TRANSPORTATION LAW

Code of Commerce
1.

Keng Hua Paper vs CA

2.

Magellan vs CA

3.

Maersk vs CA

4.

Assurance

5.

Samar Mining vs Nordeutsscher Lloyd

6.

US Lines vs

7.

Caltex vs Sulpicio Lines

8.

Fortune Express vs CA

202 S 564

159 S 189

G.R. No. 116863 February 12, 1998

KENG HUA PAPER PRODUCTS CO. INC., petitioner,
vs.
COURT OF APPEALS; REGIONAL TRIAL COURT OF
MANILA, BR. 21; and SEA-LAND SERVICE,
INC.,respondents.

PANGANIBAN, J.:
What is the nature of a bill of lading?
When does a bill of lading become binding on a consignee?
Will an alleged overshipment justify the consignee's refusal to
receive the goods described in the bill of lading?
When may interest be computed on unpaid demurrage charges?
Statement of the Case
These are the main questions raised in this petition assailing the
Decision 1 of the Court of Appeals 2 promulgated on May 20,
1994 in C.A.-G.R. CV No. 29953 affirming in toto the
decision 3 dated September 28, 1990 in Civil Case No. 85-33269
of the Regional Trial Court of Manila, Branch 21. The dispositive
portion of the said RTC decision reads:
WHEREFORE, the Court finds by
preponderance of evidence that Plaintiff has
proved its cause of action and right to relief.
Accordingly, judgment is hereby rendered in
favor of the Plaintiff and against Defendant,
ordering the Defendant to pay plaintiff:
1. The sum of P67,340.00 as demurrage
charges, with interest at the legal rate from
the date of the extrajudicial demand until fully
paid;
2. A sum equivalent to ten (10%) percent of
the total amount due as Attorney's fees and
litigation expenses.

On July 9, 1982, the shipment was discharged

at the Manila International Container Port.
Notices of arrival were transmitted to the
defendant but the latter failed to discharge
the shipment from the container during the
"free time" period or grace period. The said
shipment remained inside the plaintiff's
container from the moment the free time
period expired on July 29, 1982 until the time
when the shipment was unloaded from the
container on November 22, 1983, or a total of
four hundred eighty-one (481) days. During
the 481-day period, demurrage charges
accrued. Within the same period, letters
demanding payment were sent by the plaintiff
to the defendant who, however, refused to
settle its obligation which eventually
amounted to P67,340.00. Numerous demands
were made on the defendant but the
obligation remained unpaid. Plaintiff thereafter
commenced this civil action for collection and
damages.
In its answer, defendant, by way of special and
affirmative defense, alleged that it purchased
fifty (50) tons of waste paper from the shipper
in Hong Kong, Ho Kee Waste Paper, as
manifested in Letter of Credit No. 824858
(Exh. 7. p. 110. Original Record) issued by
Equitable Banking Corporation, with partial
shipment permitted; that under the letter of
credit, the remaining balance of the shipment
was only ten (10) metric tons as shown in
Invoice No. H-15/82 (Exh. 8, p. 111, Original
Record); that the shipment plaintiff was asking
defendant to accept was twenty (20) metric
tons which is ten (10) metric tons more than
the remaining balance; that if defendant were
to accept the shipment, it would be violating
Central Bank rules and regulations and custom
and tariff laws; that plaintiff had no cause of
action against the defendant because the
latter did not hire the former to carry the
merchandise; that the cause of action should
be against the shipper which contracted the
plaintiff's services and not against defendant;
and that the defendant duly notified the
plaintiff about the wrong shipment through a
letter dated January 24, 1983 (Exh. D for
plaintiff, Exh. 4 for defendant, p. 5. Folder of
Exhibits).
As previously mentioned, the RTC found petitioner liable for
demurrage; attorney's fees and expenses of litigation. The
petitioner appealed to the Court of Appeals, arguing that the
lower court erred in (1) awarding the sum of P67,340 in favor of
the private respondent, (2) rejecting petitioner's contention that
there was overshipment, (3) ruling that petitioner's recourse
was against the shipper, and (4) computing legal interest from
date of extrajudicial demand. 5
Respondent Court of Appeals denied the appeal and affirmed
the lower court's decision in toto. In a subsequent resolution, 6 it
also denied the petitioner's motion for reconsideration.
Hence, this petition for review. 7

Send copy to respective counsel of the parties.

The Issues
SO ORDERED. 4
In its memorandum, petitioner submits the following issues:
The Facts
The factual antecedents of this case as found by the Court of
Appeals are as follows:
Plaintiff (herein private respondent), a
shipping company, is a foreign corporation
licensed to do business in the Philippines. On
June 29, 1982, plaintiff received at its Hong
Kong terminal a sealed container, Container
No. SEAU 67523, containing seventy-six bales
of "unsorted waste paper" for shipment to
defendant (herein petitioner), Keng Hua Paper
Products, Co. in Manila. A bill of lading (Exh. A)
to cover the shipment was issued by the
plaintiff.

I. Whether or not petitioner

had accepted the bill of
lading;
II. Whether or not the award
of the sum of P67,340.00 to
private respondent was
proper;
III. Whether or not petitioner
was correct in not accepting
the overshipment;
IV. Whether or not the award
of legal interest from the

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date of private respondent's
extrajudicial demand was
proper; 8
In the main, the case revolves around the question of whether
petitioner bound by the bill of lading. We shall, thus, discuss the
above four issues as they intertwine with this main question.
The Court's Ruling
The petition is partly meritorious. We affirm petitioner's liability
for demurrage, but modify the interest rate thereon.
Main Issue: Liability Under the Bill of Lading
A bill of lading serves two functions. First, it is a receipt for the
goods shipped. Second, it is a contract by which three parties,
namely, the shipper, the carrier, and the consignee undertake
specific responsibilities and assume stipulated obligations. 9 A
"bill of lading delivered and accepted constitutes the contract of
carriage even though not signed," 10 because the "(a)cceptance
of a paper containing the terms of a proposed contract generally
constitutes an acceptance of the contract and of all of its terms
and conditions of which the acceptor has actual or constructive
notice." 11 In a nutshell, the acceptance of a bill of lading by the
shipper and the consignee, with full knowledge of its contents,
gives rise to the presumption that the same was a perfected and
binding contract. 12
In the case at bar, both lower courts held that the bill of lading
was a valid and perfected contract between the shipper (Ho
Kee), the consignee (Petitioner Keng Hua), and the carrier
(Private Respondent Sea-Land). Section 17 of the bill of lading
provided that the shipper and the consignee were liable for the
payment of demurrage charges for the failure to discharge the
containerized shipment beyond the grace period allowed by
tariff rules. Applying said stipulation, both lower courts found
petitioner liable. The aforementioned section of the bill of lading
reads:
17. COOPERAGE FINES. The shipper and consignee shall be
liable for, indemnify the carrier and ship and hold them
harmless against, and the carrier shall have a lien on the goods
for, all expenses and charges for mending cooperage, baling,
repairing or reconditioning the goods, or the van, trailers or
containers, and all expenses incurred in protecting, caring for or
otherwise made for the benefit of the goods, whether the goods
be damaged or not, and for any payment, expense, penalty fine,
dues, duty, tax or impost, loss, damage, detention, demurrage,
or liability of whatsoever nature, sustained or incurred by or
levied upon the carrier or the ship in connection with the goods
or by reason of the goods being or having been on board, or
because of shipper's failure to procure consular or other proper
permits, certificates or any papers that may be required at any
port or place or shipper's failure to supply information or
otherwise to comply with all laws, regulations and requirements
of law in connection with the goods of from any other act or
omission of the shipper or consignee: (Emphasis supplied.)
Petitioner contends, however, that it should not be bound by the
bill of lading because it never gave its consent thereto. Although
petitioner admits "physical acceptance" of the bill of lading, it
argues that its subsequent actions belie the finding that it
accepted the terms and conditions printed therein. 13 Petitioner
cites as support the "Notice of Refused or On Hand Freight" it
received on November 2, 1982 from private respondent, which
acknowledged that petitioner declined to accept the shipment.
Petitioner adds that it sent a copy of the said notice to the
shipper on December 23, 1982. Petitioner points to its January
24, 1983 letter to the private respondent, stressing "that its
acceptance of the bill of lading would be tantamount to an act of
smuggling as the amount it had imported (with full documentary
support) was only (at that time) for 10,000 kilograms and not for
20,313 kilograms as stated in the bill of lading" and "could lay
them vulnerable to legal sanctions for violation of customs and
tariff as well as Central Bank laws." 14 Petitioner further argues
that the demurrage "was a consequence of the shipper's
mistake" of shipping more than what was bought. The
discrepancy in the amount of waste paper it actually purchased,
as reflected in the invoice vis-a-vis the excess amount in the bill
of lading, allegedly justifies its refusal to accept the shipment. 15
Petitioner Bound by
the Bill of Lading

We are not persuaded. Petitioner admits that it "received the bill

of lading immediately after the arrival of the shipment" 16 on July
8, 1982. 17 Having been afforded an opportunity to examine the
said document, petitioner did not immediately object to or
dissent from any term or stipulation therein. It was only six
months later, on January 24, 1983, that petitioner sent a letter
to private respondent saying that it could not accept the
shipment. Petitioner's inaction for such a long period conveys
the clear inference that it accepted the terms and conditions of
the bill of lading. Moreover, said letter spoke only of petitioner's
inability to use the delivery permit, i.e. to pick up the cargo, due
to the shipper's failure to comply with the terms and conditions
of the letter of credit, for which reason the bill of lading and
other shipping documents were returned by the "banks" to the
shipper. 18 The letter merely proved petitioner's refusal to pick
up the cargo, not its rejection of the bill of lading.
Petitioner's reliance on the Notice of Refused or On Hand
Freight, as proof of its nonacceptance of the bill of lading, is of
no consequence. Said notice was not written by petitioner; it
was sent by private respondent to petitioner in November 1982,
or four months after petitioner received the bill of lading. If the
notice has any legal significance at all, it is to highlight
petitioner's prolonged failure to object to the bill of lading.
Contrary to petitioner's contention, the notice and the letter
support not belie the findings of the two lower courts that
the bill of lading was impliedly accepted by petitioner.
As aptly stated by Respondent Court of Appeals:
In the instant case, (herein petitioner) cannot and did not allege
non-receipt of its copy of the bill of lading from the shipper.
Hence, the terms and conditions as well as the various entries
contained therein were brought to its knowledge. (Herein
petitioner) accepted the bill of lading without interposing any
objection as to its contents. This raises the presumption that
(herein petitioner) agreed to the entries and stipulations
imposed therein.
Moreover, it is puzzling that (herein petitioner) allowed months
to pass, six (6) months to be exact, before notifying (herein
private respondent) of the "wrong shipment". It was only on
January 24, 1983 that (herein petitioner) sent (herein private
respondent) such a letter of notification (Exh D for plaintiff, Exh.
4 for defendant; p. 5, Folder of Exhibits). Thus, for the duration
of those six months (herein private respondent never knew the
reason for (herein petitioner's) refusal to discharge the
shipment.
After accepting the bill of lading, receiving notices of arrival of
the shipment, failing to object thereto, (herein petitioner) cannot
now deny that it is bound by the terms in the bill of lading. If it
did not intend to be bound, (herein petitioner) would not have
waited for six months to lapse before finally bringing the matter
to (herein private respondent's attention. The most logical
reaction in such a case would be to immediately verify the
matter with the other parties involved. In this case, however,
(herein petitioner) unreasonably detained (herein private
respondent's) vessel to the latter's prejudice. 19
Petitioner's attempt to evade its obligation to receive the
shipment on the pretext that this may cause it to violate
customs, tariff and central bank laws must likewise fail. Mere
apprehension of violating said laws, without a clear
demonstration that taking delivery of the shipment has become
legally impossible, 20 cannot defeat the petitioner's contractual
obligation and liability under the bill of lading.
In any event, the issue of whether petitioner accepted the bill of
lading was raised for the first time only in petitioner's
memorandum before this Court. Clearly, we cannot now
entertain an issue raised for the very first time on appeal, in
deference to the well-settled doctrine that "(a)n issue raised for
the first time on appeal and not raised timely in the proceedings
in the lower court is barred by estoppel. Questions raised on
appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be
raised for the first time on appeal." 21
In the case at bar, the prolonged failure of petitioner to receive
and discharge the cargo from the private respondent's vessel
constitutes a violation of the terms of the bill of lading. It should
thus be liable for demurrage to the former.
In The Apollon, 22 Justice Story made the following relevant
comment on the nature of demurrage:

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In truth, demurrage is merely an allowance or
compensation for the delay or detention of a
vessel. It is often a matter of contract, but not
necessarily so. The very circumstance that in
ordinary commercial voyages, a particular
sum is deemed by the parties a fair
compensation for delays, is the very reason
why it is, and ought to be, adopted as a
measure of compensation, in cases ex delicto.
What fairer rule can be adopted than that
which founds itself upon mercantile usage as
to indemnity, and fixes a recompense upon
the deliberate consideration of all the
circumstances attending the usual earnings
and expenditures in common voyages? It
appears to us that an allowance, by way of
demurrage, is the true measure of damages in
all cases of mere detention, for that allowance
has reference to the ship's expenses, wear
and tear, and common employment. 23
Amount of Demurrage Charges
Petitioner argues that it is not obligated to pay any demurrage
charges because, prior to the filing of the complaint, private
respondent made no demand for the sum of P67,340. Moreover,
private respondent's loss and prevention manager, Loi Gillera,
demanded P50,260; but its counsel, Sofronio Larcia,
subsequently asked for a different amount of P37,800.
Petitioner's position is puerile. The amount of demurrage
charges in the sum of P67,340 is a factual conclusion of the trial
court that was affirmed by the Court of Appeals and, thus,
binding on this Court. 24 Besides, such factual finding is
supported by the extant evidence. 25 The apparent discrepancy
was a result of the variance of the dates when the two demands
were made. Necessarily, the longer the cargo remained
unclaimed, the higher the demurrage. Thus, while in his letter
dated April 24, 1983, 26 private respondent's counsel demanded
payment of only P37,800, the additional demurrage incurred
petitioner due to its continued refusal to receive delivery of the
cargo ballooned to P67,340 by November 22, 1983. The
testimony of Counsel Sofronio Larcia as regards said letter of
April 24, 1983 elucidates, viz:
Q Now, after you sent this letter, do you know what happened?
A Defendant continued to refuse to take delivery of the
shipment and the shipment stayed at the port for a longer
period.
Q So, what happened to the shipment?
A The shipment incurred additional demurrage charges which
amounted to P67,340.00 as of November 22, 1983 or more than
a year after almost a year after the shipment arrived at the
port.
Q So, what did you do?
A We requested our collection agency to pursue the collection of
this amount. 27
Bill of Lading Separate from
Other Letter of Credit Arrangements
In a letter of credit, there are three distinct and independent
contracts:
(1) the contract of sale between the buyer and the seller, (2) the
contract of the buyer with the issuing bank, and (3) the letter of
credit proper in which the bank promises to pay the seller
pursuant to the terms and conditions stated therein. "Few things
are more clearly settled in law than that the three contracts
which make up the letter of credit arrangement are to be
maintained in a state of perpetual separation." 28 A transaction
involving the purchase of goods may also require, apart from a
letter of credit, a contract of transportation specially when the
seller and the buyer are not in the same locale or country, and
the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading
in the present case, must be treated independently of the
contract of sale between the seller and the buyer, and the
contract for the issuance of a letter of credit between the buyer

and the issuing bank. Any discrepancy between the amount of

the goods described in the commercial invoice in the contract of
sale and the amount allowed in the letter of credit will not affect
the validity and enforceability of the contract of carriage as
embodied in the bill of lading. As the bank cannot be expected
to look beyond the documents presented to it by the seller
pursuant to the letter of credit, 29 neither can the carrier be
expected to go beyond the representations of the shipper in the
bill of lading and to verify their accuracy vis-a-viz the
commercial invoice and the letter of a credit. Thus, the
discrepancy between the amount of goods indicated in the
invoice and the amount in the bill of lading cannot negate
petitioner's obligation to private respondent arising from the
contract of transportation. Furthermore, private respondent, as
carrier, had no knowledge of the contents of the container. The
contract of carriage was under the arrangement known as
"Shipper's Load And Count," and shipper was solely responsible
for the loading of the container while carrier was oblivious to the
contents of the shipment. Petitioner's remedy in case of
overshipment lies against the seller/shipper, not against the
carrier.
Payment of Interest
Petitioner posits that it "first knew" of the demurrage claim of
P67,340 only when it received, by summons, private
respondent's complaint. Hence, interest may not be allowed to
run from the date of private respondent's extrajudicial demands
on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800,
considering that, in both cases, "there was no demand for
interest." 30 We agree.
Jurisprudence teaches us:
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit. 31
The case before us involves an obligation not arising from a loan
or forbearance of money; thus, pursuant to Article 2209 of the
Civil Code, the applicable interest rate is six percent per annum.
Since the bill of lading did not specify the amount of demurrage,
and the sum claimed by private respondent increased as the
days went by, the total amount demanded cannot be deemed to
have been established with reasonable certainty until the trial
court rendered its judgment. Indeed, "(u)nliquidated damages or
claims, it is said, are those which are not or cannot be known
until definitely ascertained, assessed and determined by the
courts after presentation of proof. " 32Consequently, the legal
interest rate is six percent, to be computed from September 28,
1990, the date of the trial court's decision. And in accordance
with Philippine National Bank 33 and Eastern Shipping, 34 the rate
of twelve percent per annumshall be charged on the total then
outstanding, from the time the judgment becomes final and
executory until its satisfaction.
Finally, the Court notes that the matter of attorney's fees was
taken up only in the dispositive portion of the trial court's
decision. This falls short of the settled requirement that the text
of the decision should state the reason for the award of
attorney's fees, for without such justification, its award would be
a "conclusion without a premise, its basis being improperly left
to speculation and conjecture." 35
WHEREFORE, the assailed Decision is hereby AFFIRMED with the
MODIFICATION that the legal interest of six percent per
annum shall be computed from September 28, 1990 until its full

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payment before finality of judgment. The rate of interest shall be
adjusted to twelve percent per annum, computed from the time
said judgment became final and executory until full satisfaction.
The award of attorney's fees is DELETED.
SO ORDERED.
G.R. No. 95529 August 22, 1991
MAGELLAN MANUFACTURING MARKETING CORPORATION,
* petitioner,
vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER
LINES and F.E. ZUELLIG, INC. respondents.
REGALADO, J.:p
Petitioner, via this petition for review on certiorari, seeks the
reversal of the judgment of respondent Court of Appeals in CAG.R. CV No. 18781, 1 affirming in part the decision of the trial
court, 2 the dispositive portion of which reads:
Premises considered, the decision appealed
from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however,
appellant is ordered to pay appellees the
amount of P52,102.45 with legal interest from
date of extra-judicial demand. The award of
attorney's fees is deleted. 3
The facts as found by respondent appellate court are as follows:
On May 20, 1980, plaintiff-appellant Magellan Manufacturers
Marketing Corp. (MMMC) entered into a contract with Choju Co.
of Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of
credit was issued to plaintiff MMMC by the buyer. Through its
president, James Cu, MMMC then contracted F.E. Zuellig, a
shipping agent, through its solicitor, one Mr. King, to ship the
anahaw fans through the other appellee, Orient Overseas
Container Lines, Inc., (OOCL) specifying that he needed an onboard bill of lading and that transhipment is not allowed under
the letter of credit (Exh. B-1). On June 30, 1980, appellant
MMMC paid F.E. Zuellig the freight charges and secured a copy
of the bill of lading which was presented to Allied Bank. The
bank then credited the amount of US$23,220.00 covered by the
letter of credit to appellant's account. However, when
appellant's president James Cu, went back to the bank later, he
was informed that the payment was refused by the buyer
allegedly because there was no on-board bill of lading, and there
was a transhipment of goods. As a result of the refusal of the
buyer to accept, upon appellant's request, the anahaw fans
were shipped back to Manila by appellees, for which the latter
demanded from appellant payment of P246,043.43. Appellant
abandoned the whole cargo and asked appellees for damages.
In their Partial Stipulation of Facts, the parties admitted that a
shipment of 1,047 cartons of 136,000 pieces of Anahaw Fans
contained in 1 x 40 and 1 x 20 containers was loaded at Manila
on board the MV 'Pacific Despatcher' freight prepaid, and duly
covered by Bill of Lading No. MNYK201T dated June 27, 1980
issued by OOCL; that the shipment was delivered at the port of
discharge on July 19, 1980, but was subsequently returned to
Manila after the consignee refused to accept/pay the same. 4
Elaborating on the above findings of fact of respondent court
and without being disputed by herein private respondents,
petitioner additionally avers that:
When petitioner informed private respondents about what
happened, the latter issued a certificate stating that its bill of
lading it issued is an on board bill of lading and that there was
no actual transhipment of the fans. According to private
respondents when the goods are transferred from one vessel to
another which both belong to the same owner which was what
happened to the Anahaw fans, then there is (no) transhipment.
Petitioner sent this certification to Choju Co., Ltd., but the said
company still refused to accept the goods which arrived in Japan
on July 19, 1980.
Private respondents billed petitioner in the amount of
P16,342.21 for such shipment and P34,928.71 for demurrage in
Japan from July 26 up to August 31, 1980 or a total of
P51,271.02. In a letter dated March 20, 1981, private
respondents gave petitioner the option of paying the sum of

P51,271.02 or to abandon the Anahaw fans to enable private

respondents to sell them at public auction to cover the cost of
shipment and demurrages. Petitioner opted to abandon the
goods. However, in a letter dated June 22, 1981 private
respondents demanded for payment of P298,150.93 from
petitioner which represents the freight charges from Japan to
Manila, demurrage incurred in Japan and Manila from October
22, 1980 up to May 20, 1981; and charges for stripping the
container van of the Anahaw fans on May 20, 1981.
On July 20, 1981 petitioner filed the complaint in this case
praying that private respondents be ordered to pay whatever
petitioner was not able to earn from Choju Co., Ltd., amounting
to P174,150.00 and other damages like attorney's fees since
private respondents are to blame for the refusal of Choju Co.,
Ltd. to accept the Anahaw fans. In answer thereto the private
respondents alleged that the bill of lading clearly shows that
there will be a transhipment and that petitioner was well aware
that MV (Pacific) Despatcher was only up to Hongkong where the
subject cargo will be transferred to another vessel for Japan.
Private respondents also filed a counterclaim praying that
petitioner be ordered to pay freight charges from Japan to
Manila and the demurrages in Japan and Manila amounting to
P298,150.93.
The lower court decided the case in favor of private
respondents. It dismissed the complaint on the ground that
petitioner had given its consent to the contents of the bill of
lading where it is clearly indicated that there will be
transhipment. The lower court also said that petitioner is liable
to pay to private respondent the freight charges from Japan to
Manila and demurrages since it was the former which ordered
the reshipment of the cargo from Japan to Manila.
On appeal to the respondent court, the finding of the lower
(court) that petitioner agreed to a transhipment of the goods
was affirmed but the finding that petitioner is liable for
P298,150.93 was modified. It was reduced to P52,102.45 which
represents the freight charges and demurrages incurred in Japan
but not for the demurrages incurred in Marta. According to the
respondent (court) the petitioner can not be held liable for the
demurrages incurred in Manila because Private respondents did
not timely inform petitioner that the goods were already in
Manila in addition to the fact that private respondent had given
petitioner the option of abandoning the goods in exchange for
the demurrages. 5
Petitioner, being dissatisfied with the decision of respondent
court and the motion for reconsideration thereof having been
denied, invokes the Court's review powers for the resolution of
the issues as to whether or not respondent court erred (1) in
affirming the decision of the trial court which dismissed
petitioner's complaint; and (2) in holding petitioner liable to
private respondents in the amount of P52,102.45. 6
I. Petitioner obstinately faults private respondents for the refusal
of its buyer, Choju Co., Ltd., to take delivery of the exported
anahaw fans resulting in a loss of P174,150.00 representing the
purchase price of the said export items because of violation of
the terms and conditions of the letter of credit issued in favor of
the former which specified the requirement for an on board bill
of lading and the prohibition against transhipment of goods,
inasmuch as the bill of lading issued by the latter bore the
notation "received for shipment" and contained an entry
indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On the
matter of transhipment, petitioner maintains that "... while the
goods were transferred in Hongkong from MV Pacific
Despatcher, the feeder vessel, to MV Oriental Researcher, a
mother vessel, the same cannot be considered transhipment
because both vessels belong to the same shipping company, the
private respondent Orient Overseas Container Lines,
Inc." 7 Petitioner emphatically goes on to say: "To be sure, there
was no actual transhipment of the Anahaw fans. The private
respondents have executed a certification to the effect that
while the Anahaw fans were transferred from one vessel to
another in Hong Kong, since the two vessels belong to one and
the same company then there was no transhipment. 8
Transhipment, in maritime law, is defined as "the act of taking
cargo out of one ship and loading it in another," 9 or "the
transfer of goods from the vessel stipulated in the contract of
affreightment to another vessel before the place of destination
named in the contract has been reached," 10 or "the transfer for
further transportation from one ship or conveyance to
another." 11 Clearly, either in its ordinary or its strictly legal
acceptation, there is transhipment whether or not the same

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person, firm or entity owns the vessels. In other words, the fact
of transhipment is not dependent upon the ownership of the
transporting ships or conveyances or in the change of carriers,
as the petitioner seems to suggest, but rather on the fact of
actual physical transfer of cargo from one vessel to another.
That there was transhipment within this contemplation is the
inescapable conclusion, as there unmistakably appears on the
face of the bill of lading the entry "Hong Kong" in the blank
space labeled "Transhipment," which can only mean that
transhipment actually took place. 12 This fact is further bolstered
by the certification 13 issued by private respondent F.E. Zuellig,
Inc. dated July 19, 1980, although it carefully used the term
"transfer" instead of transhipment. Nonetheless, no amount of
semantic juggling can mask the fact that transhipment in truth
occurred in this case.
Petitioner insists that "(c)onsidering that there was no actual
transhipment of the Anahaw fans, then there is no occasion
under which the petitioner can agree to the transhipment of the
Anahaw fans because there is nothing like that to agree to" and
"(i)f there is no actual transhipment but there appears to be a
transhipment in the bill of lading, then there can be no possible
reason for it but a mistake on the part of the private
respondents. 14
Petitioner, in effect, is saying that since there was a mistake in
documentation on the part of private respondents, such a
mistake militates against the conclusiveness of the bill of lading
insofar as it reflects the terms of the contract between the
parties, as an exception to the parol evidence rule, and would
therefore permit it to explain or present evidence to vary or
contradict the terms of the written agreement, that is, the bill of
lading involved herein.

the freight (Exhibit D), implying that he

consented to the transhipment (Decision, p. 6,
Rollo). 19
Furthermore and particularly on the matter of whether or not
there was transhipment, James Cu, in his testimony on
crossexamination, categorically stated that he knew for a fact
that the shipment was to be unloaded in Hong Kong from the MV
Pacific Despatcher to be transferred to a mother vessel, the MV
Oriental Researcher in this wise:
Q Mr. Cu, are you not aware of the fact that your shipment is to
be transferred or transhipped at the port of Hongkong?
A I know. It's not transport, they relay, not trans... yes, that is
why we have an agreement if they should not put a
transhipment in Hongkong, that's why they even stated in the
certification.
xxx xxx xxx
Q In layman's language, would you agree with me that
transhipment is the transfer of a cargo from one vessel to the
other?
A As a layman, yes.
Q So, you know for a fact that your shipment is going to be
unloaded in Hongkong from M. V. Dispatcher (sic) and then
transfer (sic) to another vessel which was the Oriental
Dispatcher, (sic) you know that for a fact?
A Yes, sir. (Emphasis supplied.)

It is a long standing jurisprudential rule that a bill of lading

operates both as a receipt and as a contract. It is a receipt for
the goods shipped and a contract to transport and deliver the
same as therein stipulated. As a contract, it names the parties,
which includes the consignee, fixes the route, destination, and
freight rates or charges, and stipulates the rights and
obligations assumed by the parties. 15 Being a contract, it is the
law between the parties who are bound by its terms and
conditions provided that these are not contrary to law, morals,
good customs, public order and public policy. 16A bill of lading
usually becomes effective upon its delivery to and acceptance
by the shipper. It is presumed that the stipulations of the bill
were, in the absence of fraud, concealment or improper
conduct, known to the shipper, and he is generally bound by his
acceptance whether he reads the bill or not. 17
The holding in most jurisdictions has been that a shipper who
receives a bill of lading without objection after an opportunity to
inspect it, and permits the carrier to act on it by proceeding with
the shipment is presumed to have accepted it as correctly
stating the contract and to have assented to its terms. In other
words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the
knowledge of the shipper and agreed to by him and, in the
absence of fraud or mistake, he is estopped from thereafter
denying that he assented to such terms. This rule applies with
particular force where a shipper accepts a bill of lading with full
knowledge of its contents and acceptance under such
circumstances makes it a binding contract. 18
In the light of the series of events that transpired in the case at
bar, there can be no logical conclusion other than that the
petitioner had full knowledge of, and actually consented to, the
terms and conditions of the bill of lading thereby making the
same conclusive as to it, and it cannot now be heard to deny
having assented thereto. As borne out by the records, James Cu
himself, in his capacity as president of MMMC, personally
received and signed the bill of lading. On practical
considerations, there is no better way to signify consent than by
voluntarry signing the document which embodies the
agreement. As found by the Court of Appeals
Contrary to appellant's allegation that it did
not agree to the transhipment, it could be
gleaned from the record that the appellant
actually consented to the transhipment when
it received the bill of lading personally at
appellee's (F.E. Zuellig's) office. There clearly
appears on the face of the bill of lading under
column "PORT OF TRANSHIPMENT" an entry
"HONGKONG' (Exhibits'G-l'). Despite said
entries he still delivered his voucher (Exh. F)
and the corresponding check in payment of

20

Under the parol evidence rule, 21 the terms of a contract are

rendered conclusive upon the parties, and evidence aliunde is
not admissible to vary or contradict a complete and enforceable
agreement embodied in a document, subject to well defined
exceptions which do not obtain in this case. The parol evidence
rule is based on the consideration that when the parties have
reduced their agreement on a particular matter into writing, all
their previous and contemporaneous agreements on the matter
are merged therein. Accordingly, evidence of a prior or
contemporaneous verbal agreement is generally not admissible
to vary, contradict or defeat the operation of a valid
instrument. 22 The mistake contemplated as an exception to the
parol evidence rule is one which is a mistake of fact mutual to
the parties. 23 Furthermore, the rules on evidence, as amended,
require that in order that parol evidence may be admitted, said
mistake must be put in issue by the pleadings, such that if not
raised inceptively in the complaint or in the answer, as the case
may be, a party can not later on be permitted to introduce parol
evidence thereon. 24 Needless to say, the mistake adverted to
by herein petitioner, and by its own admission, was supposedly
committed by private respondents only and was raised by the
former rather belatedly only in this instant petition. Clearly then,
and for failure to comply even only with the procedural
requirements thereon, we cannot admit evidence to prove or
explain the alleged mistake in documentation imputed to private
respondents by petitioner.
Petitioner further argues that assuming that there was
transhipment, it cannot be deemed to have agreed thereto even
if it signed the bill of lading containing such entry because it had
made known to private respondents from the start that
transhipment was prohibited under the letter of credit and that,
therefore, it had no intention to allow transhipment of the
subject cargo. In support of its stand, petitioner relies on the
second paragraph of Article 1370 of the Civil Code which states
that "(i)f the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former,"
as wen as the supposed ruling in Caltex Phil., Inc. vs.
Intermediate Appellate Court, et al. 25 that "where the literal
interpretation of a contract is contrary to the evident intention
of the parties, the latter shall prevail."
As between such stilted thesis of petitioner and the contents of
the bill of lading evidencing the intention of the parties, it is
irremissible that the latter must prevail. Petitioner conveniently
overlooks the first paragraph of the very article that he cites
which provides that "(i)f the terms of the contract are clear and
leave no doubt upon the intention of the contracting parties, the
literal meaning of the stipulations shall control." In addition,
Article 1371 of the same Code provides that "(i)n order to judge
the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered."

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The terms of the contract as embodied in the bill of lading are
clear and thus obviates the need for any interpretation. The
intention of the parties which is the carriage of the cargo under
the terms specified thereunder and the wordings of the bill of
lading do not contradict each other. The terms of the contract
being conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of petitioner, to
wit, personally receiving and signing the bill of lading and
paying the freight charges, there is no doubt that petitioner
must necessarily be charged with full knowledge and unqualified
acceptance of the terms of the bill of lading and that it intended
to be bound thereby.
Moreover, it is a well-known commercial usage that
transhipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is made,
is a violation of the contract and an infringement of the right of
the shipper, and subjects the carrier to liability if the freight is
lost even by a cause otherwise excepted. 26 It is highly
improbable to suppose that private respondents, having been
engaged in the shipping business for so long, would be unaware
of such a custom of the trade as to have undertaken such
transhipment without petitioner's consent and unnecessarily
expose themselves to a possible liability. Verily, they could only
have undertaken transhipment with the shipper's permission, as
evidenced by the signature of James Cu.
Another ground for the refusal of acceptance of the cargo of
anahaw fans by Choju Co., Ltd. was that the bill of lading that
was issued was not an on board bill of lading, in clear violation
of the terms of the letter of credit issued in favor of petitioner.
On cross-examination, it was likewise established that
petitioner, through its aforesaid president, was aware of this
fact, thus:
Q If the container van, the loaded container van, was
transported back to South Harbor on June 27, 1980, would you
tell us, Mr. Cu, when the Bill of Lading was received by you?

xxx xxx xxx

Q In other words, it was not yet on board the
vessel?
A During that time, not yet.
xxx xxx xxx
Q Do you know, Mr. Cu, that under the law, if your
shipment is received on board a vessel you can
demand an on-board bill of lading not only a received
for shipment bill of lading.?
A Yes sir.
Q And did you demand from F.E. Zuellig the
substitution of that received for shipment bill of
lading with an on-board bill of lading?
A Of course, instead they issue me a certification.
Q They give you a ... ?
A ... a certification that it was loaded on board on
June 30.
xxx xxx xxx
Q Mr. Cu, are you aware of the conditions of the
Letter of Credit to the effect that there should be no
transhipment and that it should also get an on board
bill of lading.?
A Yes sir.

A I received on June 30, 1980. I received at the same time so

then I gave the check.
xxx xxx xxx
Q So that in exchange of the Bill of Lading you issued your check
also dated June 30, 1980?
A Yes, sir.
Q And June 27, 1980 was the date of the Bill of Lading, did you
notice that the Bill of Lading states: 'Received for
shipment'only? .
A Yes, sir.
Q What did you say?
A I requested to issue me on board bill of lading.
Q When?
A In the same date of June 30.
Q What did they say?
A They said, they cannot.
xxx xxx xxx
Q Do you know the difference between a "received
for shipment bill of lading" and "on board bill of
lading"?
A Yes, sir.
Q What's the difference?
A Received for shipment, you can receive the
cargo even you don't ship on board, that is placed in
the warehouse; while on-board bill of lading means
that is loaded on the vessel, the goods.

27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju

Co., Ltd., particularly required that there be an on board bill of
lading, obviously due to the guaranty afforded by such a bill of
lading over any other kind of bill of lading. The buyer could not
have insisted on such a stipulation on a pure whim or caprice,
but rather because of its reliance on the safeguards to the cargo
that having an on board bill of lading ensured. Herein petitioner
cannot feign ignorance of the distinction between an "on board"
and a "received for shipment" bill of lading, as manifested by
James Cu's testimony. It is only to be expected that those long
engaged in the export industry should be familiar with business
usages and customs.
In its petition, MMMC avers that "when petitioner teamed of
what happened, it saw private respondent F.E. Zuellig which, in
turn, issued a certification that as of June 30, 1980, the Anahaw
fans were already on board MV Pacific Despatcher (which means
that the bill of lading is an on- board-bill of lading or 'shipped'
bill of lading as distinguished from a 'received for shipment'bill
of lading as governed by Sec. 3, par. 7, Carriage of Goods by
Sea Act) ...." 28 What the petitioner would suggest is that said
certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had
the effect of converting the original "received for shipment only"
bill of lading into an "on board" bill of lading as required by the
buyer and was, therefore, by substantial compliance, not
violative of the contract.
An on board bill of lading is one in which it is stated that the
goods have been received on board the vessel which is to carry
the goods, whereas a received for shipment bill of lading is one
in which it is stated that the goods have been received for
shipment with or without specifying the vessel by which the
goods are to be shipped. Received for shipment bills of lading
are issued whenever conditions are not normal and there is
insufficiency of shipping space.29 An on board bill of lading is
issued when the goods have been actually placed aboard the
ship with every reasonable expectation that the shipment is as
good as on its way. 30 It is, therefore, understandable that a
party to a maritime contract would require an on board bill of
lading because of its apparent guaranty of certainty of shipping
as well as the seaworthiness of the vessel which is to carry the
goods.
It cannot plausibly be said that the aforestated certification of
F.E. Zuellig, Inc. can qualify the bill of lading, as originally issued,
into an on board bill of lading as required by the terms of the
letter of credit issued in favor of petitioner. For one, the

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certification was issued only on July 19, 1980, way beyond the
expiry date of June 30, 1980 specified in the letter of credit for
the presentation of an on board bill of lading. Thus, even
assuming that by a liberal treatment of the certification it could
have the effect of converting the received for shipment bill of
lading into an on board of bill of lading, as petitioner would have
us believe, such an effect may be achieved only as of the date
of its issuance, that is, on July 19, 1980 and onwards.
The fact remains, though, that on the crucial date of June 30,
1980 no on board bill of lading was presented by petitioner in
compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof.
Said certification, if allowed to operate retroactively, would
render illusory the guaranty afforded by an on board bill of
lading, that is, reasonable certainty of shipping the loaded cargo
aboard the vessel specified, not to mention that it would
indubitably be stretching the concept of substantial compliance
too far.
Neither can petitioner escape liability by adverting to the bill of
lading as a contract of adhesion, thus warranting a more liberal
consideration in its favor to the extent of interpreting
ambiguities against private respondents as allegedly being the
parties who gave rise thereto. The bill of lading is clear on its
face. There is no occasion to speak of ambiguities or obscurities
whatsoever. All of its terms and conditions are plainly worded
and commonly understood by those in the business.
It will be recalled that petitioner entered into the contract with
Choju Co., Ltd. way back on May 20,1980 or over a month
before the expiry date of the letter of credit on June 30, 1980,
thus giving it more than ample time to find a carrier that could
comply with the requirements of shipment under the letter of
credit. It is conceded that bills of lading constitute a class of
contracts of adhesion. However, as ruled in the earlier case
of Ong Yiu vs. Court of Appeals, et al. 31 and reiterated
in Servando, et al. vs. Philippine Steam Navigation Co., 32 plane
tickets as well as bills of lading are contracts not entirely
prohibited. The one who adheres to the contract is in reality free
to reject it entirely; if he adheres, he gives his consent. The
respondent court correctly observed in the present case that
"when the appellant received the bill of lading, it was
tantamount to appellant's adherence to the terms and
conditions as embodied therein. 33
In sum, petitioner had full knowledge that the bill issued to it
contained terms and conditions clearly violative of the
requirements of the letter of credit. Nonetheless, perhaps in its
eagerness to conclude the transaction with its Japanese buyer
and in a race to beat the expiry date of the letter of credit,
petitioner took the risk of accepting the bill of lading even if it
did not conform with the indicated specifications, possibly
entertaining a glimmer of hope and imbued with a touch of
daring that such violations may be overlooked, if not
disregarded, so long as the cargo is delivered on time.
Unfortunately, the risk did not pull through as hoped for. Any
violation of the terms and conditions of the letter of credit as
would defeat its right to collect the proceeds thereof was,
therefore, entirely of the petitioner's making for which it must
bear the consequences. As finally averred by private
respondents, and with which we agree, "... the questions of
whether or not there was a violation of the terms and conditions
of the letter of credit, or whether or not such violation was the
cause or motive for the rejection by petitioner's Japanese buyer
should not affect private respondents therein since they were
not privies to the terms and conditions of petitioner's letter of
credit and cannot therefore be held liable for any violation
thereof by any of the parties thereto." 34
II. Petitioner contends that respondent court erred in holding it
liable to private respondents for P52,102.45 despite its exercise
of its option to abandon the cargo. It will be recalled that the
trial court originally found petitioner liable for P298,150.93,
which amount consists of P51,271.02 for freight, demurrage and
other charges during the time that the goods were in Japan and
for its reshipment to Manila, P831.43 for charges paid to the
Manila International Port Terminal, and P246,043.43 for
demurrage in Manila from October 22, 1980 to June 18, 1981.
On appeal, the Court of Appeals limited petitioner's liability to
P52,102.45 when it ruled:
As regards the amount of P51,271.02, which
represents the freight charges for the return
shipment to Manila and the demurrage
charges in Japan, the same is supported by
appellant's own letter request (Exh. 2) for the
return of the shipment to Manila at its

(appellant's) expense, and hence, it should be

held liable therefor. The amount of P831.43
was paid to the Manila International Port
Terminal upon arrival of the shipment in Manila
for appellant's account. It should properly be
charged to said appellant. 35
However, respondent court modified the trial court's decision by
excluding the award for P246,043.43 for demurrage in Manila
from October 22, 1980 to June 18, 1981.
Demurrage, in its strict sense, is the compensation provided for
in the contract of affreightment for the detention of the vessel
beyond the time agreed on for loading and unloading.
Essentially, demurrage is the claim for damages for failure to
accept delivery. In a broad sense, every improper detention of a
vessel may be considered a demurrage. Liability for demurrage,
using the word in its strictly technical sense, exists only when
expressly stipulated in the contract. Using the term in its
broader sense, damages in the nature of demurrage are
recoverable for a breach of the implied obligation to load or
unload the cargo with reasonable dispatch, but only by the party
to whom the duty is owed and only against one who is a party to
the shipping contract. 36 Notice of arrival of vessels or
conveyances, or of their placement for purposes of unloading is
often a condition precedent to the right to collect demurrage
charges.
Private respondents, admittedly, have adopted the common
practice of requiring prior notice of arrival of the goods shipped
before the shipper can be held liable for demurrage, as declared
by Wilfredo Hans, head of the accounting department of F.E.
Zuellig, Inc., on cross-examination as a witness for private
respondents:
Q ... you will agree with me that before one could be charged
with demurrage the shipper should be notified of the arrival of
the shipment?
A Yes sir.
Q Without such notification, there is no way by which the
shipper would know (of) such arrival?
A Yes.
Q And no charges of demurrage before the arrival of the cargo?
A Yes sir.

37

Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from
October up to May 1980, arriv(al) in Manila, are concerned, We
are of the view that appellant should not be made to shoulder
the same, as it was not at fault nor was it responsible for said
demurrage charges. Appellee's own witness (Mabazza) testified
that while the goods arrived in Manila in October 1980,
appellant was notified of said arrival only in March 1981. No
explanation was given for the delay in notifying appellant. We
agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of
the goods first. Without such notification it could not- be so
charged because there was no way by which it would know that
the goods had already arrived for it to take custody of them.
Considering that it was only in March 1981 (Exh. K) that
appellant was notified of the arrival of the goods, although the
goods had actually arrived in October 1980 (tsn, Aug. 14, 1986,
pp. 10-14), appellant cannot be charged for demurrage from
October 1980 to March 1981. ... 38
While being satisfied with the exclusion of demurrage charges in
Manila for the period from October 22,1980 to June 18,1981,
petitioner nevertheless assails the Court of Appeals' award of
P52,102.43 in favor of private respondents, consisting of
P51,271.01 as freight and demurrage charges in Japan and
P831.43 for charges paid at the Manila International Port
Termninal.
Petitioner asserts that by virtue of the exercise of its option to
abandon the goods so as to allow private respondents to sell the
same at a public auction and to apply the proceeds thereof as
payment for the shipping and demurrage charges, it was
released from liability for the sum of P52,102.43 since such
amount represents the shipping and demurrage charges from

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TRANSPORTATION LAW
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which it is considered to have been released due to the
abandonment of goods. It further argues that the shipping and
demurrage charges from which it was released by the exercise
of the option to abandon the goods in favor of private
respondents could not have referred to the demurrage charges
in Manila because respondent court ruled that the same were
not chargeable to petitioner. Private respondents would rebut
this contention by saying in their memorandum that the
abandonment of goods by petitioner was too late and made in
bad faith. 39

absolved of any hability and the award of P52,102.45 with legal

interest granted by respondent court on private respondents'
counterclaim is SET ASIDE, said counterclaim being hereby
DISMISSED, without pronouncement as to costs.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras and Padilla, JJ., concur.
Sarmiento, J., is on leave.

On this point, we agree with petitioner. Ordinarily, the shipper is

liable for freightage due to the fact that the shipment was made
for its benefit or under its direction and, correspondingly, the
carrier is entitled to collect charges for its shipping services. This
is particularly true in this case where the reshipment of the
goods was made at the instance of petitioner in its letter of
August 29, 1980. 40
However, in a letter dated March 20, 1981, 41 private
respondents belatedly informed petitioner of the arrival of its
goods from Japan and that if it wished to take delivery of the
cargo it would have to pay P51,271.02, but with the last
paragraph thereof stating as follows:
Please can you advise within 15 days of
receipt of this letter whether you intend to
take delivery of this shipment, as alternatively
we will have to take legal proceedings in order
to have the cargo auctioned to recover the
costs involved, as well as free the container
which are (sic) urgently required for export
cargoes.
Clearly, therefore, private respondents unequivocally offered
petitioner the option of paying the shipping and demurrage
charges in order to take delivery of the goods or of abandoning
the same so that private respondents could sell them at public
auction and thereafter apply the proceeds in payment of the
shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner
seasonably communicated its decision to abandon to the goods
in favor of private respondents with the specific instruction that
any excess of the proceeds over the legal costs and charges be
turned over to petitioner. Receipt of said letter was
acknowledged by private respondents, as revealed by the
testimony of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc.,
on cross-examination. 42
Despite petitioner's exercise of the option to abandon the cargo,
however, private respondents sent a demand letter on June 22,
1981 43 insisting that petitioner should pay the entire amount of
P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they
stated that they win not accept the abandonment of the goods
and demanded that the outstanding account be settled. The
testimony of said Edwin Mabazza definitely admits and bears
this out. 45
Now, there is no dispute that private respondents expressly and
on their own volition granted petitioner an option with respect to
the satisfaction of freightage and demurrage charges. Having
given such option, especially since it was accepted by
petitioner, private respondents are estopped from reneging
thereon. Petitioner, on its part, was well within its right to
exercise said option. Private respondents, in giving the option,
and petitioner, in exercising that option, are concluded by their
respective actions. To allow either of them to unilaterally back
out on the offer and on the exercise of the option would be to
countenance abuse of rights as an order of the day, doing
violence to the long entrenched principle of mutuality of
contracts.
It will be remembered that in overland transportation, an
unreasonable delay in the delivery of transported goods is
sufficient ground for the abandonment of goods. By analogy,
this can also apply to maritime transportation. Further, with
much more reason can petitioner in the instant case properly
abandon the goods, not only because of the unreasonable delay
in its delivery but because of the option which was categorically
granted to and exercised by it as a means of settling its liability
for the cost and expenses of reshipment. And, said choice
having been duly communicated, the same is binding upon the
parties on legal and equitable considerations of estoppel.

G.R. No. 94761 May 17, 1993

MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing
business under the name and style of Ethegal
Laboratories, respondents.
Bito, Lozada, Ortega & Castillo for petitioner.
Humberto A. Jambora for private respondent.

BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation of goods
by sea, doing business in the Philippines through its general
agent Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand, is the
proprietor of Ethegal Laboratories, a firm engaged in the
manutacture of pharmaceutical products.
On November 12, 1976, private respondent ordered from Eli
Lilly. Inc. of Puerto Rico through its (Eli Lilly, Inc.'s) agent in the
Philippines, Elanco Products, 600,000 empty gelatin capsules for
the manufacture of his pharmaceutical products. The capsules
were placed in six (6) drums of 100,000 capsules each valued at
US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV
No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc. of
Puerto Rico advised private respondent as consignee that the
600,000 empty gelatin capsules in six (6) drums of 100,000
capsules each, were already shipped on board MV "Anders
Maerskline" under Voyage No. 7703 for shipment to the
Philippines via Oakland, California. In said Memorandum, shipper
Eli Lilly, Inc. specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were mishipped
and diverted to Richmond, Virginia, USA and then transported
back Oakland, Califorilia. The goods finally arrived in the
Philippines on June 10, 1977 or after two (2) months from the
date specified in the memorandum. As a consequence, private
respondent as consignee refused to take delivery of the goods
on account of its failure to arrive on time.
Private respondent alleging gross negligence and undue delay in
the delivery of the goods, filed an action before the court a
quo for rescission of contract with damages against petitioner
and Eli Lilly, Inc. as defendants.
Denying that it committed breach of contract, petitioner alleged
in its that answer that the subject shipment was transported in
accordance with the provisions of the covering bill of lading and
that its liability under the law on transportation of good attaches
only in case of loss, destruction or deterioration of the goods as
provided for in Article 1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with
compulsory and cross-claim. In its cross-claim, it alleged that the
delay in the arrival of the the subject merchandise was due
solely to the gross negligence of petitioner Maersk Line.
The issues having been joined, private respondent moved for
the dismissal of the complaint against Eli Lilly, Inc.on the ground
that the evidence on record shows that the delay in the delivery
of the shipment was attributable solely to petitioner.

WHEREFORE, the judgment of respondent Court of Appeals is

AFFIRMED with the MODIFICATION that petitioner is likewise

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Acting on private respondent's motion, the trial court dismissed
the complaint against Eli Lilly, Inc. Correspondingly, the latter
withdraw its cross-claim against petitioner in a joint motion
dated December 3, 1979.
After trial held between respondent and petitioner, the court a
quo rendered judgment dated January 8, 1982 in favor of
respondent Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court
believe (sic) and so hold (sic) that there was a
breach in the performance of their obligation
by the defendant Maersk Line consisting of
their negligence to ship the 6 drums of empty
Gelatin Capsules which under their own
memorandum shipment would arrive in the
Philippines on April 3, 1977 which under Art.
1170 of the New Civil Code, they stood liable
for damages.
Considering that the only evidence presented
by the defendant Maersk line thru its agent
the Compania de Tabacos de Filipinas is the
testimony of Rolando Ramirez who testified on
Exhs. "1" to "5" which this Court believe (sic)
did not change the findings of this Court in its
decision rendered on September 4, 1980, this
Court hereby renders judgment in favor of the
plaintiff Efren Castillo as against the defendant
Maersk Line thru its agent, the COMPANIA
GENERAL DE TABACOS DE FILIPINAS and
ordering:
(a) Defendant to pay the plaintiff Efren V.
Castillo the amount of THREE HUNDRED SIXTY
NINE THOUSAND PESOS, (P369,000.00) as
unrealized profit;.
(b) Defendant to pay plaintiff the sum of TWO
HUNDRED THOUSAND PESOS (P200,000.00),
as moral damages;
(c) Defendant to pay plaintiff the sum of TEN
THOUSAND PESOS (P10,000.00) as exemplary
damages;
(d) Defendant to pay plaintiff the sum of
ELEVEN THOUSAND SIX HUNDRED EIGHTY
PESOS AND NINETY SEVEN CENTAVOS
(P11,680.97) as cost of credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY
THOUSAND PESOS (P50,000.00), as attorney's
fees and to pay the costs of suit.
That the above sums due to the plaintiff will
bear the legal rate of interest until they are
fully paid from the time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p.
15).
On appeal, respondent court rendered its decision dated August
1, 1990 affirming with modifications the lower court's decision
as follows:
WHEREFORE, the decision appealed from is
affirmed with a modification, and, as modified,
the judgment in this case should read as
follows:
Judgment is hereby rendered ordering
defendant-appellant Maersk Line to pay
plaintiff-appellee (1) compensatory damages
of P11,680.97 at 6% annual interest from filing
of the complaint until fully paid, (2) moral
damages of P50,000.00, (3) exemplary
damages of P20,000,00, (3) attorney's fees,
per appearance fees, and litigation expenses
of P30,000.00, (4) 30% of the total damages
awarded except item (3) above, and the costs
of suit.
SO ORDERED. (Rollo, p. 50)

In its Memorandum, petitioner submits the following "issues" for

resolution of the court :
I
Whether or not the respondent Court of
Appeals committed an error when it ruled that
a defendant's cross-claim against a codefendant survives or subsists even after the
dismissal of the complaint against defendantcross claimant.
II
Whether or not respondent Castillo is entitled
to damages resulting from delay in the
delivery of the shipment in the absence in the
bill of lading of a stipulation on the period of
delivery.
III
Whether or not the respondent appellate court
erred in awarding actual, moral and exemplary
damages and attorney's fees despite the
absence of factual findings and/or legal bases
in the text of the decision as support for such
awards.
IV
Whether or not the respondent Court of
Appeals committed an error when it rendered
an ambiguous and unexplained award in the
dispositive portion of the decision which is not
supported by the body or the text of the
decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on whether or
not a defendant's cross-claim against co-defendant (petitioner
herein) survives or subsists even after the dismissal of the
complaint against defendant-cross-claimant (petitioner herein),
we rule in the negative.
Apparently this issue was raised by reason of the declaration
made by respondent court in its questioned decision, as follows:
Re the first assigned error: What should be
rescinded in this case is not the
"Memorandum of Shipment" but the contract
between appellee and defendant Eli Lilly
(embodied in three documents, namely: Exhs.
A, A-1 and A-2) whereby the former agreed to
buy and the latter to sell those six drums of
gelatin capsules. It is by virtue of the crossclaim by appellant Eli Lilly against defendant
Maersk Line for the latter's gross negligence in
diverting the shipment thus causing the delay
and damage to appellee that the trial court
found appellant Maersk Line liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant Maersk
Line's insistence that appellee has no cause of
action against it and appellant Eli Lilly because
the shipment was delivered in good order and
condition, and the bill of lading in question
contains "stipulations, exceptions and
conditions" Maersk Line's liability only to the
"loss, destruction or deterioration," indeed,
this issue of lack of cause of action has
already been considered in our foregoing
discussion on the second assigned error, and
our resolution here is still that appellee has a
cause of action against appellant Eli Lilly.
Since the latter had filed a cross-claim against
appellant Maersk Line, the trial court
committed no error, therefore, in holding the
latter appellant ultimately liable to appellee.
(Rollo, pp. 47-50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits that its
liability is predicated on the cross-claim filed its co-defendant Eli

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Lilly, Inc. which cross-claim has been dismissed, the original
complaint against it should likewise be dismissed. We disagree.
It should be recalled that the complaint was filed originally
against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier.
Petitioner being an original party defendant upon whom the
delayed shipment is imputed cannot claim that the dismissal of
the complaint against Eli Lilly, Inc. inured to its benefit.
Respondent court, erred in declaring that the trial court based
petitioner's liability on the cross-claim of Eli Lilly, Inc. As borne
out by the record, the trial court anchored its decision on
petitioner's delay or negligence to deliver the six (6) drums of
gelatin capsules within a reasonable time on the basis of which
petitioner was held liable for damages under Article 1170 of the
New Civil Code which provides that those who in the
performance of their obligations are guilty of fraud, negligence,
or delay and those who in any manner contravene the tenor
thereof, are liable for damages.
Nonetheless, petitioner maintains that it cannot be held for
damages for the alleged delay in the delivery of the 600,000
empty gelatin capsules since it acted in good faith and there
was no special contract under which the carrier undertook to
deliver the shipment on or before a specific date (Rollo, p. 103).
On the other hand, private respondent claims that during the
period before the specified date of arrival of the goods, he had
made several commitments and contract of adhesion. Therefore,
petitioner can be held liable for the damages suffered by private
respondent for the cancellation of the contracts he entered into.
We have carefully reviewed the decisions of respondent court
and the trial court and both of them show that, in finding
petitioner liable for damages for the delay in the delivery of
goods, reliance was made on the rule that contracts of adhesion
are void. Added to this, the lower court stated that the
exemption against liability for delay is against public policy and
is thus, void. Besides, private respondent's action is anchored on
Article 1170 of the New Civil Code and not under the law on
Admiralty (AC-GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among others,
reads:
6. GENERAL
(1) The Carrier does not undertake that the
goods shall arrive at the port of discharge or
the place of delivery at any particular time or
to meet any particular market or use and save
as is provided in clause 4 the Carrier shall in
no circumstances be liable for any direct,
indirect or consequential loss or damage
caused by delay. If the Carrier should
nevertheless be held legally liable for any such
direct or indirect or consequential loss or
damage caused by delay, such liability shall in
no event exceed the freight paid for the
transport covered by this Bill of Lading. (Exh.
"1-A"; AC-G.R. CV No. 10340, Folder of
Exhibits, p. 41)
It is not disputed that the aforequoted provision at the back of
the bill of lading, in fine print, is a contract of adhesion.
Generally, contracts of adhesion are considered void since
almost all the provisions of these types of contracts are
prepared and drafted only by one party, usually the carrier
(Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only
participation left of the other party in such a contract is the
affixing of his signature thereto, hence the term "Adhesion" (BPI
Credit Corporation v. Court of Appeals, 204 SCRA 601 [1991];
Angeles v. Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are contracts
not entirely prohibited (Ong Yiu v. Court of Appeals, et al., 91
SCRA 223 [1979]; Servando, et al. v. Philippine Steam
Navigation Co., 117 SCRA 832 [1982]). One who adheres to the
contract is in reality free to reject it in its entirety; if he adheres,
he gives his consent (Magellan Manufacturing Marketing
Corporation v. Court of Appeals, et al., 201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a
bill of lading operates both as a receipt and as
contract to transport and deliver the same a

therein stipulated. As a contract, it names the

parties, which includes the consignee, fixes
the route, destination, and freight rates or
charges, and stipulates the rights and
obligations assumed by the parties. Being a
contract, it is the law between the parties who
are bound by its terms and conditions
provided that these are not contrary to law,
morals, good customs, public order and public
policy. A bill of lading usually becomes
effective upon its delivery to and acceptance
by the shipper. It is presumed that the
stipulations of the bill were, in the absence of
fraud, concealment or improper conduct,
known to the shipper, and he is generally
bound by his acceptance whether he
reads the bill or not. (Emphasis supplied)
However, the aforequoted ruling applies only if such contracts
will not create an absurd situation as in the case at bar. The
questioned provision in the subject bill of lading has the effect of
practically leaving the date of arrival of the subject shipment on
the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to
carry and to deliver merchandise, and persons are not vested
with the right to prompt delivery, unless such common carriers
previously assume the obligation to deliver at a given date or
time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 [1952]),
delivery of shipment or cargo should at least be made within a
reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this
Court held:
The oft-repeated rule regarding a carrier's
liability for delay is that in the absence of a
special contract, a carrier is not an insurer
against delay in transportation of
goods. When a common carrier undertakes to
convey goods, the law implies a contract that
they shall be delivered at destination within a
reasonable time, in the absence, of any
agreement as to the time of delivery. But
where a carrier has made an express contract
to transport and deliver properly within a
specified time, it is bound to fulfill its contract
and is liable for any delay, no matter from
what cause it may have arisen. This result
logically follows from the well-settled rule that
where the law creates a duty or charge, and
the default in himself, and has no remedy
over, then his own contract creates a duty or
charge upon himself, he is bound to make it
good notwithstanding any accident or delay by
inevitable necessity because he might have
provided against it by contract. Whether or not
there has been such an undertaking on the
part of the carrier is to be determined from the
circumstances surrounding the case and by
application of the ordinary rules for the
interpretation of contracts.
An examination of the subject bill of lading (Exh. "1"; AC GR CV
No. 10340, Folder of Exhibits, p. 41) shows that the subject
shipment was estimated to arrive in Manila on April 3, 1977.
While there was no special contract entered into by the parties
indicating the date of arrival of the subject shipment, petitioner
nevertheless, was very well aware of the specific date when the
goods were expected to arrive as indicated in the bill of lading
itself. In this regard, there arises no need to execute another
contract for the purpose as it would be a mere superfluity.
In the case before us, we find that a delay in the delivery of the
goods spanning a period of two (2) months and seven (7) days
falls was beyond the realm of reasonableness. Described as
gelatin capsules for use in pharmaceutical products, subject
shipment was delivered to, and left in, the possession and
custody of petitioner-carrier for transport to Manila via Oakland,
California. But through petitioner's negligence was mishipped to
Richmond, Virginia. Petitioner's insitence that it cannot be held
liable for the delay finds no merit.
Petition maintains that the award of actual, moral and
exemplary dames and attorney's fees are not valid since there
are no factual findings or legal bases stated in the text of the
trial court's decision to support the award thereof.

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Indeed, it is settled that actual and compensataory damages
requires substantial proof (Capco v. Macasaet. 189 SCRA 561
[1990]). In the case at bar, private respondent was able to
sufficiently prove through an invoice (Exh. 'A-1'), certification
from the issuer of the letter of credit (Exh.'A-2') and the
Memorandum of Shipment (Exh. "B"), the amount he paid as
costs of the credit line for the subject goods. Therefore,
respondent court acted correctly in affirming the award of
eleven thousand six hundred eighty pesos and ninety seven
centavos (P11,680.97) as costs of said credit line.
As to the propriety of the award of moral damages, Article 2220
of the Civil Code provides that moral damages may be awarded
in "breaches of contract where the defendant acted fraudulently
or in bad faith" (Pan American World Airways v. Intermediate
Appellate Court, 186 SCRA 687 [1990]).
In the case before us, we that the only evidence presented by
petitioner was the testimony of Mr. Rolando Ramirez, a claims
manager of its agent Compania General de Tabacos de Filipinas,
who merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p.
2) and nothing else. Petitioner never even bothered to explain
the course for the delay, i.e. more than two (2) months, in the
delivery of subject shipment. Under the circumstances of the
case, we hold that petitioner is liable for breach of contract of
carriage through gross negligence amounting to bad faith. Thus,
the award of moral damages if therefore proper in this case.
In line with this pronouncement, we hold that exemplary
damages may be awarded to the private respondent. In
contracts, exemplary damages may be awarded if the defendant
acted in a wanton, fraudulent, reckless, oppresive or malevolent
manner. There was gross negligence on the part of the
petitioner in mishiping the subject goods destined for Manila but
was inexplicably shipped to Richmond, Virginia, U.S.A. Gross
carelessness or negligence contitutes wanton misconduct,
hence, exemplary damages may be awarded to the aggrieved
party (Radio Communication of the Phils., Inc. v. Court of
Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party
can be held lible for such if exemplary damages are awarded
(Artice 2208, New Civil Code). In the case at bar, we hold that
private respondent is entitled to reasonable attorney`s fees
since petitioner acted with gross negligence amounting to bad
faith.
However, we find item 4 in the dispositive portion of respondent
court`s decision which awarded thirty (30) percent of the total
damages awarded except item 3 regarding attorney`s fees and
litigation expenses in favor of private respondent, to be
unconsionable, the same should be deleted.
WHEREFORE, with the modification regarding the deletion of
item 4 of respondent court`s decision, the appealed decision is
is hereby AFFIRMED in all respects.
SO ORDERED.
Feliciano, Davide, Jr., Romero and Melo, JJ., concur.

G.R. No. L-27472 July 6, 1976

THE AMERICAN INSURANCE COMPANY OF
NEWARK, plaintiff-appellant,
vs.
MANILA PORT SERVICE: and/or MANILA RAILROAD
COMPANY, defendants-appellees.
Quasha, Asperilla, Zafra, Tayag & Ancheta for appellant.
D.F. Macaranas, J. Mate Enage & S.V Pampolina, Jr. for appellees.
AQUINO, J.:
Ansor Corporation shipped on the SS Pioneer Mart from New
York to San Miguel Brewery, Inc., 1112 Aviles Street, Manila,
three drums of formaldehyde and one drum of cutting agent G672 with a total invoice value of $446.50.
The shipment was insured by the American Insurance Company
of Newark. The vessel arrived at the port of Manila on May 13,
1960. The cargo was discharged and delivered in good order on
May 19, 1960 to the arrastre operator, Manila Port Service, a

subsidiary of the Manila Railroad Company, now the Philippine

National Railways.
On May 31, 1960 the arrastre operator delivered to the
consignee's customs broker the three drums of formaldehyde.
The drum containing the cutting agent with an invoice value of
$306.26 and an insured value of P691.06 was not delivered. The
insurer paid to the consignee the insured value.
On May 3, 1960 or ten days before the arrival of the carrying
vessel the consignee's customs broker filed with the Manila Port
Service a provisional claim for shortage or damage. The arrastre
operator rejected the claim for being premature since
the Pioneer Mart had not yet arrived at the port of Manila.
On May 13, 1960, when the carrying vessel arrived, consignee's
customs broker re-filed the provisional claim. It was accepted by
the Manila Port Service. It was not specified in the provisional
claim that the drum of cutting agent was missing. Aside from
the names of the carrying vessel and the consignee, the
provisional claim contained only the following cryptic details:
"136 SMB Manila," Made in USA 4 drums. formaldehyde agent,
Bad Order Short Landed.
On June 17, 1960 the customs broker sent a tracer to the Manila
Port Service complaining that the drum of cutting agent was
missing and that it would hold the arrastre operator liable for
the full value thereof. The consignee filed its formal claim with
the arrastre operator on September 28, 1960.
As the arrastre operator did not pay the claim, the insurer, as
the consignee's subrogee, sued the arrastre operator and the
Manila Railroad Company in the municipal court of Manila for the
recovery of the sum of P691.06 plus interest and attorney's fees.
The municipal court dismissed the complaint. The insurer
appealed to, the Court of First Instance of Manila. After hearing,
that court likewise dismissed the complaint on the ground that
the consignee did not comply with the requirement that a claim
for shortage or damage should be filed within fifteen days from
the date of discharge of the last package from the carrying
vessel, as stipulated in paragraph 15 of the management
contract executed between the Manila Port Service and the
Bureau of Customs.
The insurer appealed to the Court of Appeals. That Court in its
resolution of February 28, 1967 found that the case involves the
legal issue of whether the consignee's provisional claim was a
sufficient compliance with paragraph 15 of the management
contract (CA-G.R. No. 31269-R).
Appellant insurance company contends that the customs
broker's provisional claim filed on May 13, 1960, the date of the
carrying vessel's arrival and six days before the delivery of the
cargo to the arrastre operator, was a substantial compliance
with paragraph 15.
That contention cannot be sustained. A provisional claim filed
before the delivery of the cargo, in anticipation of any possible
loss or damage while the cargo is in the arrastre operator's
custody, was held to be premature and speculative (Manila Port
Service vs. Fortune Insurance & Surety Co., Inc., L-29862, May
24, 1972, 45 SCRA 65 and cases cited therein).
The fifteen-day requirement was designed to give the arrastre
operator a reasonable opportunity to check the validity of the
claim while the facts are fresh in the minds of the persons who
took part in the transaction and while pertinent documents are
still available (Manila Port Service vs. Fortune insurance &
Surety Co., Inc., supra). That purpose would not be served if a
premature provisional claim were to be entertained.
The general rule prescribed in paragraph 15, that the claim for
loss, damage, misdelivery or nondelivery should be presented to
the arrastre contractor within fifteen days from the date of
discharge of the last package from the carrying vessel, applies
where before the expiration of the fifteen-day period the
consignee or claimant has knowledge of such loss, damage,
misdelivery or nondelivery.
There is an exception to that rule based on pragmatic and
equitable considerations. The rule does not apply if the
consignee or claimant learns of the loss, damage, misdelivery or
nondelivery after the expiration of the fifteen-day period from
the discharge of the last package from the carrying vessel. In
such a case the fifteen-day period should be reckoned from the
date the consignee or claimant learns of the loss or damage or
from the date when with the exercise of due diligence
information regarding the loss or damage could have been
obtained (New Zealand Insurance Co., Ltd. vs. Manila Port
Service,
L-22500, April 24, 1967, 19 SCRA 801; Manila Port Service vs.
Fortune Insurance & Surety Co., Inc., supra).
The reason for that exception is that before the claimant or
consignee learns of the shortage or damage he is in no Position
to make a claim since the goods are in the arrastre contractors
custody. If paragraph 15 is applied literally to all situations, then
the contractor may escape liability by simply withholding
knowledge as to the loss or damage, until after the expiration of
the fifteen-day period from the discharge of the last package
from the carrying vessel (Yu Kimteng Construction Corporation
vs. Manila Railroad Company,

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TRANSPORTATION LAW
Code of Commerce
L-17027, November 29, 1965, 15 SCRA 292; New Zealand
Insurance Co., Ltd. vs. Manila Port Service supra).
In this case appellant insurance company adduces the
alternative contention that the "Notice of Missing or Unlocated
Cargo which its broker filed actually with the Manila Port Service
on June 17, 1960 should be regarded as a substantial
compliance with paragraph 15.
That contention is not meritorious because it can be assumed
that the consignee, through its customs broker became aware of
the nondelivery of the drum containing the cutting agent on May
31, 1960 when the three drums of formaldehyde were delivered
to the broker by the arrastre operator. The consignee or its
broker should have filed the claim for nondelivery within fifteen
days from May 31, 1960 or on or before June 15, 1960.
The filing of its claim on June 17, 1960 was obviously out of
time. The filing of a claim within the fifteen-day period is a
condition precedent to the filing of the court action (Villanueva
vs. Barber Wilhelmsen Line, 110 Phil. 34).
Failure to file the claim within the fifteen-day period relieves the
arrastre operator of any liability for nondelivery of the cargo
(Insurance Company of North America vs. Manila Port Service, L26268, March 25, 1970, 32 SCRA 39).
The consignee was bound by paragraph 15 of the management
contract because the dorsal side of the delivery permit used by
its broker in obtaining delivery of the cargo (Exh. C) contains the
following.
Important Notice
This permit is presented subject to all the
terms and conditions of the Management
Contract between the Bureau of Customs and
Manila Port Service and amendments thereto
or alterations thereof, particularly but not
limited to Paragraph 15 thereof limiting the
Company liability to P500.00 per package,
unless the value of the goods is otherwise
specified, declared or manifested and the
corresponding arrastre charges have been
paid, providing exemptions of restrictions from
liability; and releasing the Company from
liability unless suit is brought within one (1)
year from the date of discharge of the goods,
or from date when the claim for the value of
the goods has been rejected, provided, such
claim shall have been riled with the company
within 15 days from date of discharge of the
last package from carrying vessel.
Hence, the consignee and its subrogee appellant insurance
company, through the customs broker, is deemed to have notice
of the said management contract (Domestic Insurance Co. of the
Phils. vs. Manila Port Service and M.R.R. Co., 114 Phil. 131, 134).
WHEREFORE, the lower court's judgment dismissing the
complaint is affirmed. No costs.
SO ORDERED.
Fernandez (Chairman), Barredo, Antonio and Martin, JJ., concur.
Concepcion, Jr., J., is on leave.
Martin, J., was designated to sit in the Second Division.
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY,
INC., defendants-appellants.
CUEVAS, J.:+.wph!1
This is an appeal taken directly to Us on certiorari from the
decision of the defunct Court of First Instance of Manila, finding
defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure
question of law, which is, the liability of the defendants, now
appellants, under the bill of lading covering the subject
shipment.
The case arose from an importation made by plaintiff, now
appellee, SAMAR MINING COMPANY, INC., of one (1) crate
Optima welded wedge wire sieves through the M/S
SCHWABENSTEIN a vessel owned by defendant-appellant
NORDEUTSCHER LLOYD, (represented in the Philippines by its
agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill
of Lading No. 18 duly issued to consignee SAMAR MINING
COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and
delivered in good order and condition to the bonded warehouse
of AMCYL. 1 The goods were however never delivered to, nor
received by, the consignee at the port of destination Davao.

When the letters of complaint sent to defendants failed to elicit

the desired response, consignee herein appellee, filed a formal
claim for P1,691.93, the equivalent of $424.00 at the prevailing
rate of exchange at that time, against the former, but neither
paid. Hence, the filing of the instant suit to enforce payment.
Defendants-appellants brought in AMCYL as third party
defendant.
The trial court rendered judgment in favor of plaintiff, ordering
defendants to pay the amount of P1,691.93 plus attorney's fees
and costs. However, the Court stated that defendants may
recoup whatever they may pay plaintiff by enforcing the
judgment against third party defendant AMCYL which had earlier
been declared in default. Only the defendants appealed from
said decision.
The issue at hand demands a close scrutiny of Bill of Lading No.
18 and its various clauses and stipulations which should be
examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary
as well because of the nature of the bill of lading which operates
both as a receipt for the goods; and more importantly, as a
contract to transport and deliver the same as stipulated
therein. 2 Being a contract, it is the law between the parties
thereto 3 who are bound by its terms and conditions 4 provided
that these are not contrary to law, morals, good customs, public
order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1)
crate of Optima welded wedge wire sieves was received by the
carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the
port of destination or the "port of discharge of goods in this
case, Davao, the carrier undertook to transport the goods in its
vessel, M/S SCHWABENSTEIN only up to the "port of discharge
from ship-Manila. Thereafter, the goods were to be transshipped
by the carrier to the port of destination or "port of discharge of
goods The stipulation is plainly indicated on the face of the bill
which contains the following phrase printed below the space
provided for the port of discharge from ship", thus: t.hqw
if goods are to be transshipped at port of
discharge, show destination under the column
for "description of contents" 7
As instructed above, the following words appeared typewritten
under the column for "description of contents": t.hqw
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at
the port of Manila, and delivering the same into the custody of
AMCYL, the bonded warehouse, appellants were acting in full
accord with the contractual stipulations contained in Bill of
Lading No. 18. The delivery of the goods to AMCYL was part of
appellants' duty to transship the goods from Manila to their port
of destination-Davao. The word "transship" means: t.hqw
to transfer for further transportation from one
ship or conveyance to another 9
The extent of appellant carrier's responsibility and/or liability in
the transshipment of the goods in question are spelled out and
delineated under Section 1, paragraph 3 of Bill of Lading No. 18,
to wit: t.hqw
The carrier shall not be liable in any capacity
whatsoever for any delay, loss or damage
occurring before the goods enter ship's tackle
to be loaded or after the goods leave ship's
tackle to be discharged, transshipped or
forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides: t.hqw
Whenever the carrier or m aster may deem it
advisable or in any case where the goods are
placed at carrier's disposal at or consigned to
a point where the ship does not expect to load
or discharge, the carrier or master may,
without notice, forward the whole or any part
of the goods before or after loading at the
original port of shipment, ... This carrier, in
making arrangements for any transshipping or

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TRANSPORTATION LAW
Code of Commerce
forwarding vessels or means of transportation
not operated by this carrier shall be
considered solely the forwarding agent of the
shipper and without any other responsibility
whatsoever even though the freight for the
whole transport has been collected by him. ...
Pending or during forwarding or transshipping
the carrier may store the goods ashore or
afloat solely as agent of the shipper and at
risk and expense of the goods and the carrier
shall not be liable for detention nor
responsible for the acts, neglect, delay or
failure to act of anyone to whom the goods are
entrusted or delivered for storage, handling or
any service incidental thereto (Emphasis
supplied) 10
Defendants-appellants now shirk liability for the loss of the
subject goods by claiming that they have discharged the same
in full and good condition unto the custody of AMCYL at the port
of discharge from ship Manila, and therefore, pursuant to the
aforequoted stipulation (Sec. 11) in the bill of lading, their
responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in
bills of lading exempting the carrier from liability for loss or
damage to the goods when the same are not in its actual
custody has been upheld by Us in PHOENIX ASSURANCE CO.,
LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case
matches the present controversy not only as to the material
facts but more importantly, as to the stipulations contained in
the bill of lading concerned. As if to underline their awesome
likeness, the goods in question in both cases were destined for
Davao, but were discharged from ship in Manila, in accordance
with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which
are substantially the same as the subject stipulations before Us,
provides: t.hqw
The carrier shall not be liable in any capacity
whatsoever for any loss or damage to the
goods while the goods are not in its actual
custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements
with any person for or in connection with all
transshipping or forwarding of the goods or
the use of any means of transportation or
forwarding of goods not used or operated by
the carrier, shall be considered solely the
agent of the shipper and consignee and
without any other responsibility whatsoever or
for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good
customs, public order or public policy, We sustained their
validity 13 Applying said stipulations as the law between the
parties in the aforecited case, the Court concluded that: t.
hqw
... The short form Bill of Lading ( ) states in no
uncertain terms that the port of discharge of
the cargo is Manila, but that the same was to
be transshipped beyond the port of discharge
to Davao City. Pursuant to the terms of the
long form Bill of Lading ( ), appellee's
responsibility as a common carrier ceased the
moment the goods were unloaded in Manila
and in the matter of transshipment, appellee
acted merely as an agent of the shipper and
consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the
authority of the above pronouncements, and in conformity with
the pertinent provisions of the New Civil Code, Section 11 of Bill
of Lading No. 18 and the third paragraph of Section 1 thereof
are valid stipulations between the parties insofar as they
exempt the carrier from liability for loss or damage to the goods
while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or
deterioration of goods transported from a foreign country to the
Philippines is governed primarily by the New Civil Code. 15 In all

matters not regulated by said Code, the rights and obligations of

common carriers shall be governed by the Code of Commerce
and by special laws. 16 A careful perusal of the provisions of the
New Civil Code on common carriers (Section 4, Title VIII, Book
IV) directs our attention to Article 1736 thereof, which
reads: t.hqw
Article 1736. The extraordinary responsibility
of the common carrier lasts from the time the
goods are unconditionally placed in the
possession of, and received by the carrier for
transportation until the same are delivered,
actually or constructively, by the carrier to the
consignee, or to the person who has a right to
receive them, without prejudice to the
provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus: t.
hqw
Article 1738. The extraordinary liability of the
common carrier continues to be operative
even during the time the goods are stored in a
warehouse of the carrier at the place of
destination, until the consignee has been
advised of the arrival of the goods and has
had reasonable opportunity thereafter to
remove them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the
instant case. The said article contemplates a situation where the
goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were
still awaiting transshipment to their port of destination, and
were stored in the warehouse of a third party when last seen
and/or heard of. However, Article 1736 is applicable to the
instant suit. Under said article, the carrier may be relieved of the
responsibility for loss or damage to the goods upon actual or
constructive delivery of the same by the carrier to the
consignee, or to the person who has a right to receive them. In
sales, actual delivery has been defined as the ceding of
corporeal possession by the seller, and the actual apprehension
of corporeal possession by the buyer or by some person
authorized by him to receive the goods as his representative for
the purpose of custody or disposal. 17 By the same token, there
is actual delivery in contracts for the transport of goods when
possession has been turned over to the consignee or to his duly
authorized agent and a reasonable time is given him to remove
the goods. 18 The court a quo found that there was actual
delivery to the consignee through its duly authorized agent, the
carrier.
It becomes necessary at this point to dissect the complex
relationship that had developed between appellant and appellee
in the course of the transactions that gave birth to the present
suit. Two undertakings appeared embodied and/or provided for
in the Bill of Lading 19 in question. The first is FOR THE
TRANSPORT OF GOODS from Bremen, Germany to Manila. The
second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila
to Davao, with appellant acting as agent of the consignee. 20 At
the hiatus between these two undertakings of appellant which is
the moment when the subject goods are discharged in Manila,
its personality changes from that of carrier to that of agent of
the consignee. Thus, the character of appellant's possession
also changes, from possession in its own name as carrier, into
possession in the name of consignee as the latter's agent. Such
being the case, there was, in effect, actual delivery of the goods
from appellant as carrier to the same appellant as agent of the
consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that
may befall the goods from that point onwards. This is the full
import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be
made answerable for the value of the missing goods, It is true
that the transshipment of the goods, which was the object of the
agency, was not fully performed. However, appellant had
commenced said performance, the completion of which was
aborted by circumstances beyond its control. An agent who
carries out the orders and instructions of the principal without
being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the
object of the agency, 21This can be gleaned from the following
provisions of the New Civil Code on the obligations of the
agent: t.hqw
Article 1884. The agent is bound by his
acceptance to carry out the agency, and is

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TRANSPORTATION LAW
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liable for the damages which, through his nonperformance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for
damages if, there being a conflict between his
interests and those of the principal, he should
prefer his own.
Article 1892. The agent may appoint a
substitute if the principal has not prohibited
him from doing so; but he shall be responsible
for the acts of the substitute:
(1) When he was not given the power to
appoint one;
(2) When he was given such power but
without designating the person and the person
appointed was notoriously incompetent or
insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only
for fraud, but also for negligence which shall
be judged with more or less rigor by the
courts, according to whether the agency was
or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the
Philippines. Neither is there any showing of notorious
incompetence or insolvency on the part of AMCYT, which acted
as appellant's substitute in storing the goods awaiting
transshipment.
The actions of appellant carrier and of its representative in the
Philippines being in full faith with the lawful stipulations of Bill of
Lading No. 18 and in conformity with the provisions of the New
Civil Code on common carriers, agency and contracts, they incur
no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED.
Plaintiff-appellee's complaint is hereby DISMISSED.
No costs.
SO ORDERED.1wph1.t
Makasiar (Chairman), Guerrero, Abad Santos and Escolin,
concur.
Aquino, J., concurs in the result.
Concepcion Jr., J., took no part.

SECOND DIVISION
G.R. No. L-73490 June 18, 1987
UNITED STATES LINES, INC., petitioner ,
vs.
COMMISSIONER OF CUSTOMS. respondent...
PARAS, J.:
This is a petition for review of the decision of the Court of Tax
Appeals dated September 27, 1985, which affirmed the decision
of respondent Commissioner of Customs dated April 5, 1984,
imposing an administrative fine of P 10,000.00 against
petitioner's vessel, MV "American Venture," for violation of Sec.
1005 of the Tariff and Customs Code as amended, in relation to
Sec. 2521 of the same Code. .
On October 15, 1976, the vessel "American Venture" arrived in
Manila from Hongkong. Among the shipments on board were
cargoes consigned by the same shipper and from the same
loading port consisting of two (2) containers which were
described in the respective bills of lading BL No. 38 and BL No.
39 as follows: .
"Shipper's Load and Count" .
1 Container (Part) Cont. 2020984 Seal 601-04725 38 cases
100% Cotton brushed denim broken twill .

1 Container Cont. 2101730 Seal 601-04707 40 Cases 100%

Cotton Sulphur Dyed denim .
Total: One Container Only "Shipper's Load and Count" .
The aforestated information as furnished by the Shipper, was
copied or entered into the vessel's Inward Foreign Manifest.
Upon opening of the containers by the Bureau of
Customs, it was discovered that a) Container No. USLU-2020984
contained 34 cases of cotton denim instead of 38 cases and b)
Container No. USLU-2101730 contained 44 cases of cotton
denim instead of 40 cases. The total number of cases in the two
containers was the same, however, to wit, 78 cases. Having
been informed of the differences herein petitioner had the
Manifest amended with the consent of the customs authorities
on November 3, 1976 to reflect the actual quantity of the cases
in each of the containers. Subsequently, the Collector of
Customs instituted proceedings against herein petitioner for
alleged violation of Sec. 1005 in relation to Sec. 2521 of the
Tariff and Customs Code. Not finding the explanation of the
herein petitioner satisfactory, the Collector of Customs found
petitioner guilty of violating said provisions of the Tariff and
Customs Code and ordered it to pay a fine of P 10,000.00.
Appeal was made by the petitioner to the Commissioner of
Customs, who affirmed the said decision in toto. Upon a petition
to review the decision of the Commissioner of Customs, the
Court of Tax Appeals (CTA) affirmed the assailed decision. .
In its petition for review before the Court of Tax Appeals,
petitioner assails the Commissioner of Customs, in disregarding
Customs Administrative Order (CAO) No. 8-75 particularly in not
applying Sec. 1124 thereof and in not treating each container as
the unit of cargo. Acting on these issues, the Court of Tax
Appeals ruled that Customs Administrative Order No. 8-75 is
irrelevant and contrary to Sec. 1005 of the Tariff and Customs
Code, We quote the tax tribunal: .
Customs Administrative Order (CAO) No. 8-75 simply defines the
term "Shipper's Load and Count" without any further provisions
or explicit explanation as to the scope of its applicability. While
the concept may be relevant in determining responsibility in
case of injury or damage to the cargo arising from loading,
handling or movement of the cargo, the same cannot positively,
or even impliedly, be viewed as an exception to the provisions of
Sections 1005 and 2521 of the Tariff and Customs Code
imposing a mandatory duty on vessels from foreign ports to
have on board true and accurate manifests of their cargoes.
Besides, Customs Administrative Order No. 8-75 is merely an
administrative order and the same cannot certainly modify or
amend a law or statute like the Tariff and Customs Code, and
defeat the purpose of its enactment. (p. 39, Rollo) .
Petitioner now seeks before Us the determination of the
following issues: .
1. Whether or not CAO No. 8-75 is irrelevant
and contrary to Sec. 1005 of the Tariff and
Customs Code. .
2. Whether or not a carrier of containerized
cargo should be held liable for a fine under
Sec. 2521 in relation to Sec. 1005 of the Tariff
and Customs Code upon a clerical error
imputable to the Shipper alone, and not
discoverable by the carrier until after
examination by Customs of the importation. .
3. Whether or not appellant had violated Sec.
1005 of the Tariff and Customs Code
notwithstanding that the total content of the
two-container shipment in question (78 bales
is exactly the same quantity (78 bales of the
merchandise described in the bills of lading
and the Inward Foreign Manifest. .
Sec. 1124 of Customs Administrative Order No. 8-75 reads as
follows: .
Shipper's 'Load and Count' a container packed with cargo by one
shipper where the quantity, description and conditions of the
cargo is the sole responsibility of the shipper. (emphasis
supplied); .
and quoted hereunder are the relevant provisions of the Tariff
and Customs Code: .
SEC. 1005. Every vessel from a foreign port must have on board
a complete manifest of all her cargo. .
xxx xxx xxx
Each manifest shall include the port of departure and the port of
delivery with the marks, numbers, quantity and description of
the packages and the names of the consignee thereof. .
xxx xxx xxx
A cargo manifest shall in no case be changed
or altered after entry of the vessel except by
means of an amendment by the master,
consignee or agent thereof, under oath, and
attached to the original manifest: Provided,
however, that after the invoice and/or entry
covering an importation have been received
and recorded in the office of the Appraiser, no
amendment of the Manifest shall be allowed,
except when it is obvious that a clerical error

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TRANSPORTATION LAW
Code of Commerce
or any other discrepancy has been committed
in the preparation of the manifest without any
fraudulent intent, discovery of which could not
have been made until after examination of the
importation has been completed. (Emphasis
supplied)
SEC. 2521. Failure to Supply Requisite Manifests. - If any vessel
or aircraft enters or departs from a port of entry without
submitting the proper manifests to the customs authorities, or
shall enter or depart conveying unmanifested cargo other than
as stated in the next preceding section hereof, such vessel or
aircraft shall be fined in a sum not less than ten thousand pesos
(P10,000.00) but not exceeding thirty thousand P30,000.00
pesos. .
The same fine shall be imposed upon any arriving or departing
vessel or aircraft if the master or pilot in command shall fail to
deliver or mail to the Commission on Audit a true copy of the
manifest of the incoming or outgoing cargo, as required by law..
It is petitioner's contention that Sec. 24 of Customs
Administrative Order No. 8-75 was promulgated in line with the
government policy of encouraging containerization which results
in the laudable decongestion of ports of entry. Such
arrangement has been sanctioned worldwide by international
ports to cope up with the ever-increasing volume of cargoes of
the shipping industry. Hence, the containerization system was
devised to facilitate the expeditious and economical loading,
carriage and unloading of cargoes. Under this system, the
shipper loads his cargoes in a specially designed container,
seals the container and delivers it to the carrier for
transportation. The carrier does not participate in the counting
of the merchandise for loading into the container, the actual
loading thereof nor the sealing of the container. Having no
actual knowledge of the kind, quantity or condition of the
contents of the container, the carrier issues the corresponding
bill of lading based on the declaration of the shipper. The bill of
lading describes the cargo as a container simply and it states
the contents of the container either as advised by the shipper or
prefaced by the phrase "said to contain." Clearly then, the
matter quantity, description and conditions of the cargo is the
sole responsibility of the shipper. .
The case at bar involves a situation intended precisely to be
covered by Sec. 24 of CAO No. 8-75. An examination of said
Customs Administrative Order in relacion to Sec. 1005 and Sec.
2521 shows that containerized cargoes on "Shipper's Load and
Count" shipping arrangement are not required to be checked
and inventoried by the carrier at the port of loading or before
said Carrier enters the port of unloading in the Philippines since
it is the shipper who has the sole responsibility for the quantity,
description and condition of the cargoes shipped in container
vans, each container van considered as a unit of transport. .
Petitioner's vessel, the "American Venture" faithfully complied
with the requirements of Sec. 1005 of the Tariff and Customs
Code. Said vessel submitted a complete manifest of all her
cargoes. However there was a slight error thru no fraudulent
intent or negligence of the vessel. Said vessel relied on the
information in the bill of lading submitted by the shipper in
making the Manifest. There was no way for the vessel to
discover until after the opening of the containers and the
inventory of their contents, that the first container contained 34
cases and the second container contained 44 cases.
Furthermore, noteworthy is the fact that Container No. 2020984
is described expressly in both the bill of lading and the vessel's
manifest as a "Part" of the goods contained in the second
Container No. 2101730, an important indication that the
contents of Container No. 2020984 and Container No. 2101730
are parts of the same importation coming from one and the
same shipper and destined to the same consignee and that in
the examination of contents for Customs purposes, the number
of cases should be the total in the 2 containers, to wit 78
cases. .
Considering therefore, that the total number of cases of cotton
denims as declared by the shipper in the manifest is 78 as borne
on two containers, and considering the undisputed fact that the
same total number of 78 cases of cotton denims were found by
the Bureau of Customs on board petitioner's vessel, it is clear
that the vessel's Manifest reflects a complete and substantially
accurate statement of the cargoes contained therein in
accordance with the requirement of Sec. 1005 in relation to Sec.
2521 of the Tariff and Customs Code. Accordingly, therefore, the
imposition by respondent-appellee of a fine of P10,000.00 upon
petitioner-appellant's vessel allegedly for the failure of the latter
to have on board a complete manifest of all her cargoes is
patently baseless, unfair, inconsiderate, and illegal. Besides the
clerical error cannot be attributed to the shipper. Finally, there
was no financial loss for the government. .
WHEREFORE, finding the instant petition meritorious, the
assailed decision of the Court of Tax Appeals imposing a fine of P
10,000.00 on petitioner's vessel, MV "American Venture" for
alleged violation of Sec. 1005 in relation to Sec. 2521 of the
Tariff and Customs Code, as amended, is hereby REVERSED and
SET ASIDE. .

SO ORDERED. .
Fernan C.J., Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

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.
CAEZAL, AND SOTERA E. CAEZAL, respondents.

PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from
a collision between the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19,
1987 carrying petroleum products of Caltex (Philippines), Inc.
(hereinafter Caltex) no one could have guessed that it would
collide with MV Doa Paz, killing almost all the passengers and
crew members of both ships, and thus resulting in one of the
country's worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals
decision 1 holding petitioner jointly liable with the operator of MT
Vector for damages when the latter collided with Sulpicio Lines,
Inc.'s passenger ship MV Doa Paz.
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 with
8,800 barrels of petroleum products shipped by petitioner
Caltex. 2 MT Vector is a tramping motor tanker owned and
operated by Vector Shipping Corporation, engaged in the
business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil. During that particular voyage,
the MT Vector carried on board gasoline and other oil products
owned by Caltex by virtue of a charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the passenger ship
MV Doa Paz left the port of Tacloban headed for Manila with a
complement of 59 crew members including the master and his
officers, and passengers totaling 1,493 as indicated in the Coast
Guard Clearance. 4 The MV Doa Paz is a passenger and cargo
vessel owned and operated by Sulpicio Lines, Inc. plying the
route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/
Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels
collided in the open sea within the vicinity of Dumali Point
between Marinduque and Oriental Mindoro. All the
crewmembers of MV Doa Paz died, while the two survivors from
MT Vector claimed that they were sleeping at the time of the
incident.1wphi1.nt
The MV Doa Paz carried an estimated 4,000 passengers; many
indeed, were not in the passenger manifest. Only 24 survived
the tragedy after having been rescued from the burning waters
by vessels that responded to distress calls. 5Among those who
perished were public school teacher Sebastian Caezal (47
years old) and his daughter Corazon Caezal (11 years old),
both unmanifested passengers but proved to be on board the
vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No.
659-87 after investigation found that the MT Vector, its
registered operator Francisco Soriano, and its owner and actual
operator Vector Shipping Corporation, were at fault and
responsible for its collision with MV Doa Paz. 6
On February 13, 1989, Teresita Caezal and Sotera E. Caezal,
Sebastian Caezal's wife and mother respectively, filed with the
Regional Trial Court, Branch 8, Manila, a complaint for "Damages
Arising from Breach of Contract of Carriage" against Sulpicio
Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third
party complaint against Francisco Soriano, Vector Shipping

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TRANSPORTATION LAW
Code of Commerce
Corporation and Caltex (Philippines), Inc. Sulpicio alleged that
Caltex chartered MT Vector with gross and evident bad faith
knowing fully well that MT Vector was improperly manned, illequipped, unseaworthy and a hazard to safe navigation; as a
result, it rammed against MV Doa Paz in the open sea setting
MT Vector's highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision
dismissing, the third party complaint against petitioner. The
dispositive portion reads:

WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIO
HERMACHUELOS
Associate Justice Associate Justice.

Hence, this petition.

We find the petition meritorious.

WHEREFORE, judgment is hereby rendered in

favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:

First: The charterer has no liability for damages under Philippine

Maritime laws.

1. For the death of Sebastian E. Caezal and

his 11-year old daughter Corazon G. Caezal,
including loss of future earnings of said
Sebastian, moral and exemplary damages,
attorney's fees, in the total amount of P
1,241,287.44 and finally;

The respective rights and duties of a shipper and the carrier

depends not on whether the carrier is public or private, but on
whether the contract of carriage is a bill of lading or equivalent
shipping documents on the one hand, or a charter party or
similar contract on the other. 9

2. The statutory costs of the proceedings.

Petitioner and Vector entered into a contract of affreightment,

also known as a voyage charter. 10

Likewise, the 3rd party complaint is hereby

DISMISSED for want of substantiation and with
costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September
1992. ARSENIO M. GONONGJudge 7
On appeal to the Court of Appeals interposed by Sulpicio Lines,
Inc., on April 15, 1997, the Court of Appeal modified the trial
court's ruling and included petitioner Caltex as one of the those
liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the
judgment rendered by the Regional Trial Court
is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is
ordered to pay the heirs of Sebastian E.
Caezal and Corazon Caezal:
1. Compensatory damages for the death of
Sebastian E. Caezal and Corazon Caezal the
total amount of ONE HUNDRED THOUSAND
PESOS (P100,000);
2. Compensatory damages representing the
unearned income of Sebastian E. Caezal, in
the total amount of THREE HUNDRED SIX
THOUSAND FOUR HUNDRED EIGHTY
(P306,480.00) PESOS;
3. Moral damages in the amount of THREE
HUNDRED THOUSAND PESOS (P300,000.00);

A charter party is a contract by which an entire ship, or some

principal part thereof, is let by the owner to another person for a
specified time or use; a contract of affreightment is one by
which the owner of a ship or other vessel 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 a fixed period of
time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire of
the vessel only, either for a determinate period of time or for a
single or consecutive voyage, the ship owner to supply the
ship's store, pay for the wages of the master of the crew, and
defray the expenses for the maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the
charterer 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 leaves the
general owner in possession of the ship as owner for the
voyage, the rights and the responsibilities of ownership rest on
the owner. The charterer is free from liability to third persons in
respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or
bareboat, (2) time charter, (3) voyage charter. Does a charter
party agreement turn the common carrier into a private one? We
need to answer this question in order to shed light on the
responsibilities of the parties.

4. Attorney's fees in the concept of actual

damages in the amount of FIFTY THOUSAND
PESOS (P50,000.00);

In this case, the charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a
voyage charter, which retains the character of the vessel as a
common carrier.

5. Costs of the suit.

In Planters Products, Inc. vs. Court of Appeals,

Third party defendants Vector Shipping Co.

and Caltex (Phils.), Inc. are held equally liable
under the third party complaint to
reimburse/indemnify defendant Sulpicio Lines,
Inc. of the above-mentioned damages,
attorney's fees and costs which the latter is
adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the
vessel at fault for the collision) and the other
half by Caltex (Phils.), Inc. (being the charterer
that negligently caused the shipping of
combustible cargo aboard an unseaworthy
vessel).
SO ORDERED. JORGE S. IMPERIAL Associate
Justice

14

we said:

It is therefore imperative that a public carrier

shall remain as such, notwithstanding the
charter of the whole portion of a vessel of one
or more persons, provided the charter is
limited to the ship only, as in the case of a
time-charter or the voyage charter. It is only
when the charter includes both the vessel and
its crew, as in a bareboat or demise that a
common carrier becomes private, at least
insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains
possession and control of the ship, although
her holds may, for the moment, be the
property of the charterer.

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Later, we ruled in Coastwise Lighterage Corporation vs. Court of
Appeals: 15
Although a charter party may transform a
common carrier into a private one, the same
however is not true in a contract of
affreightment . . .
A common carrier is a person or corporation whose regular
business is to carry passengers or property for all persons who
may choose to employ and to remunerate him. 16 MT Vector fits
the definition of a common carrier under Article 1732 of the Civil
Code. In Guzman vs. Court of Appeals, 17 we ruled:
The Civil Code defines "common carriers" in
the following terms:
Art. 1732. Common carriers are persons,
corporations, firms or associations engaged in
the business of carrying or transporting
passengers for 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 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
from a narrow segment of the general
population. We think that Article 1733
deliberately refrained from making such
distinctions.
It appears to the Court that private respondent
is properly characterized as a common carrier
even though he merely "back-hauled" goods
for other merchants from Manila to
Pangasinan, although such backhauling was
done on a periodic, occasional rather than
regular or scheduled manner, and even
though respondent's principal occupation was
not the carriage of goods for others. There is
no dispute that private respondent charged his
customers a fee for hauling their goods; that
the fee frequently fell below commercial
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 the beginning of the voyage to exercise
due diligence to

hazardous. 19 For these reasons, a passenger or a shipper of

goods is under no obligation to conduct an inspection of the ship
and its crew, the carrier being obliged by law to impliedly
warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages
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 highly
combustible fuel cargo aboard an unseaworthy vessel such as
the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of
inspection 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 and
certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector transport its
cargo despite these deficiencies.
1. The master of M/T Vector did not posses the required Chief
Mate license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor
Patron, authorized to navigate only in bays and rivers when the
subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate
the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and
lookout; and
5. The vessel had a defective main engine.

As basis for the liability of Caltex, the Court of Appeals relied on

Articles 20 and 2176 of the Civil Code, which provide:
Art. 20. Every person who contrary to law,
willfully or negligently causes damage to
another, shall indemnify the latter for the
same.
Art. 2176. Whoever by act or omission
causes damage to another, there being fault
or negligence, is obliged to pay for the
damage done. Such fault or negligence, if
there is no pre-existing contractual relation
between the parties, is called a quasidelict and is governed by the provisions of this
Chapter.

(a) Make the ship seaworthy;

And what is negligence?

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

The Civil Code provides:

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the
seaworthiness of the ship. For a vessel to be seaworthy, it must
be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of
a common carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of the
business of common carriers. This business is impressed with a
special public duty. The public must of necessity rely on the care
and skill of common carriers in the vigilance over the goods and
safety of the passengers, especially because with the modern
development of science and invention, transportation has
become more rapid, more complicated and somehow more

20

Art. 1173. The fault or negligence of the

obligor consists in the omission of that
diligence which is required by the nature of
the obligation and corresponds with the
circumstances of the persons, of the time and
of the place. When negligence shows bad
faith, the provisions of Article 1171 and 2201
paragraph 2, shall apply.
If the law does not state the diligence which is
to be observed in the performance, that which
is expected of a good father of a family shall
be required.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said
that negligence, as commonly understood, is conduct which
naturally or reasonably creates undue risk or harm to others. It

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TRANSPORTATION LAW
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may be the failure to observe that degree of care, precaution,
and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct
of human affairs, would do.
The charterer of a vessel has no obligation before transporting
its cargo to ensure that the vessel it chartered complied with all
legal requirements. The duty rests upon the common carrier
simply for being engaged in "public service." 22The Civil Code
demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances of
the persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector, liability
as found by the Court of Appeals is without basis.1wphi1.nt
The relationship between the parties in this case is governed by
special laws. Because of the implied warranty of
seaworthiness, 23 shippers of goods, when transacting with
common carriers, are not expected to inquire into the vessel's
seaworthiness, genuineness of its licenses and compliance with
all maritime laws. To demand more from shippers and hold them
liable in case of failure exhibits nothing but the futility of our
maritime laws insofar as the protection of the public in general
is concerned. By the same token, we cannot expect passengers
to inquire every time they board a common carrier, whether the
carrier possesses the necessary papers or that all the carrier's
employees are qualified. Such a practice would be an absurdity
in a business where time is always of the essence. Considering
the nature of transportation business, passengers and shippers
alike customarily presume that common carriers possess all the
legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary
diligence like any other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had
reasons to believe that MT Vector could legally transport cargo
that time of the year.
Atty. Poblador: Mr. Witness, I direct your
attention to this portion here containing the
entries here under "VESSEL'S DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21,
1986, and Expires December 7, 1987", Mr. Witness, what steps
did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT
Vector?
Apolinario Ng: At the time when I extended the Contract, I did
nothing because the tanker has a valid C.I. which will expire on
December 7, 1987 but on the last week of November, I called
the attention of Mr. Abalos to ensure that the C.I. be renewed
and Mr. Abalos, in turn, assured me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from
Mr. Abalos, and said they were going to send me a copy as soon
as possible, sir. 24
xxx xxx xxx

Apolinar Ng: No sir, because

as I said before, the
operation Manager assured
us that they were able to
secure a renewal of the
Certificate of Inspection and
that they will in time submit
us a
copy. 26
Finally, on Mr. Ng's redirect examination:
Atty. Poblador: Mr. Witness,
were you aware of the
pending expiry of the
Certificate of Inspection in
the coastwise license on
December 7, 1987. What
was your assurance for the
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 a long time
business partner; secondly, those three years; they were
allowed to sail by the Coast Guard. That are some that make me
believe that they in fact were able to secure the necessary
renewal.
Q: If the Coast Guard clears a vessel to sail, what would that
mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the
effect that if it was allowed, referring to MV Vector, to sail, where
it is loaded and that it was scheduled for a destination by the
Coast Guard, it means that it has Certificate of Inspection
extended as assured to this witness by Restituto Abalos. That in
no case MV Vector will be allowed to sail if the Certificate of
inspection is, indeed, not to be extended. That was his repeated
explanation to the cross-examination. So, there is no need to
clarify the same in the re-direct examination. 27
Caltex and Vector Shipping Corporation had been doing business
since 1985, or for about two years before the tragic incident
occurred in 1987. Past services rendered showed no reason for
Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to
presume that the ship was seaworthy as even the Philippine
Coast Guard itself was convinced of its seaworthiness. All things
considered, we find no legal basis to hold petitioner liable for
damages.
As Vector Shipping Corporation did not appeal from the Court of
Appeals' decision, we limit our ruling to the liability of Caltex
alone. However, we maintain the Court of Appeals' ruling insofar
as Vector is concerned.

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 business relation, we trust
Mr. Abalos and the fact that the vessel was able to sail indicates
that the documents are in order. . . . 25
On cross examination
Atty. Sarenas: This being the
case, and this being an
admission by you, this
Certificate of Inspection has
expired on December 7. Did
it occur to you not to let the
vessel sail on that day
because of the very
approaching date of
expiration?

WHEREFORE, the Court hereby GRANTS the petition and SETS

ASIDE the decision of the Court of Appeals in CA-G.R. CV No.
39626, promulgated on April 15, 1997, insofar as it held Caltex
liable under the third party complaint to reimburse/indemnify
defendant Sulpicio Lines, Inc. the damages the latter is
adjudged to pay plaintiffs-appellees. The Court AFFIRMS the
decision of the Court of Appeals insofar as it orders Sulpicio
Lines, Inc. to pay the heirs of Sebastian E. Caezal and Corazon
Caezal damages as set forth therein. Third-party defendantappellee Vector Shipping Corporation and Francisco Soriano are
held liable to reimburse/indemnify defendant Sulpicio Lines, Inc.
whatever damages, attorneys' fees and costs the latter is
adjudged to pay plaintiffs-appellees in the case.1wphi1.nt
No costs in this instance.
SO ORDERED.

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TRANSPORTATION LAW
Code of Commerce
G.R. No. 119756 March 18, 1999
FORTUNE EXPRESS, INC., petitioner,
vs.
COURT OF APPEALS, PAULIE U.CAORONG, and minor
childrenYASSER KING CAORONG, ROSE HEINNI and
PRINCE ALEXANDER, all surnamed CAORONG, and
represented by their mother PAULIE U.
CAORONG, respondents.

MENDOZA, J.:
This is an appeal by petition for review on certiorari of the
decision, dated July 29, 1994, of the Court of Appeals, which
reversed the decision of the Regional Trial Court, Branch VI,
Iligan City. The aforesaid decision of the trial court dismissed the
complaint of public respondents against petitioner for damages
for breach of contract of carriage filed on the ground that
petitioner had not exercised the required degree of diligence in
the operation of one of its buses. Atty. Talib Caorong, whose
heirs are private respondents herein, was a passenger of the
bus and was killed in the ambush involving said bus.
The facts of the instant case are as follows:
Petitioner is a bus company in northern Mindanao. Private
respondent Paulie Caorong is the widow of Atty. Caorong, while
private respondents Yasser King, Rose Heinni, and Prince
Alexander are their minor children.
On November 18, 1989, a bus of petitioner figured in an
accident with a jeepney in Kauswagan, Lanao del Norte,
resulting in the death of several passengers of the jeepney,
including two Maranaos. Crisanto Generalao, a volunteer field
agent of the Constabulary Regional Security Unit No. X,
conducted an investigation of the accident. He found that the
owner of the jeepney was a Maranao residing in Delabayan,
Lanao del Norte and that certain Maranaos were planning to
take revenge on the petitioner by burning some of its buses.
Generalao rendered a report on his findings to Sgt. Reynaldo
Bastasa of the Philippine Constabulary Regional Headquarters at
Cagayan de Oro. Upon the instruction of Sgt. Bastasa, he went
to see Diosdado Bravo, operations manager of petitioner, its
main office in Cagayan de Oro City. Bravo assured him that the
necessary precautions to insure the safety of lives and property
would be taken. 1
At about 6:45 P.M. on November 22, 1989, three armed
Maranaos who pretended to be passengers, seized a bus of
petitioner at Linamon, Lanao del Norte while on its way to Iligan
City. Among the passengers of the bus was Atty. Caorong. The
leader of the Maranaos, identified as one Bashier Mananggolo,
ordered the driver, Godofredo Cabatuan, to stop the bus on the
side of the highway. Mananggolo then shot Cabatuan on the
arm, which caused him to slump on the steering wheel. The one
of the companions of Mananggolo started pouring gasoline
inside the bus, as the other held the passenger at bay with a
handgun. Mananggolo then ordered the passenger to get off the
bus. The passengers, including Atty. Caorong, stepped out of the
bus and went behind the bushes in a field some distance from
the highway. 2
However, Atty. Caorong returned to the bus to retrieve
something from the overhead rack. at that time, one of the
armed men was pouring gasoline on the head of the driver.
Cabatuan, who had meantime regained consciousness, heard
Atty. Caorong pleading with the armed men to spare the driver
as he was innocent of any wrong doing and was only trying to
make a living. The armed men were, however, adamant as they
repeated the warning that they were going to burn the bus
along with its driver. During this exchange between Atty.
Caorong and the assailants, Cabatuan climbed out of the left
window of the bus and crawled to the canal on the opposite side
of the highway. He heard shots from inside the bus. Larry de la
Cruz, one of the passengers, saw that Atty. Caorong was hit.
Then the bus was set on fire. Some of the passengers were able
to pull Atty. Caorong out of the burning bus and rush him to the
Mercy Community Hospital in Iligan City, but he died while
undergoing operation. 3
The private respondents brought this suit for breach of contract
of carriage in the Regional Trial Court, Branch VI, Iligan City. In
its decision, dated December 28, 1990, the trial court dismissed
the complaint, holding as follows:

The fact that defendant, through Operations

Manager Diosdado Bravo, was informed of the
"rumors" that the Moslems intended to take
revenge by burning five buses of defendant is
established since the latter also utilized
Crisanto Generalao as a witness. Yet despite
this information, the plaintiffs charge,
defendant did not take proper precautions. . . .
Consequently, plaintiffs now fault the
defendant for ignoring the report. Their
position is that the defendant should have
provided its buses with security guards. Does
the law require common carriers to install
security guards in its buses for the protection
and safety of its passengers? Is the failure to
post guards on omission of the duty to
"exercise the diligence of a good father of the
family" which could have prevented the killing
of Atty. Caorong? To our mind, the diligence
demanded by law does not include the posting
of security guard in buses. It is an obligation
that properly belongs to the State. Besides,
will the presence of one or two security guards
suffice to deter a determined assault of the
lawless and thus prevent the injury
complained of? Maybe so, but again, perhaps
not. In other words, the presence of a security
guard is not a guarantee that the killing of
Atty. Caorong would have been definitely
avoided.
xxx xxx xxx
Accordingly, the failure of defendant to accord
faith and credit to the report of Mr. Generalao
and the fact that it did not provide security to
its buses cannot, in the light of the
circumstances, be characterized as
negligence.
Finally, the evidence clearly shows that the
assalants did not have the least intention of
the harming any of the passengers. They
ordered all the passengers to alight and set
fire on the bus only after all the passengers
were out of danger. The death of Atty. Caorong
was an unexpected and unforseen occurrense
over which defendant had no control. Atty.
Caorong performed an act of charity and
heroism in coming to the succor of the driver
even in the face of danger. He deserves the
undying gratitude of the driver whose life he
saved. No one should blame him for an act of
extraordinary charity and altruism which cost
his life. But neither should any blame be laid
on the doorstep of defendant. His death was
solely due to the willfull acts of the lawless
which defendant could neither prevent nor to
stop.
WHEREFORE, in view of the foregoing, the
complaint is hereby dismissed. For lack of
merit, the counter-claim is likewise dismissed.
No costs. 4
On appeal, however, the Court of Appeals reversed. It held:
In the case at bench, how did defendantappellee react to the tip or information that
certain Maranao hotheads were planning to
burn five of its buses out of revenge for the
deaths of two Maranaos in an earlier collision
involving appellee's bus? Except for the
remarks of appellee's operations manager that
"we will have our action . . . . and I'll be the
one to settle it personally," nothing concrete
whatsoever was taken by appellee or its
employees to prevent the execution of the
threat. Defendant-appellee never adopted
even a single safety measure for the
protection of its paying passengers. Were
there available safeguards? Of course, there
were: one was frisking passengers particularly
those en route to the area where the threats
were likely to be carried out such as where the
earlier accident occurred or the place of
influence of the victims or their locality. If
frisking was resorted to, even

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19

TRANSPORTATION LAW
Code of Commerce
temporarily, . . . . appellee might be legally
excused from liabilty. Frisking of passengers
picked up along the route could have been
implemented by the bus conductor; for those
boarding at the bus terminal, frisking could
have been conducted by him and perhaps by
additional personnel of defendant-appellee.
On hindsight, the handguns and especially the
gallon of gasoline used by the felons all of
which were brought inside the bus would have
been discovered, thus preventing the burning
of the bus and the fatal shooting of the victim.
Appellee's argument that there is no law
requiring it to provide guards on its buses and
that the safety of citizens is the duty of the
government, is not well taken. To be sure,
appellee is not expected to assign security
guards on all its buses; if at all, it has the duty
to post guards only on its buses plying
predominantly Maranaos areas. As discussed
in the next preceding paragraph, least
appellee could have done in response to the
report was to adopt a system of verification
such as the frisking of passengers boarding at
its buses. Nothing, and no repeat, nothing at
all, was done by defendant-appellee to protect
its innocent passengers from the danger
arising from the "Maranao threats." It must be
observed that frisking is not a novelty as a
safety measure in our society. Sensitive places
in fact, nearly all important places have
applied this method of security enhancement.
Gadgets and devices are avilable in the
market for this purpose. It would not have
weighed much against the budget of the bus
company if such items were made available to
its personnel to cope up with situations such
as the "Maranaos threats."
In view of the constitutional right to personal
privacy, our pronouncement in this decision
should not be construed as an advocacy of
mandatory frisking in all public conveyances.
What we are saying is that given the
circumstances obtaining in the case at bench
that: (a) two Maranaos died because of a
vehicular collision involving one of appellee's
vehicles; (b) appellee received a written report
from a member of the Regional Security Unit,
Constabulary Security Group, that the
tribal/ethnic group of the two deceased were
planning to burn five buses of appellee out of
revenge; and (c) appelle did nothing
absolutely nothing for the safety of its
passengers travelling in the area of influence
of the victims, appellee has failed to exercise
the degree of dilegence required of common
carriers. Hence, appellee must be adjudge
liable.
xxx xxx xxx
WHEREFORE the decision appealed from is
hereby REVERSED and another rendered
ordering defendant-appellee to pay plaintiffsappellants the following:
1) P3,399,649.20 as death indemnity;
2) P50,000.00 and P500.00 per appearance as attorney's fee
and
Costs against defendant-appellee. 5
Hence, this appeal. Petitioner contends:
(A) THAT PUBLIC RESPONDENT ERRED IN REVERSING THE
DECISION OF THE REGIONAL TRIAL COURT DATED DECEMBER
28, 1990 DISMISSING THE COMPLAINT AS WELL AS THE
COUNTERCLAIM, AND FINDING FOR PRIVATE RESPONDENTS BY
ORDERING PETITIONER TO PAY THE GARGANTUAN SUM OF
P3,449,649.20 PLUS P500.00 PER APPEARANCE AS ATTORNEY'S
FEES, AS WELL AS DENYING PETITIONERS MOTION FRO
RECONSIDERATION AND THE SUPPLEMENT TO SAID MOTION,
WHILE HOLDING, AMONG OTHERS, THAT THE PETITIONER

BREACHED THE CONTRACT OF THE CARRIAGE BY ITS FAILURE TO

EXCERCISE THE REQUIRED DEGREE OF DILIGENCE;
(B) THAT THE ACTS OF THE MARANAO OUTLAWS WERE SO
GRAVE, IRRESISTABLE, VIOLENT, AND FORCEFULL, AS TO BE
REGARDED ASCASO FORTUITO; AND
(C) THAT PUBLIC RESPONDENT COURT OF APPEALS SERIOUSLY
ERRED IN HOLDING THAT PETITIONER COULD HAVE PROVIDED
ADEQUATE SECURITY IN PREDOMINANTLY MUSLIM AREAS AS
PART OF ITS DUTY TO OBSERVE EXTRA-ORDINARY DILIGENCE AS
A COMMON CARRIER.
The instant has no merit.
First. Petitioner's Breach of the Contract of Carriage.
Art. 1763 of the Civil Code provides that a common carrier is
responsible for injuries suffered by a passenger on account of
wilfull acts of other passengers, if the employees of the common
carrier could have prevented the act through the exercise of the
diligence of a good father of a family. In the present case, it is
clear that because of the negligence of petitioner's employees,
the seizure of the bus by Mananggolo and his men was made
possible.
Despite warning by the Philippine Constabulary at Cagayan de
Oro that the Maranaos were planning to take revenge on the
petitioner by burning some of its buses and the assurance of
petitioner's operation manager, Diosdado Bravo, that the
necessary precautions would be taken, petitioner did nothing to
protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not
have failed to see that the malefactors had a large quantity of
gasoline with them. Under the circumstances, simple
precautionary measures to protect the safety of passengers,
such as frisking passengers and inspecting their baggages,
preferably with non-intrusive gadgets such as metal detectors,
before allowing them on board could have been employed
without violating the passenger's constitutional rights. As this
Court amended in Gacal v. Philippine Air Lines, Inc., 6 a common
carrier can be held liable for failing to prevent a hijacking by
frisking passengers and inspecting their baggages.
From the foregoing, it is evident that petitioner's employees
failed to prevent the attack on one of petitioner's buses because
they did not exercise the diligence of a good father of a family.
Hence, petitioner should be held liable for the death of Atty.
Caorong.
Second. Seizure of Petitioner's Bus not a Case of Force Majeure
The petitioner contends that the seizure of its bus by the armed
assailants was a fortuitous event for which it could not be held
liable.
Art. 1174 of the Civil Code defines a fortuitous event as an
occurence which could not be foreseen, is inevitable. InYobido v.
Court of Appeals, 7 we held that to considered as force majeure,
it is necessary that (1) the cause of the breach of the obligation
must be independent of the human will; (2) the event must be
either unforeseeable or unavoidable; (3) the occurence must be
render it impossible for the debtor to fulfill the obligation in a
normal manner; and (4) the obligor must be free of participation
in, or aggravation of, the injury to the creditor. The absence of
any of the requisites mentioned above would prevent the obligor
from being excused from liability.
Thus, in Vasquez v. Court of Appeals, 8 it was held that the
common carrier was liable for its failure to take the necessary
precautions against an approaching typhoon, of which it was
warned, resulting in the loss of the lives of several passengers.
The event was forseeable, and, thus, the second requisite
mentioned above was not fulfilled. This ruling applies by analogy
to the present case. Despite the report of PC agent Generalao
that the Maranaos were going to attack its buses, petitioner took
no steps to safeguard the lives and properties of its passengers.
The seizure of the bus of the petitioner was foreseeable and,
therefore, was not a fortuitous event which would exempt
petitioner from liabilty.
Petitioner invokes the ruling in Pilapil v. Court of
Appeals, 9 and De Guzman v. Court of Appeals, 10 in support of
its contention that the seizure of its bus by the assailants

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TRANSPORTATION LAW
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constitutes force majeure. In Pilapil v. Court of Appeals, 11 it was
held that a common carrier is not liable for failing to install
window grills on its buses to protect the passengers from
injuries cause by rocks hurled at the bus by lawless elements.
On the other hand, in De Guzman v. Court of Appeals, 12 it was
ruled that a common carriers is not responsible for goods lost as
a result of a robbery which is attended by grave or irresistable
threat, violence, or force.
It is clear that the cases of Pilapil and De Guzman do not apply
to the prensent case. Art. 1755 of the Civil Code provides that "a
common carrier is bound to carry the passengers as far as
human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances." Thus, we held in Pilapil and De Guzman that the
respondents therein were not negligent in failing to take special
precautions against threats to the safety of passengers which
could not be foreseen, such as tortious or criminal acts of third
persons. In the present case, this factor of unforeseeability (the
second requisite for an event to be considered force majeure) is
lacking. As already stated, despite the report of PC agent
Generalao that the Maranaos were planning to burn some of
petitioner's buses and the assurance of petitioner's operation
manager (Diosdado Bravo) that the necessary precautions
would be taken, nothing was really done by petitioner to protect
the safety of passengers.

petitioner acted in a wanton and reckless manner. Despite

warning that the Maranaos were planning to take revenge
against the petitioner by burning some of its buses, and contary
to the assurance made by its operations manager that the
necessary precautions would be take, the petitioner and its
employees did nothing to protect the safety of passengers.
Under the circumtances, we deem it reasonable to award private
respondents exemplary damages in the amount of
P100,000.00. 17
Attorney's Fees. Pursuant to Art. 2208, attorney's fees may be
recovered when, as in the instant case, exemplary damages are
awarded. In the recent case of Sulpicio Lines, Inc. v. Court of
Appeals, 18 we held an award of P50,000.00 as attorney's fees to
be reasonable. Hence, the private respondents are entitled to
attorney's fees in that amount.
Compensation for Loss of Earning Capacity. Art. 1764 of the Civil
Code, in relation to Art. 2206 thereof, provides that in addition
to the indemnity for death arising from the breach of contrtact
of carriage by a common carrier, the "defendant shall be liable
for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter." The formula
established in decided cases for computing net earning capacity
is as follows: 19
Gross Necessary

Third. Deceased not Guilty of Contributory Negligence

The petitioner contends that Atty. Caorong was guilty of
contributory negligence in returning to the bus to retrieve
something. But Atty. Caorong did not act recklessly. It should be
pointed out that the intended targets of the violence were
petitioners and its employees, not its passengers. The
assailant's motive was to retaliate for the loss of life of two
Maranaos as a result of the collision between petitioner's bus
and the jeepney in which the two Maranaos were riding.
Mananggolo, the leader of the group which had hijacked the bus,
ordered the passengers to get off the bus as they intended to
burn it and its driver. The armed men actually allowed Atty.
Caorong to retrieve something from the bus. What apparently
angered them was his attempt to help the driver of the bus by
pleading for his life. He was playing the role of the good
Samaritan. Certainly, this act cannot considered an act of
negligence, let alone recklessness.
Fourth. Petitioner Liable to Private Respaondents for Damages
We now consider the question of damages that the heirs of Atty.
Caorong, private respondents herein, are entitled to recover
from the petitioner.
Indemnity for Death. Art. 1764 of the Civil Code, in relation to
Art. 2206 thereof, provides for the payment of indemnity for the
death of passengers caused by the breach of contract of
carriage by a common carrier. Initially fixed in Art. 2206 at
P3,000.00, the amount of the said indemnity for death has
through the years been gradually increased in view of the
declining value of the peso. It is presently fixed at
P50,000.00. 13 Private respondents are entitled to this amount.
Actual Damages. Art. 2199 provides that "except as provided by
law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as
has duly proved." The trial court found that the private
respondents spent P30,000.00 for the wake and burial of Atty.
Caorong. 14 Since petitioner does not question this finding of the
trial court, it is liable to private respondent in the said amount
as actual damages.
Moral Damages. Under Art. 2206, the "spouse, legitimate and
illegitimate descendants and ascendants of the deceased may
demand moral damages for mental anguish by reason of the
death of the deceased." The trial court found that private
respondent Paulie Caorong suffered pain from the death of her
husband and worry on how to provide support for their minor
children, private respondents Yasser King, Rose Heinni, and
Prince Alexander. 15The petitioner likewise does not question this
finding of the trial court. Thus, in accordance with recent
decisions of this Court,16 we hold that the petitioner is liable to
the private respondents in the amount of P100,000.00 as moral
damages for the death of Atty. Caorong.

Net Earning = Life x Annual Living

Capacity Expectancy Income Expenses
Life expectancy is equivalent to two thirds (2/3) multiplied by
the difference of eighty (80) and the age of the
deceased. 20 Since Atty. Caorong was 37 years old at that time of
his death, 21 he had a life expectancy of 28 2/3 more
years. 22 His projected gross annual income, computed based on
his monthly salary of P11,385.00. 23 as a lawyer in the
Department of Agrarian Reform at the time of his death, was
P148,005.00. 24 Allowing for necessary living expenses of fifty
percent (50%) 25 of his projected gross annual income, his total
earning capacity amounts to P2,121,404.90. 26 Hence, the
petitioner is liable to the private respondents in the said amount
as a compensation for loss of earning capacity.
WHEREFORE, the decision, dated July 29, 1994, of the Court of
Appeals is hereby AFFIRMED with the MODIFICATION that
petitioner Fortune Express, Inc. is ordered to pay the following
amounts to private respondents Paulie, Yasser King, Rose Heinni,
and Prince Alexander Caorong:
1. death indemnity in the amount of fifty thousand pesos
(P50,000.00);
2. actual damages in the amount of thirty thousand pesos
(P30,000.00);
3. moral damages in the amount of one hundred thousand pesos
(P100,000.00);
4. exemplary damages in the amount of one hundred thousand
pesos (P100,000.00);
5. attorney's fees in the amount of fifty thousand pesos
(P50,000.00);
6. compensation for loss of earning capacity in the amount of
two million one hundred twenty-one thousand four hundred four
pesos and ninety centavos (P2,121,404.90); and
7. cost of suits.
SO ORDERED.

Exemplary Damages. Art. 2232 provides that "in contracts and

quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive,
or malevolent reckless manner." In the present case, the

On Code of Commerce

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