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.

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  and renewed by the Energy Regulatory Board in 1992. 
1 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 . The respondent City Treasurer assessed a business
3

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 . . .

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 of P956,076.04
(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  for 6

tax refund with prayer for 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:

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

. . . 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, . . . 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.   On November 29, 1995, the respondent court rendered a decision   affirming the
10 11

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.   Petitioner moved for a reconsideration which was granted by this Court in a Resolution   of
13 14

January 22, 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.

Art. 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   we ruled that:
16

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 . . .
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. (Emphasis 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 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 . . . and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum, is hereby
declared to be a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:

. . . 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 . . . . 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:

Sec. 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:

x x x           x x x          x x x

(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." . . .

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. . . .  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.   To tax petitioner again on its gross
19

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.

G.R. No. 150255. April 22, 2005

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,

vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA
SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.

DECISION

CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision of the Court of Appeals, as well as its
1 

Resolution dated September 28, 2001 denying the motion for reconsideration, which affirmed that of
2 

Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132 holding petitioner
3 

Schmitz Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping
Corporation (Black Sea), represented by its ship agent Inchcape Shipping Inc. (Inchcape), and
Transport Venture (TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were
washed overboard a barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on
board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black Sea) 545 hot
rolled steel sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little
Giant Steel Pipe Corporation (Little Giant), were insured against all risks with Industrial Insurance
4 

Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS. 5

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority
(PPA) assigned it a place of berth at the outside breakwater at the Manila South Harbor. 6

Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignee’s) warehouse at Cainta, Rizal, in turn engaged the services of TVI to send a barge
7 

and tugboat at shipside.

On October 26, 1991, around 4:30 p.m., TVI’s tugboat "Lailani" towed the barge "Erika V" to
shipside. 8

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the
vessel, left and returned to the port terminal. At 9:00 p.m., arrastre operator Ocean Terminal
9 

Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the barge.

By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to
an approaching storm, the unloading unto the barge of the 37 coils was accomplished. No tugboat
10 

pulled the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the barge
11 

abandoned it and transferred to the vessel. The barge pitched and rolled with the waves and
eventually capsized, washing the 37 coils into the sea. At 7:00 a.m., a tugboat finally arrived to
12 

pull the already empty and damaged barge back to the pier. 13

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the
lost cargoes proved futile.
14

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of
₱5,246,113.11. Little Giant thereupon executed a subrogation receipt in favor of Industrial
15 

Insurance.

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea
through its representative Inchcape (the defendants) before the RTC of Manila, for the recovery of
the amount it paid to Little Giant plus adjustment fees, attorney’s fees, and litigation
expenses. 16

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes
while typhoon signal No. 1 was raised in Metro Manila. 17

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for
unloading the cargoes outside of the breakwater notwithstanding the storm signal. The 18 

dispositive portion of the decision reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering
the defendants to pay plaintiff jointly and severally the sum of ₱5,246,113.11 with interest from
the date the complaint was filed until fully satisfied, as well as the sum of ₱5,000.00 representing the
adjustment fee plus the sum of 20% of the amount recoverable from the defendants as attorney’s
fees plus the costs of suit. The counterclaims and cross claims of defendants are hereby
DISMISSED for lack of [m]erit. 19

To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of excessive
attorney’s fees of more than ₱1,000,000. And they argued that they were not motivated by gross or
evident bad faith and that the incident was caused by a fortuitous event.  20

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 
21

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed
in toto the decision of the trial court,  it finding that all the defendants were common carriers —
22 

Black Sea and TVI for engaging in the transport of goods and cargoes over the seas as a regular
business and not as an isolated transaction, and Schmitz Transport for entering into a contract with
23 

Little Giant to transport the cargoes from ship to port for a fee. 24

In holding all the defendants solidarily liable, the appellate court ruled that "each one was essential
such that without each other’s contributory negligence the incident would not have happened and so
much so that the person principally liable cannot be distinguished with sufficient accuracy." 25

In discrediting the defense of fortuitous event, the appellate court held that "although defendants
obviously had nothing to do with the force of nature, they however had control of where to anchor
the vessel, where discharge will take place and even when the discharging will commence." 26
The defendants’ respective motions for reconsideration having been denied by Resolution of 27 

September 28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present
petition against TVI, Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal,
consignee Little Giant, hence, the transportation contract was by and between Little Giant and TVI. 28

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI
were required to file their respective Comments. 29

By its Comment, Black Sea argued that the cargoes were received by the consignee through
petitioner in good order, hence, it cannot be faulted, it having had no control and supervision
thereover.30

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and
transferred them unto the barge upon the instruction of petitioner. 31

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all
liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute the caso
fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to
render it impossible for the debtor to fulfill his obligation in any manner; and (4) the obligor must be
free from any participation in the aggravation of the injury resulting to the creditor.
32

[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded from creating or entering
into the cause of the mischief. When the effect is found to be in part the result of the participation
of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is
then humanized and removed from the rules applicable to the acts of God. 33

The appellate court, in affirming the finding of the trial court that human intervention in the form of
contributory negligence by all the defendants resulted to the loss of the cargoes, held that 34 

unloading outside the breakwater, instead of inside the breakwater, while a storm signal was
up constitutes negligence. It thus concluded that the proximate cause of the loss was Black
35 

Sea’s negligence in deciding to unload the cargoes at an unsafe place and while a typhoon
was approaching. 36
From a review of the records of the case, there is no indication that there was greater risk in loading
the cargoes outside the breakwater. As the defendants proffered, the weather on October 26, 1991
remained normal with moderate sea condition such that port operations continued and proceeded
normally.37

The weather data report, furnished and verified by the Chief of the Climate Data Section of PAG-
38 

ASA and marked as a common exhibit of the parties, states that while typhoon signal No. 1 was
hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00
p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that the
defendants were negligent in not unloading the cargoes upon the barge on October 26, 1991 inside
the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30
in the morning is, however, a material fact which the appellate court failed to properly consider and
39 

appreciate — the proximate cause of the loss of the cargoes. Had the barge been towed back
40 

promptly to the pier, the deteriorating sea conditions notwithstanding , the loss could have
been avoided. But the barge was left floating in open sea until big waves set in at 5:30 a.m.,
causing it to sink along with the cargoes. The loss thus falls outside the "act of God doctrine."
41 

The proximate cause of the loss having been determined, who among the parties is/are responsible
therefor?

Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a
common carrier. For it undertook to transport the cargoes from the shipside of "M/V Alexander
Saveliev" to the consignee’s warehouse at Cainta, Rizal. As the appellate court put it, " as long as a
person or corporation holds [itself] to the public for the purpose of transporting goods as [a]
business, [it] is already considered a common carrier regardless if [it] owns the vehicle to be
used or has to hire one." That petitioner is a common carrier, the testimony of its own Vice-
42 

President and General Manager Noel Aro that part of the services it offers to its clients as a
brokerage firm includes the transportation of cargoes reflects so.

Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and
General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the
company. I also handle the various division heads of the company for operation matters, and all
other related functions that the President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the
Honorable Court if you came to know the company by the name Little Giant Steel Pipe Corporation?

A: Yes, Sir. Actually, we are the brokerage firm of that Company.

Q: And since when have you been the brokerage firm of that company, if you can recall?

A: Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you
perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-
charged of the delivery of the goods to their warehouses. We also handled the clearances of their
shipment at the Bureau of Customs, Sir.

xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with
regards to this shipment? What work did you do with this shipment?

A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the]
cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.

Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to
perform, what equipment do (sic) you require or did you use in order to effect this unloading, transfer
and delivery to the warehouse?

A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter,
and on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] in-charged
(sic) of the barges. Also, in BASECO compound we are leasing cranes to have the cargo unloaded
from the barge to trucks, [and] then we used trucks to deliver [the cargoes] to the consignee’s
warehouse, Sir.

Q: And whose trucks do you use from BASECO compound to the consignee’s warehouse?

A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract
for the barges of Transport Ventures Incorporated in this particular operation?

A: Firstly, we don’t own any barges. That is why we hired the services of another firm whom we
know [al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis supplied) 43

It is settled that under a given set of facts, a customs broker may be regarded as a common carrier.
Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals, held:
44 

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier,
as defined under Article 1732 of the Civil Code, to wit,

Art. 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.

xxx

Article 1732 does not distinguish between one whose principal business activity is the carrying of
goods and one who does such carrying only as an ancillary activity. The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is
bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.
45
And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the transportation of
46 

goods is an integral part of a customs broker, the customs broker is also a common carrier. For to
declare otherwise "would be to deprive those with whom [it] contracts the protection which the law
affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is part and
parcel of petitioner’s business."
47

As for petitioner’s argument that being the agent of Little Giant, any negligence it committed was
deemed the negligence of its principal, it does not persuade.

True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In
effecting the transportation of the cargoes from the shipside and into Little Giant’s warehouse,
however, petitioner was discharging its own personal obligation under a contact of carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler to 48 

provide the barge and the tugboat. In their Service Contract, while Little Giant was named as the
49 

consignee, petitioner did not disclose that it was acting on commission and was chartering the
vessel for Little Giant. Little Giant did not thus automatically become a party to the Service Contract
50 

and was not, therefore, bound by the terms and conditions therein.

Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can
maintain a cause of action for negligence. 51

In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper and
careful handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and
2202, paragraph 2, shall apply.

If the law or contract 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.

Was the reasonable care and caution which an ordinarily prudent person would have used in the
same situation exercised by TVI? 52

This Court holds not.

TVI’s failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation , but was the proximate cause of the loss. A
man of ordinary prudence would not leave a heavily loaded barge floating for a considerable number
of hours, at such a precarious time, and in the open sea, knowing that the barge does not have any
power of its own and is totally defenseless from the ravages of the sea. That it was nighttime and,
therefore, the members of the crew of a tugboat would be charging overtime pay did not excuse TVI
from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 of the Civil
53 

Code, prove that it exercised due diligence to prevent or minimize the loss, before, during and
after the occurrence of the storm in order that it may be exempted from liability for the loss of the
goods.

While petitioner sent checkers and a supervisor on board the vessel to counter-check the
54  55 

operations of TVI, it failed to take all available and reasonable precautions to avoid the loss .
After noting that TVI failed to arrange for the prompt towage of the barge despite the deteriorating
sea conditions, it should have summoned the same or another tugboat to extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable for the loss of the cargoes.
56 

The following pronouncement of the Supreme Court is instructive:

The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required
of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a
carrier may choose to hire its own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x
x x [O]ne might ask further, how then must the liability of the common carrier, on one hand, and an
independent contractor, on the other hand, be described? It would be solidary. A contractual
obligation can be breached by tort and when the same act or omission causes the injury, one
resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well
apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches
the contract. Stated differently, when an act which constitutes a breach of contract would have itself
constituted the source of a quasi-delictual liability had no contract existed between the parties, the
contract can be said to have been breached by tort, thereby allowing the rules on tort to apply. 57

As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation until
they were delivered actually or constructively to consignee Little Giant. 58

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the
services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment
provides that delivery be made "to the port of discharge or so near thereto as she may safely get,
always afloat." The delivery of the goods to the consignee was not from "pier to pier" but from the
59 

shipside of "M/V Alexander Saveliev" and into barges, for which reason the consignee contracted
the services of petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant,
through petitioner, it had discharged its duty.60

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorney’s fees in an amount over ₱1,000,000.00 to Industrial Insurance, for
lack of factual and legal basis, this Court sets it aside. While Industrial Insurance was compelled to
litigate its rights, such fact by itself does not justify the award of attorney’s fees under Article 2208 of
the Civil Code. For no sufficient showing of bad faith would be reflected in a party’s persistence in a
case other than an erroneous conviction of the righteousness of his cause. To award attorney’s fees
61 

to a party just because the judgment is rendered in its favor would be tantamount to imposing a
premium on one’s right to litigate or seek judicial redress of legitimate grievances. 62
On the award of adjustment fees: The adjustment fees and expense of divers were incurred by
Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo.
They do not constitute actual damages. 63

As for the court a quo’s award of interest on the amount claimed, the same calls for modification
following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals that when the demand
64 

cannot be reasonably established at the time the demand is made, the interest shall begin to run not
from the time the claim is made judicially or extrajudicially but from the date the judgment of the
court is made (at which the time the quantification of damages may be deemed to have been
reasonably ascertained). 65

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage
Corporation, and Transport Venture Incorporation jointly and severally liable for the amount of
₱5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per annum of the amount
due should be computed from the promulgation on November 24, 1997 of the decision of the trial
court.

Costs against petitioner.