B. COMMON CARRIERS (Arts. 1731 to 1766 NCC)1. Definitions of “domestic shipping” under R.A. No. 9295 and of “public service” under Commonwealth Act No. 1462. Common Carriage

PEDRO DE GUZMAN vs.COURT OF APPEALS and ERNESTO CENDANA

FACTS:

Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan, and bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. He charged freight rates which were commonly lower than regular commercial rates for the cargo loaded in his vehicle.

Pedro de Guzman a merchant and authorized dealer of General Milk Company contracted with Cendana for the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal. 150 cartons were loaded on a truck driven by Cendana himself, while 600 cartons were placed on board the other truck which was driven by Manuel Estrada, Cendana’s driver and employee. The other 600 boxes never reached de Guzman, since the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the cargo. Having failed to exercise the extraordinary diligence required of him by the law, he is held liable for the value of the undelivered goods. Cendana denied that he was a common carrier and argued that he could not be held responsible for the value of the lost goods, such loss having been due to force majeure.

ISSUE:

Whether or not Ernesto Cendana may, under the facts earlier set forth, be properly characterized as a common carrier?

Whether or not high jacking with robbery can be properly regarded as a fortuitous event that can exempt the carrier?

HELD:

The trial court rendered a Decision finding private respondent to be a common carrier and holding him liable for the value of the undelivered goods as damages and as attorney's fees. The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting return loads of freight "as a casual occupation — a sideline to his scrap iron business" and not as a common carrier.

Liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements.

Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration of the goods which they carry, "unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity;(2) Act of the public enemy in war, whether international or civil;(3) Act or omission of the shipper or owner of the goods;(4) The character-of the goods or defects in the packing or-in the containers; and(5) Order or act of competent public authority.

The above list of causes of loss, destruction or deterioration which exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows: In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)

The limits of the duty of extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a robbery which is attended by "grave or irresistible threat, violence or force." In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo.

The occurrence of the loss must reasonably be regarded as quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary diligence.

Cendana is not liable for the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's control. Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

First Philippine Industrial Corporation vs. Court of AppealsG.R. No. 125948 December 29, 1998

Facts:

Petitioner, First Phil. Industrial Corporation (FirstPhil for brevity) is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines. FirstPhil applied for a mayor's permit, but before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax pursuant to the Local Government Code. Petitioner filed a letter-protest addressed to the respondent City Treasurer, but the latter denied the same contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code.

FirstPhil filed with the RTC Batangas a complaint for tax refund with prayer for writ of preliminary injunction against respondents, contending that the imposition of tax upon them violates Sec 133 of the Local Government Code. On the other hand, respondents assert that pipelines are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by which a product is delivered to its destination.RTC dismissed the complaint, ruling that exemption granted under Sec. 133 (j) encompasses only "common carriers" so as not to overburden the riding public or commuters with taxes. And that petitioner is not a common carrier, but a special carrier extending its services and facilities to a single specific or "special customer" under a "special contract."

The case was elevated by the petitioner to the CA, but CA affirmed the decision of the RTC. Hence this petition.

Issue:

WON the petitioner is a "common carrier" and, therefore, exempt from the business taxc

Held: Petition was granted. CA decision was REVERSED and SET ASIDE.

SC ruled in this case that petitioner is a common carrier and thus, exempt from business tax.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." The test for determining whether a party is a common carrier of goods is:1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;2. He must undertake to carry goods of the kind to which his business is confined;3. He must undertake to carry by the method by which his business is conducted and over his established roads; and4. The transportation must be for hire.

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier.

The definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers.

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier.", and at the same time, said act also regards petroleum operation as a public utility. BIR likewise considers the petitioner a "common carrier." In so ruling, it held that, since petitioner is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387. Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended.

Section 133 (j), of the Local Government Code, provides:Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.

SC held that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."

CALVO VS. UCPB GENERAL INSURANCE TERMINAL SERVICE, INC.G.R. No. 148496. March 19, 2002Facts:A contract was entered into between Calvo and San Miguel Corporation (SMC) for the transfer of certain cargoes from theport area in Manila to the warehouse of SMC. The cargo was insured by UCPB General Insurance Co., Inc. When theshipment arrived and unloaded from the vessel, Calvo withdrew the cargo from the arrastre operator and delivered thesame to SMC·s warehouse. When it was inspected, it was found out that some of the goods were torn. UCPB, being theinsurer, paid for the amount of the damages and as subrogee thereafter, filed a suit against Calvo.Petitioner, on the other hand, contends that it is a private carrier not required to observe such extraordinary diligence in thevigilance over the goods.As customs broker, she does not indiscriminately hold her services out to the public but only to selected parties.Issue:Whether or not Calvo is a common carrier liable for the damages for failure to observe extraordinary diligence in thevigilance over the goods.Held:The contention has no merit. In De Guzman v. Court of Appeals, the Court dismissed a similar contention and held the partyto be a common carrier, thus -The Civil Code defines "common carriers" in the following terms:"Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public."The law makes no distinction between a carrier offering its services to the general community or solicits business only from anarrow segment of the general population. Note that the transportation of goods holds an integral part of Calvo·s business,it cannot indeed be doubted that it is a common carrier

A.F. SANCHEZ BROKERAGE vs CA Case Digest

A.F. SANCHEZ BROKERAGE INC., v. THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION 447 SCRA 427 (2004), THIRD DIVISION (Carpio Morales, J.)

A common carrier is liable to the resulting damage to the goods if the improper packaging is known to the carrier or his employees or is apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception.

FACTS: Respondent FGU Insurance Corporation (FGU) brought an action for reimbursement against petitioner A.F. Sanchez Brokerage Inc. (Sanchez Brokerage) to collect the amount paid by the former to Wyeth-Suaco Laboratories Inc. (Wyeth-Suaco) as insurance payment for the goods delivered in bad condition.

A.F. Brokerage refused to admit liability for the damaged goods which it delivered from Philippines Skylanders, Inc. (PSI) to Wyeth-Suaco as it maintained that the damage was due to improper and insufficient export packaging, discovered when the sealed containers were opened outside the PSI warehouse.

The Regional Trial Court of Makati dismissed the said complaint; however, the decision was subsequently reversed and set aside by the Court of Appeals, finding that Sanchez Brokerage is liable for the carriage of cargo as a ―common carrier‖ by definition of the New Civil Code.

ISSUE: Whether or not the FGU Insurance is liable for the delivery of the damaged goods

HELD: As defined under Article 1732 of the Civil Code, common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both by land, water or air for compensation, offering their services to the public. It does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as an ancillary activity. The contention therefore of Sanchez Brokerage that it is not a common carrier but a customs broker whose principal function is to prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.

In this light, Sanchez Brokerage as a common carrier is mandated to observe, under Article 1733 of the Civil Code, extraordinary diligence in the vigilance over the goods it transports according to all the circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence.

The concept of ―extra-ordinary diligence‖ was explained in Compania Maritima v. Court of Appeals. The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding damage to or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and ―to use all reasonable means to ascertain the nature and

characteristics of goods tendered for shipment and to exercise due care in the handling and storage including such methods as their nature requires.

It was established that Sanchez Brokerage received the cargoes from the PSI warehouse in good order and condition and that upon delivery by petitioner some of the cargoes were found to be in bad order as noted in the Delivery Receipt and as indicated in the Survey and Destruction Report.

While paragraph no. 4 of Article 1734 of the Civil Code exempts a common carrier from liability if the loss or damage is due to the character of the goods or defects in the packaging or in the containers, the rule is that if the improper packaging is known to the carrier or his employees or is apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of liability for the resulting damage. If the claim of Sanchez Brokerage that some of the cartons were already damaged upon delivery to it were true, then it should naturally have received the cargo under protest or with reservation duly noted on the receipt issued by PSI but it made no such protest or reservation.

Schmitz Transport and Brokerage Corp v Transort Venture Inc., GR 150255 April 22,2005

Facts:

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board M/V “Alexander Saveliev” 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons. The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant Steel Pipe Corporation (Little Giant), were insured against all risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS. The vessel arrived at the port of Manila and the Philippine Ports Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila South Harbor.

Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive the cargoes from the shipside, and to deliver them to its (the consignee’s) warehouse at Cainta, Rizal, in turn engaged the services of TVI to send a barge and tugboat at shipside. TVI’s tugboat “Lailani” towed the barge “Erika V” to shipside. The tugboat, after positioning the barge alongside the vessel, left and returned to the port terminal. Arrastre operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the barge. By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an approaching storm, the unloading unto the barge of the 37 coils was accomplished. No tugboat pulled the barge back to the pier, however. At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the barge abandoned it and transferred to the vessel. The barge pitched and rolled with the waves and eventually capsized, washing the 37 coils into the sea. Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of P5,246,113.11. Little Giant thereupon executed a subrogation receipt in favor of Industrial Insurance. Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its representative Inchcape (the defendants) before the RTC of Manila, they faulted the defendants for undertaking the unloading of the cargoes while typhoon signal No. 1 was raised. The RTC held all the defendants negligent. Defendants Schmitz Transport and TVI filed a joint motion for reconsideration assailing the finding that they are common carriers. RTC denied the motion for reconsideration. CA affirmed the RTC decision in toto, finding that all the defendants were common carriers — Black Sea and TVI for engaging in the transport of goods and cargoes over the seas as a regular business and not as an isolated transaction, and Schmitz Transport for entering into a contract with Little Giant to transport the cargoes from ship to port for a fee.

Issue:

Whether or not Black Sea and TVI are common carriers

Held :

Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a common carrier. For it undertook to transport the cargoes from the shipside of “M/V Alexander Saveliev” to the consignee’s warehouse at Cainta, Rizal. As the appellate court put it, “as long as a

person or corporation holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is already considered a common carrier regardless if [it] owns the vehicle to be used or has to hire one.” That petitioner is a common carrier, the testimony of its own Vice-President and General Manager Noel Aro that part of the services it offers to its clients as a brokerage firm includes the transportation of cargoes reflects so.

It is settled that under a given set of facts, a customs broker may be regarded as a common carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals,[44] held:The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under Article 1732 of the Civil Code, to wit,Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.x x xArticle 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier but a customs broker whose principal function is to prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.

And in Calvo v. UCPB General Insurance Co. Inc.,[46] this Court held that as the transportation of goods is an integral part of a customs broker, the customs broker is also a common carrier. For to declare otherwise “would be to deprive those with whom [it] contracts the protection which the law affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of petitioner’s business.”

PHIL CHARTER vs. M/V "NATIONAL HONOR,"[G.R. No. 161833. July 8, 2005.]

FACTS:

On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts and accessories on board the vessel M/V "National Honor," represented in the Philippines by its agent, National Shipping Corporation of the Philippines (NSCP). The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2, complete and in good order condition. Crate No. 1 contained the following articles: one (1) unit Lathe Machine complete with parts and accessories; one (1) unit Surface Grinder complete with parts and accessories; and one (1) unit Milling Machine complete with parts and accessories. On the flooring of the wooden crates were three wooden battens placed side by side to support the weight of the cargo. It was insured for P2,547,270.00 with the Philippine Charter Insurance Corporation (PCIC).

The M/V "National Honor" arrived at the Manila International Container Terminal (MICT). The International Container Terminal Services, Incorporated (ICTSI) was the exclusive arrastre operator of MICT and was charged with discharging the cargoes from the vessel. Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each end of Crate No. 1. No sling cable was fastened on the mid-portion of the crate. As the crate was being hoisted from the vessel's hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from the vessel's twin deck, sending all its contents crashing down hard, resulting in extensive damage to the shipment.

Blue Mono International Company, Incorporated (BMICI) subsequently filed separate claims against the NSCP, the ICTSI, and its insurer, the PCIC, for US$61,500.00. When the other companies denied liability, PCIC paid the claim and was issued a Subrogation Receipt for P1,740,634.50. On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila a Complaint for Damages against the "Unknown owner of the vessel M/V National Honor," NSCP and ICTSI, as defendants. ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-defendant NSCP, claiming that the loss/damage of the shipment was caused exclusively by the defective material of the wooden battens of the shipment, insufficient packing or acts of the shipper.

The trial court rendered judgment for PCIC and ordered the complaint dismissed. According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the internal defect and weakness of the materials used in the fabrication of the crates. The CA affirmed in TOTO the decision of the RTC.

ISSUE:

WHETHER OR NOT THE COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY THE SHIPMENT IN THE HANDS OF THE ARRASTRE OPERATOR.

HELD: THE RULING OF THE RTC AND CA WAS UPHELD.

The petitioner posits that the loss/damage was caused by the mishandling of the shipment by therein respondent ICTSI, the arrastre operator, and not by its negligence. The petition has no merit.

We agree with the contention of the petitioner that common carriers, from the nature of their business and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance over the goods according to all the circumstances of each case. The extraordinary diligence in the vigilance over the goods requires common carriers to render service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires." When the goods shipped are either lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable. However, under Article 1734 of the New Civil Code, the presumption of negligence does not apply to any of the following causes:1. Flood, storm, earthquake, lightning or other natural disaster or calamity; 2. Act of the public enemy in war, whether international or civil;3. Act or omission of the shipper or owner of the goods;4. The character of the goods or defects in the packing or in the containers;5. Order or act of competent public authority.

It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts the common carrier for the loss or damage to the cargo is a closed list. Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing in the record which would indicate that defendant ICTSI had any role in the choice of the materials used in fabricating this crate. Said defendant, therefore, cannot be held as blame worthy for the loss of the machineries contained in Crate No. 1. The CA affirmed the ruling of the RTC, thus:“The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code, particularly number (4) thereof, i.e., the character of the goods or defects in the packing or in the containers. The trial court found that the breakage of the crate was not due to the fault or negligence of ICTSI, but to the inherent defect and weakness of the materials used in the fabrication of the said crate.”

Upon examination of the records, We find no compelling reason to depart from the factual findings of the trial court. It appears that the wooden batten used as support for the flooring was not made of good materials, which caused the middle portion thereof to give way when it was lifted. The shipper also failed to indicate signs to notify the stevedores that extra care should be employed in handling the shipment. Appellant's allegation that since the cargo arrived safely from the port of [P]usan, Korea without defect, the fault should be attributed to the arrastre operator who mishandled the cargo; is without merit. The cargo fell while it was being carried only at about five (5) feet high above the ground. It would not have so easily collapsed had the cargo been properly packed. The shipper should have used materials of stronger quality to support the heavy machines. Not only did the shipper fail to properly pack the cargo, it also failed to indicate an arrow in the middle portion of the cargo where additional slings should be attached.

While it is true that the crate contained machineries and spare parts, it cannot thereby be concluded that the respondents knew or should have known that the middle wooden batten had a hole, or that it was not strong enough to bear the weight of the shipment. The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that such statement will create a prima facie presumption only as to the external condition and not to that not open to inspection.

LEA MER INDUSTRIES INC VS MALAYAN INSURANCE CO, INC.GR No. 161745, SEPTEMBER 30, 2005

FACTS:

Ilian Silica Mining entered into a contract of carriage with the petitioner, Lea Mer Industries Inc. for the shipment of 900 metric tons of silica sand worth P565,000. The cargo was consigned to Vulcan Industrial and Mining Corporation and was to be shipped from Palawan to Manila. The silica sand was boarded to Judy VII, the vessel leased by Lea Mer. However, during the course of its voyage, the vessel sank which led to the loss of the cargo.

Consequently, the respondent, as the insurer, paid Vulcan the value of the lost cargo. Malayan Insurance Co., Inc. then collected from the petitioner the amount it paid to Vulcan as reimbursement and as its exercise on the right of subrogation. Lea Mer refused to pay which led Malayan to institute a complaint with the RTC. The RTC dismissed the complaint stating that the loss was due to a fortuitous event, Typhoon Trining. Petitioner did not know that a typhoon was coming and that it has been cleared by the Philippine Coast Guard to travel from Palawan to Manila. The CA reversed the ruling of the trial court for the reason that said vessel was not seaworthy when it sailed to Manila.

ISSUE: Whether or not the petitioner is liable for the loss of the cargo.

HELD:

CA reversed. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods, or both — by land, water, or air — when this service is offered to the public for compensation. Petitioner is clearly a common carrier, because it offers to the public its business of transporting goods through its vessels. Thus, the Court corrects the trial court's finding that petitioner became a private carrier when Vulcan chartered it. Charter parties are classified as contracts of demise (or bareboat) and affreightment, which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish possession, command and navigation thereof to the charterer; anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all."

The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is private in character. Consequently, the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers. The Contract in the present case was one of affreightment, as shown by the fact that it was petitioner's crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the passengers they transport, as required by the nature of their business and for reasons of public policy. Extraordinary diligence requires rendering service with the greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery.

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods that they have transported. This presumption can be rebutted only by proof that they observed extraordinary diligence, or that the loss or damage was occasioned by any of the following causes: "(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;"(2) Act of the public enemy in war, whether international or civil;"(3) Act or omission of the shipper or owner of the goods;"(4) The character of the goods or defects in the packing or in the containers;"(5) Order or act of competent public authority."

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtors to comply with their obligations, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor. To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and only cause of the loss. Moreover, it should have exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the fortuitous event. As required by the pertinent law, it was not enough for the common carrier to show that there was an unforeseen or unexpected occurrence. It had to show that it was free from any fault — a fact it miserably failed to prove.

Cebu Salvage Corporation (CSC) vs Philippine Home Assurance Corp., (PHAC)G.R. No. 150403January 25, 2007

FACTS:On November 12, 1984, CSC & Maria Christina Chemicals Industries, Inc., (MCCII) entered into a voyage charter wherein CSC was to load 800-1,100 metric tons of silica quartz on board the M/T Espiritu Santo at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis Oriental to consigned Ferrochrome Phil’s., Inc. Pursuant to the contract, on December 23, 1984, CSC received & loaded 1,100 metric tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next day.However, the shipment never reached its destination because the M/T Espiritu Santo sank in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting in the total loss of the cargo.MCCII filed a claim for the loss of the shipment with its insurer, PHAC. PHAC paid the claim in the amount of P211,500 and was surrogated to MCCII’s rights. It thereafter filed a case in the RTC against CSC for reimbursement of the amount it paid MCCII.However, CSC claims no liability insisting that the agreement was merely a contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises. Not being the owner of the M/T Espiritu Santo, petitioner did not have control over the vessel, it’s master & crew. Thus, it could not allegedly be held liable for the loss of the shipment caused by the sinking of a ship it didn’t own.

ISSUES:1. Whether there is a contract of carriage between CSC and MCCII.2. Whether CSC is a common carrier despite not being the owner of the vessel it used.3. Whether the bill of lading should prevail over the voyage charter as the contract of carriage between the parties.4. Whether MCCII should be held liable for its own loss5. Whether a carrier that enters into a contract of carriage is not liable to the charterer/shipper if it does not own the vessel it chooses to use.

HELD:1. Yes. The cargo was loaded on board the vessel; loss/non-delivery of the cargo was proven; and petitioner failed to prove that it exercised extraordinary diligence to prevent such loss or that it was due to some casualty or force majeure. The voyage charter here being a contract of affreightment, the carrier was answerable for the loss of the goods received for transportation.

2. CSC was the one which contracted with MCCII for the transport of the cargo. It had control over what vessel it would use. All throughout its dealings with MCCII, it represented itself as a common carrier. The fact that it did not own the vessel it decided to use to consummate the contract of carriage did not negate its character & duties as a common carrier. The MCCII could not be reasonably expected to inquire about the ownership of the vessels which petitioner carrier offered to utilize. It is very difficult &

often impossible for the general public to enforce its rights of action under a contract of carriage if it should be required to know who the actual owner of the vehicle is. In this case, the voyage charter itself denominated the petitioner as the “owner/operator” of the vessel.

3. No. The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had been received for transportation. It was not signed by MCCII, as in fact it was simply signed by the supercargo of ALS. This is consistent with the fact that MCCII did not contract directly with ALS. While it is true that a bill of lading may serve as the contract of carriage between the parties, it cannot prevail over the express provision of the voyage charter that MCCII and petitioner executed.

4. No. It deserves scant consideration that the voyage charter stipulated that cargo insurance was for the charterer’s account. This meant that the charterer would take care of having the goods insured. It could not exculpate the carrier from liability for the breach of its contract of carriage. The law prohibits it and condemns it as unjust & contrary to public policy.

5. The idea proposed by CSC is preposterous & dangerous. MCCII never dealt with ALS and yet petitioner insists that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common carrier to escape its responsibility for the goods it agreed to transport (by expedient of alleging non-ownership of the vessel it employed) would radically derogate from the carrier’s duty of extraordinary diligence. It would also open the door to collusion between the carrier & the supposed owner and to the possible shifting of liability from the carrier to one without any financial capability to answer for the resulting damages.

G.R. No. 186312 June 29, 2010SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners, vs.SUN HOLIDAYS, INC., Respondent.

Facts: Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned and operated by respondent.On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners’ son and his wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas.Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward to the front, leaving the wheel to one of the crew members.The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B Coco Beach III capsized putting all passengers underwater. The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain, Matute and the other passengers who reached the surface asked him what they could do to save the people who were still trapped under the boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four crew members, who were brought to Pisa Island. Eight passengers, including petitioners’ son and his wife, died during the incident.

Issue: Whether or not respondent is a common carrier.

Held: The Civil Code defines "common carriers" in the following terms:Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions.Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly considered ancillary thereto. The constancy of respondent’s ferry services in its resort

operations is underscored by its having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be availed of by anyone who can afford to pay the same. These services are thus available to the public.That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators offering tour packages to factor the transportation fee in arriving at the tour package price. That guests who opt not to avail of respondent’s ferry services pay the same amount is likewise inconsequential. These guests may only be deemed to have overpaid.