EVERETT STEAMSHIP CORPORATION, petitioner, vs.COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents.

G.R. No. 122494 October 8, 1998

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 petitioner's 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 attorney's fees; and (d) to pay the cost of the suit. The trial court ruled:
Considering defendant's 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 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 attorney's fees but affirmed the trial court's 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.
xxx xxx xxx
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 carrier's 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 carrier's 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 carrier's liability is limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value, is binding.
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 carrier's 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 shipper's 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 court's 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:
. . . Ong Yiu vs. Court of Appeals, et. al., instructs us that "contracts of adhesion wherein one party imposes a readymade form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract is
in reality free to reject it entirely; if the 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 . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the
contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation." It is what is known as a contract of "adhesion," in regards which it has been said that
contracts of adhesion wherein one party imposes a ready-made form of contract on the other, as the plane ticket 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. . . ., 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 petitioner's
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
onsignee. . . . .
. . . 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 through 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. (Emphasis 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
carrier's 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 . . ., 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 petitioner's contention. To defeat the carrier's 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 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.

AGUSTINO B. ONG YIU, petitioner, vs. HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents. G.R.
No. L-40597 June 29, 1979
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a reversal of the Decision of the Court
of Appeals in CA-G.R. No. 45005-R, which reduced his claim for damages for breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc. (PAL), on board Flight No. 463-R,
from Mactan Cebu, bound for Butuan City. He was scheduled to attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in
the Court of First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece of
luggage, a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about
1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon arrival, petitioner
claimed his luggage but it could not be found. According to petitioner, it was only after reacting indignantly to the loss that the matter
was attended to by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00 o'clock P.M., PAL Butuan, sent a
message to PAL, Cebu, inquiring about the missing luggage, which message was, in turn relayed in full to the Mactan Airport teletype
operator at 3:45 P.M. (Exh. "2") that same afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same
afternoon, PAL Manila wired PAL Cebu advising that the luggage had been over carried to Manila aboard Flight No. 156 and that it
would be forwarded to Cebu on Flight No. 345 of the same day. Instructions were also given that the luggage be immediately
forwarded to Butuan City on the first available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL
Butuan that the luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(. However, this message was not
received by PAL Butuan as all the personnel had already left since there were no more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained vital documents needed for trial the next
day. At 10:00 o'clock that evening, petitioner wired PAL Cebu demanding the delivery of his baggage before noon the next day,
otherwise, he would hold PAL liable for damages, and stating that PAL's gross negligence had caused him undue inconvenience,
worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was received by the Cebu PAL supervisor but the latter felt no
need to wire petitioner that his luggage had already been forwarded on the assumption that by the time the message reached Butuan
City, the luggage would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire about his luggage. He did not
wait, however, for the morning flight which arrived at 10:00 o'clock that morning. This flight carried the missing luggage. The porter
clerk, Maximo Gomez, paged petitioner, but the latter had already left. A certain Emilio Dagorro a driver of a "colorum" car, who also
used to drive for petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be the same driver
used by petitioner whenever the latter was in Butuan City, Gomez took the luggage and placed it on the counter. Dagorro examined
the lock, pressed it, and it opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez took a look at its
contents, but did not touch them. Dagorro then delivered the "maleta" to petitioner, with the information that the lock was open.
Upon inspection, petitioner found that a folder containing certain exhibits, transcripts and private documents in Civil Case No. 1005
and Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-law. Petitioner refused to accept the luggage.
Dagorro returned it to the porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his documents, which was granted
by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City on August 28, 1967. In a letter dated August 29, 1967 addressed
to PAL, Cebu, petitioner called attention to his telegram (Exh. "D"), demanded that his luggage be produced intact, and that he be
compensated in the sum of P250,000,00 for actual and moral damages within five days from receipt of the letter, otherwise, he would
be left with no alternative but to file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's office to deliver the "maleta". In the
presence of Mr. Jose Yap and Atty. Manuel Maranga the contents were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the investigation which Messrs. de
Leon, Navarsi, and Agustin had promised to conduct to pinpoint responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
Dear Atty. Ong Yiu:
This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager, Southern
Philippines.
First of all, may we apologize for the delay in informing you of the result of our investigation since we visited you in
your office last August 31, 1967. Since there are stations other than Cebu which are involved in your case, we have
to communicate and await replies from them. We regret to inform you that to date we have not found the
supposedly lost folder of papers nor have we been able to pinpoint the personnel who allegedly pilferred your
baggage.
You must realize that no inventory was taken of the cargo upon loading them on any plane. Consequently, we have
no way of knowing the real contents of your baggage when same was loaded.
We realized the inconvenience you encountered of this incident but we trust that you will give us another
opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.

(Sgd) JEREMIAS S. AGUSTIN

Branch Supervisor
Cebu
(Exhibit G, Folder of Exhibits)

On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of transportation with the Court
of First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188, which PAL traversed. After due trial, the lower Court found
PAL to have acted in bad faith and with malice and declared petitioner entitled to moral damages in the sum of P80,000.00,
exemplary damages of P30,000.00, attorney's fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals petitioner in so far as he was awarded only the sum of P80,000.00 as moral
damages; and defendant because of the unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence, reversed the judgment of the trial
Court granting petitioner moral and exemplary damages, but ordered PAL to pay plaintiff the sum of P100.00, the baggage liability
assumed by it under the condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY ONLY OF SIMPLE NEGLIGENCE
AND NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE LAW WHEN IT REVERSED THE
DECISION OF THE LOWER COURT AWARDING TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00,
EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES, AND ORDERED
RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS
OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is the correctness of respondent
Court's conclusion that there was no gross negligence on the part of PAL and that it had not acted fraudulently or in bad faith as to
entitle petitioner to an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad faith means a breach of a known
duty through some motive of interest or ill will. 2 It was the duty of PAL to look for petitioner's luggage which had been miscarried. PAL
exerted due diligence in complying with such duty.
As aptly stated by the appellate Court:
We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had exerted diligent
effort to locate plaintiff's baggage. The trial court saw evidence of bad faith because PAL sent the telegraphic
message to Mactan only at 3:00 o'clock that same afternoon, despite plaintiff's indignation for the non-arrival of his
baggage. The message was sent within less than one hour after plaintiff's luggage could not be located. Efforts had
to be exerted to locate plaintiff's maleta. Then the Bancasi airport had to attend to other incoming passengers and
to the outgoing passengers. Certainly, no evidence of bad faith can be inferred from these facts. Cebu office
immediately wired Manila inquiring about the missing baggage of the plaintiff. At 3:59 P.M., Manila station agent at
the domestic airport wired Cebu that the baggage was over carried to Manila. And this message was received in
Cebu one minute thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon.
His Honor stated that the fact that the message was sent at 3:59 P.M. from Manila and completely relayed to
Mactan at 4:00 P.M., or within one minute, made the message appear spurious. This is a forced reasoning. A radio
message of about 50 words can be completely transmitted in even less than one minute depending upon
atmospheric conditions. Even if the message was sent from Manila or other distant places, the message can be
received within a minute. that is a scientific fact which cannot be questioned. 3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The telegram (Exh. B) was dispatched
by petitioner at around 10:00 P.M. of August 26, 1967. The PAL supervisor at Mactan Airport was notified of it only in the morning of
the following day. At that time the luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier than a reply telegram. Had
petitioner waited or caused someone to wait at the Bancasi airport for the arrival of the morning flight, he would have been able to
retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.

Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the Civil Code, exemplary
damages can be granted if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, which has not
been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage liability to the amount of
P100.00 as stipulated at the back of the ticket. In this connection, respondent Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the defendant, it is
presumed that the defendant had been negligent. The liability, however, of PAL for the loss, in accordance with the
stipulation written on the back of the ticket, Exhibit 12, is limited to P100.00 per baggage, plaintiff not having
declared a greater value, and not having called the attention of the defendant on its true value and paid the tariff
therefor. The validity of this stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly
big letters, and are easily readable. Moreover, plaintiff had been a frequent passenger of PAL from Cebu to Butuan
City and back, and he, being a lawyer and businessman, must be fully aware of these conditions. 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage of the passenger is LIMITED
TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess,
however, of a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay any additional
transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract with PAL limiting the
latter's liability for loss or delay of the baggage of its passengers, and that Article 1750* of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless bound by the provisions thereof.
"Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the
latter's lack of knowledge or assent to the regulation". 5 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. 6 And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World
Airlines, Inc., 349 S.W. 2d 483, "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.
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in
excess of P100.00.Besides, passengers are advised not to place valuable items inside their baggage but "to avail of our V-cargo
service " (Exh. "1"). I t is likewise to be noted that there is nothing in the evidence to show the actual value of the goods allegedly lost
by petitioner.
There is another matter involved, raised as an error by PAL the fact that on October 24, 1974 or two months after the promulgation
of the Decision of the appellate Court, petitioner's widow filed a Motion for Substitution claiming that petitioner died on January 6,
1974 and that she only came to know of the adverse Decision on October 23, 1974 when petitioner's law partner informed her that he
received copy of the Decision on August 28, 1974. Attached to her Motion was an Affidavit of petitioner's law partner reciting facts
constitutive of excusable negligence. The appellate Court noting that all pleadings had been signed by petitioner himself allowed the
widow "to take such steps as she or counsel may deem necessary." She then filed a Motion for Reconsideration over the opposition of
PAL which alleged that the Court of Appeals Decision, promulgated on August 22, 1974, had already become final and executory since
no appeal had been interposed therefrom within the reglementary period.
Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it is best that technicality yields
to the interests of substantial justice. Besides, in the 'last analysis, no serious prejudice has been caused respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be reviewed hereby affirmed in toto.
No costs. SO ORDERED.
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner, vs. COURT OF APPEALS AND SEVEN BROTHERS
SHIPPING CORPORATION, respondents. G.R. No. 102316 June 30, 1997
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, short-landing, breakages and any kind of
damages to the cargo" 1 valid? This is the main question raised in this petition for review assailing the Decision of Respondent Court
of Appeals 2 in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the judgment of the Regional
Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff the
sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal interest
thereon from the date of demand on February 2, 1984 until the amount is fully paid or in the alternative, defendant
Seven Brothers Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS (2,000,000.00)
representing the value of lost logs plus legal interest from the date of demand on April 24, 1984 until full payment
thereof; the reasonable attorney's fees in the amount equivalent to five (5) percent of the amount of the claim and
the costs of the suit.

Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven Brothers
Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an
agreement with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on
board its vessel M/V Seven Ambassador the former's lauan round logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and
Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio
Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the
plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary stamps
due on the policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy it issued as of the date of the inception for non-payment of the
premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of
the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with
defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both
defendants shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following assignment
of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors, was
not due to fortuitous event but to the negligence of the captain in stowing and securing the logs on board, causing
the iron chains to snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation from
logs (sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking article 1745
of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the
alternative and ordering/directing it to pay plaintiff-appellee the amount of two million (2,000,000.00) pesos
representing the value of the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee
reasonable attorney's fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for
attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and
Insurance Company, Inc. and likewise erred in not holding that he was the representative of the insurance broker
Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid on
the policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.

C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to and forming part of the Marine
Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and documentary
stamps to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy due to non-payment of
premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay
plaintiff-appellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until the
amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney's fees alleged and proven in its
counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are
liable to the plaintiff for the latter's lost logs. 4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and Insurance Company
("South Sea"), but modified it by holding that Seven Brothers Shipping Corporation ("Seven Brothers") was not liable for the lost
cargo. 5 In modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in
case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the
shipping corporation. The provisions on common carriers should not be applied where the carrier is not acting as
such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid
(Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs.

South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela") filed separate petitions for review
before
this
Court.
In
a
Resolution
dated
June
2,
1995,
this
Court
denied
the
petition
of
South
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and the Court of Appeals that Chua was indeed
an authorized agent of South Sea when he received Valenzuela's premium payment for the marine cargo insurance policy which was
thus binding on the insurer. 8
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision which exempted Seven
Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent Court (of Appeals) committed a
reversible error in upholding the validity of the stipulation in the charter party executed between the petitioner and the private
respondent exempting the latter from liability for the loss of petitioner's logs arising from the negligence of its (Seven Brothers')
captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the "(o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of damages to the cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the "snapping of the iron chains and the subsequent rolling of the logs to the
portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to fortuitous
event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as a private carrier when it contracted to transport
the cargo of Petitioner Valenzuela. Even the latter admits this in its petition. 12
The trial court deemed the charter party stipulation void for being contrary to public policy,
which provides:

13

citing Article 1745 of the Civil Code

Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a
man of ordinary prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or
irresistible threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of Commerce 14 and
Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further
contends that said stipulation "gives no duty or obligation to the private respondent to observe the diligence of a good father of a
family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as a private carrier in
transporting petitioner's lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which were cited by
petitioner may not be applied unless expressly stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer,
exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the ship captain. Pursuant
to Article 1306 17 of the Civil Code, such stipulation is valid because it is freely entered into by the parties and the same is not
contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a contract
of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be
applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common
carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by this Court in Home
Insurance Co. vs. American Steamship Agencies, Inc. 18 In that case, the trial court similarly nullified a stipulation identical to that
involved in the present case for being contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code of
Commerce. Consequently, the trial court held the shipowner liable for damages resulting for the partial loss of the cargo. This Court
reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of
its agent is not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the
carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent would be void if the strict public policy governing common
carriers is applied. Such policy has no force where the public at large is not involved, as in this case of a ship totally
chartered for the used of a single party. 19(Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract of transportation
with common carriers without a hand or a voice in the preparation thereof. The riding public merely adheres to the contract; even if
the public wants to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law on common carriers
extends its protective mantle against one-sided stipulations inserted in tickets, invoices or other documents over which the riding
public has no understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private carriage is not
similarly situated. It can and in fact it usually does enter into a free and voluntary agreement. In practice, the parties in a
contract of private carriage can stipulate the carrier's obligations and liabilities over the shipment which, in turn, determine the price
or consideration of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside the protection of
the law on common carriers. When the charterer decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it "covers only a stipulation
exempting a private carrier from liability for the negligence of his agent, but it does not apply to a stipulation exempting a private
carrier like private respondent from the negligence of his employee or servant which is the situation in this case." 20 This contention of
petitioner is bereft of merit, for it raises a distinction without any substantive difference. The case Home Insurance specifically dealt
with "the liability of the shipowner for acts or negligence of its captain and crew" 21 and a charter party stipulation which "exempts
the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain
or
crew
or
some
other
person
employed
by
the
owner
on

board, for whose acts the owner would ordinarily be liable except for said paragraph."
to the case at bar.

22

Undoubtedly, Home Insurance is applicable

The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the Philippines 23 deserves
scant consideration. The Court there categorically held that said rule was "reasonable" and proceeded to apply it in the resolution of
that case. Petitioner miserably failed to show such circumstances or arguments which would necessitate a departure from a wellsettled rule. Consequently, our ruling in said case remains a binding judicial precedent based on the doctrine of stare decisis and
Article 8 of the Civil Code which provides that "(j)udicial decisions applying or interpreting the laws or the Constitution shall form part
of the legal system of the Philippines."
In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a stipulation exempting the owner from
liability even for the negligence of its agents is valid." 24
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will discuss the other arguments
of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code of Commerce which
confer on petitioner the right to recover damages from the shipowner and ship agent for the acts or conduct of the captain. 25 We are
not persuaded. Whatever rights petitioner may have under the aforementioned statutory provisions were waived when it entered into
the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to law, public order, public policy,
morals, or good customs, or prejudicial to a person with a right recognized by law." As a general rule, patrimonial rights may be
waived as opposed to rights to personality and family rights which may not be made the subject of waiver. 26 Being patently and
undoubtedly patrimonial, petitioner's right conferred under said articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible or any damage to the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage binds petitioner and
private respondent alone; it is not imbued with public policy considerations for the general public or third persons are not affected
thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles 1170 and 1173 of the
Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a good
father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to perform. In the instant
case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for this obligation to bear the loss was shifted to
petitioner by virtue of the charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited by
petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article 1173 of the Civil Code
which prescribes the standard of diligence to be observed in the event the law or the contract is silent. In the instant case, Article 362
of the Code of Commerce 28 provides the standard of ordinary diligence for the carriage of goods by a carrier. The standard of
diligence under this statutory provision may, however, be modified in a contract of private carriage as the petitioner and private
respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael & Co. vs. Gabino Barreto & Co. 30 and
argues that the public policy considerations stated there vis-a-vis contractual stipulations limiting the carrier's liability be applied
"with equal force" to this case. 31 It also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and contends that stipulations
exempting a party from liability for damages due to negligence "should not be countenanced" and should be "strictly construed"
against the party claiming its benefit. 33 We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the application of such policy
considerations and concomitantly stricter rules. As already discussed above, the public policy considerations behind the rigorous
treatment of common carriers are absent in the case of private carriers. Hence, the stringent laws applicable to common carriers are
not applied to private carries. The case of Manila Railroad is also inapplicable because the action for damages there does not involve
a contract for transportation. Furthermore, the defendant therein made a "promise to use due care in the lifting operations" and,
consequently, it was "bound by its undertaking"'; besides, the exemption was intended to cover accidents due to hidden defects in
the apparatus or other unforseeable occurrences" not caused by its "personal negligence." This promise was thus constructed to

make sense together with the stipulation against liability for damages. 34 In the present case, we stress that the private respondent
made no such promise. The agreement of the parties to exempt the shipowner from responsibility for any damage to the cargo and
place responsibility over the same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith & Co. vs.Cadwallader Gibson Lumber
Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta Development Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco
Steamship Co. 39 in support of its contention that the shipowner be held liable for damages. 40 These however are not on all fours with
the present case because they do not involve a similar factual milieu or an identical stipulation in the charter party expressly
exempting the shipowner form responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court has earlier affirmed
the liability of South Sea for the loss suffered by petitioner. Private respondent submits that petitioner is not legally entitled to collect
twice for a single loss. 41 In view of the above disquisition upholding the validity of the questioned charter party stipulation and
holding that petitioner may not recover from private respondent, the present issue is moot and academic. It suffices to state that the
Resolution of this Court dated June 2, 1995 42 affirming the liability of South Sea does not, by itself, necessarily preclude the petitioner
from proceeding against private respondent. An aggrieved party may still recover the deficiency for the person causing the loss in the
event the amount paid by the insurance company does not fully cover the loss. Article 2207 of the Civil Code provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity for the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency form the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible error on the part of
Respondent Court. The assailed Decision is AFFIRMED. SO ORDERED.
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs. NEPTUNE ORIENT LINES/OVERSEAS AGENCY SERVICES,
INC., respondent. G.R. No. 145044
June 12, 2008
This is a petition for review on certiorari1 of the Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 52855 promulgated on April
13, 2000 granting respondents' motion for reconsideration dated March 9, 2000. The Resolution held respondents liable for damages
to petitioner subject to the limited-liability provision in the bill of lading.
The facts are as follows:
On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong three sets of warp yarn on returnable
beams aboard respondent Neptune Orient Lines' vessel, M/V Baltimar Orion, for transport and delivery to Fukuyama Manufacturing
Corporation (Fukuyama) of No. 7 Jasmin Street, AUV Subdivision, Metro Manila.
The said cargoes were loaded in Container No. IEAU-4592750 in good condition under Bill of Lading No. HKG-0396180. Fukuyama
insured the shipment against all risks with petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy No.
RN55581 in the amount of P228,085.
During the course of the voyage, the container with the cargoes fell overboard and was lost.
Thus, Fukuyama wrote a letter to respondent Overseas Agency Services, Inc. (Overseas Agency), the agent of Neptune Orient Lines in
Manila, and claimed for the value of the lost cargoes. However, Overseas Agency ignored the claim. Hence, Fukuyama sought
payment from its insurer, PCIC, for the insured value of the cargoes in the amount of P228,085, which claim was fully satisfied by
PCIC.
On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner PCIC for the latter to be subrogated in its right to recover
its losses from respondents.
PCIC demanded from respondents reimbursement of the entire amount it paid to Fukuyama, but respondents refused payment.
On March 21, 1994, PCIC filed a complaint for damages against respondents with the Regional Trial Court (RTC) of Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying liability. They alleged that during the voyage, the vessel
encountered strong winds and heavy seas making the vessel pitch and roll, which caused the subject container with the cargoes to
fall overboard. Respondents contended that the occurrence was a fortuitous event which exempted them from any liability, and that
their liability, if any, should not exceed US$500 or the limit of liability in the bill of lading, whichever is lower.
In a Decision dated January 12, 1996, the RTC held that respondents, as common carrier, 2 failed to prove that they observed the
required extraordinary diligence to prevent loss of the subject cargoes in accordance with the pertinent provisions of the Civil
Code.3 The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering the defendants, jointly and severally, to pay the plaintiff the Peso equivalent as
of February 17, 1994 of HK$55,000.00 or the sum of P228,085.00, whichever is lower, with costs against the defendants. 4
Respondents' motion for reconsideration was denied by the RTC in an Order dated February 19, 1996.

Respondents appealed the RTC Decision to the CA.

In a Decision promulgated on February 15, 2000, the CA affirmed the RTC Decision with modification, thus:
WHEREFORE, the assailed decision is hereby MODIFIED. Appellants Neptune and Overseas are hereby ordered to pay jointly
and severally appellee PCIC P228,085.00, representing the amount it paid Fukuyama. Costs against the appellants. 5
Respondents moved for reconsideration of the Decision of the CA arguing, among others, that their liability was only US$1,500 or
US$500 per package under the limited liability provision of the Carriage of Goods by Sea Act (COGSA).
In its Resolution dated April 13, 2000, the CA found the said argument of respondents to be meritorious. The dispositive portion of the
Resolution reads:
WHEREFORE, the motion is partly granted in the sense that appellants shall be liable to pay appellee PCIC the value of the
three packages lost computed at the rate of US$500 per package or a total of US$1,500.00. 6
Hence, this petition raising this lone issue:
THE COURT OF APPEALS ERRED IN AWARDING RESPONDENTS DAMAGES SUBJECT TO THE US$500 PER PACKAGE LIMITATION.
Petitioner contends that the CA erred in awarding damages to respondents subject to the US$500 per package limitation since the
vessel committed a "quasi deviation" which is a breach of the contract of carriage when it intentionally threw overboard the
container with the subject shipment during the voyage to Manila for its own benefit or preservation based on a Survey
Report7 conducted by Mariner's Adjustment Corporation, which firm was tasked by petitioner to investigate the loss of the subject
cargoes. According to petitioner, the breach of contract resulted in the abrogation of respondents' rights under the contract and
COGSA including the US$500 per package limitation. Hence, respondents cannot invoke the benefit of the US$500 per package
limitation and the CA erred in considering the limitation and modifying its decision accordingly.
The contention lacks merit.
The facts as found by the RTC do not support the new allegation of facts by petitioner regarding the intentional throwing overboard of
the subject cargoes and quasi deviation. The Court notes that in petitioner's Complaint before the RTC, petitioner alleged as follows:
xxx

xxx

xxx

2.03 In the course of the maritime voyage from Hongkong to Manila subject shipment fell overboardwhile in the custody
of the defendants and were never recovered; it was part of the LCL cargoes packed by defendants in container IEAU4592750 that fell overboard during the voyage.8
Moreover, the same Survey Report cited by petitioner stated:
From the investigation conducted, we noted that Capt. S.L. Halloway, Master of MV "BALTIMAR ORION" filed a Note of Protest
in the City of Manila, and was notarized on 06 October 1993.
Based on Note of Protest, copy attached hereto for your reference, carrier vessel sailed from Hongkong on 1 st October 1993
carrying containers bound for Manila.
Apparently, at the time the vessel [was] sailing at about 2400 hours of 2 nd October 1993, she encountered winds and seas
such as to cause occasional moderate to heavy pitching and rolling deeply at times. At 0154 hours, same day, while in
position Lat. 20 degrees, 29 minutes North, Long. 115 degrees, 49 minutes East, four (4) x 40 ft. containers were lost/fell
overboard. The numbers of these containers are NUSU-3100789, TPHU -5262138, IEAU-4592750, NUSU-4515404.
xxx

xxx

xxx

Furthermore, during the course of voyage, high winds and heavy seas were encountered causing the ship to roll and pitch
heavily. The course and speed was altered to ease motion of the vessel, causing delay and loss of time on the voyage.
xxx

xxx

xxx

SURVEYORS REMARKS:
In view of the foregoing incident, we are of the opinion that the shipment of 3 cases of Various Warp Yarn on Returnable
Beams which were containerized onto 40 feet LCL (no. IEAU-4592750) and fell overboardthe subject vessel during heavy
weather is an "Actual Total Loss".9
The records show that the subject cargoes fell overboard the ship and petitioner should not vary the facts of the case on appeal. This
Court is not a trier of facts, and, in this case, the factual finding of the RTC and the CA, which is supported by the evidence on record,
is conclusive upon this Court.
As regards the issue on the limited liability of respondents, the Court upholds the decision of the CA.
Since the subject cargoes were lost while being transported by respondent common carrier from Hong Kong to the Philippines,
Philippine law applies pursuant to the Civil Code which provides:

Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for
their loss, destruction or deterioration.
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the
Code of Commerce and by special laws.
The rights and obligations of respondent common carrier are thus governed by the provisions of the Civil Code, and the
COGSA,10 which is a special law, applies suppletorily.
The pertinent provisions of the Civil Code applicable to this case are as follows:
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
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.
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for the carriage of goods by sea to and from
Philippine ports in foreign trade, provides:
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value
of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on the carrier.
In this case, Bill of Lading No. 0396180 stipulates:
Neither the Carrier nor the vessel shall in any event become liable for any loss of or damage to or in connection with the
transportation of Goods in an amount exceeding US$500 (which is the package or shipping unit limitation under U.S. COGSA)
per package or in the case of Goods not shipped in packages per shipping unit or customary freight, unless the nature
and value of such Goods have been declared by the Shipper before shipment and inserted in this Bill of Lading
and the Shipper has paid additional charges on such declared value. . . .
The bill of lading11 submitted in evidence by petitioner did not show that the shipper in Hong Kong declared the actual value of the
goods as insured by Fukuyama before shipment and that the said value was inserted in the Bill of Lading, and so no additional
charges were paid. Hence, the stipulation in the bill of lading that the carrier's liability shall not exceed US$500 per package applies.
Such stipulation in the bill of lading limiting respondents' liability for the loss of the subject cargoes is allowed under Art. 1749 of the
Civil Code, and Sec. 4, paragraph (5) of the COGSA. Everett Steamship Corporation v. Court of Appeals 12 held:
A stipulation in the bill of lading limiting the common carrier's 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 carrier's liability is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.'
'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.'
Such limited-liability clause has also been consistently upheld by this court in a number of cases. Thus, in Sea-Land Service,
Inc. vs. Intermediate Appellate Court, 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.... 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.'
The CA, therefore, did not err in holding respondents liable for damages to petitioner subject to the US$500 per package limitedliability provision in the bill of lading.
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals in CA-G.R. CV No. 52855 promulgated on April 13, 2000
is hereby AFFIRMED. Costs against petitioner. SO ORDERED.
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners, vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents. G.R. No. 143133
June 5, 2002

Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their destination constitutes prima
facie fault or negligence on the part of the carrier. If no adequate explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998 Decision 1 and the May 2, 2000
Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads as follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and SET ASIDE.
Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following:
'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual damages,
representing the value of the damaged cargo, plus interest at the legal rate from the time of filing of the complaint
on July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit.'"4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as defendant's
counterclaim."5
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of various
Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. On July 28,
1990, M/V Anangel Sky arrived at the port of Manila and, within the subsequent days, discharged the subject cargo. Four (4)
coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to be unfit
for the intended purpose, the consignee Philippine Steel Trading Corporation declared the same as total loss.1wphi1.nt
"Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee's claim. Consequently,
plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (P506,086.50), and was
subrogated to the latter's rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant
instituted this complaint for recovery of the amount paid by them, to the consignee as insured.
"Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss was due to
pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the sea, or to
insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their representatives. In addition
thereto, defendants-appellees argued that their liability, if there be any, should not exceed the limitations of liability
provided for in the bill of lading and other pertinent laws. Finally, defendants-appellees averred that, in any event, they
exercised due diligence and foresight required by law to prevent any damage/loss to said shipment." 6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of proof required by law. 7
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous or primarily intended to harass
them.8
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods shipped, because they
had failed to overcome the presumption of negligence imposed on common carriers.
The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the goods was due to pre-shipment
damage.9 It likewise opined that the notation "metal envelopes rust stained and slightly dented" placed on the Bill of Lading had not
been the proximate cause of the damage to the four (4) coils.10
As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not applicable, because the words
"L/C No. 90/02447" indicated that a higher valuation of the cargo had been declared by the shipper. The CA, however, affirmed the
award of attorney's fees.
Hence, this Petition.11
Issues

In their Memorandum, petitioners raise the following issues for the Court's consideration:
I
"Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and
whose testimony is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage and to
exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is applicable to the case at bar." 12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the basis of the lone
testimony offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they transport. 13 Thus,
common carriers are required to render service with the greatest skill and foresight and "to use all reason[a]ble means to ascertain
the nature and characteristics of the goods tendered for shipment, and to exercise due care in the handling and stowage, including
such methods as their nature requires." 14 The extraordinary responsibility lasts from the time the goods are unconditionally placed in
the possession of and received for transportation by the carrier until they are delivered, actually or constructively, to the consignee or
to the person who has a right to receive them.15
This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such contract, the riding public
enters into a contract of transportation with common carriers. 16 Even if it wants to, it cannot submit its own stipulations for their
approval.17 Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed. 18 That is, unless they prove that they exercised
extraordinary diligence in transporting the goods.19 In order to avoid responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such diligence.20
However, the presumption of fault or negligence will not arise 21 if the loss is due to any of the following causes: (1) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether international or civil; (3) an
act or omission of the shipper or owner of the goods; (4) the character of the goods or defects in the packing or the container; or (5)
an order or act of competent public authority. 22 This is a closed list. If the cause of destruction, loss or deterioration is other than the
enumerated circumstances, then the carrier is liable therefor.23
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at
their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to
how the deterioration, the loss or the destruction of the goods happened, the transporter shall be held responsible. 24
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a review of the records and
more so by the evidence adduced by respondent.25
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in Hamburg, Germany. 26

Second, prior to the unloading of the cargo, an Inspection Report 27 prepared and signed by representatives of both parties showed the
steel bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979 28 issued by Jardine Davies Transport Services, Inc., stated that the four coils were in bad
order and condition. Normally, a request for a bad order survey is made in case there is an apparent or a presumed loss or damage. 29
Fourth, the Certificate of Analysis 30 stated that, based on the sample submitted and tested, the steel sheets found in bad order were
wet with fresh water.
Fifth, petitioners -- in a letter 31 addressed to the Philippine Steel Coating Corporation and dated October 12, 1990 -- admitted that
they were aware of the condition of the four coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent portions of his testimony are
reproduce hereunder:
"Q.
Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what company
you are connected?
A.

BM Santos Checkers Agency, sir.

Q.

How is BM Santos checkers Agency related or connected with defendant Jardine Davies Transport Services?

A.

It is the company who contracts the checkers, sir.

Q.

You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and responsibilities?

A.

I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.

xxx

xxx

xxx

Q.

On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker?

A.

Yes, sir.

Q.
And, on or about that date, do you recall having attended the discharging and inspection of cold steel sheets in coil on
board the MV/AN ANGEL SKY?
A.

Yes, sir, I was there.

xxx

xxx

xxx

Q.
Based on your inspection since you were also present at that time, will you inform this Honorable Court the condition
or the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the best
evidence is the document itself, Your Honor that shows the condition of the steel sheets.
COURT:
Let the witness answer.
A.

The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides." 32

All these conclusively prove the fact of shipment in good order and condition and the consequent damage to the four coils while in
the possession of petitioner,33 who notably failed to explain why.34
Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the law requires a common
carrier to know and to follow to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery. 35
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss. 36 Having been in the service for several years, the master of the
vessel should have known at the outset that metal envelopes in the said state would eventually deteriorate when not properly stored
while in transit.37 Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of transporting
them, the master of the vessel and his crew should have undertaken precautionary measures to avoid possible deterioration of the
cargo. But none of these measures was taken. 38 Having failed to discharge the burden of proving that they have exercised the
extraordinary diligence required by law, petitioners cannot escape liability for the damage to the four coils. 39
In their attempt to escape liability, petitioners further contend that they are exempted from liability under Article 1734(4) of the Civil
Code. They cite the notation "metal envelopes rust stained and slightly dented" printed on the Bill of Lading as evidence that the
character of the goods or defect in the packing or the containers was the proximate cause of the damage. We are not convinced.

From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to the condition noted on
the Bill of Lading.40 The aforecited exception refers to cases when goods are lost or damaged while in transit as a result of the natural
decay of perishable goods or the fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods
in transport, defects in packages in which they are shipped, or the natural propensities of animals. 41 None of these is present in the
instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary observation, it is not
relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding such condition. 42 Thus, petitioners
have not successfully proven the application of any of the aforecited exceptions in the present case. 43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act 44 (COGSA), respondent should have filed
its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent
filed its Notice of Claim only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be given if the state of the
goods, at the time of their receipt, has been the subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo,
an Inspection Report46 as to the condition of the goods was prepared and signed by representatives of both parties. 47
Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar recovery if it is nonetheless
filed within one year.48 This one-year prescriptive period also applies to the shipper, the consignee, the insurer of the goods or any
legal holder of the bill of lading.49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by prescription as long as the one-year period
has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit--may be applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint 51 was filed by respondent on July 25, 1991, within
the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability should be limited to US$500 per
package as provided in the Bill of Lading and by Section 4(5)52 of COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the subject shipment was
declared by petitioners beforehand, as evidenced by the reference to and the insertion of the Letter of Credit or "L/C No. 90/02447" in
the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped. 53 Second, it is a contract by which three parties -namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and assume stipulated obligations. 56 In a
nutshell, the acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that it constituted a perfected and binding contract. 57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or destruction of a cargo -unless the shipper or owner declares a greater value 58 -- is sanctioned by law.59 There are, however, two conditions to be satisfied: (1)
the contract is reasonable and just under the circumstances, and (2) it has been fairly and freely agreed upon by the parties. 60 The
rationale for this rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods. 61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per package. 62 In all
matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce
and special laws.63 Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a
statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading. 64 The
provisions on limited liability are as much a part of the bill of lading as though physically in it and as though placed there by
agreement of the parties.65
In the case before us, there was no stipulation in the Bill of Lading 66 limiting the carrier's liability. Neither did the shipper declare a
higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the
basis for petitioners' liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the importation of
steel sheets did not effect a declaration of the value of the goods as required by the bill. 67 That notation was made only for the
convenience of the shipper and the bank processing the Letter of Credit. 68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate from the Other Letter of Credit
arrangements. We ruled thus:

"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the
contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount of
goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect
the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to
look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected
to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis--vis the commercial
invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount
in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract of transportation." 70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per package and not on the per metric ton
price declared in the Letter of Credit. 71 In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,72 we explained the meaning
of packages:
"When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of
such units is disclosed in the shipping documents, each of those units and not the container constitutes the 'package'
referred to in the liability limitation provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the contents of the
containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should be considered as the
shipping unit subject to the US$500 limitation.1wphi1.nt
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners' liability is reduced to US$2,000 plus
interest at the legal rate of six percent from the time of the filing of the Complaint on July 25, 1991 until the finality of this Decision,
and 12 percent thereafter until fully paid. No pronouncement as to costs. SO ORDERED.
MAGELLAN MANUFACTURING MARKETING CORPORATION, * petitioner, vs. COURT OF APPEALS, ORIENT OVERSEAS
CONTAINER LINES and F.E. ZUELLIG, INC. respondents.
Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent Court of Appeals in CA-G.R. CV
No. 18781, 1 affirming in part the decision of the trial court, 2 the dispositive portion of which reads:
Premises considered, the decision appealed from is affirmed insofar as it dismisses the complaint. On the counterclaim, however, appellant is ordered to pay appellees the amount of P52,102.45 with legal interest from date of
extra-judicial demand. The award of attorney's fees is deleted. 3
The facts as found by respondent appellate court are as follows:
On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with
Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of $23,220.00. As payment
thereof, a letter of credit was issued to plaintiff MMMC by the buyer. Through its president, James Cu, MMMC then
contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw fans through the
other appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of lading
and that transhipment is not allowed under the letter of credit (Exh. B-1). On June 30, 1980, appellant MMMC paid
F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented to Allied Bank. The bank
then credited the amount of US$23,220.00 covered by the letter of credit to appellant's account. However, when
appellant's president James Cu, went back to the bank later, he was informed that the payment was refused by the
buyer allegedly because there was no on-board bill of lading, and there was a transhipment of goods. As a result of
the refusal of the buyer to accept, upon appellant's request, the anahaw fans were shipped back to Manila by
appellees, for which the latter demanded from appellant payment of P246,043.43. Appellant abandoned the whole
cargo and asked appellees for damages.
In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of 136,000 pieces of
Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at Manila on board the MV 'Pacific Despatcher'
freight prepaid, and duly covered by Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that the
shipment was delivered at the port of discharge on July 19, 1980, but was subsequently returned to Manila after the
consignee refused to accept/pay the same. 4
Elaborating on the above findings of fact of respondent court and without being disputed by herein private respondents, petitioner
additionally avers that:
When petitioner informed private respondents about what happened, the latter issued a certificate stating that its
bill of lading it issued is an on board bill of lading and that there was no actual transhipment of the fans. According
to private respondents when the goods are transferred from one vessel to another which both belong to the same
owner which was what happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this
certification to Choju Co., Ltd., but the said company still refused to accept the goods which arrived in Japan on July
19, 1980.
Private respondents billed petitioner in the amount of P16,342.21 for such shipment and P34,928.71 for demurrage
in Japan from July 26 up to August 31, 1980 or a total of P51,271.02. In a letter dated March 20, 1981, private
respondents gave petitioner the option of paying the sum of P51,271.02 or to abandon the Anahaw fans to enable
private respondents to sell them at public auction to cover the cost of shipment and demurrages. Petitioner opted
to abandon the goods. However, in a letter dated June 22, 1981 private respondents demanded for payment of
P298,150.93 from petitioner which represents the freight charges from Japan to Manila, demurrage incurred in Japan
and Manila from October 22, 1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw
fans on May 20, 1981.

On July 20, 1981 petitioner filed the complaint in this case praying that private respondents be ordered to pay
whatever petitioner was not able to earn from Choju Co., Ltd., amounting to P174,150.00 and other damages like
attorney's fees since private respondents are to blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans.
In answer thereto the private respondents alleged that the bill of lading clearly shows that there will be a
transhipment and that petitioner was well aware that MV (Pacific) Despatcher was only up to Hongkong where the
subject cargo will be transferred to another vessel for Japan. Private respondents also filed a counterclaim praying
that petitioner be ordered to pay freight charges from Japan to Manila and the demurrages in Japan and Manila
amounting to P298,150.93.
The lower court decided the case in favor of private respondents. It dismissed the complaint on the ground that
petitioner had given its consent to the contents of the bill of lading where it is clearly indicated that there will be
transhipment. The lower court also said that petitioner is liable to pay to private respondent the freight charges
from Japan to Manila and demurrages since it was the former which ordered the reshipment of the cargo from Japan
to Manila.
On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a transhipment of the
goods was affirmed but the finding that petitioner is liable for P298,150.93 was modified. It was reduced to
P52,102.45 which represents the freight charges and demurrages incurred in Japan but not for the demurrages
incurred in Marta. According to the respondent (court) the petitioner can not be held liable for the demurrages
incurred in Manila because Private respondents did not timely inform petitioner that the goods were already in
Manila in addition to the fact that private respondent had given petitioner the option of abandoning the goods in
exchange for the demurrages. 5
Petitioner, being dissatisfied with the decision of respondent court and the motion for reconsideration thereof having been denied,
invokes the Court's review powers for the resolution of the issues as to whether or not respondent court erred (1) in affirming the
decision of the trial court which dismissed petitioner's complaint; and (2) in holding petitioner liable to private respondents in the
amount of P52,102.45. 6
I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take delivery of the exported anahaw
fans resulting in a loss of P174,150.00 representing the purchase price of the said export items because of violation of the terms and
conditions of the letter of credit issued in favor of the former which specified the requirement for an on board bill of lading and the
prohibition against transhipment of goods, inasmuch as the bill of lading issued by the latter bore the notation "received for
shipment" and contained an entry indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On the matter of transhipment, petitioner maintains that "... while the goods were
transferred in Hongkong from MV Pacific Despatcher, the feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot
be considered transhipment because both vessels belong to the same shipping company, the private respondent Orient Overseas
Container Lines, Inc." 7 Petitioner emphatically goes on to say: "To be sure, there was no actual transhipment of the Anahaw fans. The
private respondents have executed a certification to the effect that while the Anahaw fans were transferred from one vessel to
another in Hong Kong, since the two vessels belong to one and the same company then there was no transhipment. 8
Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in another," 9 or "the transfer of
goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the
contract has been reached," 10 or "the transfer for further transportation from one ship or conveyance to another." 11 Clearly, either in
its ordinary or its strictly legal acceptation, there is transhipment whether or not the same person, firm or entity owns the vessels. In
other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or conveyances or in the change
of carriers, as the petitioner seems to suggest, but rather on the fact of actual physical transfer of cargo from one vessel to another.
That there was transhipment within this contemplation is the inescapable conclusion, as there unmistakably appears on the face of
the bill of lading the entry "Hong Kong" in the blank space labeled "Transhipment," which can only mean that transhipment actually
took place. 12 This fact is further bolstered by the certification 13 issued by private respondent F.E. Zuellig, Inc. dated July 19, 1980,
although it carefully used the term "transfer" instead of transhipment. Nonetheless, no amount of semantic juggling can mask the
fact that transhipment in truth occurred in this case.
Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans, then there is no occasion under which
the petitioner can agree to the transhipment of the Anahaw fans because there is nothing like that to agree to" and "(i)f there is no
actual transhipment but there appears to be a transhipment in the bill of lading, then there can be no possible reason for it but a
mistake on the part of the private respondents. 14
Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private respondents, such a mistake
militates against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the parties, as an
exception to the parol evidence rule, and would therefore permit it to explain or present evidence to vary or contradict the terms of
the written agreement, that is, the bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of lading 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 contract, it names the parties, which includes the
consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the
parties. 15 Being a contract, it is the law between the parties who are bound by its terms and conditions provided that these are not
contrary to law, morals, good customs, public order and public policy. 16 A bill of lading usually becomes effective upon its delivery to
and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper
conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not. 17
The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection after an opportunity to inspect
it, and permits the carrier to act on it by proceeding with the shipment is presumed to have accepted it as correctly stating the
contract and to have assented to its terms. In other words, the acceptance of the bill without dissent raises the presumption that all
the terms therein were brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake, he is

estopped from thereafter denying that he assented to such terms. This rule applies with particular force where a shipper accepts a bill
of lading with full knowledge of its contents and acceptance under such circumstances makes it a binding contract. 18
In the light of the series of events that transpired in the case at bar, there can be no logical conclusion other than that the petitioner
had full knowledge of, and actually consented to, the terms and conditions of the bill of lading thereby making the same conclusive as
to it, and it cannot now be heard to deny having assented thereto. As borne out by the records, James Cu himself, in his capacity as
president of MMMC, personally received and signed the bill of lading. On practical considerations, there is no better way to signify
consent than by voluntarry signing the document which embodies the agreement. As found by the Court of Appeals
Contrary to appellant's allegation that it did not agree to the transhipment, it could be gleaned from the record that
the appellant actually consented to the transhipment when it received the bill of lading personally at appellee's (F.E.
Zuellig's) office. There clearly appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT" an
entry "HONGKONG' (Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and the corresponding
check in payment of the freight (Exhibit D), implying that he consented to the transhipment (Decision, p. 6,
Rollo). 19
Furthermore and particularly on the matter of whether or not there was transhipment, James Cu, in his testimony on
crossexamination, categorically stated that he knew for a fact that the shipment was to be unloaded in Hong Kong from the MV Pacific
Despatcher to be transferred to a mother vessel, the MV Oriental Researcher in this wise:
Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transhipped at
the port of Hongkong?
A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if they
should not put a transhipment in Hongkong, that's why they even stated in the certification.
xxx xxx xxx
Q In layman's language, would you agree with me that transhipment is the transfer of a cargo
from one vessel to the other?
A As a layman, yes.
Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M. V.
Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher, (sic)
you know that for a fact?
A Yes, sir. (Emphasis supplied.)

20

Under the parol evidence rule, 21 the terms of a contract are rendered conclusive upon the parties, and evidence aliundeis not
admissible to vary or contradict a complete and enforceable agreement embodied in a document, subject to well defined exceptions
which do not obtain in this case. The parol evidence rule is based on the consideration that when the parties have reduced their
agreement on a particular matter into writing, all their previous and contemporaneous agreements on the matter are merged therein.
Accordingly, evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the
operation of a valid instrument. 22 The mistake contemplated as an exception to the parol evidence rule is one which is a mistake of
fact mutual to the parties. 23 Furthermore, the rules on evidence, as amended, require that in order that parol evidence may be
admitted, said mistake must be put in issue by the pleadings, such that if not raised inceptively in the complaint or in the answer, as
the case may be, a party can not later on be permitted to introduce parol evidence thereon. 24 Needless to say, the mistake adverted
to by herein petitioner, and by its own admission, was supposedly committed by private respondents only and was raised by the
former rather belatedly only in this instant petition. Clearly then, and for failure to comply even only with the procedural requirements
thereon, we cannot admit evidence to prove or explain the alleged mistake in documentation imputed to private respondents by
petitioner.
Petitioner further argues that assuming that there was transhipment, it cannot be deemed to have agreed thereto even if it signed
the bill of lading containing such entry because it had made known to private respondents from the start that transhipment was
prohibited under the letter of credit and that, therefore, it had no intention to allow transhipment of the subject cargo. In support of
its stand, petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that "(i)f the words appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Phil.,
Inc. vs. Intermediate Appellate Court, et al. 25 that "where the literal interpretation of a contract is contrary to the evident intention of
the parties, the latter shall prevail."
As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the intention of the parties, it is
irremissible that the latter must prevail. Petitioner conveniently overlooks the first paragraph of the very article that he cites which
provides that "(i)f the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control." In addition, Article 1371 of the same Code provides that "(i)n order to judge the intention of
the contracting parties, their contemporaneous and subsequent acts shall be principally considered."
The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any interpretation. The intention
of the parties which is the carriage of the cargo under the terms specified thereunder and the wordings of the bill of lading do not
contradict each other. The terms of the contract being conclusive upon the parties and judging from the contemporaneous and
subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there is
no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill of lading
and that it intended to be bound thereby.

Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse, however competent and safe the
vessel into which the transfer is made, is a violation of the contract and an infringement of the right of the shipper, and subjects the
carrier to liability if the freight is lost even by a cause otherwise excepted. 26 It is highly improbable to suppose that private
respondents, having been engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have
undertaken such transhipment without petitioner's consent and unnecessarily expose themselves to a possible liability. Verily, they
could only have undertaken transhipment with the shipper's permission, as evidenced by the signature of James Cu.
Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was that the bill of lading that was issued
was not an on board bill of lading, in clear violation of the terms of the letter of credit issued in favor of petitioner. On crossexamination, it was likewise established that petitioner, through its aforesaid president, was aware of this fact, thus:
Q If the container van, the loaded container van, was transported back to South Harbor on June
27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?
A I received on June 30, 1980. I received at the same time so then I gave the check.
xxx xxx xxx
Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?
A Yes, sir.
Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading
states: 'Received for shipment'only? .
A Yes, sir.
Q What did you say?
A I requested to issue me on board bill of lading.
Q When?
A In the same date of June 30.
Q What did they say?
A They said, they cannot.
xxx xxx xxx
Q Do you know the difference between a "received for shipment bill of lading" and "on board bill
of lading"?
A Yes, sir.
Q What's the difference?
A Received for shipment, you can receive the cargo even you don't ship on board, that is placed in
the warehouse; while on-board bill of lading means that is loaded on the vessel, the goods.
xxx xxx xxx
Q In other words, it was not yet on board the vessel?
A During that time, not yet.
xxx xxx xxx
Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel you can
demand an on-board bill of lading not only a received for shipment bill of lading.?
A Yes sir.
Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of lading
with an on-board bill of lading?
A Of course, instead they issue me a certification.
Q They give you a ... ?

A ... a certification that it was loaded on board on June 30.

xxx xxx xxx
Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there should be
no transhipment and that it should also get an on board bill of lading.?
A Yes sir.

27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that there be an on board bill of
lading, obviously due to the guaranty afforded by such a bill of lading over any other kind of bill of lading. The buyer could not have
insisted on such a stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having
an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction between an "on board" and a "received
for shipment" bill of lading, as manifested by James Cu's testimony. It is only to be expected that those long engaged in the export
industry should be familiar with business usages and customs.
In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private respondent F.E. Zuellig which, in turn,
issued a certification that as of June 30, 1980, the Anahaw fans were already on board MV Pacific Despatcher (which means that the
bill of lading is an on- board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of lading as
governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...." 28 What the petitioner would suggest is that said certification issued by
F.E. Zuellig, Inc., dated July 19, 1980, had the effect of converting the original "received for shipment only" bill of lading into an "on
board" bill of lading as required by the buyer and was, therefore, by substantial compliance, not violative of the contract.
An on board bill of lading is one in which it is stated that the goods have been received on board the vessel which is to carry the
goods, whereas a received for shipment bill of lading is one in which it is stated that the goods have been received for shipment with
or without specifying the vessel by which the goods are to be shipped. Received for shipment bills of lading are issued whenever
conditions are not normal and there is insufficiency of shipping space. 29 An on board bill of lading is issued when the goods have
been actually placed aboard the ship with every reasonable expectation that the shipment is as good as on its way. 30 It is, therefore,
understandable that a party to a maritime contract would require an on board bill of lading because of its apparent guaranty of
certainty of shipping as well as the seaworthiness of the vessel which is to carry the goods.
It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of lading, as originally issued, into
an on board bill of lading as required by the terms of the letter of credit issued in favor of petitioner. For one, the certification was
issued only on July 19, 1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on
board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have the effect of converting the
received for shipment bill of lading into an on board of bill of lading, as petitioner would have us believe, such an effect may be
achieved only as of the date of its issuance, that is, on July 19, 1980 and onwards.
The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was presented by petitioner in
compliance with the terms of the letter of credit and this default consequently negates its entitlement to the proceeds thereof. Said
certification, if allowed to operate retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it would indubitably be stretching
the concept of substantial compliance too far.
Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion, thus warranting a more liberal
consideration in its favor to the extent of interpreting ambiguities against private respondents as allegedly being the parties who
gave rise thereto. The bill of lading is clear on its face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of
its terms and conditions are plainly worded and commonly understood by those in the business.
It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May 20,1980 or over a month before the
expiry date of the letter of credit on June 30, 1980, thus giving it more than ample time to find a carrier that could comply with the
requirements of shipment under the letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion.
However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al. 31 and reiterated in Servando, et al. vs. Philippine Steam
Navigation Co., 32 plane tickets as well as bills of lading 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. The respondent court correctly observed in the present case
that "when the appellant received the bill of lading, it was tantamount to appellant's adherence to the terms and conditions as
embodied therein. 33
In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly violative of the requirements of
the letter of credit. Nonetheless, perhaps in its eagerness to conclude the transaction with its Japanese buyer and in a race to beat
the expiry date of the letter of credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the
indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring that such violations may be
overlooked, if not disregarded, so long as the cargo is delivered on time. Unfortunately, the risk did not pull through as hoped for. Any
violation of the terms and conditions of the letter of credit as would defeat its right to collect the proceeds thereof was, therefore,
entirely of the petitioner's making for which it must bear the consequences. As finally averred by private respondents, and with which
we agree, "... the questions of whether or not there was a violation of the terms and conditions of the letter of credit, or whether or
not such violation was the cause or motive for the rejection by petitioner's Japanese buyer should not affect private respondents
therein since they were not privies to the terms and conditions of petitioner's letter of credit and cannot therefore be held liable for
any violation thereof by any of the parties thereto." 34
II. Petitioner contends that respondent court erred in holding it liable to private respondents for P52,102.45 despite its exercise of its
option to abandon the cargo. It will be recalled that the trial court originally found petitioner liable for P298,150.93, which amount
consists of P51,271.02 for freight, demurrage and other charges during the time that the goods were in Japan and for its reshipment
to Manila, P831.43 for charges paid to the Manila International Port Terminal, and P246,043.43 for demurrage in Manila from October
22, 1980 to June 18, 1981. On appeal, the Court of Appeals limited petitioner's liability to P52,102.45 when it ruled:

As regards the amount of P51,271.02, which represents the freight charges for the return shipment to Manila and
the demurrage charges in Japan, the same is supported by appellant's own letter request (Exh. 2) for the return of
the shipment to Manila at its (appellant's) expense, and hence, it should be held liable therefor. The amount of
P831.43 was paid to the Manila International Port Terminal upon arrival of the shipment in Manila for appellant's
account. It should properly be charged to said appellant. 35
However, respondent court modified the trial court's decision by excluding the award for P246,043.43 for demurrage in Manila from
October 22, 1980 to June 18, 1981.
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the detention of the vessel
beyond the time agreed on for loading and unloading. Essentially, demurrage is the claim for damages for failure to accept delivery.
In a broad sense, every improper detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract. Using the term in its broader sense, damages in the
nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable dispatch, but
only by the party to whom the duty is owed and only against one who is a party to the shipping contract. 36 Notice of arrival of vessels
or conveyances, or of their placement for purposes of unloading is often a condition precedent to the right to collect demurrage
charges.
Private respondents, admittedly, have adopted the common practice of requiring prior notice of arrival of the goods shipped before
the shipper can be held liable for demurrage, as declared by Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on
cross-examination as a witness for private respondents:
Q ... you will agree with me that before one could be charged with demurrage the shipper should
be notified of the arrival of the shipment?
A Yes sir.
Q Without such notification, there is no way by which the shipper would know (of) such arrival?
A Yes.
Q And no charges of demurrage before the arrival of the cargo?
A Yes sir.

37

Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from October up to May 1980, arriv(al) in Manila, are
concerned, We are of the view that appellant should not be made to shoulder the same, as it was not at fault nor
was it responsible for said demurrage charges. Appellee's own witness (Mabazza) testified that while the goods
arrived in Manila in October 1980, appellant was notified of said arrival only in March 1981. No explanation was
given for the delay in notifying appellant. We agree with appellant that before it could be charged for demurrage
charges it should have been notified of the arrival of the goods first. Without such notification it could not- be so
charged because there was no way by which it would know that the goods had already arrived for it to take custody
of them. Considering that it was only in March 1981 (Exh. K) that appellant was notified of the arrival of the goods,
although the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be
charged for demurrage from October 1980 to March 1981. ... 38
While being satisfied with the exclusion of demurrage charges in Manila for the period from October 22,1980 to June 18,1981,
petitioner nevertheless assails the Court of Appeals' award of P52,102.43 in favor of private respondents, consisting of P51,271.01 as
freight and demurrage charges in Japan and P831.43 for charges paid at the Manila International Port Termninal.
Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow private respondents to sell the same
at a public auction and to apply the proceeds thereof as payment for the shipping and demurrage charges, it was released from
liability for the sum of P52,102.43 since such amount represents the shipping and demurrage charges from which it is considered to
have been released due to the abandonment of goods. It further argues that the shipping and demurrage charges from which it was
released by the exercise of the option to abandon the goods in favor of private respondents could not have referred to the demurrage
charges in Manila because respondent court ruled that the same were not chargeable to petitioner. Private respondents would rebut
this contention by saying in their memorandum that the abandonment of goods by petitioner was too late and made in bad faith. 39
On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact that the shipment was made for
its benefit or under its direction and, correspondingly, the carrier is entitled to collect charges for its shipping services. This is
particularly true in this case where the reshipment of the goods was made at the instance of petitioner in its letter of August 29,
1980. 40
However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner of the arrival of its goods from Japan
and that if it wished to take delivery of the cargo it would have to pay P51,271.02, but with the last paragraph thereof stating as
follows:
Please can you advise within 15 days of receipt of this letter whether you intend to take delivery of this shipment,
as alternatively we will have to take legal proceedings in order to have the cargo auctioned to recover the costs
involved, as well as free the container which are (sic) urgently required for export cargoes.

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the shipping and demurrage charges in
order to take delivery of the goods or of abandoning the same so that private respondents could sell them at public auction and
thereafter apply the proceeds in payment of the shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its decision to abandon to the goods in favor
of private respondents with the specific instruction that any excess of the proceeds over the legal costs and charges be turned over to
petitioner. Receipt of said letter was acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim
officer of F.E. Zuellig, Inc., on cross-examination. 42
Despite petitioner's exercise of the option to abandon the cargo, however, private respondents sent a demand letter on June 22,
1981 43 insisting that petitioner should pay the entire amount of P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they
stated that they win not accept the abandonment of the goods and demanded that the outstanding account be settled. The testimony
of said Edwin Mabazza definitely admits and bears this out. 45
Now, there is no dispute that private respondents expressly and on their own volition granted petitioner an option with respect to the
satisfaction of freightage and demurrage charges. Having given such option, especially since it was accepted by petitioner, private
respondents are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. Private
respondents, in giving the option, and petitioner, in exercising that option, are concluded by their respective actions. To allow either of
them to unilaterally back out on the offer and on the exercise of the option would be to countenance abuse of rights as an order of
the day, doing violence to the long entrenched principle of mutuality of contracts.
It will be remembered that in overland transportation, an unreasonable delay in the delivery of transported goods is sufficient ground
for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further, with much more reason can
petitioner in the instant case properly abandon the goods, not only because of the unreasonable delay in its delivery but because of
the option which was categorically granted to and exercised by it as a means of settling its liability for the cost and expenses of
reshipment. And, said choice having been duly communicated, the same is binding upon the parties on legal and equitable
considerations of estoppel.
WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the MODIFICATION that petitioner is likewise absolved of
any hability and the award of P52,102.45 with legal interest granted by respondent court on private respondents' counterclaim is SET
ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to costs. SO ORDERED.