G.R. No.

L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would
bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial
rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not
be held responsible for the value of the lost goods, such loss having been due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P
4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent'sprincipal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of
passengers. The specific import of extraordinary diligence in the care of goods transported by a common
carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and
7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case the hijacking of the carrier's truck does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted
negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on
the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent
should have hired a security guard presumably to ride with the truck carrying the 600 cartons of
Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary
diligence required private respondent to retain a security guard to ride with the truck and to engage
brigands in a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4,
5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust

and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or
of robbers who donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) holduppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in another
province (in Zambales). The hijacked truck was subsequently found by the police in Quezon City. The
Court of First Instance convicted all the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.

We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT

OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as
City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year
1993 pursuant to the Local Government Code.[3] The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04 payable in four installments based on
the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in
the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government
Code. Therefore, the authority to impose tax 'on contractors and other independent
contractors' under Section 143, Paragraph (e) of the Local Government Code does not
include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under
Section 147 of the Local Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be commensurate to the cost of
regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable
for the license fee, the imposition thereof based on gross receipts is violative of the
aforecited provision. The amount ofP956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition." [4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to
impose and collect a tax on the gross receipts of "contractors and independent contractors" under
Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation
contractors for, as defined under Sec. 131 (h), the term "contractors" excludes transportation
contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said
tax, thus meriting the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common

carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:

"xxx Plaintiff is either a contractor or other independent contractor.

xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that
tax exemptions are to be strictly construed against the taxpayer, taxes being the
lifeblood of the government. Exemption may therefore be granted only by clear and
unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387,
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137
of the Local Tax Code. Such being the situation obtained in this case (exemption
being unclear and equivocal) resort to distinctions or other considerations may be of
help:
1. That the exemption granted under Sec. 133 (j) encompasses
only common carriers so as not to overburden the riding public or
commuters with taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities to a single
specific or "special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and
effective local autonomy to local governments than the previous
enactments, to make them economically and financially viable to
serve the people and discharge their functions with a concomitant
obligation to accept certain devolution of powers, x x x So,
consistent with this policy even franchise grantees are taxed (Sec.

137) and contractors are also taxed under Sec. 143 (e) and 151 of
the Code."[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication.[10] On November 29, 1995, the respondent court rendered a decision [11] affirming the
trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in
a Resolution[14] of January 20, 1997.Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm
or association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a public

employment, and must hold himself out as ready to engage in the
transportation of goods for person generally as a business and not as a
casual occupation;
2. He must undertake to carry goods of the kind to which his business is
confined;
3. He must undertake to carry by the method by which his business is
conducted and over his established roads; and

4. The transportation must be for hire.[15]

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to carry for all persons indifferently, that
is, to all persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from the
definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:

"The above article (Art. 1732, Civil Code) makes no distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article
1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general public,' i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to
coincide neatly with the notion of 'public service,' under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation
of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and
power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services.' "(Underscoring Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In fact,
in the United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:

"that everything relating to the exploration for and exploitation of petroleum x x and
everything relating to the manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public utility." (Underscoring
Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In
BIR Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in

transporting petroleum products, it is considered a common carrier under Republic
Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed
by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government

Units. - Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following :
xxxxxxxxx

(j) Taxes on the gross receipts of transportation contractors and persons

engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now
Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." x
xx
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This
appears to be one of those being deemed to be exempted from the taxing powers of
the local government units. May we know the reason why the transportation
business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now
Sec. 131), line 16, paragraph 5. It states that local government units may not impose
taxes on the business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of taxes by
local government units on the carrier business. Local government units may
impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a
duplication of this tax, so we just provided for an exception under Section 125
[now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

[G.R. No. 112287. December 12, 1997]

NATIONAL
STEEL
CORPORATION, petitioner, vs. COURT
APPEALS AND VLASONS SHIPPING, INC., respondents.

OF

[G.R. No. 112350. December 12, 1997]

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND

NATIONAL STEEL CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of

a private carrier, its owners responsibility for damage to the cargo and its
liability for demurrage and attorneys fees. The Court also reiterates the wellknown rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel
Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the
August 12, 1993 Decision of the Court of Appeals. The Court of Appeals
modified the decision of the Regional Trial Court of Pasig, Metro Manila,
Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
[1]

WHEREFORE, judgment is hereby rendered in favor of defendant and against the

plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to
pay the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest
at the legal rate on both amounts from April 7, 1976 until the same shall have been
fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED.

[2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by
reducing the award for demurrage to P44,000.00 and deleting the award for attorneys
fees and expenses of litigation. Except as thus modified, the decision is
AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.

[3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as

such, does not transport cargo or shipment for the general public. Its services
are available only to specific persons who enter into a special contract of
charter party with its owner. It is undisputed that the ship is a private
carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered
into a contract of affreightment or contract of voyage charter hire with National
Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV
VLASONS I to make one (1) voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila, under the following terms and
conditions, viz:
1. x x x x x x.
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.
3. x x x x x x
4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of
Bill of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of
24 consecutive hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners
not responsible for losses/damages except on proven willful negligence of the officers
of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other
internationally recognized Charter Party Agreement shall form part of this Contract.

xxxxxxxxx
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for Freight In and Out including
Stevedoring and Trading, which means that the handling, loading and unloading of the
cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI
Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk
and expenses to owners. x x x(Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all other parts of the vessel
in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or
without the fault of the agents or servants of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not
be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter
Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment
of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The
shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo
Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board
and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August
8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12,
1974. The following day, August 13, 1974, when the vessels three (3) hatches
containing the shipment were opened by plaintiffs agents, nearly all the skids of
tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo
was discharged and unloaded by stevedores hired by the Charterer. Unloading was

completed only on August 24, 1974 after incurring a delay of eleven (11) days due to
the heavy rain which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a
survey of the shipment by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a
report of its ocular inspection conducted on the cargo, both while it was still on board
the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the
cargo was taken and stored. MASCO reported that it found wetting and rusting of the
packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch
covers were noted torn at various extents; that container/metal casings of the skids
were rusting all over. MASCO ventured the opinion that rusting of the tinplates was
caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to
destination (Exhibit F). It was also reported that MASCOs surveyors drew at random
samples of bad order packing materials of the tinplates and delivered the same to the
M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The analysis of
bad order samples of packing materials xxx shows that wetting was caused by contact
with SEA WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff
filed with the defendant its claim for damages suffered due to the downgrading of the
damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but defendant VSI refused and failed to
pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
of P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the
defendant to make the vessel seaworthy and to make the holds and all other parts of
the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation -- all in violation of defendants undertaking under their Contract of
Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the
MV VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo;
that said vessel was not a common carrier inasmuch as she was under voyage charter
contract with the plaintiff as charterer under the charter party; that in the course of the
voyage from Iligan City to Manila, the MV VLASONS I encountered very rough seas,
strong winds and adverse weather condition, causing strong winds and big waves to

continuously pound against the vessel and seawater to overflow on its deck and hatch
covers; that under the Contract of Voyage Charter Hire, defendant shall not be
responsible for losses/damages except on proven willful negligence of the officers of
the vessel, that the officers of said MV VLASONS I exercised due diligence and
proper seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on FIOST terms
which means that the vessel was free of risk and expense in connection with the
loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent
defect of the cargo not discoverable by due diligence or to any other cause arising
without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of
plaintiff who discharged the cargo in Manila were negligent and did not exercise due
care in the discharge of the cargo; and that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to plaintiffs warehouse after
discharge from the vessel; and that plaintiffs claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under
the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter
hire of P75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on demurrage
for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the
vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount
of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be
ordered to pay defendant attorneys fees and all expenses of litigation in the amount of
not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping
service and is available for hire only under special contracts of charter party as in this
particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire
(Exh. 1), the MV VLASONS I was covered by the required seaworthiness certificates
including the Certification of Classification issued by an international classification
society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of
Transportation (Exh. 5); International Loadline Certificate from the Philippine Coast
Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection
by the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both
overseas and coastwise trade, the MV VLASONS I has a higher degree of
seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract
of Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the
vessels first voyage after the drydocking. The evidence shows that the MV
VLASONS I was seaworthy and properly manned, equipped and supplied when it
undertook the voyage. It had all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The
hatch openings were covered by hatchboards which were in turn covered by two or
double tarpaulins. The hatch covers were water tight. Furthermore, under the
hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers pursuant
to which there exists a presumption of negligence in case of loss or damage to the
cargo are not applicable. As to the damage to the tinplates which was allegedly due to
the wetting and rusting thereof, there is unrebutted testimony of witness Vicente
Angliongto that tinplates sweat by themselves when packed even without being in
contract (sic) with water from outside especially when the weather is bad or
raining. The rust caused by sweat or moisture on the tinplates may be considered as a
loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734
of the Civil Case which exempts the carrier from responsibility for loss or damage
arising from the character of the goods x x x. All the 1,769 skids of the tinplates could
not have been damaged by water as claimed by plaintiff. It was shown as claimed by
plaintiff that the tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were
negligent in not closing the hatch openings of the MV VLASONS I when rains
occurred during the discharging of the cargo thus allowing rainwater to enter the

hatches. It was proven that the stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy for them to resume work when
the rains stopped by just removing the tent or canvas. Because of this improper
covering of the hatches by the stevedores during the discharging and unloading
operations which were interrupted by rains, rainwater drifted into the cargo through
the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party
which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer
and defendant carrier has no liability for whatever damage may occur or maybe [sic]
caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather
while en route from Iligan City to Manila causing sea water to splash on the ships
deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a
Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a
force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the
Voyage Charter Hire contract that it was to insure the cargo because it did not. Had
plaintiff complied with the requirement, then it could have recovered its loss or
damage from the insurer. Plaintiff also violated the charter party contract when it
loaded not only steel products, i.e. steel bars, angular bars and the like but also
tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.
(I) As regards defendants counterclaim, the contract of voyage charter hire under
paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant
carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not
paid the total freight due of P75,000.00 despite demands. The evidence also showed
that the plaintiff was required and bound under paragraph 7 of the same Voyage
Charter Hire contract to pay demurrage ofP8,000.00 per day of delay in the unloading
of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable
to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six
errors:
I

The trial court erred in finding that the MV VLASONS I was seaworthy,
properly manned, equipped and supplied, and that there is no proof of willful
negligence of the vessels officers.
II

The trial court erred in finding that the rusting of NSCs tinplates was due to
the inherent nature or character of the goods and not due to contact with
seawater.
III

The trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSCs shipment.
IV

The trial court erred in exempting VSI from liability on the ground of force
majeure.
V

The trial court erred in finding that NSC violated the contract of voyage charter
hire.
VI

The trial court erred in ordering NSC to pay freight, demurrage and attorneys
fees, to VSI.
[4]

As earlier stated, the Court of Appeals modified the decision of the trial
court by reducing the demurrage from P88,000.00 to P44,000.00 and deleting
the award of attorneys fees and expenses of litigation.NSC and VSI filed
separate motions for reconsideration. In a Resolution dated October 20,
1993, the appellate court denied both motions. Undaunted, NSC and VSI filed
their respective petitions for review before this Court. On motion of VSI, the
Court ordered on February 14, 1994 the consolidation of these petitions.
[5]

[6]

The Issues
In its petition and memorandum, NSC raises the following questions of
law and fact:
[7]

[8]

Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11
and 12) were admissible in evidence and constituted evidence of the vessels
seaworthiness at the beginning of the voyages; and

3. Whether or not a charterers failure to insure its cargo exempts the shipowner from
liability for cargo damage.

Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for
NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence,
rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of
NSCs tinplates.

In its separate petition, VSI submits for the consideration of this Court the
following alleged errors of the CA:
[9]

A. The respondent Court of Appeals committed an error of law in reducing the award
of demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its
memorandum:
[10]

I. Whether or not the provisions of the Civil Code of the Philippines on common
carriers pursuant to which there exist[s] a presumption of negligence against the
common carrier in case of loss or damage to the cargo are applicable to a private
carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the
following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in
respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC
as a common carrier or as a private carrier. The resolution of this preliminary
question determines the law, standard of diligence and burden of proof
applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. It has been held that the
true test of a common carrier is the carriage of passengers or goods, provided
it has space, for all who opt to avail themselves of its transportation service for
a fee. A carrier which does not qualify under the above test is deemed a
private carrier. Generally, private carriage is undertaken by special agreement
and the carrier does not hold himself out to carry goods for the general
public. The most typical, although not the only form of private carriage, is the
charter party, a maritime contract by which the charterer, a party other than
the shipowner, obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages.
[11]

[12]

In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a special contract of charter party. As
correctly concluded by the Court of Appeals, the MV Vlasons I was not a
common but a private carrier. Consequently, the rights and obligations of
VSI and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or
charter party. Recently, in Valenzuela Hardwood and Industrial Supply,
Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, the
Court ruled:
[13]

[14]

[15]

[16]

x x x 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.
[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17,
1974, that VSI shall not be responsible for losses except on proven willful
negligence of the officers of the vessel. The NANYOZAI Charter Party, which
was incorporated in the parties contract of transportation, further provided that
the shipowner shall not be liable for loss of or damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of
due diligence to make the vessel seaworthy or to ensure that the same was
properly manned, equipped and supplied, and to make the holds and all other
parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation. The NANYOZAI Charter Party also provided that
[o]wners shall not be responsible for split, chafing and/or any damage unless
caused by the negligence or default of the master or crew.
[18]

[19]

Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove
that the damage to its shipment was caused by VSIs willful negligence or
failure to exercise due diligence in making MV Vlasons Iseaworthy and fit for
holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof
was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently
provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event, force majeure, or the nature and inherent defect
of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on
account of his negligence or his omission to take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading, making him
to believe that the goods were of a class or quality different from what they really
were.
Because the MV Vlasons I was a private carrier, the shipowners
obligations are governed by the foregoing provisions of the Code of
Commerce and not by the Civil Code which, as a general rule, places
theprima facie presumption of negligence on a common carrier. It is a
hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on
the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that
the goods were lost or damaged while in the carriers custody does not put the burden
of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care
in the protection of the goods committed to its care, the burden of proving negligence
or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo
while in the carriers possession does not cast on it the burden of proving proper care
and diligence on its part or that the loss occurred from an excepted cause in the
contract or bill of lading. However, in discharging the burden of proof, plaintiff is
entitled to the benefit of the presumptions and inferences by which the law aids the
bailor in an action against a bailee, and since the carrier is in a better position to know
the cause of the loss and that it was not one involving its liability, the law requires that
it come forward with the information available to it, and its failure to do so warrants
an inference or presumption of its liability. However, such inferences and
presumptions, while they may affect the burden of coming forward with evidence, do
not alter the burden of proof which remains on plaintiff, and, where the carrier comes
forward with evidence explaining the loss or damage, the burden of going forward
with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden of
proving a breach thereof and that such breach was the proximate cause of the damage
rests on plaintiff, and proof that the goods were lost or damaged while in the carriers
possession does not cast on it the burden of proving seaworthiness. x x x Where the
contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy.
[20]

In the instant case, the Court of Appeals correctly found that NSC has not
taken the correct position in relation to the question of who has the burden of
proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the
NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs]
interpretation of Clause 12 is not even correct), it argues that a careful
examination of the evidence will show that VSI miserably failed to comply with
any of these obligations as if defendant-appellee [VSI] had the burden of
proof.
[21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual
questions is manifestly relevant: (1) whether VSI exercised due diligence in
making MV Vlasons I seaworthy for the intended purpose under the charter
party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by
NSC; and (3) whether the rusting of the tinplates was caused by its own sweat
or by contact with seawater.
These questions of fact were threshed out and decided by the trial court,
which had the firsthand opportunity to hear the parties conflicting claims and
to carefully weigh their respective evidence. The findings of the trial court
were subsequently affirmed by the Court of Appeals. Where the factual
findings of both the trial court and the Court of Appeals coincide, the same are
binding on this Court. We stress that, subject to some exceptional
instances, only questions of law -- not questions of fact -- may be raised
before this Court in a petition for review under Rule 45 of the Rules of
Court. After a thorough review of the case at bar, we find no reason to disturb
the lower courts factual findings, as indeed NSC has not successfully proven
the application of any of the aforecited exceptions.
[22]

[23]

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make
the ship seaworthy and fit for the carriage of NSCs cargo of steel and
tinplates. This is shown by the fact that it was drydocked and inspected by the
Philippine Coast Guard before it proceeded to Iligan City for its voyage to
Manila under the contract of voyage charter hire. The vessels voyage from
Iligan to Manila was the vessels first voyage after drydocking. The Philippine
[24]

Coast Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it

met all requirements for trading as cargo vessel. The Court of Appeals itself
sustained the conclusion of the trial court that MV Vlasons I was
seaworthy. We find no reason to modify or reverse this finding of both the trial
and the appellate courts.
[25]

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to
the cargo was caused by the negligence of the officers and the crew of MV
Vlasons I in making their vessel seaworthy and fit for the carriage of
tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an
old and torn tarpaulin or canvas to cover the hatches through which the cargo
was loaded into the cargo hold of the ship. It faults the Court of Appeals for
failing to consider such claim as an uncontroverted fact and denies that MV
Vlasons I was equipped with new canvas covers in tandem with the old ones
as indicated in the Marine Protest xxx. We disagree.
[26]

[27]

The records sufficiently support VSIs contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ships
hatches watertight. The foregoing are clear from the marine protest of the
master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the
ships boatswain, Jose Pascua. The salient portions of said marine protest
read:
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of
August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before departure, the vessel was rigged,
fully equipped and cleared by the authorities; that on or about August 9, 1974, while
in the vicinity of the western part of Negros and Panay, we encountered very rough
seas and strong winds and Manila office was advised by telegram of the adverse
weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the
vessel at her port side causing sea water to overflow on deck andhatch (sic) covers
and which caused the first layer of the canvass covering to give way while the new
canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the

afternoon of August 10, 1974, while entering Maricaban Passage, we were again
exposed to moderate seas and heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;
xxx xxx xxx

[28]

And the relevant portions of Jose Pascuas deposition are as follows:

Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides
and we place[d] a flat bar over the canvas on the side of the hatches and then we
place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the
hatch opening.
A: Forty-five feet by thirty-five feet, sir.

xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the
hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch
opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO

Q: And on top of the beams you said there is a hatch board. How many pieces of wood
are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A: Two, sir. [29]

That due diligence was exercised by the officers and the crew of the MV
Vlasons I was further demonstrated by the fact that, despite encountering
rough weather twice, the new tarpaulin did not give way and the ships hatches
and cargo holds remained waterproof. As aptly stated by the Court of Appeals,
xxx we find no reason not to sustain the conclusion of the lower court based
on overwhelming evidence, that the MV VLASONS I was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof plaintiffappellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving
safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx.
[30]

Indeed, NSC failed to discharge its burden to show negligence on the part
of the officers and the crew of MV Vlasons I. On the contrary, the records
reveal that it was the stevedores of NSC who were negligent in unloading the
cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches
when strong rains occasioned by a passing typhoon disrupted the unloading
of the cargo. This tent-like covering, however, was clearly inadequate for
keeping rain and seawater away from the hatches of the ship. Vicente
Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you
went on board the vessel upon notice from the National Steel Corporation in order
to conduct the inspection of the cargo. During the course of the investigation, did
you chance to see the discharging operation?
WITNESS:

A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already
discharged on the pier but majority of the tinplates were inside the hall, all the
hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at
the opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now,
will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d]
high at the middle with the whole side separated down to the hatch, the size of the
hatch and it is soaks [sic] at the middle because of those weather and this can be
used only to temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by
and the hatch tent was not good enough to hold all of it to prevent the water
soaking through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water
enter and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this
tent covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the

National Steel but nothing was done, just the same.Finally, I wrote a letter to
them. [31]

NSC attempts to discredit the testimony of Angliongto by questioning his

failure to complain immediately about the stevedores negligence on the first
day of unloading, pointing out that he wrote his letter to petitioner only seven
days later. The Court is not persuaded. Angliongtos candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSCs
representative, about the negligent and defective procedure adopted in
unloading the cargo. This series of actions constitutes a reasonable response
in accord with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores attention first and
then the NSCs representative on location before formally informing NSC of
the negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely expressing
concern for NSC which was ultimately responsible for the stevedores it had
hired and the performance of their task to unload the cargo.
[32]

We see no reason to reverse the trial and the appellate courts findings and
conclusions on this point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSCs shipment. We do
not think so. Such negligence according to the trial court is evident in the stevedores
hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred during
the discharging of the cargo thus allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was proven that the stevedores merely
set up temporary tents or canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on August
20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging the cargo on rainy days and
the improper closing of the hatches which allowed continuous heavy rain water to
leak through and drip to the tinplates covers and [Vicente Angliongto] also suggesting
that due to four (4) days continuos rains with strong winds that the hatches be totally
closed down and covered with canvas and the hatch tents lowered. (Exh 13). This
letter was received by [NSC] on 22 August 1974 while discharging operations were
still going on (Exhibit 13-A).
[33]

The fact that NSC actually accepted and proceeded to remove the cargo
from the ship during unfavorable weather will not make VSI liable for any
damage caused thereby. In passing, it may be noted that the NSC may seek

indemnification, subject to the laws on prescription, from the stevedoring

company at fault in the discharge operations. A stevedore company engaged
in discharging cargo xxx has the duty to load the cargo xxx in a prudent
manner, and it is liable for injury to, or loss of, cargo caused by its negligence
xxx and where the officers and members and crew of the vessel do nothing
and have no responsibility in the discharge of cargo by stevedores xxx the
vessel is not liable for loss of, or damage to, the cargo caused by the
negligence of the stevedores xxx as in the instant case.
[34]

Do Tinplates Sweat?
The trial court relied on the testimony of Vicente Angliongto in finding that
xxx tinplates sweat by themselves when packed even without being in contact
with water from outside especially when the weather is bad or raining
xxx. The Court of Appeals affirmed the trial courts finding.
[35]

A discussion of this issue appears inconsequential and unnecessary. As

previously discussed, the damage to the tinplates was occasioned not by
airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.
Second Issue: Effect of NSCs Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of
Voyage Charter Hire is totally separate and distinct from the contractual or
statutory responsibility that may be incurred by VSI for damage to the cargo
caused by the willful negligence of the officers and the crew of MV Vlasons
I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as
owner and real party in interest, to file an action against VSI for damages
caused by the latters willful negligence. We do not find anything in the charter
party that would make the liability of VSI for damage to the cargo contingent
on or affected in any manner by NSCs obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates Proving Seaworthiness
NSCs contention that MV Vlasons I was not seaworthy is anchored on the
alleged inadmissibility of the certificates of seaworthiness offered in evidence
by VSI. The said certificates include the following:

1. Certificate of Inspection of the Philippine Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been
presented in accordance with the Rules of Court. It points out that Exhibits 3,
4 and 11 allegedly are not written records or acts of public officers;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications
or certified true copies as required by Sections 25 and 26, Rule 132, of the
Rules of Court.
[37]

After a careful examination of these exhibits, the Court rules that Exhibits
3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly
offered as evidence. Exhibits 3 and 4 are certificates issued by private parties,
but they have not been proven by one who saw the writing executed, or by
evidence of the genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their
admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of
Court, which provides that (e)ntries in official records made in the performance
of a duty by a public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law, are prima facie evidence of
the facts therein stated. Exhibit 11 is an original certificate of the Philippine
Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the
effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors
were sent on board for inspection x x x. After completion of drydocking and
duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel, is
in seaworthy condition, meets all requirements, fitted and equipped for trading
as a cargo vessel was cleared by the Philippine Coast Guard and sailed for
Cebu Port on July 10, 1974. (sic) NSCs claim, therefore, is obviously
misleading and erroneous.
[38]

At any rate, it should be stressed that that NSC has the burden of proving
that MV Vlasons I was not seaworthy. As observed earlier, the vessel was a
private carrier and, as such, it did not have the obligation of a common carrier
to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its
duty of proving the willful negligence of VSI in making the ship seaworthy

resulting in damage to its cargo. Assailing the genuineness of the certificate of

seaworthiness is not sufficient proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day.

[39]

The Court defined demurrage in its strict sense as the compensation

provided for in the contract of affreightment for the detention of the vessel
beyond the laytime or that period of time agreed on for loading and unloading
of cargo. It is given to compensate the shipowner for the nonuse of the
vessel. On the other hand, the following is well-settled:
[40]

Laytime runs according to the particular clause of the charter party. x x x If laytime is
expressed in running days, this means days when the ship would be run continuously,
and holidays are not excepted. A qualification of weather permitting excepts only
those days when bad weather reasonably prevents the work contemplated.
[41]

In this case, the contract of voyage charter hire provided for a four-day
laytime; it also qualified laytime as WWDSHINC or weather working days
Sundays and holidays included. The running of laytime was thus made
subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. Consequently, NSC may not
be held liable for demurrage as the four-day laytime allowed it did not lapse,
having been tolled by unfavorable weather condition in view of the
WWDSHINC qualification agreed upon by the parties. Clearly, it was error for
the trial court and the Court of Appeals to have found and affirmed
respectively that NSC incurred eleven days of delay in unloading the
cargo. The trial court arrived at this erroneous finding by subtracting from the
twelve days, specifically August 13, 1974 to August 24, 1974, the only day of
[42]

[43]

unloading unhampered by unfavorable weather or rain which was August 22,

1974. Based on our previous discussion, such finding is a reversible error. As
mentioned, the respondent appellate court also erred in ruling that NSC was
liable to VSI for demurrage, even if it reduced the amount by half.
Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of
attorneys fees. We disagree. While VSI was compelled to litigate to protect its
rights, such fact by itself will not justify an award of attorneys fees under
Article 2208 of the Civil Code when x x x no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause x x x. Moreover, attorneys fees
may not be awarded to a party for the reason alone that the judgment
rendered was favorable to the latter, as this is tantamount to imposing a
premium on ones right to litigate or seek judicial redress of legitimate
grievances.
[44]

[45]

Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who
caused the damage to the cargo? Ranged against NSC are two formidable
truths. First, both lower courts found that such damage was brought about
during the unloading process when rain and seawater seeped through the
cargo due to the fault or negligence of the stevedores employed by it. Basic is
the rule that factual findings of the trial court, when affirmed by the Court of
Appeals, are binding on the Supreme Court. Although there are settled
exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage
Charter Hire -- placed the burden of proof for such loss or damage upon the
shipper, not upon the shipowner. Such stipulation, while disadvantageous to
NSC, is valid because the parties entered into a contract of private charter, not
one of common carriage. Basic too is the doctrine that courts cannot relieve a
party from the effects of a private contract freely entered into, on the ground
that it is allegedly one-sided or unfair to the plaintiff. The charter party is a
normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price
which is determined not only by the actual costs but also by the risks and
burdens assumed by the shipper in regard to possible loss or damage to the

cargo. In recognition of such factors, the parties even stipulated that the
shipper should insure the cargo to protect itself from the risks it undertook
under the charter party. That NSC failed or neglected to protect itself with such
insurance should not adversely affect VSI, which had nothing to do with such
failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions
are hereby DENIED. The questioned Decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED

[G.R. No. 149038. April 9, 2003]

PHILIPPINE
AMERICAN
COMPANY, petitioner, vs.
COMPANY, respondent.

GENERAL
PKS

INSURANCE
SHIPPING

DECISION
VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of seventy-five thousand (75,000) bags of cement worth Three
Million
Three
Hundred
Seventy-Five
Thousand
Pesos
(P3,375,000.00). DUMC insured the goods for its full value with petitioner
Philippine American General Insurance Company (Philamgen). The goods
were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On
the evening of 22 December 1988, about nine oclock, while Limar I was being

towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of

miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down
with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought reimbursement
from PKS Shipping of the sum paid to DUMC but the shipping company
refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the
cargo could have been caused either by a fortuitous event, in which case the
ship owner was not liable, or through the negligence of the captain and crew
of the vessel and that, under Article 587 of the Code of Commerce adopting
the Limited Liability Rule, the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. The appellate court ruled that evidence to
establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the
shipping companys carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not
being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The
appellate court, moreover, found that the loss of the goods was sufficiently
established as having been due to fortuitous event, negating any liability on
the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has
committed a patent error in ruling that PKS Shipping is not a common carrier
and that it is not liable for the loss of the subject cargo.The fact that
respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such
carrier can be held exempt for the loss of the cargo would be if the loss were
caused by natural disaster or calamity. Petitioner avers that typhoon

"APIANG" has not entered the Philippine area of responsibility and that, even
if it did, respondent would not be exempt from liability because its employees,
particularly the tugmaster, have failed to exercise due diligence to prevent or
minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied
because what Philamgen seeks is not a review on points or errors of law but a
review of the undisputed factual findings of the RTC and the appellate
court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils
down to the question of whether it is a private carrier or a common carrier and,
in either case, to the other question of whether or not it has observed the
proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be
reviewed by this Court in a petition for review under Rule 45 of the Rules of
Court. The conclusions derived from those factual findings, however, are
not necessarily just matters of fact as when they are so linked to, or
inextricably intertwined with, a requisite appreciation of the applicable law. In
such instances, the conclusions made could well be raised as being
appropriate issues in a petition for review before this Court. Thus, an issue
whether a carrier is private or common on the basis of the facts found by a
trial court or the appellate court can be a valid and reviewable question of law.
[1]

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
Complementary to the codal definition is Section 13, paragraph (b), of the
Public Service Act; it defines public service to be

x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless communication
systems, wire or wireless broadcasting stations and other similar public services. x x
x.(Underscoring supplied).
The prevailing doctrine on the question is that enunciated in the leading
case of De Guzman vs. Court of Appeals. Applying Article 1732 of the Code,
in conjunction with Section 13(b) of the Public Service Act, this Court has held:
[2]

The above article makes no distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as `a sideline). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the `general public, i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1732 deliberately refrained from making
such distinctions.
So understood, the concept of `common carrier under Article 1732 may be seen to
coincide neatly with the notion of `public service, under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code.
Much of the distinction between a common or public carrier and a private
or special carrier lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the

general public or to a limited clientele, although involving the carriage of

goods for a fee, the person or corporation providing such service could very
well be just a private carrier. A typical case is that of a charter party which
includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages and gets the control of the vessel and
its crew. Contrary to the conclusion made by the appellate court, its factual
findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry
such goods for a fee. The regularity of its activities in this area indicates more
than just a casual activity on its part. Neither can the concept of a common
carrier change merely because individual contracts are executed or entered
into with patrons of the carrier. Such restrictive interpretation would make it
easy for a common carrier to escape liability by the simple expedient of
entering into those distinct agreements with clients.
[3]

[4]

[5]

[6]

Addressing now the issue of whether or not PKS Shipping has exercised
the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the
vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise rests on them.
The provisions of Article 1733, notwithstanding, common carriers are exempt
from liability for loss, destruction, or deterioration of the goods due to any of
the following causes:
[7]

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
and
(5) Order or act of competent public authority.

[8]

The appellate court ruled, gathered from the testimonies and sworn
marine protests of the respective vessel masters of Limar I and MT Iron
Eagle, that there was no way by which the barges or the tugboats crew could
have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong
winds of 1.5 knots resulting in the entry of water into the barges hatches. The
official Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the factual findings of the
appellate court.
Findings of fact of the Court of Appeals generally conclude this Court;
none of the recognized exceptions from the rule - (1) when the factual findings
of the Court of Appeals and the trial court are contradictory; (2) when the
conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is
a grave abuse of discretion in the appreciation of facts; (5) when the appellate
court, in making its findings, went beyond the issues of the case and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice
certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when
the findings of fact are conclusions without citation of the specific evidence on
which they are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record would appear to be clearly extant in
this instance.
All given then, the appellate court did not err in its judgment absolving
PKS Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF

APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.
DECISION
PUNO, J.:

On appeal is the Court of Appeals May 11, 2000 Decision in CA-G.R. CV

No. 49195 and February 21, 2001 Resolution affirming with modification the
April 6, 1994 Decision of the Regional Trial Court of Manila which found
petitioner liable to pay private respondent the amount of indemnity and
attorney's fees.
[1]

[2]

[3]

First, the facts.

On June 13, 1990, 3,150 metric tons of Better Western White Wheat in
bulk, valued at US$423,192.35 was shipped by Marubeni American
Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM
V-26 for delivery to the consignee, General Milling Corporation in Manila,
evidenced by Bill of Lading No. PTD/Man-4. The shipment was insured by
the private respondent Prudential Guarantee and Assurance, Inc. against loss
or damage for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.
[4]

[5]

[6]

On July 25, 1990, the carrying vessel arrived in Manila and the cargo was
transferred to the custody of the petitioner Asia Lighterage and Shipping,
Inc. The petitioner was contracted by the consignee as carrier to deliver the
cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge
PSTSI III, evidenced by Lighterage Receipt No. 0364 for delivery to
consignee. The cargo did not reach its destination.
[7]

It appears that on August 17, 1990, the transport of said cargo was
suspended due to a warning of an incoming typhoon. On August 22, 1990, the
petitioner proceeded to pull the barge to Engineering Island off Baseco to
seek shelter from the approaching typhoon. PSTSI III was tied down to other
barges which arrived ahead of it while weathering out the storm that night. A
few days after, the barge developed a list because of a hole it sustained after
hitting an unseen protuberance underneath the water. The petitioner filed a
Marine Protest on August 28, 1990. It likewise secured the services of
Gaspar Salvaging Corporation which refloated the barge. The hole was then
patched with clay and cement.
[8]

[9]

The barge was then towed to ISLOFF terminal before it finally headed
towards the consignee's wharf on September 5, 1990. Upon reaching the Sta.
Mesa spillways, the barge again ran aground due to strong current. To avoid
the complete sinking of the barge, a portion of the goods was transferred to
three other barges.
[10]

The next day, September 6, 1990, the towing bits of the barge broke. It
sank completely, resulting in the total loss of the remaining cargo. A second
Marine Protest was filed on September 7, 1990.
[11]

[12]

On September 14, 1990, a bidding was conducted to dispose of the

damaged wheat retrieved and loaded on the three other barges. The total
proceeds from the sale of the salvaged cargo wasP201,379.75.
[13]

[14]

On the same date, September 14, 1990, consignee sent a claim letter to
the petitioner, and another letter dated September 18, 1990 to the private
respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in
the amount of P4,104,654.22. Thereafter, as subrogee, it sought recovery of
said amount from the petitioner, but to no avail.
[15]

On July 3, 1991, the private respondent filed a complaint against the

petitioner for recovery of the amount of indemnity, attorney's fees and cost of
suit. Petitioner filed its answer with counterclaim.
[16]

[17]

The Regional Trial Court ruled in favor of the private respondent. The
dispositive portion of its Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date
complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount
awarded as and for attorney's fees. Defendant's counterclaim is hereby
DISMISSED. With costs against defendant.
[18]

Petitioner appealed to the Court of Appeals insisting that it is not a

common carrier. The appellate court affirmed the decision of the trial court
with modification. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification
in the sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioners Motion for Reconsideration dated June 3, 2000 was likewise
denied by the appellate court in a Resolution promulgated on February 21,
2001.
Hence, this petition. Petitioner submits the following errors allegedly
committed by the appellate court, viz:
[19]

(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL
CODE APPLICABLE TO COMMON CARRIERS, THE LOSS OF THE CARGO IS,
THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE
FIVE (5) CASES ENUMERATED.

(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER
FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS
CARE AND CUSTODY OF THE CONSIGNEES CARGO.

The issues to be resolved are:

(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised
extraordinary diligence in its care and custody of the consignees cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private
carrier. Allegedly, it has no fixed and publicly known route, maintains no
terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it
consents. In short, it does not hold out its services to the general public.
[20]

We disagree.
In De Guzman vs. Court of Appeals, we held that the definition
of common carriers in Article 1732 of the Civil Code makes no distinction
between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary
activity. We also did not distinguish between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Further, we ruled
that Article 1732 does not distinguish between a carrier offering its services to
the general public, and one who offers services or solicits business only from
a narrow segment of the general population.
[21]

In the case at bar, the principal business of the petitioner is that of

lighterage and drayage and it offers its barges to the public for carrying or
transporting goods by water for compensation. Petitioner is clearly a common
carrier. In De Guzman, supra, we considered private respondent Ernesto
Cendaa to be a common carrier even if his principal occupation was not the
carriage of goods for others, but that of buying used bottles and scrap metal in
Pangasinan and selling these items in Manila.
[22]

[23]

We therefore hold that petitioner is a common carrier whether its carrying

of goods is done on an irregular rather than scheduled manner, and with an
only limited clientele. A common carrier need not have fixed and publicly
known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down
in Bascos vs. Court of Appeals. The test to determine a common carrier is
whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted. In the case at bar, the
petitioner admitted that it is engaged in the business of shipping and
lighterage, offering its barges to the public, despite its limited clientele for
carrying or transporting goods by water for compensation.
[24]

[25]

[26]

[27]

On the second issue, we uphold the findings of the lower courts that
petitioner failed to exercise extraordinary diligence in its care and custody of
the consignees goods.
Common carriers are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. They are presumed to have
been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. To overcome the presumption of negligence in the case of loss,
destruction or deterioration of the goods, the common carrier must prove that
it exercised extraordinary diligence. There are, however, exceptions to this
rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:
[28]

[29]

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or

calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
In the case at bar, the barge completely sank after its towing bits broke,
resulting in the total loss of its cargo. Petitioner claims that this was caused by
a typhoon, hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the typhoon is the proximate
and only cause of the loss of the goods, and that it has exercised due
diligence before, during and after the occurrence of the typhoon to prevent or
minimize the loss. The evidence show that, even before the towing bits of the
barge broke, it had already previously sustained damage when it hit a sunken
object while docked at the Engineering Island. It even suffered a hole. Clearly,
this could not be solely attributed to the typhoon. The partly-submerged vessel
was refloated but its hole was patched with only clay and cement. The patch
work was merely a provisional remedy, not enough for the barge to sail
safely. Thus, when petitioner persisted to proceed with the voyage, it
recklessly exposed the cargo to further damage. A portion of the crossexamination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment
Co., Inc., states:
[30]

CROSS-EXAMINATION BY ATTY. DONN LEE:

[31]

xxxxxxxxx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull
out the barge from the place of the accident, and bring it to the anchor terminal for
safety, then after deciding if the vessel is stabilized, they tried to pull it to the

consignees warehouse, now while on route another accident occurred, now this
time the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second
accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?
a - Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.

xxxxxxxxx
This is not all. Petitioner still headed to the consignees wharf despite
knowledge of an incoming typhoon. During the time that the barge was
heading towards the consignee's wharf on September 5, 1990, typhoon
Loleng has already entered the Philippine area of responsibility. A part of the
testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner,
reveals:
[32]

DIRECT-EXAMINATION BY ATTY. LEE:

[33]

xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to
lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their
Wharf since they needed badly the wheat that was loaded in PSTSI-3. It was
needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.

xxxxxxxxx
CROSS-EXAMINATION BY ATTY. IGNACIO:

[34]

xxxxxxxxx
q - And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I
have stated.
q - Despite of the threats of an incoming typhoon as you testified a while ago?
a - It is already in an inner portion of Pasig River. The typhoon would be
coming and it would be dangerous if we are in the vicinity of Manila
Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
a - Yes.
q - And yet as a standard operating procedure of your Company, you have to
secure a sort of Certification to determine the weather condition, am I
correct?
a - Yes, sir.
q - So, more or less, you had the knowledge of the incoming typhoon, right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig entrance, it
is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as
force majeure to escape liability for the loss sustained by the private
respondent. Surely, meeting a typhoon head-on falls short of due diligence
required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel broke

that caused its sinking and the total loss of the cargo upon reaching the Pasig
River, it was no longer affected by the typhoon. The typhoon then is not the
proximate cause of the loss of the cargo; a human factor, i.e., negligence had
intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution
dated February 21, 2001 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
Panganiban, and

SPOUSES DANTE CRUZ and

LEONORA CRUZ,
Petitioners,

- versus SUN HOLIDAYS, INC.,

Respondent.

G.R. No. 186312

Present:
CARPIO MORALES, J.,
Chairperson,
BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.
Promulgated:
June 29, 2010

x-------------------------------------------------x

DECISION
CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
2001[1] against Sun Holidays, Inc. (respondent) with the Regional Trial Court
(RTC) of Pasig City for damages arising from the death of their son Ruelito C.
Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the
boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors,
gave his account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners son and his wife trekked to the other side of
the Coco Beach mountain that was sheltered from the wind where they
boarded M/B Coco Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from
Puerto Galera and into the open seas, the rain and wind got stronger, causing the
boat to tilt from side to side and the captain to step forward to the front, leaving the
wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which
came one after the other, M/B Coco Beach III capsized putting all passengers
underwater.
The passengers, who had put on their life jackets, struggled to get out of the
boat. Upon seeing the captain, Matute and the other passengers who reached the
surface asked him what they could do to save the people who were still trapped

under the boat. The captain replied Iligtas niyo na lang ang sarili niyo (Just save
yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in
Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on
those two boats were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island. Eight passengers, including petitioners
son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,[5] denied any
responsibility for the incident which it considered to be a fortuitous event. It
nevertheless offered, as an act of commiseration, the amount of P10,000 to
petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier
reflected, alleging that respondent, as a common carrier, was guilty of negligence
in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins
issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.[6]
In its Answer,[7] respondent denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew
members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B
Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less
than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
customarily requires four conditions to be met before a boat is allowed to sail, to
wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is
clearance from the captain and (4) there is clearance from the Resorts assistant
manager.[8] He added that M/B Coco Beach III met all four conditions on
September 11, 2000,[9] but a subasco or squall, characterized by strong winds and
big waves, suddenly occurred, causing the boat to capsize.[10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed
petitioners Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order
dated September 2, 2005,[12] they appealed to the Court of Appeals.
By Decision of August 19, 2008,[13] the appellate court denied petitioners
appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier which is only required to observe ordinary diligence;
that respondent in fact observed extraordinary diligence in transporting its guests
on board M/B Coco Beach III; and that the proximate cause of the incident was a
squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution
dated January 16, 2009,[14] they filed the present Petition for Review.[15]
Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its
guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors
of the incident.
Upon the other hand, respondent contends that petitioners failed to present
evidence to prove that it is a common carrier; that the Resorts ferry services for
guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it
had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and

that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.[16]
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing
respondent as a common carrier.
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity (in local idiom,
as a sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service
on anoccasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general
public, i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from
making such distinctions.
So understood, the concept of common carrier under Article 1732 may
be seen to coincide neatly with the notion of public service, under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
public service includes:
. . . every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for

freight or passenger, or both, with or without fixed route

and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other
similar public services . . . [18] (emphasis and underscoring
supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined

with its main business as to be properly considered ancillary thereto. The
constancy of respondents ferry services in its resort operations is underscored by
its having its own Coco Beach boats. And the tour packages it offers, which
include the ferry services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining common carriers
has deliberately refrained from making distinctions on whether the carrying of
persons or goods is the carriers principal business, whether it is offered on a
regular basis, or whether it is offered to the general public. The intent of the law is
thus to not consider such distinctions. Otherwise, there is no telling how many
other distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities
of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the
safety of the passengers transported by them, according to all the circumstances of
each case.[19] They are bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.[20]

When a passenger dies or is injured in the discharge of a contract of carriage,

it is presumed that the common carrier is at fault or negligent. In fact, there is even
no need for the court to make an express finding of fault or negligence on the part
of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.[21]
Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September
11, 2000. Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect
the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising
weather specialist of PAGASA, squalls are to be expected under such weather
condition.[23]
A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk. The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.

Respondents insistence that the incident was caused by a fortuitous event

does not impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that
constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a normal manner;
and (d) the obligor must have been free from any participation in the aggravation
of the resulting injury to the creditor.[24]
To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the fortuitous event.[25]
Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence
of squalls was expected under the weather condition of September 11,
2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble
before it capsized and sank.[26] The incident was, therefore, not completely free
from human intervention.
The Court need not belabor how respondents evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the squall.

Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a passenger
liable to pay the following: (1) indemnity for death, (2) indemnity for loss of
earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed
at P50,000.[29]

As for damages representing unearned income, the formula for its

computation is:
Net Earning Capacity = life expectancy x (gross annual income reasonable and necessary living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death] [30]

The first factor, i.e., life expectancy, is computed by applying the formula
(2/3 x [80 age at death]) adopted in the American Expectancy Table of Mortality or
the Actuarial of Combined Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses.
[32]
The loss is not equivalent to the entire earnings of the deceased, but only such
portion as he would have used to support his dependents or heirs.Hence, to be
deducted from his gross earnings are the necessary expenses supposed to be used
by the deceased for his own needs.[33]
In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja[34] teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life
expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly

salary of $900[35] which, when converted to Philippine peso applying the annual
average exchange rate of $1 = P44 in 2000,[36] amounts to P39,600. Ruelitos net
earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income reasonable and necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers

breach of contract of carriage resulted in the death of petitioners son, following
Article 1764 vis--vis Article 2206 of the Civil Code, petitioners are entitled to
moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence
required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in contractual
obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.[37]
Under the circumstances, it is reasonable to award petitioners the amount
of P100,000 as moral damages and P100,000 as exemplary damages.[38]

Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be
awarded where exemplary damages are awarded. The Court finds that 10% of the
total amount adjudged against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals [40] teaches that
when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for payment

of interest in the concept of actual and compensatory damages, subject to the

following rules, to wit
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit. (emphasis
supplied).

Since the amounts payable by respondent have been determined with certainty only
in the present petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, in accordance with

paragraph number 3 of the immediately cited guideline in Easter Shipping Lines,

Inc.
WHEREFORE, the
Court
of
Appeals
Decision
of August
19,
2008 is REVERSED and SET ASIDE. Judgment is rendered in favor of
petitioners ordering respondent to pay petitioners the following: (1) P50,000 as
indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos
loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against respondent as
attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12%
per annum computed from the finality of this decision until full payment.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of
New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in
bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei
Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued
on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by
the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charterparty which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause). 6 The hatches remained open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain
portions of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress. 8 The petitioner's warehouse was made of corrugated
galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the
fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),

was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel
prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July
1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer
approximating 18 M/T was contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered
was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been
polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and
not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court
of First Instance of Manila. The defendant carrier argued that the strict public policy governing common
carriers does not apply to them because they have become private carriers by reason of the provisions of
the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be. Even
if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel
M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common carrier by
reason of the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set
forth a presumption of negligence do not find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee
to adduce sufficient evidence to prove the negligence of the defendant carrier as
alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon

whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of
its cause of action, i.e. the alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have to establish defendant's
negligence. Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence
on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel remain
with the shipowner, absent any stipulation to the contrary, such shipowner should made liable for the
negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption
of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show
want of due deligence on the part of the carrier, when he was not even at hand to witness what transpired
during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so,
we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties
are of two types: (a) contract of affreightment which involves the use of shipping space on vessels leased
by the owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat
charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master and the crew,
who are his servants. Contract of affreightment may either be time charter, wherein the vessel is leased to
the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a determinate
period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the
wages of the master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as ready
to engage in carrying goods or transporting passengers or both for compensation as a public employment
and not as a casual occupation. The distinction between a "common or public carrier" and a "private or
special carrier" lies in the character of the business, such that if the undertaking is a single transaction,
not a part of the general business or occupation, although involving the carriage of goods for a fee, the
person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to
have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On
the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the
carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge
the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course
of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in
a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity
of a stipulation in the charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the
rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more
exacting interpretation of admiralty laws, more particularly, the rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law

30

As a matter of principle, it is difficult to find a valid distinction between cases in which

a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and
fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the
ship was in transit as the weight of the steel covers made it impossible for a person to open without
the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded,
and in the presence of a representative of the shipowner, the foreman, the stevedores, and a cargo
surveyor representing CSCI, opened the hatches and inspected the condition of the hull of the vessel.
The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the
whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiff-appellee's
own witnesses clearly show absence of negligence by the defendant carrier; that the
hull of the vessel at the time of the discharge of the cargo was sealed and nobody

could open the same except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).
The period during which private respondent was to observe the degree of diligence required of it as
a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is
clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense
to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper stowage
only when the stowing is done by stevedores employed by him, and therefore under his control and
supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless,
shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against him,
that they arose through his negligence or by reason of his having failed to take the precautions which
usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate
even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such operation amounting to one percent (1%) against
the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the
clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the
materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion
which is in liquid form still remains potent and usable although no longer saleable in its original
market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep
into the vessel's holds during the voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from the ship to the dump trucks and
finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar
order cargo" as contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during
its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the
goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the
First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

[G.R. No. 131166. September 30, 1999]

CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO
SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,

VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO,

EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION,
TERESITA G. CAEZAL AND SOTERA E. CAEZAL, respondents.
DECISION
PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum
products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it
would collide with MV Doa Paz, killing almost all the passengers and crew members of both
ships, and thus resulting in one of the countrys worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision [1]holding petitioner
jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio
Lines, Inc.s passenger ship MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex.[2] MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene,
diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline and
other oil products owned by Caltex by virtue of a charter contract between them.[3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and
his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. [4] The MV
Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the
route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips
twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within
the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers
of MV Doa Paz died, while the two survivors from MT Vector claimed that they were sleeping at
the time of the incident.

The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the burning
waters by vessels that responded to distress calls.[5] Among those who perished were public
school teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years old),
both unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation
found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual
operator Vector Shipping Corporation, were at fault and responsible for its collision with MV
Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
Damages Arising from Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
Vector with gross and evident bad faith knowing fully well that MT Vector was improperly
manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed against
MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party
complaint against petitioner. The dispositive portion reads:

WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against

defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G.
Caezal, including loss of future earnings of said Sebastian, moral and exemplary
damages, attorneys fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation
and with costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG

Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the
Court of Appeal modified the trial courts ruling and included petitioner Caltex as one of the those
liable for damages. Thus:

WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional
Trial Court is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian
E. Caezal and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the
total amount of ONE HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E. Caezal,
in the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED
EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P
300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY
THOUSAND PESOS (P 50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally
liable under the third party complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. of the above-mentioned damages, attorneys fees and costs which the latter
is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co. (being
the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being
the charterer that negligently caused the shipping of combustible cargo aboard an
unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL

Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the
carrier is public or private, but on whether the contract of carriage is a bill of lading or equivalent
shipping documents on the one hand, or a charter party or similar contract on the other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; a contract of affreightment is one by
which the owner of a ship or other vessel lets the whole or part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is leased
to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a
single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive voyage, the ship owner to supply the
ships store, pay for the wages of the master of the crew, and defray the expenses for the
maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with
his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to
liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of
the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the
owner. The charterer is free from liability to third persons in respect of the ship.[13]

Second : MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3)
voyage charter. Does a charter party agreement turn the common carrier into a private one? We
need to answer this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel as a
common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:

It is therefore imperative that a public carrier shall remain as such, notwithstanding

the charter of the whole or portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a time-charter or voyage charter. It
is only when the charter includes both the vessel and its crew, as in a bareboat or
demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or
voyage charter retains possession and control of the ship, although her holds may, for
the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]

Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment xxx
A common carrier is a person or corporation whose regular business is to carry passengers or
property for all persons who may choose to employ and to remunerate him. [16] MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of
Appeals,[17] we ruled:
The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers for passengers or goods
or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a sideline). Article 1732 also carefully avoids

making any distinction between a person or enterprise offering transportation service

on a regular or scheduled basis and one offering such services on a an occasional,
episodic or unscheduled basis.Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberately refrained from making
such distinctions.
It appears to the Court that private respondent is properly characterized as a common
carrier even though he merely back-hauled goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a periodic, occasional rather than
regular or scheduled manner, and even though respondents principal occupation was
not the carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that the fee frequently fell below
commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to (a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common carrier to maintain
in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the business of common carriers. This
business is impressed with a special public duty. The public must of necessity rely on the care
and skill of common carriers in the vigilance over the goods and safety of the passengers,
especially because with the modern development of science and invention, transportation has
become more rapid, more complicated and somehow more hazardous.[19] For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its
crew, the carrier being obliged by law to impliedly warrant its seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license
renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.

Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these
deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate
only in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine.[20]

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of
the Civil Code, which provide:

Article 20. - Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Article 2176. - Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.

And what is negligence?

The Civil Code provides:

Article 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals, [21] we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may
be the failure to observe that degree of care, precaution, and vigilance, which the circumstances
justly demand, or the omission to do something which ordinarily regulate the conduct of human
affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common carrier
simply for being engaged in public service.[22] The Civil Code demands diligence which is
required by the nature of the obligation and that which corresponds with the circumstances of the
persons, the time and the place. Hence, considering the nature of the obligation between Caltex
and MT Vector, the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness,[23] shippers of goods, when transacting with common carriers,
are not expected to inquire into the vessels seaworthiness, genuineness of its licenses and
compliance with all maritime laws. To demand more from shippers and hold them liable in case
of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the
public in general is concerned. By the same token, we cannot expect passengers to inquire every
time they board a common carrier, whether the carrier possesses the necessary papers or that all
the carriers employees are qualified. Such a practice would be an absurdity in a business where
time is always of the essence. Considering the nature of transportation business, passengers and
shippers alike customarily presume that common carriers possess all the legal requisites in its
operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other
shipper in shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here
under VESSELS DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7,
1987, Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT Vector?
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid
C.I. which will expire on December 7, 1987 but on the last week of November, I called the
attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me
they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were
going to send me a copy as soon as possible, sir.[24]

xxx xxx xxx

Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our
long business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates
that the documents are in order. xxx[25]

On cross examination Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection
has expired on December 7. Did it occur to you not to let the vessel sail on that day because of
the very approaching date of expiration?

Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they
were able to secure a renewal of the Certificate of Inspection and that they will in time
submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in
the coastwise license on December 7, 1987. What was your assurance for the record that this
document was renewed by the MT Vector?

Atty. Sarenas: xxx

Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three
years, they were allowed to sail by the Coast Guard. That are some that make me believe that
they in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed, referring
to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast
Guard, it means that it has Certificate of Inspection extended as assured to this witness by
Restituto Abalos. That in no case MV Vector will be allowed to sail if the Certificate of
Inspection is, indeed, not to be extended. That was his repeated explanation to the crossexamination. So, there is no need to clarify the same in the re-direct examination. [27]

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about
two years before the tragic incident occurred in 1987. Past services rendered showed no reason
for Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
things considered, we find no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we limit
our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals ruling
insofar as Vector is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of
the Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it
held Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court
AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the
heirs of Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party
defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to
reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and costs
the latter is adjudged to pay plaintiffs-appellees in the case.
No costs in this instance.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17,
1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable
to pay herein private respondent the amount of P700,000.00, plus legal interest thereon, another
sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to
Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb
barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long" 1 As a consequence, the molasses at the
cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the
consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-asa
Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise
Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pagasa Sales, Inc., the amount of P700,000.00, representing the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which
the consignee may have against the carrier, which is presumed to have violated the contract of
carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment which it
entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a
private carrier, did it exercise the ordinary diligence to which a private carrier is in turn bound?
Second, whether or not the insurer was subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one of
the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it
was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the
shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc. 2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo or
chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel,
rather than a demise. As such, the liability of the shipowner for acts or negligence of
its captain and crew, would remain in the absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4 wherein
we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be
regarded as the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel
must completely and exclusively relinquish possession, command and navigation
thereof to the charterer, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a contract for special
service to be rendered by the owner of the vessel and under such contract the
general owner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his
payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of
the charterer, remains liable as carrier and must answer for any breach of duty as to
the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however is
not true in a contract of affreightment on account of the aforementioned distinctions between the
two.
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one point
to another, but the possession, command and navigation of the vessels remained with petitioner
Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common carrier
and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in
bad order makes for aprima facie case against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the goods
it transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause
of the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any
effort to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to
avoid navigational accidents" 6 effectively contributed to the happening of this mishap. Thus, being
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the
same. Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by
the provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal
capacity to contract in accordance with this code, and prove the skill capacity and
qualifications necessary to command and direct the vessel, as established by marine
and navigation laws, ordinances or regulations, and must not be disqualified
according to the same for the discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill
to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally
authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more
rule against the petitioner. We have already found petitioner liable for breach of the contract of
carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of
the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value thereof
to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from 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 violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long line
of cases including Compania Maritima v. Insurance Company of North America; 7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court of
Appeals, 9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation.
If the insured property is destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured

operated as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pagasa Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales,
Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming
the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to
pay respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus
interest thereon at the legal rate computed from March 29, 1989, the date the complaint was filed
until fully paid and another sum of P100,000.00 as attorney's fees and costs" 10 is likewise hereby
AFFIRMED
SO ORDERED.

[G.R. No. 148496. March 19, 2002]

VIRGINES CALVO doing business under the name and style

TRANSORIENT CONTAINER TERMINAL SERVICES, INC.,
petitioner, vs. UCPB GENERAL INSURANCE CO., INC. (formerly
Allied Guarantee Ins. Co., Inc.) respondent.
DECISION
MENDOZA, J.:

This is a petition for review of the decision, [1] dated May 31, 2001, of the Court of
Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch
148, which ordered petitioner to pay respondent, as subrogee, the amount
of P93,112.00 with legal interest, representing the value of damaged cargo handled by
petitioner, 25% thereof as attorneys fees, and the cost of the suit.
The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services,

Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this
case, petitioner entered into a contract with San Miguel Corporation (SMC) for the
transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board
from the Port Area in Manila to SMCs warehouse at the Tabacalera Compound,
Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General
Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23
to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo
from the arrastre operator and delivered it to SMCs warehouse in Ermita, Manila. On
July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that
15 reels of the semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft
liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for
the aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit
against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on
December 20, 1995, rendered judgment finding petitioner liable to respondent for the
damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody
of defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage
Report (Exh. F) with entries appearing therein, classified as TED and TSN, which the
claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage
at the middle of the subject damaged cargoes respectively, coupled with the Marine
Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the damaged condition of
the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular, which provides
among others that:
. . . we opine that damages sustained by shipment is attributable to improper handling
in transit presumably whilst in the custody of the broker . . . .

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense that
[she is] are not liable. Defendant by reason of the nature of [her] business should have
devised ways and means in order to prevent the damage to the cargoes which it is
under obligation to take custody of and to forthwith deliver to the consignee.
Defendant did not present any evidence on what precaution [she] performed to
prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the
nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they have observed the
extraordinary diligence required by law. The burden of the plaintiff, therefore, is to
prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the
mere proof of delivery of goods in good order to a carrier, and of their arrival at the
place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held
responsible. It is incumbent upon the carrier to prove that the loss was due to accident
or some other circumstances inconsistent with its liability. (cited in Commercial Laws
of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common
carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence
the extraordinary responsibility lasts from the time the goods are unconditionally
placed in the possession of and received by the carrier for transportation until the
same are delivered actually or constructively by the carrier to the consignee or to the
person who has the right to receive the same. [3]
Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyers fee;

3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on appeal. Hence this petition
for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE
OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5]

It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of
Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence
in the vigilance over the goods transported by her, would require. [6] Consequently, any
damage to the cargo she agrees to transport cannot be presumed to have been due to
her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs
broker and warehouseman, she does not indiscriminately hold her services out to the
public but only offers the same to select parties with whom she may contract in the
conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court
dismissed a similar contention and held the party to be a common carrier, thus
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity . . . Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such
distinctions.
So understood, the concept of common carrier under Article 1732 may be seen to
coincide neatly with the notion of public service, under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, public service includes:
x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. x x x [8]
There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners
contention would be to deprive those with whom she contracts the protection which
the law affords them notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of
each case. . . .
In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary
diligence in the vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.
In the case at bar, petitioner denies liability for the damage to the cargo. She
claims that the spoilage or wettage took place while the goods were in the custody of
either the carrying vessel M/V Hayakawa Maru, which transported the cargo to
Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly
kept them in open air for nine days from July 14 to July 23, 1998 notwithstanding the
fact that some of the containers were deformed, cracked, or otherwise damaged, as
noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened. [10]
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino
testified that he has no personal knowledge on whether the container vans were first

stored in petitioners warehouse prior to their delivery to the consignee. She likewise
claims that after withdrawing the container vans from the arrastre operator, her driver,
Ricardo Nazarro, immediately delivered the cargo to SMCs warehouse in Ermita,
Manila, which is a mere thirty-minute drive from the Port Area where the cargo came
from. Thus, the damage to the cargo could not have taken place while these were in
her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean Equipment Interchange Report (EIR)
and, when petitioners employees withdrew the cargo from the arrastre operator, they
did so without exception or protest either with regard to the condition of container
vans or their contents. The Survey Report pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to
dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20
secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches
on side and roof panels, these containers were deemed to have [been] received in good
condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had therebeen any
damage to the shipment, there would have been a report to that effect made by the

arrastre operator. The cargoes were withdrawn by the defendant-appellant from the
arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the
container vans were deformed, cracked, distorted or dented, the defendant-appellant
would report it immediately to the consignee or make an exception on the delivery
receipt or note the same in the Warehouse Entry Slip (WES). None of these took
place. To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can only
conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the
debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault,
unless there is proof to the contrary. No proof was proffered to rebut this legal
presumption and the presumption of negligence attached to a common carrier in case
of loss or damage to the goods.[13]
Anent petitioners insistence that the cargo could not have been damaged while in
her custody as she immediately delivered the containers to SMCs compound, suffice it
to say that to prove the exercise of extraordinary diligence, petitioner must do more
than merely show the possibility that some other party could be responsible for the
damage. It must prove that it used all reasonable means to ascertain the nature and
characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the
handling [thereof]. Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides
Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case,
the defect/s in the container, is/are known to the carrier or his employees or apparent
upon ordinary observation, but he nevertheless accepts the same without protest or

exception notwithstanding such condition, he is not relieved of liability for damage

resulting therefrom.[14] In this case, petitioner accepted the cargo without exception
despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of goods
in this case or that she is exempt from liability, the presumption of negligence as
provided under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
SO ORDERED.