[G.R. No. 122494.

October 8, 1998]
EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT
HERNANDEZ TRADING CO. INC., respondents.

OF

APPEALS

and

DECISION
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the
reversal of the decision[1] of the Court of Appeals, dated June 14, 1995, in CA-G.R. No.
428093, which affirmed the decision of the Regional Trial Court of Kalookan City, Branch 126,
in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez Trading
Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No.
12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd.
(Maruman Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were
shipped from Nagoya, Japan to Manila on board ADELFAEVERETTE, a vessel owned by
petitioners principal, Everett Orient Lines. The said crates were covered by Bill of Lading No.
NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No.
14 was missing. This was confirmed and admitted by petitioner in its letter of January 13,
1992 addressed to private respondent, which thereafter made a formal claim upon petitioner
for the value of the lost cargo amounting to One Million Five Hundred Fifty Two Thousand
Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated
November 14, 1991. However, petitioner offered to pay only One Hundred Thousand
(Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the covering bill of
lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection
docketed as Civil Case No. C-15532, against petitioner before the Regional Trial Court of
Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial
evidence to offer and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment [2] in favor of private respondent,
ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent
representing the actual value of the lost cargo and the material and packaging cost; (c) 10%
of the total amount as an award for and as contingent attorneys fees; and (d) to pay the cost
of the suit. The trial court ruled:
Considering defendants categorical admission of loss and its failure to overcome the
presumption of negligence and fault, the Court conclusively finds defendant liable to
the plaintiff. The next point of inquiry the Court wants to resolve is the extent of the

liability of the defendant. As stated earlier, plaintiff contends that defendant should
be held liable for the whole value for the loss of the goods in the amount of
Y1,552,500.00 because the terms appearing at the back of the bill of lading was so
written in fine prints and that the same was not signed by plaintiff or shipper thus,
they are not bound by the clause stated in paragraph 18 of the bill of lading. On the
other hand, defendant merely admitted that it lost the shipment but shall be liable
only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code Art. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely
agreed upon.
It is required, however, that the contract must be reasonable and just under the
circumstances and has been fairly and freely agreed upon. The requirements
provided in Art. 1750 of the New Civil Code must be complied with before a common
carrier can claim a limitation of its pecuniary liability in case of loss, destruction or
deterioration of the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article have
not been met. The fact that those conditions are printed at the back of the bill of
lading in letters so small that they are hard to read would not warrant the
presumption that the plaintiff or its supplier was aware of these conditions such that
he had fairly and freely agreed to these conditions. It can not be said that the
plaintiff had actually entered into a contract with the defendant, embodying the
conditions as printed at the back of the bill of lading that was issued by the
defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed the
trial courts findings with the additional observation that private respondent can not be
bound by the terms and conditions of the bill of lading because it was not privy to the
contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the
appellee (Hernandez Trading Co.) consented to the terms of the Bill of Lading. The
shipper named in the Bill of Lading is Maruman Trading Co., Ltd. whom the appellant
(Everett Steamship Corp.) contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the
terms of the bill of lading when it delivered the cargo to the appellant, still it does
not necessarily follow that appellee Hernandez Trading Company as consignee is
bound thereby considering that the latter was never privy to the shipping contract.
xxxxxxxxx

Never having entered into a contract with the appellant, appellee should therefore
not be bound by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost,
the basis of which is not the breach of contract as appellee was never a privy to the
any contract with the appellant, but is based on Article 1735 of the New Civil Code,
there being no evidence to prove satisfactorily that the appellant has overcome the
presumption of negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the
consent of the consignee to the terms and conditions of the bill of lading is necessary to
make such stipulations binding upon it; (2) in holding that the carriers limited package
liability as stipulated in the bill of lading does not apply in the instant case; and (3) in
allowing private respondent to fully recover the full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater
value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which
provide:
ART. 1749. A stipulation that the common carriers liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number
of cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate Court [4], we
ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading here
are nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself
in providing a limit to liability only if a greater value is not declared for the shipment in the
bill of lading. To hold otherwise would amount to questioning the justness and fairness of the
law itself, and this the private respondent does not pretend to do. But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading..

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting
the common carriers liability for loss must be reasonable and just under the circumstances,
and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the
basis of the shippers net invoice cost plus freight and insurance premiums, if paid,
and in no event shall the carrier be liable for any loss of possible profits or any
consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection
with, goods in an amount exceeding One Hundred Thousand Yen in Japanese
Currency (Y100,000.00) or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of the goods higher than
this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as
required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the
carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of
the carrier. Considering that the shipper did not declare a higher valuation, it had
itself to blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and freely
agreed to the limited liability clause in the bill of lading because the said conditions were
printed in small letters does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals[5] that the jurisprudence on the matter
reveals the consistent holding of the court that contracts of adhesion are not
invalid per se and that it has on numerous occasions upheld the binding effect thereof. Also,
in Philippine American General Insurance Co., Inc. vs. Sweet Lines , Inc.[6] this
Court , speaking through the learned Justice Florenz D. Regalado, held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of
adhesion wherein one party imposes a ready-made form of contract on the other x
x x are contracts not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres he gives his consent. In the present
case, not even an allegation of ignorance of a party excuses non-compliance with
the contractual stipulations since the responsibility for ensuring full comprehension
of the provisions of a contract of carriage devolves not on the carrier but on the
owner, shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations in
contracts of adhesion are valid and binding.

While it may be true that petitioner had not signed the plane ticket x x, he is
nevertheless bound by the provisions thereof. Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latters lack of knowledge or assent to the regulation. It is what is
known as a contract of adhesion, in regards which it has been said that contracts of
adhesion wherein one party imposes a ready-made form of contract on the other, as
the plane ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. x x x , a contract limiting liability upon an agreed valuation does
not offend against the policy of the law forbidding one from contracting against his
own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of
adhesion in that the said contracts must be carefully scrutinized in order to shield the
unwary (or weaker party) from deceptive schemes contained in ready-made covenants,
[8]
such as the bill of lading in question. The stringent requirement which the courts are
enjoined to observe is in recognition of Article 24 of the Civil Code which mandates that (i)n
all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading
business. It can not be said to be ignorant of the business transactions it entered into
involving the shipment of its goods to its customers. The shipper could not have known, or
should know the stipulations in the bill of lading and there it should have declared a higher
valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain
that it has been deceived or rushed into agreeing to ship the cargo in petitioners vessel. In
fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is
not a signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held
that even if the consignee was not a signatory to the contract of carriage between the
shipper and the carrier, the consignee can still be bound by the contract. Speaking through
Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of
lading to recover from the carrier or shipper for loss of, or damage to goods being
transported under said bill,although that document may have been- as in
practice it oftentimes is-drawn up only by the consignor and the
carrier without the intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to
recover for loss of a shipment consigned to him under a bill of lading
drawn up only by and between the shipper and the carrier, springs from
either a relation of agency that may exist between him and the shipper or
consignor, or his status as stranger in whose favor some stipulation is

made in said contract, and who becomes a party thereto when he demands
fulfillment of that stipulation, in this case the delivery of the goods or
cargo shipped. In neither capacity can he assert personally, in bar to any
provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as
to be hardly readable. Parenthetically, it may be observed that in one
comparatively recent case (Phoenix Assurance Company vs. Macondray & Co., Inc.,
64 SCRA 15) where this Court found that a similar package limitation clause
was printed in the smallest type on the back of the bill of lading, it
nonetheless ruled that the consignee was bound thereby on the strength
of authority holding that such provisions on liability limitation are as much
a part of a bill of lading as though physically in it and as though placed
therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and
enforceability of freely-agreed-upon stipulations in a contract of carriage or bill of
lading limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and inserts it into said contract or bill. This
proposition, moreover, rests upon an almost uniform weight of authority.
(Underscoring supplied)
When private respondent formally claimed reimbursement for the missing goods from
petitioner and subsequently filed a case against the latter based on the very same bill of
lading, it (private respondent) accepted the provisions of the contract and thereby made
itself a party thereto, or at least has come to court to enforce it. [9] Thus, private respondent
cannot now reject or disregard the carriers limited liability stipulation in the bill of lading. In
other words, private respondent is bound by the whole stipulations in the bill of lading and
must respect the same.
Private respondent, however, insists that the carrier should be liable for the full value of
the lost cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman
Trading, had "fully declared the shipment x x x, the contents of each crate, the dimensions,
weight and value of the contents,"[10] as shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents,
quantity and value of "the shipment which consisted of three pre-packed crates described in
Bill of Lading No. NGO-53MN merely as 3 CASES SPARE PARTS. [11]
The bill of lading in question confirms petitioners contention. To defeat the carriers
limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper should
have declared in writing a higher valuation of its goods before receipt thereof by the
carrier and insert the said declaration in the bill of lading, with the extra freight
paid. These requirements in the bill of lading were never complied with by the shipper,
hence, the liability of the carrier under the limited liability clause stands. The commercial
Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner has
knowledge of the value of the cargo as contended by private respondent. No other evidence
was proffered by private respondent to support is contention. Thus, we are convinced that
petitioner should be liable for the full value of the lost cargo.

In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred
Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV
No. 42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.