G.R. No.

114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE
COMPANY, respondents.
RESOLUTION
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court of Appeals, dated December
17, 1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein
petitioner is liable to pay herein private respondent the amount of P700,000.00, plus legal
interest thereon, another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of
Negros to Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the
latter's dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is
likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9",
struck an unknown sunken object. The forward buoyancy compartment was damaged, and
water gushed in through a hole "two inches wide and twenty-two inches long" 1 As a
consequence, the molasses at the cargo tanks were contaminated and rendered unfit for the
use it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment
of molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the
insurer of its lost cargo, herein private respondent, Philippine General Insurance Company
(PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage.
Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-asa
Sales, Inc., the amount of P700,000.00, representing the value of the damaged cargo of
molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial
Court of Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa
Sales, Inc. for the latter's lost cargo. PhilGen now claims to be subrogated to all the
contractual rights and claims which the consignee may have against the carrier, which is
presumed to have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to
the Court of Appeals, the award was affirmed.
Hence, this petition.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment
which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence to which a private
carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights
of the consignee against the carrier, upon payment by the insurer of the value of the
consignee's goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding
that it was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc.
to transport the shipment of molasses from Negros Oriental to Manila and refers to this
contract as a "charter agreement". It then proceeds to cite the case of Home Insurance
Company vs. American Steamship Agencies, Inc. 2 wherein this Court held: ". . . a common
carrier undertaking to carry a special cargo or chartered to a special person only becomes a
private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions
of the court are as follows:
Accordingly, the charter party contract is one of affreightment over the
whole vessel, rather than a demise. As such, the liability of the shipowner
for acts or negligence of its captain and crew, would remain in the
absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and
contract of affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of
Appeals, 4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will
generally be regarded as the owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes the
owner pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely
and exclusively relinquish possession, command and navigation thereof to
the charterer, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of
the vessel leases part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner of the vessel and
under such contract the general owner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of
the space in the vessel in return for his payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for
any breach of duty as to the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment on account of the aforementioned
distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one of
affreightment. 5 We agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in
order to carry cargo from one point to another, but the possession, command and navigation
of the vessels remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by
the contract of affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of
goods in good order to a carrier and the subsequent arrival of the same goods at the place
of destination in bad order makes for aprima facie case against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once
the goods it transports are lost, destroyed or deteriorated, applies to the petitioner. This
presumption, which is overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was
caused by its hitting an unknown sunken object as it was heading for Pier 18. The object
turned out to be a submerged derelict vessel. Petitioner contends that this navigational
hazard was the efficient cause of the accident. Further it asserts that the fact that the
Philippine Coastguard "has not exerted any effort to prepare a chart to indicate the location
of sunken derelicts within Manila North Harbor to avoid navigational accidents" 6 effectively
contributed to the happening of this mishap. Thus, being unaware of the hidden danger that
lies in its path, it became impossible for the petitioner to avoid the same. Nothing could
have prevented the event, making it beyond the pale of even the exercise of extraordinary
diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that
far from having rendered service with the greatest skill and utmost foresight, and being free
from fault, the carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not
licensed. The Code of Commerce, which subsidiarily governs common carriers (which are
primarily governed by the provisions of the Civil Code) provides:

Art. 609. Captains, masters, or patrons of vessels must be Filipinos,

have legal capacity to contract in accordance with this code, and prove
the skill capacity and qualifications necessary to command and direct the
vessel, as established by marine and navigation laws, ordinances or
regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron
violates this rule. It cannot safely claim to have exercised extraordinary diligence, by placing
a person whose navigational skills are questionable, at the helm of the vessel which
eventually met the fateful accident. It may also logically, follow that a person without
license to navigate, lacks not just the skill to do so, but also the utmost familiarity with the
usual and safe routes taken by seasoned and legally authorized ones. Had the patron been
licensed, he could be presumed to have both the skill and the knowledge that would have
prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed
to overcome the presumption of negligence with the loss and destruction of goods it
transported, by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once
more rule against the petitioner. We have already found petitioner liable for breach of the
contract of carriage it entered into with Pag-asa Sales, Inc. However, for the damage
sustained by the loss of the cargo which petitioner-carrier was transporting, it was not the
carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein
private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a
long line of cases including Compania Maritima v. Insurance Company of North
America; 7 Fireman's Fund Insurance Company v. Jamilla & Company, Inc., 8 and Pan Malayan
Insurance Corporation v. Court of Appeals, 9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer,
upon payment to the assured will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has
been obligated to pay. Payment by the insurer to the assured operated as

an equitable assignment to the former of all remedies which the latter

may have against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent upon, nor does
it grow out of, any privity of contract or upon written assignment of claim.
It accrues simply upon payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to
Pag-asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being
transported by petitioner Coastwise Lighterage, the former was subrogated into all the
rights which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner
Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision
affirming the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise
Lighterage to pay respondent Philippine General Insurance Company the "principal amount
of P700,000.00 plus interest thereon at the legal rate computed from March 29, 1989, the
date the complaint was filed until fully paid and another sum of P100,000.00 as attorney's
fees and costs" 10 is likewise hereby AFFIRMED

PANGANIBAN, J.:
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of damages to the cargo" 1 valid? This is the main
question raised in this petition for review assailing the Decision of Respondent Court of
Appeals 2 in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals
modified the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171,
the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and
Insurance Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS
(P2,000,000.00) representing the value of the policy of the lost logs with
legal interest thereon from the date of demand on February 2, 1984 until
the amount is fully paid or in the alternative, defendant Seven Brothers
Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS
(2,000,000.00) representing the value of lost logs plus legal interest from
the date of demand on April 24, 1984 until full payment thereof; the
reasonable attorney's fees in the amount equivalent to five (5) percent of
the amount of the claim and the costs of the suit.

SO ORDERED.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping
Corporation the sum of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is
hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far
(sic) as the liability of the Seven Brothers Shipping Corporation to the
plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as
follows:
G.R. No. 102316 June 30, 1997
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.

It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and

Industrial Supply, Inc.) entered into an agreement with the defendant
Seven Brothers (Shipping Corporation) whereby the latter undertook to
load on board its vessel M/V Seven Ambassador the former's lauan round
logs numbering 940 at the port of Maconacon, Isabela for shipment to
Manila.

On 20 January 1984, plaintiff insured the logs against loss and/or damage
with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00
and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.

representing the value of the logs plus legal interest from date of demand
until fully paid.

On 24 January 1984, the plaintiff gave the check in payment of the

premium on the insurance policy to Mr. Victorio Chua.

D. The lower court erred in ordering defendant-appellant Seven Brothers

Shipping Corporation to pay appellee reasonable attorney's fees in the
amount equivalent to 5% of the amount of the claim and the costs of the
suit.

In the meantime, the said vessel M/V Seven Ambassador sank on 25

January 1984 resulting in the loss of the plaintiff's insured logs.

E. The lower court erred in not awarding defendant-appellant Seven

Brothers Corporation its counter-claim for attorney's fees.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of

the premium and documentary stamps due on the policy was tendered
due to the insurer but was not accepted. Instead, the South Sea Surety
and Insurance Co., Inc. cancelled the insurance policy it issued as of the
date of the inception for non-payment of the premium due in accordance
with Section 77 of the Insurance Code.

F. The lower court erred in not dismissing the complaint against Seven
Brothers Shipping Corporation.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety

and Insurance Co., Inc. the payment of the proceeds of the policy but the
latter denied liability under the policy. Plaintiff likewise filed a formal claim
with defendant Seven Brothers Shipping Corporation for the value of the
lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of
plaintiff and against defendants. Both defendants shipping corporation
and the surety company appealed.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of
defendant-appellant South Sea Surety and Insurance Company, Inc. and
likewise erred in not holding that he was the representative of the
insurance broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received
compensation/commission on the premiums paid on the policies issued by
the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.

Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to

the court a quo the following assignment of errors, to wit:

D. The trial court erred in disregarding the "receipt of payment clause"

attached to and forming part of the Marine Cargo Insurance Policy No.
84/24229.

A. The lower court erred in holding that the proximate cause of the sinking
of the vessel Seven Ambassadors, was not due to fortuitous event but to
the negligence of the captain in stowing and securing the logs on board,
causing the iron chains to snap and the logs to roll to the portside.

E. The trial court in disregarding the statement of account or bill stating

the amount of premium and documentary stamps to be paid on the policy
by the plaintiff-appellee.

B. The lower court erred in declaring that the non-liability clause of the
Seven Brothers Shipping Corporation from logs (sic) of the cargo
stipulated in the charter party is void for being contrary to public policy
invoking article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers
Shipping Corporation liable in the alternative and ordering/directing it to
pay plaintiff-appellee the amount of two million (2,000,000.00) pesos

F. The trial court erred in disregarding the endorsement of cancellation of

the policy due to non-payment of premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety
and Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00
representing value of the policy with legal interest from 2 February 1984
until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the
attorney's fees alleged and proven in its counterclaim.

The primary issue to be resolved before us is whether defendants shipping

corporation and the surety company are liable to the plaintiff for the
latter's lost logs. 4

the latter from liability for the loss of petitioner's logs arising from the negligence of its
(Seven Brothers') captain." 9
The Court's Ruling

The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South
Sea Surety and Insurance Company ("South Sea"), but modified it by holding that Seven
Brothers Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In
modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship
owner would be exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on
common carriers to establish the liability of the shipping corporation. The
provisions on common carriers should not be applied where the carrier is
not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a
special cargo or chartered to a special person only, becomes a private
carrier.
As a private carrier, a stipulation exempting the owner from liability even
for the negligence of its agent is valid (Home Insurance Company, Inc. vs.
American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of
the logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc.
("Valenzuela") filed separate petitions for review before this Court. In a Resolution dated
June 2, 1995, this Court denied the petition of South
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and
the Court of Appeals that Chua was indeed an authorized agent of South Sea when he
received Valenzuela's premium payment for the marine cargo insurance policy which was
thus binding on the insurer. 8
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing
the CA Decision which exempted Seven Brothers from any liability for the lost cargo.

The petition is not meritorious.

Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the
"(o)wners shall not be responsible for loss, split, short-landing, breakages and any kind of
damages to the cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the
proximate cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo
was the "snapping of the iron chains and the subsequent rolling of the logs to the portside
due to the negligence of the captain in stowing and securing the logs on board the vessel
and not due to fortuitous event." 11 Likewise undisputed is the status of Private Respondent
Seven Brothers as a private carrier when it contracted to transport the cargo of Petitioner
Valenzuela. Even the latter admits this in its petition. 12
The trial court deemed the charter party stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the
custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than
that of a good father of a family, or of a man of ordinary prudence in the
vigilance over the movables transported;

The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent
Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in
the charter party executed between the petitioner and the private respondent exempting

(5) That the common carrier shall not be responsible for the acts or
omissions of his or its employees;

(6) That the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force,
is dispensed with or diminished;

becomes a private carrier. As a private carrier, a stipulation exempting the

owner from liability for the negligence of its agent is not against public
policy, and is deemed valid.

(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.

Such doctrine We find reasonable. The Civil Code provisions on common

carriers should not be applied where the carrier is not acting as such but
as a private carrier. The stipulation in the charter party absolving the
owner from liability for loss due to the negligence of its agent would be
void if the strict public policy governing common carriers is applied. Such
policy has no force where the public at large is not involved, as in this
case of a ship totally chartered for the used of a single party. 19(Emphasis
supplied.)

Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and
587 of the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article
1306 and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said
stipulation "gives no duty or obligation to the private respondent to observe the diligence of
a good father of a family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent
had acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and
other Civil Code provisions on common carriers which were cited by petitioner may not be
applied unless expressly stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for the
cargo rests solely on the charterer, exempting the shipowner from liability for loss of or
damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article
1306 17 of the Civil Code, such stipulation is valid because it is freely entered into by the
parties and the same is not contrary to law, morals, good customs, public order, or public
policy. Indeed, their contract of private carriage is not even a contract of adhesion. We
stress that in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving
common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies,
Inc. 18 In that case, the trial court similarly nullified a stipulation identical to that involved in
the present case for being contrary to public policy based on Article 1744 of the Civil Code
and Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner
liable for damages resulting for the partial loss of the cargo. This Court reversed the trial
court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled
observation and doctrine:
The provisions of our Civil Code on common carriers were taken from
Anglo-American law. Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a special person only,

Indeed, where the reason for the rule ceases, the rule itself does not apply. The general
public enters into a contract of transportation with common carriers without a hand or a
voice in the preparation thereof. The riding public merely adheres to the contract; even if
the public wants to, it cannot submit its own stipulations for the approval of the common
carrier. Thus, the law on common carriers extends its protective mantle against one-sided
stipulations inserted in tickets, invoices or other documents over which the riding public has
no understanding or, worse, no choice. Compared to the general public, a charterer in a
contract of private carriage is not similarly situated. It can and in fact it usually does
enter into a free and voluntary agreement. In practice, the parties in a contract of private
carriage can stipulate the carrier's obligations and liabilities over the shipment which, in
turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for
convenience and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case
because it "covers only a stipulation exempting a private carrier from liability for the
negligence of his agent, but it does not apply to a stipulation exempting a private carrier like
private respondent from the negligence of his employee or servant which is the situation in
this case." 20 This contention of petitioner is bereft of merit, for it raises a distinction without
any substantive difference. The case Home Insurance specifically dealt with "the liability of
the shipowner for acts or negligence of its captain and crew" 21 and a charter party
stipulation which "exempts the owner of the vessel from any loss or damage or delay arising
from any other source, even from the neglect or fault of the captain or crew or some other
person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said
paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is
not the rule in the Philippines 23 deserves scant consideration. The Court there categorically
held that said rule was "reasonable" and proceeded to apply it in the resolution of that case.
Petitioner miserably failed to show such circumstances or arguments which would
necessitate a departure from a well-settled rule. Consequently, our ruling in said case
remains a binding judicial precedent based on the doctrine of stare decisis and Article 8 of

the Civil Code which provides that "(j)udicial decisions applying or interpreting the laws or
the Constitution shall form part of the legal system of the Philippines."

place. When negligence shows bad faith, the provisions of articles 1171
and 2201, shall apply.

In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agents is
valid." 24

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.

Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court,
however, will discuss the other arguments of petitioner for the benefit and satisfaction of all
concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and
587 of the Code of Commerce which confer on petitioner the right to recover damages from
the shipowner and ship agent for the acts or conduct of the captain. 25 We are not
persuaded. Whatever rights petitioner may have under the aforementioned statutory
provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is
contrary to law, public order, public policy, morals, or good customs, or prejudicial to a
person with a right recognized by law." As a general rule, patrimonial rights may be waived
as opposed to rights to personality and family rights which may not be made the subject of
waiver. 26 Being patently and undoubtedly patrimonial, petitioner's right conferred under
said articles may be waived. This, the petitioner did by acceding to the contractual
stipulation that it is solely responsible or any damage to the cargo, thereby exempting the
private carrier from any responsibility for loss or damage thereto. Furthermore, as discussed
above, the contract of private carriage binds petitioner and private respondent alone; it is
not imbued with public policy considerations for the general public or third persons are not
affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the

The Court notes that the foregoing articles are applicable only to the obligor or the one with
an obligation to perform. In the instant case, Private Respondent Seven Brothers is not an
obligor in respect of the cargo, for this obligation to bear the loss was shifted to petitioner by
virtue of the charter party. This shifting of responsibility, as earlier observed, is not void. The
provisions cited by petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second
paragraph of Article 1173 of the Civil Code which prescribes the standard of diligence to be
observed in the event the law or the contract is silent. In the instant case, Article 362 of the
Code of Commerce 28 provides the standard of ordinary diligence for the carriage of goods
by a carrier. The standard of diligence under this statutory provision may, however, be
modified in a contract of private carriage as the petitioner and private respondent had done
in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated
there vis-a-vis contractual stipulations limiting the carrier's liability be applied "with equal
force" to this case. 31 It also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and
contends that stipulations exempting a party from liability for damages due to negligence
"should not be countenanced" and should be "strictly construed" against the party claiming
its benefit. 33 We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily
justify the application of such policy considerations and concomitantly stricter rules. As
already discussed above, the public policy considerations behind the rigorous treatment of
common carriers are absent in the case of private carriers. Hence, the stringent laws
applicable to common carriers are not applied to private carries. The case of Manila
Railroad is also inapplicable because the action for damages there does not involve a
contract for transportation. Furthermore, the defendant therein made a "promise to use due
care in the lifting operations" and, consequently, it was "bound by its undertaking"'; besides,
the exemption was intended to cover accidents due to hidden defects in the apparatus or
other unforseeable occurrences" not caused by its "personal negligence." This promise was
thus constructed to make sense together with the stipulation against liability for
damages. 34 In the present case, we stress that the private respondent made no such
promise. The agreement of the parties to exempt the shipowner from responsibility for any
damage to the cargo and place responsibility over the same to petitioner is the lone
stipulation considered now by this Court.

Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter
A. Smith & Co. vs.Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and
Co., 37 Ohta Development Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco
Steamship Co. 39 in support of its contention that the shipowner be held liable for
damages. 40 These however are not on all fours with the present case because they do not
involve a similar factual milieu or an identical stipulation in the charter party expressly
exempting the shipowner form responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it
because this Court has earlier affirmed the liability of South Sea for the loss suffered by
petitioner. Private respondent submits that petitioner is not legally entitled to collect twice
for a single loss. 41 In view of the above disquisition upholding the validity of the questioned
charter party stipulation and holding that petitioner may not recover from private
respondent, the present issue is moot and academic. It suffices to state that the Resolution
of this Court dated June 2, 1995 42 affirming the liability of South Sea does not, by itself,
necessarily preclude the petitioner from proceeding against private respondent. An
aggrieved party may still recover the deficiency for the person causing the loss in the event
the amount paid by the insurance company does not fully cover the loss. Article 2207 of the
Civil Code provides:
Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity for the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency form the person causing
the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show
any reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.
G.R. No. 131166

September 30, 1999

CALTEX (PHILIPPINES), INC., petitioner,

vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,
VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO
S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. 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. 5 Among 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 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, ill-equipped, 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:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:

SO ORDERED.
JORGE S. IMPERIAL
Associate Justice

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;

WE CONCUR:

2.

Associate Justice Associate Justice. 8

The statutory costs of the proceedings.

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. GONONG
Judge 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);
4.
Attorney's fees in the concept of actual damages in the amount of FIFTY
THOUSAND PESOS (P50,000.00);
5.

Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable
under the 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).

RAMON U. MABUTAS, JR.

PORTIA ALIO HERMACHUELOS

Hence, this petition.

We find the petition meritorious.
First:

The charterer has no liability for damages under Philippine Maritime laws.

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

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.
In Planters Products, Inc. vs. Court of Appeals, 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 ship-owner 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.
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 an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.
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
(a)

Make the ship seaworthy;

(b)

Properly man, equip, and supply the ship;

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 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.
vessel;

The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the

4.

The vessel did not have a Third Mate, a radio operator and lookout; and

5.

The vessel had a defective main engine. 20

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the
Civil Code, which provide:

Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries
here under "VESSEL'S DOCUMENTS

Art. 20. Every person who contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.

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?

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
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
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." 22 The 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.

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

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?
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 redirect 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.
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
defendant-appellee 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.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN
KABUSHIKI KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier
into a private one as to negate the civil law presumption of negligence in case of loss or
damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation
(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which
the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned
by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to
Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1
signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter 2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charterparty starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda Nos.
1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th,
21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably
inspected by the charterer's representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by
certificate from National Cargo Bureau inspector or substitute appointed
by charterers for his account certifying the vessel's readiness to receive
cargo spaces. The vessel's hold to be properly swept, cleaned and dried at
the vessel's expense and the vessel to be presented clean for use in bulk
to the satisfaction of the inspector before daytime commences. (emphasis
supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision
of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3)
layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly
sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into
its steelbodied dump trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the charter-partly (which
provided for an F.I.O.S. clause). 6 The hatches remained open throughout the duration of the
discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it
was transported to the consignee's warehouse located some fifty (50) meters from the
wharf. Midway to the warehouse, the trucks were made to pass through a weighing scale
where they were individually weighed for the purpose of ascertaining the net weight of the
cargo. The port area was windy, certain portions of the route to the warehouse were sandy
and the weather was variable, raining occasionally while the discharge was in
progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets,
with an opening at the front where the dump trucks entered and unloaded the fertilizer on
the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July
12th, 14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents
Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by
taking draft readings of the vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the
cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo
delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
commerce, having been polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the
cost of the alleged shortage in the goods shipped and the diminution in value of that portion
said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed
an action for damages with the Court of First Instance of Manila. The defendant carrier
argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party.
The court a quo however sustained the claim of the plaintiff against the defendant carrier for
the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is
presumed negligent in case of loss or damage of the goods it contracts to
transport, all that a shipper has to do in a suit to recover for loss or
damage is to show receipt by the carrier of the goods and to delivery by it
of less than what it received. After that, the burden of proving that the
loss or damage was due to any of the causes which exempt him from
liability is shipted to the carrier, common or private he may be. Even if the
provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them
to prove that the shortage or contamination sustained by the cargo is
attributable to the fault or negligence on the part of the shipper or
consignee in the loading, stowing, trimming and discharge of the cargo.
This they failed to do. By this omission, coupled with their failure to
destroy the presumption of negligence against them, the defendants are
liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier
from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968
case of Home Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court
ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private
carrier and not a common carrier by reason of the time charterer-party. Accordingly, the Civil
Code provisions on common carriers which set forth a presumption of negligence do not find
application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the
plaintiff-appellee to adduce sufficient evidence to prove the negligence of
the defendant carrier as alleged in its complaint. It is an old and well
settled rule that if the plaintiff, upon whom rests the burden of proving his
cause of action, fails to show in a satisfactory manner the facts upon
which he bases his claim, the defendant is under no obligation to prove his
exception or defense (Moran, Commentaries on the Rules of Court, Volume
6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove
the basis of its cause of action, i.e. the alleged negligence of defendant
carrier. It appears that the plaintiff was under the impression that it did
not have to establish defendant's negligence. Be that as it may, contrary
to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing
its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court
of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charterparty delimiting the liability of the shipowner for loss or damage to goods cause by want of
due deligence on its part or that of its manager to make the vessel seaworthy in all
respects, and not whether the presumption of negligence provided under the Civil Code
applies only to common carriers and not to private carriers. 19 Petitioner further argues that
since the possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should made liable for the negligence of the
captain and crew. In fine, PPI faults the appellate court in not applying the presumption of
negligence against respondent carrier, and instead shifting the onus probandi on the shipper
to show want of due deligence on the part of the carrier, when he was not even at hand to
witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private
carrier by reason of a charter-party; in the negative, whether the shipowner in the instant
case was able to prove that he had exercised that degree of diligence required of him under
the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This
being so, we find it fitting to first define important terms which are relevant to our
discussion.
A "charter-party" is defined as 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; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a 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; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in
part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter,
by the terms of which the whole vessel is let to the charterer with a transfer to him of its
entire command and possession and consequent control over its navigation, including the
master and the crew, who are his servants. Contract of affreightment may either be time
charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party
provides for the hire of vessel only, either for a determinate period of time or for a single or
consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the
master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves
out as ready to engage in carrying goods or transporting passengers or both for
compensation as a public employment and not as a casual occupation. The distinction
between a "common or public carrier" and a "private or special carrier" lies in the character
of the business, such that if the undertaking is a single transaction, not a part of the general
business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature
of their business, should observe extraordinary diligence in the vigilance over the goods
they carry. 25 In the case of private carriers, however, the exercise of ordinary diligence in
the carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration
of the goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such
presumption applies to private carriers, for whosoever alleges damage to or deterioration of
the goods carried has the onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were
under the employ of the shipowner and therefore continued to be under its direct
supervision and control. Hardly then can we charge the charterer, a stranger to the crew
and to the ship, with the duty of caring for his cargo when the charterer did not have any
control of the means in doing so. This is evident in the present case considering that the
steering of the ship, the manning of the decks, the determination of the course of the
voyage and other technical incidents of maritime navigation were all consigned to the
officers and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter is
limited to the ship only, as in the case of a time-charter or 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. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party exempting the shipowners from
liability for loss due to the negligence of its agent, and not the effects of a special charter on
common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for safety in the transportation
of passengers and /or carriage of goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-atlaw 30
As a matter of principle, it is difficult to find a valid distinction between
cases in which a ship is used to convey the goods of one and of several
persons. Where the ship herself is let to a charterer, so that he takes over
the charge and control of her, the case is different; the shipowner is not
then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or
many. The master and the crew are in each case his servants, the freighter
in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in
discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the
shipper or consignee should first prove the fact of shipment and its consequent loss or
damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its
liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April
1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo,
Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were
cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's
holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel
covers made it impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside the
hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of
the consignee boarded, and in the presence of a representative of the shipowner, the
foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under
the watchful eyes of the shipmates who were overseeing the whole operation on rotation
basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the
carrier in the care of the cargo. This was confirmed by respondent appellate court thus

. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiffappellee's own witnesses clearly show absence of negligence by the defendant
carrier; that the hull of the vessel at the time of the discharge of the cargo was
sealed and nobody could open the same except in the presence of the owner of the
cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover
of the hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5
April 1978, p. 24); and, that to open these hatches, the seals would have to be
broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16)
(emphasis supplied).
The period during which private respondent was to observe the degree of diligence required
of it as a public carrier began from the time the cargo was unconditionally placed in its
charge after the vessel's holds were duly inspected and passed scrutiny by the shipper, up
to and until the vessel reached its destination and its hull was reexamined by the consignee,
but prior to unloading. This is clear from the limitation clause agreed upon by the parties in
the Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S.,
meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by
the charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable
for damage to the cargo resulting from improper stowage only when the stowing is done by
stevedores employed by him, and therefore under his control and supervision, not when the
same is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the
loss, destruction or deterioration of the goods if caused by the charterer of the goods or
defects in the packaging or in the containers. The Code of Commerce also provides that all
losses and deterioration which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account
and risk of the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the
preceding causes if it is proved, as against him, that they arose through his negligence or by
reason of his having failed to take the precautions which usage has established among
careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting
mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature
inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further
added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to
spillage during such operation amounting to one percent (1%) against the bill of lading is
deemed "normal" or "tolerable." The primary cause of these spillages is the clamped shell

which does not seal very tightly. Also, the wind tends to blow away some of the materials
during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an
extremely high temperature in its place of storage, or when it comes in contact with water.
When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the
salvaged portion which is in liquid form still remains potent and usable although no longer
saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various
pieces of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water
to seep into the vessel's holds during the voyage since the hull of the vessel was in good
condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum"
in all respects seaworthy to carry the cargo she was chartered for. If there was loss or
contamination of the cargo, it was more likely to have occurred while the same was being
transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who

supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as
contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the
cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded
her cargo. It rained from time to time at the harbor area while the cargo was being
discharged according to the supply officer of PPI, who also testified that it was windy at the
waterfront and along the shoreline where the dump trucks passed enroute to the
consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather condition
prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner
of the goods has to face. Clearly, respondent carrier has sufficiently proved the inherent
character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no
proof was adduced by the petitioner showing that the carrier was remise in the exercise of
due diligence in order to minimize the loss or damage to the goods it carried.WHEREFORE,
the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the
trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First
Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.