G.R. No. 112287 December 12, 1997NATIONAL STEEL CORPORATION, petitioner,

vs.COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.

G.R. No. 112350 December 12, 1997VLASONS SHIPPING, INC., petitioner,

vs.COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

The Court finds occasion to apply the rules on theseaworthiness of private carrier, its owner's responsibilityfor damage to the cargo and its liability for demurrage andattorney's fees. The Court also reiterates the well-knownrule that findings of facts of trial courts, when affirmedby the Court of Appeals, are binding on this Court.

Before us are two separate petitions for review filed byNational Steel Corporation (NSC) and Vlasons Shipping, Inc.(VSI), both of which assail the August 12, 1993 Decision ofthe Court of Appeals. 1 The Court of Appeals modified thedecision of the Regional Trial Court of Pasig, MetroManila, Branch 163 in Civil Case No. 23317. The RTCdisposed as follows:

WHEREFORE, judgment is hereby rendered in favor ofdefendant and against the plaintiff dismissing thecomplaint with cost against plaintiff, and orderingplaintiff to pay the defendant on the counterclaim asfollows:1. The sum of P75,000.00 as unpaid freight and P88,000.00as demurrage with interest at the legal rate on bothamounts from April 7, 1976 until the same shall have beenfully paid;2. Attorney's fees and expenses of litigation in the sum ofP100,000.00; and

3. Costs of suit.SO ORDERED. 2

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed fromis modified by reducing the award for demurrage toP44,000.00 and deleting the award for attorney's fees andexpenses of litigation. Except as thus modified, thedecision is AFFIRMED. There is no pronouncement as tocosts. SO ORDERED. 3

The Facts

The MV Vlasons I is a vessel which renders tramping serviceand, as such, does not transport cargo or shipment for thegeneral public. Its services are available only to specificpersons who enter into a special contract of charter partywith its owner. It is undisputed that the ship is a privatecarrier. And it is in the capacity that its owner, VlasonsShipping, Inc., entered into a contract of affreightment orcontract of voyage charter hire with National SteelCorporation.

The facts as found by Respondent Court of Appeals are asfollows:

(1) On July 17, 1974, plaintiff National Steel Corporation(NSC) as Charterer and defendant Vlasons Shipping, Inc.(VSI) as Owner, entered into a Contract of Voyage CharterHire (Exhibit "B"; also Exhibit "1") whereby NSC hiredVSI's vessel, the MV "VLASONS I" to make one (1) voyage toload steel products at Iligan City and discharge them atNorth Harbor, Manila, under the following terms andconditions, viz:

2. Cargo: Full cargo of steel products of not less than2,500 MT, 10% more or less at Master's option.

4. Freight/Payment: P30.00/metric ton, FIOST basis. Paymentupon presentation of Bill of Lading within fifteen (15)days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC.(Weather Working Day of 24 consecutive hours, Sundays andHolidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

9. Cargo Insurance: Charterer's and/or Shipper's mustinsure the cargoes. Shipowners not responsible forlosses/damages except on proven willful negligence of theofficers of the vessel.

10. Other terms: (a) All terms/conditions of NONYAZAI C/P[sic] or other internationally recognized Charter PartyAgreement shall form part of this Contract.

The terms "F.I.O.S.T." which is used in the shippingbusiness is a standard provision in the NANYOZAI CharterParty which stands for "Freight In and Out includingStevedoring and Trading", which means that the handling,loading and unloading of the cargoes are the responsibilityof the Charterer. Under Paragraph 5 of the NANYOZAI CharterParty, it states, "Charterers to load, stow and dischargethe cargo free of risk and expenses to owners. . . . (Emphasissupplied).

Under paragraph 10 thereof, it is provided that "(o)wnersshall, before and at the beginning of the voyage, exercisedue diligence to make the vessel seaworthy and properlymanned, equipped and supplied and to make the holds and allother parts of the vessel in which cargo is carried, fitand safe for its reception, carriage and preservation.Owners shall not be liable for loss of or damage of thecargo arising or resulting from: unseaworthiness unlesscaused by want of due diligence on the part of the ownersto make the vessel seaworthy, and to secure that the vesselis properly manned, equipped and supplied and to make theholds and all other parts of the vessel in which cargo iscarried, fit and safe for its reception, carriage andpreservation; . . . ; perils, dangers and accidents of thesea or other navigable waters; . . . ; wastage in bulk orweight or any other loss or damage arising from inherent

defect, quality or vice of the cargo; insufficiency ofpacking; . . . ; latent defects not discoverable by duediligence; any other cause arising without the actual faultor privity of Owners or without the fault of the agents orservants of owners."

Paragraph 12 of said NANYOZAI Charter Party also providesthat "(o)wners shall not be responsible for split, chafingand/or any damage unless caused by the negligence ordefault of the master and crew."

(2) On August 6, 7 and 8, 1974, in accordance with theContract of Voyage Charter Hire, the MV "VLASONS I" loadedat plaintiffs pier at Iligan City, the NSC's shipment of1,677 skids of tinplates and 92 packages of hot rolledsheets or a total of 1,769 packages with a total weight ofabout 2,481.19 metric tons for carriage to Manila. Theshipment was placed in the three (3) hatches of the ship.Chief Mate Gonzalo Sabando, acting as agent of thevessel[,] acknowledged receipt of the cargo on board andsigned the corresponding bill of lading, B.L.P.P. No. 0233(Exhibit "D") on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, NorthHarbor, Manila, on August 12, 1974. The following day,August 13, 1974, when the vessel's three (3) hatchescontaining the shipment were opened by plaintiff's agents,nearly all the skids of tinplates and hot rolled sheetswere allegedly found to be wet and rusty. The cargo wasdischarged and unloaded by stevedores hired by theCharterer. Unloading was completed only on August 24, 1974after incurring a delay of eleven (11) days due to theheavy rain which interrupted the unloading operations.(Exhibit "E")

(4) To determine the nature and extent of the wetting andrusting, NSC called for a survey of the shipment by theManila Adjusters and Surveyors Company (MASCO). In a letterto the NSC dated March 17, 1975 (Exhibit "G"), MASCO made areport of its ocular inspection conducted on the cargo,both while it was still on board the vessel and later at

the NDC warehouse in Pureza St., Sta. Mesa, Manila wherethe cargo was taken and stored. MASCO reported that itfound wetting and rusting of the packages of hot rolledsheets and metal covers of the tinplates; that tarpaulinhatch covers were noted torn at various extents; thatcontainer/metal casings of the skids were rusting all over.MASCO ventured the opinion that "rusting of the tinplateswas caused by contact with SEA WATER sustained while stillon board the vessel as a consequence of the heavy weatherand rough seas encountered while en route to destination(Exhibit "F"). It was also reported that MASCO's surveyorsdrew at random samples of bad order packing materials ofthe tinplates and delivered the same to the M.I.T. TestingLaboratories for analysis. On August 31, 1974, the M.I.T.Testing Laboratories issued Report No. 1770 (Exhibit "I")which in part, states, "The analysis of bad order samplesof packing materials . . . shows that wetting was caused bycontact with SEA WATER".

(5) On September 6, 1974, on the basis of the aforesaidReport No. 1770, plaintiff filed with the defendant itsclaim for damages suffered due to the downgrading of thedamaged tinplates in the amount of P941,145.18. Then onOctober 3, 1974, plaintiff formally demanded payment ofsaid claim but defendant VSI refused and failed to pay.Plaintiff filed its complaint against defendant on April21, 1976 which was docketed as Civil Case No. 23317, CFI,Rizal.

(6) In its complaint, plaintiff claimed that it sustainedlosses in the aforesaid amount of P941,145.18 as a resultof the act, neglect and default of the master and crew inthe management of the vessel as well as the want of duediligence on the part of the defendant to make the vesselseaworthy and to make the holds and all other parts of thevessel in which the cargo was carried, fit and safe for itsreception, carriage and preservation — all in violation ofdefendant's undertaking under their Contract of VoyageCharter Hire.

(7) In its answer, defendant denied liability for thealleged damage claiming that the MV "VLASONS I" wasseaworthy in all respects for the carriage of plaintiff'scargo; that said vessel was not a "common carrier" inasmuchas she was under voyage charter contract with the plaintiffas charterer under the charter party; that in the course ofthe voyage from Iligan City to Manila, the MV "VLASONS I"encountered very rough seas, strong winds and adverseweather condition, causing strong winds and big waves tocontinuously pound against the vessel and seawater tooverflow on its deck and hatch covers, that under theContract of Voyage Charter Hire, defendant shall not beresponsible for losses/damages except on proven willfulnegligence of the officers of the vessel, that the officersof said MV "VLASONS I" exercised due diligence and properseamanship and were not willfully negligent; thatfurthermore the Voyage Charter Party provides that loadingand discharging of the cargo was on FIOST terms which meansthat the vessel was free of risk and expense in connectionwith the loading and discharging of the cargo; that thedamage, if any, was due to the inherent defect, quality orvice of the cargo or to the insufficient packing thereof orto latent defect of the cargo not discoverable by duediligence or to any other cause arising without the actualfault or privity of defendant and without the fault of theagents or servants of defendant; consequently, defendant isnot liable; that the stevedores of plaintiff who dischargedthe cargo in Manila were negligent and did not exercise duecare in the discharge of the cargo; land that the cargo wasexposed to rain and seawater spray while on the pier or intransit from the pier to plaintiff's warehouse afterdischarge from the vessel; and that plaintiff's claim washighly speculative and grossly exaggerated and that thesmall stain marks or sweat marks on the edges of thetinplates were magnified and considered total loss of thecargo. Finally, defendant claimed that it had complied withall its duties and obligations under the Voyage CharterHire Contract and had no responsibility whatsoever toplaintiff. In turn, it alleged the following counterclaim:

(a) That despite the full and proper performance bydefendant of its obligations under the Voyage Charter HireContract, plaintiff failed and refused to pay the agreedcharter hire of P75,000.00 despite demands made bydefendant;

(b) That under their Voyage Charter Hire Contract,plaintiff had agreed to pay defendant the sum of P8,000.00per day for demurrage. The vessel was on demurrage foreleven (11) days in Manila waiting for plaintiff todischarge its cargo from the vessel. Thus, plaintiff wasliable to pay defendant demurrage in the total amount ofP88,000.00.

(c) For filing a clearly unfounded civil action againstdefendant, plaintiff should be ordered to pay defendantattorney's fees and all expenses of litigation in theamount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trialcourt came out with the following findings which were setforth in its decision:

(a) The MV "VLASONS I" is a vessel of Philippine registryengaged in the tramping service and is available for hireonly under special contracts of charter party as in thisparticular case.

(b) That for purposes of the voyage covered by the Contractof Voyage Charter Hire (Exh. "1"), the MV VLASONS I" wascovered by the required seaworthiness certificatesincluding the Certification of Classification issued by aninternational classification society, the NIPPON KAIJIKYOKAI (Exh. "4"); Coastwise License from the Board ofTransportation (Exh. "5"); International LoadlineCertificate from the Philippine Coast Guard (Exh. "6");Cargo Ship Safety Equipment Certificate also from thePhilippine Coast Guard (Exh. "7"); Ship Radio StationLicense (Exh. "8"); Certificate of Inspection by thePhilippine Coast Guard (Exh. "12"); and Certificate ofApproval for Conversion issued by the Bureau of Customs

(Exh. "9"). That being a vessel engaged in both overseasand coastwise trade, the MV "VLASONS I" has a higher degreeof seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform thevoyage called for by the Contract of Voyage Charter Hire,the MV "VLASONS I" underwent drydocking in Cebu and wasthoroughly inspected by the Philippine Coast Guard. Infact, subject voyage was the vessel's first voyage afterthe drydocking. The evidence shows that the MV "VLASONS I"was seaworthy and properly manned, equipped and suppliedwhen it undertook the voyage. It has all the requiredcertificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3)hatches of the ship. The hatch openings were covered byhatchboards which were in turn covered by two or doubletarpaulins. The hatch covers were water tight. Furthermore,under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated thecontract of carriage is not supported by evidence. Theprovisions of the Civil Code on common carriers pursuant towhich there exists a presumption of negligence in case ofloss or damage to the cargo are not applicable. As to thedamage to the tinplates which was allegedly due to thewetting and rusting thereof, there is unrebutted testimonyof witness Vicente Angliongto that tinplates "sweat" bythemselves when packed even without being in contract (sic)with water from outside especially when the weather is bador raining. The trust caused by sweat or moisture on thetinplates may be considered as a loss or damage but then,defendant cannot be held liable for it pursuant to Article1734 of the Civil Case which exempts the carrier fromresponsibility for loss or damage arising from the"character of the goods . . ." All the 1,769 skids of thetinplates could not have been damaged by water as claimedby plaintiff. It was shown as claimed by plaintiff that thetinplates themselves were wrapped in kraft paper lining andcorrugated cardboards could not be affected by water fromoutside.

(f) The stevedores hired by the plaintiff to discharge thecargo of tinplates were negligent in not closing the hatchopenings of the MV "VLASONS I" when rains occurred duringthe discharging of the cargo thus allowing rainwater toenter the hatches. It was proven that the stevedores merelyset up temporary tents to cover the hatch openings in caseof rain so that it would be easy for them to resume workwhen the rains stopped by just removing the tent or canvas.Because of this improper covering of the hatches by thestevedores during the discharging and unloading operationswhich were interrupted by rains, rainwater drifted into thecargo through the hatch openings. Pursuant to paragraph 5of the NANYOSAI [sic] Charter Party which was expressly madepart of the Contract of Voyage Charter Hire, the loading,stowing and discharging of the cargo is the soleresponsibility of the plaintiff charterer and defendantcarrier has no liability for whatever damage may occur ormaybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encounteredrough seas and bad weather while en route from Iligan Cityto Manila causing sea water to splash on the ship's deck onaccount of which the master of the vessel (Mr. Antonio C.Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh."15"); which can be invoked by defendant as a force majeurethat would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirementprescribed in paragraph 9 of the Voyage Charter Hirecontract that it was to insure the cargo because it didnot. Had plaintiff complied with the requirement, then itcould have recovered its loss or damage from the insurer.Plaintiff also violated the charter party contract when itloaded not only "steel products", i.e. steel bars, angularbars and the like but also tinplates and hot rolled sheetswhich are high grade cargo commanding a higher freight.Thus plaintiff was able to ship grade cargo at a lowerfreight rate.

(i) As regards defendant's counterclaim, the contract ofvoyage charter hire under Paragraph 4 thereof, fixed the

freight at P30.00 per metric ton payable to defendantcarrier upon presentation of the bill of lading withinfifteen (15) days. Plaintiff has not paid the total freightdue of P75,000.00 despite demands. The evidence also showedthat the plaintiff was required and bound under paragraph 7of the same Voyage Charter Hire contract to pay demurrageof P8,000.00 per day of delay in the unloading of thecargoes. The delay amounted to eleven (11) days therebymaking plaintiff liable to pay defendant for demurrage inthe amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSCalleged six errors:

I The trial court erred in finding that the MV "VLASONS I"was seaworthy, properly manned, equipped and supplied, andthat there is no proof of willful negligence of thevessel's officers.

II The trial court erred in finding that the rusting ofNSC's tinplates was due to the inherent nature or characterof the goods and not due to contact with seawater.

III The trial court erred in finding that the stevedoreshired by NSC were negligent in the unloading of NSC'sshipment.

IV The trial court erred in exempting VSI from liability onthe ground of force majeure.

V The trial court erred in finding that NSC violated thecontract of voyage charter hire.

VI The trial court erred in ordering NSC to pay freight,demurrage and attorney's fees, to VSI. 4

As earlier stated, the Court of Appeals modified thedecision of the trial court by reducing the demurrage fromP88,000.00 to P44,000.00 and deleting the award ofattorneys fees and expenses of litigation. NSC and VSIfiled separate motions for reconsideration. In a Resolution

5 dated October 20, 1993, the appellate court denied bothmotions. Undaunted, NSC and VSI filed their respectivepetitions for review before this Court. On motion of VSI,the Court ordered on February 14, 1994 the consolidation ofthese petitions. 6

The Issues

In its petition 7 and memorandum, 8 NSC raises the followingquestions of law and fact:

Questions of Law1. Whether or not a charterer of a vessel is liable fordemurrage due to cargo unloading delays caused by weatherinterruption;2. Whether or not the alleged "seaworthiness certificates"(Exhibits "3", "4", "5", "6", "7", "8", "9", "11" and "12")were admissible in evidence and constituted evidence of thevessel's seaworthiness at the beginning of the voyages; and3. Whether or not a charterer's failure to insure its cargoexempts the shipowner from liability for cargo damage.

Questions of Fact1. Whether or not the vessel was seaworthy and cargo-worthy;2. Whether or not vessel's officers and crew were negligentin handling and caring for NSC's cargo;3. Whether or not NSC's cargo of tinplates did sweat duringthe voyage and, hence, rusted on their own; and4. Whether or not NSC's stevedores were negligent andcaused the wetting[/]rusting of NSC's tinplates.

In its separate petition, 9 VSI submits for theconsideration of this Court the following alleged errors ofthe CA:

A. The respondent Court of Appeals committed an error oflaw in reducing the award of demurrage from P88,000.00 toP44,000.00.

B. The respondent Court of Appeals committed an error oflaw in deleting the award of P100,000 for attorney's feesand expenses of litigation.

Amplifying the foregoing, VSI raises the following issuesin its memorandum: 10

I. Whether or not the provisions of the Civil Code ofthe Philippines on common carriers pursuant to whichthere exist[s] a presumption of negligence againstthe common carrier in case of loss or damage to thecargo are applicable to a private carrier.

II. Whether or not the terms and conditions of theContract of Voyage Charter Hire, including theNanyozai Charter, are valid and binding on bothcontracting parties.

The foregoing issues raised by the parties will bediscussed under the following headings:1. Questions of Fact2. Effect of NSC's Failure to Insure the Cargo3. Admissibility of Certificates Proving Seaworthiness4. Demurrage and Attorney's Fees.

The Court's Ruling

The Court affirms the assailed Decision of the Court ofAppeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSIcontracted with NSC as a common carrier or as a privatecarrier. The resolution of this preliminary questiondetermines the law, standard of diligence and burden ofproof applicable to the present case.

Article 1732 of the Civil Code defines a common carrier as"persons, corporations, firms or associations engaged in

the business of carrying or transporting passengers orgoods or both, by land, water, or air, for compensation,offering their services to the public." It has been heldthat the true test of a common carrier is the carriage ofpassengers or goods, provided it has space, for all who optto avail themselves of its transportation service for afee. 11 A carrier which does not qualify under the abovetest is deemed a private carrier. "Generally, privatecarriage is undertaken by special agreement and the carrierdoes not hold himself out to carry goods for the generalpublic. The most typical, although not the only form ofprivate carriage, is the charter party, a maritime contractby which the charterer, a party other than the shipowner,obtains the use and service of all or some part of a shipfor a period of time or a voyage or voyages." 12

In the instant case, it is undisputed that VSI did notoffer its services to the general public. As found by theRegional Trial Court, it carried passengers or goods onlyfor those it chose under a "special contract of charterparty." 13 As correctly concluded by the Court of Appeals,the MV Vlasons I "was not a common but a private carrier." 14

Consequently, the rights and obligations of VSI and NSC,including their respective liability for damage to thecargo, are determined primarily by stipulations in theircontract of private carriage or charter party. 15 Recently,in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appealsand Seven Brothers Shipping Corporation, 16 the Court ruled:

. . . in a contract of private carriage, the partiesmay freely stipulate their duties and obligationswhich perforce would be binding on them. Unlike in acontract involving a common carrier, private carriagedoes not involve the general public. Hence, thestringent provisions of the Civil Code on commoncarriers protecting the general public cannotjustifiably be applied to a ship transportingcommercial goods as a private carrier. Consequently,the public policy embodied therein is not contravenedby stipulations in a charter party that lessen or

remove the protection given by law in contractsinvolving common carriers. 17

Extent of VSI's Responsibility andLiability Over NSC's Cargo

It is clear from the parties' Contract of Voyage CharterHire, dated July 17, 1974, that VSI "shall not beresponsible for losses except on proven willful negligenceof the officers of the vessel." The NANYOZAI Charter Party,which was incorporated in the parties' contract oftransportation further provided that the shipowner shallnot be liable for loss of or a damage to the cargo arisingor resulting from unseaworthiness, unless the same wascaused by its lack of due diligence to make the vesselseaworthy or to ensure that the same was "properly manned,equipped and supplied," and to "make the holds and allother parts of the vessel in which cargo [was] carried, fitand safe for its reception, carriage and preservation." 18

The NANYOZAI Charter Party also provided that "[o]wnersshall not be responsible for split, chafing and/or anydamage unless caused by the negligence or default of themaster or crew." 19

Burden of Proof

In view of the aforementioned contractual stipulations, NSCmust prove that the damage to its shipment was caused byVSI's willful negligence or failure to exercise duediligence in making MV Vlasons I seaworthy and fit forholding, carrying and safekeeping the cargo. Ineluctably,the burden of proof was placed on NSC by the parties'agreement.

This view finds further support in the Code of Commercewhich pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of theshipper, if the contrary has not been expressly stipulated.

Therefore, the damage and impairment suffered by the goodsduring the transportation, due to fortuitous event, forcemajeure, or the nature and inherent defect of the things,shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damagesarising from the cause mentioned in the preceding articleif proofs against him show that they occurred on account ofhis negligence or his omission to take the precautionsusually adopted by careful persons, unless the shippercommitted fraud in the bill of lading, making him tobelieve that the goods were of a class or quality differentfrom what they really were.

Because the MV Vlasons I was a private carrier, theshipowner's obligations are governed by the foregoingprovisions of the Code of Commerce and not by the CivilCode which, as a general rule, places the prima faciepresumption of negligence on a common carrier. It is ahornbook doctrine that:

In an action against a private carrier for loss of, orinjury to, cargo, the burden is on the plaintiff to provethat the carrier was negligent or unseaworthy, and the factthat the goods were lost or damaged while in the carrier'scustody does not put the burden of proof on the carrier.

Since . . . a private carrier is not an insurer butundertakes only to exercise due care in the protection ofthe goods committed to its care, the burden of provingnegligence or a breach of that duty rests on plaintiff andproof of loss of, or damage to, cargo while in thecarrier's possession does not cast on it the burden ofproving proper care and diligence on its part or that theloss occurred from an excepted cause in the contract orbill of lading. However, in discharging the burden ofproof, plaintiff is entitled to the benefit of thepresumptions and inferences by which the law aids thebailor in an action against a bailee, and since the carrier

is in a better position to know the cause of the loss andthat it was not one involving its liability, the lawrequires that it come forward with the informationavailable to it, and its failure to do so warrants aninference or presumption of its liability. However, suchinferences and presumptions, while they may affect theburden of coming forward with evidence, do not alter theburden of proof which remains on plaintiff, and, where thecarrier comes forward with evidence explaining the loss ordamage, the burden of going forward with the evidence isagain on plaintiff.

Where the action is based on the shipowner's warranty ofseaworthiness, the burden of proving a breach thereof andthat such breach was the proximate cause of the damagerests on plaintiff, and proof that the goods were lost ordamaged while in the carrier's possession does not cast onit the burden of proving seaworthiness. . . . Where thecontract of carriage exempts the carrier from liability forunseaworthiness not discoverable by due diligence, thecarrier has the preliminary burden of proving the exerciseof due diligence to make the vessel seaworthy. 20

In the instant case, the Court of Appeals correctly foundthe NSC "has not taken the correct position in relation tothe question of who has the burden of proof. Thus, in itsbrief (pp. 10-11), after citing Clause 10 and Clause 12 ofthe NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is not evencorrect), it argues that 'a careful examination of theevidence will show that VSI miserably failed to comply withany of these obligation's as if defendant-appellee [VSI]had the burden of proof." 21

First Issue: Questions of Fact

Based on the foregoing, the determination of the followingfactual questions is manifestly relevant: (1) whether VSIexercised due diligence in making MV Vlasons I seaworthy forthe intended purpose under the charter party; (2) whether

the damage to the cargo should be attributed to the willfulnegligence of the officers and crew of the vessel or of thestevedores hired by NSC; and (3) whether the rusting of thetinplates was caused by its own "sweat" or by contact withseawater.

These questions of fact were threshed out and decided bythe trial court, which had the firsthand opportunity tohear the parties' conflicting claims and to carefully weightheir respective evidence. The findings of the trial courtwere subsequently affirmed by the Court of Appeals. Wherethe factual findings of both the trial court and the Courtof Appeals coincide, the same are binding on this Court. 22

We stress that, subject to some exceptional instances, 23

only questions of law — not questions of fact — may beraised before this Court in a petition for review underRule 45 of the Rules of Court. After a thorough review ofthe case at bar, we find no reason to disturb the lowercourt's factual findings, as indeed NSC has notsuccessfully proven the application of any of theaforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised duediligence to make the ship seaworthy and fit for thecarriage of NSC's cargo of steel and tinplates. This isshown by the fact that it was drylocked and inspected bythe Philippine Coast Guard before it proceeded to IliganCity for its voyage to Manila under the contract of voyagecharter hire. 24 The vessel's voyage from Iligan to Manilawas the vessel's first voyage after drydocking. The PhilippineCoast Guard Station in Cebu cleared it as seaworthy, fitted andequipped; it met all requirements for trading as cargo vessel. 25 The Courtof Appeals itself sustained the conclusion of the trialcourt that MV Vlasons I was seaworthy. We find no reason tomodify or reverse this finding of both the trial and theappellate courts.

Who Were Negligent:Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving thatthe damage to the cargo was caused by the negligence of theofficers and the crew of MV Vlasons I in making their vesselseaworthy and fit for the carriage of tinplates. NSC failedto discharge this burden.

Before us, NSC relies heavily on its claim that MV Vlasons Ihad used an old and torn tarpaulin or canvas to cover thehatches through which the cargo was loaded into the cargohold of the ship. It faults the Court of Appeals forfailing to consider such claim as an "uncontroverted fact"26 and denies that MV Vlasons I "was equipped with new canvascovers in tandem with the old ones as indicated in theMarine Protest . . ." 27 We disagree.

The records sufficiently support VSI's contention that theship used the old tarpaulin, only in addition to the newone used primarily to make the ship's hatches watertight.The foregoing are clear from the marine protest of themaster of the MV Vlasons I, Antonio C. Dumlao, and thedeposition of the ship's boatswain, Jose Pascua. Thesalient portions of said marine protest read:

. . . That the M/V "VLASONS I" departed Iligan Cityor about 0730 hours of August 8, 1974, loaded withapproximately 2,487.9 tons of steel plates and tinplates consigned to National Steel Corporation; thatbefore departure, the vessel was rigged, fullyequipped and cleared by the authorities; that on orabout August 9, 1974, while in the vicinity of thewestern part of Negros and Panay, we encountered veryrough seas and strong winds and Manila office wasadvised by telegram of the adverse weather conditionsencountered; that in the morning of August 10, 1974,the weather condition changed to worse and strongwinds and big waves continued pounding the vessel ather port side causing sea water to overflow on deckandhatch (sic) covers and which caused the first layerof the canvass covering to give way while the newcanvass covering still holding on;

That the weather condition improved when wereached Dumali Point protected by Mindoro; thatwe re-secured the canvass covering back toposition; that in the afternoon of August 10,1974, while entering Maricaban Passage, we wereagain exposed to moderate seas and heavy rains;that while approaching Fortune Island, weencountered again rough seas, strong winds andbig waves which caused the same canvass to giveway and leaving the new canvass holding on;

And the relevant portions of Jose Pascua's deposition areas follows:

q What is the purpose of the canvas cover?a So that the cargo would not be soaked with water.q And will you describe how the canvas cover was secured onthe hatch opening?WITNESSa It was placed flat on top of the hatch cover, with alittle canvas flowing over the sides and we place[d] a flatbar over the canvas on the side of the hatches and then weplace[d] a stopper so that the canvas could not be removed.ATTY DEL ROSARIOq And will you tell us the size of the hatch opening? Thelength and the width of the hatch opening.a Forty-five feet by thirty-five feet, sir.q How was the canvas supported in the middle of the hatchopening?a There is a hatch board.ATTY DEL ROSARIOq What is the hatch board made of?a It is made of wood, with a handle.q And aside from the hatch board, is there any othermaterial there to cover the hatch?a There is a beam supporting the hatch board.q What is this beam made of?a It is made of steel, sir.q Is the beam that was placed in the hatch opening coveringthe whole hatch opening?a No, sir.

q How many hatch beams were there placed across theopening? a There are five beams in one hatch opening.ATTY DEL ROSARIOq And on top of the beams you said there is a hatch board.How many pieces of wood are put on top?a Plenty, sir, because there are several pieces on top ofthe hatch beam.q And is there a space between the hatch boards?a There is none, sir.q They are tight together?a Yes, sir.q How tight?a Very tight, sir.q Now, on top of the hatch boards, according to you, is thecanvass cover. How many canvas covers?a Two, sir. 29

That due diligence was exercised by the officers and thecrew of the MV Vlasons I was further demonstrated by the factthat, despite encountering rough weather twice, the newtarpaulin did not give way and the ship's hatches and cargoholds remained waterproof. As aptly stated by the Court ofAppeals, ". . . we find no reason not to sustain theconclusion of the lower court based on overwhelmingevidence, that the MV 'VLASONS I' was seaworthy when itundertook the voyage on August 8, 1974 carrying on boardthereof plaintiff-appellant's shipment of 1,677 skids oftinplates and 92 packages of hot rolled sheets or a totalof 1,769 packages from NSC's pier in Iligan City arrivingsafely at North Harbor, Port Area, Manila, on August 12,1974; . . . 30

Indeed, NSC failed to discharge its burden to shownegligence on the part of the officers and the crew of MVVlasons I. On the contrary, the records reveal that it was thestevedores of NSC who were negligent in unloading the cargofrom the ship.

The stevedores employed only a tent-like material to coverthe hatches when strong rains occasioned by a passingtyphoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate for keepingrain and seawater away from the hatches of the ship.Vicente Angliongto, an officer of VSI, testified thus:

ATTY ZAMORA:Q Now, during your testimony on November 5, 1979, youstated on August 14 you went on board the vessel uponnotice from the National Steel Corporation in order toconduct the inspection of the cargo. During the course ofthe investigation, did you chance to see the dischargingoperation?WITNESS:A Yes, sir, upon my arrival at the vessel, I saw some ofthe tinplates already discharged on the pier but majorityof the tinplates were inside the hall, all the hatches wereopened.Q In connection with these cargoes which were unloaded,where is the place.A At the Pier.Q What was used to protect the same from weather?ATTY LOPEZ:We object, your Honor, this question was already asked.This particular matter . . . the transcript of stenographicnotes shows the same was covered in the direct examination.ATTY ZAMORA:Precisely, your Honor, we would like to go on detail, thisis the serious part of the testimony.COURT:All right, witness may answer.ATTY LOPEZ:Q What was used in order to protect the cargo from theweather?A A base of canvas was used as cover on top of the tinplates, and tents were built at the opening of the hatches.Q You also stated that the hatches were already opened andthat there were tents constructed at the opening of thehatches to protect the cargo from the rain. Now, will youdescribe [to] the Court the tents constructed.

A The tents are just a base of canvas which look like atent of an Indian camp raise[d] high at the middle with thewhole side separated down to the hatch, the size of thehatch and it is soaks [sic] at the middle because of thoseweather and this can be used only to temporarily protectthe cargo from getting wet by rains.Q Now, is this procedure adopted by the stevedores of covering tents proper?A No, sir, at the time they were discharging the cargo, there was a typhoonpassing by and the hatch tent was not good enough to hold all of it to preventthe water soaking through the canvass and enter the cargo.Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact thewater enter and soak into the canvass and tinplates.A Yes, sir, the second time I went there, I saw it.Q As owner of the vessel, did you not advise the NationalSteel Corporation [of] the procedure adopted by itsstevedores in discharging the cargo particularly in thistent covering of the hatches?A Yes, sir, I did the first time I saw it, I called theattention of the stevedores but the stevedores did not mindat all, so, called the attention of the representative ofthe National Steel but nothing was done, just the same.Finally, I wrote a letter to them. 31

NSC attempts to discredit the testimony of Angliongto byquestioning his failure to complain immediately about thestevedores' negligence on the first day of unloading,pointing out that he wrote his letter to petitioner onlyseven days later. 32 The Court is not persuaded.Angliongto's candid answer in his aforequoted testimonysatisfactorily explained the delay. Seven days lapsedbecause he first called the attention of the stevedores,then the NSC's representative, about the negligent anddefective procedure adopted in unloading the cargo. Thisseries of actions constitutes a reasonable response inaccord with common sense and ordinary human experience.Vicente Angliongto could not be blamed for calling thestevedores' attention first and then the NSC'srepresentative on location before formally informing NSC ofthe negligence he had observed, because he was notresponsible for the stevedores or the unloading operations.

In fact, he was merely expressing concern for NSC which wasultimately responsible for the stevedores it had hired andthe performance of their task to unload the cargo.

We see no reason to reverse the trial and the appellatecourts' findings and conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trialcourt erred in finding that the stevedores hired by NSCwere negligent in the unloading of NSC's shipment. We donot think so. Such negligence according to the trial courtis evident in the stevedores hired by [NSC], not closingthe hatch of MV 'VLASONS I' when rains occurred during thedischarging of the cargo thus allowing rain water andseawater spray to enter the hatches and to drift to andfall on the cargo. It was proven that the stevedores merelyset up temporary tents or canvas to cover the hatchopenings when it rained during the unloading operations sothat it would be easier for them to resume work after therains stopped by just removing said tents or canvass. Ithas also been shown that on August 20, 1974, VSI PresidentVicente Angliongto wrote [NSC] calling attention to themanner the stevedores hired by [NSC] were discharging thecargo on rainy days and the improper closing of the hatcheswhich allowed continuous heavy rain water to leak throughand drip to the tinplates' covers and [Vicente Angliongto]also suggesting that due to four (4) days continuos rainswith strong winds that the hatches be totally closed downand covered with canvas and the hatch tents lowered. (Exh."13"). This letter was received by [NSC] on 22 August 1974while discharging operations were still going on (Exhibit"13-A"). 33

The fact that NSC actually accepted and proceeded to removethe cargo from the ship during unfavorable weather will notmake VSI liable for any damage caused thereby. In passing,it may be noted that the NSC may seek indemnification,subject to the laws on prescription, from the stevedoringcompany at fault in the discharge operations. "A stevedorecompany engaged in discharging cargo . . . has the duty toload the cargo . . . in a prudent manner, and it is liable

for injury to, or loss of, cargo caused by its negligence .. . and where the officers and members and crew of thevessel do nothing and have no responsibility in thedischarge of cargo by stevedores . . . the vessel is notliable for loss of, or damage to, the cargo caused by thenegligence of the stevedores . . ." 34 as in the instant case.

Do Tinplates "Sweat"?

The trial court relied on the testimony of VicenteAngliongto in finding that ". . . tinplates 'sweat' bythemselves when packed even without being in contact withwater from outside especially when the weather is bad or raining . . ." 35 The Court of Appeals affirmed the trialcourt's finding.

A discussion of this issue appears inconsequential andunnecessary. As previously discussed, the damage to thetinplates was occasioned not by airborne moisture but bycontact with rain and seawater which the stevedoresnegligently allowed to seep in during the unloading.

Second Issue: Effect of NSC's Failure toInsure the Cargo

The obligation of NSC to insure the cargo stipulated in theContract of Voyage Charter Hire is totally separate anddistinct from the contractual or statutory responsibilitythat may be incurred by VSI for damage to the cargo causedby the willful negligence of the officers and the crew ofMV Vlasons I. Clearly, therefore, NSC's failure to insure thecargo will not affect its right, as owner and real party ininterest, to file an action against VSI for damages causedby the latter's willful negligence. We do not find anythingin the charter party that would make the liability of VSIfor damage to the cargo contingent on or affected in anymanner by NSC's obtaining an insurance over the cargo.

Third Issue: Admissibility of CertificatesProving Seaworthiness

NSC's contention that MV Vlasons I was not seaworthy isanchored on the alleged inadmissibility of the certificatesof seaworthiness offered in evidence by VSI. The saidcertificates include the following:1. Certificate of Inspection of the Philippines Coast Guardat Cebu2. Certificate of Inspection from the Philippine CoastGuard3. International Load Line Certificate from the PhilippineCoast Guard4. Coastwise License from the Board of Transportation5. Certificate of Approval for Conversion issued by theBureau of Customs 36

NSC argues that the certificates are hearsay for not havingbeen presented in accordance with the Rules of Court. Itpoints out that Exhibits 3, 4 and 11 allegedly are "notwritten records or acts of public officers"; while Exhibits5, 6, 7, 8, 9, 11 and 12 are not "evidenced by officialpublications or certified true copies" as required bySections 25 and 26, Rule 132, of the Rules of Court. 37

After a careful examination of these exhibits, the Courtrules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 areinadmissible, for they have not been properly offered asevidence. Exhibits 3 and 4 are certificates issued byprivate parties, but they have not been proven by one whosaw the writing executed, or by evidence of the genuinenessof the handwriting of the maker, or by a subscribingwitness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies,but their admission under the best evidence rule have notbeen demonstrated.

We find, however, that Exhibit 11 is admissible under awell-settled exception to the hearsay rule per Section 44of Rule 130 of the Rules of Court, which provides that"(e)ntries in official records made in the performance of aduty by a public officer of the Philippines, or by a personin the performance of a duty specially enjoined by law, areprima facie evidence of the facts therein stated." 38 Exhibit

11 is an original certificate of the Philippine Coast Guardin Cebu issued by Lieutenant Junior Grade Noli C. Flores tothe effect that "the vessel 'VLASONS I' was drydocked . . .and PCG Inspectors were sent on board for inspection . . .After completion of drydocking and duly inspected by PCGInspectors, the vessel 'VLASONS I', a cargo vessel, is inseaworthy condition, meets all requirements, fitted andequipped for trading as a cargo vessel was cleared by thePhilippine Coast Guard and sailed for Cebu Port on July 10,1974." (sic) NSC's claim, therefore, is obviously misleadingand erroneous.

At any rate, it should be stressed that NSC has the burdenof proving that MV Vlasons I was not seaworthy. As observedearlier, the vessel was a private carrier and, as such, itdid not have the obligation of a common carrier to showthat it was seaworthy. Indeed, NSC glaringly failed todischarge its duty of proving the willful negligence of VSIin making the ship seaworthy resulting in damage to itscargo. Assailing the genuineness of the certificate ofseaworthiness is not sufficient proof that the vessel wasnot seaworthy.

Fourth Issue: Demurrage and Attorney's Fees

The contract of voyage charter hire provides inter alia:

2. Cargo: Full cargo of steel products of not less than2,500 MT, 10% more or less at Master's option.

6. Loading/Discharging Rate: 750 tons per WWDSHINC.

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 39

The Court defined demurrage in its strict sense as thecompensation provided for in the contract of affreightmentfor the detention of the vessel beyond the laytime or thatperiod of time agreed on for loading and unloading ofcargo. 40 It is given to compensate the shipowner for thenonuse of the vessel. On the other hand, the following iswell-settled:

Laytime runs according to the particular clause of thecharter party. . . . If laytime is expressed in "runningdays," this means days when the ship would be runcontinuously, and holidays are not excepted. Aqualification of "weather permitting" excepts only thosedays when bad weather reasonably prevents the workcontemplated. 41

In this case, the contract of voyage charter hire providedfor a four-day laytime; it also qualified laytime asWWDSHINC or weather working days Sundays and holidaysincluded. 42 The running of laytime was thus made subject tothe weather, and would cease to run in the eventunfavorable weather interfered with the unloading of cargo.43 Consequently, NSC may not be held liable for demurrage asthe four-day laytime allowed it did not lapse, having beentolled by unfavorable weather condition in view of theWWDSHINC qualification agreed upon by the parties. Clearly,it was error for the trial court and the Court of Appealsto have found and affirmed respectively that NSC incurredeleven days of delay in unloading the cargo. The trialcourt arrived at this erroneous finding by subtracting fromthe twelve days, specifically August 13, 1974 to August 24,1974, the only day of unloading unhampered by unfavorableweather or rain, which was August 22, 1974. Based on ourprevious discussion, such finding is a reversible error. Asmentioned, the respondent appellate court also erred inruling that NSC was liable to VSI for demurrage, even if itreduced the amount by half.

Attorney's Fees

VSI assigns as error of law the Court of Appeals' deletionof the award of attorney's fees. We disagree. While VSI wascompelled to litigate to protect its rights, such fact byitself will not justify an award of attorney's fees underArticle 2208 of the Civil Code when ". . . no sufficientshowing of bad faith would be reflected in a party'spersistence in a case other than an erroneous conviction ofthe righteousness of his cause . . ." 44 Moreover,attorney's fees may not be awarded to a party for the

reason alone that the judgment rendered was favorable tothe latter, as this is tantamount to imposing a premium onone's right to litigate or seek judicial redress oflegitimate grievances. 45

Epilogue

At bottom, this appeal really hinges on a factual issue:when, how and who caused the damage to the cargo? Rangedagainst NSC are two formidable truths. First, both lowercourts found that such damage was brought about during theunloading process when rain and seawater seeped through thecargo due to the fault or negligence of the stevedoresemployed by it. Basic is the rule that factual findings ofthe trial court, when affirmed by the Court of Appeals, arebinding on the Supreme Court. Although there are settledexceptions, NSC has not satisfactorily shown that this caseis one of them. Second, the agreement between the parties —the Contract of Voyage Charter Hire — placed the burden ofproof for such loss or damage upon the shipper, not uponthe shipowner. Such stipulation, while disadvantageous toNSC, is valid because the parties entered into a contractof private charter, not one of common carriage. Basic toois the doctrine that courts cannot relieve a parry from theeffects of a private contract freely entered into, on theground that it is allegedly one-sided or unfair to theplaintiff. The charter party is a normal commercialcontract and its stipulations are agreed upon inconsideration of many factors, not the least of which isthe transport price which is determined not only by theactual costs but also by the risks and burdens assumed bythe shipper in regard to possible loss or damage to thecargo. In recognition of such factors, the parties evenstipulated that the shipper should insure the cargo toprotect itself from the risks it undertook under thecharter party. That NSC failed or neglected to protectitself with such insurance should not adversely affect VSI,which had nothing to do with such failure or neglect.

WHEREFORE, premises considered, the instant consolidatedpetitions are hereby DENIED. The questioned Decision of the

Court of Appeals is AFFIRMED with the MODIFICATION that thedemurrage awarded to VSI is deleted. No pronouncement as tocosts.

SO ORDERED.

G.R. No. 131166 September 30, 1999

CALTEX (PHILIPPINES), INC., petitioner, vs.

SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S.GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO,

RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO,EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING

CORPORATION, TERESITA G. CAÑEZAL, AND SOTERA E. CAÑEZAL,respondents.

 

PARDO, J.:

Is the charterer of a sea vessel liable for damagesresulting from a collision between the chartered vessel anda passenger ship?

When MT Vector left the port of Limay, Bataan, on December19, 1987 carrying petroleum products of Caltex(Philippines), Inc. (hereinafter Caltex) no one could haveguessed that it would collide with MV Doña Paz, killingalmost all the passengers and crew members of both ships,

and thus resulting in one of the country's worst maritimedisasters.

The petition before us seeks to reverse the Court ofAppeals decision 1 holding petitioner jointly liable withthe operator of MT Vector for damages when the lattercollided with Sulpicio Lines, Inc.'s passenger ship MV DoñaPaz.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay,Bataan, at about 8:00 p.m., enroute to Masbate, loaded with8,800 barrels of petroleum products shipped by petitionerCaltex. 2 MT Vector is a tramping motor tanker owned andoperated by Vector Shipping Corporation, engaged in thebusiness of transporting fuel products such as gasoline,kerosene, diesel and crude oil. During that particularvoyage, the MT Vector carried on board gasoline and otheroil products owned by Caltex by virtue of a chartercontract betweenthem. 3

On December 20, 1987, at about 6:30 a.m., the passengership MV Doña Paz left the port of Tacloban headed forManila with a complement of 59 crew members including themaster and his officers, and passengers totaling 1,493 asindicated in the Coast Guard Clearance. 4 The MV Doña Paz isa passenger and cargo vessel owned and operated by SulpicioLines, Inc. plying the route of Manila/ Tacloban/Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, makingtrips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vesselscollided in the open sea within the vicinity of DumaliPoint between Marinduque and Oriental Mindoro. All thecrewmembers of MV Doña Paz died, while the two survivorsfrom MT Vector claimed that they were sleeping at the timeof the incident.1âwphi1.nêt

The MV Doña Paz carried an estimated 4,000 passengers; manyindeed, were not in the passenger manifest. Only 24survived the tragedy after having been rescued from theburning waters by vessels that responded to distress calls.5 Among those who perished were public school teacherSebastian Cañezal (47 years old) and his daughter CorazonCañezal (11 years old), both unmanifested passengers butproved to be on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI CaseNo. 659-87 after investigation found that the MT Vector,its registered operator Francisco Soriano, and its ownerand actual operator Vector Shipping Corporation, were atfault and responsible for its collision with MV Doña Paz. 6

On February 13, 1989, Teresita Cañezal and Sotera E.Cañezal, Sebastian Cañezal's wife and mother respectively,filed with the Regional Trial Court, Branch 8, Manila, acomplaint for "Damages Arising from Breach of Contract ofCarriage" against Sulpicio Lines, Inc. (hereafterSulpicio). Sulpicio, in turn, filed a third party complaintagainst Francisco Soriano, Vector Shipping Corporation andCaltex (Philippines), Inc. Sulpicio alleged that Caltexchartered MT Vector with gross and evident bad faithknowing fully well that MT Vector was improperly manned,ill-equipped, unseaworthy and a hazard to safe navigation;as a result, it rammed against MV Doña Paz in the open seasetting MT Vector's highly flammable cargo ablaze.

On September 15, 1992, the trial court rendered decisiondismissing, the third party complaint against petitioner.The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor ofplaintiffs and against defendant-3rd party plaintiffSulpicio Lines, Inc., to wit:

1. For the death of Sebastian E. Cañezal and his 11-yearold daughter Corazon G. Cañezal, including loss of futureearnings of said Sebastian, moral and exemplary damages,

attorney's fees, in the total amount of P 1,241,287.44 andfinally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED forwant of substantiation and with costs against the 3rd partyplaintiff.IT IS SO ORDERED.

DONE IN MANILA, this 15th day of Septemb

On appeal to the Court of Appeals interposed by SulpicioLines, Inc., on April 15, 1997, the Court of Appealmodified the trial court's ruling and included petitionerCaltex as one of the those liable for damages. Thus:

WHEREFORE, in view of all the foregoing, the judgmentrendered by the Regional Trial Court is hereby MODIFIED asfollows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered topay the heirs of Sebastian E. Cañezal and Corazon Cañezal:

1. Compensatory damages for the death of Sebastian E.Cañezal and Corazon Cañezal the total amount of ONE HUNDREDTHOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income ofSebastian E. Cañezal, in the total amount of THREE HUNDREDSIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSANDPESOS (P300,000.00);

4. Attorney's fees in the concept of actual damages in theamount of FIFTY THOUSAND PESOS (P50,000.00);

5. Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex(Phils.), Inc. are held equally liable under the thirdparty complaint to reimburse/indemnify defendant SulpicioLines, Inc. of the above-mentioned damages, attorney's feesand costs which the latter is adjudged to pay plaintiffs,the same to be shared half by Vector Shipping Co. (beingthe vessel at fault for the collision) and the other halfby Caltex (Phils.), Inc. (being the charterer thatnegligently caused the shipping of combustible cargo aboardan unseaworthy vessel).

SO ORDERED.WE CONCUR:

RAMON U. MABUTAS, JR. PORTIA ALIÑOHERMACHUELOS

Associate Justice Associate Justice. 8

Hence, this petition.

We find the petition meritorious.

First: The charterer has no liability for damages underPhilippine Maritime laws.

The respective rights and duties of a shipper and thecarrier depends not on whether the carrier is public orprivate, but on whether the contract of carriage is a billof lading or equivalent shipping documents on the one hand,or a charter party or similar contract on the other. 9

Petitioner and Vector entered into a contract ofaffreightment, also known as a voyage charter. 10

A charter party is a contract by which an entire ship, orsome principal part thereof, is let by the owner to anotherperson for a specified time or use; a contract ofaffreightment is one by which the owner of a ship or othervessel lets the whole or part of her to a merchant or other

person for the conveyance of goods, on a particular voyage,in consideration of the payment of freight. 11

A contract of affreightment may be either time charter,wherein the leased vessel is leased to the charterer for afixed period of time, or voyage charter, wherein the ship isleased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either fora determinate period of time or for a single or consecutivevoyage, the ship owner to supply the ship's store, pay forthe wages of the master of the crew, and defray theexpenses for the maintenance of the ship. 12

Under a demise or bareboat charter on the other hand, thecharterer mans the vessel with his own people and becomes,in effect, the owner for the voyage or service stipulated,subject to liability for damages caused by negligence.

If the charter is a contract of affreightment, which leavesthe general owner in possession of the ship as owner forthe voyage, the rights and the responsibilities ofownership rest on the owner. The charterer is free fromliability to third persons in respect of the ship. 13

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demiseor bareboat, (2) time charter, (3) voyage charter. Does acharter party agreement turn the common carrier into aprivate one? We need to answer this question in order toshed light on the responsibilities of the parties.

In this case, the charter party agreement did not convertthe common carrier into a private carrier. The partiesentered into a voyage charter, which retains the characterof the vessel as a common carrier.

In Planters Products, Inc. vs. Court of Appeals, 14 we said:

It is therefore imperative that a public carrier shallremain as such, notwithstanding the charter of the whole

portion of a vessel of one or more persons, provided thecharter is limited to the ship only, as in the case of atime-charter or the voyage charter. It is only when thecharter includes both the vessel and its crew, as in abareboat or demise that a common carrier becomes private,at least insofar as the particular voyage covering thecharter-party is concerned. Indubitably, a ship-owner in atime or voyage charter retains possession and control ofthe ship, although her holds may, for the moment, be theproperty of the charterer.

Later, we ruled in Coastwise Lighterage Corporation vs. Court ofAppeals: 15

Although a charter party may transform a common carrierinto a private one, the same however is not true in acontract of affreightment . . .

A common carrier is a person or corporation whose regularbusiness is to carry passengers or property for all personswho may choose to employ and to remunerate him. 16 MT Vectorfits the definition of a common carrier under Article 1732of the Civil Code. In Guzman vs. Court of Appeals, 17 we ruled:

The Civil Code defines "common carriers" in the followingterms:

Art. 1732. Common carriers are persons, corporations, firmsor associations engaged in the business of carrying ortransporting passengers for passengers or goods or both, byland, water, or air for compensation, offering theirservices to the public.

The above article makes no distinction between one whoseprincipal business activity is the carrying of persons orgoods or both, and one who does such carrying only as anancillary activity (in local idiom, as "a sideline"). Article1732 also carefully avoids making any distinction between aperson or enterprise offering transportation service on aregular or scheduled basis and one offering such services on anoccasional, 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 froma narrow segment of the general population. We think thatArticle 1733 deliberately refrained from making suchdistinctions.

It appears to the Court that private respondent is properlycharacterized as a common carrier even though he merely"back-hauled" goods for other merchants from Manila toPangasinan, although such backhauling was done on aperiodic, occasional rather than regular or scheduledmanner, and even though respondent's principal occupation wasnot the carriage of goods for others. There is no disputethat private respondent charged his customers a fee forhauling their goods; that the fee frequently fell belowcommercial freight rates is not relevant here.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at thebeginning of the voyage to exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

Thus, the carriers are deemed to warrant impliedly theseaworthiness of the ship. For a vessel to be seaworthy, it must beadequately equipped for the voyage and manned with a sufficient number ofcompetent officers and crew. The failure of a common carrier tomaintain in seaworthy condition the vessel involved in itscontract of carriage is a clear breach of its dutyprescribed in Article 1755 of the Civil Code. 18

The provisions owed their conception to the nature of thebusiness of common carriers. This business is impressedwith a special public duty. The public must of necessityrely on the care and skill of common carriers in thevigilance over the goods and safety of the passengers,especially because with the modern development of science

and invention, transportation has become more rapid, morecomplicated and somehow more hazardous. 19 For thesereasons, a passenger or a shipper of goods is under noobligation to conduct an inspection of the ship and itscrew, the carrier being obliged by law to impliedly warrantits seaworthiness.

This aside, we now rule on whether Caltex is liable fordamages under the Civil Code.

Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highlycombustible fuel cargo aboard an unseaworthy vessel such asthe MT Vector when Caltex:

1. Did not take steps to have M/T Vector's certificate ofinspection and coastwise license renewed;

2. Proceeded to ship its cargo despite defects found by Mr.Carlos Tan of Bataan Refinery Corporation;

3. Witnessed M/T Vector submitting fake documents andcertificates to the Philippine Coast Guard.

Sulpicio further argues that Caltex chose MT Vectortransport its cargo despite these deficiencies.

1. The master of M/T Vector did not posses the requiredChief Mate license to command and navigate the vessel;

2. The second mate, Ronaldo Tarife, had the license of aMinor Patron, authorized to navigate only in bays andrivers when the subject collision occurred in the open sea;

3. The Chief Engineer, Filoteo Aguas, had no license tooperate the engine of the vessel;

4. The vessel did not have a Third Mate, a radio operatorand lookout; and

5. The vessel had a defective main engine. 20

As basis for the liability of Caltex, the Court of Appealsrelied on Articles 20 and 2176 of the Civil Code, whichprovide:

Art. 20. — Every person who contrary to law, willfully ornegligently causes damage to another, shall indemnify thelatter for the same.

Art. 2176. — Whoever by act or omission causes damage toanother, there being fault or negligence, is obliged to payfor the damage done. Such fault or negligence, if there isno pre-existing contractual relation between the parties,is called a quasi-delict and is governed by the provisions ofthis Chapter.

And what is negligence?

The Civil Code provides:

Art. 1173. The fault or negligence of the obligor consistsin the omission of that diligence which is required by thenature of the obligation and corresponds with thecircumstances of the persons, of the time and of the place.When negligence shows bad faith, the provisions of Article1171 and 2201 paragraph 2, shall apply.

If the law does not state the diligence which is to beobserved in the performance, that which is expected of agood father of a family shall be required.

In Southeastern College, Inc. vs. Court of Appeals, 21 we said thatnegligence, as commonly understood, is conduct whichnaturally or reasonably creates undue risk or harm toothers. It may be the failure to observe that degree ofcare, precaution, and vigilance, which the circumstances

justly demand, or the omission to do something whichordinarily regulate the conduct of human affairs, would do.

The charterer of a vessel has no obligation beforetransporting its cargo to ensure that the vessel itchartered complied with all legal requirements. The dutyrests upon the common carrier simply for being engaged in"public service." 22 The Civil Code demands diligence whichis required by the nature of the obligation and that whichcorresponds with the circumstances of the persons, the timeand the place. Hence, considering the nature of theobligation between Caltex and MT Vector, liability as foundby the Court of Appeals is without basis.1âwphi1.nêt

The relationship between the parties in this case isgoverned by special laws. Because of the implied warrantyof seaworthiness, 23 shippers of goods, when transactingwith common carriers, are not expected to inquire into thevessel's seaworthiness, genuineness of its licenses andcompliance with all maritime laws. To demand more fromshippers and hold them liable in case of failure exhibitsnothing but the futility of our maritime laws insofar asthe protection of the public in general is concerned. Bythe same token, we cannot expect passengers to inquireevery time they board a common carrier, whether the carrierpossesses the necessary papers or that all the carrier'semployees are qualified. Such a practice would be anabsurdity in a business where time is always of theessence. Considering the nature of transportation business,passengers and shippers alike customarily presume thatcommon carriers possess all the legal requisites in itsoperation.

Thus, the nature of the obligation of Caltex demandsordinary diligence like any other shipper in shipping hiscargoes.

A cursory reading of the records convinces us that Caltexhad reasons to believe that MT Vector could legallytransport cargo that time of the year.

Atty. Poblador: Mr. Witness, I direct your attention tothis portion here containing the entries here under "VESSEL'SDOCUMENTS

1. Certificate of Inspection No. 1290-85, issued December21, 1986, and Expires December 7, 1987", Mr. Witness, whatsteps did you take regarding the impending expiry of theC.I. or the Certificate of Inspection No. 1290-85 duringthe hiring of MT Vector?

Apolinario Ng: At the time when I extended the Contract, Idid nothing because the tanker has a valid C.I. which willexpire on December 7, 1987 but on the last week ofNovember, I called the attention of Mr. Abalos to ensurethat the C.I. be renewed and Mr. Abalos, in turn, assuredme they will renew the same.

Q: What happened after that?

A: On the first week of December, I again made a follow-upfrom Mr. Abalos, and said they were going to send me a copyas soon as possible, sir. 24

xxx xxx xxx

Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr.Abalos on the first place, because of our long businessrelation, we trust Mr. Abalos and the fact that the vesselwas able to sail indicates that the documents are in order.. . . 25

On cross examination —

Atty. Sarenas: This being the case, and this being anadmission by you, this Certificate of Inspection hasexpired on December 7. Did it occur to you not to let thevessel sail on that day because of the very approachingdate of expiration?

Apolinar Ng: No sir, because as I said before, theoperation Manager assured us that they were able to securea renewal of the Certificate of Inspection and that theywill in time submit us acopy. 26

Finally, on Mr. Ng's redirect examination:

Atty. Poblador: Mr. Witness, were you aware of the pendingexpiry of the Certificate of Inspection in the coastwiselicense on December 7, 1987. What was your assurance forthe record that this document was renewed by the MT Vector?

Atty. Sarenas: . . .

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is along time business partner; secondly, those three years;they were allowed to sail by the Coast Guard. That are somethat make me believe that they in fact were able to securethe necessary renewal.

Q: If the Coast Guard clears a vessel to sail, what wouldthat mean?

Atty. Sarenas: Objection.

Court: He already answered that in the cross examination tothe effect that if it was allowed, referring to MV Vector,to sail, where it is loaded and that it was scheduled for adestination by the Coast Guard, it means that it hasCertificate of Inspection extended as assured to thiswitness by Restituto Abalos. That in no case MV Vector willbe allowed to sail if the Certificate of inspection is,indeed, not to be extended. That was his repeatedexplanation to the cross-examination. So, there is no needto clarify the same in the re-direct examination. 27

Caltex and Vector Shipping Corporation had been doingbusiness since 1985, or for about two years before thetragic incident occurred in 1987. Past services renderedshowed no reason for Caltex to observe a higher degree ofdiligence.

Clearly, as a mere voyage charterer, Caltex had the rightto presume that the ship was seaworthy as even thePhilippine Coast Guard itself was convinced of itsseaworthiness. All things considered, we find no legalbasis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from theCourt of Appeals' decision, we limit our ruling to theliability of Caltex alone. However, we maintain the Courtof Appeals' ruling insofar as Vector is concerned.

WHEREFORE, the Court hereby GRANTS the petition and SETSASIDE the decision of the Court of Appeals in CA-G.R. CVNo. 39626, promulgated on April 15, 1997, insofar as itheld Caltex liable under the third party complaint toreimburse/indemnify defendant Sulpicio Lines, Inc. thedamages the latter is adjudged to pay plaintiffs-appellees.The Court AFFIRMS the decision of the Court of Appealsinsofar as it orders Sulpicio Lines, Inc. to pay the heirsof Sebastian E. Cañezal and Corazon Cañezal damages as setforth therein. Third-party defendant-appellee VectorShipping Corporation and Francisco Soriano are held liableto reimburse/indemnify defendant Sulpicio Lines, Inc.whatever damages, attorneys' fees and costs the latter isadjudged to pay plaintiffs-appellees in the case.1âwphi1.nêt

No costs in this instance.

SO ORDERED.

G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner, vs.

COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY,respondents.

This is a petition for review of a Decision rendered by the Court ofAppeals, dated December 17, 1993, affirming Branch 35 of the RegionalTrial Court, Manila in holding that herein petitioner is liable to payherein private respondent the amount of P700,000.00, plus legal interestthereon, another sum of P100,000.00 as attorney's fees and the cost of thesuit.

Pag-asa Sales, Inc. entered into a contract to transportmolasses from the province of Negros to Manila withCoastwise Lighterage Corporation (Coastwise for brevity),using the latter's dumb barges. The barges were towed intandem by the tugboat MT Marica, which is likewise owned byCoastwise.

Upon reaching Manila Bay, while approaching Pier 18, one ofthe barges, "Coastwise 9", struck an unknown sunken object.The forward buoyancy compartment was damaged, and watergushed in through a hole "two inches wide and twenty-twoinches long" 1 As a consequence, the molasses at the cargo

tanks were contaminated and rendered unfit for the use itwas intended. This prompted the consignee, Pag-asa Sales,Inc. to reject the shipment of molasses as a total loss.Thereafter, Pag-asa Sales, Inc. filed a formal claim withthe insurer of its lost cargo, herein private respondent,Philippine General Insurance Company (PhilGen, for short)and against the carrier, herein petitioner, CoastwiseLighterage. Coastwise Lighterage denied the claim and itwas PhilGen which paid the consignee, Pag-asa Sales, Inc.,the amount of P700,000.00, representing the value of thedamaged cargo of molasses.

In turn, PhilGen then filed an action against CoastwiseLighterage before the Regional Trial Court of Manila,seeking to recover the amount of P700,000.00 which it paidto Pag-asa Sales, Inc. for the latter's lost cargo. PhilGennow claims to be subrogated to all the contractual rightsand claims which the consignee may have against thecarrier, which is presumed to have violated the contract ofcarriage.

The RTC awarded the amount prayed for by PhilGen. OnCoastwise Lighterage's appeal to the Court of Appeals, theaward was affirmed.

Hence, this petition. There are two main issues tobe resolved herein. First, whether or not petitionerCoastwise Lighterage was transformed into a privatecarrier, by virtue of the contract of affreightment whichit entered into with the consignee, Pag-asa Sales, Inc.Corollarily, if it were in fact transformed into a privatecarrier, did it exercise the ordinary diligence to which aprivate carrier is in turn bound? Second, whether or notthe insurer was subrogated into the rights of the consigneeagainst the carrier, upon payment by the insurer of thevalue of the consignee's goods lost while on board one ofthe carrier's vessels.

On the first issue, petitioner contends that the RTC andthe Court of Appeals erred in finding that it was a commoncarrier. It stresses the fact that it contracted with Pag-

asa Sales, Inc. to transport the shipment of molasses fromNegros Oriental to Manila and refers to this contract as a"charter agreement". It then proceeds to cite the case ofHome Insurance Company vs. American Steamship Agencies, Inc. 2 whereinthis Court held: ". . . a common carrier undertaking tocarry a special cargo or chartered to a special person onlybecomes a private carrier."

Petitioner's reliance on the aforementioned case ismisplaced. In its entirety, the conclusions of the courtare as follows:

Accordingly, the charter party contract is one ofaffreightment over the whole vessel, rather than a demise.As such, the liability of the shipowner for acts ornegligence of its captain and crew, would remain in theabsence of stipulation. 3

The distinction between thetwo kinds of charter parties (i.e. bareboat or demise andcontract of affreightment) is more clearly set out in thecase of Puromines, Inc. vs. Court of Appeals, 4 wherein we ruled:

Under the demise or bareboat charter of the vessel,the charterer will generally be regarded as the owner forthe voyage or service stipulated. The charterer mans thevessel with his own people and becomes the owner pro hac vice,subject to liability to others for damages caused bynegligence. To create a demise, the owner of a vessel mustcompletely and exclusively relinquish possession, commandand navigation thereof to the charterer, anything short of such acomplete transfer is a contract of affreightment (time or voyage charter party)or not a charter party at all.

On the other hand a contract of affreightment is one inwhich the owner of the vessel leases part or all of itsspace to haul goods for others. It is a contract forspecial service to be rendered by the owner of the vesseland under such contract the general owner retains thepossession, command and navigation of the ship, thecharterer or freighter merely having use of the space in

the vessel in return for his payment of the charter hire. .. . .

. . . . An owner who retains possession of the ship thoughthe hold is the property of the charterer, remains liableas carrier and must answer for any breach of duty as to thecare, loading and unloading of the cargo. . . .

Although a charter party may transform a commoncarrier into a private one, the same however is not true ina contract of affreightment on account of theaforementioned distinctions between the two.

Petitioner admits that the contract it entered into withthe consignee was one of affreightment. 5 We agree. Pag-asaSales, Inc. only leased three of petitioner's vessels, inorder to carry cargo from one point to another, but thepossession, command and navigation of the vessels remainedwith petitioner Coastwise Lighterage.

Pursuant therefore to the ruling in the aforecited Purominescase, Coastwise Lighterage, by the contract ofaffreightment, was not converted into a private carrier,but remained a common carrier and was still liable as such.

The law and jurisprudence on common carriers both hold thatthe mere proof of delivery of goods in good order to acarrier and the subsequent arrival of the same goods at theplace of destination in bad order makes for a prima facie caseagainst the carrier.

It follows then that the presumption of negligence thatattaches to common carriers, once the goods it transportsare lost, destroyed or deteriorated, applies to thepetitioner. This presumption, which is overcome only byproof of the exercise of extraordinary diligence, remainedunrebutted in this case.

The records show that the damage to the barge which carriedthe cargo of molasses was caused by its hitting an unknownsunken object as it was heading for Pier 18. The objectturned out to be a submerged derelict vessel. Petitioner

contends that this navigational hazard was the efficientcause of the accident. Further it asserts that the factthat the Philippine Coastguard "has not exerted any effortto prepare a chart to indicate the location of sunkenderelicts within Manila North Harbor to avoid navigationalaccidents" 6 effectively contributed to the happening ofthis mishap. Thus, being unaware of the hidden danger thatlies in its path, it became impossible for the petitionerto avoid the same. Nothing could have prevented the event,making it beyond the pale of even the exercise ofextraordinary diligence.

However, petitioner's assertion is belied by the evidenceon record where it appeared that far from having renderedservice with the greatest skill and utmost foresight, andbeing free from fault, the carrier was culpably remiss inthe observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise9" admitted that he was not licensed. The Code of Commerce,which subsidiarily governs common carriers (which areprimarily governed by the provisions of the Civil Code)provides:

Art. 609. — Captains, masters, or patrons of vessels mustbe Filipinos, have legal capacity to contract in accordancewith this code, and prove the skill capacity andqualifications necessary to command and direct the vessel,as established by marine and navigation laws, ordinances orregulations, and must not be disqualified according to thesame for the discharge of the duties of the position. .

Clearly, petitioner Coastwise Lighterage's embarking on avoyage with an unlicensed patron violates this rule. Itcannot safely claim to have exercised extraordinarydiligence, by placing a person whose navigational skillsare questionable, at the helm of the vessel whicheventually met the fateful accident. It may also logically,follow that a person without license to navigate, lacks notjust the skill to do so, but also the utmost familiaritywith the usual and safe routes taken by seasoned and

legally authorized ones. Had the patron been licensed, hecould be presumed to have both the skill and the knowledgethat would have prevented the vessel's hitting the sunkenderelict ship that lay on their way to Pier 18.

As a common carrier, petitioner is liable for breach of thecontract of carriage, having failed to overcome thepresumption of negligence with the loss and destruction ofgoods it transported, by proof of its exercise ofextraordinary diligence.

On the issue of subrogation, which petitioner contends asinapplicable in this case, we once more rule against thepetitioner. We have already found petitioner liable forbreach of the contract of carriage it entered into withPag-asa Sales, Inc. However, for the damage sustained bythe loss of the cargo which petitioner-carrier wastransporting, it was not the carrier which paid the valuethereof to Pag-asa Sales, Inc. but the latter's insurer,herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:Art. 2207. If the plaintiffs property has been insured, and

he has received indemnity from the insurance company for theinjury or loss arising out of the wrong or breach of contractcomplained of, the insurance company shall be subrogated to therights of the insured against the wrongdoer or the person whoviolated the contract. . . .

This legal provision containing the equitable principle ofsubrogation has been applied in a long line of casesincluding Compania Maritima v. Insurance Company of North America; 7

Fireman's Fund Insurance Company v. Jamilla & Company, Inc., 8 and PanMalayan Insurance Corporation v. Court of Appeals, 9 wherein this Courtexplained:

Article 2207 of the Civil Code is founded on the well-settledprinciple of subrogation. If the insured property is destroyed ordamaged through the fault or negligence of a party other than theassured, then the insurer, upon payment to the assured will besubrogated to the rights of the assured to recover from thewrongdoer to the extent that the insurer has been obligated to

pay. Payment by the insurer to the assured operated as an equitable assignment to theformer of all remedies which the latter may have against the third party whosenegligence or wrongful act caused the loss. The right of subrogation is notdependent upon, nor does it grow out of, any privity of contractor upon written assignment of claim. It accrues simply uponpayment of the insurance claim by the insurer.

Undoubtedly, upon payment by respondent insurer PhilGen of the amount ofP700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molassestotally damaged while being transported by petitioner CoastwiseLighterage, the former was subrogated into all the rights which Pag-asaSales, Inc. may have had against the carrier, herein petitioner CoastwiseLighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealeddecision affirming the order of Branch 35 of the Regional Trial Court ofManila for petitioner Coastwise Lighterage to pay respondent PhilippineGeneral Insurance Company the "principal amount of P700,000.00 plusinterest thereon at the legal rate computed from March 29, 1989, the datethe complaint was filed until fully paid and another sum of P100,000.00 asattorney's fees and costs" 10 is likewise hereby AFFIRMEDSO ORDERED.

G.R. No. 122039 May 31, 2000

VICENTE CALALAS, petitioner,vs.

COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCOSALVA, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 ofthe Court of Appeals, dated March 31, 1991, reversing thecontrary decision of the Regional Trial Court, Branch 36,Dumaguete City, and awarding damages instead to privaterespondent Eliza Jujeurche Sunga as plaintiff in an actionfor breach of contract of carriage.

The facts, as found by the Court of Appeals, are asfollows:

At 10 o'clock in the morning of August 23, 1989, privaterespondent Eliza Jujeurche G. Sunga, then a collegefreshman majoring in Physical Education at the SilimanUniversity, took a passenger jeepney owned and operated bypetitioner Vicente Calalas. As the jeepney was filled tocapacity of about 24 passengers, Sunga was given by theconductor an "extension seat," a wooden stool at the backof the door at the rear end of the vehicle.

On the way to Poblacion Sibulan, Negros Occidental, thejeepney stopped to let a passenger off. As she was seatedat the rear of the vehicle, Sunga gave way to the outgoingpassenger. Just as she was doing so, an Isuzu truck drivenby Iglecerio Verena and owned by Francisco Salva bumped theleft rear portion of the jeepney. As a result, Sunga wasinjured. She sustained a fracture of the "distal third ofthe left tibia-fibula with severe necrosis of theunderlying skin." Closed reduction of the fracture, longleg circular casting, and case wedging were done undersedation. Her confinement in the hospital lasted fromAugust 23 to September 7, 1989. Her attending physician,Dr. Danilo V. Oligario, an orthopedic surgeon, certifiedshe would remain on a cast for a period of three months andwould have to ambulate in crutches during said period.

On October 9, 1989, Sunga filed a complaint for damagesagainst Calalas, alleging violation of the contract ofcarriage by the former in failing to exercise the diligencerequired of him as a common carrier. Calalas, on the otherhand, filed a third-party complaint against FranciscoSalva, the owner of the Isuzu truck.

The lower court rendered judgment against Salva as third-party defendant and absolved Calalas of liability, holdingthat it was the driver of the Isuzu truck who wasresponsible for the accident. It took cognizance of anothercase (Civil Case No. 3490), filed by Calalas against Salvaand Verena, for quasi-delict, in which Branch 37 of thesame court held Salva and his driver Verena jointly liableto Calalas for the damage to his jeepney.

On appeal to the Court of Appeals, the ruling of the lowercourt was reversed on the ground that Sunga's cause ofaction was based on a contract of carriage, not quasi-delict, and that the common carrier failed to exercise thediligence required under the Civil Code. The appellatecourt dismissed the third-party complaint against Salva andadjudged Calalas liable for damages to Sunga. Thedispositive portion of its decision reads:

WHEREFORE, the decision appealed from ishereby REVERSED and SET ASIDE, andanother one is entered orderingdefendant-appellee Vicente Calalas to payplaintiff-appellant:

(1) P50,000.00 as actual and compensatorydamages;

(2) P50,000.00 as moral damages;

(3) P10,000.00 as attorney's fees; and

(4) P1,000.00 as expenses of litigation;and

(5) to pay the costs.

SO ORDERED.

Hence, this petition. Petitioner contends that the rulingin Civil Case No. 3490 that the negligence of Verena wasthe proximate cause of the accident negates his liabilityand that to rule otherwise would be to make the commoncarrier an insurer of the safety of its passengers. Hecontends that the bumping of the jeepney by the truck ownedby Salva was a caso fortuito. Petitioner further assails theaward of moral damages to Sunga on the ground that it isnot supported by evidence.

The petition has no merit.

The argument that Sunga is bound by the ruling in CivilCase No. 3490 finding the driver and the owner of the truckliable for quasi-delict ignores the fact that she was nevera party to that case and, therefore, the principle of resjudicata does not apply.

Nor are the issues in Civil Case No. 3490 and in thepresent case the same. The issue in Civil Case No. 3490 waswhether Salva and his driver Verena were liable for quasi-delict for the damage caused to petitioner's jeepney. Onthe other hand, the issue in this case is whetherpetitioner is liable on his contract of carriage. The first,quasi-delict, also known as culpa aquiliana or culpa extracontractual, has as its source the negligence of thetortfeasor. The second, breach of contract or culpa contractual,is premised upon the negligence in the performance of acontractual obligation.

Consequently, in quasi-delict, the negligence or faultshould be clearly established because it is the basis ofthe action, whereas in breach of contract, the action canbe prosecuted merely by proving the existence of thecontract and the fact that the obligor, in this case thecommon carrier, failed to transport his passenger safely tohis destination.2 In case of death or injuries topassengers, Art. 1756 of the Civil Code provides thatcommon carriers are presumed to have been at fault or tohave acted negligently unless they prove that they observedextraordinary diligence as defined in Arts. 1733 and 1755of the Code. This provision necessarily shifts to thecommon carrier the burden of proof.

There is, thus, no basis for the contention that the rulingin Civil Case No. 3490, finding Salva and his driver Verenaliable for the damage to petitioner's jeepney, should bebinding on Sunga. It is immaterial that the proximate causeof the collision between the jeepney and the truck was thenegligence of the truck driver. The doctrine of proximatecause is applicable only in actions for quasi-delict, notin actions involving breach of contract. The doctrine is adevice for imputing liability to a person where there is no

relation between him and another party. In such a case, theobligation is created by law itself. But, where there is apre-existing contractual relation between the parties, itis the parties themselves who create the obligation, andthe function of the law is merely to regulate the relationthus created. Insofar as contracts of carriage areconcerned, some aspects regulated by the Civil Code arethose respecting the diligence required of common carrierswith regard to the safety of passengers as well as thepresumption of negligence in cases of death or injury topassengers. It provides:

Art. 1733. Common carriers, from thenature of their business and for reasonsof public policy, are bound to observeextraordinary diligence in the vigilanceover the goods and for the safety of thepassengers transported by them, accordingto all the circumstances of each case.

Such extraordinary diligence in thevigilance over the goods is furtherexpressed in articles 1734, 1735, and1746, Nos. 5, 6, and 7, while theextraordinary diligence for the safety ofthe passengers is further set forth inarticles 1755 and 1756.

Art. 1755. A common carrier is bound tocarry the passengers safely as far ashuman care and foresight can provide,using the utmost diligence of verycautious persons, with due regard for allthe circumstances.

Art. 1756. In case of death of orinjuries to passengers, common carriersare presumed to have been at fault or tohave acted negligently, unless they provethat they observed extraordinary

diligence as prescribed by articles 1733and 1755.

In the case at bar, upon the happening of the accident, thepresumption of negligence at once arose, and it became theduty of petitioner to prove that he had to observeextraordinary diligence in the care of his passengers.

Now, did the driver of jeepney carry Sunga "safely as faras human care and foresight could provide, using the utmostdiligence of very cautious persons, with due regard for allthe circumstances" as required by Art. 1755? We do notthink so. Several factors militate against petitioner'scontention.

First, as found by the Court of Appeals, the jeepney was notproperly parked, its rear portion being exposed about twometers from the broad shoulders of the highway, and facingthe middle of the highway in a diagonal angle. This is aviolation of the R.A. No. 4136, as amended, or the LandTransportation and Traffic Code, which provides:

Sec. 54. Obstruction of Traffic. — No personshall drive his motor vehicle in such amanner as to obstruct or impede thepassage of any vehicle, nor, whiledischarging or taking on passengers orloading or unloading freight, obstructthe free passage of other vehicles on thehighway.

Second, it is undisputed that petitioner's driver took inmore passengers than the allowed seating capacity of thejeepney, a violation of §32(a) of the same law. Itprovides:

Exceeding registered capacity. — No personoperating any motor vehicle shall allowmore passengers or more freight or cargoin his vehicle than its registeredcapacity.

The fact that Sunga was seated in an "extension seat"placed her in a peril greater than that to which the otherpassengers were exposed. Therefore, not only was petitionerunable to overcome the presumption of negligence imposed onhim for the injury sustained by Sunga, but also, theevidence shows he was actually negligent in transportingpassengers.

We find it hard to give serious thought to petitioner'scontention that Sunga's taking an "extension seat" amountedto an implied assumption of risk. It is akin to arguingthat the injuries to the many victims of the tragedies inour seas should not be compensated merely because thosepassengers assumed a greater risk of drowning by boardingan overloaded ferry. This is also true of petitioner'scontention that the jeepney being bumped while it wasimproperly parked constitutes caso fortuito. A caso fortuito is anevent which could not be foreseen, or which, thoughforeseen, was inevitable.3 This requires that the followingrequirements be present: (a) the cause of the breach isindependent of the debtor's will; (b) the event isunforeseeable or unavoidable; (c) the event is such as torender it impossible for the debtor to fulfill hisobligation in a normal manner, and (d) the debtor did nottake part in causing the injury to thecreditor.4 Petitioner should have foreseen the danger ofparking his jeepney with its body protruding two metersinto the highway.

Finally, petitioner challenges the award of moral damagesalleging that it is excessive and without basis in law. Wefind this contention well taken.

In awarding moral damages, the Court of Appeals stated:

Plaintiff-appellant at the time of theaccident was a first-year college studentin that school year 1989-1990 at theSilliman University, majoring in PhysicalEducation. Because of the injury, she wasnot able to enroll in the second semester

of that school year. She testified thatshe had no more intention of continuingwith her schooling, because she could notwalk and decided not to pursue herdegree, major in Physical Education"because of my leg which has a defectalready."

Plaintiff-appellant likewise testifiedthat even while she was underconfinement, she cried in pain because ofher injured left foot. As a result of herinjury, the Orthopedic Surgeon alsocertified that she has "residual bowingof the fracture side." She likewisedecided not to further pursue PhysicalEducation as her major subject, because"my left leg . . . has a defect already."

Those are her physical pains and moralsufferings, the inevitable bedfellows ofthe injuries that she suffered. UnderArticle 2219 of the Civil Code, she isentitled to recover moral damages in thesum of P50,000.00, which is fair, justand reasonable.

As a general rule, moral damages are not recoverable inactions for damages predicated on a breach of contract forit is not one of the items enumerated under Art. 2219 ofthe Civil Code.5 As an exception, such damages arerecoverable: (1) in cases in which the mishap results inthe death of a passenger, as provided in Art. 1764, inrelation to Art. 2206(3) of the Civil Code; and (2) in thecases in which the carrier is guilty of fraud or bad faith,as provided in Art. 2220.6

In this case, there is no legal basis for awarding moraldamages since there was no factual finding by the appellatecourt that petitioner acted in bad faith in the performanceof the contract of carriage. Sunga's contention that

petitioner's admission in open court that the driver of thejeepney failed to assist her in going to a nearby hospitalcannot be construed as an admission of bad faith. The factthat it was the driver of the Isuzu truck who took her tothe hospital does not imply that petitioner was utterlyindifferent to the plight of his injured passenger. If atall, it is merely implied recognition by Verena that he wasthe one at fault for the accident.

WHEREFORE, the decision of the Court of Appeals, datedMarch 31, 1995, and its resolution, dated September 11,1995, are AFFIRMED, with the MODIFICATION that the award ofmoral damages is DELETED.

SO ORDERED.

G.R. No. 146018               June 25, 2003

EDGAR COKALIONG SHIPPING LINES, INC., Petitioner, vs.

UCPB GENERAL INSURANCE COMPANY, INC., Respondent.

D E C I S I O N

PANGANIBAN, J.:

The liability of a common carrier for the loss of goodsmay, by stipulation in the bill of lading, be limited tothe value declared by the shipper. On the other hand, theliability of the insurer is determined by the actual valuecovered by the insurance policy and the insurance premiumspaid therefor, and not necessarily by the value declared inthe bill of lading.

The Case

Before the Court is a Petition for Review1 under Rule 45 ofthe Rules of Court, seeking to set aside the August 31,2000 Decision2 and the November 17, 2000 Resolution3 of theCourt of Appeals4 (CA) in CA-GR SP No. 62751. Thedispositive part of the Decision reads:

"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. TheDecision appealed from is REVERSED. [Petitioner] is herebycondemned to pay to [respondent] the total amount ofP148,500.00, with interest thereon, at the rate of 6% perannum, 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 forReconsideration.

On the other hand, the disposition of the Regional TrialCourt’s6 Decision,7 which was later reversed by the CA,states:

"WHEREFORE, premises considered, the case is herebyDISMISSED for lack of merit.

"No cost."8

The Facts

The facts of the case are summarized by the appellate courtin this wise:

"Sometime on December 11, 1991, Nestor Angelia delivered tothe Edgar Cokaliong Shipping Lines, Inc. (now CokaliongShipping Lines), [petitioner] for brevity, cargo consistingof one (1) carton of Christmas décor and two (2) sacks ofplastic toys, to be transported on board the M/V Tandag onits Voyage No. T-189 scheduled to depart from Cebu City, onDecember 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 andconsignee of the cargo valued, on the face thereof, in theamount of P6,500.00. Zosimo Mercado likewise deliveredcargo to [petitioner], consisting of two (2) cartons ofplastic toys and Christmas decor, one (1) roll of floor matand one (1) bundle of various or assorted goods fortransportation thereof from Cebu City to Tandag, Surigaodel Sur, on board the said vessel, and said voyage.[Petitioner] issued Bill of Lading No. 59 covering thecargo which, on the face thereof, was valued in the amountof P14,000.00. Under the Bill of Lading, Zosimo Mercado wasboth 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 GeneralInsurance Co., Inc., [respondent] for brevity, for the

amount of P100,000.00 ‘against all risks’ under Open PolicyNo. 002/9 1/254 for which she was issued, by [respondent],Marine Risk Note No. 18409 on said date. She also insuredthe cargo covered by Bill of Lading No. 58, with[respondent], for the amount of P50,000.00, under OpenPolicy 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 goodsof Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and, despiteearnest efforts of the officers and crew of the vessel, thefire engulfed and destroyed the entire vessel resulting inthe loss of the vessel and the cargoes therein. The Captainfiled the required Marine Protest.

"Shortly thereafter, Feliciana Legaspi filed a claim, with[respondent], for the value of the cargo insured underMarine Risk Note No. 18409 and covered by Bill of LadingNo. 59. She submitted, in support of her claim, a Receipt,dated December 11, 1991, purportedly signed by ZosimoMercado, and Order Slips purportedly signed by him for thegoods he received from Feliciana Legaspi valued in theamount of P110,056.00. [Respondent] approved the claim ofFeliciana Legaspi and drew and issued UCPB Check No.612939, dated March 9, 1992, in the net amount ofP99,000.00, in settlement of her claim after which sheexecuted a Subrogation Receipt/Deed, for said amount, infavor of [respondent]. She also filed a claim for the valueof the cargo covered by Bill of Lading No. 58. Shesubmitted to [respondent] a Receipt, dated December 11,1991 and Order Slips, purportedly signed by Nestor Angeliafor the goods he received from Feliciana Legaspi valued atP60,338.00. [Respondent] approved her claim and remitted toFeliciana Legaspi the net amount of P49,500.00, after whichshe signed a Subrogation Receipt/Deed, dated March 9, 1992,in favor of [respondent].

"On July 14, 1992, [respondent], as subrogee of FelicianaLegaspi, filed a complaint anchored on torts against

[petitioner], with the Regional Trial Court of Makati City,for the collection of the total principal amount ofP148,500.00, which it paid to Feliciana Legaspi for theloss of the cargo, praying that judgment be rendered in itsfavor and against the [petitioner] as follows:

‘WHEREFORE, it is respectfully prayed of this HonorableCourt that after due hearing, judgment be rendered ordering[petitioner] to pay [respondent] the following.

1. Actual damages in the amount of P148,500.00plus interest thereon at the legal rate fromthe time of filing of this complaint untilfully paid;

2. Attorney’s fees in the amount of P10,000.00;and

3. Cost of suit.

‘[Respondent] further prays for such other reliefs andremedies as this Honorable Court may deem just andequitable under the premises.’

"[Respondent] alleged, inter alia, in its complaint, that thecargo subject of its complaint was delivered to, andreceived 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 tothe negligence of the [petitioner]; and that FelicianaLegaspi had executed Subrogation Receipts/Deeds in favor of[respondent] after paying to her the value of the cargo onaccount of the Marine Risk Notes it issued in her favorcovering the cargo.

"In its Answer to the complaint, [petitioner] alleged that:(a) [petitioner] was cleared by the Board of Marine Inquiryof any negligence in the burning of the vessel; (b) thecomplaint stated no cause of action against [petitioner];and (c) the shippers/consignee had already been paid thevalue of the goods as stated in the Bill of Lading and,

hence, [petitioner] cannot be held liable for the loss ofthe cargo beyond the value thereof declared in the Bill ofLading.

"After [respondent] rested its case, [petitioner] prayedfor and was allowed, by the Court a quo, to take thedepositions of Chester Cokaliong, the Vice-President andChief Operating Officer of [petitioner], and a resident ofCebu City, and of Noel Tanyu, an officer of the EquitableBanking Corporation, in Cebu City, and a resident of CebuCity, to be given before the Presiding Judge of Branch 106of the Regional Trial Court of Cebu City. Chester Cokaliongand Noel Tanyu did testify, by way of deposition, beforethe Court and declared inter alia, that: [petitioner] is afamily corporation like the Chester Marketing, Inc.; NestorAngelia had been doing business with [petitioner] andChester Marketing, Inc., for years, and incurred an accountwith Chester Marketing, Inc. for his purchases from saidcorporation; [petitioner] did issue Bills of Lading Nos. 58and 59 for the cargo described therein with Zosimo Mercadoand Nestor Angelia as shippers/consignees, respectively;the engine room of the M/V Tandag caught fire after itpassed the Mandaue/Mactan Bridge resulting in the totalloss of the vessel and its cargo; an investigation wasconducted by the Board of Marine Inquiry of the PhilippineCoast Guard which rendered a Report, dated February 13,1992 absolving [petitioner] of any responsibility onaccount of the fire, which Report of the Board was approvedby the District Commander of the Philippine Coast Guard; afew days after the sinking of the vessel, a representativeof the Legaspi Marketing filed claims for the values of thegoods under Bills of Lading Nos. 58 and 59 in behalf of theshippers/consignees, Nestor Angelia and Zosimo Mercado;[petitioner] was able to ascertain, from theshippers/consignees and the representative of the LegaspiMarketing that the cargo covered by Bill of Lading No. 59was owned by Legaspi Marketing and consigned to ZosimoMercado while that covered by Bill of Lading No. 58 waspurchased by Nestor Angelia from the Legaspi Marketing;that [petitioner] approved the claim of Legaspi Marketingfor the value of the cargo under Bill of Lading No. 59 and

remitted to Legaspi Marketing the said amount underEquitable Banking Corporation Check No. 20230486 datedAugust 12, 1992, in the amount of P14,000.00 for which therepresentative of the Legaspi Marketing signed Voucher No.4379, dated August 12, 1992, for the said amount ofP14,000.00 in full payment of claims under Bill of LadingNo. 59; that [petitioner] approved the claim of NestorAngelia in the amount of P6,500.00 but that since thelatter owed Chester Marketing, Inc., for some purchases,[petitioner] merely set off the amount due to NestorAngelia under Bill of Lading No. 58 against his accountwith Chester Marketing, Inc.; [petitioner] lost/[misplaced]the original of the check after it was received by LegaspiMarketing, hence, the production of the microfilm copy byNoel Tanyu of the Equitable Banking Corporation;[petitioner] never knew, before settling with LegaspiMarketing and Nestor Angelia that the cargo under bothBills of Lading were insured with [respondent], or thatFeliciana Legaspi filed claims for the value of the cargowith [respondent] and that the latter approved the claimsof Feliciana Legaspi and paid the total amount ofP148,500.00 to her; [petitioner] came to know, for thefirst time, of the payments by [respondent] of the claimsof Feliciana Legaspi when it was served with the summonsand complaint, on October 8, 1992; after settling hisclaim, Nestor Angelia x x x executed the Release andQuitclaim, dated July 2, 1993, and Affidavit, dated July 2,1993 in favor of [respondent]; hence, [petitioner] wasabsolved of any liability for the loss of the cargo coveredby Bills of Lading Nos. 58 and 59; and even if it was, itsliability should not exceed the value of the cargo asstated in the Bills of Lading.

"[Petitioner] did not anymore present any other witnesseson its evidence-in-chief. x x x"9 (Citations omitted)

Ruling of the Court of Appeals

The CA held that petitioner had failed "to prove that thefire 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 P14,000 to Legaspi Marketing for thecargo covered by Bill of Lading No. 59. The CA, however,held that the payment did not extinguish petitioner’sobligation to respondent, because there was no evidencethat Feliciana Legaspi (the insured) was theowner/proprietor of Legaspi Marketing. The CA also pointedout the impropriety of treating the claim under Bill ofLading No. 58 -- covering cargo valued therein at P6,500 --as a setoff against Nestor Angelia’s account with ChesterEnterprises, Inc.

Finally, it ruled that respondent "is not bound by thevaluation of the cargo under the Bills of Lading, x x x noris the value of the cargo under said Bills of Ladingconclusive on the [respondent]. This is so because, in thefirst place, the goods were insured with the [respondent]for the total amount of P150,000.00, which amount may beconsidered as the face value of the goods."11

Hence this Petition.12

Issues

Petitioner raises for our consideration the followingalleged errors of the CA:

"I

"The Honorable Court of Appeals erred, granting arguendothat petitioner is liable, in holding that petitioner’sliability should be based on the ‘actual insured value’ ofthe goods and not from actual valuation declared by theshipper/consignee in the bill of lading.

"II

"The Court of Appeals erred in not affirming the findingsof the Philippine Coast Guard, as sustained by the trialcourt a quo, holding that the cause of loss of theaforesaid cargoes under Bill of Lading Nos. 58 and 59 wasdue to force majeure and due diligence was [exercised] bypetitioner prior to, during and immediately after the fireon [petitioner’s] vessel.

"III

"The Court of Appeals erred in not holding that respondentUCPB General Insurance has no cause of action against thepetitioner."13

In sum, the issues are: (1) Is petitioner liable for theloss of the goods? (2) If it is liable, what is the extentof its liability?

This Court’s Ruling

The Petition is partly meritorious.

First Issue:

Liability for Loss

Petitioner argues that the cause of the loss of the goods,subject of this case, was force majeure. It adds that itsexercise of due diligence was adequately proven by thefindings of the Philippine Coast Guard.

We are not convinced. The uncontroverted findings of thePhilippine Coast Guard show that the M/V Tandag sank due to afire, which resulted from a crack in the auxiliary enginefuel oil service tank. Fuel spurted out of the crack anddripped to the heating exhaust manifold, causing the shipto burst into flames. The crack was located on the side ofthe fuel oil tank, which had a mere two-inch gap from theengine room walling, thus precluding constant inspectionand care by the crew.

Having originated from an unchecked crack in the fuel oilservice tank, the fire could not have been caused by forcemajeure. Broadly speaking, force majeure generally appliesto a natural accident, such as that caused by a lightning,an earthquake, a tempest or a public enemy.14 Hence, fire isnot considered a natural disaster or calamity. In EasternShipping Lines, Inc. v. Intermediate Appellate Court,15 we explained:

"x x x. This must be so as it arises almost invariably fromsome act of man or by human means. It does not fall withinthe category of an act of God unless caused by lighting orby other natural disaster or calamity. It may even becaused by the actual fault or privity of the carrier.

"Article 1680 of the Civil Code, which considers fire as anextraordinary fortuitous event refers to leases or rurallands where a reduction of the rent is allowed when morethan one-half of the fruits have been lost due to suchevent, considering that the law adopts a protective policytowards agriculture.

"As the peril of fire is not comprehended within theexceptions in Article 1734, supra, Article 1735 of the CivilCode provides that in all cases other than those mentionedin Article 1734, the common carrier shall be presumed tohave been at fault or to have acted negligently, unless itproves that it has observed the extraordinary diligencerequired by law."

Where loss of cargo results from the failure of theofficers of a vessel to inspect their ship frequently so asto discover the existence of cracked parts, that losscannot be attributed to force majeure, but to thenegligence of those officials.16

The law provides that a common carrier is presumed to havebeen negligent if it fails to prove that it exercisedextraordinary vigilance over the goods it transported.Ensuring the seaworthiness of the vessel is the first stepin exercising the required vigilance. Petitioner did notpresent sufficient evidence showing what measures or acts

it had undertaken to ensure the seaworthiness of thevessel. It failed to show when the last inspection and careof the auxiliary engine fuel oil service tank was made,what the normal practice was for its maintenance, or someother evidence to establish that it had exercisedextraordinary diligence. It merely stated that constantinspection and care were not possible, and that the lasttime the vessel was dry-docked was in November 1990.Necessarily, in accordance with Article 173517 of the CivilCode, we hold petitioner responsible for the loss of thegoods covered by Bills of Lading Nos. 58 and 59.

Second Issue:

Extent of Liability

Respondent contends that petitioner’s liability should bebased on the actual insured value of the goods, subject ofthis case. On the other hand, petitioner claims that itsliability should be limited to the value declared by theshipper/consignee in the Bill of Lading.

The records18 show that the Bills of Lading covering thelost goods contain the stipulation that in case of claimfor loss or for damage to the shipped merchandise orproperty, "[t]he liability of the common carrier x x xshall not exceed the value of the goods as appearing in thebill of lading."19 The attempt by respondent to make lightof this stipulation is unconvincing. As it had theconsignees’ copies of the Bills of Lading,20 it could haveeasily produced those copies, instead of relying on mereallegations and suppositions. However, it presented merephotocopies thereof to disprove petitioner’s evidenceshowing the existence of the above stipulation.

A stipulation that limits liability is valid21 as long as itis not against public policy. In Everett Steamship Corporation v.Court of Appeals,22 the Court stated:

"A stipulation in the bill of lading limiting the commoncarrier’s liability for loss or destruction of a cargo to a

certain sum, unless the shipper or owner declares a greatervalue, is sanctioned by law, particularly Articles 1749 and1750 of the Civil Code which provides:

‘Art. 1749. A stipulation that the common carrier’sliability is limited to the value of the goods appearing inthe bill of lading, unless the shipper or owner declares agreater value, is binding.’

‘Art. 1750. A contract fixing the sum that may be recoveredby the owner or shipper for the loss, destruction, ordeterioration of the goods is valid, if it is reasonableand just under the circumstances, and has been freely andfairly agreed upon.’

"Such limited-liability clause has also been consistentlyupheld by this Court in a number of cases. Thus, in Sea-LandService, Inc. vs. Intermediate Appellate Court, we ruled:

‘It seems clear that even if said section 4 (5) of theCarriage of Goods by Sea Act did not exist, the validityand binding effect of the liability limitation clause inthe bill of lading here are nevertheless fully sustainableon the basis alone of the cited Civil Code Provisions. Thatsaid stipulation is just and reasonable is arguable fromthe fact that it echoes Art. 1750 itself in providing alimit to liability only if a greater value is not declaredfor the shipment in the bill of lading. To hold otherwisewould amount to questioning the justness and fairness ofthe law itself, and this the private respondent does notpretend to do. But over and above that consideration, thejust and reasonable character of such stipulation isimplicit in it giving the shipper or owner the option ofavoiding accrual of liability limitation by the simple andsurely far from onerous expedient of declaring the natureand value of the shipment in the bill of lading.’

"Pursuant to the afore-quoted provisions of law, it isrequired that the stipulation limiting the common carrier’sliability for loss must be ‘reasonable and just under thecircumstances, and has been freely and fairly agreed upon.

"The bill of lading subject of the present controversyspecifically provides, among others:

’18. All claims for which the carrier may be liable shallbe adjusted and settled on the basis of the shipper’s netinvoice cost plus freight and insurance premiums, if paid,and in no event shall the carrier be liable for any loss ofpossible profits or any consequential loss.

‘The carrier shall not be liable for any loss of or anydamage to or in any connection with, goods in an amountexceeding One Hundred Thousand Yen in Japanese Currency(¥100,000.00) or its equivalent in any other currency perpackage or customary freight unit (whichever is least)unless the value of the goods higher than this amount is declared in writing bythe shipper before receipt of the goods by the carrier and inserted in the Bill ofLading and extra freight is paid as required.’

"The above stipulations are, to our mind, reasonable andjust.1avvphi1 In the bill of lading, the carrier made itclear that its liability would only be up to One HundredThousand (Y100,000.00) Yen. However, the shipper, MarumanTrading, had the option to declare a higher valuation if the value of its cargowas higher than the limited liability of the carrier. Considering that the shipperdid not declare a higher valuation, it had itself to blame for not complying withthe stipulations." (Italics supplied)

In the present case, the stipulation limiting petitioner’sliability is not contrary to public policy. In fact, itsjust and reasonable character is evident. Theshippers/consignees may recover the full value of the goodsby the simple expedient of declaring the true value of theshipment in the Bill of Lading. Other than the payment of ahigher freight, there was nothing to stop them from placingthe actual value of the goods therein. In fact, theycommitted fraud against the common carrier by deliberatelyundervaluing the goods in their Bill of Lading, thusdepriving the carrier of its proper and just transportfare.

Concededly, the purpose of the limiting stipulation in theBill of Lading is to protect the common carrier. Suchstipulation obliges the shipper/consignee to notify thecommon carrier of the amount that the latter may be liablefor in case of loss of the goods. The common carrier canthen take appropriate measures -- getting insurance, ifneeded, to cover or protect itself. This precaution on thepart of the carrier is reasonable and prudent. Hence, ashipper/consignee that undervalues the real worth of thegoods it seeks to transport does not only violate a validcontractual stipulation, but commits a fraudulent act whenit seeks to make the common carrier liable for more thanthe amount it declared in the bill of lading.

Indeed, Zosimo Mercado and Nestor Angelia misled petitionerby undervaluing the goods in their respective Bills ofLading. Hence, petitioner was exposed to a risk that wasdeliberately hidden from it, and from which it could notprotect itself.

It is well to point out that, for assuming a higher risk(the alleged actual value of the goods) the insurancecompany was paid the correct higher premium by FelicianaLegaspi; while petitioner was paid a fee lower than what itwas entitled to for transporting the goods that had beendeliberately undervalued by the shippers in the Bill ofLading. Between the two of them, the insurer should bearthe loss in excess of the value declared in the Bills ofLading. This is the just and equitable solution.

In Aboitiz Shipping Corporation v. Court of Appeals,23 the descriptionof the nature and the value of the goods shipped weredeclared and reflected in the bill of lading, like in thepresent case. The Court therein considered this declarationas the basis of the carrier’s liability and ordered paymentbased on such amount. Following this ruling, petitionershould not be held liable for more than what was declaredby the shippers/consignees as the value of the goods in thebills of lading.

We find no cogent reason to disturb the CA’s finding thatFeliciana Legaspi was the owner of the goods covered byBills of Lading Nos. 58 and 59. Undoubtedly, the goods weremerely 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 thatpetitioner paid her for the loss of those goods. It doesnot even claim to have paid her.

On the other hand, Legaspi Marketing filed with petitionera claim for the lost goods under Bill of Lading No. 59, forwhich the latter subsequently paid P14,000. But nothing inthe records convincingly shows that the former was theowner of the goods. Respondent was, however, able to provethat it was Feliciana Legaspi who owned those goods, andwho was thus entitled to payment for their loss. Hence, theclaim for the goods under Bill of Lading No. 59 cannot bedeemed to have been extinguished, because payment was madeto a person who was not entitled thereto.

With regard to the claim for the goods that were covered byBill of Lading No. 58 and valued at P6,500, the partieshave not convinced us to disturb the findings of the CAthat compensation could not validly take place. Thus, weuphold the appellate court’s ruling on this point.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED. Theassailed Decision is MODIFIED in the sense that petitioneris ORDERED to pay respondent the sums of P14,000 and P6,500,which represent the value of the goods stated in Bills ofLading Nos. 59 and 58, respectively. No costs.

SO ORDERED.

G.R. No. 147246            August 19, 2003ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,

vs.COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,

INC., respondents.

On appeal is the Court of Appeals' May 11, 2000 Decision1 inCA-G.R. CV No. 49195 and February 21, 2001 Resolution2

affirming with modification the April 6, 1994 Decision3 ofthe Regional Trial Court of Manila which found petitionerliable to pay private respondent the amount of indemnityand attorney's fees.

On June 13, 1990, 3,150 metric tons of Better Western WhiteWheat in bulk, valued at US$423,192.354 was shipped by

Marubeni American Corporation of Portland, Oregon on boardthe vessel M/V NEO CYMBIDIUM V-26 for delivery to theconsignee, General Milling Corporation in Manila, evidencedby Bill of Lading No. PTD/Man-4.5 The shipment was insuredby the private respondent Prudential Guarantee andAssurance, Inc. against loss or damage for P14,621,771.75under Marine Cargo Risk Note RN 11859/90.6

On July 25, 1990, the carrying vessel arrived in Manila andthe cargo was transferred to the custody of the petitionerAsia Lighterage and Shipping, Inc. The petitioner wascontracted by the consignee as carrier to deliver the cargoto consignee's warehouse at Bo. Ugong, Pasig City.

On August 15, 1990, 900 metric tons of the shipment wasloaded on barge PSTSI III, evidenced by Lighterage ReceiptNo. 03647 for delivery to consignee. The cargo did not reachits destination.

It appears that on August 17, 1990, the transport of saidcargo was suspended due to a warning of an incomingtyphoon. On August 22, 1990, the petitioner proceeded topull the barge to Engineering Island off Baseco to seekshelter from the approaching typhoon. PSTSI III was tieddown to other barges which arrived ahead of it whileweathering out the storm that night. A few days after, thebarge developed a list because of a hole it sustained afterhitting an unseen protuberance underneath the water. Thepetitioner filed a Marine Protest on August 28, 1990.8 Itlikewise secured the services of Gaspar SalvagingCorporation which refloated the barge.9 The hole was thenpatched with clay and cement.

The barge was then towed to ISLOFF terminal before itfinally headed towards the consignee's wharf on September5, 1990. Upon reaching the Sta. Mesa spillways, the bargeagain ran aground due to strong current. To avoid thecomplete sinking of the barge, a portion of the goods wastransferred to three other barges.10

The next day, September 6, 1990, the towing bits of thebarge broke. It sank completely, resulting in the totalloss of the remaining cargo.11 A second Marine Protest wasfiled on September 7, 1990.12

On September 14, 1990, a bidding was conducted to disposeof the damaged wheat retrieved and loaded on the threeother barges.13 The total proceeds from the sale of thesalvaged cargo was P201,379.75.14

On the same date, September 14, 1990, consignee sent aclaim letter to the petitioner, and another letter datedSeptember 18, 1990 to the private respondent for the valueof the lost cargo.

On January 30, 1991, the private respondent indemnified theconsignee in the amount of P4,104,654.22.15 Thereafter, assubrogee, it sought recovery of said amount from thepetitioner, but to no avail.

On July 3, 1991, the private respondent filed a complaintagainst the petitioner for recovery of the amount ofindemnity, attorney's fees and cost of suit.16 Petitionerfiled its answer with counterclaim.17

The Regional Trial Court ruled in favor of the privaterespondent. The dispositive portion of its Decision states:

WHEREFORE, premises considered, judgment is hereby renderedordering defendant Asia Lighterage & Shipping, Inc. liableto pay plaintiff Prudential Guarantee & Assurance Co., Inc.the sum of P4,104,654.22 with interest from the datecomplaint was filed on July 3, 1991 until fully satisfiedplus 10% of the amount awarded as and for attorney's fees.Defendant's counterclaim is hereby DISMISSED. With costsagainst defendant.18

Petitioner appealed to the Court of Appeals insisting thatit is not a common carrier. The appellate court affirmedthe decision of the trial court with modification. Thedispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMEDwith modification in the sense that the salvage value ofP201,379.75 shall be deducted from the amount ofP4,104,654.22. Costs against appellant.

SO ORDERED.

Petitioner's Motion for Reconsideration dated June 3, 2000was likewise denied by the appellate court in a Resolutionpromulgated on February 21, 2001.

Hence, this petition. Petitioner submits the followingerrors allegedly committed by the appellate court, viz:19

(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORDWITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN ITHELD THAT PETITIONER IS A COMMON CARRIER.

(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORDWITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN ITAFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS OF THEPROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, "THE LOSS OF THECARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE FIVE (5) CASESENUMERATED."

(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORDWITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN ITEFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE DILIGENCEAND/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 itexercised extraordinary diligence in its care and custodyof the consignee's cargo.

On the first issue, we rule that petitioner is a commoncarrier.

Article 1732 of the Civil Code defines common carriers aspersons, corporations, firms or associations engaged in the

business of carrying or transporting passengers or goods orboth, by land, water, or air, for compensation, offeringtheir services to the public.

Petitioner contends that it is not a common carrier but aprivate carrier. Allegedly, it has no fixed and publiclyknown route, maintains no terminals, and issues no tickets.It points out that it is not obliged to carryindiscriminately for any person. It is not bound to carrygoods unless it consents. In short, it does not hold outits services to the general public.20

We disagree.

In De Guzman vs. Court of Appeals,21 we held that thedefinition of common carriers in Article 1732 of the CivilCode makes no distinction between one whose principalbusiness activity is the carrying of persons or goods orboth, and one who does such carrying only as an ancillaryactivity. We also did not distinguish between a person orenterprise offering transportation service on a regular orscheduled basis and one offering such service on anoccasional, episodic or unscheduled basis. Further, weruled that Article 1732 does not distinguish between acarrier offering its services to the general public, and onewho offers services or solicits business only from a narrowsegment of the general population.

In the case at bar, the principal business of thepetitioner is that of lighterage and drayage22 and it offersits barges to the public for carrying or transporting goodsby water for compensation. Petitioner is clearly a commoncarrier. In De Guzman, supra,23 we considered privaterespondent Ernesto Cendaña to be a common carrier even ifhis principal occupation was not the carriage of goods forothers, but that of buying used bottles and scrap metal inPangasinan and selling these items in Manila.

We therefore hold that petitioner is a common carrierwhether its carrying of goods is done on an irregularrather than scheduled manner, and with an only limited

clientele. A common carrier need not have fixed andpublicly known routes. Neither does it have to maintainterminals or issue tickets.

To be sure, petitioner fits the test of a common carrier aslaid down in Bascos vs. Court of Appeals.24 The test todetermine a common carrier is "whether the givenundertaking is a part of the business engaged in by thecarrier which he has held out to the general public as hisoccupation rather than the quantity or extent of thebusiness transacted."25 In the case at bar, the petitioneradmitted that it is engaged in the business of shipping andlighterage,26 offering its barges to the public, despite itslimited clientele for carrying or transporting goods bywater for compensation.27

On the second issue, we uphold the findings of the lowercourts that petitioner failed to exercise extraordinarydiligence in its care and custody of the consignee's goods.

Common carriers are bound to observe extraordinarydiligence in the vigilance over the goods transported bythem.28 They are presumed to have been at fault or to haveacted negligently if the goods are lost, destroyed ordeteriorated.29 To overcome the presumption of negligence inthe case of loss, destruction or deterioration of thegoods, the common carrier must prove that it exercisedextraordinary diligence. There are, however, exceptions tothis rule. Article 1734 of the Civil Code enumerates theinstances when the presumption of negligence does notattach:

Art. 1734. Common carriers are responsible for the loss,destruction, or deterioration of the goods, unless the sameis due to any of the following causes only:

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

(2) Act of the public enemy in war, whether internationalor civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing orin the containers;

(5) Order or act of competent public authority.

In the case at bar, the barge completely sank after itstowing bits broke, resulting in the total loss of itscargo. Petitioner claims that this was caused by a typhoon,hence, it should not be held liable for the loss of thecargo. However, petitioner failed to prove that the typhoonis the proximate and only cause of the loss of the goods,and that it has exercised due diligence before, during andafter the occurrence of the typhoon to prevent or minimizethe loss.30 The evidence show that, even before the towingbits of the barge broke, it had already previouslysustained damage when it hit a sunken object while dockedat the Engineering Island. It even suffered a hole.Clearly, this could not be solely attributed to thetyphoon. The partly-submerged vessel was refloated but itshole was patched with only clay and cement. The patch workwas merely a provisional remedy, not enough for the bargeto sail safely. Thus, when petitioner persisted to proceedwith the voyage, it recklessly exposed the cargo to furtherdamage. A portion of the cross-examination of AlfredoCunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc.,states:

CROSS-EXAMINATION BY ATTY. DONN LEE:31

q     -     Can you tell us what else transpired after thatincident?

a     -     After the first accident, through theinitiative of the barge owners, they tried to pull out thebarge from the place of the accident, and bring it to theanchor terminal for safety, then after deciding if thevessel is stabilized, they tried to pull it to theconsignee's warehouse, now while on route another accident

occurred, now this time the barge totally hitting somethingin the course.

q     -     You said there was another accident, can youtell the court the nature of the second accident?

a     -     The sinking, sir.

q     -     Can you tell the nature . . . can you tell thecourt, if you know what caused the sinking?

a     -     Mostly it was related to the first accidentbecause there was already a whole (sic) on the bottom part ofthe barge.

This is not all. Petitioner still headed to the consignee'swharf despite knowledge of an incoming typhoon. During thetime that the barge was heading towards the consignee'swharf on September 5, 1990, typhoon "Loleng" has alreadyentered the Philippine area of responsibility.32 A part ofthe testimony of Robert Boyd, Cargo Operations Supervisorof the petitioner, reveals:

DIRECT-EXAMINATION BY ATTY. LEE:33

q     -     Now, Mr. Witness, did it not occur to you itmight be safer to just allow the Barge to lie where she wasinstead of towing it?a     -     Since that time that the Barge was refloated,GMC (General Milling Corporation, the consignee) as I havesaid was in a hurry for their goods to be delivered attheir Wharf since they needed badly the wheat that wasloaded in PSTSI-3. It was needed badly by the consignee.q     -     And this is the reason why you towed the Bargeas you did?a     -     Yes, sir.CROSS-EXAMINATION BY ATTY. IGNACIO:34

q     -     And then from ISLOFF Terminal you proceeded tothe premises of the GMC? Am I correct?a     -     The next day, in the morning, we hired foradditional two (2) tugboats as I have stated.

q     -     Despite of the threats of an incoming typhoonas you testified a while ago?a     -     It is already in an inner portion of PasigRiver. The typhoon would be coming and it would bedangerous if we are in the vicinity of Manila Bay.q     -     But the fact is, the typhoon was incoming? Yesor no?a     -     Yes.q     -     And yet as a standard operating procedure ofyour Company, you have to secure a sort of Certification todetermine the weather condition, am I correct?a     -     Yes, sir.q     -     So, more or less, you had the knowledge of theincoming typhoon, right?a     -     Yes, sir.q     -     And yet you proceeded to the premises of theGMC?a     -     ISLOFF Terminal is far from Manila Bay andanytime even with the typhoon if you are already inside thevicinity or inside Pasig entrance, it is a safe place totow upstream.

Accordingly, the petitioner cannot invoke the occurrence ofthe typhoon as force majeure to escape liability for theloss sustained by the private respondent. Surely, meeting atyphoon head-on falls short of due diligence required froma common carrier. More importantly, the officers/employeesthemselves of petitioner admitted that when the towing bitsof the vessel broke that caused its sinking and the totalloss of the cargo upon reaching the Pasig River, it was nolonger affected by the typhoon. The typhoon then is not theproximate cause of the loss of the cargo; a human factor,i.e., negligence had intervened.

IN VIEW THEREOF, the petition is DENIED. The Decision ofthe Court of Appeals in CA-G.R. CV No. 49195 dated May 11,2000 and its Resolution dated February 21, 2001 are herebyAFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 184905               August 28, 2009LAMBERT S. RAMOS, Petitioner,

vs.C.O.L. REALTY CORPORATION, Respondent.

The issue for resolution is whether petitioner can be heldsolidarily liable with his driver, Rodel Ilustrisimo, topay respondent C.O.L. Realty the amount of P51,994.80 asactual damages suffered in a vehicular collision.

The facts, as found by the appellate court, are as follows:

On or about 10:40 o’clock in the morning of 8 March 2004,along Katipunan (Avenue), corner Rajah Matanda (Street),Quezon City, a vehicular accident took place between aToyota Altis Sedan bearing Plate Number XDN 210, owned bypetitioner C.O.L. Realty Corporation, and driven byAquilino Larin ("Aquilino"), and a Ford Expedition, ownedby x x x Lambert Ramos (Ramos) and driven by RodelIlustrisimo ("Rodel"), with Plate Number LSR 917. Apassenger of the sedan, one Estela Maliwat ("Estela")sustained injuries. She was immediately rushed to thehospital for treatment.

(C.O.L. Realty) averred that its driver, Aquilino, wasslowly driving the Toyota Altis car at a speed of five toten kilometers per hour along Rajah Matanda Street and hasjust crossed the center lane of Katipunan Avenue when(Ramos’) Ford Espedition violently rammed against the car’sright rear door and fender. With the force of the impact,the sedan turned 180 degrees towards the direction where itcame from.

Upon investigation, the Office of the City Prosecutor ofQuezon City found probable cause to indict Rodel, thedriver of the Ford Expedition, for Reckless Imprudence

Resulting in Damage to Property. In the meantime,petitioner demanded from respondent reimbursement for theexpenses incurred in the repair of its car and thehospitalization of Estela in the aggregate amount ofP103,989.60. The demand fell on deaf ears prompting (C.O.L.Realty) to file a Complaint for Damages based on quasi-delict before the Metropolitan Trial Court of Metro Manila(MeTC), Quezon City, docketed as Civil Case No. 33277, andsubsequently raffled to Branch 42.

As could well be expected, (Ramos) denied liability fordamages insisting that it was the negligence of Aquilino,(C.O.L. Realty’s) driver, which was the proximate cause ofthe accident. (Ramos) maintained that the sedan car crossedKatipunan Avenue from Rajah Matanda Street despite theconcrete barriers placed thereon prohibiting vehicles topass through the intersection.

(Ramos) further claimed that he was not in the vehicle whenthe mishap occurred. He asserted that he exercised thediligence of a good father of a family in the selection andsupervision of his driver, Rodel.

Weighing the respective evidence of the parties, the MeTCrendered the Decision dated 1 March 2006 exculpating(Ramos) from liability, thus:

"WHEREFORE, the instant case is DISMISSED for lack of merit. TheCounterclaims of the defendant are likewise DISMISSED for lack ofsufficient factual and legal basis.SO ORDERED."

The aforesaid judgment did not sit well with (C.O.L.Realty) so that he (sic) appealed the same before the RTCof Quezon City, raffled to Branch 215, which rendered theassailed Decision dated 5 September 2006, affirming theMeTC’s Decision. (C.O.L. Realty’s) Motion forReconsideration met the same fate as it was denied by theRTC in its Order dated 5 June 2007.1

C.O.L. Realty appealed to the Court of Appeals whichaffirmed the view that Aquilino was negligent in crossing

Katipunan Avenue from Rajah Matanda Street since, as perCertification of the Metropolitan Manila DevelopmentAuthority (MMDA) dated November 30, 2004, such act isspecifically prohibited. Thus:

This is to certify that as per records found and availablein this office the crossing of vehicles at Katipunan Avenuefrom Rajah Matanda Street to Blue Ridge Subdivision, QuezonCity has (sic) not allowed since January 2004 up to thepresent in view of the ongoing road construction at thearea.2 (Emphasis supplied)

Barricades were precisely placed along the intersection ofKatipunan Avenue and Rajah Matanda Street in order toprevent motorists from crossing Katipunan Avenue.Nonetheless, Aquilino crossed Katipunan Avenue throughcertain portions of the barricade which were broken, thusviolating the MMDA rule.3

However, the Court of Appeals likewise noted that at thetime of the collision, Ramos’ vehicle was moving at highspeed in a busy area that was then the subject of anongoing construction (the Katipunan Avenue-Boni SerranoAvenue underpass), then smashed into the rear door andfender of the passenger’s side of Aquilino’s car, sendingit spinning in a 180-degree turn.4 It therefore found thedriver Rodel guilty of contributory negligence for drivingthe Ford Expedition at high speed along a busyintersection.

Thus, on May 28, 2008, the appellate court rendered theassailed Decision,5 the dispositive portion of which reads,as follows:

WHEREFORE, the Decision dated 5 September 2006 of the Regional Trial Courtof Quezon City, Branch 215 is hereby MODIFIED in that respondent LambertRamos is held solidarily liable with Rodel Ilustrisimo to pay petitionerC.O.L. Realty Corporation the amount of P51,994.80 as actual damages.Petitioner C.O.L. Realty Corporation’s claim for exemplary damages,attorney’s fees and cost of suit are DISMISSED for lack of merit.SOORDERED.

Petitioner filed a Motion for Reconsideration but it wasdenied. Hence, the instant petition, which raises thefollowing sole issue:

THE COURT OF APPEALS’ DECISION IS CONTRARY TO LAW AND JURISPRUDENCE, ANDTHE EVIDENCE TO SUPPORT AND JUSTIFY THE SAME IS INSUFFICIENT.

We resolve to GRANT the petition. There is no doubtin the appellate court’s mind that Aquilino’s violation ofthe MMDA prohibition against crossing Katipunan Avenue fromRajah Matanda Street was the proximate cause of theaccident. Respondent does not dispute this; in its Commentto the instant petition, it even conceded that petitionerwas guilty of mere contributory negligence.6

Thus, the Court of Appeals acknowledged that: theCertification dated 30 November 2004 of the MetropolitanManila Development Authority (MMDA) evidently disproved(C.O.L. Realty’s) barefaced assertion that its driver,Aquilino, was not to be blamed for the accident –

"TO WHOM IT MAY CONCERN:This is to certify that as per records found and available in thisoffice the crossing of vehicles at Katipunan Avenue from RajahMatanda Street to Blue Ridge Subdivision, Quezon City has (sic)not allowed since January 2004 up to the present in view of theongoing road construction at the area.

This certification is issued upon request of the interestedparties for whatever legal purpose it may serve."

(C.O.L. Realty) admitted that there were barricades alongthe intersection of Katipunan Avenue and Rajah MatandaStreet. The barricades were placed thereon to cautiondrivers not to pass through the intersecting roads. Thisprohibition stands even if, as (C.O.L. Realty) claimed, the"barriers were broken" at that point creating a small gapthrough which any vehicle could pass. What is clear to Usis that Aquilino recklessly ignored these barricades anddrove through it. Without doubt, his negligence isestablished by the fact that he violated a traffic

regulation. This finds support in Article 2185 of the CivilCode –

"Unless there is proof to the contrary, it is presumed thata person driving a motor vehicle has been negligent if atthe time of the mishap, he was violating any trafficregulation."

Accordingly, there ought to be no question on (C.O.L.Realty’s) negligence which resulted in the vehicularmishap.7

However, it also declared Ramos liable vicariously forRodel’s contributory negligence in driving the FordExpedition at high speed along a busy intersection. On thisscore, the appellate court made the followingpronouncement:

As a professional driver, Rodel should have known thatdriving his vehicle at a high speed in a major thoroughfarewhich was then subject of an on-going construction was aperilous act. He had no regard to (sic) the safety of othervehicles on the road. Because of the impact of thecollision, (Aquilino’s) sedan made a 180-degree turn as(Ramos’) Ford Expedition careened and smashed into its reardoor and fender. We cannot exculpate Rodel from liability.

Having thus settled the contributory negligence of Rodel,this created a presumption of negligence on the part of hisemployer, (Ramos). For the employer to avoid the solidaryliability for a tort committed by his employee, an employermust rebut the presumption by presenting adequate andconvincing proof that in the selection and supervision ofhis employee, he or she exercises the care and diligence ofa good father of a family. Employers must submit concreteproof, including documentary evidence, that they compliedwith everything that was incumbent on them.

(Ramos) feebly attempts to escape vicarious liability byaverring that Rodel was highly recommended when he appliedfor the position of family driver by the Social Service

Committee of his parish. A certain Ramon Gomez, a member ofthe church’s livelihood program, testified that abackground investigation would have to be made before anapplicant is recommended to the parishioners foremployment. (Ramos) supposedly tested Rodel’s drivingskills before accepting him for the job. Rodel has been hisdriver since 2001, and except for the mishap in 2004, hehas not been involved in any road accident.

Regrettably, (Ramos’) evidence which consisted mainly oftestimonial evidence remained unsubstantiated and are thus,barren of significant weight. There is nothing on therecords which would support (Ramos’) bare allegation ofRodel’s 10-year unblemished driving record. He failed topresent convincing proof that he went to the extent ofverifying Rodel’s qualifications, safety record, anddriving history.

So too, (Ramos) did not bother to refute (C.O.L. Realty’s)stance that his driver was texting with his cellphone whilerunning at a high speed and that the latter did not slowdown albeit he knew that Katipunan Avenue was thenundergoing repairs and that the road was barricaded withbarriers. The presumption juris tantum that there wasnegligence in the selection of driver remains unrebutted.As the employer of Rodel, (Ramos) is solidarily liable forthe quasi-delict committed by the former.1avvphi1

Certainly, in the selection of prospective employees,employers are required to examine them as to theirqualifications, experience and service records. In thesupervision of employees, the employer must formulatestandard operating procedures, monitor their implementationand impose disciplinary measures for the breach thereof.These, (Ramos) failed to do.8

Petitioner disagrees, arguing that since Aquilino’s willfuldisregard of the MMDA prohibition was the sole proximatecause of the accident, then respondent alone should sufferthe consequences of the accident and the damages itincurred. He argues:

20. It becomes apparent therefore that the only time aplaintiff, the respondent herein, can recover damages is ifits negligence was only contributory, and such contributorynegligence was the proximate cause of the accident. It hasbeen clearly established in this case, however, thatrespondent’s negligence was not merely contributory, butthe sole proximate cause of the accident.

22. As culled from the foregoing, respondent was the soleproximate cause of the accident. Respondent’s vehicleshould not have been in that position since crossing thesaid intersection was prohibited. Were it not for theobvious negligence of respondent’s driver in crossing theintersection that was prohibited, the accident would nothave happened. The crossing of respondent’s vehicle in aprohibited intersection unquestionably produced the injury,and without which the accident would not have occurred. Onthe other hand, petitioner’s driver had the right to bewhere he was at the time of the mishap. As correctlyconcluded by the RTC, the petitioner’s driver could not beexpected to slacken his speed while travelling along saidintersection since nobody, in his right mind, would do thesame. Assuming, however, that petitioner’s driver wasindeed guilty of any contributory negligence, such was notthe proximate cause of the accident considering that again,if respondent’s driver did not cross the prohibitedintersection, no accident would have happened. Noimputation of any lack of care on Ilustrisimo’s could thusbe concluded. It is obvious then that petitioner’s driverwas not guilty of any negligence that would make petitionervicariously liable for damages.

23. As the sole proximate cause of the accident wasrespondent’s own driver, respondent cannot claim damagesfrom petitioner.9

On the other hand, respondent in its Comment merelyreiterated the appellate court’s findings andpronouncements, conceding that petitioner is guilty of merecontributory negligence, and insisted on his vicarious

liability as Rodel’s employer under Article 2184 of theCivil Code.

Articles 2179 and 2185 of the Civil Code on quasi-delicts apply inthis case, viz:

Article 2179. When the plaintiff’s own negligence was theimmediate and proximate cause of his injury, he cannot recoverdamages. But if his negligence was only contributory, theimmediate and proximate cause of the injury being the defendant’slack of due care, the plaintiff may recover damages, but thecourts shall mitigate the damages to be awarded.

Article 2185. Unless there is proof to the contrary, it ispresumed that a person driving a motor vehicle has been negligentif at the time of the mishap, he was violating any trafficregulation.

If the master is injured by the negligence of a third person andby the concurring contributory negligence of his own servant oragent, the latter’s negligence is imputed to his superior and willdefeat the superior’s action against the third person, assuming ofcourse that the contributory negligence was the proximate cause ofthe injury of which complaint is made.10

Applying the foregoing principles of law to the instantcase, Aquilino’s act of crossing Katipunan Avenue via RajahMatanda constitutes negligence because it was prohibited bylaw. Moreover, it was the proximate cause of the accident,and thus precludes any recovery for any damages suffered byrespondent from the accident.

Proximate cause is defined as that cause, which, in naturaland continuous sequence, unbroken by any efficientintervening cause, produces the injury, and without whichthe result would not have occurred. And morecomprehensively, the proximate legal cause is that actingfirst and producing the injury, either immediately or bysetting other events in motion, all constituting a naturaland continuous chain of events, each having a close causalconnection with its immediate predecessor, the final eventin the chain immediately effecting the injury as a natural

and probable result of the cause which first acted, undersuch circumstances that the person responsible for thefirst event should, as an ordinary prudent and intelligentperson, have reasonable ground to expect at the moment ofhis act or default that an injury to some person mightprobably result therefrom.11

If Aquilino heeded the MMDA prohibition against crossingKatipunan Avenue from Rajah Matanda, the accident would nothave happened. This specific untoward event is exactly whatthe MMDA prohibition was intended for. Thus, a prudent andintelligent person who resides within the vicinity wherethe accident occurred, Aquilino had reasonable ground toexpect that the accident would be a natural and probableresult if he crossed Katipunan Avenue since such crossingis considered dangerous on account of the busy nature ofthe thoroughfare and the ongoing construction of theKatipunan-Boni Avenue underpass. It was manifest error forthe Court of Appeals to have overlooked the principleembodied in Article 2179 of the Civil Code, that when theplaintiff’s own negligence was the immediate and proximatecause of his injury, he cannot recover damages.

Hence, we find it unnecessary to delve into the issue ofRodel’s contributory negligence, since it cannot overcomeor defeat Aquilino’s recklessness which is the immediateand proximate cause of the accident. Rodel’s contributorynegligence has relevance only in the event that Ramos seeksto recover from respondent whatever damages or injuries hemay have suffered as a result; it will have the effect ofmitigating the award of damages in his favor. In otherwords, an assertion of contributory negligence in this casewould benefit only the petitioner; it could not eliminaterespondent’s liability for Aquilino’s negligence which isthe proximate result of the accident.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appealsdated May 28, 2008 in CA-G.R. SP No. 99614 and its Resolution of October13, 2008 are hereby REVERSED and SET ASIDE. The Decision of the RegionalTrial Court of Quezon City, Branch 215 dated September 5, 2006 dismissingfor lack of merit respondent’s complaint for damages is herebyREINSTATED.SO ORDERED.

G.R. No. 143133           June 5, 2002

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORTSERVICES, INC., petitioners,

vs.PHILIPPINE FIRST INSURANCE CO., INC., respondents.

Proof of the delivery of goods in good order to a commoncarrier and of their arrival in bad order at theirdestination constitutes prima facie fault or negligence onthe part of the carrier. If no adequate explanation isgiven as to how the loss, the destruction or thedeterioration of the goods happened, the carrier shall beheld liable therefor.

Before us is a Petition for Review under Rule 45 of theRules of Court, assailing the July 15, 1998 Decision1 andthe May 2, 2000 Resolution2 of the Court of Appeals3 (CA) inCA-GR CV No. 53571. The decretal portion of the Decisionreads as follows:

"WHEREFORE, in the light of the foregoing disquisition, thedecision appealed from is hereby REVERSED and SET ASIDE.Defendants-appellees are ORDERED to jointly and severallypay plaintiffs-appellants the following:'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and32/100 (P451,027.32) as actual damages, representing thevalue of the damaged cargo, plus interest at the legal ratefrom the time of filing of the complaint on July 25, 1991,until fully paid;'2) Attorney's fees amounting to 20% of the claim; and'3) Costs of suit.'"4

The assailed Resolution denied petitioner's Motion forReconsideration.

The CA reversed the Decision of the Regional Trial Court(RTC) of Makati City (Branch 134), which had disposed asfollows:

"WHEREFORE, in view of the foregoing, judgment is herebyrendered, dismissing the complaint, as well as defendant'scounterclaim."5

The Facts

The factual antecedents of the case are summarized by theCourt of Appeals in this wise:

"On June 13, 1990, CMC Trading A.G. shipped on board theM/V 'Anangel Sky' at Hamburg, Germany 242 coils of variousPrime Cold Rolled Steel sheets for transportation to Manilaconsigned to the Philippine Steel Trading Corporation. OnJuly 28, 1990, M/V Anangel Sky arrived at the port ofManila and, within the subsequent days, discharged thesubject cargo. Four (4) coils were found to be in bad orderB.O. Tally sheet No. 154974. Finding the four (4) coils intheir damaged state to be unfit for the intended purpose,the consignee Philippine Steel Trading Corporation declaredthe same as total loss.1âwphi1.nêt

"Despite receipt of a formal demand, defendants-appelleesrefused to submit to the consignee's claim. Consequently,plaintiff-appellant paid the consignee five hundred sixthousand eighty six & 50/100 pesos (P506,086.50), and wassubrogated to the latter's rights and causes of actionagainst defendants-appellees. Subsequently, plaintiff-appellant instituted this complaint for recovery of theamount paid by them, to the consignee as insured.

"Impugning the propriety of the suit against them,defendants-appellees imputed that the damage and/or losswas due to pre-shipment damage, to the inherent nature,vice or defect of the goods, or to perils, danger andaccidents of the sea, or to insufficiency of packingthereof, or to the act or omission of the shipper of thegoods or their representatives. In addition thereto,

defendants-appellees argued that their liability, if therebe any, should not exceed the limitations of liabilityprovided for in the bill of lading and other pertinentlaws. Finally, defendants-appellees averred that, in anyevent, they exercised due diligence and foresight requiredby law to prevent any damage/loss to said shipment."6

Ruling of the Trial Court

The RTC dismissed the Complaint because respondent hadfailed to prove its claims with the quantum of proofrequired by law.7

It likewise debunked petitioners' counterclaim, becauserespondent's suit was not manifestly frivolous or primarilyintended to harass them.8

Ruling of the Court of Appeals

In reversing the trial court, the CA ruled that petitionerswere liable for the loss or the damage of the goodsshipped, because they had failed to overcome thepresumption of negligence imposed on common carriers.

The CA further held as inadequately proven petitioners'claim that the loss or the deterioration of the goods wasdue to pre-shipment damage.9 It likewise opined that thenotation "metal envelopes rust stained and slightly dented"placed on the Bill of Lading had not been the proximatecause of the damage to the four (4) coils.10

As to the extent of petitioners' liability, the CA heldthat the package limitation under COGSA was not applicable,because the words "L/C No. 90/02447" indicated that ahigher valuation of the cargo had been declared by theshipper. The CA, however, affirmed the award of attorney'sfees.

Hence, this Petition.11Issues

In their Memorandum, petitioners raise the following issuesfor the Court's consideration:I "Whether or not plaintiff by presenting only onewitness who has never seen the subject shipment and whosetestimony is purely hearsay is sufficient to pave the wayfor the applicability of Article 1735 of the Civil Code;II "Whether or not the consignee/plaintiff filed therequired notice of loss within the time required by law;III "Whether or not a notation in the bill of lading atthe time of loading is sufficient to show pre-shipmentdamage and to exempt herein defendants from liability;IV "Whether or not the "PACKAGE LIMITATION" of liabilityunder Section 4 (5) of COGSA is applicable to the case atbar."12

In sum, the issues boil down to three:1. Whether petitioners have overcome the presumption ofnegligence of a common carrier2. Whether the notice of loss was timely filed3. Whether the package limitation of liability isapplicable

This Court's Ruling

The Petition is partly meritorious.

First Issue: Proof of Negligence

Petitioners contend that the presumption of faultimposed on common carriers should not be applied on thebasis of the lone testimony offered by private respondent.The contention is untenable.

Well-settled is the rule that common carriers, from thenature of their business and for reasons of public policy,are bound to observe extraordinary diligence and vigilance withrespect to the safety of the goods and the passengers theytransport.13 Thus, common carriers are required to renderservice with the greatest skill and foresight and "to useall reason[a]ble means to ascertain the nature andcharacteristics of the goods tendered for shipment, and toexercise due care in the handling and stowage, including

such methods as their nature requires."14 The extraordinaryresponsibility lasts from the time the goods areunconditionally placed in the possession of and receivedfor transportation by the carrier until they are delivered,actually or constructively, to the consignee or to theperson who has a right to receive them.15

This strict requirement is justified by the fact that,without a hand or a voice in the preparation of suchcontract, the riding public enters into a contract oftransportation with common carriers.16 Even if it wants to,it cannot submit its own stipulations for their approval.17

Hence, it merely adheres to the agreement prepared by them.

Owing to this high degree of diligence required of them,common carriers, as a general rule, are presumed to havebeen at fault or negligent if the goods they transporteddeteriorated or got lost or destroyed.18 That is, unlessthey prove that they exercised extraordinary diligence intransporting the goods.19 In order to avoid responsibilityfor any loss or damage, therefore, they have the burden ofproving that they observed such diligence.20

However, the presumption of fault or negligence will notarise21 if the loss is due to any of the following causes:(1) flood, storm, earthquake, lightning, or other naturaldisaster or calamity; (2) an act of the public enemy inwar, whether international or civil; (3) an act or omissionof the shipper or owner of the goods; (4) the character ofthe goods or defects in the packing or the container; or(5) an order or act of competent public authority.22 This isa closed list. If the cause of destruction, loss ordeterioration is other than the enumerated circumstances,then the carrier is liable therefor.23

Corollary to the foregoing, mere proof of delivery of thegoods in good order to a common carrier and of theirarrival in bad order at their destination constitutes aprima facie case of fault or negligence against thecarrier. If no adequate explanation is given as to how the

deterioration, the loss or the destruction of the goodshappened, the transporter shall be held responsible.24

That petitioners failed to rebut the prima faciepresumption of negligence is revealed in the case at bar bya review of the records and more so by the evidence adducedby respondent.25

First, as stated in the Bill of Lading, petitioners receivedthe subject shipment in good order and condition inHamburg, Germany.26

Second, prior to the unloading of the cargo, an InspectionReport27 prepared and signed by representatives of bothparties showed the steel bands broken, the metal envelopesrust-stained and heavily buckled, and the contents thereofexposed and rusty.

Third, Bad Order Tally Sheet No. 15497928 issued by JardineDavies Transport Services, Inc., stated that the four coilswere in bad order and condition. Normally, a request for abad order survey is made in case there is an apparent or apresumed loss or damage.29

Fourth, the Certificate of Analysis30 stated that, based onthe sample submitted and tested, the steel sheets found inbad order were wet with fresh water. Fifth, petitioners-- in a letter31 addressed to the Philippine Steel CoatingCorporation and dated October 12, 1990 -- admitted thatthey were aware of the condition of the four coils found inbad order and condition.

These facts were confirmed by Ruperto Esmerio, head checkerof BM Santos Checkers Agency. Pertinent portions of histestimony are reproduce hereunder:

"Q.       Mr. Esmerio, you mentioned that you are a HeadChecker. Will you inform the Honorable Court with whatcompany you are connected?A.       BM Santos Checkers Agency, sir.

Q.       How is BM Santos checkers Agency related orconnected with defendant Jardine Davies Transport Services?A.       It is the company who contracts the checkers, sir.Q.       You mentioned that you are a Head Checker, willyou inform this Honorable Court your duties andresponsibilities?A.       I am the representative of BM Santos on board thevessel, sir, to supervise the discharge of cargoes.x x x           x x x           x x xQ.       On or about August 1, 1990, were you stillconnected or employed with BM Santos as a Head Checker?A.       Yes, sir.Q.       And, on or about that date, do you recall havingattended the discharging and inspection of cold steelsheets in coil on board the MV/AN ANGEL SKY?A.       Yes, sir, I was there.x x x           x x x           x x xQ.       Based on your inspection since you were alsopresent at that time, will you inform this Honorable Courtthe condition or the appearance of the bad order cargoesthat were unloaded from the MV/ANANGEL SKY?

ATTY. MACAMAY:Objection, Your Honor, I think the documentitself reflects the condition of the cold steel sheets andthe best evidence is the document itself, Your Honor thatshows the condition of the steel sheets.

COURT:Let the witness answer.

A.       The scrap of the cargoes is broken already and therope is loosen and the cargoes are dent on the sides."32

All these conclusively prove the fact of shipment in goodorder and condition and the consequent damage to the fourcoils while in the possession of petitioner,33 who notablyfailed to explain why.34

Further, petitioners failed to prove that they observed theextraordinary diligence and precaution which the lawrequires a common carrier to know and to follow to avoid

damage to or destruction of the goods entrusted to it forsafe carriage and delivery.35

True, the words "metal envelopes rust stained and slightlydented" were noted on the Bill of Lading; however, there isno showing that petitioners exercised due diligence toforestall or lessen the loss.36 Having been in the servicefor several years, the master of the vessel should haveknown at the outset that metal envelopes in the said statewould eventually deteriorate when not properly stored whilein transit.37 Equipped with the proper knowledge of thenature of steel sheets in coils and of the proper way oftransporting them, the master of the vessel and his crewshould have undertaken precautionary measures to avoidpossible deterioration of the cargo. But none of thesemeasures was taken.38 Having failed to discharge the burdenof proving that they have exercised the extraordinarydiligence required by law, petitioners cannot escapeliability for the damage to the four coils.39

In their attempt to escape liability, petitioners furthercontend that they are exempted from liability under Article1734(4) of the Civil Code. They cite the notation "metalenvelopes rust stained and slightly dented" printed on theBill of Lading as evidence that the character of the goodsor defect in the packing or the containers was theproximate cause of the damage. We are not convinced.

From the evidence on record, it cannot be reasonablyconcluded that the damage to the four coils was due to thecondition noted on the Bill of Lading.40 The aforecitedexception refers to cases when goods are lost or damagedwhile in transit as a result of the natural decay ofperishable goods or the fermentation or evaporation ofsubstances liable therefor, the necessary and natural wearof goods in transport, defects in packages in which theyare shipped, or the natural propensities of animals.41 Noneof these is present in the instant case.

Further, even if the fact of improper packing was known tothe carrier or its crew or was apparent upon ordinary

observation, it is not relieved of liability for loss orinjury resulting therefrom, once it accepts the goodsnotwithstanding such condition.42 Thus, petitioners have notsuccessfully proven the application of any of theaforecited exceptions in the present case.43

Second Issue: Notice of Loss

Petitioners claim that pursuant to Section 3, paragraph 6of the Carriage of Goods by Sea Act44 (COGSA), respondentshould have filed its Notice of Loss within three days fromdelivery. They assert that the cargo was discharged on July31, 1990, but that respondent filed its Notice of Claimonly on September 18, 1990.45

We are not persuaded. First, the above-cited provision ofCOGSA provides that the notice of claim need not be givenif the state of the goods, at the time of their receipt,has been the subject of a joint inspection or survey. Asstated earlier, prior to unloading the cargo, an InspectionReport46 as to the condition of the goods was prepared andsigned by representatives of both parties.47

Second, as stated in the same provision, a failure to file anotice of claim within three days will not bar recovery ifit is nonetheless filed within one year.48 This one-yearprescriptive period also applies to the shipper, theconsignee, the insurer of the goods or any legal holder ofthe bill of lading.49

In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that aclaim is not barred by prescription as long as the one-yearperiod has not lapsed. Thus, in the words of the ponente,Chief Justice Hilario G. Davide Jr.:

"Inasmuch as the neither the Civil Code nor the Codeof Commerce states a specific prescriptive period on thematter, the Carriage of Goods by Sea Act (COGSA)--whichprovides for a one-year period of limitation on claims forloss of, or damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar."

In the present case, the cargo was discharged on July 31,1990, while the Complaint51 was filed by respondent on July25, 1991, within the one-year prescriptive period.

Third Issue: Package Limitation

Assuming arguendo they are liable for respondent's claims,petitioners contend that their liability should be limitedto US$500 per package as provided in the Bill of Lading andby Section 4(5)52 of COGSA.53

On the other hand, respondent argues that Section 4(5) ofCOGSA is inapplicable, because the value of the subjectshipment was declared by petitioners beforehand, asevidenced by the reference to and the insertion of theLetter of Credit or "L/C No. 90/02447" in the said Bill ofLading.54

A bill of lading serves two functions. First, it is a receiptfor the goods shipped.53 Second, it is a contract by whichthree parties -- namely, the shipper, the carrier, and theconsignee -- undertake specific responsibilities and assumestipulated obligations.56 In a nutshell, the acceptance ofthe bill of lading by the shipper and the consignee, withfull knowledge of its contents, gives rise to thepresumption that it constituted a perfected and bindingcontract.57

Further, a stipulation in the bill of lading limiting to acertain sum the common carrier's liability for loss ordestruction of a cargo -- unless the shipper or ownerdeclares a greater value58 -- is sanctioned by law.59 Thereare, however, two conditions to be satisfied: (1) thecontract is reasonable and just under the circumstances,and (2) it has been fairly and freely agreed upon by theparties.60 The rationale for this rule is to bind theshippers by their agreement to the value (maximumvaluation) of their goods.61

It is to be noted, however, that the Civil Code does notlimit the liability of the common carrier to a fixed amount

per package.62 In all matters not regulated by the CivilCode, the right and the obligations of common carriersshall be governed by the Code of Commerce and speciallaws.63 Thus, the COGSA, which is suppletory to theprovisions of the Civil Code, supplements the latter byestablishing a statutory provision limiting the carrier'sliability in the absence of a shipper's declaration of ahigher value in the bill of lading.64 The provisions onlimited liability are as much a part of the bill of ladingas though physically in it and as though placed there byagreement of the parties.65

In the case before us, there was no stipulation in the Billof Lading66 limiting the carrier's liability. Neither didthe shipper declare a higher valuation of the goods to beshipped. This fact notwithstanding, the insertion of thewords "L/C No. 90/02447 cannot be the basis forpetitioners' liability.

First, a notation in the Bill of Lading which indicated theamount of the Letter of Credit obtained by the shipper forthe importation of steel sheets did not effect adeclaration of the value of the goods as required by thebill.67 That notation was made only for the convenience ofthe shipper and the bank processing the Letter of Credit.68

Second, in Keng Hua Paper Products v. Court of Appeals,69 we held thata bill of lading was separate from the Other Letter ofCredit arrangements. We ruled thus:

"(T)he contract of carriage, as stipulated in the bill oflading in the present case, must be treated independentlyof the contract of sale between the seller and the buyer,and the contract of issuance of a letter of credit betweenthe amount of goods described in the commercial invoice inthe contract of sale and the amount allowed in the letterof credit will not affect the validity and enforceabilityof the contract of carriage as embodied in the bill oflading. As the bank cannot be expected to look beyond thedocuments presented to it by the seller pursuant to theletter of credit, neither can the carrier be expected to go

beyond the representations of the shipper in the bill oflading and to verify their accuracy vis-à-vis the commercialinvoice and the letter of credit. Thus, the discrepancybetween the amount of goods indicated in the invoice andthe amount in the bill of lading cannot negate petitioner'sobligation to private respondent arising from the contractof transportation."70

In the light of the foregoing, petitioners' liabilityshould be computed based on US$500 per package and not onthe per metric ton price declared in the Letter of Credit.71

In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,72 weexplained the meaning of packages:

"When what would ordinarily be considered packages areshipped in a container supplied by the carrier and thenumber of such units is disclosed in the shippingdocuments, each of those units and not the containerconstitutes the 'package' referred to in the liabilitylimitation provision of Carriage of Goods by Sea Act."

Considering, therefore, the ruling in Eastern Shipping Lines andthe fact that the Bill of Lading clearly disclosed thecontents of the containers, the number of units, as well asthe nature of the steel sheets, the four damaged coilsshould be considered as the shipping unit subject to theUS$500 limitation.1âwphi1.nêt

WHEREFORE, the Petition is partly granted and the assailed DecisionMODIFIED. Petitioners' liability is reduced to US$2,000 plus interest atthe legal rate of six percent from the time of the filing of the Complainton July 25, 1991 until the finality of this Decision, and 12 percentthereafter until fully paid. No pronouncement as to costs.SO ORDERED.

G.R. No. 148496      March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENTCONTAINER TERMINAL SERVICES, INC., petitioner,

vs.UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co.,

Inc.) respondent.

This is a petition for review of the decision,1 dated May31, 2001, of the Court of Appeals, affirming the decision2

of the Regional Trial Court, Makati City, Branch 148, whichordered petitioner to pay respondent, as subrogee, theamount of P93,112.00 with legal interest, representing thevalue of damaged cargo handled by petitioner, 25% thereofas attorney's fees, and the cost of the suit.1âwphi1.nêt

The facts are as follows:

Petitioner Virgines Calvo is the owner of TransorientContainer Terminal Services, Inc. (TCTSI), a soleproprietorship customs broker. At the time material to thiscase, petitioner entered into a contract with San MiguelCorporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner boardfrom the Port Area in Manila to SMC's warehouse at theTabacalera Compound, Romualdez St., Ermita, Manila. Thecargo was insured by respondent UCPB General Insurance Co.,Inc.

On July 14, 1990, the shipment in question, contained in 30metal vans, arrived in Manila on board "M/V Hayakawa Maru"and, after 24 hours, were unloaded from the vessel to thecustody of the arrastre operator, Manila Port Services,Inc. From July 23 to July 25, 1990, petitioner, pursuant toher contract with SMC, withdrew the cargo from the arrastreoperator and delivered it to SMC's warehouse in Ermita,Manila. On July 25, 1990, the goods were inspected byMarine Cargo Surveyors, who found that 15 reels of thesemi-chemical fluting paper were "wet/stained/torn" and 3reels of kraft liner board were likewise torn. The damagewas placed at P93,112.00.

SMC collected payment from respondent UCPB under itsinsurance contract for the aforementioned amount. In turn,respondent, as subrogee of SMC, brought suit againstpetitioner in the Regional Trial Court, Branch 148, MakatiCity, which, on December 20, 1995, rendered judgmentfinding petitioner liable to respondent for the damage tothe shipment.

The trial court held:

It cannot be denied . . . that the subject cargoessustained damage while in the custody of defendants.Evidence such as the Warehouse Entry Slip (Exh. "E"); theDamage Report (Exh. "F") with entries appearing therein,classified as "TED" and "TSN", which the claims processor,Ms. Agrifina De Luna, claimed to be tearrage at the end andtearrage at the middle of the subject damaged cargoesrespectively, coupled with the Marine Cargo Survey Report(Exh. "H" - "H-4-A") confirms the fact of the damagedcondition of the subject cargoes. The surveyor[s'] report(Exh. "H-4-A") in particular, which provides among othersthat:

" . . . we opine that damages sustained by shipment isattributable to improper handling in transit presumablywhilst in the custody of the broker . . . ."

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough tosustain [her] defense that [she is] are not liable.Defendant by reason of the nature of [her] business shouldhave devised ways and means in order to prevent the damageto the cargoes which it is under obligation to take custodyof and to forthwith deliver to the consignee. Defendant didnot present any evidence on what precaution [she] performedto prevent [the] said incident, hence the presumption isthat the moment the defendant accepts the cargo [she] shallperform such extraordinary diligence because of the natureof the cargo.

. . . .

Generally speaking under Article 1735 of the Civil Code, ifthe goods are proved to have been lost, destroyed ordeteriorated, common carriers are presumed to have been atfault or to have acted negligently, unless they prove thatthey have observed the extraordinary diligence required bylaw. The burden of the plaintiff, therefore, is to prove

merely that the goods he transported have been lost,destroyed or deteriorated. Thereafter, the burden isshifted to the carrier to prove that he has exercised theextraordinary diligence required by law. Thus, it has beenheld that the mere proof of delivery of goods in good orderto a carrier, and of their arrival at the place ofdestination in bad order, makes out a prima facie caseagainst the carrier, so that if no explanation is given asto how the injury occurred, the carrier must be heldresponsible. It is incumbent upon the carrier to prove thatthe loss was due to accident or some other circumstancesinconsistent with its liability." (cited in Commercial Lawsof the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at thesame time a common carrier is supposed [to] exercise [the]extraordinary diligence required by law, hence theextraordinary responsibility lasts from the time the goodsare unconditionally placed in the possession of andreceived by the carrier for transportation until the sameare delivered actually or constructively by the carrier tothe consignee or to the person who has the right to receivethe same.3

Accordingly, the trial court ordered petitioner to pay thefollowing amounts --1. The sum of P93,112.00 plus interest; 2. 25% thereof as lawyer's fee;3. Costs of suit.4

The decision was affirmed by the Court of Appeals onappeal. Hence this petition for review on certiorari.

Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES,SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR INCLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE ORSPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5

It will be convenient to deal with these contentions in theinverse order, for if petitioner is not a common carrier,although both the trial court and the Court of Appeals heldotherwise, then she is indeed not liable beyond whatordinary diligence in the vigilance over the goodstransported by her, would require.6 Consequently, any damageto the cargo she agrees to transport cannot be presumed tohave been due to her fault or negligence.

Petitioner contends that contrary to the findings of thetrial court and the Court of Appeals, she is not a commoncarrier but a private carrier because, as a customs brokerand warehouseman, she does not indiscriminately hold herservices out to the public but only offers the same toselect parties with whom she may contract in the conduct ofher business.

The contention has no merit. In De Guzman v. Court of Appeals,7the Court dismissed a similar contention and held the partyto be a common carrier, thus -

The Civil Code defines "common carriers" in the followingterms:

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

The above article makes no distinction between one whoseprincipal business activity is the carrying of persons orgoods or both, and one who does such carrying only as anancillary activity . . . Article 1732 also carefully avoidsmaking any distinction between a person or enterpriseoffering transportation service on a regular or scheduled basisand one offering such service on an occasional, episodic orunscheduled basis. Neither does Article 1732 distinguish betweena carrier offering its services to the "general public," i.e.,the general community or population, and one who offersservices or solicits business only from a narrow segment of

the general population. We think that Article 1732deliberately refrained from making such distinctions.

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

" x x x every person that now or hereafter may own,operate, manage, or control in the Philippines, for hire orcompensation, with general or limited clientele, whether permanent,occasional or accidental, and done for general business purposes, any commoncarrier, railroad, street railway, traction railway, subwaymotor vehicle, either for freight or passenger, or both,with or without fixed route and whatever may be itsclassification, freight or carrier service of any class,express service, steamboat, or steamship line, pontines,ferries and water craft, engaged in the transportation ofpassengers or freight or both, shipyard, marine repairshop, wharf or dock, ice plant, ice-refrigeration plant,canal, irrigation system, gas, electric light, heat andpower, water supply and power petroleum, sewerage system,wire or wireless communications systems, wire or wirelessbroadcasting stations and other similar public services. xx x" 8

There is greater reason for holding petitioner to be acommon carrier because the transportation of goods is anintegral part of her business. To uphold petitioner'scontention would be to deprive those with whom shecontracts the protection which the law affords themnotwithstanding the fact that the obligation to carry goodsfor her customers, as already noted, is part and parcel ofpetitioner's business.

Now, as to petitioner's liability, Art. 1733 of the CivilCode provides:

Common carriers, from the nature of their business and forreasons of public policy, are bound to observeextraordinary diligence in the vigilance over the goods andfor the safety of the passengers transported by them,according to all the circumstances of each case. . . .

In Compania Maritima v. Court of Appeals,9 the meaning of"extraordinary diligence in the vigilance over goods" wasexplained thus:

The extraordinary diligence in the vigilance over the goodstendered for shipment requires the common carrier to knowand to follow the required precaution for avoiding damageto, or destruction of the goods entrusted to it for sale,carriage and delivery. It requires common carriers torender service with the greatest skill and foresight and"to use all reasonable means to ascertain the nature andcharacteristic of goods tendered for shipment, and toexercise due care in the handling and stowage, includingsuch methods as their nature requires."

In the case at bar, petitioner denies liability for thedamage to the cargo. She claims that the "spoilage orwettage" took place while the goods were in the custody ofeither the carrying vessel "M/V Hayakawa Maru," whichtransported the cargo to Manila, or the arrastre operator,to whom the goods were unloaded and who allegedly kept themin open air for nine days from July 14 to July 23, 1998notwithstanding the fact that some of the containers weredeformed, cracked, or otherwise damaged, as noted in theMarine Survey Report (Exh. H), to wit:

MAXU-2062880      -       rain gutterdeformed/cracked ICSU-363461-3      -       left side rubbergasket on door distorted/partly loosePERU-204209-4    -       with pinholes on roofpanel right portionTOLU-213674-3     -       wood flooring we[t]and/or with signs of water soakedMAXU-201406-0     -       with dent/crack onroof panel

ICSU-412105-0      -       rubber gasket onleft side/door panel partly detached loosened.10

In addition, petitioner claims that Marine Cargo SurveyorErnesto Tolentino testified that he has no personalknowledge on whether the container vans were first storedin petitioner's warehouse prior to their delivery to theconsignee. She likewise claims that after withdrawing thecontainer vans from the arrastre operator, her driver,Ricardo Nazarro, immediately delivered the cargo to SMC'swarehouse in Ermita, Manila, which is a mere thirty-minutedrive from the Port Area where the cargo came from. Thus,the damage to the cargo could not have taken place whilethese were in her custody.11

Contrary to petitioner's assertion, the Survey Report (Exh.H) of the Marine Cargo Surveyors indicates that when theshipper transferred the cargo in question to the arrastreoperator, these were covered by clean Equipment InterchangeReport (EIR) and, when petitioner's employees withdrew thecargo from the arrastre operator, they did so withoutexception or protest either with regard to the condition ofcontainer vans or their contents. The Survey Reportpertinently reads Details of Discharge:

Shipment, provided with our protective supervision wasnoted discharged ex vessel to dock of Pier #13 SouthHarbor, Manila on 14 July 1990, containerized onto 30' x20' secure metal vans, covered by clean EIRs. Except forslight dents and paint scratches on side and roof panels,these containers were deemed to have [been] received ingood condition.

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30' x 20' cargocontainers was [withdrawn] by Transorient ContainerServices, Inc. . . . without exception .

[The cargo] was finally delivered to the consignee'sstorage warehouse located at Tabacalera Compound, RomualdezStreet, Ermita, Manila from July 23/25, 1990.12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipmentwas discharged from the vessel to the arrastre, Marina PortServices Inc., in good order and condition as evidenced byclean Equipment Interchange Reports (EIRs). Had there beenany damage to the shipment, there would have been a reportto that effect made by the arrastre operator. The cargoeswere withdrawn by the defendant-appellant from the arrastrestill in good order and condition as the same were receivedby the former without exception, that is, without anyreport of damage or loss. Surely, if the container vanswere deformed, cracked, distorted or dented, the defendant-appellant would report it immediately to the consignee ormake an exception on the delivery receipt or note the samein the Warehouse Entry Slip (WES). None of these tookplace. To put it simply, the defendant-appellant receivedthe shipment in good order and condition and delivered thesame to the consignee damaged. We can only conclude thatthe damages to the cargo occurred while it was in thepossession of the defendant-appellant. Whenever the thingis lost (or damaged) in the possession of the debtor (orobligor), it shall be presumed that the loss (or damage)was due to his fault, unless there is proof to thecontrary. No proof was proffered to rebut this legalpresumption and the presumption of negligence attached to acommon carrier in case of loss or damage to the goods.13

Anent petitioner's insistence that the cargo could not havebeen damaged while in her custody as she immediatelydelivered the containers to SMC's compound, suffice it tosay that to prove the exercise of extraordinary diligence,petitioner must do more than merely show the possibilitythat some other party could be responsible for the damage.It must prove that it used "all reasonable means toascertain the nature and characteristic of goods tendered

for [transport] and that [it] exercise[d] due care in thehandling [thereof]." Petitioner failed to do this.

Nor is there basis to exempt petitioner from liabilityunder Art. 1734(4), which provides --

Common carriers are responsible for the loss, destruction,or deterioration of the goods, unless the same is due toany of the following causes only:

(4) The character of the goods or defects in the packingor in the containers.

For this provision to apply, the rule is that if theimproper packing or, in this case, the defect/s in thecontainer, is/are known to the carrier or his employees orapparent upon ordinary observation, but he neverthelessaccepts the same without protest or exceptionnotwithstanding such condition, he is not relieved ofliability for damage resulting therefrom.14 In this case,petitioner accepted the cargo without exception despite theapparent defects in some of the container vans. Hence, forfailure of petitioner to prove that she exercisedextraordinary diligence in the carriage of goods in thiscase or that she is exempt from liability, the presumptionof negligence as provided under Art. 173515 holds.

WHEREFORE, the decision of the Court of Appeals, dated May31, 2001, is AFFIRMED.1âwphi1.nêtSO ORDERED.