Eastern Shipping vs BPI/MS Insurance

Facts: BPI/MS Insurance Corporation (BPI/MS) and Mitsui Sumitomo Insurance Company
Limited (Mitsui) filed a Complaint before the RTC of Makati City against ESLI and ATI to recover
actual damages. In their complaint, BPI/MS and Mitsui alleged that on 2 February 2004 at
Yokohama, Japan, Sumitomo Corporation shipped on board ESLI’s vessel M/V “Eastern Venus
22” 22 coils of various Steel Sheet weighing 159,534 kilograms in good order and condition for
transportation to and delivery at the port of Manila, Philippines in favor of consignee Calamba
Steel Center, Inc. (Calamba Steel) located in Saimsim, Calamba, Laguna as evidenced by a Bill of
Lading with Nos. ESLIYMA001. The declared value of the shipment was US$83,857.59 as shown
by an Invoice with Nos. KJGE-03-1228-NT/KE3. The shipment was insured with the respondents
BPI/MS and Mitsui against all risks under Marine Policy No. 103-GG03448834.

It was alleged that the shipment arrived at the port of Manila in an unknown condition and was
turned over to ATI for safekeeping. Upon withdrawal of the shipment by the Calamba Steel’s
representative, it was found out that part of the shipment was damaged and was in bad order
condition such that there was a Request for Bad Order Survey. It was found out that the
damage amounted to US$4,598.85 prompting Calamba Steel to reject the damaged shipment
for being unfit for the intended purpose. Sumitomo Corporation again shipped on board ESLI’s
vessel M/V “Eastern Venus 25” 50 coils in various Steel Sheet weighing 383,532 kilograms in
good order and condition for transportation to and delivery at the port of Manila, Philippines in
favor of the same consignee Calamba Steel as evidenced by a Bill of Lading with Nos.
ESLIKSMA002. The declared value of the shipment was US$221,455.58 as evidenced by Invoice
Nos. KJGE-04-1327-NT/KE2. The shipment was insured with the respondents BPI/MS and Mitsui
against all risks under Marine Policy No. 104-GG04457785. The vessel with the second
shipment arrived at the port of Manila partly damaged and in bad order. The coils sustained
further damage during the discharge from vessel to shore until its turnover to ATI’s custody for
safekeeping.

Upon withdrawal from ATI and delivery to Calamba Steel, it was found out that the damage
amounted to US$12,961.63. As it did before, Calamba Steel rejected the damaged shipment for
being unfit for the intended purpose.

Calamba Steel attributed the damages on both shipments to ESLI as the carrier and ATI as
the arrastre operator in charge of the handling and discharge of the coils and filed a claim
against them. When ESLI and ATI refused to pay, Calamba Steel filed an insurance claim for the
total amount of the cargo against BPI/MS and Mitsui as cargo insurers. As a result, BPI/MS and
Mitsui became subrogated in place of and with all the rights and defenses accorded by law in
favor of Calamba Steel.

ATI denied its liability and insisted that the coils in two shipments were already damaged upon
receipt from ESLI’s vessels. It likewise insisted that it exercised due diligence in the handling of
the shipments and invoked that in case of adverse decision, its liability should not exceed
P5,000.00 pursuant to Section 7.01, Article VII4 of the Contract for Cargo Handling Services
between Philippine Ports Authority (PPA) and ATI. ESLI denied and averred that the damage to
both shipments was incurred while the same were in the possession and custody of ATI and/or
of the consignee or its representatives

The parties agreed that the procedural issue was whether there was a valid subrogation in favor
of BPI/MS and Mitsui; and that the substantive issues were, whether the shipments suffered
damages, the cause of damage, and the entity liable for reparation of the damages caused.

BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1) Mario A. Manuel
(Manuel),11 the Cargo Surveyor of Philippine Japan Marine Surveyors and Sworn Measurers
Corporation who personally examined and conducted the surveys on the two shipments; (2)
Richatto P. Almeda,12 the General Manager of Calamba Steel who oversaw and examined the
condition, quantity, and quality of the shipped steel coils, and who thereafter filed formal
notices and claims against ESLI and ATI; and (3) Virgilio G. Tiangco, Jr.,13 the Marine Claims
Supervisor of BPI/MS who processed the insurance claims of Calamba Steel. Along with the
Affidavits were the Bills of Lading14 covering the two shipments, Invoices,15 Notices of Loss of
Calamba Steel,16 Subrogation Form,17 Insurance Claims,18 Survey Reports,19 Turn Over Survey of
Bad Order Cargoes20 and Request for Bad Order Survey.

ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte, 22 Manager of the
Operations Department of ESLI, who monitored in coordination with ATI the discharge of the
two shipments, and Rodrigo Victoria (Rodrigo),23 the Cargo Surveyor of R & R Industrial and
Marine Services, Inc., who personally surveyed the subject cargoes on board the vessel as well
as the manner the ATI employees discharged the coils. The documents presented were the Bills
of Lading, Secretary’s Certificate24 of PPA, granting ATI the duty and privilege to
provide arrastre and stevedoring services at South Harbor, Port of Manila, Contract for Cargo
Handling Services,25 Damage Report26 and Turn Over Report made by Rodrigo.27 ESLI also
adopted the Survey Reports submitted by BPI/MS and Mitsui. ATI submitted the Affidavits of its
Bad Order Inspector Ramon Garcia (Garcia)29 and Claims Officer Ramiro De Vera.30 The
documents attached to the submissions were the Turn Over Surveys of Bad Cargo
Order,31 Requests for Bad Order Survey,32 Cargo Gatepasses issued by ATI,33 Notices of
Loss/Claims of Calamba Steel34 and Contract for Cargo Handling Services. RTC rendered a
decision finding both the ESLI and ATI liable for the damages sustained by the two shipments.

ESLI questioned the ruling on its liability since the Survey Reports indicated that the cause of
loss and damage was due to the “rough handling of ATI’s stevedores during discharge from
vessel to shore and during loading operation onto the trucks.” It invoked the limitation of
liability of US$500.00 per package as provided in Commonwealth Act No. 65 or the Carriage of
Goods by Sea Act (COGSA). ATI questioned the capacity to sue of BPI/MS and Mitsui and the
award of attorney’s fees despite its lack of justification in the body of the decision. ATI also
imputed error on the part of the trial court when it ruled that ATI’s employees were negligent
in the ruling of the shipments. It also insisted on the applicability of the provision of COGSA on
limitation of liability. Court of Appeals absolved ATI from liability

Issue: Whether or not ESLI is liable?

Held: ESLI bases of its non-liability on the survey reports prepared by BPI/MS and Mitsui’s
witness Manuel which found that the cause of damage was the rough handling on the shipment
by the stevedores of ATI during the discharging operations. However, Manuel does not absolve
ESLI of liability. The witness in fact includes ESLI in the findings of negligence and made mention
that During the aforesaid operations, the employees and forklift operators of [ESLI] and [ATI]
were very negligent in the handling of the subject cargoes.

From the statements of Manuel, [ESLI] was negligent, whether solely or together with ATI.
To further press its cause, ESLI cites the affidavit of its witness Rodrigo who stated that the
cause of the damage was the rough mishandling by ATI’s stevedores.

The affidavit of Rodrigo states that his functions as a cargo surveyor are, (1) getting hold of a
copy of the bill of lading and cargo manifest; (2) inspection and monitoring of the cargo on-
board, during discharging and after unloading from the vessel; and (3) making a necessary
report of his findings. Thus, upon arrival at the South Harbor of Manila of the two vessels of
ESLI on 11 February 2004 and on 21 May 2004, Rodrigo immediately boarded the vessels to
inspect and monitor the unloading of the cargoes. In both instances, it was his finding that
there was mishandling on the part of ATI’s stevedores which he reported as the cause of the
damage.

Easily seen, however, is the absence of a crucial point in determining liability of either or both
ESLI and ATI – lack of determination whether the cargo was in a good order condition as
described in the bills of lading at the time of his boarding. As Rodrigo admits, it was also his
duty to inspect and monitor the cargo on-board upon arrival of the vessel. ESLI cannot invoke
its non-liability solely on the manner the cargo was discharged and unloaded. The actual
condition of the cargoes upon arrival prior to discharge is equally important and cannot be
disregarded. Proof is needed that the cargo arrived at the port of Manila in good order
condition and remained as such prior to its handling by ATI.

In maritime transportation, a bill of lading is issued by a common carrier as a contract, receipt

and symbol of the goods covered by it. If it has no notation of any defect or damage in the
goods, it is considered as a “clean bill of lading.” A clean bill of lading constitutes prima
facie evidence of the receipt by the carrier of the goods as therein described. Based on the bills
of lading issued, it is undisputed that ESLI received the two shipments of coils from shipper
Sumitomo Corporation in good condition at the ports of Yokohama and Kashima, Japan.
However, upon arrival at the port of Manila, some coils from the two shipments were partly
dented and crumpled as evidenced by the Turn Over Survey of Bad Order Cargoes No. 67982
dated 13 February 200454 and Turn Over Survey of Bad Order Cargoes Nos. 6836355 and
6836556 both dated 24 May 2004 signed by ESLI’s representatives, a certain Tabanao and
Rodrigo together with ATI’s representative Garcia. According to Turn Over Survey of Bad Order
Cargoes No. 67982, four coils and one skid were partly dented and crumpled prior to turnover
by ESLI to ATI’s possession while a total of eleven coils were partly dented and crumpled prior
to turnover based on Turn Over Survey Bad Order Cargoes Nos. 68363 and 68365.
First shipment dated 13 and 17 February 2004, four coils were damaged prior to turnover. The
second Request for Bad Order Survey No. 5865859 dated 25 May 2004 also affirmed the earlier
findings that eleven coils on the second shipment were damaged prior to turnover.

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, loss, or destruction of
the goods happened, the transporter shall be held responsible. From the foregoing, the fault is
attributable to ESLI. While no longer an issue, it may be nonetheless state that ATI was correctly
absolved of liability for the damage.

Second Issue: Limitation of Liability

ESLI assigns as error the appellate court’s finding and reasoning that the package limitation
under the COGSA is inapplicable even if the bills of lading covering the shipments only made
reference to the corresponding invoices. Noticeably, the invoices specified among others the
weight, quantity, description and value of the cargoes, and bore the notation “Freight Prepaid”
and “As Arranged.” ESLI argues that the value of the cargoes was not incorporated in the bills of
lading and that there was no evidence that the shipper had presented to the carrier in writing
prior to the loading of the actual value of the cargo, and, that there was a no payment of
corresponding freight. Finally, despite the fact that ESLI admits the existence of the invoices, it
denies any knowledge either of the value declared or of any information contained therein.

According to the New Civil Code, the law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss, destruction or
deterioration. The Code takes precedence as the primary law over the rights and obligations of
common carriers with the Code of Commerce and COGSA applying suppletorily. The New Civil
Code provides that a stipulation limiting a common carrier’s liability to the value of the goods
appearing in the bill of lading is binding, unless the shipper or owner declares a greater value. In
addition, a contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount recoverable
in case of loss or damage shall not exceed US$500.00 per package or per customary freight
unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading.

Accordingly, the issue whether or not ESLI has limited liability as a carrier is determined by
either absence or presence of proof that the nature and value of the goods have been declared
by Sumitomo Corporation and inserted in the bills of lading. The bills of lading represent the
formal expression of the parties’ rights, duties and obligations. It is the best evidence of the
intention of the parties which is to be deciphered from the language used in the contract, not
from the unilateral post facto assertions of one of the parties, or of third parties who are
strangers to the contract. Thus, when the terms of an agreement have been reduced to writing,
it is deemed to contain all the terms agreed upon and there can be, between the parties and
their successors in interest, no evidence of such terms other than the contents of the written
agreement. As to the non-declaration of the value of the goods on the second bill of lading, we
see no error on the part of the appellate court when it ruled that there was a compliance of the
requirement provided by COGSA. The declaration requirement does not require that all the
details must be written down on the very bill of lading itself. It must be emphasized that all the
needed details are in the invoice, which “contains the itemized list of goods shipped to a buyer,
stating quantities, prices, shipping charges,” and other details which may contain numerous
sheets.74 Compliance can be attained by incorporating the invoice, by way of reference, to the
bill of lading provided that the former containing the description of the nature, value and/or
payment of freight charges is as in this case duly admitted as evidence. From the foregoing, we
rule that the non- limitation of liability applies in the present case. We likewise accord the same
binding effect on the contents of the invoice on the first shipment. It is inconceivable that a
shipping company with maritime experience and resource like the ESLI will admit the existence
of a maritime document like an invoice even if it has no knowledge of its contents or without
having any copy thereof. ESLI also asserts that the notation “Freight Prepaid” and “As
Arranged,” does not prove that there was an actual declaration made in writing of the payment
of freight as required by COGSA. ESLI did not as it could not deny payment of freight in the
amount indicated in the documents. Indeed, the earlier discussions on ESLI’s admission of the
existence and due execution of the invoices, cover and disprove the argument regarding actual
declaration of payment. The bills of lading bore a notation on the manner of payment which
was “Freight Prepaid” and “As Arranged” while the invoices indicated the amount exactly paid
by the shipper to ESLI.

Ruling: WHEREFORE, we DENY the Petition for Review on Certiorari. The Decision dated 31
January 2008 and Resolution dated 5 May 2008 of the Second Division of the Court of Appeals
in CA-G.R. CV. No. 88744 are hereby AFFIRMED.

ONG YIU V. CA AND PAL

FACTS:
 On August 26, 1967, petitioner, a practicing lawyer and businessman, was a fare
paying passenger of respondent PAL on board a flight from Cebu bound for Butuan
City. He was scheduled to attend a trial in CFI Butuan on August 28-31, 1967.He
checked in a blue maleta.Upon arrival in Butuan, petitioner claimed his luggage but it
could not be found.
 PAL Butuan sent a message to PAL Cebu inquiring about the missing luggage. It was
later on relayed to PAL Manila. PAL Manila wired PAL Cebu advising that the luggage
had been over carried to Manila and it would be forwarded to Cebu. Instructions were
also given that the luggage be immediately forwarded to Butuan on the first available
 flight. At 5 PM, PAL Cebu sent a message to PAL Butuan that the luggage would be
forwarded the following day, August 27, 1967. However, this message was not
received by PAL Butuan as all personnel had already left since there were no more
incoming flights that afternoon.
 Petitioner was worried about the missing luggage because it contained vital
documents needed for trial. Petitioner wired PAL Cebu demanding the delivery of his
baggage before noon the next day otherwise he would hold PAL liable for damages.
This telegram was received by the PAL Cebu supervisor but the latter felt no need to
wire the petitioner that his luggage had already been forwarded on the assumption
that by the time the message reached Butuan City, the luggage would have arrived.
 On August 27, 1967, petitioner went to Bancasi Airport. He did not wait for the
morning flight which arrived at 10 AM. The porter paged petitioner but the latter had
already left. A certain Emilio Dagorro, a driver who used to drive the petitioner,
volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be
the same driver used by petitioner whenever the latter was in Butuan City, Gomez
took that luggage and placed it on the counter. Dagorro examined the lock, pressed it,
and it opened. After calling the attention of Gomez, Gomez took a look at its contents,
but did not touch them.
 Dagorro delivered the maleta to petitioner, informing him that the lock was open.
Upon inspection, petitioner found that the folder containing documents in civil case
were missing, aside from 2 gift items for his parents-in-law. Petitioner refused to
accept the luggage. Dagorro returned it to the porter clerk who sealed it and
forwarded the same to PAL Cebu.
 Petitioner asked for postponement of the hearing due to the loss of his documents,
which was granted by the court. He returned to Cebu. In a letter to PAL Cebu, he
demanded that his luggage be produced intact, and that he be compensated for
damages. Petitioner sent a letter to PAL Cebu inquiring the results of the investigation
to pinpoint responsibility for the unauthorized opening of the maleta. PAL Cebu failed
to found the lost folder and failed to pinpoint the personnel who allegedly pilfered the
baggage.
 Petitioner filed a complaint against PAL for damages for breach of contract of
transportation. The trial court found PAL to have acted in bad faith and with malice
and declared petitioner entitled to damages. CA found that PAL was guilty only of
simple negligence.
ISSUE: Whether or not PAL acted in bad faith.
HELD: No. Bad faith means a breach of a known duty though some motive of interest or ill
will. It was the duty of PAL to look for petitioner’s luggage which had been miscarried. PAL
exerted due diligence in complying with such duty. In the absence of a wrongful act or
omission or fraud or bad faith, petitioner is not entitled to moral damages. Petitioner is
neither entitled to exemplary damages. It can be granted if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner, which has not been proven in this
case. Petitioner further contends that respondent court committed grave error when it
limited PAL’s carriage liability to the amount of P100 as stipulated at the back of the ticket;
and that there is nothing in the evidence to show that he actually entered into a contract
with PAL limiting the latter’s liability for the loss or delay of the baggage of its passengers.
While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound
by the provisions thereof. Such provisions have been held to be part of the contract of
carriage and valid and binding upon the passenger regardless of the latter’s lack of knowledge
or assent to the regulation. It is what is known as contract of adhesion wherein one party
imposes a readymade form of contract on the other. The one who adheres to the contract is
in reality free to reject it entirely; if he adheres, he gives his consent.

Cokaliong Shipping vs. UCPB

Facts: Nestor Angelia (shipper and consignee) delivered to the petitioner Edgar Cokaliong
Shipping Lines, Inc. (now Cokaliong Shipping Lines), a cargo consisting of one (1) carton of
Christmas decor and two (2) sacks of plastic toys, to be transported on board the M/V Tandag
from Cebu City for Tandag, Surigao del Sur. This cargo is under Bill of Lading No. 58, in the
amount of P6,500.00. Zosimo Mercado (another shipper and consignee) likewise delivered
cargo to petitioner consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll
of floor mat and one (1) bundle of various or assorted goods. This is under Bill of Lading No. 59,
valued in the amount of P14,000.00 Feliciana Legaspi (owner of the goods) insured the cargo,
covered by BOL Nos. 59 and No. 58, with the UCPB General Insurance Co., Inc., [respondent].
No. 59 was insured for P100,000 while No. 58 for P50,000. [*Note that both amounts are far
from the actual and declared value in the BOLs issued by Cokaliong]

After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room,
and, despite earnest efforts of the officers and crew of the vessel, the fire engulfed and
destroyed the entire vessel resulting in the loss of the vessel and the cargoes therein. Feliciana
Legaspi filed a claim, with [respondent], for the value of the cargos insured. The latter approved
the claim. For Bill of Lading No. 59, Legaspi received from UCPB P99,000.00 while for No. 58,
P60,338.00. UCPB as subrogee of Legaspi, filed a complaint anchored on torts against
petitioner, with the RTC of Makati City, for the collection of the total principal amount
of P148,500.00. Respondent alleged that the loss of the cargo was due to the negligence of the
petitioner Petitioner alleged that: (a) It was cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel; and (b) it cannot be held liable for the loss of the cargo
beyond the value thereof declared in the Bill of Lading.

ISSUES:
(1) Is petitioner liable for the loss of the goods? YES
(2) If it is liable, what is the extent of its liability? According to what was reflected in the Bill
of Lading

HELD:
(1) Petitioner’s argument: the cause of the loss of the goods, subject of this case, was force
majeure. It adds that its exercise of due diligence was adequately proven by the findings of
the Philippine Coast Guard.
SC: We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that
the M/V Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil
service tank. The crack was located on the side of the fuel oil tank, which had a mere two-inch
gap from the engine room walling, thus precluding constant inspection and care by the crew
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have
been caused by force majeure. Broadly speaking, force majeure generally applies to a natural
accident, such as that caused by a lightning, an earthquake, a tempest or a public enemy.
Hence, fire is not considered a natural disaster or calamity. It does not fall within the category
of an act of God unless caused by lighting or by other natural disaster or calamity. It may even
be caused by the actual fault or privity of the carrier.

Peril of fire is not comprehended within the exceptions in Article 1734; Article 1735 applies.
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship
frequently so as to discover the existence of cracked parts, that loss cannot be attributed to
force majeure, but to the negligence of those officials. Ensuring the seaworthiness of the vessel
is the first step in exercising the required vigilance. Petitioner did not present sufficient
evidence showing what measures or acts it had undertaken to ensure the seaworthiness of the
vessel. It failed to show when the last inspection and care of the auxiliary engine fuel oil service
tank was made, or some other evidence to establish that it had exercised extraordinary
diligence. It merely stated that constant inspection and care were not possible, and that the last
time the vessel was dry-docked was in November 1990.

(2) Respondent’s contention: petitioner’s liability should be based on the actual insured value
of the goods, subject of this case.
Petitioner’s: its liability should be limited to the value declared by the shipper/consignee in
the Bill of Lading.

SC: Petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.

Ratio: The records show that the Bills of Lading covering the lost goods contain the stipulation
that in case of claim for loss or for damage to the shipped merchandise or property, [t]he
liability of the common carrier x x x shall not exceed the value of the goods as appearing in the
bill of lading. A stipulation that limits liability is valid as long as it is not against public policy.
Following provisions apply in the present case:

Art. 1749. A stipulation that the common carriers liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the
common carriers liability for loss must be reasonable and just under the circumstances, and has
been freely and fairly agreed upon. In the present case, the stipulation limiting petitioner’s
liability is not contrary to public policy. The shippers/consignees may recover the full value of
the goods by the simple expedient of declaring the true value of the shipment in the Bill of
Lading. Other than the payment of a higher freight, there was nothing to stop them (Legaspi,
et.al) from placing the actual value of the goods therein. In fact, they committed fraud against
the common carrier by deliberately undervaluing the goods in their Bill of Lading, thus depriving
the carrier of its proper and just transport fare. Concededly, the purpose of the limiting
stipulation in the Bill of Lading is to protect the common carrier. Such stipulation obliges the
shipper/consignee to notify the common carrier of the amount that the latter may be liable for
in case of loss of the goods. The common carrier can then take appropriate measures -- getting
insurance, if needed, to cover or protect itself. This precaution on the part of the carrier is
reasonable and prudent.

Saludo vs CA
FACTS:
 Shipper - Pomierski and Son Funeral Home

 Consignee – Maria Saludo

 Carrier - Transworld Airlines (TWA) Chicago – San Francisco, and Philippine Airlines (PAL)-
San Francisco – Manila

After the death of petitioner's mother, Crispina Galdo Saludo, in Chicago Illinois, Pomierski and
Son Funeral Home of Chicago, made the necessary preparations and arrangements for the
shipment, of the remains from Chicago to the Philippines. Philippine Vice Consul in Chicago,
Illinois, Bienvenido M. Llaneta, at the Pomierski & Son Funeral Home, sealed the shipping case
containing a hermetically sealed casket that is airtight and waterproof wherein was contained
the remains of Crispina Saludo Galdo). On the same date, October 26, 1976, Pomierski brought
the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made
the necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national service used by
undertakers to throughout the nation (U.S.A.). C.M.A.S. booked the shipment with PAL thru the
carrier's agent Air Care International, with Pomierski F.H. as the shipper and Mario (Maria) Saludo
as the consignee. The requested routing was from Chicago to San Francisco on board TWA Flight
131 of October 27, 1976 and from San Francisco to Manila on board PAL Flight No. 107 of the
same date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976. Maria Saludo
upon arriving at San Francisco Airport, she then called Pomierski that her mother's remains were
not at the West Coast terminal, and Pomierski immediately called C.M.A.S., which in a matter of
10 minutes informed him that the remains were on a plane to Mexico City, that there were two
bodies at the terminal, and somehow they were switched. The following day October 28, 1976,
the shipment or remains of Crispina Saludo arrived (in) San Francisco from Mexico on board
American Airlines. This shipment was transferred to or received by PAL at 1945H or 7:45 p.m.
(Exh. 2-PAL, Exh. 2-a-PAL). This casket bearing the remains of Crispina Saludo, which was
mistakenly sent to Mexico and was opened (there), was resealed by Crispin F. Patagas for
shipment to the Philippines (See Exh. B-1). The shipment was immediately loaded on PAL flight
for Manila that same evening and arrived (in) Manila on October 30, 1976, a day after its expected
arrival on October 29, 1976. Aggrieved by the incident, the petitioners instituted an action against
respondents and were asked to pay for damages. Petitioner allege that private respondents
received the casketed remains of petitioners' mother on October 26, 1976, as evidenced by the
issuance of PAL Air Waybill No. 079-01180454 by Air Care International as carrier's agent; and
from said date, private respondents were charged with the responsibility to exercise
extraordinary diligence so much so that for the alleged switching of the caskets on October 27,
1976, or one day after private respondents received the cargo, the latter must necessarily be
liable. RTC - absolved the two respondent airlines companies of liability. CA - affirmed the
decision of the lower court in toto, and in a subsequent resolution, 7 denied herein petitioners'
motion for reconsideration for lack of merit.

ISSUE W/N the delay in the delivery of the casketed remains of petitioners' mother was due to
the fault of respondent airline companies,

HELD: NO. A bill of lading is a written acknowledgment of the receipt of the goods and an
agreement to transport and deliver them at a specified place to a person named or on his order.
According to foreign and local jurisprudence, "the issuance of a bill of lading carries the
presumption that the goods were delivered to the carrier issuing the bill, for immediate
shipment, and it is nowhere questioned that a bill of lading is prima facie evidence of the receipt
of the goods by the carrier. In the absence of convincing testimony establishing mistake, recitals
in the bill of lading showing that the carrier received the goods for shipment on a specified date
controls. However, except as may be prohibited by law, there is nothing to prevent an inverse
order of events, that is, the execution of the bill of lading even prior to actual possession and
control by the carrier of the cargo to be transported. There is no law which requires that the
delivery of the goods for carriage and the issuance of the covering bill of lading must coincide in
point of time or, for that matter, that the former should precede the latter.
As between the shipper and the carrier, when no goods have been delivered for shipment
no recitals in the bill can estop the carrier from showing the true facts . . . Between the consignor
of goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise only a
rebuttable presumption that such goods were delivered for shipment. As between the consignor
and a receiving carrier, the fact must outweigh the recital."
In the case at bar, it was on October 26, 1976 the cargo containing the casketed remains
of Crispina Saludo was booked for PAL Flight Number PR-107 leaving San Francisco for Manila on
October 27, 1976, PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt of
delivery of the cargo on October 26, 1976, but merely as a confirmation of the booking thus made
for the San Francisco-Manila flight scheduled on October 27, 1976. Actually, it was not until
October 28, 1976 that PAL received physical delivery of the body at San Francisco.
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility
of the common carrier begins from the time the goods are delivered to the carrier. This
responsibility remains in full force and effect even when they are temporarily unloaded or stored
in transit, unless the shipper or owner exercises the right of stoppagein transitu, 29 and
terminates only after the lapse of a reasonable time for the acceptance, of the goods by the
consignee or such other person entitled to receive them. 30 And, there is delivery to the carrier
when the goods are ready for and have been placed in the exclusive possession, custody and
control of the carrier for the purpose of their immediate transportation and the carrier has
accepted them. 31 Where such a delivery has thus been accepted by the carrier, the liability of
the common carrier commences eo instanti.
As already demonstrated, the facts in the case at bar belie the averment that there was
delivery of the cargo to the carrier on October 26, 1976. Rather, as earlier explained, the body
intended to be shipped as agreed upon was really placed in the possession and control of PAL on
October 28, 1976 and it was from that date that private respondents became responsible for the
agreed cargo under their undertakings in PAL Airway Bill No. 079-01180454. Consequently, for
the switching of caskets prior thereto which was not caused by them, and subsequent events
caused thereby, private respondents cannot be held liable.

SHEWARAM VS. PHILIPPINE AIRLINES

Facts; Parmanand Shewaram, a Hindu from Davao, boarded a PAL plane bound for Manila from
Zamboanga. He checked in 3 baggages: a suitcase and 2 other bags. PAL’s personnel mistagged
his baggage to “Iligan” instead of “Manila.” The baggage was said to be tampered when it was
found. Among his baggage was a camera with P800.00 and it was lost. PAL offered to pay
P100.00. Shewaram wanted full payment of P800.00. A PAL ticket, on the reverse side, stated in
fine print: “ The liability, if any, for loss or damage to checked baggage or for delay in the
delivery thereof is limited to its value and, unless the passenger declares in advance a higher
valuation and pay an additional charge therefor, the value shall be conclusively deemed not to
exceed P100.00 for each ticket. PAL maintains that in view of the failure of the Shewaram to
declare a higher value for his luggage and pay the freight on the basis of said declared value
when he checked such luggage at the Zamboanga City airport, pursuant to the above quoted
condition, appellee cannot demand payment from the appellant of an amount in excess of
P100.00.

Issue: Whether the limited liability rule shall apply in the case at bar?

Held: NO. The limited liability rule shall not apply. Since this is a stipulation on qualified liability,
which operates to reduce the liability of the carrier, the carrier and the shipper must agree
thereupon. Otherwise, the carrier will be liable for full. PAL is fully liable (for full) because
Shewaran did not agree to the stipulation on the ticket, as manifested by the fact that
Shewaram did not sign the ticket. Ticket should have been signed. Article 1750 of the New Civil
Code which provides as follows: A contract fixing the sum that may be recovered by the owner
or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon. In accordance with
the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability of a
common carrier may, by contract, be limited to a fixed amount. It is required, however, that the
contract must be "reasonable and just under the circumstances and has been fairly and freely
agreed upon."

PanAm vs IAC
Facts: On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the
plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and Primo
Quesada of Prime Films, San Francisco, California, entered into an agreement whereby the
former, for and in consideration of the amount of US $2,500.00 per picture, bound himself to
supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with
Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United States. It was also their
agreement that plaintiffs would provide the necessary promotional and advertising materials
for said films on or before May 30, 1978. On his way home to the Philippines, Pangan visited
Guam where he contacted Leo Slutchnick of the Hafa Adai Organization. Pangan likewise
entered into a verbal agreement with Slutchnick for the exhibition of two of the films above-
mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of
P7,000.00 per picture. Pangan undertook to provide the necessary promotional and advertising
materials for said films on or before the exhibition date on May 30,1978. By virtue of the above
agreements, plaintiff Pangan caused the preparation of the requisite promotional handbills and
still pictures for which he paid the total sum of P12,900.00. Likewise in preparation for his trip
abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz
lamps and four barong tagalog, with a total value of P4,400.00. Pangan obtained from
defendant Pan Am's Manila Office, through the Your Travel Guide, an economy class airplane
ticket with No. 0269207406324 for passage from Manila to Guam on defendant's Flight No. 842
of May 27,1978, upon payment by said plaintiff of the regular fare. The Your Travel Guide is a
tour and travel office owned and managed by plaintiffs witness Mila de la Rama. 2 before
departure time plaintiff Pangan was at the defendant's ticket counter at the Manila
International Airport and presented his ticket and checked in his two luggages, for which he
was given baggage claim tickets Nos. 963633 and 963649. The two luggages contained the
promotional and advertising materials, the clutch bags, barong tagalog and his personal
belongings. Subsequently, Pangan was informed that his name was not in the manifest and so
he could not take Flight No. 842 in the economy class. Since there was no space in the economy
class, plaintiff Pangan took the first class because he wanted to be on time in Guam to comply
with his commitment, paying an additional sum of $112.00. When plaintiff Pangan arrived in
Guam on the date of May 27, 1978, his two luggages did not arrive with his flight, as a
consequence of which his agreements with Slutchnick and Quesada for the exhibition of the
films in Guam and in the United States were cancelled. Thereafter, he filed a written claim for
his missing luggages. Upon arrival in the Philippines, Pangan contacted his lawyer, who made
the necessary representations to protest as to the treatment which he received from the
employees of the defendant and the loss of his two luggages. Defendant Pan Am assured
plaintiff Pangan that his grievances would be investigated and given its immediate
consideration. Due to the defendant's failure to communicate with Pangan about the action
taken on his protests, the present complaint was filed by the plaintiff. CFI – petitioner liable. IAC
affirmed.

ISSUE: Whether or not the common carrier may limit liability?

Held: The conditions of carriage printed at the back of the plane ticket stub, which conditions
are embodied in Domestic Tariff Regulations 2, which was filed with the Civil Aeronautics
Board. One of those conditions, provides as follows: “The liability, if any, for loss or damage to
checked baggage or for delay in the delivery thereof is limited to its value and, unless the
passenger declares in advance a higher valuation and pay an additional charge therefor, the
value shall be conclusively deemed not to exceed P100.00 for each ticket.” Article 1750 of the
New Civil Code provides that “A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.” In accordance with
Article 1750 of the New Civil Code, the pecuniary liability of a common carrier may, by contract,
be limited to a fixed amount. It is required, however, that the contract must be “reasonable and
just under the circumstances and has been fairly and freely agreed upon.” The requirements
provided in Article 1750 of the New Civil Code must be complied with before a common carrier
can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the
goods it has undertaken to transport. Here the requirements of said article have not been met.
It cannot be said that Shewaram had actually entered into a contract with PAL, embodying the
conditions as printed at the back of the ticket stub that was issued by PAL to Shewaram. The
fact that those conditions are printed at the back of the ticket stub in letters so small that they
are hard to read would not warrant the presumption that Shewaram was aware of those
conditions such that he had “fairly and freely agreed” to those conditions. Inasmuch as
passengers do not sign the ticket, much less did Shewaram sign his ticket when he made the
flight on 23 November 1959, Shewaram is not, and cannot be, bound by the conditions of
carriage found at the back of the ticket stub issued to him when he made the flight on PAL’s
plane. The Court also laid down the rule that the carrier cannot limit its liability for injury to or
loss of goods shipped where such injury or loss was caused by its own negligence.
In the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA 223), the
Court sustained the validity of a printed stipulation at the back of an airline ticket limiting the
liability of the carrier for lost baggage to a specified amount and ruled that the carrier’s liability
was limited to said amount since the passenger did not declare a higher value, much less pay
additional charges. The ruling in Ong Yiu squarely applicable to the instant case. Herein, on the
basis of the stipulations printed at the back of the ticket, Pan Am’s liability for the lost baggage
of Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for
his baggage and pay the corresponding additional charges. Pangan did not declare any higher
value for his luggage, much less did he pay any additional transportation charge. While it may
be true that Pangan had not signed the plane ticket (Article 1750), he is nevertheless bound by
the provisions thereof. Such provisions have been held to be a part of the contract of carriage,
and valid and binding upon the passenger regardless of the latter’s lack of knowledge or assent
to the regulation. It is what is known as a contract of “adhesion,” in regards which it has been
said that contracts of adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket, are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent.

Cathay Pacific v. CA
FACTS: Respondent Alcantara was a first class passenger of a Cathay Pacific flight to Jakarta to
attend a business conference with the Director General of Trade of Indonesia. Upon his arrival in
Jakarta, he discovered that his luggage was missing. He was informed that his luggage was left
behind in Hongkong and was offered $20.00 as "inconvenience money" to buy his immediate
personal needs. He had to seek postponement of his pre-arranged conference. And when his
luggage finally reached Jakarta after a day, it was required to be picked up by an official of the
Philippine Embassy. The trial court ordered Cathay to pay. The CA affirmed but increased the
award of damages. SC affirmed but modified the award of damages. Cathay argues that the one-
day delay was not made in bad faith because it had a mechanical trouble wherein all pieces of
luggage on board the first aircraft bound for Jakarta were unloaded and transferred to the second
aircraft which departed an hour and a half later. Cathay also argues that he was not treated
rudely and arrogantly by its employees. Also, that the CA erred in failing to apply the Warsaw
Convention on the liability of a carrier to its passengers.

ISSUE: W/N Cathay breached its contract of carriage with Alcantara and acted in bad faith?

HELD: YES. Cathay failed to deliver his luggage at the designated place and time, it being the
obligation of a common carrier to carry its passengers and their luggage safely to their
destination, which includes the duty not to delay their transportation. It was not even aware that
the luggage was left behind until its attention was called by the Hongkong Customs authorities.
It also refused to deliver the luggage at his hotel and required him to pick it up with an official of
the Philippine Embassy The Cathay employees were also discourteous, rude, and insulting. He
was simply advised to buy anything he wanted with only $20.00 which was certainly not enough
to purchase comfortable clothing appropriate for an executive conference. Cathay’s agents only
replied, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy
anything you need, charged to Cathay Pacific." Moral and exemplary damages are proper where
in breaching the contract of carriage bad faith or fraud is shown. In the absence of fraud or bad
faith, liability is limited to the natural and probable consequences of the breach of obligation
which the parties had foreseen or could have reasonably foreseen. Further, Cathay contends that
the extent of its liability should be limited absolutely to that set forth in the Warsaw Convention.
The said treaty does not operate as an exclusive enumeration of the instances for declaring a
carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability.
The Warsaw Convention declares the carrier liable for damages in the enumerated cases and
under certain limitations. However, it must not be construed to preclude the operation of the
Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from
liability for damages for violating the rights of its passengers under the contract of carriage,
especially if wilfull misconduct on the part of the carrier's employees is found or established, as
in this case. Although the Warsaw Convention has the force and effect of law in this country,
being a treaty commitment assumed by the Philippine government, said convention does not
operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of
contract of carriage or as an absolute limit of the extent of that liability. The Warsaw Convention
declares the carrier liable for damages in the enumerated cases and under certain
limitations. However, it must not be construed to preclude the operation of the Civil Code and
other pertinent laws. It does not regulate, much less exempt, the carrier from liability for
damages for violating the rights of its passengers under the contract of carriage, especially if
willfull misconduct on the part of the carrier's employees is found or established which is clearly
the case before Us. When petitioner airline misplaced respondent's luggage and failed to deliver
it to its passenger at the appointed place and time, some special species of injury must have been
caused to him. For sure, the latter underwent profound distress and anxiety, and the fear of
losing the opportunity to fulfill the purpose of his trip. In fact, for want of appropriate clothings
for the occasion brought about by the delay of the arrival of his luggage, to his embarrassment
and consternation respondent Alcantara had to seek postponement of his pre-arranged
conference with the Director General of Trade of the host country. In one case, this Court
observed that a traveller would naturally suffer mental anguish, anxiety and shock when he finds
that his luggage did not travel with him and he finds himself in a foreign land without any article
of clothing other than what he has on. Thus, respondent is entitled to moral and exemplary
damages.

Nat’l Development Co. v. CA and Development Insurance & Surety Corp.

FACTS: In accordance with a memorandum agreement entered into between defendants NDC
and MCP, NDC appointed MCP as its agent to manage and operate Dona Nati vessel for and in
its behalf and account E. Philipp Corporation loaded on board the vessel 1200 bales of
American raw cotton consigned to the order of Manila Banking Corporation, Manila and the
People’s Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., whore presents Riverside Mills Corporation; also loaded on the same vessel
were the cargo of
Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporationconsisting of
200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil. En route to Manila the
vessel figured in a collision with a Japanese vessel as a result of which 550 bales of aforesaid
cargo of American raw cotton as well as the cargo of KyokutoBoekui, Kaisa, Ltd were lost and/or
destroyed. Development Insurance & Surety Corp. paid the insurance and filed an action for
recovery of money against NDC and MCP

ISSUES:
1. which laws govern loss or destruction of goods due to collision of vessels outside
Philippine waters
2. what is the extent of liability as well as the rules of prescription provided thereunder
HELD:
1. “[T]he law of the country to which the goods are to be transported governs the liability
of the common carrier in case of their loss, destruction or deterioration” (Art.
 1753).Since the goods in question are transported from San Francisco, California and
Tokyo, Japanto the Philippines and that they were lost or due to a collision which was
found to have been caused by the negligence or fault of both captains of the colliding
vessels the laws of the Philippines will apply.

Art 1735: in all other than those mentioned is Article 1734 thereof, the common carriershall be
presumed to have been at fault or to have acted negligently, unless it proves thatit has
observed the extraordinary diligence required by law collision – not one of those enumerated
under Art. 1734; hence, carrier is presumed to beat fault or to have acted negligently

2. Art. 826 of the Code of Commerce: where collision is imputable to the personnel of a vessel,
the owner of the vessel at fault, shall indemnify the losses and damages incurred after an
expert appraisal. But more in point Art. 827, ditto: if the collision is imputable to both vessels,
each one shall suffer its own damages and both shall be solidarily responsible for the losses
and damages suffered by their cargoes

Art 826 to 839, ditto: the shipowner or carrier is not exempt from liability for damages arising
from collision due to the fault or negligence of the captain; primary liability is
imposed on the shipowner or carrier in because of the accepted doctrine that the shipmaster or
captain is merely the representative of the owner who has the actual or constructive control
over the conduct of the voyage both the owner (NDC) and agent (MPC) of the offending vessel
are liable for the damage done where both are impleaded; that in case of collision, both the
owner and the agent are civilly—jointly and severally— responsible for the acts of the captain
since the obligation which is the subject of the action had its origin in a tortious act and did not
arise from contract Thus, the rule was specifically laid down that for cargoes transported from
Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in
all matters not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of Commerce and by special laws (Article 1766, Civil Code). Hence, the
Carriage of Goods by Sea Act, a special law, is merely suppletory to the provisions of the Civil
Code. Article 826 of the Code of Commerce provides that where collision is imputable to the
personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages
incurred after an expert appraisal. But more in point to the instant case is Article 827 of the
same Code, which provides that if the collision is imputable to both vessels, each one shall
suffer its own damages and both shall be solidarily responsible for the losses and damages
suffered by their cargoes. Under the provisions of the Code of Commerce, particularly Articles
826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from
collision due to the fault or negligence of the captain. Primary liability is imposed on the
shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or
captain is merely the representative of the owner who has the actual or constructive control
over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia & Co., 12
Phil. 751 [1909]). The Code of Commerce applies not only to domestic trade but also foreign
trade. Aside from the fact that the Carriage of Goods by Sea Act (Commonwealth Act 65) does
not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its
application “to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade.”

Eastern Shipping Lines vs. IAC (GR L-69044, 29 May 1987)

Facts: Sometime in or prior to June 1977, the M/S ASIATICA, a vessel operated by Eastern
Shipping Lines loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized
lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co.,
Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc.
Both sets of goods were insured against marine risk for their stated value with Development
Insurance and Surety Corporation. In GR 71478, during the same period, the same vessel took
on board 128 cartons of garment fabrics and accessories, in 2 containers, consigned to
Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman
Enterprises and General Merchandise. The 128 cartons were insured for their stated value by
Nisshin Fire & Marine Insurance Co., for US$46,583.00, and the 2 cases by Dowa Fire & Marine
Insurance Co., Ltd., for US$11,385.00. Enroute for Kobe, Japan, to Manila, the vessel caught fire
and sank, resulting in the total loss of ship and cargo. The respective Insurers paid the
corresponding marine insurance values to the consignees concerned and were thus subrogated
unto the rights of the latter as the insured. On 11 May 1978, Development Insurance, having
been subrogated unto the rights of the two insured companies, filed suit against Eastern
Shipping for the recovery of the amounts it had paid to the insured before the then Court of
First Instance of Manila (Branch XXX, Civil Case 116087). Eastern Shipping denied liability mainly
on the ground that the loss was due to an extraordinary fortuitous event, hence, it is not liable
under the law. On 31 August 1979, the Trial Court rendered judgment in favor of Development
Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus
P35,000.00 as attorney’s fees and costs. Eastern Shipping took an appeal to the then Court of
Appeals which, on 14 August 1984, affirmed the decision of the trial court. Eastern Shipping
filed a petition for review on certiorari. The Supreme Court ruled that the Eastern Shipping shall
pay the Development Insurance the amount of P256,039 for the 28 packages of calorized lance
pipes, and P71,540 for the 7 cases of spare parts, with interest at the legal rate from the date of
the filing of the Complaint on 13 June 1978, plus P5,000 as attorney’s fees, and the costs.

Issue: Whether the common carrier can limit its liability?

Held: The law of the country to which the goods are to be transported governs the liability of
the common carrier in case of their loss, destruction or deterioration. Herein, as the cargoes in
question were transported from Japan to the Philippines, the liability of Eastern Shipping is
governed primarily by the Civil Code. However, in all matters not regulated by said Code, the
rights and obligations of common carrier shall be governed by the Code of Commerce and by
special laws. Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the
provisions of the Civil Code.

Section 4(2) of COGSA provides that “Neither the carrier nor the ship shall be responsible for
loss or damage arising or resulting from. xxx (b) Fire, unless caused by the actual fault or privity
of the carrier. xxx” Herein, there was “actual fault” of the carrier shown by “lack of diligence” in
that “when the smoke was noticed, the fire was already big; that the fire must have started 24
hours before the same was noticed;” and that “after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage.” The foregoing suffices to
show that the circumstances under which the fire originated and spread are such as to show
that Eastern Shipping or its servants were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results from fire is unavailing to Eastern
Shipping. Section 4(5) of the COGSA, reads:”(5) Neither the carrier nor the ship shall in any
event be or become liable for any loss or damage to or in connection with the transportation of
goods in an amount exceeding $500 per package lawful money of the United States, or in case
of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in bill of lading. This declaration if embodied in the bill of lading
shall be prima facie evidence, but all be conclusive on the carrier. By agreement between the
carrier, master or agent of the carrier, and the shipper another maximum amount than that
mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than
the figure above named. In no event shall the carrier be liable for more than the amount of
damage actually sustained. xxx” Article 1749 of the New Civil Code also allows the limitations of
liability in this wise, “A stipulation that the common carrier’s liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.”

The Civil Code does not of itself limit the liability of the common carrier to a fixed amount per
package although the Code expressly permits a stipulation limiting such liability. Thus, the
COGSA, which is suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier’s liability in the absence of a
declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of
the Carriage of Goods by Sea Act on limited liability are as much a part of a bill of lading as
though physically in it and as much a part thereof as though placed therein by agreement of the
parties. There is no stipulation in the respective Bills of Lading limiting the carrier’s liability for
the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods.
Hence, Eastern Shipping’s liability should not exceed US$500 per package, or its peso
equivalent, at the time of payment of the value of the goods lost, but in no case “more than the
amount of damage actually sustained.” The actual total loss for the 5,000 pieces of calorized
lance pipes was P256,039, which was exactly the amount of the insurance coverage by
Development Insurance, and the amount affirmed to be paid by the Court. The goods were
shipped in 28 packages. Multiplying 28 packages by $500 would result in a product of $14,000
which, at the current exchange rate of P20.44 to US$1, would be P286,160, or “more than the
amount of damage actually sustained.” Consequently, the amount of P256,039 should be
upheld.
Lufthansa vs IAC & Spouses Alcantara

Facts: Henry H. Alcantara shipped thirteen (13) pieces of luggage through petitioner Lufthansa
from Teheran to Manila as evidenced by Lufthansa Air Waybill No. 220-9776-2733. The Air
Waybill discloses that the actual gross weight of the thirteen (13) pieces of luggage is 180
kilograms. Respondent Henry H. Alcantara did not declare an inventory of the contents or the
value of the luggages when he delivered them to Lufthansa.

13 pieces of luggage were boarded in one of Lufthansa's flights which arrived in Manila on the
same date. After the luggages arrived in Manila, the consignee, respondent Teresita Alcantara,
was able to claim from the cargo broker Philippine Skylanders, Inc. on March 6, 1979 only
twelve (12) out of the thirteen (13) pieces of luggage with a total weight of 174 kilograms The
private respondents advised Lufthansa of the loss of one of the luggages and of the contents
thereof. Lufthansa sent telex tracing messages to different stations and to the Philippine
Airlines which actually carried the cargo. But all efforts in tracing the missing luggage were
fruitless. Since efforts to trace the missing luggage yielded negative results, Lufthansa informed
Henry Alcantara accordingly and advised him to file a claim invoice

Respondents wrote the petitioner demanding the production of the missing luggage within
then (10) days from receipt. Since the petitioner did not comply with said demand, the private
respondents filed a complaint for breach of contract with damages against the petitioner
before the Court of First Instance of Manila, Sixth Judicial District, Branch XXIV.

The petitioner filed its answer to the complaint alleging that the Warsaw Convention limits the
liability of the carrier, if any, with respect to cargo to a sum of 250 francs per kilo ($20.00 per
kilo or $9.07 per pound), unless a higher value is declared in advance and additional charges are
paid by the passenger and the conditions of the contract as set forth in the air waybill expressly
subject the contract of carriage of cargo to the Warsaw Convention. The petitioner also alleged
that it never acted fraudulently or in bad faith so as to entitle respondent spouses to moral
damages and attorney's fees, nor did it act in a wanton, fraudulent, reckless, oppressive or
malevolent manner as to entitle spouses to exemplary damages.

RTC in favor of spouses Alcantara. CA affirmed.

ISSUE: whether or not the private respondents are entitled to an award of damages beyond the
liability set forth in the Warsaw Convention and in the Airwaybill of Lading.

Held: The loss of one luggage belonging to the private respondents while the same was in the
custody of the petitioner is not disputed. The contract of air carriage generates a relation
attended with a public duty. Neglect or malfeasance of the carrier's employees could given
ground for an action for damages. Common carriers are liable for the missing goods for failure
to comply with its duty. In Alitalia vs. Intermediate Appellate Court (192 SCRA 9 [1990]) where
petitioner Alitalia as carrier failed to deliver a passenger's (Dr. Felipa Pablo's) baggage
containing the papers she was scheduled to read and the materials which would have enabled
her to make scientific presentation (consisting of slides, autoradiograms or films, tables and
tabulations ) in a prestigious international conference in Rome where she was invited to
participate in the conference, extended by the Joint FAO/IAEA Division of Atomic Energy in
Food and Agriculture of the United Nations, as a consequence of which she failed to participate
in the conference, this Court held that the Warsaw Convention does not exclude liability for
other breaches of contract by the carrier.

In the case at bar, the trial court found that: (a) petitioners airline has not successfully refuted
the presumption established by Article 1735 of the Civil Code that the loss of the luggage in
question was due to the negligence or fault of its employees; (b) the contents of the missing
luggage of private respondents could not be replaced and were assessed at P200,000.00 by the
latter; (c) respondent Henry Alcantara spent about $15,000.00 in trying to locate said luggage in
Frankfurt, Germany, London, United Kingdom and Hongkong; (d) there being no evidence to
the contrary, the foregoing assessments made by private respondents were fair and
reasonable; and (e) private respondents were unable to present ample evidence to prove fraud
and bad faith and are therefore not entitled to moral damages under Article 2220 of the Civil
Code. Furthermore, the respondent court found that petitioner waived the applicability of the
Warsaw Convention to the case at bar when it offered private respondent a higher amount
than that which is provided in the said law and failed to raise timely objections during the trial
when questions and answers were brought out regarding the actual claims and damages
sustained by Alcantara which were even subjected to lengthy cross examination by Lufthansa's
counsel.

WHEREFORE, the petition is Dismissed and the questioned decision and resolution of the
appellate court are Affirmed. No costs.