[G.R. No. 143133.
June 5, 2002] of the goods, or to perils, danger and accidents of the sea, or to insufficiency of packing
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT
SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO.,
INC., respondent.
DECISION
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in
bad order at their destination constitutes prima facie fault or negligence on the part of the
carrier. If no adequate explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July
15, 1998 Decision[1] and the May 2, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR
CV No. 53571.The decretal portion of the Decision reads as follows:
WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby
REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally pay
plaintiffs-appellants the following:
1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100
(P451,027.32) as actual damages, representing the value of the damaged
cargo, plus interest at the legal rate from the time of filing of the complaint
on July 25, 1991, until fully paid;
2) Attorneys fees amounting to 20% of the claim; and
3) Costs of suit.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch
134), which had disposed as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the
complaint, as well as defendants counterclaim.[5]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this
wise:
On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at Hamburg,
Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila
consigned to the Philippine Steel Trading Corporation. On July 28, 1990, MN Anangel Sky
arrived at the port of Manila and, within the subsequent days, discharged the subject
cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the
four (4) coils in their damaged state to be unfit for the intended purpose, the consignee
Philippine Steel Trading Corporation declared the same as total loss.
Despite receipt of a formal demand, defendants-appellees refused to submit to the
consignees claim.Consequently, plaintiff-appellant paid the consignee five hundred six
thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the latters rights
and causes of action against defendants-appellees. Subsequently, plaintiff-appellant
instituted this complaint for recovery of the amount paid by them, to the consignee as
insured.
Impugning the propriety of the suit against them, defendants-appellees imputed that the
damage and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect
thereof, or to the act or omission of the shipper of the goods or their representatives. In
addition thereto, defendants-appellees argued that their liability, if there be any, should not
exceed the limitations of liability provided for in the bill of lading and other pertinent
laws. Finally, defendants-appellees averred that, in any event, they exercised due diligence
and foresight required by law to prevent any damage/loss to said shipment.[6]
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims
with the quantum of proof required by law.[7]
It likewise debunked petitioners counterclaim, because respondents suit was not
manifestly frivolous or primarily intended to harass them.[8]
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the
damage of the goods shipped, because they had failed to overcome the presumption of
negligence imposed on common carriers.
The CA further held as inadequately proven petitioners claim that the loss or the
deterioration of the goods was due to pre-shipment damage.[9] It likewise opined that the
notation metal envelopes rust stained and slightly dented placed on the Bill of Lading had not
been the proximate cause of the damage to the four (4) coils.[10]
As to the extent of petitioners liability, the CA held that the package limitation under
COGSA was not applicable, because the words L/C No. 90/02447 indicated that a higher
valuation of the cargo had been declared by the shipper. The CA, however, affirmed the
award of attorneys fees.
Hence, this Petition.[11]
Issues
In their Memorandum, petitioners raise the following issues for the Courts
consideration:
I
Whether or not plaintiff by presenting only one witness who has never seen the subject
shipment and whose testimony is purely hearsay is sufficient to pave the way for the
applicability of Article 1735 of the Civil Code;
II
Whether or not the consignee/plaintiff filed the required notice of loss within the time
required by law;
III
Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-
shipment damage and to exempt herein defendants from liability;
IV
Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of COGSA is
applicable to the case at bar.[12]
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common
carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Courts Ruling
1
 The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should
not be applied on the basis of the lone testimony offered by private respondent. The
contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence and vigilance with
respect to the safety of the goods and the passengers they transport.[13] Thus, common
carriers are required to render service with the greatest skill and foresight and to use all
reason[a]ble means to ascertain the nature and characteristics of the goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires.[14] The extraordinary responsibility lasts from the time the goods
are unconditionally placed in the possession of and received for transportation by the carrier
until they are delivered, actually or constructively, to the consignee or to the person who has
a right to receive them.[15]
This strict requirement is justified by the fact that, without a hand or a voice in the
preparation of such contract, the riding public enters into a contract of transportation with
common carriers.[16] Even if it wants to, it cannot submit its own stipulations for their
approval.[17] Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a general
rule, are presumed to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed.[18] That is, unless they prove that they exercised
extraordinary diligence in transporting the goods.[19] In order to avoid responsibility for any
loss or damage, therefore, they have the burden of proving that they observed such
diligence.[20]
However, the presumption of fault or negligence will not arise[21] if the loss is due to
any of the following causes: (1) flood, storm, earthquake, lightning, or other natural disaster
or calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act or
omission of the shipper or owner of the goods; (4) the character of the goods or defects in
the packing or the container; or (5) an order or act of competent public authority. [22] This is a
closed list. If the cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.[23]
Corollary to the foregoing, mere proof of delivery of the goods in good order to a
common carrier and of their arrival in bad order at their destination constitutes a prima facie
case of fault or negligence against the carrier. If no adequate explanation is given as to how
the deterioration, the loss or the destruction of the goods happened, the transporter shall be
held responsible.[24]
That petitioners failed to rebut the prima facie presumption of negligence is revealed in
the case at bar by a review of the records and more so by the evidence adduced by
respondent.[25]
First, as stated in the Bill of Lading, petitioners received the subject shipment in good
order and condition in Hamburg, Germany.[26]
Second, prior to the unloading of the cargo, an Inspection Report[27] prepared and
signed by representatives of both parties showed the steel bands broken, the metal
envelopes rust-stained and heavily buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport Services,
Inc., stated that the four coils were in bad order and condition. Normally, a request for a bad
order survey is made in case there is an apparent or a presumed loss or damage.[29]
Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted and
tested, the steel sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating Corporation
and dated October 12, 1990 -- admitted that they were aware of the condition of the four
coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers
Agency.Pertinent portions of his testimony are reproduce hereunder:
Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the
Honorable Court with what company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos Checkers Agency related or connected with defendant Jardine
Davies Transport Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court
your duties and responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the
discharge of cargoes.
xxxxxxxxx
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as
a Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and
inspection of cold steel sheets in coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
xxxxxxxxx
Q. Based on your inspection since you were also present at that time, will you inform this
Honorable Court the condition or the appearance of the bad order cargoes that
were unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold
steel sheets and the best evidence is the document itself, Your Honor that shows
the condition of the steel sheets.
COURT:
Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are
dent on the sides.[32]
All these conclusively prove the fact of shipment in good order and condition and the
consequent damage to the four coils while in the possession of petitioner,[33] who notably
failed to explain why.[34]
Further, petitioners failed to prove that they observed the extraordinary diligence and
precaution which the law requires a common carrier to know and to follow, to avoid damage
to or destruction of the goods entrusted to it for safe carriage and delivery.[35]
2
 True, the words metal envelopes rust stained and slightly dented were noted on the
Bill of Lading; however, there is no showing that petitioners exercised due diligence to
forestall or lessen the loss.[36]Having been in the service for several years, the master of the
vessel should have known at the outset that metal envelopes in the said state would
eventually deteriorate when not properly stored while in transit.[37]Equipped with the proper
knowledge of the nature of steel sheets in coils and of the proper way of transporting them,
the master of the vessel and his crew should have undertaken precautionary measures to
avoid possible deterioration of the cargo. But none of these measures was taken.[38] Having
failed to discharge the burden of proving that they have exercised the extraordinary diligence
required by law, petitioners cannot escape liability for the damage to the four coils.[39]
In their attempt to escape liability, petitioners further contend that they are exempted
from liability under Article 1734(4) of the Civil Code. They cite the notation metal envelopes
rust stained and slightly dented printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate cause of the
damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to
the four coils was due to the condition noted on the Bill of Lading. [40] The aforecited
exception refers to cases when goods are lost or damaged while in transit as a result of the
natural decay of perishable goods or the fermentation or evaporation of substances liable
therefor, the necessary and natural wear of goods in transport, defects in packages in which
they are shipped, or the natural propensities of animals. [41] None of these is present in the
instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or
was apparent upon ordinary observation, it is not relieved of liability for loss or injury
resulting therefrom, once it accepts the goods notwithstanding such condition. [42] Thus,
petitioners have not successfully proven the application of any of the aforecited exceptions
in the present case.[43]
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by
Sea Act[44](COGSA), respondent should have filed its Notice of Loss within three days from
delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent
filed its Notice of Claim only on September 18, 1990.[45]
We are not persuaded. First, the above-cited provision of COGSA provides that the
notice of claim need not be given if the state of the goods, at the time of their receipt, has
been the subject of a joint inspection or survey. As stated earlier, prior to unloading the
cargo, an Inspection Report[46] as to the condition of the goods was prepared and signed by
representatives of both parties.[47]
Second, as stated in the same provision, a failure to file a notice of claim within three
days will not bar recovery if it is nonetheless filed within one year.[48] This one-year
prescriptive period also applies to the shipper, the consignee, the insurer of the goods or any
legal holder of the bill of lading.[49]
In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we ruled that a claim is not barred
by prescription as long as the one-year period has not lapsed. Thus, in the words of
the ponente, Chief Justice Hilario G. Davide Jr.:
Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which provides
for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained
during transit--may be applied suppletorily to the case at bar.
In the present case, the cargo was discharged on July 31, 1990, while the
Complaint[51] was filed by respondent on July 25, 1991, within the one-year prescriptive
period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondents claims, petitioners contend that
their liability should be limited to US$500 per package as provided in the Bill of Lading and by
Section 4(5)[52] of COGSA.[53]
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable,
because the value of the subject shipment was declared by petitioners beforehand, as
evidenced by the reference to and the insertion of the Letter of Credit or L/C No. 90/02447 in
the said Bill of Lading.[54]
A bill of lading serves two functions. First, it is a receipt for the goods
shipped.[55] Second, it is a contract by which three parties -- namely, the shipper, the carrier,
and the consignee -- undertake specific responsibilities and assume stipulated
obligations.[56] In a nutshell, the acceptance of the bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise to the presumption that it
constituted a perfected and binding contract.[57]
Further, a stipulation in the bill of lading limiting to a certain sum the common carriers
liability for loss or destruction of a cargo -- unless the shipper or owner declares a greater
value[58] -- is sanctioned by law.[59] There are, however, two conditions to be satisfied: (1) the
contract is reasonable and just under the circumstances, and (2) it has been fairly and freely
agreed upon by the parties.[60] The rationale for, this rule is to bind the shippers by their
agreement to the value (maximum valuation) of their goods.[61]
It is to be noted, however, that the Civil Code does not limit the liability of the common
carrier to a fixed amount per package.[62] In all matters not regulated by the Civil Code, the
right and the obligations of common carriers shall be governed by the Code of Commerce
and special laws.[63] Thus, the COGSA, which is suppletory to the provisions of the Civil Code,
supplements the latter by establishing a statutory provision limiting the carriers liability in
the absence of a shippers declaration of a higher value in the bill of lading.[64] The provisions
on limited liability are as much a part of the bill of lading as though physically in it and as
though placed there by agreement of the parties.[65]
In the case before us, there was no stipulation in the Bill of Lading[66] limiting the
carriers liability.Neither did the shipper declare a higher valuation of the goods to be
shipped. This fact notwithstanding, the insertion of the words L/C No. 90/02447 cannot be
the basis for petitioners liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit
obtained by the shipper for the importation of steel sheets did not effect a declaration of the
value of the goods as required by the bill.[67] That notation was made only for the
convenience of the shipper and the bank processing the Letter of Credit.[68]
Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of lading
was separate from the Other Letter of Credit arrangements. We ruled thus:
3
(T)he 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 of issuance of a letter of credit between the amount of 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, 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--vis the
commercial invoice and the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading cannot negate petitioners
obligation to private respondent arising from the contract of transportation.[70]
In the light of the foregoing, petitioners liability should be computed based on US$500
per package and not on the per metric ton price declared in the Letter of Credit. [71] In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court[72] we explained the meaning of package:
When what would ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the package referred to in the liability
limitation provision of Carriage of Goods by Sea Act.
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of
Lading clearly disclosed the contents of the containers, the number of units, as well as the
nature of the steel sheets, the four damaged coils should be considered as the shipping unit
subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed
Decision MODIFIED. Petitioners liability is reduced to US$2,000 plus interest at the legal rate
of six percent from the time of the filing of the Complaint on July 25, 1991 until the finality of
this Decision, and 12 percent thereafter until fully paid.No pronouncement as to costs.
SO ORDERED.
[G.R. No. 131166. September 30, 1999]
CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC.,
DECISION
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 countrys 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.
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. 653-87 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 Caezals 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 Vectors 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, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:
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, attorneys
fees, in the total amount of P 1,241,287.44 and finally;
2. 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]
4
 On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997,
the Court of Appeal modified the trial courts 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 (P 300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS
(P 50,000.00);
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, attorneys 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
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
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 ships 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 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 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 xxx
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:
Article 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 a 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.
5
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 respondents 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 Vectors 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 to 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 a 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:
Article 20. - Every person who contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Article 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:
Article 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, the liability as found by the Court of Appeals is
without basis.
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 vessels 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 carriers 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.
6
 Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the
entries here under VESSELS 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?
Apolinar 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. xxx[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. Ngs 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: xxx
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 .
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.
No costs in this instance.
SO ORDERED.
[G.R. No. 148496. March 19, 2002]
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL INSURANCE CO., INC.
(formerly Allied Guarantee Ins. Co., Inc.) respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of
Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148, which
ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal
interest, representing the value of damaged cargo handled by petitioner, 25% thereof as
attorneys fees, and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner
entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of
semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to
SMCs warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was
insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel to
the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990,
petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre
operator and delivered it to SMCs warehouse in Ermita, Manila. On July 25, 1990, the goods
were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical
fluting paper were wet/stained/torn and 3 reels of kraft liner board were likewise torn.The
damage was placed at P93,112.00.
7
 SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995,
rendered judgment finding petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants.Evidence such as the Warehouse Entry Slip (Exh. E); the Damage Report (Exh. F)
with entries appearing therein, classified as TED and TSN, which the claims processor, Ms.
Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the subject
damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. H - H-4-A)
confirms the fact of the damaged condition of the subject cargoes. The surveyor[s] report
(Exh. H-4-A) in particular, which provides among others that:
. . . we opine that damages sustained by shipment is attributable to improper handling in
transit presumably whilst in the custody of the broker . . . .
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is]
are not liable.Defendant by reason of the nature of [her] business should have devised ways
and means in order to prevent the damage to the cargoes which it is under obligation to take
custody of and to forthwith deliver to the consignee. Defendant did not present any evidence
on what precaution [she] performed to prevent [the] said incident, hence the presumption is
that the moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been
lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they have observed the extraordinary
diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the
goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is
shifted to the carrier to prove that he has exercised the extraordinary diligence required by
law. Thus, it has been held that the mere proof of delivery of goods in good order to a
carrier, and of their arrival at the place of destination in bad order, makes out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred, the
carrier must be held responsible.It is incumbent upon the carrier to prove that the loss was
due to accident or some other circumstances inconsistent with its liability. (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier
is supposed [to] exercise [the] extraordinary diligence required by law, hence the
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person who has the right
to receive the same.[3]
Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyers fee;
3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for
review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE
OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC. [5]
It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of Appeals
held otherwise, then she is indeed not liable beyond what ordinary diligence in the vigilance
over the goods transported by her, would require.[6] Consequently, any damage to the cargo
she agrees to transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only
offers the same to select parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed a
similar contention and held the party to be a common carrier, thus
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public.
The 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 . . . Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general public,i.e., the general
community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.
So understood, the concept of common carrier under Article 1732 may be seen to coincide
neatly with the notion of public service, under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, public service
includes:
x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system,
8
gas, electric light, heat and power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services. x x x [8]
There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners contention
would be to deprive those with whom she contracts the protection which the law affords
them notwithstanding the fact that the obligation to carry goods for her customers, as
already noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in
the vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to,
or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and to use all reasonable
means to ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires.
In the case at bar, petitioner denies liability for the damage to the cargo. She claims
that the spoilage or wettage took place while the goods were in the custody of either the
carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the arrastre
operator, to whom the goods were unloaded and who allegedly kept them in open air for
nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers
were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh.
H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.[10]
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified
that he has no personal knowledge on whether the container vans were first stored in
petitioners warehouse prior to their delivery to the consignee. She likewise claims that after
withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro,
immediately delivered the cargo to SMCs warehouse in Ermita, Manila, which is a mere
thirty-minute drive from the Port Area where the cargo came from. Thus, the damage to the
cargo could not have taken place while these were in her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the arrastre
operator, these were covered by clean Equipment Interchange Report (EIR) and, when
petitioners employees withdrew the cargo from the arrastre operator, they did so without
exception or protest either with regard to the condition of container vans
ortheir contents. The Survey Report pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock
of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure metal
vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof
panels, these containers were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to
the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean
Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there
would have been a report to that effect made by the arrastre operator. The cargoes were
withdrawn by the defendant-appellant from the arrastre still in good order and condition as
the same were received by the former without exception, that is, without any report of
damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented,
the defendant-appellant would report it immediately to the consignee or make an exception
on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these
took place. To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can only conclude that
the damages to the cargo occurred while it was in the possession of the defendant-appellant.
Whenever the thing is lost (or damaged) in the possession of the debtor (or obligor), it shall
be presumed that the loss (or damage) was due to his fault, unless there is proof to the
contrary. No proof was proffered to rebut this legal presumption and the presumption of
negligence attached to a common carrier in case of loss or damage to the goods.[13]
Anent petitioners insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMCs compound, suffice it to say that
to prove the exercise of extraordinary diligence, petitioner must do more than merely show
the possibility that some other party could be responsible for the damage. It must prove that
it used all reasonable means to ascertain the nature and characteristic of goods tendered for
[transport] and that [it] exercise[d] due care in the handling [thereof]. Petitioner failed to do
this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides
Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the
defect/s in the container, is/are known to the carrier or his employees or apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception
9
notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.[14] In this case, petitioner accepted the cargo without exception despite
the apparent defects in some of the container vans. Hence, for failure of petitioner to prove
that she exercised extraordinary diligence in the carriage of goods in this case or that she is
exempt from liability, the presumption of negligence as provided under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.
SO ORDERED.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and
scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material,
respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants wanted delivered to
differing establishments in Pangasinan. For that service, respondent charged freight rates
which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer
of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with
respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General
Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December
1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to
his trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600
cartons were placed on board the other truck which was driven by Manuel Estrada,
respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere along
the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its
driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of
First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the
lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of the undelivered
goods.
In his Answer, private respondent denied that he was a common carrier and argued that he
could not be held responsible for the value of the lost goods, such loss having been due
to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be
a common carrier and holding him liable for the value of the undelivered goods (P 22,150.00)
as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking services
to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had
been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may,
under the facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:
... every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine
10
 repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such back-hauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent charged his
customers a fee for hauling their goods; that fee frequently fell below commercial freight
rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A
certificate of public convenience is not a requisite for the incurring of liability under the Civil
Code provisions governing common carriers. That liability arises the moment a person or firm
acts as a common carrier, without regard to whether or not such carrier has also complied
with the requirements of the applicable regulatory statute and implementing regulations and
has been granted a certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with applicable
statutory requirements. The business of a common carrier impinges directly and intimately
upon the safety and well being and property of those members of the general community
who happen to deal with such carrier. The law imposes duties and liabilities upon common
carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply
failing to obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held
to a very high degree of care and diligence ("extraordinary diligence") in the carriage of
goods as well as of passengers. The specific import of extraordinary diligence in the care of
goods transported by a common carrier is, according to Article 1733, "further expressed in
Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:
(1) Flood, storm, earthquake, lightning or other
natural disaster or calamity;
(2) Act of the public enemy in war, whether
international or civil;
(3) Act or omission of the shipper or owner of the
goods;
(4) The character-of the goods or defects in the
packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration
which exempt the common carrier for responsibility therefor, is a closed list. Causes falling
outside the foregoing list, even if they appear to constitute a species of force majeure fall
within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case the hijacking of the carrier's truck does not fall within any of
the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore,
that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article
1735, in other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be overthrown
by proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the
care of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying the
600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the
standard of extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives
of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also by
Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible
for the acts or omissions of his or its employees;
(6) that the common carrier's liability for acts
committed by thieves, or of robbers who donot act
with grave or irresistible threat, violence or force, is
dispensed with or diminished; and
(7) that the common carrier shall not responsible for
the loss, destruction or deterioration of goods on
account of the defective condition of the car vehicle,
ship, airplane or other equipment used in the
contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed
to divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat,
11
violence or force." We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which
carried petitioner's cargo. The record shows that an information for robbery in band was
filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled
"People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria
and one John Doe." There, the accused were charged with willfully and unlawfully taking and
carrying away with them the second truck, driven by Manuel Estrada and loaded with the
600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave, if not
irresistible, threat, violence or force.3 Three (3) of the five (5) hold-uppers were armed with
firearms. The robbers not only took away the truck and its cargo but also kidnapped the
driver and his helper, detaining them for several days and later releasing them in another
province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery
in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded
as quite beyond the control of the common carrier and properly regarded as a fortuitous
event. It is necessary to recall that even common carriers are not made absolute insurers
against all risks of travel and of transport of goods, and are not held liable for acts or events
which cannot be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of
an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 149019 August 15, 2006
DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan
Transport Lines, Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated
July 16, 2001, of the Court of Appeals (CA) in CA-G.R. CV No. 40951 affirming an earlier
decision of the Regional Trial Court (RTC) of Manila, Branch IX, in two separate complaints for
damages docketed as Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the
other hand, respondent American Home Assurance Corporation (AHAC for brevity) is a
foreign insurance company duly licensed to do business in the Philippines through its agent,
the American-International Underwriters, Inc. (Phils.). It is engaged, among others, in
insuring cargoes for transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627
k/l Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation
and delivery to the bulk depot in Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a
Contract of Afreightment. The shipment was insured by respondent AHAC against all risks
under Inland Floater Policy No. AH-IF64-1011549P and Marine Risk Note No. 34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading
operations commenced. The discharging of the diesel oil started at about 1:30 PM of the
same day. However, at about 10:30 PM, the discharging had to be stopped on account of the
discovery that the port bow mooring of the vessel was intentionally cut or stolen by unknown
persons. Because there was nothing holding it, the vessel drifted westward, dragged and
stretched the flexible rubber hose attached to the riser, broke the elbow into pieces, severed
completely the rubber hose connected to the tanker from the main delivery line at sea bed
level and ultimately caused the diesel oil to spill into the sea. To avoid further spillage, the
vessels crew tried water flushing to clear the line of the diesel oil but to no avail. In the
meantime, the shore tender, who was waiting for the completion of the water flushing, was
surprised when the tanker signaled a "red light" which meant stop pumping. Unaware of
what happened, the shore tender, thinking that the vessel would, at any time, resume
pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the
diesel oil that was earlier discharged from the vessel into the shore tank backflowed. Due to
non-availability of a pump boat, the vessel could not send somebody ashore to inform the
people at the depot about what happened. After almost an hour, a gauger and an assistant
surveyor from the Caltexs Bulk Depot Office boarded the vessel. It was only then that they
found out what had happened. Thereafter, the duo immediately went ashore to see to it that
the shore tank gate valve was closed. The loss of diesel oil due to spillage was placed at
113.788 k/l while some 435,081 k/l thereof backflowed from the shore tank.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from
Delsan, but the latter refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57
for spillage, pursuant to Marine Risk Note No. 34-5093-6, and P1,939,575.37 for backflow of
the diesel oil pursuant to Inland Floater Policy No. AH-1F64-1011549P.
On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357 against
Delsan before the Manila RTC, Branch 9, for loss caused by the spillage. It likewise prayed
that it be indemnified for damages suffered in the amount of P652,432.57 plus legal interest
thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559
against Delsan for the loss caused by the backflow. It likewise prayed that it be awarded the
amount of P1,939,575.37 for damages and reasonable attorneys fees. As counterclaim in
both cases, AHAC prayed for attorneys fees in the amount of P200,000.00 and P500.00 for
every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same
issues, the two were consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan
liable for the loss of the cargo for its negligence in its duty as a common carrier. Dispositively,
the decision reads:
WHEREFORE, judgment is hereby rendered:
12
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum
of P1,939,575.37 with interest thereon at the legal rate from November 21, 1984 until fully
paid and satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the
legal rate from February 6, 1985 until fully paid and satisfied;
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.
SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No.
40951.
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling,
the CA declared that Delsan failed to exercise the extraordinary diligence of a good father of
a family in the handling of its cargo. Applying Article 1736 4 of the Civil Code, the CA ruled
that since the discharging of the diesel oil into Caltex bulk depot had not been completed at
the time the losses occurred, there was no reason to imply that there was actual delivery of
the cargo to Caltex, the consignee. We quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of
Manila, Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a
modification that attorneys fees awarded in Civil Case Nos. 85-29357 and 85-30559 are
hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of
the Civil Code cannot exculpate it from liability for the loss of the subject cargo and in not
applying the rule on contributory negligence against Caltex, the shipper-owner of the cargo,
and in not taking into consideration the fact that the loss due to backflow occurred when the
diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of
the CA, affirmatory of those of the trial court, are binding on the Court unless there is a clear
showing that such findings are tainted with arbitrariness, capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds.
First, the loss through spillage was partly due to the contributory negligence of Caltex; and
Second, the loss through backflow should not be borne by Delsan because it was already
delivered to Caltexs shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 6 To overcome the presumption
of negligence in case of loss, destruction or deterioration of the goods, the common carrier
must prove that it exercised extraordinary diligence. There are, however, exceptions to this
rule. Article 1734 of the Civil Code enumerates the instances when the presumption of
negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
1) Flood storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act or omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the containers;
5) Order or act of competent public authority.
Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there
was a contributory negligence on the part of the owner of the goods Caltex. We see no
reason to depart therefrom. As aptly pointed out by the CA, it had been established that the
proximate cause of the spillage and backflow of the diesel oil was due to the severance of the
port bow mooring line of the vessel and the failure of the shore tender to close the storage
tank gate valve even as a check on the drain cock showed that there was still a product on
the pipeline. To the two courts below, the actuation of the gauger and the escort surveyor,
both personnel from the Caltex Bulk Depot, negates the allegation that Caltex was remiss in
its duties. As we see it, the crew of the vessel should have promptly informed the shore
tender that the port mooring line was cut off. However, Delsan did not do so on the lame
excuse that there was no available banca. As it is, Delsans personnel signaled a "red light"
which was not a sufficient warning because such signal only meant that the pumping of
diesel oil had been finished. Neither did the blowing of whistle suffice considering the
distance of more than 2 kilometers between the vessel and the Caltex Bulk Depot, aside from
the fact that it was not the agreed signal. Had the gauger and the escort surveyor from Caltex
Bulk Depot not gone aboard the vessel to make inquiries, the shore tender would have not
known what really happened. The crew of the vessel should have exerted utmost effort to
immediately inform the shore tender that the port bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused
by one of the excepted causes if it were to seek exemption from
responsibility. 7 Unfortunately, it miserably failed to discharge this burden by the required
quantum of proof.
Delsans argument that it should not be held liable for the loss of diesel oil due to backflow
because the same had already been actually and legally delivered to Caltex at the time it
entered the shore tank holds no water. It had been settled that the subject cargo was still in
the custody of Delsan because the discharging thereof has not yet been finished when the
backflow occurred. Since the discharging of the cargo into the depot has not yet been
completed at the time of the spillage when the backflow occurred, there is no reason to
imply that there was actual delivery of the cargo to the consignee. Delsan is straining the
issue by insisting that when the diesel oil entered into the tank of Caltex on shore, there was
legally, at that moment, a complete delivery thereof to Caltex. To be sure, the extraordinary
responsibility of common carrier lasts from the time the goods are unconditionally placed in
the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to a person who has
the right to receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet
been finished, Delsan still has the duty to guard and to preserve the cargo. The carrier still
13
has in it the responsibility to guard and preserve the goods, a duty incident to its having the
goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each
case. 9 The mere proof of delivery of goods in good order to the carrier, and their arrival in
the place of destination in bad order, make out a prima facie case against the carrier, so that
if no explanation is given as to how the injury occurred, the carrier must be held responsible.
It is incumbent upon the carrier to prove that the loss was due to accident or some other
circumstances inconsistent with its liability.10
All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the
performance of its duties. Consequently, it is obliged to prove that the damage to its cargo
was caused by one of the excepted causes if it were to seek exemption from
responsibility. 11 Having failed to do so, Delsan must bear the consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.
Cost against petitioner.
SO ORDERED.
[G.R. No. 137775. March 31, 2005]
FGU INSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, SAN MIGUEL
CORPORATION, and ESTATE OF ANG GUI, represented by LUCIO, JULIAN, and
JAIME, all surnamed ANG, and CO TO, respondents.
[G.R. No. 140704. March 31, 2005]
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO
TO, petitioners, vs. THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP.,
and FGU INSURANCE CORP., respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision[1] of the Court of
Appeals in CA-G.R. CV No. 49624 entitled, San Miguel Corporation, Plaintiff-Appellee versus
Estate of Ang Gui, represented by Lucio, Julian and Jaime, all surnamed Ang, and Co To,
Defendants-Appellants, ThirdParty Plaintiffs versus FGU Insurance Corporation, Third-Party
Defendant-Appellant, which affirmed in toto the decision[2] of the Regional Trial Court of
Cebu City, Branch 22. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of
P1,346,197.00 and an interest of 6% per annum to be reckoned from the filing of
this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of
P25,000.00 for attorneys fees and an additional sum of P10,000.00 as litigation
expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants
the amount of P632,700.00.[3]
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang
Gui and Co To, was engaged in the shipping business. It owned the M/T ANCO tugboat and
the D/B Lucio barge which were operated as common carriers. Since the D/B Lucio had no
engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to
move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City,
Cebu, on board the D/B Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes
covered by Bill of Lading No. 2 was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose,
Antique. The vessels arrived at San Jose, Antique, at about one oclock in the afternoon of 30
September 1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose,
Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30
September 1979, the clouds over the area were dark and the waves were already big. The
arrastre workers unloading the cargoes of SMC on board the D/B Lucio began to complain
about their difficulty in unloading the cargoes. SMCs District Sales Supervisor, Fernando
Macabuag, requested ANCOs representative to transfer the barge to a safer place because
the vessel might not be able to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the
barge could withstand the waves. This, notwithstanding the fact that at that time, only the
M/T ANCO was left at the wharf of San Jose, Antique, as all other vessels already left the
wharf to seek shelter. With the waves growing bigger and bigger, only Ten Thousand Seven
Hundred Ninety (10,790) cases of beer were discharged into the custody of the arrastre
operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio
abandoned the vessel because the barges rope attached to the wharf was cut off by the big
waves. At around midnight, the barge run aground and was broken and the cargoes of beer
in the barge were swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two
Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza
Negra. The value per case of Pale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20).
The value of a case of Cerveza Negra was Forty-Seven Pesos and Ten Centavos (P47.10),
hence, SMCs claim against ANCO amounted to One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of
Carriage and Damages against ANCO for the amount of One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation expenses
and Twenty-Five Percent (25%) of the total claim as attorneys fees.
14
 Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January
1993, SMC filed a second amended complaint which was admitted by the Court impleading
the surviving partner, Co To and the Estate of Ang Gui represented by Lucio, Julian and Jaime,
all surnamed Ang. The substituted defendants adopted the original answer with counterclaim
of ANCO since the substantial allegations of the original complaint and the amended
complaint are practically the same.
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the
complaint were indeed loaded on the vessel belonging to ANCO. It claimed however that it
had an agreement with SMC that ANCO would not be liable for any losses or damages
resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale Pilsen and
Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and sunk
the vessel in which they were loaded, they should not be held liable. ANCO further asserted
that there was an agreement between them and SMC to insure the cargoes in order to
recover indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of
Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the
total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per
Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU,
alleging that before the vessel of ANCO left for San Jose, Antique with the cargoes owned by
SMC, the cargoes, to the extent of Twenty Thousand (20,000) cases, were insured with FGU
for a total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00)
under Marine Insurance Policy No. 29591. ANCO further alleged that on or about 02 October
1979, by reason of very strong winds and heavy waves brought about by a passing typhoon,
the vessel run aground near the vicinity of San Jose, Antique, as a result of which, the vessel
was totally wrecked and its cargoes owned by SMC were lost and/or destroyed. According to
ANCO, the loss of said cargoes occurred as a result of risks insured against in the insurance
policy and during the existence and lifetime of said insurance policy. ANCO went on to assert
that in the remote possibility that the court will order ANCO to pay SMCs claim, the third-
party defendant corporation should be held liable to indemnify or reimburse ANCO whatever
amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the
existence of the Insurance Policy under Marine Cover Note No. 29591 but maintained that
the alleged loss of the cargoes covered by the said insurance policy cannot be attributed
directly or indirectly to any of the risks insured against in the said insurance policy. According
to FGU, it is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in
case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed
to exercise ordinary diligence or the diligence of a good father of the family in the care and
supervision of the cargoes insured to prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and
asked for actual, moral, and exemplary damages and attorneys fees.[1]
The trial court found that while the cargoes were indeed lost due to fortuitous event,
there was failure on ANCOs part, through their representatives, to observe the degree of
diligence required that would exonerate them from liability. The trial court thus held the
Estate of Ang Gui and Co To liable to SMC for the amount of the lost shipment. With respect
to the Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent
(53%) of the amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and
was broken and the beer cargoes on the said barge were swept away. It is the sense of this
Court that the risk insured against was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the
amount of the policy was only for P858,500.00, defendants as assured, therefore, were
considered co-insurers of third-party defendant FGU Insurance Corporation to the extent of
975,405.00 value of the cargo. Consequently, inasmuch as there was partial loss of only
P1,346,197.00, the assured shall bear 53% of the loss[4][Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the
motion for reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be
summarized into two: 1) Whether or not respondent Court of Appeals committed grave
abuse of discretion in holding FGU liable under the insurance contract considering the
circumstances surrounding the loss of the cargoes; and 2) Whether or not the Court of
Appeals committed an error of law in holding that the doctrine of res judicata applies in the
instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the
appellate court based on the following assignments of error: 1) The Court of Appeals
committed grave abuse of discretion in affirming the findings of the lower court that the
negligence of the crewmembers of the D/B Lucio was the proximate cause of the loss of the
cargoes; and 2) The respondent court acted with grave abuse of discretion when it ruled that
the appeal was without merit despite the fact that said court had accepted the decision in
Civil Case No. R-19341, as affirmed by the Court of Appeals and the Supreme Court, as res
judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in
their respective petitions for review, that is, whether or not the doctrine of res
judicata applies in the instant case.
It is ANCOs contention that the decision in Civil Case No. R-19341,[5] which was decided
in its favor, constitutes res judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No.
R-19341 and the case at bar. In order for res judicata to be made applicable in a case, the
following essential requisites must be present: 1) the former judgment must be final; 2) the
former judgment must have been rendered by a court having jurisdiction over the subject
matter and the parties; 3) the former judgment must be a judgment or order on the merits;
and 4) there must be between the first and second action identity of parties, identity of
subject matter, and identity of causes of action.[6]
There is no question that the first three elements of res judicata as enumerated above
are indeed satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still
15
inapplicable due to the absence of the last essential requisite of identity of parties, subject
matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant
while in the instant case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio,
Julian and Jaime, all surnamed Ang and Co To as defendants, with the latter merely
impleading FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into
by ANCO, the owner of the vessel, with FGU covering the vessel D/B Lucio, while in the
instant case, the subject matter of litigation is the loss of the cargoes of SMC, as shipper,
loaded in the D/B Lucio and the resulting failure of ANCO to deliver to SMCs consignees the
lost cargo. Otherwise stated, the controversy in the first case involved the rights and
liabilities of the shipowner vis--vis that of the insurer, while the present case involves the
rights and liabilities of the shipper vis--vis that of the shipowner. Specifically, Civil Case No. R-
19341 was an action for Specific Performance and Damages based on FGU Marine Hull
Insurance Policy No. VMF-MH-13519 covering the vessel D/B Lucio, while the instant case is
an action for Breach of Contract of Carriage and Damages filed by SMC against ANCO based
on Bill of Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement from FGU
under Insurance Policy No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is
different from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU for the
insurance contract over the vessel while in the former, the third-party complaint arose from
the insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue
already passed upon by a court of competent jurisdiction in a former judgment, in another
action between the same parties based on a different claim or cause of action. The judgment
in the prior action operates as estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was rendered. [7] If a
particular point or question is in issue in the second action, and the judgment will depend on
the determination of that particular point or question, a former judgment between the same
parties or their privies will be final and conclusive in the second if that same point or
question was in issue and adjudicated in the first suit.[8]
Since the case at bar arose from the same incident as that involved in Civil Case No. R-
19341, only findings with respect to matters passed upon by the court in the former
judgment are conclusive in the disposition of the instant case. A careful perusal of the
decision in Civil Case No. R-19341 will reveal that the pivotal issues resolved by the lower
court, as affirmed by both the Court of Appeals and the Supreme Court, can be summarized
into three legal conclusions: 1) that the D/B Lucio before and during the voyage was
seaworthy; 2) that there was proper notice of loss made by ANCO within the reglementary
period; and 3) that the vessel D/B Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent
therein was any discussion regarding the liability of ANCO for the loss of the cargoes. Neither
did the lower court pass upon the issue of the alleged negligence of the crewmembers of the
D/B Lucio being the cause of the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the
Court of Appeals that there is res judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in
concluding that the negligence of ANCOs representatives was the proximate cause of the
loss, said issue is a question of fact assailing the lower courts appreciation of evidence on the
negligence or lack thereof of the crewmembers of the D/B Lucio. As a rule, findings of fact of
lower courts, particularly when affirmed by the appellate court, are deemed final and
conclusive. The Supreme Court cannot review such findings on appeal, especially when they
are borne out by the records or are based on substantial evidence. [9] As held in the case
of Donato v. Court of Appeals,[10] in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons because the trial court is in a better position
to examine real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case.[11]
It is not the function of this Court to analyze or weigh evidence all over again, unless
there is a showing that the findings of the lower court are totally devoid of support or are
glaringly erroneous as to constitute palpable error or grave abuse of discretion.[12]
A careful study of the records shows no cogent reason to fault the findings of the lower
court, as sustained by the appellate court, that ANCOs representatives failed to exercise the
extraordinary degree of diligence required by the law to exculpate them from liability for the
loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the
Twenty Nine Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty
(550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B
Lucio had no engine of its own and could not maneuver by itself. Yet, the patron of ANCOs
tugboat M/T ANCO left it to fend for itself notwithstanding the fact that as the two vessels
arrived at the port of San Jose, Antique, signs of the impending storm were already manifest.
As stated by the lower court, witness Mr. Anastacio Manilag testified that the captain or
patron of the tugboat M/T ANCO left the barge D/B Lucio immediately after it reached San
Jose, Antique, despite the fact that there were already big waves and the area was already
dark. This is corroborated by defendants own witness, Mr. Fernando Macabueg.[13]
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe
extraordinary diligence in the vigilance over the cargo of the plaintiff, the patron or captain
of M/T ANCO, representing the defendant could have placed D/B Lucio in a very safe location
before they left knowing or sensing at that time the coming of a typhoon. The presence of
big waves and dark clouds could have warned the patron or captain of M/T ANCO to insure
the safety of D/B Lucio including its cargo. D/B Lucio being a barge, without its engine, as the
patron or captain of M/T ANCO knew, could not possibly maneuver by itself. Had the patron
or captain of M/T ANCO, the representative of the defendants observed extraordinary
diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could
not have occurred. In short, therefore, defendants through their representatives, failed to
observe the degree of diligence required of them under the provision of Art. 1733 of the Civil
Code of the Philippines.[14]
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the
contention of respondents SMC and FGU that the crewmembers of D/B Lucio should have
16
left port at the onset of the typhoon is like advising the fish to jump from the frying pan into
the fire and an advice that borders on madness.[15]
The argument does not persuade. The records show that the D/B Lucio was the only
vessel left at San Jose, Antique, during the time in question. The other vessels were
transferred and temporarily moved to Malandong, 5 kilometers from wharf where the barge
remained.[16] Clearly, the transferred vessels were definitely safer in Malandong than at the
port of San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by
the typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence
on their part. In fact, ANCO claims that their crewmembers exercised due diligence to
prevent or minimize the loss of the cargoes but their efforts proved no match to the forces
unleashed by the typhoon which, in petitioners own words was, by any yardstick, a natural
calamity, a fortuitous event, an act of God, the consequences of which petitioners could not
be held liable for.[17]
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each
case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734,
1735, and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or minimize loss before, during and
after the occurrence of flood, storm, or other natural disaster in order that the common
carrier may be exempted from liability for the loss, destruction, or deterioration of the goods
. . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an
obligor from liability)[18] by definition, are extraordinary events not foreseeable or avoidable,
events that could not be foreseen, or which though foreseen, were inevitable. It is therefore
not enough that the event should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid.[19]
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor
was it unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to
transfer to another place, a circumstance which prompted SMCs District Sales Supervisor to
request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no
engine and could not maneuver by itself. Even if ANCOs representatives wanted to transfer
it, they no longer had any means to do so as the tugboat M/T ANCO had already departed,
leaving the barge to its own devices. The captain of the tugboat should have had the
foresight not to leave the barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural
disaster, ANCO could not escape liability to respondent SMC. The records clearly show the
failure of petitioners representatives to exercise the extraordinary degree of diligence
mandated by law. To be exempted from responsibility, the natural disaster should have been
the proximate and only cause of the loss.[20] There must have been no contributory
negligence on the part of the common carrier. As held in the case of Limpangco Sons v.
Yangco Steamship Co.:[21]
. . . To be exempt from liability because of an act of God, the tug must be free from any
previous negligence or misconduct by which that loss or damage may have been occasioned.
For, although the immediate or proximate cause of the loss in any given instance may have
been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such
accident by any culpable act or omission of its own, it is not excused.[22]
Therefore, as correctly pointed out by the appellate court, there was blatant
negligence on the part of M/T ANCOs crewmembers, first in leaving the engine-less barge
D/B Lucio at the mercy of the storm without the assistance of the tugboat, and again in
failing to heed the request of SMCs representatives to have the barge transferred to a safer
place, as was done by the other vessels in the port; thus, making said blatant negligence the
proximate cause of the loss of the cargoes.
We now come to the issue of whether or not FGU can be held liable under the
insurance policy to reimburse ANCO for the loss of the cargoes despite the findings of the
respondent court that such loss was occasioned by the blatant negligence of the latters
employees.
One of the purposes for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. Thus, it is a basic rule in
insurance that the carelessness and negligence of the insured or his agents constitute no
defense on the part of the insurer.[23] This rule however presupposes that the loss has
occurred due to causes which could not have been prevented by the insured, despite the
exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the
insured or his agents that will deprive him the right to recover under the insurance contract.
We say there is. However, to what extent such negligence must go in order to exonerate the
insurer from liability must be evaluated in light of the circumstances surrounding each case.
When evidence show that the insureds negligence or recklessness is so gross as to be
sufficient to constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,[24] the United States
Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk
which the insurer takes upon himself, and the existence of which, where it is the proximate
cause of the loss, does not absolve the insurer from liability. But willful exposure, gross
negligence, negligence amounting to misconduct, etc., have often been held to release the
insurer from such liability.[25] [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the
owners of an insured vessel attempted to put her across the bar at Hatteras Inlet. She struck
on the bar and was wrecked. The master knew that the depth of water on the bar was such
as to make the attempted passage dangerous. Judge Clifford held that, under the
circumstances, the loss was not within the protection of the policy, saying:
17
Authorities to prove that persons insured cannot recover for a loss occasioned by their own
wrongful acts are hardly necessary, as the proposition involves an elementary principle of
universal application. Losses may be recovered by the insured, though remotely occasioned
by the negligence or misconduct of the master or crew, if proximately caused by the perils
insured against, because such mistakes and negligence are incident to navigation and
constitute a part of the perils which those who engage in such adventures are obliged to
incur; but it was never supposed that the insured could recover indemnity for a loss
occasioned by his own wrongful act or by that of any agent for whose conduct he was
responsible.[26] [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a
distinction between ordinary negligence and gross negligence or negligence amounting to
misconduct and its effect on the insureds right to recover under the insurance contract.
According to the Court, while mistake and negligence of the master or crew are incident to
navigation and constitute a part of the perils that the insurer is obliged to incur, such
negligence or recklessness must not be of such gross character as to amount to misconduct
or wrongful acts; otherwise, such negligence shall release the insurer from liability under the
insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the
evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly
negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when
the patron (operator) of the tug boat immediately left the barge at the San Jose, Antique
wharf despite the looming bad weather. Negligence was likewise exhibited by the
defendants-appellants representative who did not heed Macabuags request that the barge
be moved to a more secure place. The prudent thing to do, as was done by the other sea
vessels at San Jose, Antique during the time in question, was to transfer the vessel to a safer
wharf. The negligence of the defendants-appellants is proved by the fact that on 01 October
1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.[27] [Emphasis
ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion
drawn by the lower court, as sustained by the Court of Appeals, that ANCOs representatives
had failed to exercise extraordinary diligence required of common carriers in the shipment of
SMCs cargoes. Such blatant negligence being the proximate cause of the loss of the cargoes
amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven
Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes
that the blatant negligence of ANCOs employees is of such gross character that it amounts to
a wrongful act which must exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24
February 1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
[G.R. No. 125948. December 29, 1998]
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,
HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C.
ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline concession was
granted in 1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross receipts
for the fiscal year 1993 pursuant to the Local Government Code.[3] The respondent City
Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in
four installments based on the gross receipts for products pumped at GPS-1 for the fiscal
year 1993 which amounted to P181,681,151.00. In order not to hamper its operations,
petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of
1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession
granted under the Petroleum Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As
such, our Company is exempt from paying tax on gross receipts under Section 133 of the
Local Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included in the enumeration of contractors
under Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to
impose tax 'on contractors and other independent contractors' under Section 143, Paragraph
(e) of the Local Government Code does not include the power to levy on transportation
contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under
Section 147 of the Local Government Code. The said section limits the imposition of fees and
charges on business to such amounts as may be commensurate to the cost of regulation,
inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the
imposition thereof based on gross receipts is violative of the aforecited provision. The
amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost
of regulation, inspection and licensing. The fee is already a revenue raising measure, and not
a mere regulatory imposition."[4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its
complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the
business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the
18
authority of cities to impose and collect a tax on the gross receipts of "contractors and
independent contractors" under Sec. 141 (e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term
"contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and
erroneously imposed and collected the said tax, thus meriting the immediate refund of the
tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption applies
only to "transportation contractors and persons engaged in the transportation by hire and
common carriers by air, land and water."Respondents assert that pipelines are not included
in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains,
ships and the like. Respondents further posit that the term "common carrier" under the said
code pertains to the mode or manner by which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling
in this wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax
exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions
of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit
A) whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet
neither said law nor the deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the
Local Tax Code. Such being the situation obtained in this case (exemption being unclear and
equivocal) resort to distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses
only common carriers so as not to overburden the riding public
or commuters with taxes. Plaintiff is not a common carrier, but
a special carrier extending its services and facilities to a single
specific or "special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and
effective local autonomy to local governments than the
previous enactments, to make them economically and
financially viable to serve the people and discharge their
functions with a concomitant obligation to accept certain
devolution of powers, x x x So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and contractors are also
taxed under Sec. 143 (e) and 151 of the Code."[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication.[10] On November 29, 1995, the respondent court rendered a
decision[11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion
for reconsideration was denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this
Court in a Resolution[14] of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the exemption
sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation,
firm or association engaged in the business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the
transportation of goods for person generally as a business and not as a
casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted
and over his established roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier.It is engaged in the business of transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports the goods by land
and for compensation. The fact that petitioner has a limited clientele does not exclude it
from the definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making
any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
'general public,' i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that
Article 1877 deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide
neatly with the notion of 'public service,' under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, 'public
service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with
19
or without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric
light heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public
services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j)
of the Local Government Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land, water or
air. It does not provide that the transportation of the passengers or goods should be by
motor vehicle. In fact, in the United States, oil pipe line operators are considered common
carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered
a "common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by him,
but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and to
charge without discrimination such rates as may have been approved by the Secretary of
Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion
of Article 7 thereof provides:
"that everything relating to the exploration for and exploitation of petroleum x x and
everything relating to the manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common
carrier." In BIR Ruling No. 069-83, it declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting
petroleum products, it is considered a common carrier under Republic Act No. 387 x x x. Such
being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-
78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier"
and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged
in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government
Code of 1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131].
Common Limitations on the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to
be one of those being deemed to be exempted from the taxing powers of the local
government units. May we know the reason why the transportation business is being
excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131),
line 16, paragraph 5. It states that local government units may not impose taxes on the
business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there
that provinces have the power to impose a tax on business enjoying a franchise at the rate of
not more than one-half of 1 percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject to tax by the province. That is the
exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on top
of what is already being imposed by the National Internal Revenue Code which is the so-
called "common carriers tax." We do not want a duplication of this tax, so we just provided
for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a
specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
LEA MER INDUSTRIES, INC., G.R. No. 161745
- versus - Sandoval-Gutierrez,
MALAYAN INSURANCE CO., INC.,*
DECISION
PANGANIBAN, J.:
C ommon carriers are bound to observe extraordinary diligence in their vigilance over the
goods entrusted to them, as required by the nature of their business and for reasons of
public policy. Consequently, the law presumes that common carriers are at fault or negligent
20
for any loss or damage to the goods that they transport. In the present case, the evidence
submitted by petitioner to overcome this presumption was sorely insufficient.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing
the October 9, 2002 Decision[2] and the December 29, 2003 Resolution[3]of the Court of
Appeals (CA) in CA-GR CV No. 66028. The challenged Decision disposed as follows:
WHEREFORE, the appeal is GRANTED. The December 7, 1999
decision of the Regional Trial Court of Manila, Branch 42 in Civil Case No.
92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to
pay the [herein respondent] the value of the lost cargo in the amount
of P565,000.00. Costs against the [herein petitioner].[4]
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc.,
for the shipment of 900 metric tons of silica sand valued at P565,000.[5]Consigned to Vulcan
Industrial and Mining Corporation, the cargo was to be transported from Palawan to Manila.
On October 25, 1991, the silica sand was placed on board Judy VII, a barge leased by Lea
Mer.[6] During the voyage, the vessel sank, resulting in the loss of the cargo.[7]
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. [8] To
recover the amount paid and in the exercise of its right of subrogation, Malayan demanded
reimbursement from Lea Mer, which refused to comply. Consequently, Malayan instituted a
Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992, for the
collection of P565,000 representing the amount that respondent had paid Vulcan.[9]
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the
cause of the loss was a fortuitous event.[10] The RTC noted that the vessel had sunk because
of the bad weather condition brought about by Typhoon Trining. The court ruled that
petitioner had no advance knowledge of the incoming typhoon, and that the vessel had been
cleared by the Philippine Coast Guard to travel from Palawan to Manila.[11]
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for
Manila. Thus, the loss of the cargo was occasioned by petitioners fault, not by a fortuitous
event.[12]
Hence, this recourse.[13]
The Issues
Petitioner states the issues in this wise:
A. Whether or not the survey report of the cargo surveyor, Jesus Cortez,
who had not been presented as a witness of the said report during the
trial of this case before the lower court can be admitted in evidence to
prove the alleged facts cited in the said report.
B. Whether or not the respondent, Court of Appeals, had validly or legally
reversed the finding of fact of the Regional Trial Court which clearly and
unequivocally held that the loss of the cargo subject of this case was
caused by fortuitous event for which herein petitioner could not be held
liable.
C. Whether or not the respondent, Court of Appeals, had committed
serious error and grave abuse of discretion in disregarding the testimony
of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the
effect that the vessel Judy VII was seaworthy at the time of incident and
further in disregarding the testimony of the PAG-ASA weather specialist,
Ms. Rosa Barba y Saliente, to the effect that typhoon Trining did not hit
Metro Manila or Palawan.[14]
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo,
and (2) whether the survey report of Jesus Cortez is admissible in evidence.
The Courts Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a
fortuitous event. This issue involves primarily a question of fact, notwithstanding petitioners
claim that it pertains only to a question of law. As a general rule, questions of fact may not be
raised in a petition for review.[15] The present case serves as an exception to this rule,
because the factual findings of the appellate and the trial courts vary.[16] This Court
meticulously reviewed the records, but found no reason to reverse the CA.
Rule on Common Carriers
Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods, or both -- by land, water, or air -- when this
service is offered to the public for compensation.[17] Petitioner is clearly a common carrier,
because it offers to the public its business of transporting goods through its vessels.[18]
21
Thus, the Court corrects the trial courts finding that petitioner became a private carrier when
Vulcan chartered it.[19] Charter parties are classified as contracts of demise (or bareboat) and
affreightment, which are distinguished as follows:
Under the demise or bareboat charter of the vessel, the
charterer will generally be considered as owner for the voyage or service
stipulated. The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to liability to others
for damages caused by negligence. To create a demise, the owner of a
vessel must completely and exclusively relinquish possession, command
and navigation thereof to the charterer; anything short of such a
complete transfer is a contract of affreightment (time or voyage charter
party) or not a charter party at all.[20]
The distinction is significant, because a demise or bareboat charter indicates a
business undertaking that is private in character. [21] Consequently, the rights and obligations
of the parties to a contract of private carriage are governed principally by their stipulations,
not by the law on common carriers.[22]
The Contract in the present case was one of affreightment, as shown by the fact
that it was petitioners crew that manned the tugboat M/V Ayalit and controlled the
barge Judy VII.[23] Necessarily, petitioner was a common carrier, and the pertinent law
governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the
goods and the safety of the passengers they transport, as required by the nature of their
business and for reasons of public policy.[24] Extraordinary diligence requires rendering
service with the greatest skill and foresight to avoid damage and destruction to the goods
entrusted for carriage and delivery.[25]
Common carriers are presumed to have been at fault or to have acted negligently
for loss or damage to the goods that they have transported. [26] This presumption can be
rebutted only by proof that they observed extraordinary diligence, or that the loss or damage
was occasioned by any of the following causes:[27]
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.[28]
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous
event which could not be foreseen, or which, though foreseen, was inevitable. Thus, if the
loss or damage was due to such an event, a common carrier is exempted from liability.
Jurisprudence defines the elements of a fortuitous event as follows: (a) the cause
of the unforeseen and unexpected occurrence, or the failure of the debtors to comply with
their obligations, must have been independent of human will; (b) the event that constituted
the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the debtors to
fulfill their obligation in a normal manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the creditor.[29]
To excuse the common carrier fully of any liability, the fortuitous event must have
been the proximate and only cause of the loss.[30] Moreover, it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.[31]
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the common
carrier, petitioner bore the burden of proving that it had exercised extraordinary diligence to
avoid the loss, or that the loss had been occasioned by a fortuitous event -- an exempting
circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer
claimed that the loss of the cargo was due to the bad weather condition brought about by
Typhoon Trining.[32] Evidence was presented to show that petitioner had not been informed
of the incoming typhoon, and that the Philippine Coast Guard had given it clearance to begin
the voyage.[33] On October 25, 1991, the date on which the voyage commenced and the
barge sank, Typhoon Trining was allegedly far from Palawan, where the storm warning was
only Signal No. 1.[34]
The evidence presented by petitioner in support of its defense of fortuitous event
was sorely insufficient. As required by the pertinent law, it was not enough for the common
carrier to show that there was an unforeseen or unexpected occurrence. It had to show that
it was free from any fault -- a fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or
prevent the loss before, during or after the alleged fortuitous event.[35] Its witness, Joey A.
Draper, testified that he could no longer remember whether anything had been done to
minimize loss when water started entering the barge. [36] This fact was confirmed during his
cross-examination, as shown by the following brief exchange:
Atty. Baldovino, Jr.:
22
 Other than be[a]ching the barge Judy VII, were there other precautionary
measure[s] exercised by you and the crew of Judy VII so as to
prevent the los[s] or sinking of barge Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by
the officers and crew of tugboat Ayalit and barge Judy VII x x x
to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction
on how to save the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time
ago.[37]
Second, the alleged fortuitous event was not the sole and proximate cause of the
loss. There is a preponderance of evidence that the barge was not seaworthy when it sailed
for Manila.[38] Respondent was able to prove that, in the hull of the barge, there were holes
that might have caused or aggravated the sinking.[39]Because the presumption of negligence
or fault applied to petitioner, it was incumbent upon it to show that there were no holes; or,
if there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness,
Domingo A. Luna, testified that the barge was in tip-top or excellent condition,[40]but that he
had not personally inspected it when it left Palawan.[41]
The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII,
dated July 31, 1991, did not conclusively prove that the barge was seaworthy.[42] The
regularity of the issuance of the Certificate is disputably presumed. [43] It could be
contradicted by competent evidence, which respondent offered. Moreover, this evidence did
not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.[44]
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report[45] prepared by Jesus Cortez, the cargo surveyor,
should not have been admitted in evidence. The Court partly agrees. Because he did not
testify during the trial,[46] then the Report that he had prepared was hearsay and therefore
inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortezs Survey Report was used in the testimonies of respondents
witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the
vice-president of Toplis and Harding Company.[47]Soriano testified that the Survey Report had
been used in preparing the final Adjustment Report conducted by their company.[48] The final
Report showed that the barge was not seaworthy because of the existence of the holes.
Manlapig testified that he had prepared that Report after taking into account the findings of
the surveyor, as well as the pictures and the sketches of the place where the sinking
occurred.[49] Evidently, the existence of the holes was proved by the testimonies of the
witnesses, not merely by Cortez Survey Report.
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial,[50] and that their
testimonies must be confined to personal knowledge is required by the rules on evidence,
from which we quote:
Section 36. Testimony generally confined to personal
knowledge; hearsay excluded. A witness can testify only to those facts
which he knows of his personal knowledge; that is, which are derived
from his own perception, except as otherwise provided in these rules.[51]
On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which
respondent had offered as evidence.[52] Well-settled is the rule that, unless the affiant is
presented as a witness, an affidavit is considered hearsay.[53]
An exception to the foregoing rule is that on independently relevant statements. A
report made by a person is admissible if it is intended to prove the tenor, not the truth, of
the statements.[54] Independent of the truth or the falsity of the statement given in the
report, the fact that it has been made is relevant. Here, the hearsay rule does not apply. [55]
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as
part of the testimonies of respondents witnesses. The referral to Cortezs Report was in
relation to Manlapigs final Adjustment Report. Evidently, it was the existence of the Survey
Report that was testified to. The admissibility of that Report as part of the testimonies of the
witnesses was correctly ruled upon by the trial court.
23

At any rate, even without the Survey Report, petitioner has already failed to overcome the
presumption of fault that applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 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-party1 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 Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-
party 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 holds4 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).10A 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." 14 Hence, 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
24
 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 charter-
party 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
25
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-at-
law 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 plaintiff-appellee'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
26
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.
Costs against petitioner.
SO ORDERED.
G.R. No. 186312 June 29, 2010
SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,
vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City
for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished with
his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en route
to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco
Beach Island Resort (Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000
was by virtue of a tour package-contract with respondent that included transportation to and
from the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for another
night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera
and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to
side and the captain to step forward to the front, leaving the wheel to one of the crew
members.
The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers who reached the surface asked him
what they could do to save the people who were still trapped under the boat. The captain
replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners son and his wife, died during the incident.
27
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for
the death of their son in the amount of at least 4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of 10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected,
alleging that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco
Beach III to sail notwithstanding storm warning bulletins issued by the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as
5:00 a.m. of September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners allegation, there was no storm on September 11, 2000 as
the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity
and had sufficient life jackets for its passengers. By way of Counterclaim, respondent alleged
that it is entitled to an award for attorneys fees and litigation expenses amounting to not
less than 300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there
is clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is
clearance from the Resorts assistant manager.8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners
Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier
which is only required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of
its resort business. They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to
prove that it is a common carrier; that the Resorts ferry services for guests cannot be
considered as ancillary to its business as no income is derived therefrom; that it exercised
extraordinary diligence as shown by the conditions it had imposed before allowing M/B Coco
Beach III to sail; that the incident was caused by a fortuitous event without any contributory
negligence on its part; and that the other case wherein the appellate court held it liable for
damages involved different plaintiffs, issues and evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as
a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:
. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system,
gas, electric light, heat and power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry
services in its resort operations is underscored by its having its own Coco Beach boats. And
the tour packages it offers, which include the ferry services, may be availed of by anyone
who can afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment.
It would be imprudent to suppose that it provides said services at a loss. The Court is aware
of the practice of beach resort operators offering tour packages to factor the transportation
fee in arriving at the tour package price. That guests who opt not to avail of respondents
ferry services pay the same amount is likewise inconsequential. These guests may only be
deemed to have overpaid.
28
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods
is the carriers principal business, whether it is offered on a regular basis, or whether it is
offered to the general public. The intent of the law is thus to not consider such distinctions.
Otherwise, there is no telling how many other distinctions may be concocted by
unscrupulous businessmen engaged in the carrying of persons or goods in order to avoid the
legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. 19 They are bound to
carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances. 20
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed
that the common carrier is at fault or negligent. In fact, there is even no need for the court to
make an express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.21
Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September 11, 2000.
Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical depressions
in Northern Luzon which would also affect the province of Mindoro. 22 By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under such
weather condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other peoples lives at risk. The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if they
were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress
either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of
the resulting injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only causeof the loss. And it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous
event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows
that M/B Coco Beach III suffered engine trouble before it capsized and sank.26 The incident
was, therefore, not completely free from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of
its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at 50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death]30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the
entire earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja34teaches that when, as in this case, there is no showing that the living expenses
constituted the smaller percentage of the gross income, the living expenses are fixed at half
of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange rate
of $1 = 44 in 2000,36 amounts to 39,600. Ruelitos net earning capacity is thus computed
as follows:
Net Earning = life expectancy x (gross annual income - reasonable and
Capacity necessary living expenses).
= 35 x (475,200 - 237,600)
= 35 x (237,600)
Net Earning
= 8,316,000
Capacity
29
Respecting the award of moral damages, since respondent common carriers breach of following: (1) 50,000 as indemnity for the death of Ruelito Cruz; (2) 8,316,000 as
contract of carriage resulted in the death of petitioners son, following Article 1764 vis--vis indemnity for Ruelitos loss of earning capacity; (3) 100,000 as moral damages; (4) 100,000
Article 2206 of the Civil Code, petitioners are entitled to moral damages. as exemplary damages; (5) 10% of the total amount adjudged against respondent as
Since respondent failed to prove that it exercised the extraordinary diligence required of attorneys fees; and (6) the costs of suit.
common carriers, it is presumed to have acted recklessly, thus warranting the award too of The total amount adjudged against respondent shall earn interest at the rate of 12% per
exemplary damages, which are granted in contractual obligations if the defendant acted in a annum computed from the finality of this decision until full payment.
wanton, fraudulent, reckless, oppressive or malevolent manner.37 SO ORDERED.
Under the circumstances, it is reasonable to award petitioners the amount of 100,000 as
moral damages and 100,000 as exemplary damages.381avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged
against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on 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. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the
rate of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE.
Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the

30