[1] G.R. No.
L-15122             March 10, 1920 The Attorney-General, in a carefully prepared brief, says: "The question is
THE UNITED STATES, plaintiff-appellee, vs. TAN PIACO, VENTURA
ESTUYA, PEDRO HOMERES, MAXIMINO GALSA and EMILIO
LEOPANDO, defendants. TAN PIACO, appellant.
PUBLIC UTILITY, CONTROL BY PUBLIC UTILITY
COMMISSION; CRIMINAL LlABILITY OF OWNER OF AUTOMOBILE
TRUCK OPERATED UNDER SPECIAL CONTRACT AND NOT FOR
GENERAL PUBLIC BUSINESS.—The owner of an automobile truck who operates
the same under a special contract for carrying passengers and freight, in each case,
and has not held himself out to carry all passengers and freight for all persons who
might offer, is not a public utility and is not criminally liable for his failure to obtain
a license from the Public Utility Commissioner. If the use is merely optional with the
owner, or .the public benefit is merely accidental, it is not a public use, authorizing
the exercise of the jurisdiction of the public utility commission. The true criterion by
which to judge of the character of the use is whether the public may enjoy it  by
right or only by permission.
JOHNSON, J.:
Said defendants were charged with a violation of the Public Utility Law (Act
No. 2307 as amended by Acts Nos. 2362 and 2694), in that they were
operating a public utility without permission from the Public Utility
Commissioner.
Upon the complain presented each of said defendants were arrested and
brought to trial. After hearing the evidence the Honorable Cayetano Lukban,
judge, found that the evidence was insufficient to support the charges against
Ventura Estuya, Pedro Homeres, Maximino Galsa and Emilio Leopando, and
absolved them from all liability under the complaint and discharged them
from all liability under the complaint and discharged them from the custody of
the law. The lower court found the defendant Tan Piaco guilty of the crime
charged in the complaint and sentence him to pay a fine of P100, and, in
case of insolvency, to suffer subsidiary imprisonment, and to pay one-fifth
part of the costs. From that sentence Tan Piaco appealed to this court.
The facts proved during the trial of the cause may be stated as follows:
The appellant rented two automobile trucks and was using them upon the
highways of the Province of Leyte for the purpose of carrying some
passengers and freight; that he carried passengers and freight under a
special contract in each case; that he had not held himself out to carry all
passengers and all freight for all persons who might offer passengers and
freight.
‫ﻫ‬Transportation Laws- Assignment No. 1
whether the appellant, under the above facts, was a  public utility  under the
foregoing definitions," and was therefore subject to the control and regulation
of the Public Utility Commission. "We have not found anything in the
evidence showing that the appellant operated the trucks in question for public
use. These trucks, so far as indicated by the evidence and as far as the
appellant is concerned,  furnished service under special agreements to carry
particular persons and property. . . . For all that we can deduce from the
evidence, these passengers, or the owners of the freight, may have
controlled the whole vehicles 'both as to content, direction, and time of use,'
which facts, under all the circumstances of the case, would, in our opinion,
take away the defendant's business from the provisions of the Public Utility
Act."
In support of the conclusion of the Attorney-General, he cites the case
of Terminal Taxicab Co. vs. Kutz (241 U. S.. 252). In that case the Terminal
Taxicab Co. furnished automobiles from its central garage on special orders
and did not hold itself out to accommodate any and all persons. The plaintiff
reserve to itself the right to refuse service. The Supreme Court of the United
States, speaking through Mr. Justice Holmes, said: "The bargains made by
the plaintiff are individual, and however much they may tend towards
uniformity in price, probably have not the mechanical fixity of charges that
attend the use of taxicabs from the stations to the hotels. The court is of the
opinion that that part of the business is not to be regarded as a public utility.
It is true that all business, and for the matter of that, every life in all its details,
has a public aspect, some bearing upon the welfare of the country in which it
is passed." The court held that by virtue of the fact that said company did not
hold itself out to serve any and all persons, it was not a public utility and was
not subject to the jurisdiction of the public utility commission.
Upon the facts adduced during the trial of the cause, and for the foregoing
reasons, the Attorney-General recommends that the sentence of the lower
court be revoked and that the appellant be absolved from all liability under
the complaint.
Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694,
provides that: "The Public Utility Commission or Commissioners shall have
general supervision and regulation of, jurisdiction and control over, all public
utilities. . . . The term 'public utility' is hereby defined to include every
individual, copartnership, association, corporation or joint stock company,
etc., etc., that now or hereafter may own, operate, managed, or control any
common carrier, railroad, street railway, etc., etc., engaged in the
transportation of passengers, cargo, etc., etc., for public use."
Under the provisions of said section, two things are necessary: (a) The
individual, copartnership, etc., etc., must be a public utility; and (b) the
Page 1 of 50
business in which such individual, copartnership, etc. etc., is engaged must
be for public use. So long as the individual or copartnership, etc., etc., is
engaged in a purely private enterprise, without attempting to render service
to all who may apply, he can in no sense be considered a public utility, for
public use.

"Public use" means the same as "use by the public." The essential feature of
the public use is that it is not confined to privilege individuals, but is open to
the indefinite public. It is this indefinite or unrestricted quality that gives it its
public character. In determining whether a use is public, we must look not
only the character of the business to be done, but also to the proposed mode
of doing it. If the use is merely optional with the owners, or the public benefit
is merely incidental, it is not a public use, authorizing the exercise of the
jurisdiction of the public utility commission. There must be, in general, a right
which the law compels the power to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is not
synonymous with public interest. The true criterion by which to judge of the
character of the use is whether the public may enjoy it by right  or only by
permission.

For all of the foregoing reasons, we agree with the Attorney-General that the
appellant was not operating a public utility, for public use, and was not,
therefore, subject to the jurisdiction of the Public Utility Commission.

Therefore, the sentence of the lower court is hereby revoked, and it is hereby
ordered and decreed that the complaint be dismissed and that the defendant
be absolved from all liability under the same, and that he be discharged from
the custody of the law, without any finding as to costs. So ordered.

‫ﻫ‬Transportation Laws- Assignment No. 1

Page 2 of 50
[2] G.R. No. 166250               July 26, 2010
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner, vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY
CORPORATION, Respondents.
Remedial Law; Appeals; Factual questions may not be raised in a petition for
review on certiorari.—Well established is the rule that factual questions may not be
raised in a petition for review on certiorari as clearly stated in Section 1, Rule 45 of
the Rules of Court.
Commercial Law; Carriage of Goods by Sea Act; Words and Phrases; Meaning of
“Freight Forwarder.”—Petitioner is a freight forwarder. The term “freight
forwarder” refers to a firm holding itself out to the general public (other than as a
pipeline, rail, motor, or water carrier) to provide transportation of property for
compensation and, in the ordinary course of its business, (1) to assemble and
consolidate, or to provide for assembling and consolidating, shipments, and to
perform or provide for break-bulk and distribution operations of the shipments; (2) to
assume responsibility for the transportation of goods from the place of receipt to the
place of destination; and (3) to use for any part of the transportation a carrier subject
to the federal law pertaining to common carriers.
Same; Same; Limitation of a Freight Forwarder’s Liability.—A freight
forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver
goods to their destination instead of merely arranging for their transportation, it
becomes liable as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the transport, even
though the forwarder does not carry the merchandise itself.
Same; Same; Bill of Lading; Meaning of a Bill of Lading; A bill of lading
operates both as receipts and as a contract.—A bill of lading is a written
acknowledgement of the receipt of goods and an agreement to transport and to
deliver them at a specified place to a person named or on his or her order. It operates
both as a receipt and as a contract. It is a receipt for the goods shipped and a contract
to transport and deliver the same as therein stipulated. As a receipt, it recites the date
and place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks, condition, quality, and value. As a contract, it names the
contracting parties, which include the consignee; fixes the route, destination, and
freight rate or charges; and stipulates the rights and obligations assumed by the
parties.
Same; Same; Common Carriers; Negligence; 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; Mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their destination
‫ﻫ‬Transportation Laws- Assignment No. 1
constitutes a prima facie case of fault or negligence against the carrier.—UTI is
liable as a common carrier. 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. That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed such diligence. 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.
Same; Same; Same; The Civil Code does not limit the liability of the common
carrier to a fixed amount per package; The Carriage of Goods by Sea Act (COGSA)
supplements the Civil Code by establishing a provision limiting the carrier’s liability
in the absence of a shipper’s declaration of a higher value in the bill of lading.—It is
to be noted that the Civil Code does not limit the liability of the common carrier to a
fixed amount per package. In all matters not regulated by the Civil Code, the rights
and obligations of common carriers are governed by the Code of Commerce and
special laws. Thus, the COGSA supplements the Civil Code by establishing a
provision limiting the carrier’s liability in the absence of a shipper’s declaration of a
higher value in the bill of lading.
Same; Same; Same; Insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of the value of the
cargo.—In the present case, the shipper did not declare a higher valuation of the
goods to be shipped. Contrary to the CA’s conclusion, the insertion of the words
“L/C No. LC No. 1-187-008394/NY 69867 covering shipment of raw materials for
pharmaceutical Mfg. x x x” cannot be the basis of petitioner’s liability. Furthermore,
the insertion of an invoice number does not in itself sufficiently and convincingly
show that petitioner had knowledge of the value of the cargo.
DECISION
NACHURA, J.:
For review is the Court of Appeals (CA) Decision 1 dated April 29, 2004 and
Resolution2 dated November 26, 2004. The assailed Decision affirmed the
Regional Trial Court (RTC) decision3 dated February 22, 2001; while the
assailed Resolution denied petitioner Unsworth Transport International
(Philippines), Inc., American President Lines, Ltd. (APL), and Unsworth
Transport International, Inc.’s (UTI’s) motion for reconsideration.
The facts of the case are:
Page 3 of 50
On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to
UTI a shipment of 27 drums of various raw materials for pharmaceutical
manufacturing, consisting of: "1) 3 drums (of) extracts, flavoring liquid,
flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x x
x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of)
Vitabs: Vitamin B Complex Extract." 4 UTI issued Bill of Lading No.
C320/C15991-2,5 covering the aforesaid shipment. The subject shipment was
insured with private respondent Pioneer Insurance and Surety Corporation in
favor of Unilab against all risks in the amount of ₱1,779,664.77 under and by
virtue of Marine Risk Note Number MC RM UL 0627 92 6 and Open Cargo
Policy No. HO-022-RIU.7
On the same day that the bill of lading was issued, the shipment was loaded
in a sealed 1x40 container van, with no. APLU-982012, boarded on APL’s
vessel M/V "Pres. Jackson," Voyage 42, and transshipped to APL’s M/V
"Pres. Taft"8 for delivery to petitioner in favor of the consignee United
Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila. On
October 6, 1992, petitioner received the said shipment in its warehouse after
it stamped the Permit to Deliver Imported Goods 9 procured by the Champs
Customs Brokerage.10 Three days thereafter, or on October 9, 1992,
Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a
stripping survey of the shipment located in petitioner’s warehouse. The
survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and
properly sealed
19- steel drums STC Vitamin B Complex Extract, all in good order
condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side,
with approx. spilling of 1%11
On October 15, 1992, the arrastre Jardine Davies Transport
Services, Inc. (Jardine) issued Gate Pass No. 7614 12 which stated
that "22 drums13 Raw Materials for Pharmaceutical Mfg." were
loaded on a truck with Plate No. PCK-434 facilitated by Champs for
delivery to Unilab’s warehouse. The materials were noted to be
complete and in good order in the gate pass. 14 On the same day, the
shipment arrived in Unilab’s warehouse and was immediately
surveyed by an independent surveyor, J.G. Bernas Adjusters &
Surveyors, Inc. (J.G. Bernas). The Report stated:
‫ﻫ‬Transportation Laws- Assignment No. 1
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery15
On October 23 and 28, 1992, the same independent surveyor conducted final
inspection surveys which yielded the same results. Consequently, Unilab’s
quality control representative rejected one paper bag containing dried yeast
and one steel drum containing Vitamin B Complex as unfit for the intended
purpose.16
On November 7, 1992, Unilab filed a formal claim 17 for the damage against
private respondent and UTI. On November 20, 1992, UTI denied liability on
the basis of the gate pass issued by Jardine that the goods were in complete
and good condition; while private respondent paid the claimed amount on
March 23, 1993. By virtue of the Loss and Subrogation Receipt 18 issued by
Unilab in favor of private respondent, the latter filed a complaint for Damages
against APL, UTI and petitioner with the RTC of Makati. 19 The case was
docketed as Civil Case No. 93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits ensued.
On February 22, 2001, the RTC decided in favor of private respondent and
against APL, UTI and petitioner, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER
INSURANCE & SURETY CORPORATION and against the defendants
AMERICAN PRESIDENT LINES and UNSWORTH TRANSPORT
INTERNATIONAL (PHILS.), INC. (now known as JUGRO TRANSPORT
INT’L., PHILS.), ordering the latter to pay, jointly and severally, the former the
following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY
ONE and 27/100 (Php76,231.27) with interest at the legal rate of 6%
per annum to be computed starting from September 30, 1993 until
fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.20
Page 4 of 50
On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA
rejected UTI’s defense that it was merely a forwarder, declaring instead that it
was a common carrier. The appellate court added that by issuing the Bill of
Lading, UTI acknowledged receipt of the goods and agreed to transport and
deliver them at a specific place to a person named or his order. The court
further concluded that upon the delivery of the subject shipment to
petitioner’s warehouse, its liability became similar to that of a depositary. As
such, it ought to have exercised ordinary diligence in the care of the goods.
And as found by the RTC, the CA agreed that petitioner failed to exercise the
required diligence. The CA also rejected petitioner’s claim that its liability
should be limited to $500 per package pursuant to the Carriage of Goods by
Sea Act (COGSA) considering that the value of the shipment was declared
pursuant to the letter of credit and the pro forma invoice. As to APL, the court
considered it as a common carrier notwithstanding the non-issuance of a bill
of lading inasmuch as a bill of lading is not indispensable for the execution of
a contract of carriage.21
Unsatisfied, petitioner comes to us in this petition for review on certiorari,
raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN UPHOLDING THE DECISION OF THE
REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE
SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND
27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST AT 6% PER
ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED
ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY
ESTABLISHED THE ALLEGED DAMAGE TO ITS CARGO.22
Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion
that it is a common carrier. It also questions the appellate court’s findings that
it failed to establish that it exercised extraordinary or ordinary diligence in the
vigilance over the subject shipment. As to the damages allegedly suffered by
private respondent, petitioner counters that they were not sufficiently proven.
Lastly, it insists that its liability, in any event, should be limited to $500
pursuant to the package limitation rule. Indeed, petitioner wants us to review
the factual findings of the RTC and the CA and to evaluate anew the
evidence presented by the parties.
‫ﻫ‬Transportation Laws- Assignment No. 1
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised in a
petition for review on certiorari as clearly stated in Section 1, Rule 45 of the
Rules of Court, viz.:
Section 1. Filing of petition with Supreme Court. – A party desiring to appeal
by certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth.
Admittedly, petitioner is a freight forwarder. The term "freight forwarder"
refers to a firm holding itself out to the general public (other than as a
pipeline, rail, motor, or water carrier) to provide transportation of property for
compensation and, in the ordinary course of its business, (1) to assemble
and consolidate, or to provide for assembling and consolidating, shipments,
and to perform or provide for break-bulk and distribution operations of the
shipments; (2) to assume responsibility for the transportation of goods from
the place of receipt to the place of destination; and (3) to use for any part of
the transportation a carrier subject to the federal law pertaining to common
carriers.231avvphi1
A freight forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however, where the
forwarder contracts to deliver goods to their destination instead of merely
arranging for their transportation, it becomes liable as a common carrier for
loss or damage to goods. A freight forwarder assumes the responsibility of a
carrier, which actually executes the transport, even though the forwarder
does not carry the merchandise itself.24
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant
thereto, petitioner undertook to transport, ship, and deliver the 27 drums of
raw materials for pharmaceutical manufacturing to the consignee.
A bill of lading is a written acknowledgement of the receipt of goods and an
agreement to transport and to deliver them at a specified place to a person
named or on his or her order.25 It operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date and
place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks, condition, quality, and value. As a contract, it names the
contracting parties, which include the consignee; fixes the route, destination,
Page 5 of 50
and freight rate or charges; and stipulates the rights and obligations assumed
by the parties.26
Undoubtedly, UTI is liable as a common carrier. 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. That is, unless they
prove that they exercised extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such diligence. 27 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.28
Though it is not our function to evaluate anew the evidence presented, we
refer to the records of the case to show that, as correctly found by the RTC
and the CA, petitioner failed to rebut the prima facie presumption of
negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received by UTI
in apparent good order and condition in New York, United States of America.
Second, the OCMSC Survey Report stated that one steel drum STC Vitamin
B Complex Extract was discovered to be with a cut/hole on the side, with
approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by
Jardine, noted that the subject shipment was in good order and condition, it
was specifically stated that there were 22 (should be 27 drums per Bill of
Lading No. C320/C15991-2) drums of raw materials for pharmaceutical
manufacturing. Last, J.G. Bernas’ Survey Report stated that "1-s/drum was
punctured and retaped on the bottom side and the content was lacking, and
there was a short delivery of 5-drums."
All these conclusively prove the fact of shipment in good order and condition,
and the consequent damage to one steel drum of Vitamin B Complex Extract
while in the possession of petitioner which failed to explain the reason for the
damage. Further, petitioner failed to prove that it observed the extraordinary
diligence and precaution which the law requires a common carrier to exercise
and to follow in order to avoid damage to or destruction of the goods
entrusted to it for safe carriage and delivery. 29
However, we affirm the applicability of the Package Limitation Rule under the
COGSA, contrary to the RTC and the CA’s findings.
It is to be noted that the Civil Code does not limit the liability of the common
carrier to a fixed amount per package. In all matters not regulated by the Civil
‫ﻫ‬Transportation Laws- Assignment No. 1
Code, the rights and obligations of common carriers are governed by the
Code of Commerce and special laws. Thus, the COGSA supplements the
Civil Code by establishing a provision limiting the carrier’s liability in the
absence of a shipper’s declaration of a higher value in the bill of
lading.30 Section 4(5) of the COGSA provides:
(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 of 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
the bill of lading. This declaration, if embodied in the bill of lading, shall be
prima facie evidence, but shall not be conclusive on the carrier.
In the present case, the shipper did not declare a higher valuation of the
goods to be shipped. Contrary to the CA’s conclusion, the insertion of the
words "L/C No. LC No. 1-187-008394/ NY 69867 covering shipment of raw
materials for pharmaceutical Mfg. x x x" cannot be the basis of petitioner’s
liability.31 Furthermore, the insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of the value
of the cargo.32
In light of the foregoing, petitioner’s liability should be limited to $500 per
steel drum. In this case, as there was only one drum lost, private respondent
is entitled to receive only $500 as damages for the loss. In addition to said
amount, as aptly held by the trial court, an interest rate of 6% per annum
should also be imposed, plus 25% of the total sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED.
The Court of Appeals Decision dated April 29, 2004 and Resolution dated
November 26, 2004 are AFFIRMED with MODIFICATION by reducing the
principal amount due private respondent Pioneer Insurance and Surety
Corporation from ₱76,231.27 to $500, with interest of 6% per annum from
date of demand, and 25% of the amount due as attorney’s fees.
The other aspects of the assailed Decision and Resolution STAND.
SO ORDERED.
Page 6 of 50
[3] G.R. No. 168151               September 4, 2009
REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA
SHIPPING AGENCY, Petitioners, vs. THE NETHERLANDS INSURANCE
CO. (PHILIPPINES), INC., Respondent.
Maritime Law; Common Carriers; Negligence; Rules for Liability of Common
Carriers for Lost or Damaged Cargo.—In Central Shipping Company, Inc. v.
Insurance Company of North America, 438 SCRA 511 (2004), we reiterated the
rules for the liability of a common carrier for lost or damaged cargo as follows: (1)
Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case; (2) In the event of loss,
destruction, or deterioration of the insured goods, common carriers are responsible,
unless they can prove that such loss, destruction, or deterioration was brought about
by, among others, “flood, storm, earthquake, lightning, or other natural disaster or
calamity”; and (3) In all other cases not specified under Article 1734 of the Civil
Code, common carriers are presumed to have been at fault or to have acted
negligently, unless they observed extraordinary diligence.
Same; Same; Same; To overcome the presumption of negligence, the common
carrier must establish by adequate proof that it exercised extraordinary diligence
over the goods—it must do more than merely show that some other party could be
responsible for the damage.—A common carrier is presumed to have been negligent
if it fails to prove that it exercised extraordinary vigilance over the goods it
transported. When the goods shipped are either lost or arrived in damaged condition,
a presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable. To overcome the
presumption of negligence, the common carrier must establish by adequate
proof that it exercised extraordinary diligence over the goods. It must do more
than merely show that some other party could be responsible for the damage.
Same; Same; Same; It is settled in maritime law jurisprudence that cargoes
while being unloaded generally remain under the custody of the carrier.—In the
present case, RCL and EDSA Shipping failed to prove that they did exercise that
degree of diligence required by law over the goods they transported. Indeed, there is
sufficient evidence showing that the fluctuation of the temperature in the refrigerated
container van, as recorded in the temperature chart, occurred after the cargo had been
discharged from the vessel and was already under the custody of the arrastre
operator, ICTSI. This evidence, however, does not disprove that the condenser fan—
which caused the fluctuation of the temperature in the refrigerated container—was
not damaged while the cargo was being unloaded from the ship. It is settled in
maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier; RCL and EDSA Shipping failed to dispute this.
‫ﻫ‬Transportation Laws- Assignment No. 1
Demurrer to Evidence; Pleadings and Practice; A dismissal based on a
demurrer to evidence bars the defendant from presenting evidence supporting its
allegations.—RCL and EDSA Shipping could have offered evidence before the trial
court to show that the damage to the condenser fan did not occur: (1) while the cargo
was in transit; (2) while they were in the act of discharging it from the vessel; or (3)
while they were delivering it actually or constructively to the consignee. They could
have presented proof to show that they exercised extraordinary care and diligence in
the handling of the goods, but they opted to file a demurrer to evidence. As the
order granting their demurrer was reversed on appeal, the CA correctly ruled
that they are deemed to have waived their right to present evidence, and the
presumption of negligence must stand. It is for this reason as well that we find
RCL and EDSA Shipping’s claim that the loss or damage to the cargo was caused by
a defect in the packing or in the containers. To exculpate itself from liability for the
loss/damage to the cargo under any of the causes, the common carrier is burdened to
prove any of the causes in Article 1734 of the Civil Code claimed by it by a
preponderance of evidence. If the carrier succeeds, the burden of evidence is shifted
to the shipper to prove that the carrier is negligent. RCL and EDSA Shipping,
however, failed to satisfy this standard of evidence and in fact offered no evidence at
all on this point; a reversal of a dismissal based on a demurrer to evidence bars the
defendant from presenting evidence supporting its allegations.
DECISION
BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners
Regional Container Lines of Singapore (RCL) and EDSA Shipping Agency
(EDSA Shipping) to annul and set aside the decision 1 and resolution2 of the
Court of Appeals (CA) dated May 26, 2004 and May 10, 2005, respectively,
in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the
Philippines through its agent, EDSA Shipping, a domestic corporation
organized and existing under Philippine laws. Respondent Netherlands
Insurance Company (Philippines), Inc. (Netherlands Insurance) is likewise a
domestic corporation engaged in the marine underwriting business.
FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.
On October 20, 1995, 405 cartons of Epoxy Molding Compound were
consigned to be shipped from Singapore to Manila for Temic Telefunken
Microelectronics Philippines (Temic). U-Freight Singapore PTE Ltd.3 (U-
Page 7 of 50
Freight Singapore), a forwarding agent based in Singapore, contracted the
services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the
subject cargo. The cargo was packed, stored, and sealed by Pacific Eagle in
its Refrigerated Container No. 6105660 with Seal No. 13223. As the cargo
was highly perishable, the inside of the container had to be kept at a
temperature of 0º Celsius. Pacific Eagle then loaded the refrigerated
container on board the M/V Piya Bhum, a vessel owned by RCL, with which
Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill of
Lading in favor of Pacific Eagle.
To insure the cargo against loss and damage, Netherlands Insurance issued
a Marine Open Policy in favor of Temic, as shown by MPO-21-05081-94 and
Marine Risk Note MRN-21 14022, to cover all losses/damages to the
shipment.
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading
the refrigerated container, it was plugged to the power terminal of the pier to
keep its temperature constant. Fidel Rocha (Rocha), Vice-President for
Operations of Marines Adjustment Corporation, accompanied by two
surveyors, conducted a protective survey of the cargo. They found that based
on the temperature chart, the temperature reading was constant from
October 18, 1995 to October 25, 1995 at 0º Celsius. However, at midnight of
October 25, 1995 – when the cargo had already been unloaded from the ship
– the temperature fluctuated with a reading of 33º Celsius. Rocha believed
the fluctuation was caused by the burnt condenser fan motor of the
refrigerated container.
On November 9, 1995, Temic received the shipment. It found the cargo
completely damaged. Temic filed a claim for cargo loss against Netherlands
Insurance, with supporting claims documents. The Netherlands Insurance
paid Temic the sum of ₱1,036,497.00 under the terms of the Marine Open
Policy. Temic then executed a loss and subrogation receipt in favor of
Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands
Insurance filed a complaint for subrogation of insurance settlement with the
Regional Trial Court, Branch 5, Manila, against "the unknown owner of M/V
Piya Bhum" and TMS Ship Agencies (TMS), the latter thought to be the local
agent of M/V Piya Bhum’s unknown owner. 4 The complaint was docketed as
Civil Case No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to
implead EDSA Shipping, RCL, Eagle Liner Shipping Agencies, U-Freight
Singapore, and U-Ocean (Phils.), Inc. (U-Ocean), as additional defendants. A
‫ﻫ‬Transportation Laws- Assignment No. 1
third amended complaint was later made, impleading Pacific Eagle in
substitution of Eagle Liner Shipping Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed
their answers with cross-claim and compulsory counterclaim to the second
amended complaint. U-Ocean likewise filed an answer with compulsory
counterclaim and cross-claim. During the pendency of the case, U-Ocean,
jointly with U-Freight Singapore, filed another answer with compulsory
counterclaim. Only Pacific Eagle and TMS filed their answers to the third
amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo,
citing several reasons why Netherland Insurance’s claims must be rejected.
Specifically, RCL and EDSA Shipping denied negligence in the transport of
the cargo; they attributed any negligence that may have caused the loss of
the shipment to their co-defendants. They likewise asserted that no valid
subrogation exists, as the payment made by Netherlands Insurance to the
consignee was invalid. By way of affirmative defenses, RCL and EDSA
Shipping averred that the Netherlands Insurance has no cause of action, and
is not the real party-in-interest, and that the claim is barred by
laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the
defendants including RCL and EDSA Shipping sought leave of court to file
their respective motions to dismiss based on demurrer to evidence.
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance
had (1) failed to prove any valid subrogation, and (2) failed to establish that
any negligence on their part or that the loss was sustained while the cargo
was in their custody.
On May 22, 2002, the trial court handed down an Order dismissing Civil Case
No. 96-78612 on demurrer to evidence. The trial court ruled that while there
was valid subrogation, the defendants could not be held liable for the loss or
damage, as their respective liabilities ended at the time of the discharge of
the cargo from the ship at the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the
CA.
On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint
against defendants Regional Container Lines and Its local agent, EDSA
Shipping Agency, is REVERSED and SET ASIDE. The dismissal of the
Page 8 of 50
complaint against the other defendants is AFFIRMED. Pursuant to Section 1,
Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional Container
Lines and EDSA Shipping Agency are deemed to have waived the right to
present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency
are ordered to reimburse plaintiff in the sum of ₱1,036,497.00 with interest
from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]
The CA dismissed Netherland Insurance’s complaint against the other
defendants after finding that the claim had already been barred by
prescription.5
Having been found liable for the damage to the cargo, RCL and EDSA
Shipping filed a motion for reconsideration, but the CA maintained its original
conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and
EDSA Shipping liable as common carriers under the theory of presumption of
negligence.
THE COURT’S RULING
The present case is governed by the following provisions of the Civil Code:
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 the vigilance over the goods is further
expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in
articles1755 and 1756.
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:
‫ﻫ‬Transportation Laws- Assignment No. 1
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 of 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.
ART. 1735. In all cases other that those mentioned in Nos. 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 by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from
the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the sane are delivered, actually
or constructively, by the carrier to the consignee, or to the person who has a
right to receive them, without prejudice to the provisions of articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the
carrier at the place of destination, until the consignee has been advised of
the arrival of the goods and has had reasonable opportunity thereafter to
remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should
be caused by the character of the goods, or the faulty nature of the packing
or of the containers, the common carrier must exercise due diligence to
forestall or lessen the loss.
In Central Shipping Company, Inc. v. Insurance Company of North
America,6 we reiterated the rules for the liability of a common carrier for lost
or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence
over the goods they transport, according to all the circumstances of
each case;
Page 9 of 50
 (2) In the event of loss, destruction, or deterioration of the insured
goods, common carriers are responsible, unless they can prove that
such loss, destruction, or deterioration was brought about by, among
others, "flood, storm, earthquake, lightning, or other natural disaster
or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil
Code, common carriers are presumed to have been at fault or to
have acted negligently, unless they observed extraordinary
diligence.7
In the present case, RCL and EDSA Shipping disclaim any responsibility for
the loss or damage to the goods in question. They contend that the cause of
the damage to the cargo was the "fluctuation of the temperature in the reefer
van," which fluctuation occurred after the cargo had already been discharged
from the vessel; no fluctuation, they point out, arose when the cargo was still
on board M/V Piya Bhum. As the cause of the damage to the cargo occurred
after the same was already discharged from the vessel and was under the
custody of the arrastre operator (International Container Terminal Services,
Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of
negligence provided in Article 1735 of the Civil Code should not apply. What
applies in this case is Article 1734, particularly paragraphs 3 and 4 thereof,
which exempts the carrier from liability for loss or damage to the cargo when
it is caused either by an act or omission of the shipper or by the character of
the goods or defects in the packing or in the containers. Thus, RCL and
EDSA Shipping seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. 8 When the
goods shipped are either lost or arrived in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there
need not be an express finding of negligence to hold it liable. 91avvphi1
To overcome the presumption of negligence, the common carrier must
establish by adequate proof that it exercised extraordinary diligence over the
goods. It must do more than merely show that some other party could be
responsible for the damage.10
In the present case, RCL and EDSA Shipping failed to prove that they did
exercise that degree of diligence required by law over the goods they
transported. Indeed, there is sufficient evidence showing that the fluctuation
of the temperature in the refrigerated container van, as recorded in the
temperature chart, occurred after the cargo had been discharged from the
‫ﻫ‬Transportation Laws- Assignment No. 1
vessel and was already under the custody of the arrastre operator, ICTSI.
This evidence, however, does not disprove that the condenser fan – which
caused the fluctuation of the temperature in the refrigerated container – was
not damaged while the cargo was being unloaded from the ship. It is settled
in maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier; 11 RCL and EDSA Shipping failed to
dispute this.1avvphi1
RCL and EDSA Shipping could have offered evidence before the trial court to
show that the damage to the condenser fan did not occur: (1) while the cargo
was in transit; (2) while they were in the act of discharging it from the vessel;
or (3) while they were delivering it actually or constructively to the consignee.
They could have presented proof to show that they exercised extraordinary
care and diligence in the handling of the goods, but they opted to file a
demurrer to evidence. As the order granting their demurrer was reversed on
appeal, the CA correctly ruled that they are deemed to have waived their
right to present evidence,12 and the presumption of negligence must stand.
It is for this reason as well that we find RCL and EDSA Shipping’s claim that
the loss or damage to the cargo was caused by a defect in the packing or in
the containers. To exculpate itself from liability for the loss/damage to the
cargo under any of the causes, the common carrier is burdened to prove any
of the causes in Article 1734 of the Civil Code claimed by it by a
preponderance of evidence. If the carrier succeeds, the burden of evidence is
shifted to the shipper to prove that the carrier is negligent. 13 RCL and EDSA
Shipping, however, failed to satisfy this standard of evidence and in fact
offered no evidence at all on this point; a reversal of a dismissal based on a
demurrer to evidence bars the defendant from presenting evidence
supporting its allegations.
WHEREFORE, we DENY the petition for review on certiorari filed by the
Regional Container Lines of Singapore and EDSA Shipping Agency. The
decision of the Court of Appeals dated May 26, 2004 in CA-G.R. CV No.
76690 is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
Page 10 of 50
[4] G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS,
SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.
Words and Phrases; Shipping; “Charter Party” defined.—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; 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; 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. 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 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.
Same; Same; “Common Carrier” defined.—Upon the other hand, the term
“common or public carrier” is defined in Art. 1732 of the Civil Code. 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.
Shipping; Transportation; Evidence; Common carriers required to observe
extraordinary diligence and presumed at fault; no such presumption applies to
private carriers.—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. In the case of private carriers,
however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in 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. 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.
‫ﻫ‬Transportation Laws- Assignment No. 1
Same; Same; Same; In a time or voyage charter, in contrast to a bareboat
charter, the ship remains a common or public carrier.—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.
Same; Same; Same; In the common carriage of highly soluble goods, like
fertilizer, it is the shipper or owner of the goods that commonly face risk of loss or
damage.—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 remiss in the exercise of due diligence in
order to minimize the loss or damage to the goods it carried.
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 Charter 2 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
Page 11 of 50
charter-party were also subsequently entered into on the 18th, 20th, 21st and
27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all
presumably inspected by the charterer's representative and found fit to take a
load of urea in bulk pursuant to par. 16 of the charter-party which reads:
16. At loading port, notice of readiness to be accomplished by
certificate from National Cargo Bureau inspector or substitute
appointed by charterers for his account certifying the vessel's
readiness to receive cargo spaces. The vessel's hold to be properly
swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector
before daytime commences.
After the Urea fertilizer was loaded in bulk by stevedores hired by and under
the supervision of the shipper, the steel hatches were closed with heavy iron
lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The
hatches remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon
hatches were opened with the use of the vessel's boom. Petitioner unloaded
the cargo from the holds into its steelbodied dump trucks which were parked
alongside the berth, using metal scoops attached to the ship, pursuant to the
terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause).6 The hatches remained open throughout the duration of the
discharge.7
Each time a dump truck was filled up, its load of Urea was covered with
tarpaulin before it was transported to the consignee's warehouse located
some fifty (50) meters from the wharf. Midway to the warehouse, the trucks
were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port
area was windy, certain portions of the route to the warehouse were sandy
and the weather was variable, raining occasionally while the discharge was
in progress.8 The petitioner's warehouse was made of corrugated galvanized
iron (GI) sheets, with an opening at the front where the dump trucks entered
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets
were placed in-between and alongside the trucks to contain spillages of the
ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July
1974 (except July 12th, 14th and 18th). 10 A private marine and cargo
surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to
determine the "outturn" of the cargo shipped, by taking draft readings of the
‫ﻫ‬Transportation Laws- Assignment No. 1
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 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
Page 12 of 50
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.
‫ﻫ‬Transportation Laws- Assignment No. 1
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
Page 13 of 50
persons. When petitioner chartered the vessel M/V "Sun Plum", the ship
captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly
then can we charge the charterer, a stranger to the crew and to the ship, with
the duty of caring for his cargo when the charterer did not have any control of
the means in doing so. This is evident in the present case considering that
the steering of the ship, the manning of the decks, the determination of the
course of the voyage and other technical incidents of maritime navigation
were all consigned to the officers and crew who were screened, chosen and
hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a shipowner in a time or voyage
charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance
Co.  v. American Steamship Agencies, supra, is misplaced for the reason that
the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common
carriers. At any rate, the rule in the United States that a ship chartered by a
single shipper to carry special cargo is not a common carrier, 29 does not find
application in our jurisdiction, for we have observed that the growing concern
for safety in the transportation of passengers and /or carriage of goods by
sea requires a more exacting interpretation of admiralty laws, more
particularly, the rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned
barrister-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
‫ﻫ‬Transportation Laws- Assignment No. 1
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 facie presumption 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
Page 14 of 50
 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
The period during which private respondent was to observe the degree of
diligence required of it as a public carrier began from the time the cargo was
unconditionally placed in its charge after the vessel's holds were duly
inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but
prior to unloading. This is clear from the limitation clause agreed upon by the
parties in the Addendum to the standard "GENCON" time charter-party which
provided for an F.I.O.S., meaning, that the loading, stowing, trimming and
discharge of the cargo was to be done by the charterer, free from all risk and
expense to the carrier. 35 Moreover, a shipowner is liable for damage to the
cargo resulting from improper stowage only when the stowing is done by
stevedores employed by him, and therefore under his control and
supervision, not when the same is done by the consignee or stevedores
under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not
responsible for the loss, destruction or deterioration of the goods if caused by
the charterer of the goods or defects in the packaging or in the containers.
The Code of Commerce also provides that all losses and deterioration which
the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the
account and risk of the shipper, and that proof of these accidents is
incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the
loss and damage resulting from the preceding causes if it is proved, as
against him, that they arose through his negligence or by reason of his
having failed to take the precautions which usage has established among
careful persons. 38
Respondent carrier presented a witness who testified on the characteristics
of the fertilizer shipped and the expected risks of bulk shipping. Mr.
Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer,
described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains
46% nitrogen and is highly soluble in water. However, during storage,
nitrogen and ammonia do not normally evaporate even on a long voyage,
provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer
‫ﻫ‬Transportation Laws- Assignment No. 1
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
Page 15 of 50
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.

‫ﻫ‬Transportation Laws- Assignment No. 1

Page 16 of 50
[5] G.R. No. 165647               March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner, vs. WALLEM
PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN
CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER" AND
"SHANGHAI FAREAST SHIP BUSINESS COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and
Resolution3 of the Court of Appeals in CA-G.R. No. 61885. The Court of
Appeals reversed the Decision4 of the Regional Trial Court (RTC) of Manila,
Branch 55 in Civil Case No. 96-80298, dismissing the complaint for sum of
money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation
loaded on board M/S Offshore Master a shipment consisting of 10,000 bags
of sodium sulphate anhydrous 99 PCT Min. (shipment), complete and in
good order for transportation to and delivery at the port of Manila for
consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a
Clean Bill of Lading. The Bill of Lading reflects the gross weight of the total
cargo at 500,200 kilograms.6 The Owner and/or Charterer of M/V Offshore
Master is unknown while the shipper of the shipment is Shanghai Fareast
Ship Business Company. Both are foreign firms doing business in the
Philippines, thru its local ship agent, respondent Wallem Philippines
Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on
board the vessel M/S Offshore Master from which it was subsequently
discharged. It was disclosed during the discharge of the shipment from the
carrier that 2,426 poly bags (bags) were in bad order and condition, having
sustained various degrees of spillages and losses. This is evidenced by the
Turn Over Survey of Bad Order Cargoes (turn-over survey) of the arrastre
operator, Asian Terminals, Inc. (arrastre operator). 8 The bad state of the bags
is also evinced by the arrastre operator’s Request for Bad Order Survey. 9
Asia Star Freight Services, Inc. undertook the delivery of the subject
shipment from the pier to the consignee’s warehouse in Quezon City, 10 while
the final inspection was conducted jointly by the consignee’s representative
and the cargo surveyor. During the unloading, it was found and noted that the
‫ﻫ‬Transportation Laws- Assignment No. 1
bags had been discharged in damaged and bad order condition. Upon
inspection, it was discovered that 63,065.00 kilograms of the shipment had
sustained unrecovered spillages, while 58,235.00 kilograms had been
exposed and contaminated, resulting in losses due to depreciation and
downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for the
value of the damaged shipment, to no avail. Since the shipment was insured
with petitioner Philippines First Insurance Co., Inc. against all risks in the
amount of ₱2,470,213.50,12 the consignee filed a formal claim13 with
petitioner for the damage and losses sustained by the shipment. After
evaluating the invoices, the turn-over survey, the bad order certificate and
other documents,14 petitioner found the claim to be in order and compensable
under the marine insurance policy. Consequently, petitioner paid the
consignee the sum of ₱397,879.69 and the latter signed a subrogation
receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to
Wallem for the recovery of the amount paid by petitioner to the consignee.
However, despite receipt of the letter, Wallem did not settle nor even send a
response to petitioner’s claim.15
Consequently, petitioner instituted an action before the RTC for damages
against respondents for the recovery of ₱397,879.69 representing the actual
damages suffered by petitioner plus legal interest thereon computed from the
time of the filing of the complaint until fully paid and attorney’s fees equivalent
to 25% of the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay
petitioner ₱397,879.69 with 6% interest plus attorney’s fees and costs of the
suit. It attributed the damage and losses sustained by the shipment to the
arrastre operator’s mishandling in the discharge of the shipment.
Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the
shipping company and the arrastre operator solidarily liable since both the
arrastre operator and the carrier are charged with and obligated to deliver the
goods in good order condition to the consignee. It also ruled that the ship
functioned as a common carrier and was obliged to observe the degree of
care required of a common carrier in handling cargoes. Further, it held that a
notice of loss or damage in writing is not required in this case because said
goods already underwent a joint inspection or survey at the time of receipt
thereof by the consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision. 18 According
to the appellate court, there is no solidary liability between the carrier and the
Page 17 of 50
arrastre operator because it was clearly established by the court a quo  that
the damage and losses of the shipment were attributed to the mishandling by
the arrastre operator in the discharge of the shipment. The appellate court
ruled that the instant case falls under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the
consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a
common carrier, the carrier’s duties extend to the obligation to safely
discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the
damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial
demand by petitioner for the cost of the lost/damaged shipment is an
implied admission of the former’s liability for said goods;
4. Whether or not the courts below erred in giving credence to the
testimony of Mr. Talens.
It is beyond question that respondent’s vessel is a common carrier. 20 Thus,
the standards for determining the existence or absence of the respondent’s
liability will be gauged on the degree of diligence required of a common
carrier. Moreover, as the shipment was an exercise of international trade, the
provisions of the Carriage of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of
Commerce, shall apply.22
The first and second issues raised in the petition will be resolved concurrently
since they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the
insured consignee. The damage to the shipment was documented by the
turn-over survey23 and Request for Bad Order Survey. 24 The turn-over
survey, in particular, expressly stipulates that 2,426 bags of the shipment
were received by the arrastre operator in damaged condition. With these
documents, petitioner insists that the shipment incurred damage or losses
while still in the care and responsibility of Wallem and before it was turned
over and delivered to the arrastre operator.
‫ﻫ‬Transportation Laws- Assignment No. 1
The trial court, however, found through the testimony of Mr. Maximino
Velasquez Talens, a cargo surveyor of Oceanica Cargo Marine Surveyors
Corporation, that the losses and damage to the cargo were caused by the
mishandling of the arrastre operator. Specifically, that the torn cargo bags
resulted from the use of steel hooks/spikes in piling the cargo bags to the
pallet board and in pushing the bags by the stevedores of the arrastre
operator to the tug boats then to the ports. 25 The appellate court affirmed the
finding of mishandling in the discharge of cargo and it served as its basis for
exculpating respondents from liability, rationalizing that with the fault of the
arrastre operator in the unloading of the cargo established it should bear sole
liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for the
damage incurred at that point of transport. To address this issue, the
pertinent laws and jurisprudence are examined.
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 transported by them. 26 Subject to certain exceptions enumerated
under Article 173427 of the Civil Code, common carriers are responsible for
the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them. 28
For marine vessels, Article 619 of the Code of Commerce provides that the
ship captain is liable for the cargo from the time it is turned over to him at the
dock or afloat alongside the vessel at the port of loading, until he delivers it
on the shore or on the discharging wharf at the port of unloading, unless
agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo,29 the
Court interpreted the ship captain’s liability as ultimately that of the shipowner
by regarding the captain as the representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act.30 Section 3 (2) thereof then states that among
the carriers’ responsibilities are to properly and carefully load, handle, stow,
carry, keep, care for, and discharge the goods carried.
Page 18 of 50
The above doctrines are in fact expressly incorporated in the bill of lading
between the shipper Shanghai Fareast Business Co., and the consignee, to
wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall
commence from the time when the goods are loaded on board the vessel
and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before
loading and after discharging from the vessel, howsoever such loss or
damage arises.31
On the other hand, the functions of an arrastre operator involve the handling
of cargo deposited on the wharf or between the establishment of the
consignee or shipper and the ship's tackle. 32 Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good
care of the goods and to turn them over to the party entitled to their
possession.33
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and measures
necessary to prevent losses and damage to shipments under its custody. 34
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court
explained the relationship and responsibility of an arrastre operator to a
consignee of a cargo, to quote:
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman. The relationship between the
consignee and the common carrier is similar to that of the consignee and the
arrastre operator. Since it is the duty of the ARRASTRE to take good care of
the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and obligated to
deliver the goods in good condition to the consignee.(Emphasis supplied)
(Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines,
Inc. v. Court of Appeals36 with the clarification that the arrastre operator and
the carrier are not always and necessarily solidarily liable as the facts of a
case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that an
arrastre operator and a carrier may not be held solidarily liable at all times.
‫ﻫ‬Transportation Laws- Assignment No. 1
But the precise question is which entity had custody of the shipment during
its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the
carriers’ responsibilities are to properly and carefully load, care for and
discharge the goods carried. The bill of lading covering the subject shipment
likewise stipulates that the carrier’s liability for loss or damage to the goods
ceases after its discharge from the vessel. Article 619 of the Code of
Commerce holds a ship captain liable for the cargo from the time it is turned
over to him until its delivery at the port of unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V.
Farland,37 it was ruled that like the duty of seaworthiness, the duty of care of
the cargo is non-delegable,38 and the carrier is accordingly responsible for
the acts of the master, the crew, the stevedore, and his other agents. It has
also been held that it is ordinarily the duty of the master of a vessel to unload
the cargo and place it in readiness for delivery to the consignee, and there is
an implied obligation that this shall be accomplished with sound machinery,
competent hands, and in such manner that no unnecessary injury shall be
done thereto.39 And the fact that a consignee is required to furnish persons to
assist in unloading a shipment may not relieve the carrier of its duty as to
such unloading.40
The exercise of the carrier’s custody and responsibility over the subject
shipment during the unloading actually transpired in the instant case during
the unloading of the shipment as testified by Mr. Talens, the cargo surveyor,
to quote:
Atty. Repol:
- Do you agree with me that Wallem Philippines is a shipping
[company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir. 41
xxx
Q Mr. Witness, during the discharging operation of this cargo, where
was the master of the vessel?
Page 19 of 50
 A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was
being unloaded from the vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging
of the cargo from the vessel?
A And head checker po and siyang nagpapatakbo ng trabaho sa
loob ng barko, sir.42
xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir. 43
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the
Bad Order Inspection, to wit:
"The bad order torn bags, was due to stevedores[‘] utilizing steel
hooks/spikes in piling the cargo to [the] pallet board at the vessel’s cargo
holds and at the pier designated area before and after discharged that cause
the bags to torn [sic]."44 (Emphasis supplied)
The records are replete with evidence which show that the damage to the
bags happened before and after their discharge 45 and it was caused by the
stevedores of the arrastre operator who were then under the supervision of
Wallem.1awphi1.net
It is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier. In the instant case, the
damage or losses were incurred during the discharge of the shipment while
under the supervision of the carrier. Consequently, the carrier is liable for the
damage or losses caused to the shipment. As the cost of the actual damage
to the subject shipment has long been settled, the trial court’s finding of
actual damages in the amount of ₱397,879.69 has to be sustained.
‫ﻫ‬Transportation Laws- Assignment No. 1
On the credibility of Mr. Talens which is the fourth issue, the general rule in
assessing credibility of witnesses is well-settled:
x x x the trial court's evaluation as to the credibility of witnesses is viewed as
correct and entitled to the highest respect because it is more competent to so
conclude, having had the opportunity to observe the witnesses' demeanor
and deportment on the stand, and the manner in which they gave their
testimonies. The trial judge therefore can better determine if such witnesses
were telling the truth, being in the ideal position to weigh conflicting
testimonies. Therefore, unless the trial judge plainly overlooked certain facts
of substance and value which, if considered, might affect the result of the
case, his assessment on credibility must be respected.46
Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond
to its demand letter does not constitute an implied admission of liability. To
borrow the words of Mr. Justice Oliver Wendell Holmes, thus:
A man cannot make evidence for himself by writing a letter containing the
statements that he wishes to prove. He does not make the letter evidence by
sending it to the party against whom he wishes to prove the facts [stated
therein]. He no more can impose a duty to answer a charge than he can
impose a duty to pay by sending goods. Therefore a failure to answer such
adverse assertions in the absence of further circumstances making an
answer requisite or natural has no effect as an admission. 47
With respect to the attorney’s fees, it is evident that petitioner was compelled
to litigate this matter to protect its interest. The RTC’s award of ₱20,000.00
as attorney’s fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 22 June 2004 and its Resolution dated 11 October 2004 are
REVERSED and SET ASIDE. Wallem is ordered to pay petitioner the sum of
₱397,879.69, with interest thereon at 6% per annum from the filing of the
complaint on 7 October 1996 until the judgment becomes final and
executory. Thereafter, an interest rate of 12% per annum shall be
imposed.48 Respondents are also ordered to pay petitioner the amount of
₱20,000.00 for and as attorney’s fees, together with the costs of the suit.
SO ORDERED.
Page 20 of 50
[6] G.R. No. 157917               August 29, 2012
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners, vs. SPOUSES
TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL
RAILWAYS, and the COURT OF APPEALS Respondents.
Civil Law; Common Carriers; Words and Phrases; A carrier is a person or
corporation who undertakes to transport or convey goods or persons from one place
to another, gratuitously or for hire.―A carrier is a person or corporation who
undertakes to transport or convey goods or persons from one place to another,
gratuitously or for hire. The carrier is classified either as a private/special carrier or
as a common/public carrier. A private carrier is one who, without making the activity
a vocation, or without holding himself or itself out to the public as ready to act for all
who may desire his or its services, undertakes, by special agreement in a particular
instance only, to transport goods or persons from one place to another either
gratuitously or for hire. The provisions on ordinary contracts of the Civil
Code govern the contract of private carriage. The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In
contrast, a common carrier is a 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 such services to the public. Contracts of common
carriage are governed by the provisions on common carriers of the Civil Code,
the Public Service Act, and other special laws relating to transportation. A common
carrier is required to observe extraordinary diligence, and is presumed to be at fault
or to have acted negligently in case of the loss of the effects of passengers, or the
death or injuries to passengers.
Same; Same; The true test for a common carrier is not the quantity or extent of
the business actually transacted, or the number and character of the conveyances
used in the activity, but whether the undertaking is a part of the activity engaged in
by the carrier that he has held out to the general public as his business or
occupation.―The true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used in
the activity, but whether the undertaking is a part of the activity engaged in by the
carrier that he has held out to the general public as his business or occupation. If the
undertaking is a single transaction, not a part of the general business or occupation
engaged in, as advertised and held out to the general public, the individual or the
entity rendering such service is a private, not a common, carrier. The question must
be determined by the character of the business actually carried on by the carrier, not
by any secret intention or mental reservation it may entertain or assert when charged
with the duties and obligations that the law imposes.
Same; Same; School Buses; Despite catering to a limited clientèle, the Pereñas
operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living within or
‫ﻫ‬Transportation Laws- Assignment No. 1
near where they operated the service and for a fee.―Applying these considerations
to the case before us, there is no question that the Pereñas as the operators of a school
bus service were: (a) engaged in transporting passengers generally as a business, not
just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientèle, the Pereñas operated as a
common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near where
they operated the service and for a fee.
Same; Same; Extraordinary Diligence; The common carrier is 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.―The common carrier’s standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for reasons of
public policy, the common carrier is 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.” Article 1755 of the Civil
Code specifies that the common carrier should “carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.” To successfully fend off
liability in an action upon the death or injury to a passenger, the common carrier
must prove his or its observance of that extraordinary diligence; otherwise, the legal
presumption that he or it was at fault or acted negligently would stand. No device,
whether by stipulation, posting of notices, statements on tickets, or otherwise, may
dispense with or lessen the responsibility of the common carrier as defined under
Article 1755 of the Civil Code.
Same; Same; Negligence; Words and Phrases; Negligence is the omission to
do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do.―The omissions of
care on the part of the van driver constituted negligence, which, according
to Layugan v. Intermediate Appellate Court, 167 SCRA 363 (1988), is “the omission
to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do, or as Judge Cooley
defines it, ‘(t)he failure to observe for the protection of the interests of another
person, that degree of care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury.’ ”
Same; Same; Joint and Solidary Liability; Although the basis of the right to
relief of the Zarates (i.e., breach of contract of carriage) against the Pereñas was
distinct from the basis of the Zarates’ right to relief against the Philippine National
Railways (PNR) (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless
Page 21 of 50
could be held jointly and severally liable by virtue of their respective negligence
combining to cause the death of Aaron.―At any rate, the lower courts correctly held
both the Pereñas and the PNR “jointly and severally” liable for damages arising from
the death of Aaron. They had been impleaded in the same complaint as defendants
against whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident and questions of fact and of
law were common as to the Zarates. Although the basis of the right to relief of the
Zarates (i.e., breach of contract of carriage) against the Pereñas was distinct from the
basis of the Zarates’ right to relief against the PNR (i.e., quasi-delict under Article
2176, Civil Code), they nonetheless could be held jointly and severally liable by
virtue of their respective negligence combining to cause the death of Aaron. As to
the PNR, the RTC rightly found the PNR also guilty of negligence despite the school
van of the Pereñas traversing the railroad tracks at a point not dedicated by the PNR
as a railroad crossing for pedestrians and motorists, because the PNR did not ensure
the safety of others through the placing of crossbars, signal lights, warning signs, and
other permanent safety barriers to prevent vehicles or pedestrians from crossing
there. The RTC observed that the fact that a crossing guard had been assigned to man
that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the
risks to others as well as the need to control the vehicular and other traffic there.
Verily, the Pereñas and the PNR were joint tortfeasors.
Same; Same; Loss of Earning Capacity; The basis for the computation of
Aaron’s earning capacity was not what he would have become or what he would
have wanted to be if not for his untimely death, but the minimum wage in effect at the
time of his death.―The RTC awarded indemnity for loss of Aaron’s earning
capacity. Although agreeing with the RTC on the liability, the CA modified the
amount. Both lower courts took into consideration that Aaron, while only a high
school student, had been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to his death. The basis for
the computation of Aaron’s earning capacity was not what he would have become or
what he would have wanted to be if not for his untimely death, but the minimum
wage in effect at the time of his death. Moreover, the RTC’s computation of Aaron’s
life expectancy rate was not reckoned from his age of 15 years at the time of his
death, but on 21 years, his age when he would have graduated from college. We find
the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Same; Same; Same; Our law itself states that the loss of the earning capacity
of the deceased shall be the liability of the guilty party in favor of the heirs of the
deceased, and shall in every case be assessed and awarded by the court “unless the
deceased on account of permanent physical disability not caused by the defendant,
had no earning capacity at the time of his death.―The fact that Aaron was then
without a history of earnings should not be taken against his parents and in favor of
the defendants whose negligence not only cost Aaron his life and his right to work
and earn money, but also deprived his parents of their right to his presence and his
services as well. Our law itself states that the loss of the earning capacity of the
‫ﻫ‬Transportation Laws- Assignment No. 1
deceased shall be the liability of the guilty party in favor of the heirs of the deceased,
and shall in every case be assessed and awarded by the court “unless the deceased on
account of permanent physical disability not caused by the defendant, had no earning
capacity at the time of his death.” Accordingly, we emphatically hold in favor of the
indemnification for Aaron’s loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or
earnings but for loss of the deceased’s power or ability to earn money.
Same; Same; Damages; Moral Damages; The moral damages of
P2,500,000.00 were really just and reasonable under the established circumstances
of this case because they were intended by the law to assuage the Zarates’ deep
mental anguish over their son’s unexpected and violent death, and their moral shock
over the senseless accident.―The moral damages of P2,500,000.00 were really just
and reasonable under the established circumstances of this case because they were
intended by the law to assuage the Zarates’ deep mental anguish over their son’s
unexpected and violent death, and their moral shock over the senseless accident. That
amount would not be too much, considering that it would help the Zarates obtain the
means, diversions or amusements that would alleviate their suffering for the loss of
their child. At any rate, reducing the amount as excessive might prove to be an
injustice, given the passage of a long time from when their mental anguish was
inflicted on them on August 22, 1996.
Same; Same; Damages; Exemplary Damages; Anent the P1,000,000.00
allowed as exemplary damages, we should not reduce the amount if only to render
effective the desired example for the public good.―Anent the P1,000,000.00 allowed
as exemplary damages, we should not reduce the amount if only to render effective
the desired example for the public good. As a common carrier, the Pereñas needed to
be vigorously reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others
similarly situated like them the ever-present need for greater and constant vigilance
in the conduct of a business imbued with public interest.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the
law. He is bound to observe extraordinary diligence in the conduct of his
business. He is presumed to be negligent when death occurs to a passenger.
His liability may include indemnity for loss of earning capacity even if the
deceased passenger may only be an unemployed high school student at the
time of the accident.
The Case
Page 22 of 50
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia
(Perefias) appeal the adverse decision promulgated on November 13, 2002,
by which the Court of Appeals (CA) affirmed with modification the decision
rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch
260, in Parañaque City that had decreed them jointly and severally liable with
Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas
and Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron
John L. Zarate (Aaron), then a high school student of Don Bosco Technical
Institute (Don Bosco).
Antecedents
The Pereñas were engaged in the business of transporting students from
their respective residences in Parañaque City to Don Bosco in Pasong Tamo,
Makati City, and back. In their business, the Pereñas used a KIA Ceres Van
(van) with Plate No. PYA 896, which had the capacity to transport 14
students at a time, two of whom would be seated in the front beside the
driver, and the others in the rear, with six students on either side. They
employed Clemente Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereñas to transport Aaron to and
from Don Bosco. On August 22, 1996, as on previous school days, the van
picked Aaron up around 6:00 a.m. from the Zarates’ residence. Aaron took
his place on the left side of the van near the rear door. The van, with its air-
conditioning unit turned on and the stereo playing loudly, ultimately carried all
the 14 student riders on their way to Don Bosco. Considering that the
students were due at Don Bosco by 7:15 a.m., and that they were already
running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by
traversing the narrow path underneath the Magallanes Interchange that was
then commonly used by Makati-bound vehicles as a short cut into Makati. At
the time, the narrow path was marked by piles of construction materials and
parked passenger jeepneys, and the railroad crossing in the narrow path had
no railroad warning signs, or watchmen, or other responsible persons
manning the crossing. In fact, the bamboo barandilla was up, leaving the
railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR
Commuter No. 302 (train), operated by Jhonny Alano (Alano), was in the
vicinity of the Magallanes Interchange travelling northbound. As the train
neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the
oncoming train was blocked because he overtook the passenger bus on its
left side. The train blew its horn to warn motorists of its approach. When the
train was about 50 meters away from the passenger bus and the van, Alano
applied the ordinary brakes of the train. He applied the emergency brakes
‫ﻫ‬Transportation Laws- Assignment No. 1
only when he saw that a collision was imminent. The passenger bus
successfully crossed the railroad tracks, but the van driven by Alfaro did not.
The train hit the rear end of the van, and the impact threw nine of the 12
students in the rear, including Aaron, out of the van. Aaron landed in the path
of the train, which dragged his body and severed his head, instantaneously
killing him. Alano fled the scene on board the train, and did not wait for the
police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates
commenced this action for damages against Alfaro, the Pereñas, PNR and
Alano. The Pereñas and PNR filed their respective answers, with cross-
claims against each other, but Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron John
L. Zarate;
(2) Spouses Zarate engaged the services of spouses Pereña for the
adequate and safe transportation carriage of the former spouses' son
from their residence in Parañaque to his school at the Don Bosco
Technical Institute in Makati City;
(3) During the effectivity of the contract of carriage and in the
implementation thereof, Aaron, the minor son of spouses Zarate died
in connection with a vehicular/train collision which occurred while
Aaron was riding the contracted carrier Kia Ceres van of spouses
Pereña, then driven and operated by the latter's
employee/authorized driver Clemente Alfaro, which van collided with
the train of PNR, at around 6:45 A.M. of August 22, 1996, within the
vicinity of the Magallanes Interchange in Makati City, Metro Manila,
Philippines;
(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for
crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site
commonly used for railroad crossing;
Page 23 of 50
 (6) At the material time, countless number of Makati bound public
utility and private vehicles used on a daily basis the site of the
collision as an alternative route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on
board the commuter train involved without waiting for the police
investigator;
(8) The site commonly used for railroad crossing by motorists was
not in fact intended by the railroad operator for railroad crossing at
the time of the vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
(10) PNR refused to acknowledge any liability for the vehicular/train
collision;
(11) The eventual closure of the railroad crossing alleged by PNR
was an internal arrangement between the former and its project
contractor; and
(12) The site of the vehicular/train collision was within the vicinity or
less than 100 meters from the Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance
of his functions, liable for negligence constituting the proximate
cause of the vehicular collision, which resulted in the death of plaintiff
spouses' son;
(2) Whether or not the defendant spouses Pereña being the
employer of defendant Alfaro are liable for any negligence which may
be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the
operator of the railroad system is liable for negligence in failing to
provide adequate safety warning signs and railings in the area
commonly used by motorists for railroad crossings, constituting the
proximate cause of the vehicular collision which resulted in the death
of the plaintiff spouses' son;
‫ﻫ‬Transportation Laws- Assignment No. 1
(4) Whether or not defendant spouses Pereña are liable for breach of
the contract of carriage with plaintiff-spouses in failing to provide
adequate and safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral
damages, exemplary damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette
Pereña observed the diligence of employers and school bus
operators;
(7) Whether or not defendant-spouses are civilly liable for the
accidental death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating
the commuter train involved in the accident, in allowing or tolerating
the motoring public to cross, and its failure to install safety devices or
equipment at the site of the accident for the protection of the public;
(9) Whether or not defendant PNR should be made to reimburse
defendant spouses for any and whatever amount the latter may be
held answerable or which they may be ordered to pay in favor of
plaintiffs by reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly and
fully on the amounts claimed by the latter in their Complaint by
reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses
for actual, moral and exemplary damages and attorney's fees. 2
The Zarates’ claim against the Pereñas was upon breach of the contract of
carriage for the safe transport of Aaron; but that against PNR was based on
quasi-delict under Article 2176, Civil Code.
In their defense, the Pereñas adduced evidence to show that they had
exercised the diligence of a good father of the family in the selection and
supervision of Alfaro, by making sure that Alfaro had been issued a driver’s
license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Pereña
had sometimes accompanied Alfaro in the van’s trips transporting the
students to school.
Page 24 of 50
For its part, PNR tended to show that the proximate cause of the collision
had been the reckless crossing of the van whose driver had not first stopped,
looked and listened; and that the narrow path traversed by the van had not
been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendants ordering them to jointly and severally
pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorney’s fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for
reconsideration,4 reiterating that the cooperative gross negligence of the
Pereñas and PNR had caused the collision that led to the death of Aaron;
and that the damages awarded to the Zarates were not excessive, but based
on the established circumstances.
The CA’s Ruling
Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
‫ﻫ‬Transportation Laws- Assignment No. 1
1. In finding the defendant-appellant Philippine National Railways
jointly and severally liable together with defendant-appellants
spouses Teodorico and Nanette Pereña and defendant-appellant
Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron
Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-
appellees witnesses despite overwhelming documentary evidence on
record, supporting the case of defendants-appellants Philippine
National Railways.
The Pereñas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally
liable for actual, moral and exemplary damages and attorney’s fees with the
other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereñas
against the Philippine National Railways and in not holding the latter and its
train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorney’s fees.
The trial court erred in awarding damages in the form of deceased’s loss of
earning capacity in the absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the
findings of the RTC, but limited the moral damages to ₱ 2,500,000.00; and
deleted the attorney’s fees because the RTC did not state the factual and
legal bases, to wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional
Trial Court, Branch 260 of Parañaque City is AFFIRMED with the
modification that the award of Actual Damages is reduced to ₱ 59,502.76;
Moral Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s
Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aaron’s earning capacity, taking
cognizance of the ruling in Cariaga v. Laguna Tayabas Bus Company and
Manila Railroad Company,7 wherein the Court gave the heirs of Cariaga a
sum representing the loss of the deceased’s earning capacity despite
Cariaga being only a medical student at the time of the fatal incident.
Page 25 of 50
Applying the formula adopted in the American Expectancy Table of
Mortality:–
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon
reckoning his life expectancy from age of 21 (the age when he would have
graduated from college and started working for his own livelihood) instead of
15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aaron’s death were unknown, it used the prevailing
minimum wage of ₱ 280.00/day to compute Aaron’s gross annual salary to
be ₱ 110,716.65, inclusive of the thirteenth month pay. Multiplying this
annual salary by Aaron’s life expectancy of 39.3 years, his gross income
would aggregate to ₱ 4,351,164.30, from which his estimated expenses in
the sum of ₱ 2,189,664.30 was deducted to finally arrive at P 2,161,500.00
as net income. Due to Aaron’s computed net income turning out to be higher
than the amount claimed by the Zarates, only ₱ 2,109,071.00, the amount
expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration. 8
Issues
In this appeal, the Pereñas list the following as the errors committed by the
CA, to wit:
I. The lower court erred when it upheld the trial court’s decision holding the
petitioners jointly and severally liable to pay damages with Philippine
National Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial court’s decision awarding
damages for loss of earning capacity of a minor who was only a high school
student at the time of his death in the absence of sufficient basis for such an
award.
III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1. Were the Pereñas and PNR jointly and severally liable for
damages?
‫ﻫ‬Transportation Laws- Assignment No. 1
The Zarates brought this action for recovery of damages against both the
Pereñas and the PNR, basing their claim against the Pereñas on breach of
contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereñas and the PNR negligent. The CA affirmed the
findings.
We concur with the CA.
To start with, the Pereñas’ defense was that they exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, the van
driver, by seeing to it that Alfaro had a driver’s license and that he had not
been involved in any vehicular accident prior to the fatal collision with the
train; that they even had their own son travel to and from school on a daily
basis; and that Teodoro Pereña himself sometimes accompanied Alfaro in
transporting the passengers to and from school. The RTC gave scant
consideration to such defense by regarding such defense as inappropriate in
an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts
that the Pereñas operated as a common carrier; and that their standard of
care was extraordinary diligence, not the ordinary diligence of a good father
of a family.
Although in this jurisdiction the operator of a school bus service has been
usually regarded as a private carrier, 9 primarily because he only caters to
some specific or privileged individuals, and his operation is neither open to
the indefinite public nor for public use, the exact nature of the operation of a
school bus service has not been finally settled. This is the occasion to lay the
matter to rest.
A carrier is a person or corporation who undertakes to transport or convey
goods or persons from one place to another, gratuitously or for hire. The
carrier is classified either as a private/special carrier or as a common/public
carrier.10 A private carrier is one who, without making the activity a vocation,
or without holding himself or itself out to the public as ready to act for all who
may desire his or its services, undertakes, by special agreement in a
particular instance only, to transport goods or persons from one place to
another either gratuitously or for hire. 11 The provisions on ordinary contracts
of the Civil Code govern the contract of private carriage.The diligence
required of a private carrier is only ordinary, that is, the diligence of a good
father of the family. In contrast, a common carrier is a 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 such services to the public.12 Contracts of common carriage are
Page 26 of 50
governed by the provisions on common carriers of the Civil Code, the Public
Service Act,13 and other special laws relating to transportation. A common
carrier is required to observe extraordinary diligence, and is presumed to be
at fault or to have acted negligently in case of the loss of the effects of
passengers, or the death or injuries to passengers.14
In relation to common carriers, the Court defined public use in the following
terms in United States v. Tan Piaco,15 viz:
"Public use" is the same as "use by the public". The essential feature of the
public use is not confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted quality that gives it its
public character. In determining whether a use is public, we must look not
only to the character of the business to be done, but also to the proposed
mode of doing it. If the use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, authorizing the exercise of
the jurisdiction of the public utility commission. There must be, in general, a
right which the law compels the owner to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is not
synonymous with public interest. The true criterion by which to judge the
character of the use is whether the public may enjoy it by right or only by
permission.
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the
Civil Code avoided any distinction between a person or an enterprise offering
transportation on a regular or an isolated basis; and has not distinguished a
carrier offering his services to the general public, that is, the general
community or population, from one offering his services only to a narrow
segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of
the Civil Code coincides neatly with the notion of public service under the
Public Service Act, which supplements the law on common carriers found in
the Civil Code. Public service, according to Section 13, paragraph (b) of the
Public Service Act, 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
clientèle, whether permanent or occasional, and done for the 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, ice-refrigeration plant, canal, irrigation
‫ﻫ‬Transportation Laws- Assignment No. 1
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. x x x. 17
Given the breadth of the aforequoted characterization of a common carrier,
the Court has considered as common carriers pipeline operators, 18 custom
brokers and warehousemen,19 and barge operators20 even if they had limited
clientèle.
As all the foregoing indicate, the true test for a common carrier is not the
quantity or extent of the business actually transacted, or the number and
character of the conveyances used in the activity, but whether the
undertaking is a part of the activity engaged in by the carrier that he has held
out to the general public as his business or occupation. If the undertaking is a
single transaction, not a part of the general business or occupation engaged
in, as advertised and held out to the general public, the individual or the entity
rendering such service is a private, not a common, carrier. The question must
be determined by the character of the business actually carried on by the
carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes. 21
Applying these considerations to the case before us, there is no question that
the Pereñas as the operators of a school bus service were: (a) engaged in
transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by
the method by which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientèle, the Pereñas
operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living
within or near where they operated the service and for a fee.
The common carrier’s standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for
reasons of public policy, the common carrier is 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."22 Article 1755 of the Civil Code specifies that the common carrier
should "carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances." To successfully fend off liability in an action
upon the death or injury to a passenger, the common carrier must prove his
or its observance of that extraordinary diligence; otherwise, the legal
presumption that he or it was at fault or acted negligently would stand. 23 No
device, whether by stipulation, posting of notices, statements on tickets, or
otherwise, may dispense with or lessen the responsibility of the common
carrier as defined under Article 1755 of the Civil Code. 24
Page 27 of 50
And, secondly, the Pereñas have not presented any compelling defense or
reason by which the Court might now reverse the CA’s findings on their
liability. On the contrary, an examination of the records shows that the
evidence fully supported the findings of the CA.
As earlier stated, the Pereñas, acting as a common carrier, were already
presumed to be negligent at the time of the accident because death had
occurred to their passenger.25 The presumption of negligence, being a
presumption of law, laid the burden of evidence on their shoulders to
establish that they had not been negligent. 26 It was the law no less that
required them to prove their observance of extraordinary diligence in seeing
to the safe and secure carriage of the passengers to their destination. Until
they did so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural consequences
of such death.
There is no question that the Pereñas did not overturn the presumption of
their negligence by credible evidence. Their defense of having observed the
diligence of a good father of a family in the selection and supervision of their
driver was not legally sufficient. According to Article 1759 of the Civil Code,
their liability as a common carrier did not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employee. This was the reason why the RTC treated this
defense of the Pereñas as inappropriate in this action for breach of contract
of carriage.
The Pereñas were liable for the death of Aaron despite the fact that their
driver might have acted beyond the scope of his authority or even in violation
of the orders of the common carrier. 27 In this connection, the records showed
their driver’s actual negligence. There was a showing, to begin with, that their
driver traversed the railroad tracks at a point at which the PNR did not permit
motorists going into the Makati area to cross the railroad tracks. Although
that point had been used by motorists as a shortcut into the Makati area, that
fact alone did not excuse their driver into taking that route. On the other
hand, with his familiarity with that shortcut, their driver was fully aware of the
risks to his passengers but he still disregarded the risks. Compounding his
lack of care was that loud music was playing inside the air-conditioned van at
the time of the accident. The loudness most probably reduced his ability to
hear the warning horns of the oncoming train to allow him to correctly
appreciate the lurking dangers on the railroad tracks. Also, he sought to
overtake a passenger bus on the left side as both vehicles traversed the
railroad tracks. In so doing, he lost his view of the train that was then coming
from the opposite side of the passenger bus, leading him to miscalculate his
chances of beating the bus in their race, and of getting clear of the train. As a
result, the bus avoided a collision with the train but the van got slammed at
its rear, causing the fatality. Lastly, he did not slow down or go to a full stop
‫ﻫ‬Transportation Laws- Assignment No. 1
before traversing the railroad tracks despite knowing that his slackening of
speed and going to a full stop were in observance of the right of way at
railroad tracks as defined by the traffic laws and regulations. 28 He thereby
violated a specific traffic regulation on right of way, by virtue of which he was
immediately presumed to be negligent.29
The omissions of care on the part of the van driver constituted
negligence,30 which, according to Layugan v. Intermediate Appellate
Court,31 is "the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man
would not do,32 or as Judge Cooley defines it, ‘(t)he failure to observe for the
protection of the interests of another person, that degree of care, precaution,
and vigilance which the circumstances justly demand, whereby such other
person suffers injury.’"33
The test by which to determine the existence of negligence in a particular
case has been aptly stated in the leading case of Picart v. Smith, 34 thuswise:
The test by which to determine the existence of negligence in a particular
case may be stated as follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard supposed to
be supplied by the imaginary conduct of the discreet paterfamilias of the
Roman law. The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before him.
The law considers what would be reckless, blameworthy, or negligent in the
man of ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a
given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably
said: Reasonable men govern their conduct by the circumstances which are
before them or known to them. They are not, and are not supposed to be,
omniscient of the future. Hence they can be expected to take care only when
there is something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor to take precautions
to guard against that harm. Reasonable foresight of harm, followed by the
ignoring of the suggestion born of this prevision, is always necessary before
negligence can be held to exist. Stated in these terms, the proper criterion for
determining the existence of negligence in a given case is this: Conduct is
said to be negligent when a prudent man in the position of the tortfeasor
would have foreseen that an effect harmful to another was sufficiently
Page 28 of 50
probable to warrant his foregoing the conduct or guarding against its
consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was
entirely negligent when he traversed the railroad tracks at a point not allowed
for a motorist’s crossing despite being fully aware of the grave harm to be
thereby caused to his passengers; and when he disregarded the foresight of
harm to his passengers by overtaking the bus on the left side as to leave
himself blind to the approach of the oncoming train that he knew was on the
opposite side of the bus.
Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate
Appellate Court,35 where the Court held the PNR solely liable for the
damages caused to a passenger bus and its passengers when its train hit the
rear end of the bus that was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities. In Philippine
National Railways v. Intermediate Appellate Court, no evidence of
contributory negligence was adduced against the owner of the bus. Instead, it
was the owner of the bus who proved the exercise of extraordinary diligence
by preponderant evidence. Also, the records are replete with the showing of
negligence on the part of both the Pereñas and the PNR. Another distinction
is that the passenger bus in Philippine National Railways v. Intermediate
Appellate Court was traversing the dedicated railroad crossing when it was
hit by the train, but the Pereñas’ school van traversed the railroad tracks at a
point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereñas and the PNR
"jointly and severally" liable for damages arising from the death of Aaron.
They had been impleaded in the same complaint as defendants against
whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact
and of law were common as to the Zarates. 36 Although the basis of the right
to relief of the Zarates (i.e., breach of contract of carriage) against the
Pereñas was distinct from the basis of the Zarates’ right to relief against the
PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless
could be held jointly and severally liable by virtue of their respective
negligence combining to cause the death of Aaron. As to the PNR, the RTC
rightly found the PNR also guilty of negligence despite the school van of the
Pereñas traversing the railroad tracks at a point not dedicated by the PNR as
a railroad crossing for pedestrians and motorists, because the PNR did not
ensure the safety of others through the placing of crossbars, signal lights,
warning signs, and other permanent safety barriers to prevent vehicles or
pedestrians from crossing there. The RTC observed that the fact that a
crossing guard had been assigned to man that point from 7 a.m. to 5 p.m.
was a good indicium that the PNR was aware of the risks to others as well as
‫ﻫ‬Transportation Laws- Assignment No. 1
the need to control the vehicular and other traffic there. Verily, the Pereñas
and the PNR were joint tortfeasors.
2. Was the indemnity for loss of Aaron’s earning capacity proper?
The RTC awarded indemnity for loss of Aaron’s earning capacity. Although
agreeing with the RTC on the liability, the CA modified the amount. Both
lower courts took into consideration that Aaron, while only a high school
student, had been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to his death. The
basis for the computation of Aaron’s earning capacity was not what he would
have become or what he would have wanted to be if not for his untimely
death, but the minimum wage in effect at the time of his death. Moreover, the
RTC’s computation of Aaron’s life expectancy rate was not reckoned from his
age of 15 years at the time of his death, but on 21 years, his age when he
would have graduated from college.
We find the considerations taken into account by the lower courts to be
reasonable and fully warranted.
Yet, the Pereñas submit that the indemnity for loss of earning capacity was
speculative and unfounded.1âwphi1 They cited People v. Teehankee,
Jr.,37 where the Court deleted the indemnity for victim Jussi Leino’s loss of
earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before
the shooting, and was at the time of the shooting only enrolled in the first
semester at the Manila Aero Club to pursue his ambition to become a
professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.
We reject the Pereñas’ submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the
situation there of Jussi Leino was not akin to that of Aaron here. The CA and
the RTC were not speculating that Aaron would be some highly-paid
professional, like a pilot (or, for that matter, an engineer, a physician, or a
lawyer). Instead, the computation of Aaron’s earning capacity was premised
on him being a lowly minimum wage earner despite his being then enrolled at
a prestigious high school like Don Bosco in Makati, a fact that would have
likely ensured his success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings
should not be taken against his parents and in favor of the defendants whose
negligence not only cost Aaron his life and his right to work and earn money,
but also deprived his parents of their right to his presence and his services as
Page 29 of 50
well. Our law itself states that the loss of the earning capacity of the Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not
deceased shall be the liability of the guilty party in favor of the heirs of the reduce the amount if only to render effective the desired example for the
deceased, and shall in every case be assessed and awarded by the court public good. As a common carrier, the Pereñas needed to be vigorously
"unless the deceased on account of permanent physical disability not caused reminded to observe their duty to exercise extraordinary diligence to prevent
by the defendant, had no earning capacity at the time of his a similarly senseless accident from happening again. Only by an award of
death."38 Accordingly, we emphatically hold in favor of the indemnification for exemplary damages in that amount would suffice to instill in them and others
Aaron’s loss of earning capacity despite him having been unemployed, similarly situated like them the ever-present need for greater and constant
because compensation of this nature is awarded not for loss of time or vigilance in the conduct of a business imbued with public interest.
earnings but for loss of the deceased’s power or ability to earn money. 39
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the
This favorable treatment of the Zarates’ claim is not unprecedented. In decision promulgated on November 13, 2002; and ORDER the petitioners to
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad pay the costs of suit.
Company,40 fourth-year medical student Edgardo Carriaga’s earning capacity,
although he survived the accident but his injuries rendered him permanently SO ORDERED.
incapacitated, was computed to be that of the physician that he dreamed to
become. The Court considered his scholastic record sufficient to justify the
assumption that he could have finished the medical course and would have
passed the medical board examinations in due time, and that he could have
possibly earned a modest income as a medical practitioner. Also, in People
v. Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta
and murder victim Allan Gomez could have easily landed good-paying jobs
had they graduated in due time, and that their jobs would probably pay them
high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their graduation.
Their earning capacities were computed at rates higher than the minimum
wage at the time of their deaths due to their being already senior agriculture
students of the University of the Philippines in Los Baños, the country’s
leading educational institution in agriculture.

3. Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and exemplary damages
awarded to the Zarates in the respective amounts of ₱ 2,500,000.00 and ₱
1,000,000.00 on the ground that such amounts were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under
the established circumstances of this case because they were intended by
the law to assuage the Zarates’ deep mental anguish over their son’s
unexpected and violent death, and their moral shock over the senseless
accident. That amount would not be too much, considering that it would help
the Zarates obtain the means, diversions or amusements that would alleviate
their suffering for the loss of their child. At any rate, reducing the amount as
excessive might prove to be an injustice, given the passage of a long time
from when their mental anguish was inflicted on them on August 22, 1996.

‫ﻫ‬Transportation Laws- Assignment No. 1

Page 30 of 50
[7] G.R. No. 201822, August 12, 2015
MARINA PORT SERVICES, INC.*, Petitioner, v. AMERICAN HOME
ASSURANCE CORPORATION, Respondent.
Remedial Law; Civil Procedure; Appeals; Petition for Review on Certiorari; It
is evident that the resolution of the instant case requires the scrutiny of factual issues
which are, however, outside the scope of the present petition filed pursuant to Rule
45 of the Rules of Court.—At the outset, it is evident that the resolution of the instant
case requires the scrutiny of factual issues which are, however, outside the scope of
the present petition filed pursuant to Rule 45 of the Rules of Court. However, the
Court held in Asian Terminals, Inc. v. Philam Insurance Co., Inc., 702 SCRA 88
(2013), that: But while it is not our duty to review, examine and evaluate or weigh all
over again the probative value of the evidence presented, the Court may nonetheless
resolve questions of fact when the case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in
making its findings the Court of Appeals went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioner’s main and reply briefs
are not disputed by the respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record.
The Court finds that the instant case falls under the aforementioned second, fourth,
fifth, and seventh exceptions. Hence, it shall proceed to delve into factual matters
essential to the proper determination of the merits of this case.
Mercantile Law; Common Carriers; Warehouse Receipts Act; Arrastre
Operators; An arrastre operator should adhere to the same degree of diligence as
that legally expected of a warehouseman or a common carrier as set forth in Section
3[b] of the Warehouse Receipts Act and Article 1733 of the Civil Code.—The
relationship between an arrastre operator and a consignee is similar to that between a
warehouseman and a depositor, or to that between a common carrier and the
consignee and/or the owner of the shipped goods. Thus, an arrastre operator should
adhere to the same degree of diligence as that legally expected of a warehouseman or
a common carrier as set forth in Section 3[b] of the Warehouse Receipts [Act] and
Article 1733 of the Civil Code. As custodian of the shipment discharged from the
vessel, the arrastre operator must take good care of the same and turn it over to the
party entitled to its possession.
Same; Same; Same; Same; In case of claim for loss filed by a consignee or the
insurer as subrogee, it is the arrastre operator that carries the burden of proving
‫ﻫ‬Transportation Laws- Assignment No. 1
compliance with the obligation to deliver the goods to the appropriate party.—In
case of claim for loss filed by a consignee or the insurer as subrogee, it is the arrastre
operator that carries the burden of proving compliance with the obligation to deliver
the goods to the appropriate party. It must show that the losses were not due to its
negligence or that of its employees. It must establish that it observed the required
diligence in handling the shipment. Otherwise, it shall be presumed that the loss was
due to its fault. In the same manner, an arrastre operator shall be liable for damages if
the seal and lock of the goods deposited and delivered to it as closed and sealed, be
broken through its fault. Such fault on the part of the arrastre operator is likewise
presumed unless there is proof to the contrary.
Same; Same; Same; Same; As held in International Container Terminal
Services, Inc. v. Prudential Guarantee & Assurance Co., Inc., 320 SCRA 244
(1999), the signature of the consignee’s representative on the gate pass is evidence
of receipt of the shipment in good order and condition.—As held in International
Container Terminal Services, Inc. v. Prudential Guarantee & Assurance Co., Inc.,
320 SCRA 244 (1999), the signature of the consignee’s representative on the gate
pass is evidence of receipt of the shipment in good order and condition. Also, that
MPSI delivered the subject shipment to MSC’s representative in good and complete
condition and with lock and seals intact is established by the testimonies of MPSI’s
employees who were directly involved in the processing of the subject shipment. Mr.
Ponciano De Leon testified that as MPSI’s delivery checker, he personally examined
the subject container vans and issued the corresponding gate passes that were, in
turn, countersigned by the consignee’s representative. MPSI’s other witness, Chief
Claims Officer Sergio Icasiano (Icasiano), testified that the broker, as the
consignee’s representative, neither registered any complaints nor requested for an
inspection.
Remedial Law; Evidence; Hearsay Evidence Rule; It is a basic rule that
evidence, whether oral or documentary, is hearsay, if its probative value is not based
on the personal knowledge of the witness but on the knowledge of another person
who is not on the witness stand.—The person who prepared the said report was not
presented in court to testify on the same. Thus, the said survey report has no
probative value for being hearsay. “It is a basic rule that evidence, whether oral or
documentary, is hearsay, if its probative value is not based on the personal
knowledge of the witness but on the knowledge of another person who is not on the
witness stand.” Moreover, “an unverified and unidentified private document cannot
be accorded probative value. It is precluded because the party against whom it is
presented is deprived of the right and opportunity to cross-examine the person to
whom the statements or writings are attributed. Its executor or author should be
presented as a witness to provide the other party to the litigation the opportunity to
question its contents. Being mere hearsay evidence, failure to present the author of
the letter renders its contents suspect and of no probative value.”
Page 31 of 50
 Mercantile Law; Common Carriers; Shipper’s Load and Count; Marina Port
Services, Inc. (MPSI) cannot just the same be held liable for the missing bags of
flour since the consigned goods were shipped under “Shipper’s Load and Count”
arrangement. This means that the shipper was solely responsible for the loading of
the container, while the carrier was oblivious to the contents of the shipment.
Protection against pilferage of the shipment was the consignee’s lookout.—MPSI
cannot just the same be held liable for the missing bags of flour since the consigned
goods were shipped under “Shipper’s Load and Count” arrangement. “This means
that the shipper was solely responsible for the loading of the container, while the
carrier was oblivious to the contents of the shipment. Protection against pilferage of
the shipment was the consignee’s lookout. The arrastre operator was, like any
ordinary depositary, duty-bound to take good care of the goods received from the
vessel and to turn the same over to the party entitled to their possession, subject to
such qualifications as may have validly been imposed in the contract between the
parties. The arrastre operator was not required to verify the contents of the container
received and to compare them with those declared by the shipper because, as earlier
stated, the cargo was at the shipper’s load and count. The arrastre operator was
expected to deliver to the consignee only the container received from the carrier.”
DECISION
DEL CASTILLO, J.:
1 indemnity for the lost cargoes from AHAC. AHAC paid MSC the value of the
This Petition for Review on Certiorari  filed pursuant to Rule 45 of the Rules
of Court assails the December 29, 2011 Decision 2 and May 8, 2012
Resolution3 of the Court of Appeals (CA) in CA GR. CV No. 88321, which
granted the appeal filed therein by respondent American Home Assurance
Corporation (AHAC) and reversed and set aside the October 17, 2006
Decision4 of the Regional Trial Court (RTC), Pasig City, Branch 271
dismissing AHAC's Complaint5 for Damages against petitioner Marina Port
Services, Inc. (MPSI).
Factual Antecedents
On September 21, 1989, Countercorp Trading PTE., Ltd. shipped from
Singapore to the Philippines 10 container vans of soft wheat flour with seals
intact on board the vessel M/V Uni Fortune. The shipment was insured
against all risks by AHAC and consigned to MSC Distributor (MSC).
Upon arrival at the Manila South Harbor on September 25, 1989, the
shipment was discharged in good and complete order condition and with
safety seals in place to the custody of the arrastre operator, MPSI. After
unloading and prior to hauling, agents of the Bureau of Customs officially
broke the seals, opened the container vans, and examined the shipment for
tax evaluation in the presence of MSC's broker and checker. Thereafter, the
‫ﻫ‬Transportation Laws- Assignment No. 1
customs inspector closed the container vans and refastened them with safety
wire seals while MSC's broker padlocked the same. MPSI then placed the
said container vans in a back-to-back arrangement at the delivery area of the
harbor's container yard where they were watched over by the security guards
of MPSI and of the Philippine Ports Authority.
On October 10, 1989, MSC's representative, AD's Customs Services (ACS),
took out five container vans for delivery to MSC. At the compound's exit,
MPSI issued to ACS the corresponding gate passes for the vans indicating
its turnover of the subject shipment to MSC. However, upon receipt of the
container vans at its warehouse, MSC discovered substantial shortages in
the number of bags of flour delivered. Hence, it filed a formal claim for loss
with MPSI.
From October 12 to 14, 1989 and pursuant to the gate passes issued by
MPSI, ACS took out the remaining five container vans from the container
yard and delivered them to MSC. Upon receipt, MSC once more discovered
substantial shortages. Thus, MSC filed another claim with MPSI.
Per MSC, the total number of the missing bags of flour was 1,650 with a
value of £257,083.00.
MPSI denied both claims of MSC. As a result, MSC sought insurance
missing bags of flour after finding the tetter's claim in order. In turn, MSC
issued a subrogation receipt in favor of AHAC.
Thereafter, AHAC filed a Complaint6 for damages against MPSI before the
RTC.
Ruling of the Regional Trial Court
AHAC averred in its Complaint that the partial loss of the bags of flour was
due to the fault or negligence of MPSI since the loss happened while the
shipment was still in MPSI's custody.
MPSL, on the other hand, disclaimed any liability. It essentally maintained in
its Answer7 that the bags of flour were inside sealed container vans when it
received the same; that it handled the subject shipment with the diligence
required of it; and, mat the container vans were turned over by it to MSC in
the same condition that they were in at the time of their discharge from the
vessel. MPSI likewise countered that the failure of MSC to request for a bad
order survey belied the latter's claim for loss.
Trial then ensued.
Page 32 of 50
On October 17, 2006, the RTC rendered a Decision 8 dismissing AHAC's WHEREFORE, premises considered, the appeal is GRANTED. The Decision
Complaint. It held that while there was indeed a shortage of 1,650 sacks of of the Regional Trial Court of Pasig City, Branch 271 dated 17 October 2006
soft wheat flour, AHAC's evidence failed to clearly show that the loss is REVERSED and SET ASIDE. Appellee Marina Port Services, Inc. is
happened while the subject shipment was still under MPSI's responsibility. ORDERED to pay appellant, American Home Assurance Corporation, the
Hence, the dispositive portion of the RTC Decision: sum of Two Hundred Fifty Seven Thousand and Eighty Three Pesos
(PhP257,083.00) with interest thereon at Six percent (6%) [per annum] from
WHEREFORE, premises considered, the complaint is hereby DISMISSED. the filing of this complaint on 24 September 1990 until the decision becomes
final and executory, and thereafter, at the rate of twelve (12) percent [per
SO ORDERED.9
annum] until fully paid, and additionally, to pay the x x x sum of Fifty
Thousand Pesos (PhP50,000.00) as attorney's fees.
Ruling of the Court of Appeals
SO ORDERED.14
Aggrieved, AHAC appealed to the CA.
MPSI moved for reconsideration but the CA denied the same in its
In its Decision10 dated December 29, 2011, the CA stressed that in a claim Resolution15 dated May 8, 2012.
for loss filed by a consignee, the burden of proof to show due compliance
with the obligation to deliver the goods to the appropriate party devolves Hence, the present recourse.
upon the arrastre operator. In consonance with this, a presumption of fault or
negligence for the loss of the goods arises against the arrastre operator
Issue
pursuant to Articles 126511 and 198112 of the Civil Code. In this case, the CA
found that MPSI failed to discharge such burden and to rebut the
The core issue to be resolved in this case is whether MPSI is liable for the
aforementioned presumption. Thus, it was held liable to AHAC for the value
loss of the bags of flour.
of the missing bags of flour, viz.:
Our Ruling
We conclude that x x x MPSI was negligent in the handling and safekeeping
of the subject shipment. It did not create and implement a more defined,
There is merit in the Petition.
concrete and effective measure to detect, curb and prevent the loss or
pilferage of cargoes in its custody. This is manifested by the fact that [MPSI]
Albeit involving factual questions, the Court shall proceed to resolve this
never took any action to address such complaint even after it received the
case
formal claim of loss in the first five (5) vans. As a consequence, more bags of
since it falls under several exceptions to the rule that only questions of law
flour were eventually lost or pilfered in the remaining container vans that
are
were still in [MPSI's] custody at that time. Case law tells us that negligence is
proper in a petition for review on certiorari.
that conduct which creates undue risk of harm to another, the failure to
observe that degree of care, precaution and vigilance which the
At the outset, it is evident that the resolution of the instant case requires the
circumstance[s] justly demand, whereby that other person suffers injury.
scrutiny of factual issues which are, however, outside the scope of the
Clearly, [MPSI] breached its arrastre obligations to the consignee for it failed
present petition filed pursuant to Rule 45 of the Rules of Court. However, the
to deliver said bags in good and complete condition.
Court held in Asian Terminals, Inc. v. Philam Insurance Co., Inc.16 that:
In view of MPSI's failure to exercise that degree of diligence, precaution and
care the law [requires] of arrastre operators in the performance of their duties But while it is not our duty to review, examine and evaluate or weigh all over
to the consignee, [MPSI] is legally bound to reimburse [AHAC] for the value again the probative value of the evidence presented, the Court may
of the missing bags of flour that it paid to MSC pursuant to the insurance nonetheless resolve questions of fact when the case falls under any of the
policy.13 following exceptions:

(1) when the findings are grounded entirely on speculation, surmises, or

In view of the same, the said court disposed of the appeal in this wise: conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the
‫ﻫ‬Transportation Laws- Assignment No. 1
Page 33 of 50
judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when in making its findings the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the facts set forth in
the petition as well as in the petitioner's main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on
record.17
The Court finds that the instant case falls under the aforementioned second,
fourth, fifth, and seventh exceptions. Hence, it shall proceed to delve into
factual matters essential to the proper determination of the merits of this
case.
Several well-entrenched legal principles govern the relationship of an
arrastre operator and a consignee.
The relationship between an arrastre operator and a consignee is similar to
that between a warehouseman and a depositor, or to that between a
common carrier and the consignee and/or the owner of the shipped
goods.18 Thus, an arrastre operator should adhere to the same degree of
diligence as that legally expected of a warehouseman or a common
carrier19 as set forth in Section 3[b] of the Warehouse Receipts [Act] 20 and
Article 1733 of the Civil Code. 21 As custodian of the shipment discharged
from the vessel, the arrastre operator must take good care of the same and
turn it over to the party entitled to its possession. 22redarclaw
In case of claim for loss filed by a consignee or the insurer as subrogee, 23 it is
the arrastre operator that carries the burden of proving compliance with the
obligation to deliver the goods to the appropriate party. 24 It must show that
the losses were not due to its negligence or that of its employees. 25 It must
establish that it observed the required diligence in handling the
shipment.26 Otherwise, it shall be presumed that the loss was due to its
fault.27 In the same manner, an arrastre operator shall be liable for damages
if the seal and lock of the goods deposited and delivered to it as closed and
sealed, be broken through its fault. 28 Such fault on the part of the arrastre
operator is likewise presumed unless there is proof to the
contrary.29redarclaw
MPSI was able to prove delivery of the shipment to MSC in good and
complete
condition and with locks and seals intact.
‫ﻫ‬Transportation Laws- Assignment No. 1
It is significant to note that MPSI, in order to prove that it properly delivered
the subject shipment consigned to MSC, presented 10 gate passes marked
as Exhibits 4 to 13.30 Each of these gate passes bore the duly identified
signature31 of MSC's representative which serves, among others, as an
acknowledgement that:
Issuance of [the] Gate Pass constitutes delivery to and receipt by consignee
of the goods as described above in good order and condition, unless an
accompanying B.O. certificate duly issued and noted on the face of [the]
Gate Pass appears.32 As held in International Container Terminal Services,
Inc. v. Prudential Guarantee & Assurance Co., Inc.,33 the signature of the
consignee's representative on the gate pass is evidence of receipt of the
shipment in good order and condition.
Also, that MPSI delivered the subject shipment to MSC's representative in
good and complete condition and with lock and seals intact is established by
the testimonies of MPSFs employees who were directly involved in the
processing of the subject shipment. Mr. Ponciano De Leon testified that as
MPSI's delivery checker, he personally examined the subject container vans
and issued the corresponding gate passes that were, in turn, countersigned
by the consignee's representative. MPSI's other witness, Chief Claims Officer
Sergio Icasiano (Icasiano), testified that the broker, as the consignee's
representative, neither registered any complaints nor requested for an
inspection, to wit:
RE-DIRECT EXAMINATION:
Atty. Laurente
xxxx
Q [A]fter receipt by the broker of the container van containing the cargo,
do you require the broker to issue you a report or certification as to
the appearance of the container van?
A [W]e only rely on the gate pass.
Q [A]nd you don't place there "the padlock is still intact or the wirings
still intact"?
A [I]t is stated in the gate pass, your Honor.
xxxx
Q [A]nd the findings [are counter-signed] by the representative of the
broker also on the same date?
A [Y]es, your honor.35
xxxx
RE-CROSS EXAMINATION
Atty. Laino
q [B]ut did you not say that in the gate pass it is stated there as to the
external appearance of the container van?
a [I]here was no indication of any inspection of the container van x x x
meaning the container vans were all in good condition, sir.
Page 34 of 50
q [Y]ou said a [while] ago that you did not receive any complaint for
broken seals, is it not?
a [Y]es, sir.
q [B]ut the complaint that you received indicates that there were losses,
a [W]e did not receive any complaint from the broker, sir.
q [I]f the broker will complain they have to file a request for inspection
of the cargo so that they will know if there [are] shortages x x x.
a [Y]es, sir.
[C]ourt
q [A]nd if the broker would notice or detect [something] peculiar, the
way the door of the container van appears whether close[d] or not,
they have to request for an inspection[?]
a [Y]es, your honor.
q [O]r in the absence of the padlock or wirings, the broker will request
for an inspection[?]
a [Y]es,your honor[;] they can require for the examination of the cargo.
q [B]ut there was no request at all by the broker?
a [T]here was none, your Honor.36
Verily, the testimonies of the aforementioned employees of MPSI confirm that
the container vans, together with their padlocks and wirings, were in order at
the time the gate passes were issued up to the time the said container vans
were turned over to ACS.
AHAC justifies the failure of ACS to immediately protest the alleged loss or
pilferage upon initial pick-up of the first batch of container vans. According to
it, ACS could not have discovered the loss at that moment since the stripping
of container vans in the pier area is not allowed. The Court cannot, however,
accept such excuse. For one, AHAC's claim that stripping of the container
vans is not allowed in the pier area is a mere allegation without proof. It is
settled that "[m]ere allegations do not suffice; they must be substantiated by
clear and convincing proof."37 For another, even assuming that stripping of
the container vans is indeed not allowed at the pier area, it is hard to believe
that MSC or its representative ACS has no precautionary measures to
protect itself from any eventuality of loss or pilferage. To recall, ACS's
representative signed the gate passes without any qualifications. This is
despite the fact that such signature serves as an acknowledgment of ACS's
receipt of the goods in good order and condition. If MSC was keen enough in
protecting its interest, it (through ACS) should have at least qualified the
receipt of the goods as subject to inspection, and thereafter arrange for such
an inspection in an area where the same is allowed to be done. However, no
such action or other similar measure was shown to have been undertaken by
MSC. What is clear is that ACS accepted the container vans on its behalf
without any qualification. As aptly observed by the RTC:LawlibraryofCRAlaw
‫ﻫ‬Transportation Laws- Assignment No. 1
During [the] period of tum-over of goods from the arrastre to [ACS], there had
been no protest on anything on the part of consignee's representative x x x.
Otherwise, the complaint would have been shown [on] the gate passes. In
fact, each gate pass showed the date of delivery, the location of delivery, the
truck number of the truck used in the delivery, the actual quantity of goods
delivered, the numbers of the safety wires and padlocks of the vans and the
signatures of the receiver. More importantly, the gate passes bared the fact
that the shipments were turned-over by [MPSI] to [ACS] on the same dates of
customs inspections and turnovers. 38
There being no exception as to bad order, the subject shipment, therefore,
appears to have been accepted by MSC, through ACS, in good order. 39 "It
logically follows [then] that the case at bar presents no occasion for the
necessity of discussing the diligence required of an [arrastre operator] or of
the theory of [its] prima facie liability x x x, for from all indications, the
shipment did not suffer loss or damage while it was under the care x x x of
the arrastre operator x x x."40redarclaw
Even in the light of Article 1981, no presumption of fault on the part of MPSI
arises since it was not sufficiently shown that the container vans were re-
opened
or that their locks and seals were broken for the second time.
Indeed, Article 1981 of the Civil Code also mandates a presumption of fault
on the part of the arrastre operator as follows:
Article 1981. When the thing deposited is delivered closed and sealed, the
depositary must return it in the same condition, and he shall be liable for
damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is proof to the
contrary.
As regards the value of the thing deposited, the statement of the depositor
shall be accepted, when the forcible opening is imputable to the depositary,
should there be no proof to the contrary. However, the courts may pass upon
the credibility of the depositor with respect to the value claimed by him.
When the seal or lock is broken, with or without the depositary's fault, he
shall keep the secret of the deposit.
However, no such presumption arises in this case considering that it was not
sufficiently shown that the container vans were re-opened or that their locks
and seals were broken for the second time. As may be recalled, the container
vans were opened by a customs official for examination of the subject
Page 35 of 50
shipment and were thereafter resealed with safety wires. While this fact is not qualifications as may have validly been imposed in the contract between the
disputed by both parties, AHAC alleges that the container vans were re- parties. The arrastre operator was not required to verify the contents of the
opened and this gave way to the alleged pilferage. The Court notes, container received and to compare them with those declared by the shipper
however, that AHAC based such allegation solely on the survey report of the because, as earlier stated, the cargo was at the shipper's load and count.
Manila Adjuster & Surveyors Company (MASCO). As observed by the RTC: The arrastre operator was expected to deliver to the consignee only the
container received from the carrier." 44redarclaw
AHAC x x x claim[s] that there were two instances when the seals were
broken. [First], when the customs officer examined the shipment and had it All told, the Court holds that MPSI is not liable for the loss of the bags of
resealed with safety wires. [Second], when the surveyor and consignee's flour.
broker visually inspected the shipment and allegedly found the safety wires of
the customs officer to have been detached and missing which they then WHEREFORE, the Petition is GRANTED. The Decision dated December 29,
replaced. This second instance is only upon their say so as there is no x x x 2011 and Resolution dated May 8, 2012 of the Court of Appeals in CA-GR.
documentary or testimonial proof on the matter [other] than the [MASCO] CV No. 88321 are REVERSED AND SET ASIDE. The Decision dated
survey report.41 October 17, 2006 of the Regional Trial Court, Branch 271, Pasig City in Civil
Case No. 90-54517 is REINSTATED and the Complaint in the said case
is DISMISSED.
However, the person who prepared the said report was not presented in
court to testify on the same. Thus, the said survey report has no probative
value for being hearsay. "It is a basic rule that evidence, whether oral or SO ORDERED
documentary, is hearsay, if its probative value is not based on the personal
knowledge of the witness but on the knowledge of another person who is not
on the witness stand."42 Moreover, "an unverified and unidentified private
document cannot be accorded probative value. It is precluded because the
party against whom it is presented is deprived of the right and opportunity to
cross-examine the person to whom the statements or writings are attributed.
Its executor or author should be presented as a witness to provide the other
party to the litigation the opportunity to question its contents. Being mere
hearsay evidence, failure to present the author of the letter renders its
contents suspect and of no probative value." 43redarclaw

There being no other competent evidence that the container vans were re-
opened or that their locks and seals were broken for the second time, MPSI
cannot be held liable for damages due to the alleged loss of the bags of flour
pursuant to Article 1981 of the Civil Code.

At any rate, the goods were shipped under "Shipper's Load and Count"
arrangement. Thus, protection against pilferage of the subject shipment was
the consignees lookout.

At any rate, MPSI cannot just the same be held liable for the missing bags of
flour since the consigned goods were shipped under "Shipper's Load and
Count" arrangement. "This means that the shipper was solely responsible for
the loading of the container, while the carrier was oblivious to the contents of
the shipment. Protection against pilferage of the shipment was the
consignee's lookout. The arrastre operator was, like any ordinary depositary,
duty-bound to take good care of the goods received from the vessel and to
turn the same over to the party entitled to their possession, subject to such

‫ﻫ‬Transportation Laws- Assignment No. 1

Page 36 of 50
[8] G.R. No. L-12191             October 14, 1918
JOSE CANGCO, plaintiff-appellant, vs. MANILA RAILROAD
CO., defendant-appellee.
1.MASTER AND SERVANT; CONTRACT; NEGLIGENCE..—Failure to perform
a contract cannot be excused upon the ground that the breach was due to the
negligence of a servant of the obligor, and that the latter exercised due diligence in
the selection and control of the servant.
2.CONTRACTS; NEGLIGENCE; CULPA AQUILIANA; CULPA
CONTRACTUAL.—The distinction between negligence as the source of an
obligation (culpa aquiliana) and negligence in the performance of a contract (culpa
contractual) pointed out.
3.CARRIERS; PASSENGERS; NEGLIGENCE; ALIGHTING FROM MOVING
TRAIN.—It is not negligence per se for a traveler to alight from a slowly moving
train.
FISHER, J.:
At the time of the occurrence which gave rise to this litigation the plaintiff,
Jose Cangco, was in the employment of Manila Railroad Company in the
capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San
Mateo, in the province of Rizal, which is located upon the line of the
defendant railroad company; and in coming daily by train to the company's
office in the city of Manila where he worked, he used a pass, supplied by the
company, which entitled him to ride upon the company's trains free of
charge. Upon the occasion in question, January 20, 1915, the plaintiff arose
from his seat in the second class-car where he was riding and, making, his
exit through the door, took his position upon the steps of the coach, seizing
the upright guardrail with his right hand for support.
On the side of the train where passengers alight at the San Mateo station
there is a cement platform which begins to rise with a moderate gradient
some distance away from the company's office and extends along in front of
said office for a distance sufficient to cover the length of several coaches. As
the train slowed down another passenger, named Emilio Zuñiga, also an
employee of the railroad company, got off the same car, alighting safely at
the point where the platform begins to rise from the level of the ground. When
the train had proceeded a little farther the plaintiff Jose Cangco stepped off
also, but one or both of his feet came in contact with a sack of watermelons
‫ﻫ‬Transportation Laws- Assignment No. 1
with the result that his feet slipped from under him and he fell violently on the
platform. His body at once rolled from the platform and was drawn under the
moving car, where his right arm was badly crushed and lacerated. It appears
that after the plaintiff alighted from the train the car moved forward possibly
six meters before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the
railroad station was lighted dimly by a single light located some distance
away, objects on the platform where the accident occurred were difficult to
discern especially to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform where
the plaintiff alighted is found in the fact that it was the customary season for
harvesting these melons and a large lot had been brought to the station for
the shipment to the market. They were contained in numerous sacks which
has been piled on the platform in a row one upon another. The testimony
shows that this row of sacks was so placed of melons and the edge of
platform; and it is clear that the fall of the plaintiff was due to the fact that his
foot alighted upon one of these melons at the moment he stepped upon the
platform. His statement that he failed to see these objects in the darkness is
readily to be credited.
The plaintiff was drawn from under the car in an unconscious condition, and it
appeared that the injuries which he had received were very serious. He was
therefore brought at once to a certain hospital in the city of Manila where an
examination was made and his arm was amputated. The result of this
operation was unsatisfactory, and the plaintiff was then carried to another
hospital where a second operation was performed and the member was
again amputated higher up near the shoulder. It appears in evidence that the
plaintiff expended the sum of P790.25 in the form of medical and surgical
fees and for other expenses in connection with the process of his curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First
Instance of the city of Manila to recover damages of the defendant company,
founding his action upon the negligence of the servants and employees of
the defendant in placing the sacks of melons upon the platform and leaving
them so placed as to be a menace to the security of passenger alighting from
the company's trains. At the hearing in the Court of First Instance, his Honor,
the trial judge, found the facts substantially as above stated, and drew
therefrom his conclusion to the effect that, although negligence was
attributable to the defendant by reason of the fact that the sacks of melons
were so placed as to obstruct passengers passing to and from the cars,
nevertheless, the plaintiff himself had failed to use due caution in alighting
from the coach and was therefore precluded form recovering. Judgment was
Page 37 of 50
accordingly entered in favor of the defendant company, and the plaintiff
appealed.
It can not be doubted that the employees of the railroad company were guilty
of negligence in piling these sacks on the platform in the manner above
stated; that their presence caused the plaintiff to fall as he alighted from the
train; and that they therefore constituted an effective legal cause of the
injuries sustained by the plaintiff. It necessarily follows that the defendant
company is liable for the damage thereby occasioned unless recovery is
barred by the plaintiff's own contributory negligence. In resolving this problem
it is necessary that each of these conceptions of liability, to-wit, the primary
responsibility of the defendant company and the contributory negligence of
the plaintiff should be separately examined.
It is important to note that the foundation of the legal liability of the defendant
is the contract of carriage, and that the obligation to respond for the damage
which plaintiff has suffered arises, if at all, from the breach of that contract by
reason of the failure of defendant to exercise due care in its performance.
That is to say, its liability is direct and immediate, differing essentially, in legal
viewpoint from that presumptive responsibility for the negligence of its
servants, imposed by article 1903 of the Civil Code, which can be rebutted by
proof of the exercise of due care in their selection and supervision. Article
1903 of the Civil Code is not applicable to obligations arising ex contractu,
but only to extra-contractual obligations — or to use the technical form of
expression, that article relates only to culpa  aquiliana and not to culpa
contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of
the Civil Code, clearly points out this distinction, which was also recognized
by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and Pacific
Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa clearly
points out the difference between "culpa, substantive and independent, which
of itself constitutes the source of an obligation between persons not formerly
connected by any legal tie" and culpa considered as an accident in the
performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest
squarely upon the proposition that article 1903 of the Civil Code is not
applicable to acts of negligence which constitute the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code]
are applicable are understood to be those not growing out of pre-
existing duties of the parties to one another. But where relations
‫ﻫ‬Transportation Laws- Assignment No. 1
already formed give rise to duties, whether springing from contract or
quasi-contract, then breaches of those duties are subject to article
1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf
and Pacific Co., 7 Phil. Rep., 359 at 365.)
This distinction is of the utmost importance. The liability, which, under the
Spanish law, is, in certain cases imposed upon employers with respect to
damages occasioned by the negligence of their employees to persons to
whom they are not bound by contract, is not based, as in the English
Common Law, upon the principle of respondeat superior — if it were, the
master would be liable in every case and unconditionally — but upon the
principle announced in article 1902 of the Civil Code, which imposes upon all
persons who by their fault or negligence, do injury to another, the obligation
of making good the damage caused. One who places a powerful automobile
in the hands of a servant whom he knows to be ignorant of the method of
managing such a vehicle, is himself guilty of an act of negligence which
makes him liable for all the consequences of his imprudence. The obligation
to make good the damage arises at the very instant that the unskillful
servant, while acting within the scope of his employment causes the injury.
The liability of the master is personal and direct. But, if the master has not
been guilty of any negligence whatever in the selection and direction of the
servant, he is not liable for the acts of the latter, whatever done within the
scope of his employment or not, if the damage done by the servant does not
amount to a breach of the contract between the master and the person
injured.
It is not accurate to say that proof of diligence and care in the selection and
control of the servant relieves the master from liability for the latter's acts —
on the contrary, that proof shows that the responsibility has never existed. As
Manresa says (vol. 8, p. 68) the liability arising from extra-
contractual culpa  is always based upon a voluntary act or omission which,
without willful intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in the selection
of his servant, taking into consideration the qualifications they should
possess for the discharge of the duties which it is his purpose to confide to
them, and directs them with equal diligence, thereby performs his duty to
third persons to whom he is bound by no contractual ties, and he incurs no
liability whatever if, by reason of the negligence of his servants, even within
the scope of their employment, such third person suffer damage. True it is
that under article 1903 of the Civil Code the law creates a presumption that
he has been negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and diligence in this
respect.
The supreme court of Porto Rico, in interpreting identical provisions, as found
in the Porto Rico Code, has held that these articles are applicable to cases of
Page 38 of 50
extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico
Reports, 215.)
This distinction was again made patent by this Court in its decision in the
case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an
action brought upon the theory of the extra-contractual liability of the
defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an injury is
caused by the negligence of a servant or employee there instantly
arises a presumption of law that there was negligence on the part of
the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and
(2) that that presumption is  juris tantum and not juris et de jure, and
consequently, may be rebutted. It follows necessarily that if the
employer shows to the satisfaction of the court that in selection and
supervision he has exercised the care and diligence of a good father
of a family, the presumption is overcome and he is relieved from
liability.
This theory bases the responsibility of the master ultimately on
his own negligence and not on that of his servant. This is the notable
peculiarity of the Spanish law of negligence. It is, of course, in
striking contrast to the American doctrine that, in relations with
strangers, the negligence of the servant in conclusively the
negligence of the master.
The opinion there expressed by this Court, to the effect that in case of extra-
contractual culpa  based upon negligence, it is necessary that there shall
have been some fault attributable to the defendant personally, and that the
last paragraph of article 1903 merely establishes a rebuttable presumption, is
in complete accord with the authoritative opinion of Manresa, who says (vol.
12, p. 611) that the liability created by article 1903 is imposed by reason of
the breach of the duties inherent in the special relations of authority or
superiority existing between the person called upon to repair the damage and
the one who, by his act or omission, was the cause of it.
On the other hand, the liability of masters and employers for the negligent
acts or omissions of their servants or agents, when such acts or omissions
cause damages which amount to the breach of a contact, is not based upon
a mere presumption of the master's negligence in their selection or control,
and proof of exercise of the utmost diligence and care in this regard does not
relieve the master of his liability for the breach of his contract.
‫ﻫ‬Transportation Laws- Assignment No. 1
Every legal obligation must of necessity be extra-contractual or contractual.
Extra-contractual obligation has its source in the breach or omission of those
mutual duties which civilized society imposes upon it members, or which
arise from these relations, other than contractual, of certain members of
society to others, generally embraced in the concept of status. The legal
rights of each member of society constitute the measure of the corresponding
legal duties, mainly negative in character, which the existence of those rights
imposes upon all other members of society. The breach of these general
duties whether due to willful intent or to mere inattention, if productive of
injury, give rise to an obligation to indemnify the injured party. The
fundamental distinction between obligations of this character and those which
arise from contract, rests upon the fact that in cases of non-contractual
obligation it is the wrongful or negligent act or omission itself which creates
the vinculum juris, whereas in contractual relations the vinculum  exists
independently of the breach of the voluntary duty assumed by the parties
when entering into the contractual relation.
With respect to extra-contractual obligation arising from negligence, whether
of act or omission, it is competent for the legislature to elect — and our
Legislature has so elected — whom such an obligation is imposed is morally
culpable, or, on the contrary, for reasons of public policy, to extend that
liability, without regard to the lack of moral culpability, so as to include
responsibility for the negligence of those person who acts or mission are
imputable, by a legal fiction, to others who are in a position to exercise an
absolute or limited control over them. The legislature which adopted our Civil
Code has elected to limit extra-contractual liability — with certain well-defined
exceptions — to cases in which moral culpability can be directly imputed to
the persons to be charged. This moral responsibility may consist in having
failed to exercise due care in the selection and control of one's agents or
servants, or in the control of persons who, by reason of their status, occupy a
position of dependency with respect to the person made liable for their
conduct.
The position of a natural or juridical person who has undertaken by contract
to render service to another, is wholly different from that to which article 1903
relates. When the sources of the obligation upon which plaintiff's cause of
action depends is a negligent act or omission, the burden of proof rests upon
plaintiff to prove the negligence — if he does not his action fails. But when
the facts averred show a contractual undertaking by defendant for the benefit
of plaintiff, and it is alleged that plaintiff has failed or refused to perform the
contract, it is not necessary for plaintiff to specify in his pleadings whether the
breach of the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its
nonperformance is sufficient prima facie  to warrant a recovery.
Page 39 of 50
 As a general rule . . . it is logical that in case of extra-contractual
culpa, a suing creditor should assume the burden of proof of its
existence, as the only fact upon which his action is based; while on
the contrary, in a case of negligence which presupposes the
existence of a contractual obligation, if the creditor shows that it
exists and that it has been broken, it is not necessary for him to
prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a contract
to show that the breach was due to the negligent conduct of defendant or of
his servants, even though such be in fact the actual cause of the breach, it is
obvious that proof on the part of defendant that the negligence or omission of
his servants or agents caused the breach of the contract would not constitute
a defense to the action. If the negligence of servants or agents could be
invoked as a means of discharging the liability arising from contract, the
anomalous result would be that person acting through the medium of agents
or servants in the performance of their contracts, would be in a better position
than those acting in person. If one delivers a valuable watch to watchmaker
who contract to repair it, and the bailee, by a personal negligent act causes
its destruction, he is unquestionably liable. Would it be logical to free him
from his liability for the breach of his contract, which involves the duty to
exercise due care in the preservation of the watch, if he shows that it was his
servant whose negligence caused the injury? If such a theory could be
accepted, juridical persons would enjoy practically complete immunity from
damages arising from the breach of their contracts if caused by negligent
acts as such juridical persons can of necessity only act through agents or
servants, and it would no doubt be true in most instances that reasonable
care had been taken in selection and direction of such servants. If one
delivers securities to a banking corporation as collateral, and they are lost by
reason of the negligence of some clerk employed by the bank, would it be
just and reasonable to permit the bank to relieve itself of liability for the
breach of its contract to return the collateral upon the payment of the debt by
proving that due care had been exercised in the selection and direction of the
clerk?
This distinction between culpa aquiliana, as the source  of an obligation,
and culpa contractual  as a mere incident to the performance of a contract
has frequently been recognized by the supreme court of Spain.
(Sentencias  of June 27, 1894; November 20, 1896; and December 13,
1896.) In the decisions of November 20, 1896, it appeared that plaintiff's
action arose ex contractu, but that defendant sought to avail himself of the
provisions of article 1902 of the Civil Code as a defense. The Spanish
Supreme Court rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing
obligation, by fault or negligence, such as those to which article 1902
‫ﻫ‬Transportation Laws- Assignment No. 1
of the Civil Code relates, but of damages caused by the defendant's
failure to carry out the undertakings imposed by the contracts . . . .
A brief review of the earlier decision of this court involving the liability of
employers for damage done by the negligent acts of their servants will show
that in no case has the court ever decided that the negligence of the
defendant's servants has been held to constitute a defense to an action for
damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the
owner of a carriage was not liable for the damages caused by the negligence
of his driver. In that case the court commented on the fact that no evidence
had been adduced in the trial court that the defendant had been negligent in
the employment of the driver, or that he had any knowledge of his lack of skill
or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil.
Rep., 215), the plaintiff sued the defendant for damages caused by the loss
of a barge belonging to plaintiff which was allowed to get adrift by the
negligence of defendant's servants in the course of the performance of a
contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if
the "obligation of the defendant grew out of a contract made between it and
the plaintiff . . . we do not think that the provisions of articles 1902 and 1903
are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued
the defendant to recover damages for the personal injuries caused by the
negligence of defendant's chauffeur while driving defendant's automobile in
which defendant was riding at the time. The court found that the damages
were caused by the negligence of the driver of the automobile, but held that
the master was not liable, although he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a length
of time as to give the owner a reasonable opportunity to observe
them and to direct the driver to desist therefrom. . . . The act
complained of must be continued in the presence of the owner for
such length of time that the owner by his acquiescence, makes the
driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage &
Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its conclusion as
to the liability of the defendant upon article 1903, although the facts disclosed
that the injury complaint of by plaintiff constituted a breach of the duty to him
arising out of the contract of transportation. The express ground of the
decision in this case was that article 1903, in dealing with the liability of a
Page 40 of 50
master for the negligent acts of his servants "makes the distinction between
private individuals and public enterprise;" that as to the latter the law creates
a rebuttable presumption of negligence in the selection or direction of
servants; and that in the particular case the presumption of negligence had
not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated
plaintiff's action as though founded in tort rather than as based upon the
breach of the contract of carriage, and an examination of the pleadings and
of the briefs shows that the questions of law were in fact discussed upon this
theory. Viewed from the standpoint of the defendant the practical result must
have been the same in any event. The proof disclosed beyond doubt that the
defendant's servant was grossly negligent and that his negligence was the
proximate cause of plaintiff's injury. It also affirmatively appeared that
defendant had been guilty of negligence in its failure to exercise proper
discretion in the direction of the servant. Defendant was, therefore, liable for
the injury suffered by plaintiff, whether the breach of the duty were to be
regarded as constituting culpa aquiliana  or culpa contractual. As Manresa
points out (vol. 8, pp. 29 and 69) whether negligence occurs an incident in
the course of the performance of a contractual undertaking or its itself the
source of an extra-contractual undertaking obligation, its essential
characteristics are identical. There is always an act or omission productive of
damage due to carelessness or inattention on the part of the defendant.
Consequently, when the court holds that a defendant is liable in damages for
having failed to exercise due care, either directly, or in failing to exercise
proper care in the selection and direction of his servants, the practical result
is identical in either case. Therefore, it follows that it is not to be inferred,
because the court held in the Yamada case that defendant was liable for the
damages negligently caused by its servants to a person to whom it was
bound by contract, and made reference to the fact that the defendant was
negligent in the selection and control of its servants, that in such a case the
court would have held that it would have been a good defense to the action, if
presented squarely upon the theory of the breach of the contract, for
defendant to have proved that it did in fact exercise care in the selection and
control of the servant.
The true explanation of such cases is to be found by directing the attention to
the relative spheres of contractual and extra-contractual obligations. The field
of non- contractual obligation is much more broader than that of contractual
obligations, comprising, as it does, the whole extent of juridical human
relations. These two fields, figuratively speaking, concentric; that is to say,
the mere fact that a person is bound to another by contract does not relieve
him from extra-contractual liability to such person. When such a contractual
relation exists the obligor may break the contract under such conditions that
the same act which constitutes the source of an extra-contractual obligation
had no contract existed between the parties.
‫ﻫ‬Transportation Laws- Assignment No. 1
The contract of defendant to transport plaintiff carried with it, by implication,
the duty to carry him in safety and to provide safe means of entering and
leaving its trains (civil code, article 1258). That duty, being contractual, was
direct and immediate, and its non-performance could not be excused by
proof that the fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that even granting
that the negligent conduct of its servants in placing an obstruction upon the
platform was a breach of its contractual obligation to maintain safe means of
approaching and leaving its trains, the direct and proximate cause of the
injury suffered by plaintiff was his own contributory negligence in failing to
wait until the train had come to a complete stop before alighting. Under the
doctrine of comparative negligence announced in the Rakes case (supra), if
the accident was caused by plaintiff's own negligence, no liability is imposed
upon defendant's negligence and plaintiff's negligence merely contributed to
his injury, the damages should be apportioned. It is, therefore, important to
ascertain if defendant was in fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to a full
stop before alighting, the particular injury suffered by him could not have
occurred. Defendant contends, and cites many authorities in support of the
contention, that it is negligence per se for a passenger to alight from a
moving train. We are not disposed to subscribe to this doctrine in its absolute
form. We are of the opinion that this proposition is too badly stated and is at
variance with the experience of every-day life. In this particular instance, that
the train was barely moving when plaintiff alighted is shown conclusively by
the fact that it came to stop within six meters from the place where he
stepped from it. Thousands of person alight from trains under these
conditions every day of the year, and sustain no injury where the company
has kept its platform free from dangerous obstructions. There is no reason to
believe that plaintiff would have suffered any injury whatever in alighting as
he did had it not been for defendant's negligent failure to perform its duty to
provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this subject is that
expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as follows:
The test by which to determine whether the passenger has been
guilty of negligence in attempting to alight from a moving railway
train, is that of ordinary or reasonable care. It is to be considered
whether an ordinarily prudent person, of the age, sex and condition
of the passenger, would have acted as the passenger acted under
the circumstances disclosed by the evidence. This care has been
defined to be, not the care which may or should be used by the
prudent man generally, but the care which a man of ordinary
Page 41 of 50
 prudence would use under similar circumstances, to avoid injury."
(Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this court in
Picart vs. Smith (37 Phil. rep., 809), we may say that the test is this; Was
there anything in the circumstances surrounding the plaintiff at the time he
alighted from the train which would have admonished a person of average
prudence that to get off the train under the conditions then existing was
dangerous? If so, the plaintiff should have desisted from alighting; and his
failure so to desist was contributory negligence.1awph!l.net
As the case now before us presents itself, the only fact from which a
conclusion can be drawn to the effect that plaintiff was guilty of contributory
negligence is that he stepped off the car without being able to discern clearly
the condition of the platform and while the train was yet slowly moving. In
considering the situation thus presented, it should not be overlooked that the
plaintiff was, as we find, ignorant of the fact that the obstruction which was
caused by the sacks of melons piled on the platform existed; and as the
defendant was bound by reason of its duty as a public carrier to afford to its
passengers facilities for safe egress from its trains, the plaintiff had a right to
assume, in the absence of some circumstance to warn him to the contrary,
that the platform was clear. The place, as we have already stated, was dark,
or dimly lighted, and this also is proof of a failure upon the part of the
defendant in the performance of a duty owing by it to the plaintiff; for if it were
by any possibility concede that it had right to pile these sacks in the path of
alighting passengers, the placing of them adequately so that their presence
would be revealed.
Again, it may be noted that the place was perfectly familiar to the plaintiff as it
was his daily custom to get on and of the train at this station. There could,
therefore, be no uncertainty in his mind with regard either to the length of the
step which he was required to take or the character of the platform where he
was alighting. Our conclusion is that the conduct of the plaintiff in undertaking
to alight while the train was yet slightly under way was not characterized by
imprudence and that therefore he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the accident, was earning
P25 a month as a copyist clerk, and that the injuries he has suffered have
permanently disabled him from continuing that employment. Defendant has
not shown that any other gainful occupation is open to plaintiff. His
expectancy of life, according to the standard mortality tables, is
approximately thirty-three years. We are of the opinion that a fair
compensation for the damage suffered by him for his permanent disability is
the sum of P2,500, and that he is also entitled to recover of defendant the
additional sum of P790.25 for medical attention, hospital services, and other
incidental expenditures connected with the treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby rendered
plaintiff for the sum of P3,290.25, and for the costs of both instances. So
ordered.

As pertinent to the question of contributory negligence on the part of the

plaintiff in this case the following circumstances are to be noted: The
company's platform was constructed upon a level higher than that of the
roadbed and the surrounding ground. The distance from the steps of the car
to the spot where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident to stepping
off. The nature of the platform, constructed as it was of cement material, also
assured to the passenger a stable and even surface on which to alight.
Furthermore, the plaintiff was possessed of the vigor and agility of young
manhood, and it was by no means so risky for him to get off while the train
was yet moving as the same act would have been in an aged or feeble
person. In determining the question of contributory negligence in performing
such act — that is to say, whether the passenger acted prudently or
recklessly — the age, sex, and physical condition of the passenger are
circumstances necessarily affecting the safety of the passenger, and should
be considered. Women, it has been observed, as a general rule are less
capable than men of alighting with safety under such conditions, as the
nature of their wearing apparel obstructs the free movement of the limbs.

‫ﻫ‬Transportation Laws- Assignment No. 1

Page 42 of 50
[9] G.R. No. 184513, March 09, 2016
DESIGNER BASKETS, INC., Petitioner, v. AIR SEA TRANSPORT, INC.
AND ASIA CARGO CONTAINER LINES, INC., Respondents.
Mercantile Law; Bill of Lading; Words and Phrases; A bill of lading is defined
as “a written acknowledgment of the receipt of goods and an agreement to transport
and to deliver them at a specified place to a person named or on his order.”—A bill
of lading is defined as “a written acknowledgment of the receipt of goods and an
agreement to transport and to deliver them at a specified place to a person named or
on his order.” It may also be defined as “an instrument in writing, signed by a carrier
or his agent, describing the freight so as to identify it, stating the name of the
consignor, the terms of the contract of carriage, and agreeing or directing that the
freight be delivered to bearer, to order or to a specified person at a specified place.
Same; Same; Common Carriers; Under Article 350 of the Code of Commerce,
“the shipper as well as the carrier of the merchandise or goods may mutually
demand that a bill of lading be made.”—Under Article 350 of the Code of
Commerce, “the shipper as well as the carrier of the merchandise or goods may
mutually demand that a bill of lading be made.” A bill of lading, when issued by the
carrier to the shipper, is the legal evidence of the contract of carriage between the
former and the latter. It defines the rights and liabilities of the parties in reference to
the contract of carriage. The stipulations in the bill of lading are valid and binding
unless they are contrary to law, morals, customs, public order or public policy.
Same; Same; Same; A carrier is allowed by law to release the goods to the
consignee even without the latter’s surrender of the bill of lading.—A carrier is
allowed by law to release the goods to the consignee even without the latter’s
surrender of the bill of lading. The third paragraph of Article 353 of the Code of
Commerce is enlightening: Article 353. The legal evidence of the contract between
the shipper and the carrier shall be the bills of lading, by the contents of which the
disputes which may arise regarding their execution and performance shall be
decided, no exceptions being admissible other than those of falsity and material error
in the drafting. After the contract has been complied with, the bill of lading which
the carrier has issued shall be returned to him, and by virtue of the exchange of this
title with the thing transported, the respective obligations and actions shall be
considered cancelled, unless in the same act the claim which the parties may wish to
reserve be reduced to writing, with the exception of that provided for in Article
366. In case the consignee, upon receiving the goods, cannot return the bill of
lading subscribed by the carrier, because of its loss or any other cause, he must
give the latter a receipt for the goods delivered, this receipt producing the same
effects as the return of the bill of lading.
Same; Same; Same; The general rule is that upon receipt of the goods, the
consignee surrenders the bill of lading to the carrier and their respective obligations
‫ﻫ‬Transportation Laws- Assignment No. 1
are considered canceled; Exceptions.—The general rule is that upon receipt of the
goods, the consignee surrenders the bill of lading to the carrier and their respective
obligations are considered canceled. The law, however, provides two exceptions
where the goods may be released without the surrender of the bill of lading because
the consignee can no longer return it. These exceptions are when the bill of lading
gets lost or for other cause. In either case, the consignee must issue a receipt to the
carrier upon the release of the goods. Such receipt shall produce the same effect as
the surrender of the bill of lading.
Same; Same; Same; The non-surrender of the original bill of lading does not
violate the carrier’s duty of extraordinary diligence over the goods.—We have
already ruled that the non-surrender of the original bill of lading does not violate the
carrier’s duty of extraordinary diligence over the goods. In Republic v. Lorenzo
Shipping Corporation, 450 SCRA 550 (2005), we found that the carrier exercised
extraordinary diligence when it released the shipment to the consignee, not upon the
surrender of the original bill of lading, but upon signing the delivery receipts and
surrender of the certified true copies of the bills of lading. Thus, we held that the
surrender of the original bill of lading is not a condition precedent for a common
carrier to be discharged of its contractual obligation.
Same; Same; Same; Law and jurisprudence is settled that the surrender of the
original bill of lading is not absolute; that in case of loss or any other cause, a
common carrier may release the goods to the consignee even without it.—Clearly,
law and jurisprudence is settled that the surrender of the original bill of lading is not
absolute; that in case of loss or any other cause, a common carrier may release the
goods to the consignee even without it. Here, Ambiente could not produce the bill of
lading covering the shipment not because it was lost, but for another cause: the bill of
lading was retained by DBI pending Ambiente’s full payment of the shipment.
Ambiente and ASTI then entered into an Indemnity Agreement, wherein the former
asked the latter to release the shipment even without the surrender of the bill of
lading. The execution of this Agreement, and the undisputed fact that the shipment
was released to Ambiente pursuant to it, to our mind, operates as a receipt in
substantial compliance with the last paragraph of Article 353 of the Code of
Commerce.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 of the August 16, 2007
Decision2 and September 2, 2008 Resolution 3 of the Court of Appeals (CA) in
CA-G.R. CV No. 79790, absolving respondents Air Sea Transport, Inc.
(ASTI) and Asia Cargo Container Lines, Inc. (ACCLI) from liability in the
Page 43 of 50
complaint for sum of money and damages filed by petitioner Designer
Baskets, Inc. (DBI).
The Facts
DBI is a domestic corporation engaged in the production of housewares and
handicraft items for export.4 Sometime in October 1995, Ambiente, a foreign-
based company, ordered from DBI5 223 cartons of assorted wooden items
(the shipment).6 The shipment was worth Twelve Thousand Five Hundred
Ninety and Eighty-Seven Dollars (US$12,590.87) and payable through
telegraphic transfer.7 Ambiente designated ACCLI as the forwarding agent
that will ship out its order from the Philippines to the United States (US).
ACCLI is a domestic corporation acting as agent of ASTI, a US based
corporation engaged in carrier transport business, in the Philippines. 8
On January 7, 1996, DBI delivered the shipment to ACCLI for sea transport
from Manila and delivery to Ambiente at 8306 Wilshire Blvd., Suite 1239,
Beverly Hills, California. To acknowledge receipt and to serve as the contract
of sea carriage, ACCLI issued to DBI triplicate copies of ASTI Bill of Lading
No. AC/MLLA601317.9 DBI retained possession of the originals of the bills of
lading pending the payment of the goods by Ambiente. 10
On January 23, 1996, Ambiente and ASTI entered into an Indemnity
Agreement (Agreement).11 Under the Agreement, Ambiente obligated ASTI to
deliver the shipment to it or to its order "without the surrender of the relevant
bill(s) of lading due to the non-arrival or loss thereof." 12 In exchange,
Ambiente undertook to indemnify and hold ASTI and its agent free from any
liability as a result of the release of the shipment. 13 Thereafter, ASTI released
the shipment to Ambiente without the knowledge of DBI, and without it
receiving payment for the total cost of the shipment. 14
DBI then made several demands to Ambiente for the payment of the
shipment, but to no avail. Thus, on October 7, 1996, DBI filed the Original
Complaint against ASTI, ACCLI and ACCLFs incorporators-stockholders 15 for
the payment of the value of the shipment in the amount of US$12,590.87 or
Three Hundred Thirty-Three and Six Flundred Fifty-Eight Pesos
(P333,658.00), plus interest at the legal rate from January 22, 1996,
exemplary damages, attorney's fees and cost of suit. 16
In its Original Complaint, DBI claimed that under Bill of Lading Number
AC/MLLA601317, ASTI and/or ACCLI is "to release and deliver the
cargo/shipment to the consignee, x x x, only after the original copy or copies
of [the] Bill of Lading is or are surrendered to them; otherwise, they become
liable to the shipper for the value of the shipment." 17 DBI also averred that
ACCLI should be jointly and severally liable with its co-defendants because
ACCLI failed to register ASTI as a foreign corporation doing business in the
‫ﻫ‬Transportation Laws- Assignment No. 1
Philippines. In addition, ACCLI failed to secure a license to act as agent of
ASTI.18
On February 20, 1997, ASTI, ACCLI, and ACCLI's incorporators-
stockholders filed a Motion to Dismiss. 19 They argued that: (a) they are not
the real parties-in-interest in the action because the cargo was delivered and
accepted by Ambiente. The case, therefore, was a simple case of non-
payment of the buyer; (b) relative to the incorporators-stockholders of ACCLI,
piercing the corporate veil is misplaced; (c) contrary to the allegation of DBI,
the bill of lading covering the shipment does not contain a proviso exposing
ASTI to liability in case the shipment is released without the surrender of the
bill of lading; and (d) the Original Complaint did not attach a certificate of non-
forum shopping.20
DBI filed an Opposition to the Motion to Dismiss, 21 asserting that ASTI and
ACCLI failed to exercise the required extraordinary diligence when they
allowed the cargoes to be withdrawn by the consignee without the surrender
of the original bill of lading. ASTI, ACCLI, and ACCLI's incorporators-
stockholders countered that it is DBI who failed to exercise extraordinary
diligence in protecting its own interest. They averred that whether or not the
buyer-consignee pays the seller is already outside of their concern. 22
Before the trial court could resolve the motion to dismiss, DBI filed an
Amended Complaint23 impleading Ambiente as a new defendant and praying
that it be held solidarity liable with ASTI, ACCLI, and ACCLFs incorporators-
stockholders for the payment of the value of the shipment. DBI alleged that it
received reliable information that the shipment was released merely on the
basis of a company guaranty of Ambiente. 24 Further, DBI asserted that
ACCLI's incorporators-stockholders have not yet fully paid their stock
subscriptions; thus, "under the circumstance of [the] case," they should be
held liable to the extent of the balance of their subscriptions. 25
In their Answer,26 ASTI, ACCLI, and ACCLI's incorporators-stockholders
countered that DBI has no cause of action against ACCLI and its
incorporators-stockholders because the Amended Complaint, on its face, is
for collection of sum of money by an unpaid seller against a buyer. DBI did
not allege any act of the incorporators-stockholders which would constitute
as a ground for piercing the veil of corporate fiction. 27 ACCLI also reiterated
that there is no stipulation in the bill of lading restrictively subjecting the
release of the cargo only upon the presentation of the original bill of
lading.28 It regarded the issue of ASTI's lack of license to do business in the
Philippines as "entirely foreign and irrelevant to the issue of liability for
breach of contract" between DBI and Ambiente. It stated that the purpose of
requiring a license (to do business in the Philippines) is to subject the foreign
corporation to the jurisdiction of Philippine courts. 29
Page 44 of 50
On July 22, 1997, the trial court directed the service of summons to Ambiente
through the Department of Trade and Industry. 30 The summons was served
on October 6, 199731 and December 18, 1997.32 Ambiente failed to file an
Answer. Hence, DBI moved to declare Ambiente in default, which the trial
court granted in its Order dated September 15, 1998. 33
The Ruling of the Trial Court
In a Decision34 dated July 25, 2003, the trial court found ASTI, ACCLI, and
Ambiente solidarity liable to DBI for the value of the shipment. It awarded DBI
the following:
chanRoblesvirtualLawlibrary
1. US$12,590.87, or the equivalent of [P]333,658.00 at the time
of the shipment, plus 12% interest per annum from 07
January 1996 until the same is fully paid;
2. [P]50,000.00 in exemplary damages;
3. [P]47,000.00 as and for attorney's fees; and,
4. [P]10,000.00 as cost of suit.35
The trial court declared that the liability of Ambiente is "very clear." As the
buyer, it has an obligation to pay for the value of the shipment. The trial court
noted that "[the case] is a simple sale transaction which had been perfected
especially since delivery had already been effected and with only the
payment for the shipment remaining left to be done."36
With respect to ASTI, the trial court held that as a common carrier, ASTI is
bound to observe extraordinary diligence in the vigilance over the goods.
However, ASTI was remiss in its duty when it allowed the unwarranted
release of the shipment to Ambiente. 37 The trial court found that the damages
suffered by DBI was due to ASTI's release of the merchandise despite the
non-presentation of the bill of lading. That ASTI entered into an Agreement
with Ambiente to release the shipment without the surrender of the bill of
lading is of no moment.38 The Agreement cannot save ASTI from liability
because in entering into such, it violated the law, the terms of the bill of
lading and the right of DBI over the goods.39
The trial court also added that the Agreement only involved Ambiente and
ASTI. Since DBI is not privy to the Agreement, it is not bound by its terms.
The trial court found that ACCLI "has not done enough to prevent the
defendants Ambiente and [ASTI] from agreeing among themselves the
release of the goods in total disregard of [DBFs] rights and in contravention
of the country's civil and commercial laws."41 As the forwarding agent, ACCLI
‫ﻫ‬Transportation Laws- Assignment No. 1
was "well aware that the goods cannot be delivered to the defendant
Ambiente since [DBI] retained possession of the originals of the bill of
lading."42 Consequently, the trial court held ACCLI solidarily liable with ASTI.
As regards ACCLFs incorporators-stockholders, the trial court absolved them
from liability. The trial court ruled that the participation of ACCLFs
incorporators-stockholders in the release of the cargo is not as direct as that
of ACCLI.43
DBI, ASTI and ACCLI appealed to the CA. On one hand, DBI took issue with
the order of the trial court awarding the value of the shipment in Philippine
Pesos instead of US Dollars. It also alleged that even assuming that the
shipment may be paid in Philippine Pesos, the trial court erred in pegging its
value at the exchange rate prevailing at the time of the shipment, rather than
at the exchange rate prevailing at the time of payment.44
On the other hand, ASTI and ACCLI questioned the trial court's decision
finding them solidarily liable with DBI for the value of the shipment. They also
assailed the trial court's award of interest, exemplary damages, attorney's
fees and cost of suit in DBFs favor.45
The Ruling of the Court of Appeals
The CA affirmed the trial court's finding that Ambiente is liable to DBI, but
absolved ASTI and ACCLI from liability. The CA found that the pivotal issue
is whether the law requires that the bill of lading be surrendered by the
buyer/consignee before the carrier can release the goods to the former. It
then answered the question in the negative, thus:
There is nothing in the applicable laws that require the surrender of
bills of lading before the goods may be released to the
buyer/consignee. In fact, Article 353 of the Code of Commerce suggests a
contrary conclusion, viz —
"Art. 353. After the contract has been complied with, the bill of lading which
the carrier has issued shall be returned to him, and by virtue of the exchange
of this title with the thing transported, the respective obligations shall be
considered canceled xxx In case the consignee, upon receiving the goods,
cannot return the bill of lading subscribed by the carrier because of its loss or
of any other cause, he must give the latter a receipt for the goods delivered,
this receipt producing the same effects as the return of the bill of lading."
The clear import of the above article is that the surrender of the bill of lading
is not an absolute and mandatory requirement for the release of the goods to
the consignee. The fact that the carrier is given the alternative option to
simply require a receipt for the goods delivered suggests that the
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surrender of the bill of lading may be dispensed with when it cannot be
produced by the consignee for whatever cause.46 (Emphasis supplied.)
The CA stressed that DBI failed to present evidence to prove its assertion
that the surrender of the bill of lading upon delivery of the goods is a common
mercantile practice.47 Further, even assuming that such practice exists, it
cannot prevail over law and jurisprudence. 48
As for ASTI, the CA explained that its only obligation as a common carrier
was to deliver the shipment in good condition. It did not include looking
beyond the details of the transaction between the seller and the consignee,
or more particularly, ascertaining the payment of the goods by the buyer
Ambiente.49
Since the agency between ASTI and ACCLI was established and not
disputed by any of the parties, neither can ACCLI, as a mere agent of ASTI,
be held liable. This must be so in the absence of evidence that the agent
exceeded its authority.50
The CA, thus, ruled:
WHEREFORE, in view of the foregoing, the Decision dated July 25, 2003 of
Branch 255 of the Regional Trial court of Las [Piñas] City in Civil Case No.
LP-96-0235 is hereby AFFIRMED with the following MODIFICATIONS:
1. Defendants-appellants Air Sea Transport, Inc. and Asia
Cargo Container Lines, Inc. are hereby ABSOLVED from all
liabilities;
2. The actual damages to be paid by defendant Ambiente shall
be in the amount of US$12,590.87. Defendant Ambiente's
liability may be paid in Philippine currency, computed at the
exchange rate prevailing at the time of payment; 51 and
3. The rate of interest to be imposed on the total amount of
US$12,590.87 shall be 6% per annum computed from the
filing of the complaint on October 7, 1996 until the finality of
this decision. After this decision becomes final and
executory, the applicable rate shall be 12% per annum until
its full satisfaction.
SO ORDERED.
Hence, this petition for review, which raises the sole issue of whether ASTI
and ACCLI may be held solidarily liable to DBI for the value of the shipment.
Our Ruling
‫ﻫ‬Transportation Laws- Assignment No. 1
We deny the petition.
A common carrier may release the goods to the consignee even
without the surrender of the hill of lading.
This case presents an instance where an unpaid seller sues not only the
buyer, but the carrier and the carrier's agent as well, for the payment of the
value of the goods sold. The basis for ASTI and ACCLI's liability, as pleaded
by DBI, is the bill of lading covering the shipment.
A bill of lading is defined as "a written acknowledgment of the receipt of
goods and an agreement to transport and to deliver them at a specified place
to a person named or on his order." 53 It may also be defined as an instrument
in writing, signed by a carrier or his agent, describing the freight so as to
identify it, stating the name of the consignor, the terms of the contract of
carriage, and agreeing or directing that the freight be delivered to bearer, to
order or to a specified person at a specified place. 54
Under Article 350 of the Code of Commerce, "the shipper as well as the
carrier of the merchandise or goods may mutually demand that a bill of lading
be made." A bill of lading, when issued by the carrier to the shipper, is the
legal evidence of the contract of carriage between the former and the latter. It
defines the rights and liabilities of the parties in reference to the contract of
carriage. The stipulations in the bill of lading are valid and binding unless
they are contrary to law, morals, customs, public order or public policy. 55
Here, ACCLI, as agent of ASTI, issued Bill of Lading No. AC/MLLA601317 to
DBI. This bill of lading governs the rights, obligations and liabilities of DBI and
ASTI. DBI claims that Bill of Lading No. AC/MLLA601317 contains a
provision stating that ASTI and ACCLI are "to release and deliver the
cargo/shipment to the consignee, x x x, only after the original copy or copies
of the said Bill of Lading is or are surrendered to them; otherwise they
become liable to [DBI] for the value of the shipment." 56 Quite tellingly,
however, DBI does not point or refer to any specific clause or provision on
the bill of lading supporting this claim. The language of the bill of lading
shows no such requirement. What the bill of lading provides on its face is:
Received by the Carrier in apparent good order and condition unless
otherwise indicated hereon, the Container(s) and/or goods hereinafter
mentioned to be transported and/or otherwise forwarded from the Place of
Receipt to the intended Place of Delivery upon and [subject] to all the terms
and conditions appearing on the face and back of this Bill of Lading. If
required by the Carrier this Bill of Lading duly endorsed must be
surrendered in exchange for the Goods of delivery order. 57 (Emphasis
supplied.)
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There is no obligation, therefore, on the part of ASTI and ACCLI to release
the goods only upon the surrender of the original bill of lading.
Further, a carrier is allowed by law to release the goods to the consignee
even without the latter's surrender of the bill of lading. The third paragraph of
Article 353 of the Code of Commerce is enlightening:
Article 353. The legal evidence of the contract between the shipper and the
carrier shall be the bills of lading, by the contents of which the disputes which
may arise regarding their execution and performance shall be decided, no
exceptions being admissible other than those of falsity and material error in
the drafting.
After the contract has been complied with, the bill of lading which the carrier
has issued shall be returned to him, and by virtue of the exchange of this title
with the thing transported, the respective obligations and actions shall be
considered cancelled, unless in the same act the claim which the parties may
wish to reserve be reduced to writing, with the exception of that provided for
in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill
of lading subscribed by the carrier, because of its loss or any other
cause, he must give the latter a receipt for the goods delivered, this
receipt producing the same effects as the return of the bill of
lading. (Emphasis supplied.)
The general rule is that upon receipt of the goods, the consignee surrenders
the bill of lading to the carrier and their respective obligations are considered
canceled. The law, however, provides two exceptions where the goods may
be released without the surrender of the bill of lading because the consignee
can no longer return it. These exceptions are when the bill of lading gets lost
or for other cause. In either case, the consignee must issue a receipt to the
carrier upon the release of the goods. Such receipt shall produce the same
effect as the surrender of the bill of lading.
We have already ruled that the non-surrender of the original bill of lading
does not violate the carrier's duty of extraordinary diligence over the
goods.58 In Republic v. Lorenzo Shipping Corporation,59 we found that the
carrier exercised extraordinary diligence when it released the shipment to the
consignee, not upon the surrender of the original bill of lading, but upon
signing the delivery receipts and surrender of the certified true copies of the
bills of lading. Thus, we held that the surrender of the original bill of lading is
not a condition precedent for a common carrier to be discharged of its
contractual obligation.
Under special circumstances, we did not even require presentation of any
form of receipt by the consignee, in lieu of the original bill of lading, for the
release of the goods. In Macam v. Court of Appeals,60 we absolved the
‫ﻫ‬Transportation Laws- Assignment No. 1
carrier from liability for releasing the goods to the consignee without the bills
of lading despite this provision on the bills of lading:
"One of the Bills of Lading must be surrendered duly endorsed in exchange
for the goods or delivery order."61 (Citations omitted.)
In clearing the carrier from liability, we took into consideration that the shipper
sent a telex to the carrier after the goods were shipped. The telex instructed
the carrier to deliver the goods without need of presenting the bill of lading
and bank guarantee per the shipper's request since "for prepaid shipt ofrt
charges already fully paid our end x x x." 62 We also noted the usual practice
of the shipper to request the shipping lines to immediately release perishable
cargoes through telephone calls.
Also, in Eastern Shipping Lines v. Court of Appeals,63 we absolved the carrier
from liability for releasing the goods to the supposed consignee,
Consolidated Mines, Inc. (CMI), on the basis of an Undertaking for Delivery
of Cargo but without the surrender of the original bill of lading presented by
CMI. Similar to the factual circumstance in this case, the Undertaking
in Eastern Shipping Lines guaranteed to hold the carrier "harmless from all
demands, claiming liabilities, actions and expenses." 64 Though the central
issue in that case was who the consignee was in the bill of lading, it is
noteworthy how we gave weight to the Undertaking in ruling in favor of the
carrier:
But assuming that CMI may not be considered consignee, the petitioner
cannot be faulted for releasing the goods to CMI under the circumstances,
due to its lack of knowledge as to who was the real consignee in view of
CMI's strong representations and letter of undertaking wherein it stated that
the bill of lading would be presented later. This is precisely the situation
covered by the last paragraph of Art. 353 of the [Code of Commerce] to wit:
"If in case of loss or for any other reason whatsoever, the consignee cannot
return upon receiving the merchandise the bill of lading subscribed by the
carrier, he shall give said carrier a receipt of the goods delivered this receipt
producing the same effects as the return of the bill of lading." 65
Clearly, law and jurisprudence is settled that the surrender of the original bill
of lading is not absolute; that in case of loss or any other cause, a common
carrier may release the goods to the consignee even without it.
Here, Ambiente could not produce the bill of lading covering the shipment not
because it was lost, but for another cause: the bill of lading was retained by
DBI pending Ambiente's full payment of the shipment. Ambiente and ASTI
then entered into an Indemnity Agreement, wherein the former asked the
latter to release the shipment even without the surrender of the bill of lading.
The execution of this Agreement, and the undisputed fact that the shipment
Page 47 of 50
was released to Ambiente pursuant to it, to our mind, operates as a receipt in
substantial compliance with the last paragraph of Article 353 of the Code of
Commerce.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable.
DBI, however, challenges the Agreement, arguing that the carrier released
the goods pursuant to it, notwithstanding the carrier's knowledge that the bill
of lading should first be surrendered. As such, DBI claims that ASTI and
ACCLI are liable for damages because they failed to exercise extraordinary
diligence in the vigilance over the goods pursuant to Articles 1733, 1734, and
1735 of the Civil Code.66
DBI is mistaken.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable in this
case. The Articles state:
Article 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, while the extraordinary
diligence for the safety of the passengers is further set forth in Articles 1755
and 1756.
Article 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.
Article 1735. In all cases other than those mentioned in Nos. 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.
‫ﻫ‬Transportation Laws- Assignment No. 1
Articles 1733, 1734, and 1735 speak of the common carrier's responsibility
over the goods. They refer to the general liability of common carriers in case
of loss, destruction or deterioration of goods and the presumption of
negligence against them. This responsibility or duty of the common carrier
lasts from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation, until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them. 67 It is, in fact, undisputed that the goods
were timely delivered to the proper consignee or to the one who was
authorized to receive them. DBFs only cause of action against ASTI and
ACCLI is the release of the goods to Ambiente without the surrender of the
bill of lading, purportedly in violation of the terms of the bill of lading. We have
already found that Bill of Lading No. AC/MLLA601317 does not contain such
express prohibition. Without any prohibition, therefore, the carrier had no
obligation to withhold release of the goods. Articles 1733, 1734, and 1735 do
not give ASTI any such obligation.
The applicable provision instead is Article 353 of the Code of Commerce,
which we have previously discussed. To reiterate, the Article allows the
release of the goods to the consignee even without his surrender of the
original bill of lading. In such case, the duty of the carrier to exercise
extraordinary diligence is not violated. Nothing, therefore, prevented the
consignee and the carrier to enter into an indemnity agreement of the same
nature as the one they entered here. No law or public policy is contravened
upon its execution.
Article 1503 of the Civil Code does not apply to contracts for carriage of
goods.
In its petition, DBI continues to assert the wrong application of Article 353 of
the Code of Commerce to its Amended Complaint. It alleges that the third
paragraph of Article 1503 of the Civil Code is the applicable provision
because: (a) Article 1503 is a special provision that deals particularly with the
situation of the seller retaining the bill of lading; and (b) Article 1503 is a law
which is later in point of time to Article 353 of the Code of Commerce. 68 DBI
posits that being a special provision, Article 1503 of the Civil Code should
prevail over Article 353 of the Code of Commerce, a general provision that
makes no reference to the seller retaining the bill of lading. 69
DBFs assertion is untenable. Article 1503 is an exception to the general
presumption provided in the first paragraph of Article 1523, which reads:
Article 1523. Where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the
goods to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to
Page 48 of 50
the buyer, except in the cases provided for in Articles 1503, first,
second and third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such
contract with the carrier on behalf of the buyer as may be reasonable, having
regard to the nature of the goods and the other circumstances of the case. If
the seller omit so to do, and the goods are lost or damaged in the course of
transit, the buyer may decline to treat the delivery to the carrier as a delivery
to himself, or may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer
under circumstances in which the seller knows or ought to know that it is
usual to insure, the seller must give such notice to the buyer as may enable
him to insure them during their transit, and, if the seller fails to do so, the
goods shall be deemed to be at his risk during such transit. (Emphasis
supplied.)
Article 1503, on the other hand, provides:
Article 1503. When there is a contract of sale of specific goods, the
seller may, by the terms of the contract, reserve the right of possession or
ownership in the goods until certain conditions have been fulfilled. The right
of possession or ownership may be thus reserved notwithstanding the
delivery of the goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are deliverable
to the seller or his agent, or to the order of the seller or of his agent, the seller
thereby reserves the ownership in the goods. But, if except for the form of the
bill of lading, the ownership would have passed to the buyer on shipment of
the goods, the seller's property in the goods shall be deemed to be only for
the purpose of securing performance by the buyer of his obligations under
the contract.
Where goods are shipped, and by the bill of lading the goods are
deliverable to order of the buyer or of his agent, but possession of the
bill of lading is retained by the seller or his agent, the seller thereby
reserves a right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the
bill of exchange and bill of lading together to the buyer to secure acceptance
or payment of the bill of exchange, the buyer is bound to return the bill of
lading if he does not honor the bill of exchange, and if he wrongfully retains
the bill of lading he acquires no added right thereby. If, however, the bill of
lading provides that the goods are deliverable to the buyer or to the order of
the buyer, or is indorsed in blank, or to the buyer by the consignee named
therein, one who purchases in good faith, for value, the bill of lading, or
goods from the buyer will obtain the ownership in the goods, although the bill
of exchange has not been honored, provided that such purchaser has
‫ﻫ‬Transportation Laws- Assignment No. 1
received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer
wrongful. (Emphasis supplied.)
Articles 1523 and 1503, therefore, refer to a contract of sale between a seller
and a buyer. In particular, they refer to who between the seller and the buyer
has the right of possession or ownership over the goods subject of the sale.
Articles 1523 and 1503 do not apply to a contract of carriage between the
shipper and the common carrier. The third paragraph of Article 1503, upon
which DBI relies, does not oblige the common carrier to withhold delivery of
the goods in the event that the bill of lading is retained by the seller. Rather, it
only gives the seller a better right to the possession of the goods as against
the mere inchoate right of the buyer. Thus, Articles 1523 and 1503 find no
application here. The case before us does not involve an action where the
seller asserts ownership over the goods as against the buyer. Instead, we
are confronted with a complaint for sum of money and damages filed by the
seller against the buyer and the common carrier due to the non-payment of
the goods by the buyer, and the release of the goods by the carrier despite
non-surrender of the bill of lading. A contract of sale is separate and distinct
from a contract of carriage. They involve different parties, different rights,
different obligations and liabilities. Thus, we quote with approval the ruling of
the CA, to wit:
chanRoblesvirtualLawlibrary
On the third assigned error, [w]e rule for the defendants-appellants [ASTI and
ACCLI]. They are correct in arguing that the nature of their obligation
with plaintiff [DBI] is separate and distinct from the transaction of the
latter with defendant Ambiente. As carrier of the goods transported by
plaintiff, its obligation is simply to ensure that such goods are delivered
on time and in good condition. In the case [Macam v. Court of Appeals],
the Supreme Court emphasized that "the extraordinary responsibility of the
common carriers lasts until actual or constructive delivery of the cargoes to
the consignee or to the person who has the right to receive them." x x x
It is therefore clear that the moment the carrier has delivered the
subject goods, its responsibility ceases to exist and it is thereby freed
from all the liabilities arising from the transaction. Any question
regarding the payment of the buyer to the seller is no longer the
concern of the carrier. This easily debunks plaintiffs theory of joint
liability.70 x x x (Emphasis supplied; citations omitted.)
The contract between DBI and ASTI is a contract of carriage of goods;
hence, ASTI's liability should be pursuant to that contract and the law on
transportation of goods. Not being a party to the contract of sale between DBI
and Ambiente, ASTI cannot be held liable for the payment of the value of the
goods sold. In this regard, we cite Loadstar Shipping Company, Incorporated
v. Malayan Insurance Company, Incorporated,71 thus:
Page 49 of 50
Malayan opposed the petitioners' invocation of the Philex-PASAR purchase
agreement, stating that the contract involved in this case is a contract of
affreightment between the petitioners and PASAR, not the agreement
between Philex and PASAR, which was a contract for the sale of copper
concentrates.
On this score, the Court agrees with Malayan that contrary to the trial court's
disquisition, the petitioners cannot validly invoke the penalty clause under the
Philex-PASAR purchase agreement, where penalties are to be imposed by
the buyer PASAR against the seller Philex if some elements exceeding the
agreed limitations are found on the copper concentrates upon delivery. The
petitioners are not privy to the contract of sale of the copper
concentrates. The contract between PASAR and the petitioners is a
contract of carriage of goods and not a contract of sale. Therefore, the
petitioners and PASAR are bound by the laws on transportation of
goods and their contract of affreightment. Since the Contract of
Affreightment between the petitioners and PASAR is silent as regards the
computation of damages, whereas the bill of lading presented before the trial
court is undecipherable, the New Civil Code and the Code of Commerce
shall govern the contract between the parties. 72 (Emphasis supplied; citations
omitted.)
In view of the foregoing, we hold that under Bill of Lading No.
AC/MLLA601317 and the pertinent law and jurisprudence, ASTI and ACCLI
are not liable to DBI. We sustain the finding of the CA that only Ambiente, as
the buyer of the goods, has the obligation to pay for the value of the
shipment. However, in view of our ruling in Nacar v. Gallery Frames,73 we
modify the legal rate of interest imposed by the CA. Instead of 12% per
annum from the finality of this judgment until its full satisfaction, the rate of
interest shall only be 6% per annum.chanrobleslaw

WHEREFORE, the petition is DENIED for lack of merit. The August 16, 2007
Decision and the September 2, 2008 Resolution of the Court of Appeals in
CA-G.R. CV No. 79790 are hereby AFFIRMED with the MODIFICATION that
from the finality of this decision until its full satisfaction, the applicable rate of
interest shall be 6% per annum.

SO ORDERED.

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