now are all agreed would appear to be the present
status of public international law on the subject of "days of grace" and "safe-conducts,"
which may be granted merchant vessels of an enemy, lying in the ports of a belligerent at
the commencement of hostilities. Admiral Stockton, a retired officer of the United States
Navy, was the first delegate from the United States to the London Naval Conference in
1909, and his text-book, which went to press soon after the outbreak of the war in
Europe, contains the most recent statement of the doctrine by a recognized authority to
which our attention has been invited.
In Chapter XXIX of the "Outlines of International Law," which is devoted to the
consideration of several "Open and Unsettled Questions in Maritime Law," Admiral
Stockton, discussing the question of the allowance of days of grace at the outbreak of
war says:
The convention (VI) of the Hague conference of 1907 treating upon this subject
was so unsatisfactory to the American delegation that they declined to sign it,
and consequently it was not submitted to the United States Senate for ratification.
The reason given for this procedure was "based on the ground that the
convention is an unsatisfactory compromise between those who believe in the
existence of a right and those who refuse to recognize the legal validity of the
custom which has grown up in recent years."
The first article of this convention provides that when a merchant ship of one of
the belligerent powers is at the commencement of hostilities in an enemy port, it
is desirable that it should be allowed to depart freely, either immediately or after
a sufficient term of grace, and to proceed direct, after being furnished with a
passport, to its port of destination or such other port as shall be named by it.
"The same applies in the case of a ship which left its last port of
departure before the commencements of the war and enters an enemy
port in ignorance of hostilities."
As this is only a pious wish, it does not require any action of favor or grace from
any of the belligerents, and seizure in port of any enemy vessel can be made
 immediately upon the outbreak of war. The article is not as liberal as the practice
has been in the past.
The policy of the United States in such matters was shown in the Spanish-
American War in the rules laid down by the President in his proclamation of April
26, 1898, the fourth article of which reads as follows:
"ARTICLE 4. Spanish merchant vessels, in any ports or places within the
United States, shall be allowed till May 21, 1898 inclusive, for loading
their cargoes and departing from such ports or places; and such Spanish
merchant vessels, if met at sea, by any United States ship, shall be
permitted to continue their voyage, if, on examination of their papers, it
shall appear that their cargoes were taken on board before the expiration
of the above term: Provided, That nothing herein contained shall apply to
Spanish vessels having on board any officer in the military or naval
service of the enemy, or any coal (except such as may be necessary for
their voyage), or any other article prohibited or contraband of war, or any
despatches of or to the Spanish Government."
This rule is an extremely liberal one and it is doubtful whether it would be
generally accepted, especially in the case of states of Europe where quick
mobilization maintains as a rule.
In an interesting article in The American Journal of International Law, Vol. II, 1908, p.
266, the writer, Professor James Brown Scott, after reviewing at some length the history
of the practice of granting days of grace and safe-conducts which, he contended, should
form a part of the law of nations, concluded his discussion of the subject with the
following observations:
It is therefore a source of regret that the Second Peace Conference refused to
recognize it as a right but simply as a privilege, a delai de faveur, which may be
accorded or refused at the opinion of the belligerent, and that the privilege was
unaccompanied by any recommendation of a period of time within which the
privilege in question should be accorded. . . . It may be said that the expression
"it is desirable" that the vessels should be allowed to depart freely amounts in
reality to a command, and that the practice of the future will recognize the custom
as freely as it has done in the past, thus establishing as a right what the
conference modestly denominates a privilege. If such be the case the opposition
of Great Britain to the recognition of the right will be as futile in practice as it was
unreasonable at the conference.
59 | T R A N S P O R T A T I O N L A W
The order in council of the British Government of the 6th of August, 1914, providing for
the granting of "days of grace," which was substituted for a prior order in council of the
5th of August, 1914, is as follows:
His Majesty being mindful, now that a state of war exists between this country
and Germany, of the recognition accorded to the practice of granting "days of
grace" to enemy merchant ships by the convention relative to the status of
enemy merchant ship at the outbreak of hostilities, signed at The Hague on the
18th of October, 1907, and being desirous of lessening, so far as may be
practicable, the injury caused by war to peaceful and unsuspecting commerce, is
pleased, by and with the advice of His Privy Council, to order, and it is hereby
ordered as follows:
1. From and after the publication of this order no enemy merchant ship shall be
allowed to depart, except in accordance with the provisions of this order, from
any British port or from any ports in any native state in India, or in any of His
Majesty's protectorates, or in any state under His Majesty's protection or in
Cyprus.
2. In the event of one of His Majesty's Principal Secretaries of State being
satisfied by information reaching him not later than midnight on Friday, the 7th
day of August, 1914, that the treatment accorded to British merchant ships and
their cargoes which at the date of the outbreak of hostilities were in the ports of
the enemy or which subsequently entered them is not less favorable than the
treatment accorded to enemy merchant ships by article 3 to 7 of this order, he
shall notify the Lords Commissioners of His Majesty's Treasury and the Lords
Commissioners of the Admiralty accordingly, and public notice thereof shall
forthwith be given in the London Gazette, and article 3 to 8 of this order shall
thereupon come into full force and effect.
3. Subject to the provisions of this order enemy merchant ships which
(i.) At the date of the outbreak of hostilities were in any port in
which this order applies; or
(ii.) Cleared from their last port before the declaration of war, and
after the outbreak of hostilities, enter a port to which this order
applies, with no knowledge of the war:
shall be allowed up till midnight (Greenwich mean time), on Friday, the 14th day of
August, 1914, for loading or unloading their cargoes and for departing from such port.
Provided that such vessels shall not be allowed to ship any contraband of war, and any
contraband of war already shipped on such vessels must be discharged.
4. Enemy merchant ships which cleared from their last port before the declaration
of war, and which with no knowledge of the war arrive at a port to which this
order applies after the expiry of the time allowed by article 3 for loading or
unloading cargo and for departing, and are permitted to enter, may be required to
depart either immediately, or within such time as may be considered necessary
by the customs officer of the port for the unloading of such cargo as they may be
required or specially permitted to discharge.
Provided that such vessels may, as a condition of being allowed to discharge
cargo, be required to proceed to any other specified British port, and shall there
be allowed such time for discharge as the customs officer of that port may
consider to be necessary.
Provided also that, if any cargo on board such vessel is contraband of war or is
requisitioned under article 5 of this order, she may be required before departure
to discharge such cargo within such time as the customs officer of the port may
consider to be necessary; or she may be required to proceed, if necessary under
escort, to any other of the ports specified in article 1 of this order, and shall there
discharge the contraband under the like conditions.
5. His Majesty reserves the right recognized by the said convention to requisition
at any time subject to payment of compensation enemy cargo on board any
vessel to which articles 3 and 4 of this order apply.
6. The privileges accorded by articles 3 and 4 are not to extend to cable ships, or
to seagoing ships designed to carry oil fuel, or to ships whose tonnage exceeds
5,000 tons gross, or whose speed is 14 knots or over, regarding which the entries
in Lord's Register shall be conclusive for the purposes of this article. Such
vessels will remain liable on adjudication by the prize court to detention during
the period of the war, or to requisition, in accordance, in either case, with the
convention aforesaid. The said privileges will also not extend to merchant ships
which show by their build that they are intended for conversion into warships, as
such vessels are outside the scope of the said convention, and are liable on
adjudication by the prize court to condemnation as prize.
7. Enemy merchant ships allowed to depart under articles 3 and 4 will be
provided with a pass indicating the port to which they are to proceed, and the
route they are to follow.
60 | T R A N S P O R T A T I O N L A W
8. A merchant ship which, after receipt of such a pass, does not follow the course
indicated therein will be liable to capture.
9. If no information reaches one of His Majesty's Principal Secretaries of State by
the day and hour aforementioned to the effect that the treatment accorded to
British merchant ships and their cargoes which were in the ports of the enemy at
the date of the outbreak of hostilities, or which subsequently entered them, is, in
his opinion, not less favorable than that accorded to enemy merchant ships by
articles 3 to 8 of this order, every enemy merchant ship which, on the outbreak of
hostilities, was in any port to which this order applies, and also every enemy
merchant ship which cleared from its last port before the declaration of war, but
which, with no knowledge of the war, enters a port to which this order applies,
shall, together with the cargo on board thereof, be liable to capture, and shall be
brought before the prize court forthwith for adjudication.
10. In the event of information reaching one of His Majesty's Principal Secretaries
of State that British merchant ships which cleared from their last port before the
declaration of war, but are met with by the enemy at sea after the outbreak of
hostilities, are allowed to continue their voyage without interference with either
the ship or the cargo, or after capture are released with or without proceedings
for adjudication in the prize court, or are to be detained during the war or
requisitioned in lieu of condemnation as prize, he shall notify the Lords
Commissioners of the Admiralty accordingly, and shall publish a notification
thereof in the London Gazette, and in that event, but not otherwise, enemy
merchant ships which cleared from their last port before the declaration of war,
and are captured after the outbreak of hostilities and brought before the prize
courts for adjudication, shall be released or detained or requisitioned in such
cases and upon such terms as may be directed in the said notification in
the London Gazette.
11. Neutral cargo, other than contraband of war, on board an enemy merchant
ship which is not allowed to depart from a port to which this order applies, shall
be released.
12. In accordance with the provisions of chapter III of the convention relative to
certain restrictions on the exercise of the right of capture in maritime war, signed
at the Hague on the 18th day of October, 1907, an undertaking must, whether
the merchant ship is allowed to depart or not, be given in writing by each of the
officers and members of the crew of such vessel, who is of enemy nationality,
that he will not, after the conclusion of the voyage for which the pass is issued,
engage while hostilities last in any service connected with the operation of the
war. If any such officer is of neutral nationality, an undertaking must be given in
 writing that he will not serve, after the conclusion of the voyage for which the
pass is issued, on any enemy ship while hostilities last. No undertaking is to be
required from members of the crew who are of neutral nationality.
Officers or members of the crew declining to give the undertaking required by this
article will be detained as prisoners of war.
And the Lords Commissioners of His Majesty's Treasury, the Lords
Commissioners of the Admiralty, and each of His Majesty's Principal Secretaries
of State, and all governors, officers, and authorities whom it may concern are to
give the necessary directions herein as to them may respectfully appertain.
NOTE. — The standard local time corresponding with the Greenwich mean time
mentioned in article 3 of the above order in council as 8 a. m. on Saturday, the
15th day of August, 1914.
The Decree of the President of France relating to German vessels in French ports at the
outbreak of war is as follows:
DECREE.
ARTICLE 1. German commercial vessels which are now or have been in French
ports since and including the 3d of August, 1914, from 18.45 o'clock, or which
enter the same unaware of the outbreak of hostilities, shall be accorded, from the
date of the present decree, a delay of seven full days within which to freely leave
said ports and, after providing themselves with a safe-conduct gain their port of
destination, or such other port as may be designated by the naval authorities of
the French port where they are, by some direct route.
In consequence of the reservation made by the German Government in articles 3
and 4, subarticle 2, of the Sixth Hague Convention of 1907, the benefit of the
foregoing provisions does not apply to German vessels that left their last port of
departure prior to August 3d, at 18.45 o'clock, and which, unaware of the
outbreak of hostilities, are encountered on the high seas.
ART. 2. All vessels of which the construction, armament, or appearance indicate
that they are susceptible of being transformed into vessels of war or of being
utilized for some public service, shall not benefit by the provisions of article 1.
61 | T R A N S P O R T A T I O N L A W
In case such vessels are employed in the carriage of mails, the Department of
Posts shall see that all the mail bags and parcels on board said boats shall be
forwarded by the most expeditious rout.
ART. 3. The Minister of Foreign Affairs, of the Navy, of Public Works, of
Commerce, of Posts and Telegraphs, and of the Colonies, are hereby charged
with the duty of carrying out the provisions of the present decree.
Done in Paris, this 4th day of August, 1914.
(Sgd.) R. Poincare, President of the Republic. Gaston Doumergue, Minister of
Foreign Affairs. Victor Augagneur, Minister of the Navy. Rene Renoult, Minister of
Public Works. Gaston Thomson, Minister of Commerce, Posts and Telegraphs.
Maurice Raynaud, Minister of the Colonies.
A critical examination of the terms of the convention itself, having in mind the discussion
which preceded its adoption, satisfies us that at the outbreak of the present war, there
was no such general recognition of the duty of a belligerent to grant "days of grace" and
"safe-conducts" to enemy ships in his harbors, as would sustain a ruling that such
alleged duty was prescribed by any imperative and well settled rule of public international
law, of such binding force that it was the duty of the master of the Sambia to rely
confidently upon a compliance with its terms by the French authorities in Saigon; and it
seems clear from a reading of the British order in council issued at the outbreak of the
war, with its limitations, restrictions, and conditions imposed upon the exercise of the
privileges secured therein, that while that nation recognized the advantages to be
anticipated from the reciprocal adherence by all the belligerents to the practice in that
regard which had been developed in recent years, in a more or less modified from, the
order in council was not published in response to any imperative rule of public
international law to which that nation felt itself bound to subscribe.
We have not overlooked the fact that President McKinley's proclamation of April 26,
1898, providing for the immunity of Spanish vessels in American ports at the outbreak of
the Spanish-American War, recited in its preamble that it was issued in "harmony with
the present views of nations, and sanctioned by their recent practice;" nor have we
forgotten that the Supreme Court of the United States in the case of The Buena
Ventura (175 U. S., 384; 44 Law. Ed., 206), which was decided at the October term,
1899, indicated that this proclamation was but a formal recognition of an established
practice of nations, which had been recognized as early as the Crimean War by England,
France and Russia. But the very fact that there was so substantial a divergence of views
among the conferees representing their respective governments at the second Hague
Conference in 1907, with regard to the existence and binding character of such a duty
under accepted rules of International Law, as to make it impossible for the conferees to
agree upon a convention setting forth anything beyond "a pious wish" in the premises,
quite conclusively demonstrates that, thereafter, at least, adherence to the practice by
any belligerent could not be demanded by virtue of any convention, tacit or express,
universally recognized by the members of the society of nations; and that it may be
expected only when the belligerent is convinced that the demand for adherence to the
practice inspired by his own commercial and political interests outweighs any advantage
he can hope to gain by a refusal to recognize the practice as binding upon him.
Professor Lawrence, an English authority, discussing the practice in 1904 said:
"Certainly it will be wise for British shipowners to read the signs of the times, and not
calculate upon a continuance in future of the indulgences which have been accorded in
recent years. . . ." And Professor Higgins, another English authority, observed that "each
state will determine for itself whether the desire to injure its enemy . . . will prevail over
the fear of offending neutrals by causing a great dislocation in trade, in which some of
them are sure to be interested."
That the practice has been by no means uniform, and that the tendency in recent years
has been to limit, restrict and in some cases, apparently, to disregard it altogether will
appear from a very summary review of its historical development. In the Crimean
War(1854), England and France gave Russian vessels six weeks for loading and
departure. In the Prussian-Austrian War of 1866, six weeks were allowed. In the war of
1870 France granted a leave of thirty days. In the Spanish-American War (1898), Spain
allowed American ships five days, and the United States allowed Spanish ships one
month. In the Russo-Japanese War (1904), the Japanese allowed the Russians one
week, but the Russians allowed the Japanese only two days. As to the present European
War our sources of information are not absolutely authoritative, but it would appear that
the English and Germans detained and seized each other's merchant vessels, and in
some instances confiscated their cargoes, under circumstances which would seem to
indicate that one belligerent or the other, or both, had wholly disregarded the pious wish
of the sixth Hague convention. With reference to the other belligerents it is said that
England and Austria-Hungary mutually granted ten days of grace; Germany and France,
seven days; France and Austria, seven days; but that Great Britain and Turkey, and
Great Britain and Bulgaria made no mutual allowance of time, and that Italy without
granting days of grace captured all enemy vessels apparently intended for conversion
into vessels of war, and sequestered the rest — a distinction without any very substantial
difference.
We conclude that under the circumstances surrounding the flight of the Sambia from the
port of Saigon, her master had no such assurances, under any well-settled and
universally accepted rule of public international law, as to the immunity of his vessel from
62 | T R A N S P O R T A T I O N L A W
seizure by the French authorities, as would justify us in holding that it was his duty to
remain in the port of Saigon in the hope that he would be allowed to sail for the port of
destination designated in the contract of affreightment with a laissez-passer or safe-
conduct which would secure the safety of his vessel and cargo en route.
It is true that soon after the outbreak of the war, the Republic of France authorized and
directed the grant of safe-conducts to enemy merchant vessels in its harbors, under
certain reasonable regulations and restrictions; so that it would appear that had the
master of the Sambia awaited the issuance of such a safe-conduct, he might have been
enabled to comply with the terms of his contract of affreightment. But until such action
had been taken, the Sambiawas exposed to the risk of seizure in the event that the
French government should decline to conform to the practice; and in the absence of any
assurance in that regard upon which the master could confidently rely, his duty to his
owner and to his vessel's flag justified him in fleeing from the danger of seizure in the
port of an enemy to the absolute security of a neutral port.
Discussing the exception of "King's enemies," Carver says:
The next exception, that of "King's enemies," relates to acts done by states or
peoples with which the sovereign may be at war, at any time during the carriage
of the goods. It does not include robbers on land; but has been said to include
pirates, or robbers on the high seas, as being enemies of all nations.
The shipowners is bound to be careful to avoid the acts of such enemies; but
where he has been so, he is not liable for losses occasioned by them. For
example, for the destruction or capture of the goods by enemies' cruisers; or for a
delay where the master has properly put into a neutral port for safety. The master
is justified in putting in, and delaying, where he has a reasonable apprehension
of danger from capture.
xxx           xxx           xxx
An express exception of "King's enemies" relates, at least, to the enemies of the
state to which the carrier belongs. (Ang. Carr. s., 200; Story, Bail. s., 526. But see
per Byles, J., in Russell vs. Niemann, (1864) 34 L. J., C. P. 10, at p. 14; Cf.
Morse vs. Slue [1671] 83 E. R., 453; Sir T. Ray. 220; 1 Vent. 238. The exception
"King's enemies," appears to have been made, originally, because the bailee
who had lost the goods by their acts was without a remedy against them.
Southcote's Case, 4 Co. Rep., 83 b; The Teutonia [1872] 42 L. J. Adm. 57; L. R.,
4 P. C., 171; The San Roman [1872] 42 L. J. Adm. 46; L. R. 5 P. C., 301;
Russell vs. Niemann, [1864] 34 L. J., C. P., 10.)
The danger from which the master of the Sambia fled was a real and not merely an
imaginary one as counsel for the shipper contends. Seizure at the hands of an "enemy of
the King," though not inevitable, was a possible outcome of a failure to leave the port of
Saigon; and we cannot say that under the conditions existing at the time when the
master elected to flee from that port, there were no grounds for a "reasonable
apprehension of danger" from seizure by the French authorities, and therefore no
necessity for flight. As was said in the case of Australian Steam Nav. Co. vs. Morse (L.
R., 4 P. C., 222):
The word "necessity," when applied to mercantile affairs, where the judgment
must in the nature of things be exercised, cannot, of course, mean an irresistible
compelling power. What is meant by it in such cases is the force of
circumstances which determine the course a man ought to take, Thus, where by
the force of circumstances, a man has the duty cast upon him of taking some
action for another, and under that obligation adopts a course which, to the
judgment of a wise and prudent man, is apparently the best for the interest of the
persons for whom he acts in a given emergency, it may properly be said of the
course so taken that it was in a mercantile sense necessary to take it.
There can be and there is no question as to the necessity, arising out of the presence of
enemy cruisers on the high seas which compelled the Sambia, once she had left the port
of Saigon, to take refuge in the port of Manila and to stay there indefinitely pending the
outcome of the war. We conclude, therefore, that the deviation of the Sambia from the
route prescribed in her charter party, and the subsequent abandonment by the master of
the voyage contemplated in the contract of affreightment, must be held to have been
justified by the necessity under which he was placed to elect that course which would
remove and preserve the vessel from danger of seizure by the public enemies of the flag
under which she sailed; and that neither the vessel nor her owners are liable for the
resultant damages suffered by the owner of the cargo.
Counsel for the cargo owner further contend that even if it be held that the action of the
master of the Sambia in fleeing to a port of refuge and abandoning the prosecution of the
voyage contemplated in the contract of affreightment, was justified or excused by the
exigencies of war, it was his imperative duty, nevertheless, to tranship the cargo on a
neutral vessel to one of the ports of destination designated in the contract.
We do not think that this contention is sustained by the evidence of record.
Under ordinary circumstances, it may fairly be presumed in the absence of instructions
from a shipper whose goods are found aboard a vessel lying in a port of refuge, whose
master has been compelled top abandon the attempt to transport the cargo in his own
63 | T R A N S P O R T A T I O N L A W
vessel, that the shipper's interests will be consulted by forwarding his property to the port
designated by him in the contract of affreightment; it would appear therefore that, when
practicable, the master is bound to act for the cargo owner in that way; but when the
condition of the cargo is such as to render it inadvisable to attempt to tranship, or if there
is ground to believe that such will be the case before suitable means of transhipment can
be secured, the duty clearly rests upon the master to make such other advantageous
disposition of the property of the shippers as circumstances will permit. (The
Niagara vs. Cordes, 62 U. S., 7; Carver's Carriage of Goods by Sea, 5th ed., pars. 294,
302, 305; Abbott (13th), p. 412; Shipton vs. Thornton, 9 A. & E., 314, 337;
Matthews vs. Gibbs, 30 L. J., Q. B., 55; Cf. Gibbs vs. Grey, 26 L. J., Ex., 286;
Shipton vs. Thornton, 9 A. & E., 314; Cannan vs. Meaburn, 1 Bing., 243; Ang. Carr. s.,
187; Cf. The Gratitudine, 3 C. Rob., 240; The Hamburg, 32 L. J., Ad., 161; 33 L. J., Ad.,
116; Atwood vs. Selar, 3 Q. B. D., 342.)
The cargo of the Sambia being a perishable one, and it having proved impracticable to
secure prompt instructions from the shipper, the master was confronted with the
necessity of electing the course he should pursue, to protect the interests of the shipper
whose property has been intrusted to him under a contract of affreightment which he
found himself unable to execute upon his own vessel. He elected, after taking the advice
of a competent marine surveyor, to sell the entire cargo under judicial authority, and to
that end followed substantially the proceedings prescribe in such cases in section II,
chapter III of the Commercial Code; and we are of opinion that not only is there nothing
in the record which would sustain a finding that in so doing he failed to exercise a sound
discretion in the performance of the duty resting upon him to protect the interests of the
cargo owner, but that on the whole record it affirmatively appears that this was the only
course open to him under all the circumstances existing at the time when he adopted it.
No direct evidence appears to have been submitted by either party as to whether it would
have been practicable to secure a suitable vessel upon which to tranship the cargo. This
may have been, and doubtless was, because the impracticability of an attempt to
tranship was tacitly conceded in the court below. But however this may be, it is clear that
the record will not sustain an affirmative finding that it was the duty of the master of
the Sambia to tranship his cargo rather than to sell it in the port of Manila. On the
contrary, we think it sufficiently appears that in adopting the latter course he acted
discreetly, prudently and with due regard for the interests of the cargo owner.
Our conclusions in this regard are deprived from considerations based upon the
evidence of record, the admissions of counsel in argument, and matters of general
knowledge of which we are authorized to take judicial notice.
On account of the unavoidable lack of ventilation while the Sambia lay at anchor beneath
the rays of a tropical sun, her perishable cargo of rice and ricemeal began to heat soon
after she put into Manila Bay, a part of the cargo being rendered absolutely worthless by
heating and through the inroads of weevils so that it had to be thrown overboard.
Exhibit B which set out in full in the plaintiff's brief is a certificate dated the 7th of
September, 1914, prepared by a marine surveyor, who having been called upon to
examine the cargo aboard the Sambia, reported that it "showed signs of heating and of
being infested with weevils" and recommended, "in the interests of all concerned, that it
be discharged and disposed of as soon as possible" and that it "be sold by 'private treaty'
in preference to 'sale by auction,' owing to conditions in the local market."
The risks of heavy and perhaps total loss, incident to an attempt to tranship this
perishable cargo, were greatly augmented by the possibility, and indeed the probability
that any vessel used for this purpose would be exposed to unusual and protracted
delays, as a result of the abnormal conditions prevailing in the shipping trade after the
outbreak of the war, of which we think we may properly take judicial notice.
And finally, it is a matter of common knowledge in this jurisdiction that rice is not
exported to Europe from the Philippine Islands, and that freight vessels suitable for the
transportation of rice to Europe in bulk do not make a practice of lying in Manila Bay,
unless previous arrangements have been made for their coming here under charter; so
that in the absence of any evidence to the contrary, we are satisfied that if the master of
a German vessel, lying in Manila Bay soon after the outbreak of the war, could, by any
possibility, have secured the services of such a vessel, he could not reasonably have
hoped to do so without the expenditure of considerable time in the effort.
It has been suggested that the danger of loss and damage to this perishable cargo might
have been averted had it been transhipped immediately upon the arrival of the Sambia in
Manila Bay and before it began to heat at deteriorate in the hold of that vessel.
But aside from any question as to the impracticability of securing a suitable vessel for
that purpose immediately after the arrival of the Sambia in Manila Bay, it must not be
forgotten that the act of the "King's enemy" which justified and excused her flight from
Saigon, necessitated, and therefore justified and excused the retention of the cargo
aboard the vessel by the master for such time as might be reasonably necessary to
ascertain the facts upon which he could intelligently decide upon the proper course to be
pursued thereafter; and that the deterioration of the cargo set in as soon as the vessel
came to anchor and adequate ventilation could not longer be provided. It follows that the
question which confronted him when the time had arrived for the making of his decision
as to the disposition which should be made of the cargo aboard his vessel was whether
the interests of the shipper would be consulted by the transhipment of a perishable cargo
of ricemeal that had already begun to heat and to deteriorate, or by its sale on the local
64 | T R A N S P O R T A T I O N L A W
market for the best price he could get — and we are of opinion that it sufficiently appears
that under all the circumstances his duty was to sell rather than to tranship.
Counsel for the cargo owners further contend that the shipowner should be held
responsible, at all events, for the deterioration in the value of the cargo, incident to its
detention on board the vessel from the date of its arrival in Manila until it was sold.
But it is clear that the master could not be required to act on the very day of his arrival; or
before he had a reasonable opportunity to ascertain whether he could hope to carry out
his contract and earn his freight; and that he should not be held responsible for a
reasonable delay incident to an effort to ascertain the wishes of the freighter, and upon
failure to secure prompt advices, to decide for himself as to the course which he should
adopt to secure the interests of the absent owner of the property aboard his vessel.
The master is entitled to delay for such a period as may, be reasonable under the
circumstance, before deciding on the course he will adopt. He may claim a fair
opportunity of carrying out the contract, and earning the freight, whether by
repairing or transhipping. Should the repair of the ship be undertaken, it must be
proceeded with diligently; and if so done, the freighter will have not ground of
complaint, although the consequent delay be a long one, unless, indeed, the
cargo is perishable, and likely to be injured by the delay. Where that is the case,
it ought to be forwarded, or sold, or given up, as the case may be, without waiting
for repairs. (See Carver's Carriage by Sea, 5th ed., sec. 309.)
A shipowner, or shipmaster (if communication with the shipowner is impossible),
will be allowed a reasonable time in which to decide what course he will adopt in
such cases as those under discussion; time must be allowed to him to ascertain
the facts, and to balance the conflicting interests involved, of shipowner, cargo
owner, underwriters on ship, cargo and freight. But once that time has elapsed,
he is bound to act prompty according as he has elected either to repair, or
abandon the voyage, or tranship. If he delays, and owing to that delay a
perishable cargo suffers damage, the shipowners will be liable for that damage;
he cannot escape that obligation by pleading the absence of definite instructions
from the owners of the cargo or their underwriters, since he has control of the
cargo and is entitled to elect. (Idem, sec. 304.a)
The other condition of the master's authority to sell is that the owners of the
cargo must have been communicated with and their instructions taken before
selling, if practicable. Whether that was so must be judged having regard to all
the circumstances of the particular case. The master is not to delay for
instructions where delay would be clearly imprudent. But if there is a fair
 expectation of obtaining directions, either from the owners of the goods, or from
agents known by the master to have authority to deal with the goods, within such
a time as would not be imprudent, the master must make ever reasonable
endeavor to get those directions; and his authority to sell does not arise until he
has failed to get them.
Should the master fail to seek for instructions when he might get them, or should
he act against the instructions he receives, any sale or hypothecation of the
cargo he may make under those circumstances is wrongful and void. (Idem, sec.
299.)
It appears that two cablegrams were dispatched by the local agent of the shipowner and
of the master, to the duly authorized representative of the cargo owners in Saigon, one
on the very day of the arrival of the Sambia in Manila Bay. (August 8, 1914) and other a
week later, advising him of the situation; that these cables were not delivered
presumably because of the interruption of cable communications following the outbreak
of war; that later, two letters were forwarded but remained unanswered until after the
master had sought and secured judicial authority to sell the cargo — the answer when it
was received being a flat refusal on the part of the Saigon representative of the cargo
owners to give any instructions or assume any responsibility; that on September 4, 1914,
the master of the Sambiahad a survey made of the cargo, by a qualified marine surveyor,
who reported that it "showed signs of heating and being infested with weevils," and
recommended that it be sold "in the interests of all concerned;" that a copy of the marine
surveyor's report was immediately mailed to the Saigon representative of the cargo
owners; that on September 10, 1914, the master, not having been able to get into
communication with the cargo owners or their representative in Saigon, sought and
secured judicial authority to sell the cargo; and that it was sold under judicial authority
granted in accordance with the provisions of local law made and provided in such cases.
It will be seen that thirty-three days elapsed from the date of the arrival of the Sambia in
Manila Bay, to the date of the master's application for judicial authority to sell the cargo.
But having in mind the extraordinary and exceptional conditions existing at that time as a
result of the war, with its interruptions of mail and cable communications, its disruption of
the markets throughout the world, its development of questions as to whether food
supplies should or should not be declared contraband, and its threatening aspects with
relation to shipping and commercial enterprises of all kinds throughout the world, we are
unable to say that the master devoted an unreasonable length of time to the
determination of the problem of the disposition of the cargo with which he was confronted
after his arrival in Manila Bay. On the contrary, we are of opinion that he proceeded with
all reasonably dispatch, and did all that could be required of a prudent man to protect the
interests of the owner of the cargo aboard his vessel; so that any losses which resulted
from the detention of the cargo aboard the Sambia must be attributed to the act of the
65 | T R A N S P O R T A T I O N L A W
"enemies of the king," which compelled the Sambia to flee to a port of refuge, and made
necessary the retention of the cargo aboard the vessel at anchor under a tropical sun,
and without proper ventilation, until it could be ascertained that the interests of the
absent owner would be consulted by the sale of this perishable cargo in the local market.
We come now to consider the various contentions of counsel for the shipowner denying
the right of the owners of the cargo to a judgment for al, or some specified part, of the
proceeds of the sale of the rice.
The contention that the court below was without jurisdiction of the subject-matter by
reason of the provision in the charter party for the settlement of disputes by a reference
to arbitration in London, may be disposed of without extended discussion. This objection
to the jurisdiction of the court appears for the first time in defendant's brief on appeal. In
the court below defendant not only appeared and answered without objecting to the
court's jurisdiction, but sought affirmative relief; and it is very clear that defendant cannot
be permitted to submit the issues raised by the pleadings for adjudication, without
objection, and then, when unsuccessful, assail the court's jurisdiction in reliance upon a
stipulation in the charter party which the parties were at entire liberty to waive if they so
desired. We do not stop therefore to rule upon the contention of opposing counsel, that a
contractual stipulation, for a general arbitration cannot be invoked to oust our courts of
their jurisdiction, under the doctrine announced in the cases of Wahl and
Wahl vs. Donaldson, Sims & Co. (2 Phil. Rep., 301, 303), and Cordoba vs. Conde (2
Phil. Rep., 445, 447); and that this doctrine should be applied in the case at bar,
notwithstanding the fact that the contract was executed in England, in the absence of
averment and proof that under the law of England compliance with, or an offer to comply
with such a stipulation constitutes a condition precedent to the institution of judicial
proceeding for the enforcement of the contract.
The claim advanced on behalf of the shipowner for freights is wholly without merit. Under
the terms of the contract of affreightment, the amount of the freight was made payable on
delivery of the cargo at the designated port of destination. It is clear then, that under the
terms of that instrument freight never became payable. Carrying the cargo from Saigon
to Manila was not even a partial performance of a contract to carry it from Saigon to
Europe; and even it if could be treated as such, the shipowner would have no claim for
freight, in the absence of any agreement, express or implied, to make payment for a
partial performance of the contract.
The citation from Carver (section 307) referred to in the decision of the trial court is as
follows:
 Should the master relinquish the attempt either to carry on the goods in his own
ship or to send them to their destination in another ship, he will thereby wholly
abandon any claim for freight in respect to them, unless it has been made
payable in advance, or irrespective of delivery. Where freight is only payable on
delivery, no part is earned until it is earned completely. So that whether the
abandonment of the voyage be due to inability, or prevention of the ship, or to the
necessity of selling the goods, either to raise funds for the ship's repairs or their
owner's interest, the shipowner loses the whole freight.
On the other hand, if the cargo be accepted at the port of refuge under an
agreement that delivery there shall be treated as a performance by the
shipowner of his contract; or if the owner of the goods, by any act or default,
prevents the shipowner from carrying them on to their destination, the whole of
the freight becomes at once payable.
Also sometimes the shipowner becomes entitled, by agreement, on delivery at a
port of refuge, to freight in proportion to the part of the voyage which has been
accomplished. This subject will be discussed more fully hereafter. Here it is
enough to say that no agreement of this kind can arise, by implication, unless the
cargo owner has consented to accept the goods under circumstances which left
him an option to have them carried on to their destination by the shipowner, in his
own or some other vessel.
Where the vessel has been abandoned at sea by the master and crew, without
any intention of returning to her, the freighter is entitled to treat the contract as
abandoned; so that if she be brought into port by salvors, he may claim the
goods without becoming liable to pay freight.
In The Cito, the Court of Appeal decided that the ship owner had no claim for
freight after the abandonment; but declined to say that that put an end to the
contract of affreightment. By the abandonment the shipowners gave the cargo
owners a right to elect to treat the contract as at and end. "We do not decided
what would have been the result if, after the ship had been brought in as it was
by the salvors, and before the cargo owners had come ion and excercised their
right to the cargo, the shipowners had given bail for the ship and cargo, and had
carried the cargo on."
The claim of the shipowner for general average cannot be sustained under the provisions
of the York-Antwerp Rules of 1890, by reference to which, it was expressly stipulated in
the charter party, all such questions should be settled, Rules X and XI, which treat of
"Expenses at Port of Refuge, etc.," and "Wages and Maintenance of Crew in Port of
66 | T R A N S P O R T A T I O N L A W
Refuge, etc.," provide for general average "When a ship shall have entered a port or
place of refuge, or shall have returned to her port or place of loading, in consequence of
accident, sacrifice, or other extraordinary circumstances which render that necessary for
the common safety . . .;" and an examination of the entire body of these rules discloses
that general average is never allowed thereunder unless the loss or damage sought to
be made good as general average has been incurred for the "common safety." It is very
clear that in fleeing from the port of Saigon and taking refuge in Manila Bay the master of
the Sambia was not acting for the common safety of the vessel and her cargo. The
French cargo was absolutely secure from danger of seizure or confiscation so long as it
remained in the port of Saigon, and there can be no question that the flight of
the Sambia was a measure of precaution adopted solely and exclusively for the
preservation of the vessel from danger of seizure or capture.
Rule 18 of the York-Antwerp Rules is as follows:
Except as provided in the foregoing rules, the adjustment shall be drawn up in
accordance with the law and practice that would have governed the adjustment
had the contract of affreightment not contained the clause to pay general
average according to these rules.
If then, any doubt could properly arise as to the meaning and effect of the words
"common safety" as used in this body of rules, we would be justified in resolving it in
accordance with settled principles of maritime law; and an examination of the authorities
discloses a substantial unanimity of opinion as to the general doctrine which provides
that claims for contribution in general average must be supported by proof that sacrifices
on account of which such claims are submitted were made to avert a common
imminent peril, and that extraordinary expenses for which reimbursement is sought, were
incurred for the joint benefit of ship and cargo.
The doctrine is discussed at length in numerous decisions of the Supreme Court of the
United States, a number of which are cited in the court below, but for our purposes it will
be sufficient to insert here a few extracts from two of the leading cases.
In the cases of The Star of Hope vs. Annan (76 U. S., 203), Justice Clifford, speaking for
the court said:
Such claims have their foundation in equity, and rest upon the doctrine that
whatever is sacrificed for the common benefit of the associated interests shall be
made good by all the interests which are exposed to the common peril and which
were saved from the common danger by the sacrifice. Much is deferred in such
an emergency to the judgment and decision of the master; but the authorities,
 everywhere, agree that three things must concur in order to constitute a valid
claim for general average contribution: First, there must be a common danger to
which the ship, cargo and crew were all exposed, and that danger must be
imminent and apparently inevitable, except by incurring a loss of a portion of the
associated interests to save the remainder. Second, there must be the voluntary
sacrifice of a part for the benefit of the whole, as, for example, a voluntary jettison
or casting away of some portion of the associated interests for the purpose of
avoiding the common peril, or a voluntary transfer of the common peril from the
whole to a particular portion of those interests. Third, the attempt so made to
avoid the common peril to which all those interests were exposed must be to
some practical extent successful, for if nothing is saved there cannot be any such
contribution in any case. (Barnard vs. Adams, 10 How., 303; Patten vs. Darling, 1
Cliff., 262; Pars. Ins., 278.)
In the case of Ralli vs. Troop (157 U. S., 418), Justice Gray, delivering the opinion for the
court said:
The result of the principles above stated, confirmed by the authorities above
referred to, may be summed up as follows:
The law of general average is part of the maritime law, and not of the municipal
law, and applies to maritime adventures only.
To constitute a general average loss, there must be a voluntary sacrifice of part
of the maritime adventure, for the purpose, and with the effect of saving the other
parts of the adventure from an imminent peril impending over the whole.
The interests so saved must be the sole object of the sacrifice, and those
interests only can be required to contribute to the loss. The safety of property not
included in the common adventure can neither be an object of the sacrifice, nor a
ground of contribution.
In the opinion just cited there will be found a general historical review of the authorities
upon which the foregoing conclusions were avowedly based, and we think we may
properly close our discussion of this branch of the case at bar, with the following extracts
therefrom:
In the earliest case in this court, Mr. Justice Story, delivering judgment, stated the
leading limitations and contributions, and recognized by all maritime nations, to
justify a general contribution, as follows: "First, that the ship and cargo should be
placed in a common imminent peril; secondly, that there should be a voluntary
67 | T R A N S P O R T A T I O N L A W
sacrifice of property to avert that peril; and, thirdly, that by the sacrifice the safety
of the other property should be presently and successfully attained." Columbian
Ins. Co. of Alexandria vs. Ashby and Stribling, 38 U. S., 330; 13 Pet., 331, 338
(10: 186, 190).
In the next case which came before this court, Mr. Justice Grier, in delivering
judgment defined these requisites, somewhat more fully, as follows: "In order to
constitute a case of general average, three things must occur: 1st. a common
danger, a danger in which ship, cargo and crew all participate; a danger
imminent and apparently inevitable, except by voluntary incurring the loss of a
portion of the whole to save the remainder. 2. There must be a voluntary
jettison, jactus, or casting away of some portion of the joint concern for the
purpose of avoiding this imminent peril, periculi imminentis evitandi causa, or, in
other words, a transfer of the peril from the whole to a particular portion of the
whole. 3. This attempt to avoid the imminent peril must be successful."
xxx           xxx           xxx
Mr. Justice Shee, in a note to Abbott on Shipping, after reviewing the statements
of many continental writers upon the subject, concludes: "Upon the whole, it is
impossible, consistently with the opinion of Lord Tenterden, and with the doctrine
of all the writers on maritime law, whose opinions have not been warped by the
exceptional legislation or practice of the countries in which they have written, to
recognize a rule respecting ship's expenses more comprehensive than the
following one: Expenses voluntarily and successfully incurred, or the necessary
consequences of resolutions voluntarily and successfully taken, by a person in
charge of a sea adventure, for the safety of life, ship and cargo, under the
pressure of a danger of total loss or destruction imminent and common to them,
give, the ship being saved, a claim to general average contribution." (Abbott on
Shipping 11th ed., 537, note.) In Harrison vs. Bank of Australasia, L. R. 7 Exch.,
39, 48, that statement was quoted as laying down the true rule, although there
was a difference of opinion as to whether the facts of the case came within it.
(See also Robinson vs. Price, L. R. 2, Q. B. Div., 91, 04, 295.)
What has been said disposes of all the real issues raised on this appeal, except the
contentions of the parties as to the effect which should be given the so-called penal
clause of the charter party which our rulings on plaintiff's prayer for damages make it
unnecessary for us to consider or decide.
We conclude that so much of the judgment entered in the court below as provides for the
delivery to the plaintiff in this action of the sum of P128,977.71, the net proceeds of the
sale of the cargo of rice aboard the Sambia, which has been deposited subject to the
order of the court below, less any commissions to which the clerk of that court may be
lawfully entitled at the date of payment, should be affirmed; but that so much of the
judgment as provides, for the recovery of damages in the sum of P60,814.32, should be
reversed; and further, that so much of the judgment as provides for the payment of legal
interest on the net proceeds of the sale of the rice deposited in the court below should be
modified by substitution therefor a provision for the delivery to the plaintiff of any interest
allowances which may have accumulated thereon, in any bank or other institution,
wherein it may have been deposited, at the time when the principal is paid over to the
plaintiff. No costs to either party in this instance. So ordered.
RESOLUTION ON MOTION FOR REHEARING.
October 26, 1917.
CARSON, J.:
The motion of counsel for plaintiff to set aside the decision heretofore entered in this
case and to grant a rehearing on the appeal is denied.
In so far as the arguments of counsel ion support of his motion rest upon grounds
heretofore decided adversely to his contentions, we find no sufficient reason for
reopening the case.
In so far as the arguments rest upon an alleged unfounded distinction made in the
disposition of this case and the case of Compagnie Franco-Indochinoise vs. Deutsch,
Australische Dampschiffs Gesellschaft (p. 643, post), decided on the same day, we think
that a comparison of the two decisions, and a review of the facts and the reasoning set
out therein, is sufficient to refute the contentions of counsel in this regard.
It may be worth while, however, to discuss briefly one question that has arisen in this
connection.
In one case, wherein we found that the facts disclosed the exercise of reasonable
diligence on the part of the shipmaster, we relieved him from responsibility for losses
which occurred while his vessel lay in Manila Bay for a period of time reasonably
sufficient for the determination of the course which he should pursue in the disposition of
his cargo.
68 | T R A N S P O R T A T I O N L A W
In the other case, wherein we held that the shipmaster had not exercised due diligence
and had failed to take the necessary measures looking to the disposition of his cargo, we
held him and his vessel responsible for all damage to the cargo from the day he arrived
in Manila Bay until it was sold.
It has been suggested that to be consistent, we should have relieved the master in the
latter case of the loss by deterioration from the time he arrived in Manila Bay to the close
of the period which would have been allowed him (had he exercised due diligence) for
the determination of the problem of the proper disposition of his cargo.
But no evidence was offered to show what proportion of the loss by deterioration
occurred during the period, and in the very nature of things it was and is impracticable to
ascertain that fact, or to submit proofs which would sustain a judicial finding in that
regard.
Said the Supreme Court of the United States (Hamilton-Brown Shoe Co. vs. Wolf Bros. &
Co., U. S. 251, 262) and the Supreme Court of California (Graham vs. Plate, 40 Cal.,
593, 596) in discussing an analogous situation.
The difficulty lies in ascertaining what proportion of the profits is due to the trade-
mark, and what to the intrinsic value of the commodity; and as this cannot be
ascertained with any reasonable certainty, it is more consonant with reason and
justice that the owner of the trade-mark should have the whole profit than that he
should be deprived of any part of it by the fraudulent act of the defendant. It is the
same principle which is applicable to a confusion of goods. If one wrongfully
mixes his own goods with those of another, so that they cannot be distinguished
and separated, he shall lose the whole, for the reason that the fault is his; and it
is but just that he should suffer the loss rather than an innocent party, who in no
degree contributed to the wrong.
In the case of Compagnie Franco-Indochinoise vs. Deutsch, Australische Dampschiffs
Gesellschaft (supra), the wrongdoer could not be heard to contend that the cargo owner
should not be permitted to recover any of the losses due to the shipmaster's lack of
diligence, on the ground that a part of those losses would have been incurred even had
the master exercised due diligence, it appearing that it was inherently impossible to
ascertain what proportion of the loss would have been incurred, in any event, and
despite the exercise of the diligence required of the master in the situation in which he
found himself.
Arellano, C.J., Torres, Araullo and Street, JJ., concur. 
Johnson, J., reserves his vote.

Separate Opinions
MALCOLM, M., dissenting:
I dissent. I must confess that my mind fails to follow the three majority decisions in their
discussion of "reasonable" or "due diligence" and other interrelated questions.
10. What if there is contributory negligence on the part of the shipper/owner/ plaintiff
Article 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the
goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be
liable in damages, which however, shall be equitably reduced.
Article 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common carrier
must exercise due diligence to forestall or lessen the loss.
G.R. No. 136960               December 8, 2003
IRON BULK SHIPPING PHILIPPINES, CO., LTD., petitioner, 
vs.
REMINGTON INDUSTRIAL SALES CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the August 28, 1998 Decision and the December 24, 1998 Resolution of the
1 
Court of Appeals in CA-G.R. CV No. 49725, affirming in toto the decision of the Regional
2 
Trial Court of Manila (Branch 9).
The factual background of the case is summarized by the appellate court, thus:
Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation
(hereafter Remington for short) ordered from defendant Wangs Company, Inc. (hereafter
Wangs for short) 194 packages of hot rolled steel sheets, weighing 686.565 metric tons,
69 | T R A N S P O R T A T I O N L A W
with a total value of $219,380.00, then equivalent to ₱6,469,759.17. Wangs forwarded
the order to its supplier, Burwill (Agencies) Ltd., in Hongkong. On or about November 26,
1991, the 194 packages were loaded on board the vessel MV ‘Indian Reliance’ at the
Port of Gdynia, Poland, for transportation to the Philippines, under Bill of Lading No. 27
(Exh. ‘C’). The vessel’s owner/charterer is represented in the Philippines by defendant
Iron Bulk Shipping Phils., Inc. (hereafter Iron Bulk for short).
Remington had the cargo insured for ₱6,469,759.17 during the voyage by Marine
Insurance Policy No. 7741 issued by defendant Pioneer Asia Insurance Corporation
(hereafter Pioneer for short).
On or about January 3, 1992, the MV ‘Indian Reliance’ arrived in the Port of Manila, and
the 194 packages of hot rolled steel sheets were discharged from the vessel. The cargo
was inspected twice by SGS Far East Ltd. and found to be wet (with slight trace of salt)
and rusty, extending from 50% to 80% of each plate. Plaintiff filed formal claims for loss
amounting to ₱544,875.17 with Pioneer, Iron Bulk, Manila Port Services, Inc. (MPS) and
ESE Brokerage Corporation (ESE). No one honored such claims.
Thus, plaintiff filed an action for collection, plus attorney’s fees, against Wangs, Pioneer
and Iron Bulk. . . ."
3
and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit:
…
The evidence on record shows that the direct and immediate cause of the rusting of the
goods imported by the plaintiff was the water found inside the cargo hold of M/V ‘Indian
Reliance’ wherein those goods were stored during the voyage, particularly the water
found on the surface of the merchandise and on the floor of the vessel hatch. And even
at the time the cargoes were being unloaded by crane at the Pier of Manila, Iron Bulk’s
witnesses noticed that water was dripping from the cargoes. (TSN dated July 20, 1993,
pp. 13-14; TSN dated May 30, 1994, pp. 8-9, 14, 24-25; TSN dated June 3, 1994, pp. 31-
32; TSN dated July 14, 1994, pp. 10-11).
SGS Far East Limited, an inspection agency hired by defendant Wangs, issued
Certificate of Inspection and Analysis No 6401/35071 stating the following findings:
Results of tests indicated that a very slight trace of salt was present in the sample as
confirmed by the test of Sodium. The results however does not necessarily indicate that
the rusty condition of the material was caused by seawater.
Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer,
submitted a Report (Exh. 10-Pioneer) dated February 20, 1992 to Pioneer which
pertinently reads as follows:
All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of
cotton were rubbed by us on different rusty steel sheets and submitted to Precision
Analytical Services, Inc. to determine the cause of wetting. Result thereof as per
Laboratory Report No. 077-92 of this firm showed that: ‘The sample was
wetted/contaminated by fresh water.
After considering the foregoing test results and the other evidence on record, the Court
found no clear and sufficient proof showing that the water which stayed in the cargo hold
of the vessel and which contaminated the merchandise was seawater. The Court,
however, is convinced that the subject goods were exposed to salt conditions as
evidenced by the presence of about 17% Sodium on the rust sample tested by SGS.
As to the source of the water found in the cargo hold, there is also no concrete and
competent evidence on record establishing that such water leaked from the pipe installed
in Hatch No. 1 of M/V ‘Indian Reliance’, as claimed by plaintiff. Indeed, the plaintiff based
such claim only from information it allegedly received from its supplier, as stated in its
letter to defendant Iron Bulk dated March 28, 1992 (Exh. K-3). And no one took the
witness stand to confirm or establish the alleged leakage.
Nevertheless, since Iron Bulk’s own evidence shows that there was water inside the
cargo hold of the vessel and that the goods stored therein were wet and full of rust,
without sufficient explanation on its part as to when and how water found its way into the
vessel holds, the Court finds and so holds that Iron Bulk failed to exercise the
extraordinary diligence required by law in the handling and transporting of the goods.
.....
Iron Bulk did not even exercise due diligence because admittedly, water was dripping
from the cargoes at the time they were being discharged from the vessel. Had Iron Bulk
done so, it could have discovered by ordinary inspection that the cargo holds and the
cargoes themselves were affected by water and it could have provided some remedial
measures to prevent or minimize the damage to the cargoes. But it did not, showing its
lack of care and diligence over the goods.
Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to
establish by any clear and convincing evidence any of the exempting causes provided for
70 | T R A N S P O R T A T I O N L A W
in Article 1734 of the Civil Code, it is presumed to have been at fault or to have acted
negligently.
.....
WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby
renders judgment in favor of it and against all the defendants herein as follows:
1. Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the following
amounts:
a) ₱544,875.17 representing the loss allowance for the goods insured, plus
interest at the legal rate (6% p.a.) reckoned from the time of filing of this case
until full payment is made;
b) ₱50,000.00 for and as attorney’s fees; and
c) the cost of suit.
2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by
defendant Pioneer of the foregoing award to the plaintiff, to reimburse defendant Pioneer
the total amount it paid to the plaintiff, in respect to its right of subrogation.
3. Denying the counterclaims of all the defendants and the cross-claim of defendant
Wangs Company, Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit.
4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against
defendant Iron Bulk by virtue of its right of subrogation.
5. Dismissing the case against defendant Wangs Company, Inc.
SO ORDERED. 4
Only Iron Bulk filed the present petition raising the following Assignment of Errors:
FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma
Bills of Lading to establish the condition of the cargo upon loading;
SECONDLY, the Court of Appeals erred in not exculpating petitioner since the
cargo was not contaminated during the time the same was in possession of the
 vessel, as evidenced by the express finding of the lower court that the
contamination and rusting was chemically established to have been caused by
fresh water;
THRIDLY, the Court of Appeals erred in making a sweeping finding that the
petitioner as carrier failed to exercise the requisite diligence under the law, which
is contrary to what is demonstrated by the evidence adduced; and
FINALLY, the Court of Appeals erred in affirming the amount of damages
adjudicated by the Court below, which is at best speculative and not supported
by damages. 5
The general rule is that only questions of law are entertained in petitions for review by
certiorari under Rule 45 of the Rules of Court. The trial court’s findings of fact, which the
Court of Appeals affirmed, are generally binding and conclusive upon this court. There 6  evidence shows that the cargo covered by the subject bill of lading, although it was
are recognized exceptions to this rule, among which are: (1) the conclusion is grounded
on speculations, surmises or conjectures; (2) the inference is manifestly mistaken,
absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on
a misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation
of specific evidence on which the factual findings are based; (7) the finding of absence of
facts is contradicted by the presence of evidence on record; (8) the findings of the CA
are contrary to the findings of the trial court; (9) the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different
conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such
findings are contrary to the admissions of both parties. Petitioner failed to demonstrate
7 
that its petition falls under any one of the above exceptions, except as to damages which
will be discussed forthwith.
Anent the first assigned error: That the Court of Appeals erred in relying on the pro forma
Bills of Lading to establish the condition of the cargo upon landing.
There is no merit to petitioner’s contention that the Bill of Lading covering the subject
cargo cannot be relied upon to indicate the condition of the cargo upon loading. It is
settled that a bill of lading has a two-fold character. In Phoenix Assurance Co., Ltd. vs.
United States Lines, we held that:
[A] bill of lading 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 and condition, quality and value. As a contract, it
names the contracting parties, which include the consignee, fixes the route, destination,
71 | T R A N S P O R T A T I O N L A W
and freight rate or charges, and stipulates the rights and obligations assumed by the
parties.
8
We find no error in the findings of the appellate court that the questioned bill of lading is a
clean bill of lading, i.e., it does not indicate any defect in the goods covered by it, as
shown by the notation, "CLEAN ON BOARD" and "Shipped at the Port of Loading in
9 
apparent good condition on board the vessel for carriage to Port of Discharge". 10
Petitioner presented evidence to prove that, contrary to the recitals contained in the
subject bill of lading, the cargo therein described as clean on board is actually wet and
covered with rust. Indeed, having the nature of a receipt, or an acknowledgement of the
quantity and condition of the goods delivered, the bill of lading, like any other receipts,
may be explained, varied or even contradicted. However, we agree with the Court of
11 
Appeals that far from contradicting the recitals contained in the said bill, petitioner’s own
partially wet and covered with rust was, nevertheless, found to be in a "fair, usually
accepted condition" when it was accepted for shipment. 12
The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading is
not truly reflective of the true condition of the cargo at the time of loading to the effect
that the said cargo was indeed in a damaged state, the carrier could have refused to
accept it, or at the least, made a marginal note in the bill of lading indicating the true
condition of the merchandise. But it did not. On the contrary, it accepted the subject
cargo and even agreed to the issuance of a clean bill of lading without taking any
exceptions with respect to the recitals contained therein. Since the carrier failed to
annotate in the bill of lading the alleged damaged condition of the cargo when it was
loaded, said carrier and the petitioner, as its representative, are bound by the description
appearing therein and they are now estopped from denying the contents of the said bill.
Petitioner presented in evidence the Mate’s Receipts and a Survey Report to prove the
13  14 
damaged condition of the cargo. However, contrary to the asseveration of petitioner, the
Mate’s Receipts and the Survey Report which were both dated November 6, 1991, are
unreliable evidence of the true condition of the shipment at the time of loading since said
receipts and report were issued twenty days prior to loading and before the issuance of
the clean bill of lading covering the subject cargo on November 26, 1991. Moreover,
while the surveyor, commissioned by the carrier to inspect the subject cargo, found the
inspected steel goods to be contaminated with rust he, nonetheless, estimated the
merchandise to be in a fair and usually accepted condition.
Anent the second and third assigned errors: That the Court of Appeals erred in not
finding that the contamination and rusting was chemically to have been caused by fresh
water; and that the appellate court erred in finding that petitioner failed to exercise the
requisite diligence under the law.
Petitioner’s arguments in support of the assigned errors are not plausible. Even granting,
for the sake of argument, that the subject cargo was already in a damaged condition at
the time it was accepted for transportation, the carrier is not relieved from its
responsibility to exercise due care in handling the merchandise and in employing the
necessary precautions to prevent the cargo from further deteriorating. It is settled that 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 safe carriage and delivery. It requires
15 
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. Under Article 1742 of the Civil Code, even if the loss,
16 
destruction, or deterioration of the goods should be caused, among others, by the
character of the goods, the common carrier must exercise due diligence to forestall or
lessen the loss. This 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 a right to receive them. In the instant case, if the carrier indeed
17 
found the steel sheets to have been covered by rust at the time that it accepted the same
for transportation, such finding should have prompted it to apply additional safety
measures to make sure that the cargo is protected from corrosion. This, the carrier failed
to do.
Article 1734 of the Civil Code states that:
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:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
72 | T R A N S P O R T A T I O N L A W
Except in the cases mentioned under Article 1734, 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
under the law. The Court of Appeals did not err in finding that no competent evidence
18 
was presented to prove that the deterioration of the subject cargo was brought about by
any of the causes enumerated under the aforequoted Article 1734 of the said Code. We
likewise agree with appellate court’s finding that the carrier failed to present proof that it
exercised extraordinary diligence in its vigilance over the goods. The presumption that
the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming the amount of
damages awarded by the trial court.
We agree with the contention of the petitioner in its last assigned error that the amount of
damages adjudicated by the trial court and affirmed by the appellate court is not in
consonance with the evidence presented by the parties. The judgments of both lower
courts are based on misapprehension of facts as we find no competent evidence to
prove the actual damages sustained by respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the steel
sheets, the cargo consigned to Remington consisted of hot rolled steel sheets with
lengths of eight feet and twenty feet. The eight-foot length steel sheets contained in 142
packages had a weight of 491.54 metric tons while the twenty-foot steel sheets which
were contained in 52 packages weighed 194.25 metric tons. The goods were valued at
19 
$320.00 per metric ton. 20
It is not disputed that at the time of inspection of the subject merchandise conducted by
SGS Far East Limited on January 21-24, 1992 and January 27-28, 1992, only 30% of
said goods originally consigned to Remington was available for examination at
Remington’s warehouse in Manila and that Remington had already disposed of the
remaining 70%. In the Certificate of Inspection issued by SGS, dated February 18, 1992,
it was reported that the surface of the steel sheets with length of twenty feet were found
to be rusty "extending from 60% to 80% per plate". However, there was no proof to show
21 
how many metric tons of twenty-foot and eight-foot length steel sheets, respectively,
comprise the remaining 30% of the cargo. No competent evidence was presented to
prove the weight of the remaining twenty-foot length steel sheets, on the basis of which
the amount of actual damages could have been ascertained.
Remington claims that 70% of the twenty-foot length steel sheets were damaged.
Remington’s general manager, Rowina Tan Saban, testified that the "70%" figure was
based on the reports submitted by SGS and Tan-Gatue and Remington’s independent US $ 62,088.00
survey to confirm these reports. Saban further testified that on the basis of these reports,
22 

Remington came up with a summary of the amount of damages sustained by the subject
cargo, to wit: Multiple 70% Qty. damaged US $ 43,461.60

Plates 8 ft lengths 491.540 MT - US$157,292.80 35% Loss allowance $ 15,211.56

Quantity Damaged 25% Total claim US $ 5,112.02

Loss Allowance 13% $15,211.56

Total Plates 8 ft lengths US$ 15,211.56 US $20,323.58 @ $26.81 = ₱544,875.17

Plates 20 ft lengths 194.025 MT - US$ 62,088.00

and which the trial court based the actual damages awarded in favor of Remington.

Quantity Damaged 70% However, after a careful examination of the reports submitted by SGS and Tan-Gatue,
we find nothing in the said reports and computation to justify the claim of Remington that
Loss Allowance 35% 70% of the twenty-foot length steel sheets were damaged. Neither does the alleged
survey conducted by Remington consisting only of photographs, prove the quantity of
23 

the damaged cargo.

Total Plates 20 ft lengths ₱544,875.71
As to the eight-foot length steel sheets, SGS reported that they were found oiled all over
which makes it hard to determine the rust condition on its surface. On the other hand,
24 

with the following detailed computation: the report issued by Tan-Gatue did not specify the extent of damage done to the said
merchandise. There is also no proof of the weight of the remaining eight-foot length
25 

Plates under 8 ft lengths 491.540 MT @ $320./MT steel sheets. From the foregoing, it is evident that the extent of actual damage to the
subject cargo is likewise not satisfactorily proven.
US $157,292.80
It is settled that actual or compensatory damages are not presumed and should be
proven before they are awarded. In Spouses Quisumbing vs. Meralco , we held that
26 

Multiply by 25% Qty. damaged $ 39,323.20

Actual damages are compensation for an injury that will put the injured party in the
13% Loss allowance $ 5,112.02 position where it was before it was injured. They pertain to such injuries or losses that
are actually sustained and susceptible of measurement. Except as provided by law or
stipulation, a party is entitled to an adequate compensation only for such pecuniary loss
Plates under 20 ft. lengths 194.025 MT @ $320./MT as it has duly proven.

Hence, for failure of Remington to present sufficient evidence which is susceptible of

measurement, it is not entitled to actual damages.
73 | T R A N S P O R T A T I O N L A W
Nonetheless, since it was established that the subject steel sheets sustained damage by
reason of the negligence of the carrier, albeit no competent proof was presented to justify
the award of actual damages, we find that Remington is entitled to temperate damages
in accordance with Articles 2216, 2224 and 2225 of the Civil Code, to wit:
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated. The assessment of
such damages, except liquidated ones, is left to the discretion of the court, according to
the circumstances of each case.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount cannot, from the nature of the case, be proved
with certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances. 1âwphi1
Thirty percent of the alleged cost of damages, i.e., ₱544, 875.17 or ₱165,000.00 is
reasonable enough for temperate damages.
We likewise agree with petitioner’s claim that it should not be held liable for the payment
of attorney’s fees because it was always willing to settle its liability by offering to pay 30%
of Remington’s claim and that it is only Remington’s unwarranted refusal to accept such
offer that led to the filing of the instant case. As found earlier, there is no evidence that
the 70% of the 20-foot length steel sheets which had been disposed of had been
damaged. Neither is there competent evidence proving the actual extent of damage
sustained by the eight-foot length steel sheets. Petitioner was therefore justified in
refusing to satisfy the full amount of Remington’s claims.
WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998 and
the Resolution dated December 24, 1998, in CA-G.R. CV No. 49725 are MODIFIED as
follows: The award of actual damages and attorney’s fees are deleted. Respondent is
awarded temperate damages in the amount of ₱165,000.00. In all other respects, the
appealed decision and resolution are affirmed.
No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Quisumbing, Callejo, Sr., and Tinga. JJ., concur.
74 | T R A N S P O R T A T I O N L A W
G.R. No. 147079             December 21, 2004
A.F. SANCHEZ BROKERAGE INC., petitioners, 
vs.
THE HON. COURT OF APPEALS and FGU INSURANCE
CORPORATION, respondents.
DECISION
CARPIO MORALES, J.:
Before this Court on a petition for Certiorari is the appellate court’s Decision of August
1 
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. The 2
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), it was discharged "without exception" and delivered to the warehouse of the
5  6 
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. As its customs broker, Sanchez Brokerage calculates and pays the
8 
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, was issued. On the receipt, another representative of Sanchez
10 
Brokerage, M. Sison, acknowledged that he received the cargoes consisting of three
11 
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection of 38 cartons of
27 

pieces in good condition. 12

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)
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the emitting a foul order and easily attracted flies." 28

cargoes which were thereupon stripped from the aluminum containers and loaded
13  14 

inside two transport vehicles hired by Sanchez Brokerage. 15

Wyeth-Suaco later demanded, by letter of August 25, 1992, from Sanchez Brokerage
29 

the payment of P191,384.25 representing the value of its loss arising from the damaged
Among those who witnessed the release of the cargoes from the PSI warehouse were tablets.
Ruben Alonso and Tony Akas, employees of Elite Adjusters and Surveyors Inc. (Elite
16 

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. The delivery receipt, bearing No. 07037 dated
17 
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 in favor of FGU Insurance.
30 

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 demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-
Suaco, Sanchez Brokerage, by letter of January 7, 1993, disclaimed liability for the
31 

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. Upon inspection,
19 
however, he, together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons
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, prompting its (Sanchez
32 

containing Femenal and Nordiol tablets were in bad order. He thus placed a note above
20 
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
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

and in good order.

Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report dated
July 31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets
were "wetted" (sic). 22
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial
21 
Court of Makati City against the Sanchez Brokerage.
The trial court, by Decision of July 29, 1996, dismissed the complaint, holding that the
34 

Survey Report prepared by the Elite Surveyors is bereft of any evidentiary support and a
The Elite Surveyors later issued Certificate No. CS-0731-1538/92 attached to which was
23 
mere product of pure guesswork. 35

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 On appeal, the appellate court reversed the decision of the trial court, it holding that the
good condition." Also noted was that at the time of delivery to the warehouse of Hizon
24 
Sanchez Brokerage engaged not only in the business of customs brokerage but also in
Laboratories Inc., slight to heavy rains fell, which could account for the wetting of the 44 the transportation and delivery of the cargo of its clients, hence, a common carrier within
cartons of Femenal and Nordiol tablets. 25
the context of Article 1732 of the New Civil Code. 36

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report confirming 26 
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.
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner
in good order and condition but were in a damaged state when delivered to Wyeth-
Suaco, the appellate court held that Sanchez Brokerage is presumed negligent and upon
it rested the burden of proving that it exercised extraordinary negligence not only in

75 | T R A N S P O R T A T I O N L A W
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.
76 | T R A N S P O R T A T I O N L A W
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 certiorari. The supervisory jurisdiction of this Court to issue
41 
a cert writ cannot be exercised in order to review the judgment of lower courts as to its
intrinsic correctness, either upon the law or the facts of the case. 42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a
common carrier, as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage,
himself testified that the services the firm offers include the delivery of goods to the
warehouse of the consignee or importer.
ATTY. FLORES:
 Q: What are the functions of these license brokers, license customs broker?
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. The 44  relieved of liability for the resulting damage.
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 of the Civil Code, extraordinary diligence in the vigilance over the goods it
45  Moreover, as observed by the appellate court, if indeed petitioner’s employees only
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; and that upon delivery by petitioner to
49  airport containers, or when the cargoes were already in transit to Antipolo, it is not
Hizon Laboratories Inc., some of the cargoes were found to be in bad order, as noted in
the Delivery Receipt issued by petitioner, and as indicated in the Survey Report of Elite
50  evidence to prove that at the time it received the cargoes, a part of it was wet, damaged
Surveyors and the Destruction Report of Hizon Laboratories, Inc.
51  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
77 | T R A N S P O R T A T I O N L A W
properly pack them and to the inherent characteristics of the goods ; and that it should
53 
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 1734 of the Civil Code exempts a common carrier from
55 
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
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
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. Or, petitioner would have presented, as witness, the employees of the PSI
58 
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
determinable. Aside from that phone call, petitioner admitted that it had no documentary
or in bad condition.60
The 4-page weather data furnished by PAGASA on request of Sanchez Brokerage
61 
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:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a
cartoon (sic)  wetted (sic) up to the bottom are wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they
were turned over by the PSI warehouseman, and upon their delivery to Hizon
Laboratories, Inc. a portion thereof was found to be in bad order, it was incumbent on
petitioner to prove that it exercised extraordinary diligence in the carriage of the goods. It
did not, however. Hence, its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby
AFFIRMED.
Costs against petitioner.
78 | T R A N S P O R T A T I O N L A W
11. Requisites to relieve a common carrier from liability from an order or act of
competent authority
G.R. No. L-48757 May 30, 1988
MAURO GANZON, petitioner, 
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
Antonio B. Abinoja for petitioner.
Quijano, Arroyo & Padilla Law Office for respondents.
SARMIENTO, J.:
The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner for damages
based on culpa contractual. The antecedent facts, as found by the respondent Court, 2 are undisputed:
On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B.
Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan, to the port of Manila
on board the lighter LCT "Batman" (Exhibit 1, Stipulation of Facts, Amended Record
on Appeal, p. 38). Pursuant to that agreement, Mauro B. Ganzon sent his lighter
"Batman" to Mariveles where it docked in three feet of water (t.s.n., September 28,
1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the scrap iron to
defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When
about half of the scrap iron was already loaded (t.s.n., December 14, 1972, p. 20),
Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from
Gelacio Tumambing. The latter resisted the shakedown and after a heated argument
between them, Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing
(t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The gunshot was not
<äre||anº•1àw> 
fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment
(t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4,
1956, Acting Mayor Basilio Rub, accompanied by three policemen, ordered captain
Filomeno Niza and his crew to dump the scrap iron (t.s.n., June 16, 1972, pp. 8-9)
where the lighter was docked (t.s.n., September 28, 1972, p. 31). The rest was
brought to the compound of NASSCO (Record on Appeal, pp. 20-22). Later on
 Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had
taken custody of the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n.,
September 28, 1972, p. 10.)
On the basis of the above findings, the respondent Court rendered a decision, the
dispositive portion of which states:
WHEREFORE, the decision appealed from is hereby reversed and set aside and a
new one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-
appellant Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the sum
of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's
fees. Costs against defendant-appellee Ganzon.  3
In this petition for review on certiorari, the alleged errors in the decision of the Court
of Appeals are:
I
THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF
BREACH OF THE CONTRACT OF TRANSPORTATION AND IN IMPOSING A
LIABILITY AGAINST HIM COMMENCING FROM THE TIME THE SCRAP WAS
PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN FACT AND IN
LAW.
II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE
ACTS OF HIS EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE
THAT IT WAS ORDERED BY THE LOCAL GOVERNMENT OFFICIAL WITHOUT
HIS PARTICIPATION.
III
THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE
SCRAP WAS DUE TO A FORTUITOUS EVENT AND THE PETITIONER IS
THEREFORE NOT LIABLE FOR LOSSES AS A CONSEQUENCE THEREOF.  4
The petitioner, in his first assignment of error, insists that the scrap iron had not been
unconditionally placed under his custody and control to make him liable. However, he
completely agrees with the respondent Court's finding that on December 1, 1956, the
private respondent delivered the scraps to Captain Filomeno Niza for loading in the
79 | T R A N S P O R T A T I O N L A W
lighter "Batman," That the petitioner, thru his employees, actually received the scraps
is freely admitted. Significantly, there is not the slightest allegation or showing of any
condition, qualification, or restriction accompanying the delivery by the private
respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the
contrary, soon after the scraps were delivered to, and received by the petitioner-
common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession
and control of the common carrier, and upon their receipt by the carrier for
transportation, the contract of carriage was deemed perfected. Consequently, the
petitioner-carrier's extraordinary responsibility for the loss, destruction or
deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the
carrier to the consignee, or to the person who has a right to receive them.   The fact
5
that part of the shipment had not been loaded on board the lighter did not impair the
said contract of transportation as the goods remained in the custody and control of
the carrier, albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the
following causes enumerated in Article 1734 of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Hence, the petitioner is presumed to have been at fault or to have acted
negligently.   By reason of this presumption, the court is not even required to make
6
an express finding of fault or negligence before it could hold the petitioner
answerable for the breach of the contract of carriage. Still, the petitioner could have
been exempted from any liability had he been able to prove that he observed
extraordinary diligence in the vigilance over the goods in his custody, according to all
the circumstances of the case, or that the loss was due to an unforeseen event or
to force majeure. As it was, there was hardly any attempt on the part of the petitioner
to prove that he exercised such extraordinary diligence.
 It is in the second and third assignments of error where the petitioner maintains that conversely stated, means that the shipper will suffer the losses and deterioration
he is exempt from any liability because the loss of the scraps was due mainly to the arising from the causes enumerated in Art. 1734; and in these instances, the burden
intervention of the municipal officials of Mariveles which constitutes a caso fortuito as of proving that damages were caused by the fault or negligence of the carrier rests
defined in Article 1174 of the Civil Code. 
7
upon him. However, the carrier must first establish that the loss or deterioration was
occasioned by one of the excepted causes or was due to an unforeseen event or to
We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's force majeure. Be that as it may, insofar as Art. 362 appears to require of the carrier
defense was that the loss of the scraps was due to an "order or act of competent only ordinary diligence, the same is .deemed to have been modified by Art. 1733 of
public authority," and this contention was correctly passed upon by the Court of the Civil Code.
Appeals which ruled that:
Finding the award of actual and exemplary damages to be proper, the same will not
... In the second place, before the appellee Ganzon could be absolved from be disturbed by us. Besides, these were not sufficiently controverted by the
responsibility on the ground that he was ordered by competent public authority to petitioner.
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power
to issue the disputed order, or that it was lawful, or that it was issued under legal WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals
process of authority. The appellee failed to establish this. Indeed, no authority or is hereby AFFIRMED. Costs against the petitioner.
power of the acting mayor to issue such an order was given in evidence. Neither has
it been shown that the cargo of scrap iron belonged to the Municipality of Mariveles. This decision is IMMEDIATELY EXECUTORY.
What we have in the record is the stipulation of the parties that the cargo of scrap
iron was accilmillated by the appellant through separate purchases here and there Yap, C.J., Paras and Padilla, JJ., concur.
from private individuals (Record on Appeal, pp. 38-39). The fact remains that the
order given by the acting mayor to dump the scrap iron into the sea was part of the
 
pressure applied by Mayor Jose Advincula to shakedown the appellant for
P5,000.00. The order of the acting mayor did not constitute valid authority for
appellee Mauro Ganzon and his representatives to carry out.  

Now the petitioner is changing his theory to caso fortuito. Such a change of theory on Separate Opinions
appeal we cannot, however, allow. In any case, the intervention of the municipal
officials was not In any case, of a character that would render impossible the
fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey
 
the illegal order to dump into the sea the scrap iron. Moreover, there is absence of
sufficient proof that the issuance of the same order was attended with such force or MELENCIO-HERRERA, J., dissenting:
intimidation as to completely overpower the will of the petitioner's employees. The
mere difficulty in the fullfilment of the obligation is not considered force majeure. We I am constrained to dissent.
agree with the private respondent that the scraps could have been properly unloaded
at the shore or at the NASSCO compound, so that after the dispute with the local It is my view that petitioner can not be held liable in damages for the loss and
officials concerned was settled, the scraps could then be delivered in accordance destruction of the scrap iron. The loss of said cargo was due to an excepted cause
with the contract of carriage. an 'order or act of competent public authority" (Article 1734[5], Civil Code).

There is no incompatibility between the Civil Code provisions on common carriers The loading of the scrap iron on the lighter had to be suspended because of
and Articles 361   and 362   of the Code of Commerce which were the basis for this
8 9
Municipal Mayor Jose Advincula's intervention, who was a "competent public
Court's ruling in Government of the Philippine Islands vs. Ynchausti & Co.10 and authority." Petitioner had no control over the situation as, in fact, Tumambing himself,
which the petitioner invokes in tills petition. For Art. 1735 of the Civil Code,
80 | T R A N S P O R T A T I O N L A W
 the owner of the cargo, was impotent to stop the "act' of said official and even
suffered a gunshot wound on the occasion.
When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied
by three policemen, who ordered the dumping of the scrap iron into the sea right
where the lighter was docked in three feet of water. Again, could the captain of the
lighter and his crew have defied said order?
Through the "order" or "act" of "competent public authority," therefore, the
performance of a contractual obligation was rendered impossible. The scrap iron that
was dumped into the sea was "destroyed" while the rest of the cargo was "seized."
The seizure is evidenced by the receipt issues by Acting Mayor Rub stating that the
Municipality of Mariveles had taken custody of the scrap iron. Apparently, therefore,
the seizure and destruction of the goods was done under legal process or authority
so that petitioner should be freed from responsibility.
Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.
Separate Opinions
MELENCIO-HERRERA, J., dissenting:
I am constrained to dissent.
It is my view that petitioner can not be held liable in damages for the loss and
destruction of the scrap iron. The loss of said cargo was due to an excepted cause
an 'order or act of competent public authority" (Article 1734[5], Civil Code).
The loading of the scrap iron on the lighter had to be suspended because of
Municipal Mayor Jose Advincula's intervention, who was a "competent public
authority." Petitioner had no control over the situation as, in fact, Tumambing himself,
the owner of the cargo, was impotent to stop the "act' of said official and even
suffered a gunshot wound on the occasion.
81 | T R A N S P O R T A T I O N L A W
When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied
by three policemen, who ordered the dumping of the scrap iron into the sea right
where the lighter was docked in three feet of water. Again, could the captain of the
lighter and his crew have defied said order?
Through the "order" or "act" of "competent public authority," therefore, the
performance of a contractual obligation was rendered impossible. The scrap iron that
was dumped into the sea was "destroyed" while the rest of the cargo was "seized."
The seizure is evidenced by the receipt issues by Acting Mayor Rub stating that the
Municipality of Mariveles had taken custody of the scrap iron. Apparently, therefore,
the seizure and destruction of the goods was done under legal process or authority
so that petitioner should be freed from responsibility.
Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.
Footnotes
1 Presided by Judge Jesus P. Morfe
2 Pascual, Chairman, ponente; Agrava and Climaco, JJ., concurring.
3 Decision, 9; Rollo 19.
4 Petitioner's Brief, 3, 7, 9; Rollo, 41.
5 Article 1736, Civil Code of the Philippines:
Art. 1736. The extraordinary responsibility of the common carriers lasts from the time
the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.
6 Article 1735, supra.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers
 are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in Article 1733.
7 Art. 11 74, supra:
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 for foreseen were inevitable.
8 Article 361, Code of Commerce:
Art. 361. The merchandise shall be transported at the risk and venture of the shipper,
if the contrary has not been expressly stipulated.
As a consequence, all the losses and deterioration which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or the inherent
nature and defect of the goods, shall be for the account and risk of the shipper.
Proof of these accidents is incumbent upon the carrier.
9 Article 362, Code of Commerce:
Art. 362. Nevertheless, the carrier shall be liable for the losses and damages
resulting from the causes mentioned in the preceding article if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take
the precautions which usage has established among careful persons, unless the
shipper has committed fraud in the bill of lading, representing the goods to be of a
kind or quality different from what they really were.
If, notwithstanding the precautions referred to in to article, the goods transported run
the risk of being lost, on account of their nature or by reason of unavoidable accident,
there being no time for their owners to dispose of them, the carrier may proceed to
sell them, placing them for this purpose at the disposal of the judicial authority or of
the officials designated by special provisions.
12. Duration of Liability
82 | T R A N S P O R T A T I O N L A W
G.R. No. 165647               March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner, 
vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN
CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI
FAREAST SHIP BUSINESS COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and
Resolution3 of the Court of Appeals in CA-G.R. No. 61885. The Court of Appeals
reversed the Decision4 of the Regional Trial Court (RTC) of Manila, Branch 55 in Civil
Case No. 96-80298, dismissing the complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded
on board M/S Offshore Master a shipment consisting of 10,000 bags of sodium
sulphate anhydrous 99 PCT Min. (shipment), complete and in good order for
transportation to and delivery at the port of Manila for consignee, L.G. Atkimson
Import-Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill of Lading
reflects the gross weight of the total cargo at 500,200 kilograms. 6 The Owner and/or
Charterer of M/V Offshore Master is unknown while the shipper of the shipment is
Shanghai Fareast Ship Business Company. Both are foreign firms doing business in
the Philippines, thru its local ship agent, respondent Wallem Philippines Shipping,
Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the
vessel M/S Offshore Master from which it was subsequently discharged. It was
disclosed during the discharge of the shipment from the carrier that 2,426 poly bags
(bags) were in bad order and condition, having sustained various degrees of
spillages and losses. This is evidenced by the Turn Over Survey of Bad Order
Cargoes (turn-over survey) of the arrastre operator, Asian Terminals, Inc. (arrastre
operator).8 The bad state of the bags is also evinced by the arrastre operator’s
Request for Bad Order Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from
the pier to the consignee’s warehouse in Quezon City,10 while the final inspection was
 conducted jointly by the consignee’s representative and the cargo surveyor. During
the unloading, it was found and noted that the bags had been discharged in
damaged and bad order condition. Upon inspection, it was discovered that 63,065.00
kilograms of the shipment had sustained unrecovered spillages, while 58,235.00
kilograms had been exposed and contaminated, resulting in losses due to
depreciation and downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the
damaged shipment, to no avail. Since the shipment was insured with petitioner
Philippines First Insurance Co., Inc. against all risks in the amount of
₱2,470,213.50,12 the consignee filed a formal claim13 with petitioner for the damage
and losses sustained by the shipment. After evaluating the invoices, the turn-over
survey, the bad order certificate and other documents,14petitioner found the claim to
be in order and compensable under the marine insurance policy. Consequently,
petitioner paid the consignee the sum of ₱397,879.69 and the latter signed a
subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem
for the recovery of the amount paid by petitioner to the consignee. However, despite
receipt of the letter, Wallem did not settle nor even send a response to petitioner’s
claim.15
Consequently, petitioner instituted an action before the RTC for damages against
respondents for the recovery of ₱397,879.69 representing the actual damages
suffered by petitioner plus legal interest thereon computed from the time of the filing
of the complaint until fully paid and attorney’s fees equivalent to 25% of the principal
claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay
petitioner ₱397,879.69 with 6% interest plus attorney’s fees and costs of the suit. It
attributed the damage and losses sustained by the shipment to the arrastre
operator’s mishandling in the discharge of the shipment. Citing Eastern Shipping
Lines, Inc. v. Court of Appeals, 17 the RTC held the shipping company and the arrastre
operator solidarily liable since both the arrastre operator and the carrier are charged
with and obligated to deliver the goods in good order condition to the consignee. It
also ruled that the ship functioned as a common carrier and was obliged to observe
the degree of care required of a common carrier in handling cargoes. Further, it held
that a notice of loss or damage in writing is not required in this case because said
goods already underwent a joint inspection or survey at the time of receipt thereof by
the consignee, which dispensed with the notice requirement.
83 | T R A N S P O R T A T I O N L A W
The Court of Appeals reversed and set aside the RTC’s decision. 18 According to the
appellate court, there is no solidary liability between the carrier and the arrastre
operator because it was clearly established by the court a quo that the damage and
losses of the shipment were attributed to the mishandling by the arrastre operator in
the discharge of the shipment. The appellate court ruled that the instant case falls
under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the
consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier,
the carrier’s duties extend to the obligation to safely discharge the cargo from the
vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged
shipment;
3. Whether or not Wallem’s failure to answer the extra judicial demand by petitioner
for the cost of the lost/damaged shipment is an implied admission of the former’s
liability for said goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondent’s vessel is a common carrier. 20 Thus, the
standards for determining the existence or absence of the respondent’s liability will
be gauged on the degree of diligence required of a common carrier. Moreover, as the
shipment was an exercise of international trade, the provisions of the Carriage of
Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce,
shall apply.22
The first and second issues raised in the petition will be resolved concurrently since
they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the insured
consignee. The damage to the shipment was documented by the turn-over
survey23 and Request for Bad Order Survey.24 The turn-over survey, in particular,
 expressly stipulates that 2,426 bags of the shipment were received by the arrastre
operator in damaged condition. With these documents, petitioner insists that the
shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.
The trial court, however, found through the testimony of Mr. Maximino Velasquez
Talens, a cargo surveyor of Oceanica Cargo Marine Surveyors Corporation, that the
losses and damage to the cargo were caused by the mishandling of the arrastre
operator. Specifically, that the torn cargo bags resulted from the use of steel
hooks/spikes in piling the cargo bags to the pallet board and in pushing the bags by
the stevedores of the arrastre operator to the tug boats then to the ports.25 The
appellate court affirmed the finding of mishandling in the discharge of cargo and it
served as its basis for exculpating respondents from liability, rationalizing that with
the fault of the arrastre operator in the unloading of the cargo established it should
bear sole liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for the damage
incurred at that point of transport. To address this issue, the pertinent laws and
jurisprudence are examined.
Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.26 Subject to certain exceptions enumerated under Article
173427 of the Civil Code, common carriers are responsible for the loss, destruction, or
deterioration of the goods. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to
receive them.28
For marine vessels, Article 619 of the Code of Commerce provides that the ship
captain is liable for the cargo from the time it is turned over to him at the dock or
afloat alongside the vessel at the port of loading, until he delivers it on the shore or
on the discharging wharf at the port of unloading, unless agreed otherwise.
In Standard Oil Co. of New York v. Lopez Castelo,29 the Court interpreted the ship
captain’s liability as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of carriage of
goods by sea, the carrier in relation to the loading, handling, stowage, carriage,
84 | T R A N S P O R T A T I O N L A W
custody, care, and discharge of such goods, shall be subject to the responsibilities
and liabilities and entitled to the rights and immunities set forth in the Act. 30 Section 3
(2) thereof then states that among the carriers’ responsibilities are to properly and
carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
The above doctrines are in fact expressly incorporated in the bill of lading between
the shipper Shanghai Fareast Business Co., and the consignee, to wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence
from the time when the goods are loaded on board the vessel and shall cease when
they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before loading and
after discharging from the vessel, howsoever such loss or damage arises.31
On the other hand, the functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee or shipper
and the ship's tackle.32 Being the custodian of the goods discharged from a vessel,
an arrastre operator's duty is to take good care of the goods and to turn them over to
the party entitled to their possession.33
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and measures
necessary to prevent losses and damage to shipments under its custody.34
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the
relationship and responsibility of an arrastre operator to a consignee of a cargo, to
quote:
The legal relationship between the consignee and the arrastre operator is akin to that
of a depositor and warehouseman. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator. Since it
is the duty of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with and obligated to deliver the goods in good condition to the consignee.
(Emphasis supplied) (Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v.
Court of Appeals36 with the clarification that the arrastre operator and the carrier are
not always and necessarily solidarily liable as the facts of a case may vary the rule.
 Thus, in this case the appellate court is correct insofar as it ruled that an arrastre
operator and a carrier may not be held solidarily liable at all times. But the precise
question is which entity had custody of the shipment during its unloading from the
vessel?
The aforementioned Section 3(2) of the COGSA states that among the carriers’
responsibilities are to properly and carefully load, care for and discharge the goods
carried. The bill of lading covering the subject shipment likewise stipulates that the
carrier’s liability for loss or damage to the goods ceases after its discharge from the
vessel. Article 619 of the Code of Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery at the port of unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it
was ruled that like the duty of seaworthiness, the duty of care of the cargo is non-
delegable,38 and the carrier is accordingly responsible for the acts of the master, the
crew, the stevedore, and his other agents. It has also been held that it is ordinarily
the duty of the master of a vessel to unload the cargo and place it in readiness for
delivery to the consignee, and there is an implied obligation that this shall be
accomplished with sound machinery, competent hands, and in such manner that no
unnecessary injury shall be done thereto. 39 And the fact that a consignee is required
to furnish persons to assist in unloading a shipment may not relieve the carrier of its
duty as to such unloading.40
The exercise of the carrier’s custody and responsibility over the subject shipment
during the unloading actually transpired in the instant case during the unloading of
the shipment as testified by Mr. Talens, the cargo surveyor, to quote:
Atty. Repol:
- Do you agree with me that Wallem Philippines is a shipping [company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir.41
xxx
Q Mr. Witness, during the discharging operation of this cargo, where was the master
of the vessel?
85 | T R A N S P O R T A T I O N L A W
A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was being unloaded
from the vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging of the cargo
from the vessel?
A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir.42
xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.43
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order
Inspection, to wit:
"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in
piling the cargo to [the] pallet board at the vessel’s cargo holds and at the pier
designated area before and after discharged that cause the bags to torn
[sic]."44 (Emphasis supplied)
The records are replete with evidence which show that the damage to the bags
happened before and after their discharge45 and it was caused by the stevedores of
the arrastre operator who were then under the supervision of Wallem. 1awphi1.net
It is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier. In the instant case, the damage or
losses were incurred during the discharge of the shipment while under the
supervision of the carrier. Consequently, the carrier is liable for the damage or losses
caused to the shipment. As the cost of the actual damage to the subject shipment
 has long been settled, the trial court’s finding of actual damages in the amount of
₱397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general rule in
assessing credibility of witnesses is well-settled:
x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct
and entitled to the highest respect because it is more competent to so conclude,
having had the opportunity to observe the witnesses' demeanor and deportment on
the stand, and the manner in which they gave their testimonies. The trial judge
therefore can better determine if such witnesses were telling the truth, being in the
ideal position to weigh conflicting testimonies. Therefore, unless the trial judge plainly
overlooked certain facts of substance and value which, if considered, might affect the
result of the case, his assessment on credibility must be respected.46
Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its
demand letter does not constitute an implied admission of liability. To borrow the
words of Mr. Justice Oliver Wendell Holmes, thus:
A man cannot make evidence for himself by writing a letter containing the statements
that he wishes to prove. He does not make the letter evidence by sending it to the
party against whom he wishes to prove the facts [stated therein]. He no more can
impose a duty to answer a charge than he can impose a duty to pay by sending
goods. Therefore a failure to answer such adverse assertions in the absence of
further circumstances making an answer requisite or natural has no effect as an
admission.47
With respect to the attorney’s fees, it is evident that petitioner was compelled to
litigate this matter to protect its interest. The RTC’s award of ₱20,000.00 as
attorney’s fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
dated 22 June 2004 and its Resolution dated 11 October 2004 are REVERSED and
SET ASIDE. Wallem is ordered to pay petitioner the sum of ₱397,879.69, with
interest thereon at 6% per annum from the filing of the complaint on 7 October 1996
until the judgment becomes final and executory. Thereafter, an interest rate of 12%
per annum shall be imposed.48Respondents are also ordered to pay petitioner the
amount of ₱20,000.00 for and as attorney’s fees, together with the costs of the suit.
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the
86 | T R A N S P O R T A T I O N L A W
same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has
a right to receive them, without prejudice to the provisions of article 1738.
Article 1737. The common carrier’s duty to observe extraordinary diligence over the goods remains in
full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or
owner has made use of the right of stoppage in transitu.
Article 1738. The extraordinary liability of the common carrier continues to be operative even during
the time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to
remove them or otherwise dispose of them.
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner, 
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage
sustained on a shipment of goods can be a solidary, or joint and several, liability of the
common carrier, the arrastre operator and the customs broker; (b) whether the payment
of legal interest on an award for loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed from is rendered; and (c)
whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator
and broker-forwarder for damages sustained by a shipment while in
defendants' custody, filed by the insurer-subrogee who paid the
consignee the value of such losses/damages.
 On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading  (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The
latter excepted to one drum, said to be in bad order, which damage was
unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation
made deliveries of the shipment to the consignee's warehouse. The latter
excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh.
E).
Plaintiff contended that due to the losses/damage sustained by said
drum, the consignee suffered losses totaling P19,032.95, due to the fault
and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay
the consignee P19,032.95 under the aforestated marine insurance policy,
so that it became subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation", "Release" and
Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the
appellate court said:
Defendants filed their respective answers, traversing the material
allegations of the complaint contending that: As for defendant Eastern
Shipping it alleged that the shipment was discharged in good order from
the vessel unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred after the
shipment was turned over to the latter, is no longer its liability (p. 17,
87 | T R A N S P O R T A T I O N L A W
Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order
action against it, not having negligent or at fault for the shipment was
already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition
shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained
losses/damages;
2. Whether or not these losses/damages were sustained
while in the custody of defendants (in whose respective
custody, if determinable);
3. Whether or not defendant(s) should be held liable for
the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the
shipment sustained losses/damages. The two drums were
shipped in good order and condition, as clearly shown by
the Bill of Lading and Commercial Invoice which do not
indicate any damages drum that was shipped (Exhs. B
and C). But when on December 12, 1981 the shipment
was delivered to defendant Metro Port Service, Inc., it
excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that
the losses/damages were sustained while in the
respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro
Port) and broker (Allied Brokerage). This becomes
evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the
 latter notes, it is stated that when the shipment was
"landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one
(1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The
report further states that when defendant Allied Brokerage
withdrew the shipment from defendant arrastre operator's
custody on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact. Net
unrecovered spillages was 
15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that
these losses/damages occurred before the shipment
reached the consignee while under the successive
custodies of defendants. Under Art. 1737 of the New Civil
Code, the common carrier's duty to observe extraordinary
diligence in the vigilance of goods remains in full force
and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the
place of destination, until the consignee has been advised
and has had reasonable opportunity to remove or dispose
of the goods (Art. 1738, NCC). Defendant Eastern
Shipping's own exhibit, the "Turn-Over Survey of Bad
Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal
interest of 12% per annum from October 1, 1982, the date
of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed
US$500 per case or the CIF value of the loss, whichever
is lesser, while the liability of defendant Metro Port
Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case
88 | T R A N S P O R T A T I O N L A W
to exceed P5,000.00 each, pursuant to Section 6.01 of
the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and
crossclaim of defendant/cross-claimant
Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the
conclusion drawn therefrom is correct. As there is sufficient evidence that
the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for
the amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court 
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and
grave abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR
THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE
QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF
THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
 PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier
are not all that novel. Indeed, we do have a fairly good number of previous decisions this
Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until the
lapse of a reasonable time for their acceptance by, the person entitled to receive them
(Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87;
Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not observed but these cases,
enumerated in Article 1734  of the Civil Code, are exclusive, not one of which can be
1
applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of
properly delivering the goods to the consignee has, too, been passed upon by the Court.
In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have
explained, in holding the carrier and the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila
Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee and the
arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil.
253 [1960]). Since it is the duty of the ARRASTRE to take good care of
the goods that are in its custody and to deliver them in good condition to
the consignee, such responsibility also devolves upon the CARRIER.
Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and
the customs broker are themselves always and necessarily liable solidarily with the
89 | T R A N S P O R T A T I O N L A W
carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The
instant petition has been brought solely by Eastern Shipping Lines, which, being the
carrier and not having been able to rebut the presumption of fault, is, in any event, to be
held liable in this particular case. A factual finding of both the court a quo and the
appellate court, we take note, is that "there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants" (the herein
petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines,
Inc., the sole petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more
than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port 
Service,  decided  on 15 May 1969, involved a suit for recovery of money arising out of
2 3
short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the
plaintiff in the lower court) averred in its complaint that the total amount of its claim for
the value of the undelivered goods amounted to P3,947.20. This demand, however, was
neither established in its totality nor definitely ascertained. In the stipulation of facts later
entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon.
The trial court rendered judgment ordering the appellants (defendants) Manila Port
Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28
December 1962 until full payment thereof. The appellants then assailed, inter alia, the
award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent
a stipulation, is the legal rate. Such interest normally is allowable from the
date of demand, judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when
the demand can be established with reasonable certainty." And as was
held by this Court in Rivera vs. Perez,  L-6998, February 29, 1956, if the
4
suit were for damages, "unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof (Montilla
c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 
 38 Phil. 302)," then, interest "should be from the date of the decision."
(Emphasis supplied)
The case of Reformina vs. Tomol,  rendered on 11 October 1985, was for "Recovery of
5
Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
third party defendants and against the defendants and third party
plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month
as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or already the total sum
of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs
against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing of
the complaint until fully paid. When the appellate court's decision became final,
the case was remanded to the lower court for execution, and this was when the
trial court issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari, the petitioners contended that Central Bank Circular  time computation thereof, i.e., from the filing of the complaint until fully paid.
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as
amended, Monetary Board in its Resolution No. 1622 dated July 29,
1974, has prescribed that the rate of interest for the loan, or forbearance
of any money, goods, or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take effect immediately.
(Emphasis found in the text) —
90 | T R A N S P O R T A T I O N L A W
should have, instead, been applied. This Court  ruled:
6
The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any other
kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within
the coverage of the said law for it is not within the ambit of the authority
granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is
one rendered in an Action for Damages for injury to persons and loss of
property and does not involve any loan, much less forbearances of any
money, goods or credits. As correctly argued by the private respondents,
the law applicable to the said case is Article 2209 of the New Civil Code
which reads —
Art. 2209. — If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest which
is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,  promulgated
7
on 28 July 1986. The case was for damages occasioned by an injury to person and loss
of property. The trial court awarded private respondent Pedro Manabat actual and
compensatory damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this
Court  modified the interest award from 12% to 6% interest per annum but sustained the
8
In Nakpil and Sons vs. Court of Appeals,  the trial court, in an action for the recovery of
9
damages arising from the collapse of a building, ordered, 
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) 
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save
from the modification of the amount granted by the lower court, the Court of Appeals
sustained the trial court's decision. When taken to this Court for review, the case, on 03
October 1986, was decided, thus:
 WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby
impose, upon the defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.  decision of 09 November 1988, this Court, while recognizing the right of the private
p. 10) indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the
exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees,
the total sum being payable upon the finality of this decision. Upon failure
to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary
costs against the defendant and third-party defendants (Except Roman
Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that
"the interest of twelve (12%) per cent per annum imposed on the total amount of
the monetary award was in contravention of law." The Court  ruled out the
10
applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant
to Central Bank Circular No. 416 . . . is applicable only in the following:
(1) loans; (2) forbearance of any money, goods or credit; and  P1,400.00 in concept of compensatory damages, with interest at the
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there
is neither a loan or a forbearance, but then no interest is actually
imposed provided the sums referred to in the judgment are paid upon the
finality of the judgment. It is delay in the payment of such final judgment,
that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in
other words, as part of the judgment for damages. Clearly, they are not
applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court  was a petition for review on certiorari from the decision, dated 27 February 1985,
11
of the then Intermediate Appellate Court reducing the amount of moral and exemplary
91 | T R A N S P O R T A T I O N L A W
damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and
its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial
court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages
with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a
respondent to recover damages, held the award, however, for moral damages by the trial
court, later sustained by the IAC, to be inconceivably large. The Court  thus set aside the
12
decision of the appellate court and rendered a new one, "ordering the petitioner to pay
private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral
damages, with 
six (6%) percent interest thereon computed from the finality of this decision until paid.
(Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz  which
13
arose from a breach of employment contract. For having been illegally dismissed, the
petitioner was awarded by the trial court moral and exemplary damages without,
however, providing any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with
the modification that defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally, the amounts
stated in the dispositive portion of the decision, including the sum of
legal rate from the date of the filing of the complaint until fully
paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages
should earn interest at 6% per annum from the date of the filing of the complaint.
Ascribing grave abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of
interest "at the legal rate" from the time of the filing of the complaint. . .
Said circular [Central Bank Circular No. 416] does not apply to actions
based on a breach of employment contract like the case at bar.
(Emphasis supplied)
 The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power
Corporation vs. Angas, decided on 08 May 1992, involved the expropriation of certain
14
parcels of land. After conducting a hearing on the complaints for eminent domain, the
trial court ordered the petitioner to pay the private respondents certain sums of money as
just compensation for their lands so expropriated "with legal interest thereon . . . until
fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the
Court  declared:
15
. . . , (T)he transaction involved is clearly not a loan or forbearance of
money, goods or credits but expropriation of certain parcels of land for a
public purpose, the payment of which is without stipulation regarding
interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the
amount of just compensation for the properties expropriated is manifestly
in the form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the
lower court sought to be enforced in this case is interest by way of
damages, and not by way of earnings from loans, etc. Art. 2209 of the
Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can
perhaps be classified into two groups according to the similarity of the issues involved
and the corresponding rulings rendered by the court. The "first group" would consist of
the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986),
Florendo v. Ruiz (1989)  damages.  The provisions under Title XVIII on "Damages" of the Civil Code govern in
and National Power Corporation v. Angas (1992). In the "second group" would
be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court
of Appeals (1988), and American Express International v.Intermediate Appellate
Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the
Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
discernible in these cases that there has been a consistent holding that the Central Bank
Circular imposing the 12% interest per annum applies only to loans or forbearance  of 16
money, goods or credits, as well as to judgments involving such loan or forbearance of
money, goods or credits, and that the 6% interest under the Civil Code governs when the
transaction involves the payment of indemnities in the concept of damage arising from
the breach or a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest per annum has
92 | T R A N S P O R T A T I O N L A W
been applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.
The "second group", did not alter the pronounced rule on the application of the 6% or
12% interest per annum, depending on whether or not the amount involved is a loan or
17
forbearance, on the one hand, or one of indemnity for damage, on the other hand.
Unlike, however, the "first group" which remained consistent in holding that the running
of the legal interest should be from the time of the filing of the complaint until fully paid,
the "second group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the
decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated
and not known until definitely ascertained, assessed and determined by the courts after
proof,' then, interest 'should be from the date of the decision.'" American Express
International v. IAC, introduced a different time frame for reckoning the 6% interest by
ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and
Sons case ruled that 12% interest per annum should be imposed from the finality of the
decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have
called for different applications, guided by the rule that the courts are vested with
discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest
the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts  is breached, the contravenor can be held liable for
18
19
determining the measure of recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing.  Furthermore, the interest due shall itself earn legal
21
interest from the time it is judicially demanded.  In the absence of stipulation, the rate of
22
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169  of the Civil
23
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court  at the rate of 6% per annum.  No interest, however, shall be adjudged on
24 25
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty.  Accordingly, where the demand is established with
26
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED
with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the
amount due computed from the decision, dated  30, 1952, Macleod promptly notified the carrier's main office in Manila and its branch in
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of
SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until
the payment thereof.
G.R. No. L-18965            October 30, 1964
COMPAÑIA MARITIMA, petitioner,  washing, cleaning and redrying in the amount of P19.610.00, the total loss adds up to
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by
telephone the services of the Compañia Maritima, a shipping corporation, for the
shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to
Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on
93 | T R A N S P O R T A T I O N L A W
board the S.S. Steel Navigator. This oral contract was later on confirmed by a formal and
written booking issued by Macleod's branch office in Sasa and handcarried to Compañia
Maritima's branch office in Davao in compliance with which the latter sent to Macleod's
private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed
on October 29, 1952. These two lighters were manned each by a patron and an assistant
patron. The patrons of both barges issued the corresponding carrier's receipts and that
issued by the patron of Barge No. 1025 reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from
MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at
Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at
the government's marginal wharf in the same place to await the arrival of the S.S.
Bowline Knot belonging to Compañia Maritima on which the hemp was to be loaded.
During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025
sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October
Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in
Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period
from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod
at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo of
1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After
reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a
loss in value of P31,947.72. Adding to this last amount the sum of P8,863.30
representing Macleod's expenses in checking, grading, rebating, and other fees for
P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT
No. 1025, were insured with the Insurance Company of North America against all losses
and damages. In due time, Macleod filed a claim for the loss it suffered as above stated
with said insurance company, and after the same had been processed, the sum of
P64,018.55 was paid, which was noted down in a document which aside from being a
receipt of the amount paid, was a subrogation agreement between Macleod and the
insurance company wherein the former assigned to the latter its rights over the insured
and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02,
which is the only amount supported by receipts, the insurance company instituted the
present action on October 28, 1953. After trial, the court a quo rendered judgment
ordering the carrier to pay the insurance company the sum of P60,421.02, with legal
interest thereon from the date of the filing of the complaint until fully paid, and the costs.
This judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this
petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier
and the shipper even if the loss occurred when the hemp was loaded on a barge owned
by the carrier which was loaded free of charge and was not actually loaded on the S.S.
Bowline Knot which would carry the hemp to Manila and no bill of lading was issued
therefore?; (2) Was the damage caused to the cargo or the sinking of the barge where it
was loaded due to a fortuitous event, storm or natural disaster that would exempt the
carrier from liability?; (3) Can respondent insurance company sue the carrier under its
insurance contract as assignee of Macleod in spite of the fact that the liability of the
carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals
erred in regarding Exhibit NNN-1 as an implied admission by the carrier of the
correctness and sufficiency of the shipper's statement of accounts contrary to the burden
of proof rule?; and (5) Can the insurance company maintain this suit without proof of its
personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals,
Macleod and Company contracted by telephone the services of petitioner to ship the
hemp in question from the former's private pier at Sasa, Davao City, to Manila, to be
subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was
later confirmed by a formal and written booking issued by the shipper's branch office,
Davao City, in virtue of which the carrier sent two of its lighters to undertake the service.
It also appears that the patrons of said lighters were employees of the carrier with due
authority to undertake the transportation and to sign the documents that may be
necessary therefor so much so that the patron of LCT No. 1025 signed the receipt
covering the cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from
MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at
Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's
wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way
impair the contract of carriage already entered into between the carrier and the shipper,
for that preparatory step is but part and parcel of said contract of carriage. The lighters
were merely employed as the first step of the voyage, but once that step was taken and
the hemp delivered to the carrier's employees, the rights and obligations of the parties
94 | T R A N S P O R T A T I O N L A W
attached thereby subjecting them to the principles and usages of the maritime law. In
other words, here we have a complete contract of carriage the consummation of which
has already begun: the shipper delivering the cargo to the carrier, and the latter taking
possession thereof by placing it on a lighter manned by its authorized employees, under
which Macleod became entitled to the privilege secured to him by law for its safe
transportation and delivery, and the carrier to the full payment of its freight upon
completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the
contract to carry and deliver, and if actually no goods are received there can be
no such contract. The liability and responsibility of the carrier under a contract for
the carriage of goods commence on their actual delivery to, or receipt by, the
carrier or an authorized agent. ... and delivery to a lighter in charge of a vessel
for shipment on the vessel, where it is the custom to deliver in that way, is a good
delivery and binds the vessel receiving the freight, the liability commencing at the
time of delivery to the lighter. ... and, similarly, where there is a contract to carry
goods from one port to another, and they cannot be loaded directly on the vessel
and lighters are sent by the vessel to bring the goods to it, the lighters are for the
time its substitutes, so that the bill of landing is applicable to the goods as soon
as they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied)
... The test as to whether the relation of shipper and carrier had been established
is, Had the control and possession of the cotton been completely surrendered by
the shipper to the railroad company? Whenever the control and possession of
goods passes to the carrier and nothing remains to be done by the shipper, then
it can be said with certainty that the relation of shipper and carrier has been
established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep.
202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834;
Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A.
1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).
The claim that there can be no contract of affreightment because the hemp was not
actually loaded on the ship that was to take it from Davao City to Manila is of no moment,
for, as already stated, the delivery of the hemp to the carrier's lighter is in line with the
contract. In fact, the receipt signed by the patron of the lighter that carried the hemp
stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and
condition." On the other hand, the authorities are to the effect that a bill of lading is not
indispensable for the creation of a contract of carriage.
Bill of lading not indispensable to contract of carriage. — As to the issuance of a
bill of lading, although article 350 of the Code of Commerce provides that "the
shipper as well as the carrier of merchandise or goods may mutua-lly demand
 that a bill of lading is not indispensable. As regards the form of the contract of
carriage it can be said that provided that there is a meeting of the minds and from
such meeting arise rights and obligations, there should be no limitations as to
form." The bill of lading is not essential to the contract, although it may become
obligatory by reason of the regulations of railroad companies, or as a condition
imposed in the contract by the agreement of the parties themselves. The bill of
lading is juridically a documentary proof of the stipulations and conditions agreed
upon by both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268).
In other words, the Code does not demand, as necessary requisite in the contract
of transportation, the delivery of the bill of lading to the shipper, but gives right to
both the carrier and the shipper to mutually demand of each other the delivery of
said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin, Philippine Commercial
Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the
goods for transportation, and not merely with the formal execution of a receipt or
bill of lading; the issuance of a bill of lading is not necessary to complete delivery
and acceptance. Even where it is provided by statute that liability commences
with the issuance of the bill of lading, actual delivery and acceptance are
sufficient to bind the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding
itself behind the claim of force majeure or storm which occurred on the night of October
29, 1952. But the evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not to force
majeure, but to lack of adequate precautions or measures taken by the carrier to prevent
the loss as may be inferred from the following findings of the Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated
barge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted
sea water in the same manner as rain entered "thru tank man-holes", according
to the patron of LCT No. 1023 (exh. JJJ-4) — conclusively showing that the
barge was not seaworthy — it should be noted that on the night of the nautical
accident there was no storm, flood, or other natural disaster or calamity.
Certainly, winds of 11 miles per hour, although stronger than the average 4.6
miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be
classified as storm. For according to Beaufort's wind scale, a storm has wind
velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau
standards winds should have a velocity of from 55 to 74 miles per hour in order to
be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore
Transportation Co., CA-G.R. No. 23167-R, March 12, 1959).
95 | T R A N S P O R T A T I O N L A W
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine
surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of
various buoyancy compartments' (exh. JJJ); and this report finds confirmation on the
above-mentioned admission of two witnesses for appellant concerning the cracks of the
lighter's bottom and the entrance of the rain water 'thru manholes'." We are not prepared
to dispute this finding of the Court of Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier
as assignee of the owner of the cargo for the insurance amount it paid to the latter under
the insurance contract. And this is so because since the cargo that was damaged was
insured with respondent company and the latter paid the amount represented by the
loss, it is but fair that it be given the right to recover from the party responsible for the
loss. The instant case, therefore, is not one between the insured and the insurer, but one
between the shipper and the carrier, because the insurance company merely stepped
into the shoes of the shipper. And since the shipper has a direct cause of action against
the carrier on account of the damage of the cargo, no valid reason is seen why such
action cannot be asserted or availed of by the insurance company as a subrogee of the
shipper. Nor can the carrier set up as a defense any defect in the insurance policy not
only because it is not a privy to it but also because it cannot avoid its liability to the
shipper under the contract of carriage which binds it to pay any loss that may be caused
to the cargo involved therein. Thus, we find fitting the following comments of the Court of
Appeals:
It was not imperative and necessary for the trial court to pass upon the question
of whether or not the disputed abaca cargo was covered by Marine Open Cargo
Policy No. MK-134 isued by appellee. Appellant was neither a party nor privy to
this insurance contract, and therefore cannot avail itself of any defect in the policy
which may constitute a valid reason for appellee, as the insurer, to reject the
claim of Macleod, as the insured. Anyway, whatever defect the policy contained,
if any, is deemed to have been waived by the subsequent payment of Macleod's
claim by appellee. Besides, appellant is herein sued in its capacity as a common
carrier, and appellee is suing as the assignee of the shipper pursuant to exhibit
MM. Since, as above demonstrated, appellant is liable to Macleod and Company
of the Philippines for the los or damage to the 1,162 bales of hemp after these
were received in good order and condition by the patron of appellant's LCT No.
1025, it necessarily follows that appellant is likewise liable to appellee who, as
assignee of Macleod, merely stepped into the shoes of and substi-tuted the latter
in demanding from appellant the payment for the loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the
carrier asked the lower court to order the production of the books of accounts of the
Odell Plantation containing the charges it made for the loss of the damaged hemp for
verification of its accountants, but later it desisted therefrom on the claim that it finds their
production no longer necessary. This desistance notwithstanding, the shipper however
pre-sented other documents to prove the damage it suffered in connection with the cargo
and on the strength thereof the court a quo ordered the carrier to pay the sum of
P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the
desistance of the carrier from producing the books of accounts of Odell Plantation
implies an admission of the correctness of the statements of accounts contained therein,
petitioner now contends that the Court of Appeals erred in basing the affirmance of the
award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books
of accounts of Odell Plantation presented in court is tantamount to an admission that the
statements contained therein are correct and their verification not necessary because its
main defense here, as well as below, was that it is not liable for the loss because there
was no contract of carriage between it and the shipper and the loss caused, if any, was
due to a fortuitous event. Hence, under the carrier's theory, the correctness of the
account representing the loss was not so material as would necessitate the presentation
of the books in question. At any rate, even if the books of accounts were not produced,
the correctness of the accounts cannot now be disputed for the same is supported by the
original documents on which the entries in said books were based which were presented
by the shipper as part of its evidence. And according to the Court of Appeals, these
documents alone sufficiently establish the award of P60,412.02 made in favor of
respondent.
5. Finally, with regard to the question concerning the personality of the insurance
company to maintain this action, we find the same of no importance, for the attorney
himself of the carrier admitted in open court that it is a foreign corporation doing business
in the Philippines with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
G.R. No. L-9840             April 22, 1957
LU DO & LU YM CORPORATION, petitioner-defendant,  the surveyors showed that some films and photographic supplies were missing valued at
vs.
I. V. BINAMIRA, respondent-plaintiff.
Ross, Selph, Carrascoso and Janda for petitioner.
I. V. Binamira in his own behalf.
BAUTISTA ANGELO, J.:
96 | T R A N S P O R T A T I O N L A W
On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against
defendant to recover the sum of P324.63 as value of certain missing shipment, P150 as
actual and compensatory damages, and P600 as moral and pecuniary damages. After
trial, the court rendered judgment ordering defendant to pay plaintiff the sum of P216.84,
with legal interest. On appeal, the Court of Appeals affirmed the judgment, hence the
present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board
the M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or photographic
supplies consigned to the order of respondent I. V. Binamira. For this shipment, Bill of
Lading No. 29 was issued. The ship arrived at the port of Cebu on September 23, 1951
and discharged her cargo on September 23, and 24, 1951, including the shipment in
question, placing it in the possession and custody of the arrastre operator of said port,
the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload
its cargo. During the discharge, good order cargo was separated from the bad order
cargo on board the ship, and a separate list of bad order cargo was prepared by Pascual
Villamor, checker of the stevedoring company. All the cargo unloaded was received at
the pier by the Visayan Cebu Terminal Company Inc, arrastre operator of the port. This
terminal company had also its own checker, Romeo Quijano, who also recorded and
noted down the good cargo from the bad one. The shipment in question, was not
included in the report of bad order cargo of both checkers, indicating that it was
discharged from the, ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship,
respondent took delivery of his six cases of photographic supplies from the arrastre
operator. He discovered that the cases showed signs of pilferage and, consequently, he
hired marine surveyors, R. J. del Pan & Company, Inc., to examine them. The surveyors
examined the cases and made a physical count of their contents in the presence of
representatives of petitioner, respondent and the stevedoring company. The surveyors
examined the cases and made a physical count of their contents in the presence of
representatives of petitioner, respondent and the stevedoring company. The finding of
P324.63.
It appears from the evidence that the six cases of films and photographic supplies were
discharged from the ship at the port of Cebu by the stevedoring company hired by
petitioner as agent of the carrier. All the unloaded cargo, including the shipment in
question, was received by the Visayan Cebu Terminal Company Inc., the arrastre
operator appointed by the Bureau of Customs. It also appears that during the discharge,
the cargo was checked both by the stevedoring company hired by petitioner as well as
by the arrastre operator of the port, and the shipment in question, when discharged from
the ship, was found to be in good order and condition. But after it was delivered to
respondent three days later, the same was examined by a marine surveyor who found
that some films and supplies were missing valued at P324.63.
The question now to be considered is: Is the carrier responsible for the loss considering
that the same occurred after the shipment was discharged from the ship and placed in
the possession and custody of the customs authorities?
The Court of Appeals found for the affirmative, making on this point the following
comment:
In this jurisdiction, a common carrier has the legal duty to deliver goods to a
consignee in the same condition in which it received them. Except where the
loss, destruction or deterioration of the merchandise was due to any of the cases
enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have
been at fault and to have acted negligently, unless it could prove that it observed
extraordinary diligence in the care and handling of the goods (Article
1735, supra). Such presumption and the liability of the carrier attach until the
goods are delivered actually or constructively, to the consignee, or to the person
who has a right to receive them (Article 1736, supra), and we believe delivery to
the customs authorities is not the delivery contemplated by Article 1736, supra, in
connection with second paragraph of Article 1498, supra, because, in such a
case, the goods are then still in the hands of the Government and their owner
could not exercise dominion whatever over them until the duties are paid. In the
case at bar, the presumption against the carrier, represented appellant as its
agent, has not been successfully rebutted.
It is now contended that the Court of Appeals erred in its finding not only because it
made wrong interpretation of the law on the matter, but also because it ignored the
provisions of the bill of lading covering the shipment wherein it was stipulated that the
responsibility of the carrier is limited only to losses that may occur while the cargo is still
under its custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is
responsible for the loss, destruction or deterioration of the goods it assumes to carry
from one place to another unless the same is due to any to any of the causes mentioned
in Article 1734 on the new Civil Code, and that, if the goods are lost, destroyed or
deteriorated, for causes other that those mentioned, the common carrier is presumed to
have been at fault or to have acted negligently, unless it proves that it has observed
extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary
97 | T R A N S P O R T A T I O N L A W
liability lasts from the time the goods are placed in the possession of the carrier until they
are delivered to the consignee, or "to the person who has the right to receive them"
(Article 1736, Idem.), but these provisions only apply when the loss, destruction or
deterioration takes place while the goods are in the possession of the carrier, and not
after it has lost control of them. The reason is obvious. While the goods are in its
possession, it is but fair that it exercise extraordinary diligence in protecting them from
damage, and if loss occurs, the law presumes that it was due to its fault or negligence.
This is necessary to protect the interest the interest of the owner who is at its mercy. The
situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the
consignee, or to the person who has a right to receive them", contemplated in Article
1736, because in such case the goods are still in the hands of the Government and the
owner cannot exercise dominion over them, we believe however that the parties may
agree to limit the liability of the carrier considering that the goods have still to through the
inspection of the customs authorities before they are actually turned over to the
consignee. This is a situation where we may say that the carrier losses control of the
goods because of a custom regulation and it is unfair that it be made responsible for
what may happen during the interregnum. And this is precisely what was done by the
parties herein. In the bill of lading that was issued covering the shipment in question,
both the carrier and the consignee have stipulated to limit the responsibility of the carrier
for the loss or damage that may because to the goods before they are actually delivered
by insert in therein the following provisions:
1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay,
nondelivery or misdelivery, or loss of or damage to the goods occurring while the
goods are not in the actual custody of the Carrier. . . . (Emphasis ours.)
(Paragraph 1, Exhibit "1")
2. . . . The responsibility of the Carrier in any capacity shall altogether cease and
the goods shall be considered to be delivered and at their own risk and expense
in every respect when taken into the custody of customs or other authorities. The
Carrier shall not be required to give any notification of disposition of the goods. . .
. (Emphasis ours.)
(Paragraph 12, Exhibit "1")
3. Any provisions herein to the contrary notwithstanding, goods may be . . . by
Carrier at ship's tackle . . . and delivery beyond ship's tackle shall been tirely at
the option of the Carrier and solely at the expense of the shipper or consignee.
(Paragraph 22, Exhibit "1")
It therefore appears clear that the carrier does not assume liability for any loss or
damage to the goods once they have been "taken into the custody of customs or other
authorities", or when they have been delivered at ship's tackle. These stipulations are
clear. They have been adopted precisely to mitigate the responsibility of the carrier
considering the present law on the matter, and we find nothing therein that is contrary to
morals or public policy that may justify their nullification. We are therefore persuaded to
conclude that the carrier is not responsible for the loss in question, it appearing that the
same happened after the shipment had been delivered to the customs authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
G.R. No. L-36481-2 October 23, 1982
AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees, 
vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.
Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.
ESCOLIN, J.:
This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of
the Court of First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428,
declaring appellant Philippine Steam Navigation liable for damages for the loss of the
appellees' cargoes as a result of a fire which gutted the Bureau of Customs' warehouse
in Pulupandan, Negros Occidental.
98 | T R A N S P O R T A T I O N L A W
The Court of Appeals certified the case to Us because only pure questions of law are
raised therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as
follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board
the appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros
Occidental, the following cargoes, to wit:
Clara Uy Bico —
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando —
44 cartons of colored paper,
toys and general merchandise valued at P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant. 1
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes
were discharged, complete and in good order, unto the warehouse of the Bureau of Customs.
At about 2:00 in the afternoon of the same day, said warehouse was razed by a fire of
unknown origin, destroying appellees' cargoes. Before the fire, however, appellee Uy Bico
was able to take delivery of 907 cavans of rice 2 Appellees' claims for the value of said goods
were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal
portion of which reads as follows:
WHEREFORE, judgment is rendered as follows:
1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff
Amparo C. Servando the aggregate sum of P1,070.50 with legal interest
thereon from the date of the filing of the complaint until fully paid, and to
pay the costs.
 2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff
Clara Uy Bico the aggregate sum of P16,625.00 with legal interest
thereon from the date of the filing of the complaint until fully paid, and to
pay the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe
extraordinary diligence from the moment the goods are unconditionally placed in their
possession "until the same are delivered, actually or constructively, by the carrier to the
consignee or to the person who has a right to receive them, without prejudice to the
provisions of Article 1738. "
The court a quo held that the delivery of the shipment in question to the warehouse of
the Bureau of Customs is not the delivery contemplated by Article 1736; and since the
burning of the warehouse occurred before actual or constructive delivery of the goods to
the appellees, the loss is chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in
question, the parties agreed to limit the responsibility of the carrier for the loss or damage
that may be caused to the shipment by inserting therein the following stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to
shipments billed 'owner's risk' unless such loss or damage is due to
negligence of carrier. Nor shall carrier be responsible for loss or damage
caused by force majeure, dangers or accidents of the sea or other
waters; war; public enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is contrary to
law, morals or public policy.
Appellees would contend that the above stipulation does not bind them because it was
printed in fine letters on the back-of the bills of lading; and that they did not sign the
same. This argument overlooks the pronouncement of this Court in Ong Yiu vs. Court of
Appeals, promulgated June 29, 1979, 3 where the same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh.
'12'), he is nevertheless bound by the provisions thereof. 'Such provisions
have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge
or assent to the regulation'. It is what is known as a contract of 'adhesion',
in regards which it has been said that contracts of adhesion wherein one
party imposes a ready made form of contract on the other, as the plane
99 | T R A N S P O R T A T I O N L A W
ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent." (Tolentino, Civil Code, Vol. IV, 1962 Ed.,
p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951,
p. 49).
Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of
the basic principle of law written in Article 1 1 7 4 of the Civil Code:
Article 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.
Thus, where fortuitous event or force majeure is the immediate and proximate cause of
the loss, the obligor is exempt from liability for non-performance. The Partidas, 4 the
antecedent of Article 1174 of the Civil Code, defines 'caso fortuito' as 'an event that takes
place by accident and could not have been foreseen. Examples of this are destruction of
houses, unexpected fire, shipwreck, violence of robbers.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada
Espanola 5 says: "In a legal sense and, consequently, also in relation to contracts, a 'caso
fortuito' presents the following essential characteristics: (1) the cause of the unforeseen and
unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will; (2) it must be impossible to foresee the event which
constitutes 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 a
normal manner; and (4) the obligor must be free from any participation in the aggravation of
the injury resulting to the creditor." In the case at bar, the burning of the customs warehouse
was an extraordinary event which happened independently of the will of the appellant. The
latter could not have foreseen the event.
There is nothing in the record to show that appellant carrier ,incurred in delay in the
performance of its obligation. It appears that appellant had not only notified appellees of
the arrival of their shipment, but had demanded that the same be withdrawn. In fact,
pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice
before the burning of the warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of the
goods in the Customs warehouse pending withdrawal thereof by the appellees was
undoubtedly made with their knowledge and consent. Since the warehouse belonged to
and was maintained by the government, it would be unfair to impute negligence to the
appellant, the latter having no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs.
Ossorio 6, where this Court held the defendant liable for damages arising from a fire caused
by the negligence of the defendant's employees while loading cases of gasoline and
petroleon products. But unlike in the said case, there is not a shred of proof in the present
case that the cause of the fire that broke out in the Custom's warehouse was in any way
attributable to the negligence of the appellant or its employees. Under the circumstances, the
appellant is plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.
SO ORDERED.
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,  stipulated therein.   Being a contract, it is the law between the parties thereto   who are
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-
appellants.
CUEVAS, J.:
ñé+.£ªwph!1
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court
of First Instance of Manila, finding defendants carrier and agent, liable for the value of
goods never delivered to plaintiff consignee. The issue raised is a pure question of law,
which is, the liability of the defendants, now appellants, under the bill of lading covering
the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING
COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S
SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD,
(represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY,
INC. Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned
importation was unloaded and delivered in good order and condition to the bonded
warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of
destination — Davao.
100 | T R A N S P O R T A T I O N L A W
When the letters of complaint sent to defendants failed to elicit the desired response,
consignee herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00
at the prevailing rate of exchange at that time, against the former, but neither paid.
Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in
AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the
amount of P1,691.93 plus attorney's fees and costs. However, the Court stated that
defendants may recoup whatever they may pay plaintiff by enforcing the judgment
against third party defendant AMCYL which had earlier been declared in default. Only
the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various
clauses and stipulations which should be examined in the light of pertinent legal
provisions and settled jurisprudence. This undertaking is not only proper but necessary
as well because of the nature of the bill of lading which operates both as a receipt for the
goods; and more importantly, as a contract to transport and deliver the same as
2 3
bound by its terms and conditions   provided that these are not contrary to law, morals,
4
good customs, public order and public policy.  5
Bill of Lading No. 18 sets forth in page 2 thereof   that one (1) crate of Optima welded
6
wedge wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of
loading" which is Bremen, Germany, while the freight had been prepaid up to the port of
destination or the "port of discharge of goods in this case, Davao, the carrier undertook
to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of
discharge from ship-Manila. Thereafter, the goods were to be transshipped by the carrier
to the port of destination or "port of discharge of goods The stipulation is plainly indicated
on the face of the bill which contains the following phrase printed below the space
provided for the port of discharge from ship", thus: 
têñ.£îhqwâ£
if goods are to be transshipped at port of discharge, show destination
under the column for "description of contents"  7
As instructed above, the following words appeared typewritten under the column for
"description of contents": 
têñ.£îhqwâ£
PORT OF DISCHARGE OF GOODS: DAVAO 
FREIGHT PREPAID  8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and
delivering the same into the custody of AMCYL, the bonded warehouse, appellants were
acting in full accord with the contractual stipulations contained in Bill of Lading No. 18.
The delivery of the goods to AMCYL was part of appellants' duty to transship the goods
from Manila to their port of destination-Davao. The word "transship" means:  têñ.£îhqwâ£
to transfer for further transportation from one ship or conveyance to
another 
The extent of appellant carrier's responsibility and/or liability in the transshipment of the
goods in question are spelled out and delineated under Section 1, paragraph 3 of Bill of
Lading No. 18, to wit:  têñ.£îhqwâ£
The carrier shall not be liable in any capacity whatsoever for any delay,
loss or damage occurring before the goods enter ship's tackle to be
loaded or after the goods leave ship's tackle to be discharged,
transshipped or forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides:  têñ.£îhqwâ£
Whenever the carrier or m aster may deem it advisable or in any case
where the goods are placed at carrier's disposal at or consigned to a
point where the ship does not expect to load or discharge, the carrier or
master may, without notice, forward the whole or any part of the goods
before or after loading at the original port of shipment, ... This carrier, in
making arrangements for any transshipping or forwarding vessels or
means of transportation not operated by this carrier shall be considered
solely the forwarding agent of the shipper and without any other
responsibility whatsoever even though the freight for the whole transport
has been collected by him. ... Pending or during forwarding or
transshipping the carrier may store the goods ashore or afloat solely as
agent of the shipper and at risk and expense of the goods and the carrier
shall not be liable for detention nor responsible for the acts, neglect,
delay or failure to act of anyone to whom the goods are entrusted or
delivered for storage, handling or any service incidental thereto
(Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in
full and good condition unto the custody of AMCYL at the port of discharge from ship — Manila, and therefore, pursuant to
the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11
101 | T R A N S P O R T A T I O N L A W
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or
damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO.,
LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the
material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in
accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the
same as the subject stipulations before Us, provides: 
têñ.£îhqwâ£
The carrier shall not be liable in any capacity whatsoever for any loss or
damage to the goods while the goods are not in its actual custody. (Par.
2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in
connection with all transshipping or forwarding of the goods or the use of
any means of transportation or forwarding of goods not used or operated
by the carrier, shall be considered solely the agent of the shipper and
consignee and without any other responsibility whatsoever or for the cost
thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their
validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded that:  têñ.£îhqwâ£
... The short form Bill of Lading ( ) states in no uncertain terms that the
port of discharge of the cargo is Manila, but that the same was to be
transshipped beyond the port of discharge to Davao City. Pursuant to the
terms of the long form Bill of Lading ( ), appellee's responsibility as a
common carrier ceased the moment the goods were unloaded in Manila
and in the matter of transshipment, appellee acted merely as an agent of
the shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above
pronouncements, and in conformity with the pertinent provisions of the New Civil Code,
Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid
stipulations between the parties insofar as they exempt the carrier from liability for loss or
damage to the goods while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the New
Civil Code. 15 In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed
by the Code of Commerce and by special laws. 16 A careful perusal of the provisions of the New Civil Code on common
carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: 
têñ.£îhqwâ£
Article 1736. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of
article 1738.
Article 1738 referred to in the foregoing provision runs thus:  têñ.£îhqwâ£
Article 1738. The extraordinary liability of the common carrier continues
to be operative even during the time the goods are stored in a warehouse
of the carrier at the place of destination, until the consignee has been
advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination
and are stored in the warehouse of the carrier. The subject goods were still awaiting
transshipment to their port of destination, and were stored in the warehouse of a third
party when last seen and/or heard of. However, Article 1736 is applicable to the instant
suit. Under said article, the carrier may be relieved of the responsibility for loss or
damage to the goods upon actual or constructive delivery of the same by the carrier to
the consignee, or to the person who has a right to receive them. In sales, actual delivery
has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him
to receive the goods as his representative for the purpose of custody or disposal. 17 By the
same token, there is actual delivery in contracts for the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 18 The court a quo found
that there was actual delivery to the consignee through its duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had
developed between appellant and appellee in the course of the transactions that gave
birth to the present suit. Two undertakings appeared embodied and/or provided for in the
Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The
second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the
consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when the subject goods are
discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of
appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee
as the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the
same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible
for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to
the case before Us.
102 | T R A N S P O R T A T I O N L A W
But even as agent of the consignee, the appellant cannot be made answerable for the
value of the missing goods, It is true that the transshipment of the goods, which was the
object of the agency, was not fully performed. However, appellant had commenced said
performance, the completion of which was aborted by circumstances beyond its control.
An agent who carries out the orders and instructions of the principal without being guilty
of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to
accomplish the object of the agency,  This can be gleaned from the following provisions
21
of the New Civil Code on the obligations of the agent: 
têñ.£îhqwâ£
Article 1884. The agent is bound by his acceptance to carry out the
agency, and is liable for the damages which, through his non-
performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a
conflict between his interests and those of the principal, he should prefer
his own.
Article 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts of
the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person
and the person appointed was notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for
negligence which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or
by its representative in the Philippines. Neither is there any showing of notorious
incompetence or insolvency on the part of AMCYT, which acted as appellant's substitute
in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full
faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the
provisions of the New Civil Code on common carriers, agency and contracts, they incur
no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's
complaint is hereby DISMISSED.
No costs.
GANZON VS CA, SUPRA
SCHMITZ TRANSPORT VS TVI, SUPRA
G.R. No. 125524           August 25, 1999
BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner,  Respondents contended that the shipment was delivered to GPC without presentation of
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM
PHILIPPINES SHIPPING, INC.,respondents.
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-
Mac Enterprises, shipped on board the vessel Nen Jiang, owned and operated by
respondent China Ocean Shipping Co., through local agent respondent Wallem
Philippines Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of watermelons valued at
US$5,950.00 covered by Bill of Lading No. HKG 99012 and exported through Letter of
Credit No. HK 1031/30 issued by National Bank of Pakistan, Hongkong (hereinafter
PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of US$14,273.46
covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No. HK
1032/30 also issued by PAKISTAN BANK. The Bills of Lading contained the following
pertinent provision: "One of the Bills of Lading must be surrendered duly endorsed in
exchange for the goods or delivery order.1 The shipment was bound for Hongkong with
103 | T R A N S P O R T A T I O N L A W
PAKISTAN BANK as consignee and Great Prospect Company of Kowloon, Hongkong
(hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and
commercial invoices were submitted to petitioner's depository bank, Consolidated
Banking Corporation (hereinafter SOLIDBANK), which paid petitioner in advance the
total value of the shipment of US$20,223.46. 1âwphi1.nêt
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly
to GPC, not to PAKISTAN BANK, and without the required bill of lading having been
surrendered. Subsequently, GPC failed to pay PAKISTAN BANK such that the latter, still
in possession of the original bills of lading, refused to pay petitioner through
SOLIDBANK. Since SOLIDBANK already pre-paid petitioner the value of the shipment, it
demanded payment from respondent WALLEM through five (5) letters but was refused.
Petitioner was thus allegedly constrained to return the amount involved to SOLIDBANK,
then demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of
US$20,223.46 or its equivalent of P546,033.42 from respondents before the Regional
Trial Court of Manila, based on delivery of the shipment to GPC without presentation of
the bills of lading and bank guarantee.
the bills of lading and bank guarantee per request of petitioner himself because the
shipment consisted of perishable goods. The telex dated 5 April 1989 conveying such
request read —
AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO
RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L2 and bank
guarantee since for prepaid shipt ofrt charges already fully paid our end . . . .3
Respondents explained that it is a standard maritime practice, when immediate delivery
is of the essence, for the shipper to request or instruct the carrier to deliver the goods to
the buyer upon arrival at the port of destination without requiring presentation of the bill
of lading as that usually takes time. As proof thereof, respondents apprised the trial court
that for the duration of their two-year business relationship with petitioner concerning
similar shipments to GPC deliveries were effected without presentation of the bills of
lading.4 Respondents advanced next that the refusal of PAKISTAN BANK to pay the
letters of credit to SOLIDBANK was due to the latter's failure to submit a Certificate of
Quantity and Quality. Respondents counterclaimed for attorney's fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the
following amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full
payment; (2) P10,000.00 as attorney's fees; and, (3) the costs. The counterclaims were
dismissed for lack of merit.5 The trial court opined that respondents breached the
provision in the bill of lading requiring that "one of the Bills of Lading must be
surrendered duly endorsed in exchange for the goods or delivery order," when they
released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading.
The trial court added that the shipment should not have been released to GPC at all
since the instruction contained in the telex was to arrange delivery to the respective
consignees and not to any party. The trial court observed that the only role of GPC in the
transaction as notify party was precisely to be notified of the arrival of the cargoes in
Hongkong so it could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different manner. According
to it, as established by previous similar transactions between the parties, shipped
cargoes were sometimes actually delivered not to the consignee but to notify party GPC
without need of the bills of lading or bank guarantee. 6 Moreover, the bills of lading were
viewed by respondent court to have been properly superseded by the telex instruction
and to implement the instruction, the delivery of the shipment must be to GPC, the real
importer/buyer of the goods as shown by the export invoices, 7 and not to PAKISTAN
BANK since the latter could very well present the bills of lading in its possession;
likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly
delivered it would no longer be proper to require a bank guarantee. Respondent court
noted that besides, GPC was listed as a consignee in the telex. It observed further that
the demand letter of petitioner to respondents never complained of misdelivery of goods.
Lastly, respondent court found that petitioner's claim of having reimbursed the amount
involved to SOLIDBANK was unsubstantiated. Thus, on 13 March 1996 respondent court
set aside the decision of the trial court and dismissed the complaint together with the
counterclaims.8 On 5 July 1996 reconsideration was denied.9
Petitioner submits that the fact that the shipment was not delivered to the consignee as
stated in the bill of lading or to a party designated or named by the consignee constitutes
a misdelivery thereof. Moreover, petitioner argues that from the text of the telex,
assuming there was such an instruction, the delivery of the shipment without the required
bill of lading or bank guarantee should be made only to the designated consignee,
referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that "the fact that the shipment was
not delivered to the consignee as stated in the Bill of Lading or to a party designated or
named by the consignee constitutes a misdelivery thereof" is a deviation from his cause
of action before the trial court. It is clear from the allegation in his complaint that it does
104 | T R A N S P O R T A T I O N L A W
not deal with misdelivery of the cargoes but of delivery to GPC without the required bills
of lading and bank guarantee —
6. The goods arrived in Hongkong and were released by the defendant Wallem
directly to the buyer/notify party, Great Prospect Company and not to the
consignee, the National Bank of Pakistan, Hongkong, without the required bills of
lading and bank guarantee for the release of the shipment issued by the
consignee of the goods . . . .10
Even going back to an event that transpired prior to the filing of the present case or when
petitioner wrote respondent WALLEM demanding payment of the value of the cargoes,
misdelivery of the cargoes did not come into the picture —
We are writing you on behalf of our client, Ben-Mac Enterprises who informed us
that Bills of Lading No. 99012 and 99013 with a total value of US$20,223.46
were released to Great Prospect, Hongkong without the necessary bank
guarantee. We were further informed that the consignee of the goods, National
Bank of Pakistan, Hongkong, did not release or endorse the original bills of
lading. As a result thereof, neither the consignee, National Bank of Pakistan,
Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our client
for the goods . . . .11
At any rate, we shall dwell on petitioner's submission only as a prelude to our discussion
on the imputed liability of respondents concerning the shipped goods. Article 1736 of the
Civil Code provides —
Art. 1736. The extraordinary responsibility of the common carriers lasts from the
time the goods are unconditionally placed in the possession of, and received by
the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of article 1738.12
We emphasize that the extraordinary responsibility of the common carriers lasts until
actual or constructive delivery of the cargoes to the consignee or to the person who has
a right to receive them. PAKISTAN BANK was indicated in the bills of lading as
consignee whereas GPC was the notify party. However, in the export invoices GPC was
clearly named as buyer/importer. Petitioner also referred to GPC as such in his demand
letter to respondent WALLEM and in his complaint before the trial court. This premise
draws us to conclude that the delivery of the cargoes to GPC as buyer/importer which,
conformably with Art. 1736 had, other than the consignee, the right to receive them14 was
proper.
The real issue is whether respondents are liable to petitioner for releasing the goods to
GPC without the bills of lading or bank guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the
cargoes to GPC without the bills of lading and bank guarantee. The telex instructed
delivery of various shipments to the respective consignees without need of presenting
the bill of lading and bank guarantee per the respective shipper's request since "for
prepaid shipt ofrt charges already fully paid." Petitioner was named therein as shipper
and GPC as consignee with respect to Bill of Lading Nos. HKG 99012 and HKG 99013.
Petitioner disputes the existence of such instruction and claims that this evidence is self-
serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as
buyer/importer for around two (2) or three (3) years already. When mangoes and
watermelons are in season, his shipment to GPC using the facilities of respondents is
twice or thrice a week. The goods are released to GPC. It has been the practice of
petitioner to request the shipping lines to immediately release perishable cargoes such
as watermelons and fresh mangoes through telephone calls by himself or his "people." In
transactions covered by a letter of credit, bank guarantee is normally required by the
shipping lines prior to releasing the goods. But for buyers using telegraphic transfers,
petitioner dispenses with the bank guarantee because the goods are already fully paid.
In his several years of business relationship with GPC and respondents, there was not a
single instance when the bill of lading was first presented before the release of the
cargoes. He admitted the existence of the telex of 3 July 1989 containing his request to
deliver the shipment to the consignee without presentation of the bill of lading15 but not
the telex of 5 April 1989 because he could not remember having made such request.
Consider pertinent portions of petitioner's testimony —
Q: Are you aware of any document which would indicate or show that your
request to the defendant Wallem for the immediate release of your fresh fruits,
perishable goods, to Great Prospect without the presentation of the original Bill of
Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested
immediate release of the cargo because there was immediate payment.
Q: And you are referring, therefore, to this copy Telex release that you mentioned
where your Company's name appears Ben-Mac?
105 | T R A N S P O R T A T I O N L A W
Atty. Hernandez: Just for the record, Your Honor, the witness is showing
a Bill of Lading referring to SKG (sic) 93023 and 93026 with Great
Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate release of the
goods when they are perishable. I thought Wallem Shipping Lines is not
neophyte in the business. As far as LC is concerned, Bank guarantee is needed
for the immediate release of the goods . . . .15
Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable
goods to ask the shipping lines to release immediately the shipment. Is that
correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines to release
the perishable goods to the importer of goods without a Bill of Lading or Bank
guarantee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the perishable
goods by the shipping lines to the importer without the Bank guarantee and
without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully
paid . . . .
 Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know
and can you recall that any of your shipment was released to Great Prospect by
Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous shipments of
your goods through Wallem, you requested Wallem to release immediately your
perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods . . . .
16
Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your
goods immediately even without the presentation of OBL, how do you course it?
A: Usually, I call up the Shipping Lines, sir . . . .17
Q: You also testified you made this request through phone calls. Who of you
talked whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your people
to call? (sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem . . . .18
Against petitioner's claim of "not remembering" having made a request for delivery of
subject cargoes to GPC without presentation of the bills of lading and bank guarantee as
reflected in the telex of 5 April 1989 are damaging disclosures in his testimony. He
declared that it was his practice to ask the shipping lines to immediately release
shipment of perishable goods through telephone calls by himself or his "people." He no
longer required presentation of a bill of lading nor of a bank guarantee as a condition to
releasing the goods in case he was already fully paid. Thus, taking into account that
subject shipment consisted of perishable goods and SOLIDBANK pre-paid the full
amount of the value thereof, it is not hard to believe the claim of respondent WALLEM
106 | T R A N S P O R T A T I O N L A W
that petitioner indeed requested the release of the goods to GPC without presentation of
the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was "to deliver the shipment to respective
consignees." And so petitioner argues that, assuming there was such an instruction, the
consignee referred to was PAKISTAN BANK. We find the argument too simplistic.
Respondent court analyzed the telex in its entirety and correctly arrived at the conclusion
that the consignee referred to was not PAKISTAN BANK but GPC —
There is no mistake that the originals of the two (2) subject Bills of Lading are still
in the possession of the Pakistani Bank. The appealed decision affirms this fact.
Conformably, to implement the said telex instruction, the delivery of the shipment
must be to GPC, the notify party or real importer/buyer of the goods and not the
Pakistani Bank since the latter can very well present the original Bills of Lading in
its possession. Likewise, if it were the Pakistani Bank to whom the cargoes were
to be strictly delivered, it will no longer be proper to require a bank guarantee as
a substitute for the Bill of Lading. To construe otherwise will render meaningless
the telex instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof to the buyer/importer is essentially a factor to reckon
with. Besides, GPC is listed as one among the several consignees in the telex
(Exhibit 5-B) and the instruction in the telex was to arrange delivery of A/M
shipment (not any party) to respective consignees without presentation of OB/L
and bank guarantee . . . .20
Apart from the foregoing obstacles to the success of petitioner's cause, petitioner failed
to substantiate his claim that he returned to SOLIDBANK the full amount of the value of
the cargoes. It is not far-fetched to entertain the notion, as did respondent court, that he
merely accommodated SOLIDBANK in order to recover the cost of the shipped cargoes
from respondents. We note that it was SOLIDBANK which initially demanded payment
from respondents through five (5) letters. SOLIDBANK must have realized the absence
of privity of contract between itself and respondents. That is why petitioner conveniently
took the cudgels for the bank.
In view of petitioner's utter failure to establish the liability of respondents over the
cargoes, no reversible error was committed by respondent court in ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of
13 March 1996 dismissing the complaint of petitioner Benito Macam and the
counterclaims of respondents China Ocean Shipping Co. and/or Wallem Philippines
Shipping, Inc., as well as its resolution of 5 July 1996 denying reconsideration, is
AFFIRMED. 1âwphi1.nêt
SO ORDERED.
13. VALIDITY OF STIPULATIONS
Article 1744. A stipulation between the common carrier and the shipper or owner limiting the liability
of the former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary
diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
Article 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 omission 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.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,  22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
107 | T R A N S P O R T A T I O N L A W
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon
gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized
two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent
would load his vehicles with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial rates.
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   finding private respondent to
1
be a common carrier and holding him liable for the value of the undelivered goods (P
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
108 | T R A N S P O R T A T I O N L A W
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"   are 2
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,
109 | T R A N S P O R T A T I O N L A W
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 donot 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.  Three (3) of the five
3
(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.
Article 1748. An agreement limiting the common carrier’s liability for delay on account of strikes or
riots is valid.
14. Can the common carrier and the shipper/ owner enter into a stipulation to limit liability in
case of LDD?
110 | T R A N S P O R T A T I O N L A W
A. Article 1749. A stipulation that the common carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
B. Article 1750. A contract fixing the sum that may be recovered. by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
G.R. No. L-20099             July 7, 1966
PARMANAND SHEWARAM, plaintiff and appellee, 
vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.
Climaco and Associates for plaintiff and appellee.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram
instituted an action to recover damages suffered by him due to the alleged failure of
defendant-appellant Philippines Air Lines, Inc. to observe extraordinary diligence in the
vigilance and carriage of his luggage. After trial the municipal court of Zamboanga City
rendered judgment ordering the appellant to pay appellee P373.00 as actual damages,
P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City.
After hearing the Court of First Instance of Zamboanga City modified the judgment of the
inferior court by ordering the appellant to pay the appellee only the sum of P373.00 as
actual damages, with legal interest from May 6, 1960 and the sum of P150.00 as
attorney's fees, eliminating the award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to
this Court on a question of law, assigning two errors allegedly committed by the lower
court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions
of the tariff regulations filed by defendant-appellant with the civil aeronautics board and
the conditions of carriage printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the
defendant-appellant to P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed
from, are as follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from
Zamboanga City bound for Manila; that defendant is a common carrier engaged in air
line transportation in the Philippines, offering its services to the public to carry and
transport passengers and cargoes from and to different points in the Philippines; that on
the above-mentioned date of November 23, 1959, he checked in three (3) pieces of
baggages — a suitcase and two (2) other pieces; that the suitcase was mistagged by
defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-
3883, instead of MNL (for Manila). When plaintiff Parmanand Shewaram arrived in
Manila on the date of November 23, 1959, his suitcase did not arrive with his flight
because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila
airport and another suitcase similar to his own which was the only baggage left for that
flight, the rest having been claimed and released to the other passengers of said flight,
was given to the plaintiff for him to take delivery but he did not and refused to take
delivery of the same on the ground that it was not his, alleging that all his clothes were
white and the National transistor 7 and a Rollflex camera were not found inside the
suitcase, and moreover, it contained a pistol which he did not have nor placed inside his
suitcase; that after inquiries made by defendant's personnel in Manila from different
airports where the suitcase in question must have been sent, it was found to have
reached Iligan and the station agent of the PAL in Iligan caused the same to be sent to
Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff herein
arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery
belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr.
Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on
November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent
of the Manila airport of the arrival of his suitcase but of course minus his Transistor Radio
7 and the Rollflex Camera; that Shewaram made demand for these two (2) items or for
the value thereof but the same was not complied with by defendant.
xxx     xxx     xxx
It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as
IGN. The tampering of the suitcase is more apparent when on November 24, 1959, when
the suitcase arrived in Manila, defendant's personnel could open the same in spite of the
fact that plaintiff had it under key when he delivered the suitcase to defendant's
111 | T R A N S P O R T A T I O N L A W
personnel in Zamboanga City. Moreover, it was established during the hearing that there
was space in the suitcase where the two items in question could have been placed. It
was also shown that as early as November 24, 1959, when plaintiff was notified by
phone of the arrival of the suitcase, plaintiff asked that check of the things inside his
suitcase be made and defendant admitted that the two items could not be found inside
the suitcase. There was no evidence on record sufficient to show that plaintiff's suitcase
was never opened during the time it was placed in defendant's possession and prior to
its recovery by the plaintiff. However, defendant had presented evidence that it had
authority to open passengers' baggage to verify and find its ownership or identity. Exhibit
"1" of the defendant would show that the baggage that was offered to plaintiff as his own
was opened and the plaintiff denied ownership of the contents of the baggage. This
proven fact that baggage may and could be opened without the necessary authorization
and presence of its owner, applied too, to the suitcase of plaintiff which was mis-sent to
Iligan City because of mistagging. The possibility of what happened in the baggage of
Mr. Del Rosario at the Manila Airport in his absence could have also happened to
plaintiffs suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that
these two items were really in plaintiff's suitcase and defendant should be held liable for
the same by virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said court
had found that the suitcase of the appellee was tampered, and the transistor radio and
the camera contained therein were lost, and that the loss of those articles was due to the
negligence of the employees of the appellant. The evidence shows that the transistor
radio cost P197.00 and the camera cost P176.00, so the total value of the two articles
was P373.00.
There is no question that the appellant is a common carrier. 1 As such common carrier the
appellant, from the nature of its business and for reasons of public policy, is bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by it according to the circumstances of each case. 2 It having
been shown that the loss of the transistor radio and the camera of the appellee, costing
P373.00, was due to the negligence of the employees of the appellant, it is clear that the
appellant should be held liable for the payment of said loss.3
It is, however, contended by the appellant that its liability should be limited to the amount
stated in the conditions of carriage printed at the back of the plane ticket stub which was
issued to the appellee, which conditions are embodied in Domestic Tariff Regulations
No. 2 which was filed with the Civil Aeronautics Board. One of those conditions, which is
pertinent to the issue raised by the appellant in this case provides as follows:
The liability, if any, for loss or damage to checked baggage or for delay in the delivery
thereof is limited to its value and, unless the passenger declares in advance a higher
valuation and pay an additional charge therefor, the value shall be conclusively deemed
not to exceed P100.00 for each ticket.
The appellant maintains that in view of the failure of the appellee to declare a higher
value for his luggage, and pay the freight on the basis of said declared value when he
checked such luggage at the Zamboanga City airport, pursuant to the abovequoted
condition, appellee can not demand payment from the appellant of an amount in excess
of P100.00.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code
which provides as follows:
A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the
pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is
required, however, that the contract must be "reasonable and just under the
circumstances and has been fairly and freely agreed upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with
before a common carrier can claim a limitation of its pecuniary liability in case of loss,
destruction or deterioration of the goods it has undertaken to transport. In the case
before us We believe that the requirements of said article have not been met. It can not
be said that the appellee had actually entered into a contract with the appellant,
embodying the conditions as printed at the back of the ticket stub that was issued by the
appellant to the appellee. The fact that those conditions are printed at the back of the
ticket stub in letters so small that they are hard to read would not warrant the
presumption that the appellee was aware of those conditions such that he had "fairly and
freely agreed" to those conditions. The trial court has categorically stated in its decision
that the "Defendant admits that passengers do not sign the ticket, much less did plaintiff
herein sign his ticket when he made the flight on November 23, 1959." We hold,
therefore, that the appellee is not, and can not be, bound by the conditions of carriage
found at the back of the ticket stub issued to him when he made the flight on appellant's
plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of
Articles 1734 and 1735 of the New Civil Code, which We quote as follows:
112 | T R A N S P O R T A T I O N L A W
ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
1äwphï1.ñët
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Article 1733.
It having been clearly found by the trial court that the transistor radio and the camera of
the appellee were lost as a result of the negligence of the appellant as a common carrier,
the liability of the appellant is clear — it must pay the appellee the value of those two
articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support
of its decision, this Court had laid down the rule that the carrier can not limit its liability for
injury to or loss of goods shipped where such injury or loss was caused by its own
negligence.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. — The validity of stipulations limiting the
carrier's liability is to be determined by their reasonableness and their conformity to the
sound public policy, in accordance with which the obligations of the carrier to the public
are settled. It cannot lawfully stipulate for exemption from liability, unless such exemption
is just and reasonable, and unless the contract is freely and fairly made. No contractual
limitation is reasonable which is subversive of public policy.
"Par. 195. 7. What Limitations of Liability Permissible. — a. Negligence — (1) Rule in
America — (a) In Absence of Organic or Statutory Provisions Regulating Subject — aa.
Majority Rule. — In the absence of statute, it is settled by the weight of authority in the
United States, that whatever limitations against its common-law liability are permissible
to a carrier, it cannot limit its liability for injury to or loss of goods shipped, where such
injury or loss is caused by its own negligence. This is the common law doctrine and it
makes no difference that there is no statutory prohibition against contracts of this
character.
"Par. 196. bb. Considerations on which Rule Based. — The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the
shipper from all liability for loss or damage arising from negligence in performing its
contract is to ignore the contract itself. The natural effect of a limitation of liability against
negligence is to induce want of care on the part of the carrier in the performance of its
duty. The shipper and the common carrier are not on equal terms; the shipper must send
his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the
carrier unless protected by the higher power of the law against being forced into
contracts limiting the carrier's liability. Such contracts are wanting in the element of
voluntary assent.
"Par. 197. cc. Application and Extent of Rule — (aa) Negligence of Servants. — The rule
prohibiting limitation of liability for negligence is often stated as a prohibition of any
contract relieving the carrier from loss or damage caused by its own negligence or
misfeasance, or that of its servants; and it has been specifically decided in many cases
that no contract limitation will relieve the carrier from responsibility for the negligence,
unskillfulness, or carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51
Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs against the
appellant.
G.R. No. L-40597 June 29, 1979
AGUSTINO B. ONG YIU, petitioner, 
vs.
HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.
MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman,
seeks a reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which
reduced his claim for damages for breach of contract of transportation.
113 | T R A N S P O R T A T I O N L A W
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air
Lines, Inc. (PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City.
He was scheduled to attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in
the Court of First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As
a passenger, he checked in one piece of luggage, a blue "maleta" for which he was
issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about
1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00 o'clock P.M.,
of the same day. Upon arrival, petitioner claimed his luggage but it could not be found.
According to petitioner, it was only after reacting indignantly to the loss that the matter
was attended to by the porter clerk, Maximo Gomez, which, however, the latter denies,
At about 3:00 o'clock P.M., PAL Butuan, sent a message to PAL, Cebu, inquiring about
the missing luggage, which message was, in turn relayed in full to the Mactan Airport
teletype operator at 3:45 P.M. (Exh. "2") that same afternoon. It must have been
transmitted to Manila immediately, for at 3:59 that same afternoon, PAL Manila wired
PAL Cebu advising that the luggage had been over carried to Manila aboard Flight No.
156 and that it would be forwarded to Cebu on Flight No. 345 of the same day.
Instructions were also given that the luggage be immediately forwarded to Butuan City
on the first available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent
a message to PAL Butuan that the luggage would be forwarded on Fright No. 963 the
following day, August 27, 196'(. However, this message was not received by PAL Butuan
as all the personnel had already left since there were no more incoming flights that
afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained
vital documents needed for trial the next day. At 10:00 o'clock that evening, petitioner
wired PAL Cebu demanding the delivery of his baggage before noon the next day,
otherwise, he would hold PAL liable for damages, and stating that PAL's gross
negligence had caused him undue inconvenience, worry, anxiety and extreme
embarrassment (Exh. "B"). This telegram was received by the Cebu PAL supervisor but
the latter felt no need to wire petitioner that his luggage had already been forwarded on
the assumption that by the time the message reached Butuan City, the luggage would
have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi
Airport to inquire about his luggage. He did not wait, however, for the morning flight
which arrived at 10:00 o'clock that morning. This flight carried the missing luggage. The
porter clerk, Maximo Gomez, paged petitioner, but the latter had already left. A certain
Emilio Dagorro a driver of a "colorum" car, who also used to drive for petitioner,
volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be the
same driver used by petitioner whenever the latter was in Butuan City, Gomez took the
luggage and placed it on the counter. Dagorro examined the lock, pressed it, and it
opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez
took a look at its contents, but did not touch them. Dagorro then delivered the "maleta" to
petitioner, with the information that the lock was open. Upon inspection, petitioner found
that a folder containing certain exhibits, transcripts and private documents in Civil Case
No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his
parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the porter
clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due
to loss of his documents, which was granted by the Court (Exhs. "C" and "C-1").
Petitioner returned to Cebu City on August 28, 1967. In a letter dated August 29, 1967
addressed to PAL, Cebu, petitioner called attention to his telegram (Exh. "D"), demanded
that his luggage be produced intact, and that he be compensated in the sum of
P250,000,00 for actual and moral damages within five days from receipt of the letter,
otherwise, he would be left with no alternative but to file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to
petitioner's office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty.
Manuel Maranga the contents were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the
results of the investigation which Messrs. de Leon, Navarsi, and Agustin had promised to
conduct to pinpoint responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
Dear Atty. Ong Yiu:
This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting
Manager, Southern Philippines.
First of all, may we apologize for the delay in informing you of the result of our
investigation since we visited you in your office last August 31, 1967. Since there are
stations other than Cebu which are involved in your case, we have to communicate and
await replies from them. We regret to inform you that to date we have not found the
supposedly lost folder of papers nor have we been able to pinpoint the personnel who
allegedly pilferred your baggage.
114 | T R A N S P O R T A T I O N L A W
You must realize that no inventory was taken of the cargo upon loading them on any
plane. Consequently, we have no way of knowing the real contents of your baggage
when same was loaded.
We realized the inconvenience you encountered of this incident but we trust that you will
give us another opportunity to be of better service to you.
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach
of contract of transportation with the Court of First Instance of Cebu, Branch V, docketed
as Civil Case No. R-10188, which PAL traversed. After due trial, the lower Court found
PAL to have acted in bad faith and with malice and declared petitioner entitled to moral
damages in the sum of P80,000.00, exemplary damages of P30,000.00, attorney's fees
of P5,000.00, and costs.
Both parties appealed to the Court of Appeals — petitioner in so far as he was awarded
only the sum of P80,000.00 as moral damages; and defendant because of the
unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple
negligence, reversed the judgment of the trial Court granting petitioner moral and
exemplary damages, but ordered PAL to pay plaintiff the sum of P100.00, the baggage
liability assumed by it under the condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making
the following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
RESPONDENT PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND
NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF
TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE
EVIDENCE AND THE LAW WHEN IT REVERSED THE DECISION OF
THE LOWER COURT AWARDING TO PETITIONER MORAL
DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES
OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES,
AND ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF
THE SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT
PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE
CIVIL CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The
question is the correctness of respondent Court's conclusion that there was no gross
negligence on the part of PAL and that it had not acted fraudulently or in bad faith as to
entitle petitioner to an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in
bad faith. Bad faith means a breach of a known duty through some motive of interest or
ill will.   It was the duty of PAL to look for petitioner's luggage which had been miscarried.
2
PAL exerted due diligence in complying with such duty.
As aptly stated by the appellate Court:
We do not find any evidence of bad faith in this. On the contrary, We find
that the defendant had exerted diligent effort to locate plaintiff's baggage.
The trial court saw evidence of bad faith because PAL sent the
telegraphic message to Mactan only at 3:00 o'clock that same afternoon,
despite plaintiff's indignation for the non-arrival of his baggage. The
message was sent within less than one hour after plaintiff's luggage could
not be located. Efforts had to be exerted to locate plaintiff's maleta. Then
the Bancasi airport had to attend to other incoming passengers and to the
outgoing passengers. Certainly, no evidence of bad faith can be inferred
from these facts. Cebu office immediately wired Manila inquiring about
the missing baggage of the plaintiff. At 3:59 P.M., Manila station agent at
the domestic airport wired Cebu that the baggage was over carried to
Manila. And this message was received in Cebu one minute thereafter, or
at 4:00 P.M. The baggage was in fact sent back to Cebu City that same
afternoon. His Honor stated that the fact that the message was sent at
3:59 P.M. from Manila and completely relayed to Mactan at 4:00 P.M., or
within one minute, made the message appear spurious. This is a forced
reasoning. A radio message of about 50 words can be completely
transmitted in even less than one minute depending upon atmospheric
conditions. Even if the message was sent from Manila or other distant
places, the message can be received within a minute. that is a scientific
fact which cannot be questioned.  3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of
bad faith, The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of
August 26, 1967. The PAL supervisor at Mactan Airport was notified of it only in the
morning of the following day. At that time the luggage was already to be forwarded to
115 | T R A N S P O R T A T I O N L A W
Butuan City. There was no bad faith, therefore, in the assumption made by said
supervisor that the plane carrying the bag would arrive at Butuan earlier than a reply
telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the
arrival of the morning flight, he would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not
entitled to moral damages.
Art. 2217. Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances,
such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in
Article 2232 of the Civil Code, exemplary damages can be granted if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner, which has not been
proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited
PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In
this connection, respondent Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while
in the custody of the defendant, it is presumed that the defendant had
been negligent. The liability, however, of PAL for the loss, in accordance
with the stipulation written on the back of the ticket, Exhibit 12, is limited
to P100.00 per baggage, plaintiff not having declared a greater value,
and not having called the attention of the defendant on its true value and
paid the tariff therefor. The validity of this stipulation is not questioned by
the plaintiff. They are printed in reasonably and fairly big letters, and are
easily readable. Moreover, plaintiff had been a frequent passenger of
PAL from Cebu to Butuan City and back, and he, being a lawyer and
businessman, must be fully aware of these conditions.  4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the
back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or
damaged baggage of the passenger is LIMITED TO P100.00 for each
ticket unless a passenger declares a higher valuation in excess of
P100.00, but not in excess, however, of a total valuation of P1,000.00
and additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much
less did he pay any additional transportation charge.
August 28, 1974. Attached to her Motion was an Affidavit of petitioner's law partner
reciting facts constitutive of excusable negligence. The appellate Court noting that all
pleadings had been signed by petitioner himself allowed the widow "to take such steps
as she or counsel may deem necessary." She then filed a Motion for Reconsideration
over the opposition of PAL which alleged that the Court of Appeals Decision,
promulgated on August 22, 1974, had already become final and executory since no
appeal had been interposed therefrom within the reglementary period.
Under the circumstances, considering the demise of petitioner himself, who acted as his
own counsel, it is best that technicality yields to the interests of substantial justice.
Besides, in the 'last analysis, no serious prejudice has been caused respondent PAL.

But petitioner argues that there is nothing in the evidence to show that he had actually In fine, we hold that the conclusions drawn by respondent Court from the evidence on
entered into a contract with PAL limiting the latter's liability for loss or delay of the record are not erroneous.
baggage of its passengers, and that Article 1750* of the Civil Code has not been
complied with. WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment
sought to be reviewed hereby affirmed in toto.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a
part of the contract of carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation".   It is what is known as a
5

contract of "adhesion", in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the plane
ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent.   And
6

as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability G.R. No. 70462 August 11, 1988
upon an agreed valuation does not offend against the policy of the law forbidding one
from contracting against his own negligence. PAN AMERICAN WORLD AIRWAYS, INC., petitioner, 
vs.
Considering, therefore, that petitioner had failed to declare a higher value for his INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS
baggage, he cannot be permitted a recovery in excess of P100.00.Besides, passengers PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
are advised not to place valuable items inside their baggage but "to avail of our V-cargo
service " (Exh. "1"). I t is likewise to be noted that there is nothing in the evidence to Guerrero & Torres for petitioner.
show the actual value of the goods allegedly lost by petitioner.
Jose B. Layug for private respondents.
There is another matter involved, raised as an error by PAL — the fact that on October
24, 1974 or two months after the promulgation of the Decision of the appellate Court,
petitioner's widow filed a Motion for Substitution claiming that petitioner died on January
6, 1974 and that she only came to know of the adverse Decision on October 23, 1974
CORTES, J.:
when petitioner's law partner informed her that he received copy of the Decision on
116 | T R A N S P O R T A T I O N L A W
Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost baggage, containing
promotional and advertising materials for films to be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and
personal belongings, to the amount specified in the airline ticket absent a declaration of a higher valuation and the payment
of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate
court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general
manager of the plaintiffs Sotang Bastos and Archer Production while in
San Francisco, Califonia and Primo Quesada of Prime Films, San
Francisco, California, entered into an agreement (Exh. A) whereby the
former, for and in consideration of the amount of US $2,500.00 per
picture, bound himself to supply the latter with three films. 'Ang Mabait,
Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,' and
'Kambal Dragon' for exhibition in the United States. It was also their
agreement that plaintiffs would provide the necessary promotional and
advertising materials for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where
he contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff
Pangan likewise entered into a verbal agreement with Slutchnick for the
exhibition of two of the films above-mentioned at the Hafa Adai Theater in
Guam on May 30, 1978 for the consideration of P7,000.00 per picture (p.
11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the
necessary promotional and advertising materials for said films on or
before the exhibition date on May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the
preparation of the requisite promotional handbills and still pictures for
which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C1).
Likewise in preparation for his trip abroad to comply with his contracts,
plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and
four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and
F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's
Manila Office, through the Your Travel Guide, an economy class airplane
ticket with No. 0269207406324 (Exh. G) for passage from Manila to
Guam on defendant's Flight No. 842 of May 27,1978, upon payment by
said plaintiff of the regular fare. The Your Travel Guide is a tour and
travel office owned and managed by plaintiffs witness Mila de la Rama.
117 | T R A N S P O R T A T I O N L A W
On May 27, 1978, two hours before departure time plaintiff Pangan was
at the defendant's ticket counter at the Manila International Airport and
presented his ticket and checked in his two luggages, for which he was
given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1).
The two luggages contained the promotional and advertising materials,
the clutch bags, barong tagalog and his personal belongings.
Subsequently, Pangan was informed that his name was not in the
manifest and so he could not take Flight No. 842 in the economy class.
Since there was no space in the economy class, plaintiff Pangan took the
first class because he wanted to be on time in Guam to comply with his
commitment, paying an additional sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his
two luggages did not arrive with his flight, as a consequence of which his
agreements with Slutchnick and Quesada for the exhibition of the films in
Guam and in the United States were cancelled (Exh. L). Thereafter, he
filed a written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made
the necessary representations to protest as to the treatment which he
received from the employees of the defendant and the loss of his two
luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff
Pangan that his grievances would be investigated and given its
immediate consideration (Exhs. N, P and R). Due to the defendant's
failure to communicate with Pangan about the action taken on his
protests, the present complaint was filed by the plaintiff. (Pages 4-7,
Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and
rendered judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the
plaintiffs the sum of P83,000.00, for actual damages, with interest
thereon at the rate of 14% per annum from December 6, 1978, when the
complaint was filed, until the same is fully paid, plus the further sum of
P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff
Rene V. Pangan the sum of P8,123.34, for additional actual damages,
with interest thereon at the rate of 14% per annum from December 6,
1978, until the same is fully paid;
 (3) Dismissing the counterclaim interposed by defendant Pan American
World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the
costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their
respective memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the
following errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages beyond the limitation of liability set forth in the Warsaw Convention and
the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages consisting of alleged lost profits in the face of this Court's ruling
concerning special or consequential damages as set forth in Mendoza v.
Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a
country other than the country of departure the Warsaw Convention may
be applicable and the Convention governs and in most cases limits the
liability of carriers for death or personal injury and in respect of loss of or
damage to baggage. See also notice headed "Advice to International
Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
118 | T R A N S P O R T A T I O N L A W
1. As used in this contract "ticket" means this passenger ticket and
baggage check of which these conditions and the notices form part,
"carriage" is equivalent to "transportation," "carrier" means all air carriers
that carry or undertake to carry the passenger or his baggage hereunder
or perform any other service incidental to such air carriage. "WARSAW
CONVENTION" means the convention for the Unification of Certain Rules
Relating to International Carriage by Air signed at Warsaw, 12th October
1929, or that Convention as amended at The Hague, 28th September
1955, whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to
liability established by the Warsaw Convention unless such carriage is
not "international carriage" as defined by that Convention.
3. To the extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (i) provisions contained
in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and
related regulations which are made part hereof (and are available on
application at the offices of carrier), except in transportation between a
place in the United States or Canada and any place outside thereof to
which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless
a higher value is declared in advance and additional charges are paid:
(1)for most international travel (including domestic portions of
international journeys) to approximately $9.07 per pound ($20.00 per
kilo) for checked baggage and $400 per passenger for unchecked
baggage: (2) for travel wholly between U.S. points, to $750 per
passenger on most carriers (a few have lower limits). Excess valuation
may not be declared on certain types of valuable articles. Carriers
assume no liability for fragile or perishable articles. Further information
may be obtained from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner
contends that its liability for the lost baggage of private respondent Pangan is limited to
$600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage
and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R.
No. L-40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a
printed stipulation at the back of an airline ticket limiting the liability of the carrier for lost
baggage to a specified amount and ruled that the carrier's liability was limited to said
amount since the passenger did not declare a higher value, much less pay additional
charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the
Court, through Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave error
when it limited PAL's carriage liability to the amount of P100.00 as
stipulated at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition of Carriage
printed at the back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier
for lost or damage baggage of the passenger is LIMITED
TO P100.00 for each ticket unless a passenger declares a
higher valuation in excess of P100.00, but not in excess,
however, of a total valuation of Pl,000.00 and additional
charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his
luggage, much less (lid he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he
had actually entered into a contract with PAL limiting the latter's liability
for loss or delay of the baggage of its passengers, and that Article
1750 * of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh.
"12"), he is nevertheless bound by the provisions thereof. "Such
provisions have been held to be a part of the contract of carriage, and
valid and binding upon the passenger regardless of the latter's lack of
knowledge or assent to the regulation." [Tannebaum v. National Airline,
Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87
Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It
is what is known as a contract of "adhesion," in regards which it has been
said that contracts of adhesion wherein one party imposes a ready made
119 | T R A N S P O R T A T I O N L A W
form of contract on the other, as the plane ticket in the case at bar, are
contracts not entirely prohibited. The one who adheres to the contract is
in reality free to reject it entirely; if he adheres, he gives his consent,
[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L.
Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in Randolph
v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein v.
Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability
upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value
for his baggage, he cannot be permitted a recovery in excess of
P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-
20099, July 2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the
carrier's liability to a specified amount was invalid, finds no application in the instant
case, as the ruling in said case was premised on the finding that the conditions printed at
the back of the ticket were so small and hard to read that they would not warrant the
presumption that the passenger was aware of the conditions and that he had freely and
fairly agreed thereto. In the instant case, similar facts that would make the case fall under
the exception have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to
state that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v.
Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to
apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or
US$20.00 per kilo in cases of contractual breach of carriage ** is against public policy" is utterly
misplaced, to say the least. In said case, while the Court, as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable
only" in the event of death of a passenger or injury suffered by him, or of
destruction or loss of, or damages to any checked baggage or any goods,
or of delay in the transportation by air of passengers, baggage or goods.
This pretense is not borne out by the language of said Articles. The same
merely declare the carrier liable for damages in enumerated cases, if the
conditions therein specified are present. Neither said provisions nor
others in the aforementioned Convention regulate or exclude liability for
other breaches of contract by the carrier. Under petitioner's theory, 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.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the
ground that the lower court has erred: (1) in holding that the Warsaw
Convention of October 12, 1929, relative to transportation by air is not in
force in the Philippines: (2) in not holding that respondent has no cause
of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error
because the same is the basis of the second assignment of error, and
the latter is devoid of merit, even if we assumed the former to be well
taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against
the validity of provisions of the Warsaw Convention. Consequently, by no stretch of the
imagination may said quotation from Northwest be considered as supportive of the
appellate court's statement that the provisions of the Warsaw Convention limited a
carrier's liability are against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed
by the Court of Appeals, awarding private respondents damages as and for lost profits
when their contracts to show the films in Guam and San Francisco, California were
cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot
be any clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the
defendant herein, may be held liable only for damages that were
foreseen or might have been foreseen at the time the contract of
transportation was entered into. The trial court correctly found that the
defendant company could not have foreseen the damages that would be
suffered by Mendoza upon failure to deliver the can of film on the 17th of
September, 1948 for the reason that the plans of Mendoza to exhibit that
film during the town fiesta and his preparations, specially the
announcement of said exhibition by posters and advertisement in the
newspaper, were not called to the defendant's attention.
120 | T R A N S P O R T A T I O N L A W
In our research for authorities we have found a case very similar to the one under
consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in
Troy, New York, delivered motion picture films to the defendant Fargo, an express
company, consigned and to be delivered to him in Utica. At the time of shipment the
attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their
destination, rush. There was delay in their delivery and it was found that the plaintiff
because of his failure to exhibit the film in Utica due to the delay suffered damages or
loss of profits. But the highest court in the State of New York refused to award him
special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the
present alleged loss of profits on account of delay or failure of delivery, it
must have appeared that he had notice at the time of delivery to him of
the particular circumstances attending the shipment, and which probably
would lead to such special loss if he defaulted. Or, as the rule has been
stated in another form, in order to purpose on the defaulting party further
liability than for damages naturally and directly, i.e., in the ordinary
course of things, arising from a breach of contract, such unusual or
extraordinary damages must have been brought within the contemplation
of the parties as the probable result of breach at the time of or prior to
contracting. Generally, notice then of any special circumstances which
will show that the damages to be anticipated from a breach would be
enhanced has been held sufficient for this effect.
As may be seen, that New York case is a stronger one than the present case for the
reason that the attention of the common carrier in said case was called to the nature of
the articles shipped, the purpose of shipment, and the desire to rush the shipment,
circumstances and facts absent in the present case. [Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a
showing that petitioner's attention was called to the special circumstances requiring
prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable
for the cancellation of private respondents' contracts as it could not have foreseen such
an eventuality when it accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule
laid down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable
for damages based on the finding that "[tlhe undisputed fact is that the contracts of the
plaintiffs for the exhibition of the films in Guam and California were cancelled because of
the loss of the two luggages in question." [Rollo, p. 36] The evidence reveals that the
proximate cause of the cancellation of the contracts was private respondent Pangan's
failure to deliver the promotional and advertising materials on the dates agreed upon. For
this petitioner cannot be held liable. Private respondent Pangan had not declared the
value of the two luggages he had checked in and paid additional charges. Neither was
petitioner privy to respondents' contracts nor was its attention called to the condition
therein requiring delivery of the promotional and advertising materials on or before a
certain date.
3. With the Court's holding that petitioner's liability is limited to the amount stated in the
ticket, the award of attorney's fees, which is grounded on the alleged unjustified refusal
of petitioner to satisfy private respondent's just and valid claim, loses support and must
be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine
currency at the time of actual payment.
Article 1747. If the common carrier, without just cause, delays the transportation of the goods
or changes the stipulated or usual route, the contract limiting the common carrier’s liability
cannot be availed of in case of the loss, destruction, or deterioration of the goods.
Article 1752. Even when there is an agreement limiting the liability of the common carrier in
the vigilance over the goods, the common carrier is disputably presumed to have been
negligent in case of their loss, destruction or deterioration.
Article 1751. The fact that the common carrier has no competitor along the line or route, or a
part thereof, to which the contract refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier’s liability is reasonable, just and in
consonance with public policy.
Check-in Baggage (not in the personal custody of passenger)- Civil Code provisions on
common carrier of goods.
121 | T R A N S P O R T A T I O N L A W
Article 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each
case.
Article 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each
case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
SUBSECTION 2. Vigilance Over Goods
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in article 1733.
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.
Article 1737. The common carrier’s duty to observe extraordinary diligence over the goods
remains in full force and effect even when they are temporarily unloaded or stored in transit,
unless the shipper or owner has made use of the right of stoppage in transitu.
Article 1738. The extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them.
Article 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or minimize loss before, during and
after the occurrence of flood, storm or other natural disaster in order that the common carrier
may be exempted from liability for the loss, destruction, or deterioration of the goods. The
same duty is incumbent upon the common carrier in case of an act of the public enemy
referred to in article 1734, No. 2.
Article 1740. If the common carrier negligently incurs in delay in transporting the goods, a
natural disaster shall not free such carrier from responsibility.
Article 1741. If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of the common
carrier, the latter shall be liable in damages, which however, shall be equitably reduced.
Article 1742. Even if the loss, destruction, or deterioration of the goods should be caused by
the character of the goods, or the faulty nature of the packing or of the containers, the
common carrier must exercise due diligence to forestall or lessen the loss.
Article 1743. If through the order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue the
order.
Article 1744. A stipulation between the common carrier and the shipper or owner limiting the
liability of the former for the loss, destruction, or deterioration of the goods to a degree less
than extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the common
carrier; and
(3) Reasonable, just and not contrary to public policy.
Article 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
122 | T R A N S P O R T A T I O N L A W
(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 omission 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.
Article 1746. An agreement limiting the common carrier’s liability may be annulled by the
shipper or owner if the common carrier refused to carry the goods unless the former agreed to
such stipulation.
Article 1747. If the common carrier, without just cause, delays the transportation of the goods
or changes the stipulated or usual route, the contract limiting the common carrier’s liability
cannot be availed of in case of the loss, destruction, or deterioration of the goods.
Article 1748. An agreement limiting the common carrier’s liability for delay on account of
strikes or riots is valid.
Article 1749. A stipulation that the common carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
Article 1750. A contract fixing the sum that may be recovered. by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under
the circumstances, and has been fairly and freely agreed upon.
Article 1751. The fact that the common carrier has no competitor along the line or route, or a
part thereof, to which the contract refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier’s liability is reasonable, just and in
consonance with public policy.
Article 1752. Even when there is an agreement limiting the liability of the common carrier in
the vigilance over the goods, the common carrier is disputably presumed to have been
negligent in case of their loss, destruction or deterioration.
Article 1753. The law of the country to which the goods are to be transported shall govern the
liability of the common carrier for their loss, destruction or deterioration.
Article 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each
case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
SUBSECTION 2. Vigilance Over Goods
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in article 1733.
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
123 | T R A N S P O R T A T I O N L A W
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.
Article 1737. The common carrier’s duty to observe extraordinary diligence over the goods
remains in full force and effect even when they are temporarily unloaded or stored in transit,
unless the shipper or owner has made use of the right of stoppage in transitu.
Article 1738. The extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them.
Article 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or minimize loss before, during and
after the occurrence of flood, storm or other natural disaster in order that the common carrier
may be exempted from liability for the loss, destruction, or deterioration of the goods. The
same duty is incumbent upon the common carrier in case of an act of the public enemy
referred to in article 1734, No. 2.
Article 1740. If the common carrier negligently incurs in delay in transporting the goods, a
natural disaster shall not free such carrier from responsibility.
Article 1741. If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of the common
carrier, the latter shall be liable in damages, which however, shall be equitably reduced.
Article 1742. Even if the loss, destruction, or deterioration of the goods should be caused by
the character of the goods, or the faulty nature of the packing or of the containers, the
common carrier must exercise due diligence to forestall or lessen the loss.
Article 1743. If through the order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue the
order.
Article 1744. A stipulation between the common carrier and the shipper or owner limiting the
liability of the former for the loss, destruction, or deterioration of the goods to a degree less
than extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the common
carrier; and
(3) Reasonable, just and not contrary to public policy.
Article 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 omission 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.
Article 1746. An agreement limiting the common carrier’s liability may be annulled by the
shipper or owner if the common carrier refused to carry the goods unless the former agreed to
such stipulation.
Article 1747. If the common carrier, without just cause, delays the transportation of the goods
or changes the stipulated or usual route, the contract limiting the common carrier’s liability
cannot be availed of in case of the loss, destruction, or deterioration of the goods.
Article 1748. An agreement limiting the common carrier’s liability for delay on account of
strikes or riots is valid.
Article 1749. A stipulation that the common carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
124 | T R A N S P O R T A T I O N L A W
Article 1750. A contract fixing the sum that may be recovered. by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under
the circumstances, and has been fairly and freely agreed upon.
Article 1751. The fact that the common carrier has no competitor along the line or route, or a
part thereof, to which the contract refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier’s liability is reasonable, just and in
consonance with public policy.
Article 1752. Even when there is an agreement limiting the liability of the common carrier in
the vigilance over the goods, the common carrier is disputably presumed to have been
negligent in case of their loss, destruction or deterioration.
Article 1753. The law of the country to which the goods are to be transported shall govern the
liability of the common carrier for their loss, destruction or deterioration.
Hand Carried- Baggage in the personal custody of passenger or his employee- Civil
Code provisions concerning responsibility of hotel keepers
Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as
necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided
that notice was given to them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects. (1783)
Article 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been
introduced or placed in the annexes of the hotel. (n)
Article 2000. The responsibility referred to in the two preceding articles shall include the loss of,
or injury to the personal property of the guests caused by the servants or employees of the keepers
of hotels or inns as well as strangers; but not that which may proceed from any force majeure. The
fact that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall
be considered in determining the degree of care required of him. (1784a)
Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure,
unless it is done with the use of arms or through an irresistible force. (n)
Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the
guest, his family, servants or visitors, or if the loss arises from the character of the things brought
into the hotel. (n)
Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the
effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-
keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001
is suppressed or diminished shall be void. (n)

125 | T R A N S P O R T A T I O N L A W