Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8686

July 30, 1915

THE UNITED STATES, plaintiff-appellee,

vs.
PASCUAL QUINAJON and EUGENIO QUITORIANO, defendants-appellants.
Irineo Javier for appellants.
Attorney-General Villamor for appellee.
JOHNSON, J.:
The defendants were charged with a violation of the provisions of Act No. 98. A complaint was presented in the court of
the justice of the peace on the 11th day of November, 1912. A preliminary examination was had and the defendants were
held for trial in the Court of First Instance of the province of Ilocos Norte.
On the 17th day of November, 1912, the prosecuting attorney of the Province of Ilocos Norte presented the following
complaint:
The undersigned charges Pascual Quinajon and Eugenio Quitoriano, residents of the municipality of Paoay,
Ilocos Norte, P.I., with violating Act No. 98 of the Civil Commission, within the jurisdiction of this court, as follows:
That the aforementioned accused are now and have been engaged for more than four years prior to this date in
the transportation of passengers and merchandise in the port of Currimao that is, in the loading and unloading
of passengers and merchandise by means of virayes from the shore the steamers that anchor in the said port,
and vice versa.
That the said accused have been regularly charging 6 centavos for the unloading and loading of each package of
merchandise of cargo, large or small, heavy or light, off or on the steamers that anchor in the said port of
Currimao, and that the unloading is understood to be from the steamer to the storage warehouses.
That, in the months of June, July, and September, 1912, the said accused, by means of their virayes and employees, did
unload in the port of Currimao aforementioned 5,986 sacks of rice belonging to the provincial government of Ilocos Norte,
P.I., that had come from Manila, P.I., which sacks were unloaded from the steamers in which they had been shipped and
were carried to the storage warehouses in which they were deposited; that the said accused did willfully, unlawfully, and
criminally demand and collect from the provincial treasurer for the unloading of each one of the said sacks of rice 10
centavos which, as set forth in the preceding paragraph, they have been regularly charging for such services in the
unloading of the same kind of merchandise and under virtually the same circumstances and conditions; that the total sum
of the payments so made by the provincial treasurer amounted to P598.60 for the aforesaid 5,986 sacks of rice, the
provincial government of Ilocos Norte, P.I., being thereby damaged in the sum of 359.16, inasmuch as it should have paid
only 239.44, in accordance with the said rate of 6 centavos for each package.
Acts committed in violation of the said Act No. 98 of the Civil Commission.

Upon that complaint the defendants were duly arraigned, tried, found guilty of the crime charged, and sentenced by the
Honorable Dionisio Chanco, judge, to pay a fine of $100 (P200) and costs, and to return to the provincial government of
the Province of Ilocos Norte the sum of P359.16.
From that sentence each of the defendants appealed to this court. In this court they allege that the lower court committed
the following errors:
1. The court erred in holding that the accused had been regularly collecting 6 centavos for the loading or the
unloading of each sack rice from steamers in the port of Currimao.
2. The court erred in holding that the defendants established preferential privileges and made discriminations in
favor of certain shippers, against the provincial government of Ilocos Norte, in the loading or unloading of
merchandise on to or from the steamers in the port of Currimao.
3. The court erred, further, in sentencing the accused to pay to the provincial government of Ilocos Norte the sum
of P359.16.
The first assignment of error presents a question of fact only. The appellants allege that the lower court committed an
error in its conclusions of fact. They allege that the lower court committed an error in deciding that they had regularly
charged 6 centavos for each sack of rice loaded or unloaded at the port of Currimao. The decision of the lower court
contains the following statement of facts:
It is proven that the defendants, acting as representatives of the Union Obrera, established at the port of
Currimao, Ilocos Norte, and engaged by means of virayes as common carriers of passengers and in loading and
unloading freight from steamers anchoring at said port, to the shore or to the warehouses, and vice versa, have
regularly collected, during the last four years, 6 centavos for each sack of rice loaded or unloaded by said
association.
It is likewise proven that the same defendants, representing the same association, collected from the provincial
government of Ilocos Norte 10 centavos for each of the 5,986 sacks of rice which they unloaded from the
steamers during the months of June, July, and September, as property belonging to the said government, a price
which differed from the usual, charge of 6 centavos made to others shippers of said commodity.
The provincial fiscal presented as witnesses in support of the information the Chinese merchants Cu Chatco, Cu
Joco, Sy Yacco, Lim Anco, and Francisco Castro, who testified that they paid to the defendants for loading and
unloading supplies from the steamers at Currimao 6 centavos for each package of any kind of supplies, large or
small, heavy or light. The two first named, Cu Chatco and Cu Joco, testified, furthermore, that formerly they paid
transportation charges for the loading and discharge of their supplies from the steamers according to the weight
and size of each package, for which purpose a classification was previously made by weighing and measuring
said packages or merchandise. Cu Joco does not remember how much was paid at that time for each package,
but Cu Chatco states that 10 centavos was paid for the transportation of each sack of rice weighing 60 kilos or
more. The two above-named witnesses, Cu Chatco and Cu Joco, add that as the task of weighing and measuring
was very annoying to the Chinese merchants at Laoag, Ilocos Norte, they suggested to the defendants and
entered into an agreement with them, to pay by the lot the transportation charges covering loaded onto or
unloaded from the steamers, at the rate of 6 centavos for each package, heavy or light, large or small.
We have made a careful examination of the evidence adduced during the trial of the cause, and conclude that said facts
are substantially sustained thereby. The evidence clearly shows that the defendant collected 6 centavos for each
package, of whatever kind of merchandise, large or small, heavy or light, from those merchants only with whom they had
a special contract. From other merchants, with whom they had not made said special contract, as well as the Province of
Ilocos Norte, they collected a different rate. The evidence shows that they collected from the Province of Ilocos Norte 10
centavos for each sack of rice which they unloaded from the steamers during the months of June, July, and September.

There seems to be no reason for reversing or modifying the conclusions of the lower court based upon said finding of
facts. The effect of collecting a different amount from different persons for exactly analogous or similar service performed
by the defendants will be discussed when we come to a discussion of the law applicable to the foregoing facts.
The second assignment of error, to wit, that "the lower court committed an error in holding that the defendants established
preferential privileges in favor of certain shippers," presents the question whether or not the defendants and appellants, in
view of the foregoing facts, have violated the provisions of said Act No. 98.
The facts, as they are disclosed by the record and the findings of the lower court, may be stated concretely as follows: (1)
The defendants, as common carriers, charged and collected from some shippers and merchants, a certain price for each
package of merchandise, loaded or unloaded, according to a certain schedule. (See Exhibit A.) The prices fixed in the
schedule depended upon the size and weight of the package. (2) The defendants entered into a special contract
with certain merchants, under and by virtue of the terms of which they charged and collected, for loading merchandise in
said port, the sum of 6 centavos for each package, without reference to its size or weight.
It is contended that it cost any more to load or unload the rice for the province than it did for the merchants with whom the
special contract was made. There is no proof that the conditions were different. There is no proof that the services
rendered by the defendants for the different parties were unlike or even not contemporaneous. The defendants justify their
acts by the fact that they handled all the merchandise of some merchants, whether the packages were large or small, at
the same price.
Under these facts, the question is squarely presented whether or not the defendants are guilty of a violation of the spirit or
the letter of said Act No. 98. Said Act No. 98 was largely borrowed from the Act of Congress of February 4, 1887. The
language of the two Acts, so far as they relate to the present case, is practically the same. Said Act of Congress has been
construed by the Federal courts of the United States in several decisions. In view of the United States to said Act of
Congress.
The similarity of Act No. 98 and the Act of Congress may be seen in the following quotations:
(Sec. 1, Act No. 98.) (Sec. 2, Act of Congress, Feb. 4, 1887.)
No person or corporation engaged
as a common carrier of passengers or That if any common carrier subject
property shall directly or indirectly by to the provisions of this Act shall,
any special rate, rebate, drawback or directly or indirectly, by any special
other device, charge, demand, collect rate, rebate, drawback, or other device,
or receive from any person or persons, charge, demand, collect, or receive from
a greater or less compensation for any any person or persons a greater or
service rendered, or to be rendered in less compensation for any service
the transportation of passengers or rendered , or to be rendered, in the
property on land or water between any transportation of passengers or
points in the Philippine Islands than property, subject to the provisions of
such common carrier charges, demands, this Act, than it charges, demands,
collects or receives from any other person collects, or receives from any other
or persons for doing for him a like or person or persons for doing
contemporaneous service in the for him or them a like and
transportation of a like kind of traffic contemporaneous service in the
under substantially similar circumstances transportation of a like kind of
and conditions, and any such unjust traffic under substantially similar
discrimination is hereby prohibited and circumstances and conditions, such
declared to be unlawful. common carrier shall be deemed guilty

of unjust discrimination, which is hereby

prohibited and declared to be unlawful.
(Sec. 2, Act No. 98.) (Sec. 3, Act of Congress, Feb. 4, 1887.)
It shall be unlawful for any
common carrier engaged in the That it shall be unlawful for any common
transportation of passengers or carrier subject to the provisions of this Act
property as above set forth to make to make or give any undue or unreasonable
or give any unnecessary or unreasonable preference or advantage to any particular
preference or advantage to any particular person, company, firm, corporation, or
person, company, firm, corporation or locality, or any particular description of
locality, or any particular kind of traffic traffic, in any respect whatsoever, or to
in any respect whatsoever, or to subject subject any particular person, company,
any particular person, company, firm, firm, corporation, or locality, or any
corporation or locality, or any particular particular description of traffic, to any
kind of traffic, to any undue or undue or unreasonable prejudice or
unreasonable prejudice or discrimination disadvantage in any respect whatsoever.
whatsoever, and such unjust preference
or discrimination is also hereby prohibited
and declared to be unlawful.
Said Act No. 98 is "An Act to regulate commerce in the Philippine Islands." Its purpose, so far as it is possible, is to compel
common carriers to render to all persons exactly the same or analogous service for exactly the same price, to the end that
there may be no unjust advantage or unreasonable discrimination. It applies to persons or corporation engaged
as common carriers of passengers or property. 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 renumerate him. A common carrier is a
person or corporation who undertakes to carry goods or persons for hire. The appellants admit that they are common
carriers. The only question presented is whether or not, under the facts, they have violated the Act regulating commerce in
the Philippine Islands.
The law provides that no common carrier shall directly or indirectly, by any special rate, rebate, drawback, or other device,
charge, demand collect, or receive from any person or persons, a greater or less compensation for any service rendered
in the transportation of passengers or property, between points in the Philippine Islands, than he charges, demands,
collects, or receives from any other person or persons, for doing a like or contemporaneous service, under substantially
similar conditions or circumstances.
The law prohibits any common carrier from making or giving any unnecessary or unreasonable preference or advantage
to any particular person, company, firm, corporation or locality, or any particular kind of traffic, or to subject any particular
person, company, firm, corporation, or locality, or any particular kind of traffic, to any undue or unreasonable prejudice or
discrimination whatsoever.
It will be noted that the law requires common carriers to carry for all persons, either passengers or property, for exactly the
same charge for a like or contemporaneous service in the transportation of like kind of traffic under substantially similar
circumstances or conditions. The law prohibits common carriers from subjecting any person, etc., or locality, or any
particular kind of traffic, to any undue or unreasonable prejudice or discrimination whatsoever. The law does not require
that the same charge shall be made for the carrying of passengers or property, unless all the conditions are alike and
contemporaneous. It is not believed that the law prohibits the charging of a different rate for the carrying of passengers or
property when the actual cost of handling and transporting the same is different. it is not believed that the law intended to
require common carriers to carry thesame kind of merchandise, even at the same price, under different and unlike
conditions and where the actual cost is different. The actual cost of handling and transporting the same quantity of rice, for
example, might be different, depending upon the form of package or other conditions. It would cost more to handle and

transport rice packed in open boxes or baskets, for example, than it would to handle and transport the same quantity of
rice neatly packed in sacks. It would cost more to handle and transport hemp, when it is unbaled and loose, than it would
when it is baled. It might cost more to handle and transport household goods uncrated than when they are crated. It is not
believed that the law prohibits the charging of a different price for handling and shipping merchandise when the shipper
exercises greater care in preparing the same for shipment, thereby reducing the actual cost of handling and transporting.
If the shipper puts his merchandise in a condition which costs less to handle and transport, he is certainly entitled to a
better rate. The difference in the charge to different merchants or shippers must be based upon the actual cost of handling
and transporting. The law does not require common carriers to perform different services for the same price, unless the
actual cost is the same. It is when the price charged is for the purpose of favoring persons or localities or particular kinds
of merchandise, that the law intervenes and prohibits. It is favoritism and discrimination which the law prohibits. The
difference in charge must not be made to favor one merchant, or shipper, or locality, to the disadvantage of another
merchant, or shipper, or locality. If the services are alike and contemporaneous, discrimination in the price charged is
prohibited. For the purposes of the law, it is not sufficient always to say that merchandise is alike, simply because it is of a
like kind or quantity. The quantity, kind, and quality may be exactly the same, and yet not be alike, so far as the cost of
transportation is concerned. Examples have been given above. Many others might be given. A and B are each shippers of
bananas between the same points. A delivers his bananas to the carrier in separate bundles or bunches, without a
wrapper or any kind of protection, while B delivers exactly the same number of bunches of bananas, but they are neatly
packed in a few boxes or baskets. It does not require much argument to convince men conversant with the shipping of
merchandise, in such a case, that the actual cost of handling and shipping would be different and would, therefore, not be
"alike," although contemporaneous, perhaps. Neither is it believed that shipments may be rendered unlike by the fact that
the total shipment is composed of different kinds or classes of merchandise. For example, A is a shipper of rice and hemp
and B is a shipper of rice alone. Both A and B prepare their rice for shipment in exactly the same form of package. It is not
believed that the carrier is permitted, under the law, to carry A's rice for a less price than he carries B's rice, simply
because A is also a shipper of hemp. A difference in the charge for handling and transporting may only be made when the
difference is based upon actual cost. The actual cost may depend upon quantity. A man who ships freight by the car-load,
by reason of the actual cost of handling and shipping, may be entitled, under certain conditions, to a better rate than the
man who ships a single article or package of the same class or kind of merchandise. A train-load of cattle might be
shipped from Dagupan to Manila, for example, at less cost per head than it would cost to ship just a few head, less than a
car-load. The actual cost of each shipment must necessarily depend upon and be settled by its own proof. This rule,
however, does not prohibit the making of general schedules, providing they are made applicable to all. The difference in
the charge made by the common carrier cannot be made for the purpose of favoring any person or locality, to the
prejudice or disadvantage of another person or locality. A common carrier may discriminate between shippers when the
amount of goods shipped by one actually costs less to handle and transport, but he cannot discriminate upon the ground
simply that he carries all of the goods of one shipper, while he does not carry all of the goods of another. The difference in
the charge must be the difference in the cost.
It is competent for a common carrier under the law, we believe, to enter into special agreements for handling and
transporting merchandise, whereby advantage may accrue to individuals, when it is made clearly to appear that by such
agreements the common carrier has only its interests and the legitimate increase of its profits in view, and when the
consideration given to the individual is for the interest of the common carrier alone, and when the common carrier gives all
shippers exactly the same rate, under the same conditions.
The appellants justify the different charge upon the ground that they carried pianos and matches, for the merchants with
whom they had the special contracts, at the same price. It is not believed that a merchant who happens to be a shipper of
both pianos and matches, should have any advantage over the merchant who ships pianos alone, unless there is some
other actual additional cost in the one case, which does not exist in the other. A common carrier can not discriminate upon
the ground that he carries all of the goods of one shipper, while he does not of another.
In the present case there is no pretense that it actually cost more to handle the rice for the province than it did for the
merchants with whom the special contracts were made. From the evidence it would seem that there was a clear
discrimination made against the province. Discrimination is the thing which is specifically prohibited and punished under
the law.

It is not believed that the law prohibits common carriers from making special rates for the handling and transporting of
merchandise, when the same are made for the purpose of increasing their business, and to manage their important
interests upon the same principles which are regarded as sound, and adopted in other trades and pursuits. It is not
believed that the law requires absolute equality in all cases. Circumstances and conditions may make it injurious to the
carrier. Absolute equality, under certain circumstances and conditions, may give shippers an advantage over others. It is
only unjust, undue, and unreasonable discrimination which the law forbids. The law of equality is in force only where the
services performed in the different cases are substantially the same, and the circumstances and conditions are similar.
Many considerations may properly enter into the agreement for the carriage or shipment rate, such as the quantity carried,
its nature, its risks, the expense of carriage at different periods of time, and the like. Numerous circumstances may
intervene, which bear upon the cost and expense of transportation, and it is but just to the carrier that he be permitted to
take these circumstances into consideration, in determining the rate or amount of his compensation. A question of fact is
raised in each case for the courts to decide.
The foregoing conclusions are based upon literally hundreds of decisions of the courts of different states, and the
Supreme Court of the United States, as well as those of England, which have interpreted statutes analogous to the one
under consideration.
In the third assignment of error the appellants allege that the lower court committed an error in condemning them to pay or
return to the provincial government the sum of P359.16. It is not exactly clear from the decision of the lower court just how
he arrived at that conclusion. Section 5 of Act No. 98 provides that any person or corporation, who may be damaged by
reason of the doing by a common carrier of any matters and things prohibited, shall be entitled to sue for and recover all
damages so incurred, etc. It would seem that the defendants and appellants had a right to charge the provincial
government 6 centavos for each sack of rice unloaded. They unloaded for the province 5,986 sacks, for which they
charged the sum of P598.60. They had a right to collect 6 centavos, or the sum of P359.16. The appellants therefore
collected from the province more than they had a right to collect, the difference between P598.60 and 359.16, or P239.44.
They should be required, therefore, to return to the province the excess which they collected, or the sum of P239.44. The
judgment of the lower court, therefore, should be modified in this respect. The defendants are hereby ordered to return to
the Province of Ilocos Norte the sum P239.44, for which sum a judgment is hereby ordered to be entered against them,
for which execution may issue when this judgment becomes final, in case the same is not paid.
After a careful analysis of the facts, and the law applicable thereto, the judgment of the lower court, as herein modified,
should be and is hereby affirmed with costs. So ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
Trent, J., dissents.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-25599

April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.

AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING CORPORATION, defendants,

AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of
Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2, both dated January 17,
1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and insured by Home Insurance
Company for $202,505, arrived in Manila on March 7, 1963 and was discharged into the lighters of Luzon Stevedoring
Company. When the cargo was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to
P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the
American Steamship Agencies, owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 the insurance value of
the loss, as full settlement of the claim. Having been refused reimbursement by both the Luzon Stevedoring Corporation
and American Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed against them on
March 6, 1964 before the Court of First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus
attorney's fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same quantity and
quality that it had received the same from the carrier. It also claimed that plaintiff's claim had prescribed under Article 366
of the Code of Commerce stating that the claim must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter party referred to in the
bills of lading, the charterer, not the shipowner, was responsible for any loss or damage of the cargo. Furthermore, it
claimed to have exercised due diligence in stowing the goods and that as a mere forwarding agent, it was not responsible
for losses or damages to the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring Corporation, having found the
latter to have merely delivered what it received from the carrier in the same condition and quality, and ordered American
Steamship Agencies to pay plaintiff P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the
following grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract is not tenable
because Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor of third
persons due to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against public policy under
Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or negligent
under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they cannot by contract
exempt themselves from liability resulting from their negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at the place of
destination, the carrier is prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings forth for
determination this legal issue: Is the stipulation in the charter party of the owner's non-liability valid so as to absolve the
American Steamship Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading shall be
governed by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of lading prevail over
all the agreements.2 On the of the bills are stamped "Freight prepaid as per charter party. Subject to all terms, conditions
and exceptions of charter party dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession and control of the ship were not entirely
transferred to the charterer,4 the vessel was chartered to its full and complete capacity (Exh. 3). Furthermore, the, charter
had the option to go north or south or vice-versa,5 loading, stowing and discharging at its risk and expense. 6 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.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the goods caused by
personal want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to secure that
she be properly manned, equipped and supplied or by the personal act or default of the owner or its manager. Said
paragraph, however, exempts the owner of the vessel from any loss or damage or delay arising from any other source,
even from the neglect or fault of the captain or crew or some other person employed by the owner on board, for whose
acts the owner would ordinarily be liable except for said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587 of the Code of
Commerce making the ship agent civilly liable for indemnities suffered by third persons arising from acts or omissions of
the captain in the care of the goods and Article 1744 of the Civil Code under which a stipulation between the common
carrier and the shipper or owner limiting the liability of the former for loss or destruction of the goods to a degree less than
extraordinary diligence is valid provided it be reasonable, just and not contrary to public policy. The release from liability in
this case was held unreasonable and contrary to the public policy on common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a
private carrier.8 As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not
against public policy,9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier
is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such
policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a
single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is in
fact and legal contemplation merely a receipt and a document of title not a contract, for the contract is the charter
party.10 The consignee may not claim ignorance of said charter party because the bills of lading expressly referred to the
same. Accordingly, the consignees under the bills of lading must likewise abide by the terms of the charter party. And as
stated, recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless the same is
due to personal acts or negligence of said owner or its manager, as distinguished from its other agents or employees. In
this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from liability to plaintiff. No
costs. So ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Dizon J., took no part.
Concepcion, C.J., is on leave.
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 charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo Bureau
inspector or substitute appointed by charterers for his account certifying the vessel's readiness to receive
cargo spaces. The vessel's hold to be properly swept, cleaned and dried at the vessel's expense and the
vessel to be presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (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,

10

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 charterparty; 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

11

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 voyagecharter. 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

12

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

13

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.
Davide, Jr. and Quiason, JJ., concur.
Cruz, J., took no part.
Grio-Aquino, J., is on leave.

14

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and
enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated
April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease
and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are
suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the
Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a
private corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila,
which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail
Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and
growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC
Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President Corazon
C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects
through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22,
1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the Prequalification
Bids and Awards Committee (PBAC) and the Technical Committee.

15

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and
implementation of the project The notice, advertising the prequalification of bidders, was published in three newspapers of
general circulation once a week for three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five
groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel
International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and
domestic corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox,
Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group,
Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical
Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects 10 percent;
(b) Management/Organizational capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical
capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and
Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five
applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic], except
for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred
to provided that the BOT/BT contractor-applicant meet the requirements specified in the Constitution and other pertinent
laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced
by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14,
1991, respectively recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT
Consortium, and requesting for authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the
Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to
proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd.,
in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed
Secretary Prado that the President could not grant the requested approval for the following reasons: (1) that DOTC failed
to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as
the only mode to award BOT projects, and the prequalification proceedings was not the public bidding contemplated under
the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of
contract in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of priority
projects under the BOT or BT Scheme provided in the law had not yet been granted at the time the contract was awarded
(Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the agreement.
On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail

16

Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full
authority to sign the Agreement without need of approval by the President pursuant to the provisions of Executive Order
No. 380 and that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the
Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and
private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and
responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines for his approval" (Rollo,
pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a
Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics
and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54
such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for
a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own
power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger
stations and one depot in 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp.
91-92).
Private respondents shall undertake and finance the entire project required for a complete operational light rail transit
system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately
three years from the implementation date of the contract inclusive of mobilization, site works, initial and final testing of the
system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private
respondent shall deliver the use and possession of the completed portion to DOTC which shall operate the same
(Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay
private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by
an independent and internationally accredited inspection firm to be appointed by the parties (Supplemental Agreement,
Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be paid by
the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p.
5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the project shall be
transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing
the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other
Purposes" was signed into law by the President. The law was published in two newspapers of general circulation on May
12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows
direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF
MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN
CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED
NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND,
HENCE, IS ILLEGAL;

17

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND,
HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS
OF THE BOT LAW AND, HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR
PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 1516).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos and are not
disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT Law;
and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature
On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered
that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national
government or government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved (Bugnay
Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the
legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental
Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:

18

(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the
Constitution to Filipino citizens and domestic corporations, not foreign corporations like private
respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme
under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not through public
bidding which is the only mode of awarding infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by
public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong" (Rollo,
pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it
over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility?
(Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like
the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these
facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their
ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558
[1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not
require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them
to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive character or for a longer period than fifty years . . .
(Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and
equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his
will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and
Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to
serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility
includes the transportation of passengers from one point to another point, their loading and unloading at designated
places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz

19

282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2
A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof.
One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without
owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by
the person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be
very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may
lease their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not
enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this
incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately deliver
possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a
common carrier and private respondent shall provide technical maintenance and repair services to DOTC (Revised and
Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1)
repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing
and distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of
the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the
agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training
of DOTC operational personnel which includes actual driving of light rail vehicles under simulated operating conditions,
control of operations, dealing with emergencies, collection, counting and securing cash from the fare collection system
(Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control of
private respondent only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives,
however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC
shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised and
Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon
commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all
new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of
replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon
(Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this
purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which
may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects
in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such
equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings
with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the
role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA
110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was
actually a collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease;
PGMC, the lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a

20

nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same. Upon due
examination of the contract, the Court found that PGMC's participation was not confined to the construction and setting up
of the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct,
administration and control of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its
franchise to PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v.
United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903,
188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036
[1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a
public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise,
certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and
its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the contractor undertakes
the construction including financing, of a given infrastructure facility, and the operation and maintenance
thereof. The contractor operates the facility over a fixed term during which it is allowed to charge facility
users appropriate tolls, fees, rentals and charges sufficient to enable the contractor to recover its
operating and maintenance expenses and its investment in the project plus a reasonable rate of return
thereon. The contractor transfers the facility to the government agency or local government unit
concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction stage,
the contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a
foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the contractor of an
infrastructure facility whose operation requires a public utility franchise must be in accordance with the
Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-transfer
corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the
computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign
constructors [sic], Filipino labor shall be employed or hired in the different phases of the construction
where Filipino skills are available: Provided, furthermore, that the financing of a foreign or foreigncontrolled contractor from Philippine government financing institutions shall not exceed twenty percent
(20%) of the total cost of the infrastructure facility or project: Provided, finally, That financing from foreign
sources shall not require a guarantee by the Government or by government-owned or controlled
corporations. The build-operate-and-transfer scheme shall include a supply-and-operate situation which is
a contractual agreement whereby the supplier of equipment and machinery for a given infrastructure
facility, if the interest of the Government so requires, operates the facility providing in the process
technology transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor undertakes the
construction including financing, of a given infrastructure facility, and its turnover after completion to the
government agency or local government unit concerned which shall pay the contractor its total investment
expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in
the construction of any infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government (Emphasis supplied).

21

The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period during
which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. After the
expiration of the agreed term, the contractor transfers the ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the
ownership and operation thereof are turned over to the government. The government, in turn, shall pay the contractor its
total investment on the project in addition to a reasonable rate of return. If payment is to be effected through amortization
payments by the government infrastructure agency or local government unit concerned, this shall be made in accordance
with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the
citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT
scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the
government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation
within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and
details for the multifarious and complex situations that may be encountered in enforcing the law (Director of Forestry v.
Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119
[1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to
amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a
schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental
Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made to and received by
private respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the
project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .
87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain
price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art.
1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate that title to the leased
premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the lease
becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA
LRT III Project is a high priority project certified by Congress and the National Economic and Development Authority as
falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of
the Uniform Currency Act (R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which provisions purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount
of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null,
void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation
hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority

22

economic projects for agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector
pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial development
opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of the
EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been
rigged from the very beginning to do away with the usual open international public bidding where qualified internationally
known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public
bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise
(cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree
No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as
follows:
Bidding. Construction projects shall generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract only in
exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors,
or where there is conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval
of the Minister of Public Works and Transportation and Communications, the Minister of Public Highways,
or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and the President
of the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more
(Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts may he
made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts while the
BOT Law governs particular arrangements or schemes aimed at encouraging private sector participation in government
infrastructure projects. The two laws are not inconsistent with each other but are inpari materia and should be read
together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the
competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan Integrated
Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705
[1992]).
The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary Drilon
may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is
nothing in our laws that prohibits parties to a contract from renegotiating and modifying in good faith the terms and

23

conditions thereof so as to meet legal, statutory and constitutional requirements. Under the circumstances, to require the
parties to go back to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red
tape" should be eschewed because it discourages private sector participation, the "main engine" for national growth and
development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project proponent is authorized to
finance and construct an infrastructure or development facility and upon its completion turns it over to the
government agency or local government unit concerned on a lease arrangement for a fixed period after
which ownership of the facility is automatically transferred to the government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one
complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it meets the prequalification
requirements, after which it is required to submit a bid proposal which is subsequently found by the
agency/local government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for prequalification but only one meets the
prequalification requirements, after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits a bid which is found by the
agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal
the decision of the implementing agency, agency/LGUs prequalification bids and awards committee within
fifteen (15) working days to the head of the agency, in case of national projects or to the Department of
the Interior and Local Government, in case of local projects from the date the disqualification was made
known to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned
should act on the appeal within forty-five (45) working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has now
been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure
agencies, government-owned and controlled corporations and local government units to enter into contract with any duly
prequalified proponent for the financing, construction, operation and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT (Developoperate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718,
Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2
thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum
government regulations and procedures and specific government undertakings in support of the private sector" (Sec. 1). A
curative statute makes valid that which before enactment of the statute was invalid. Thus, whatever doubts and alleged
procedural lapses private respondent and DOTC may have engendered and committed in entering into the questioned

24

contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96
SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates
are excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of the best
terms during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years,
exclusive rights over the depot and the air space above the stations for development into commercial premises for lease,
sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these
development rights, private respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom
in the amounts set forth in the Supplemental Agreement (Sec. 11;Rollo, p. 93). In the event that DOTC shall be unable to
collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private
respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles,
interests and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year
period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper
administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of
their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v.
Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this
presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the parties to each other.
The matter of valuation is an esoteric field which is better left to the experts and which this Court is not eager to
undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits
if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a
contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function.
DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive branch of
government in the promotion, development and regulation of dependable and coordinated networks of transportation and
communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications
services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that
has the power, authority and technical expertise determine whether or not a specific transportation or communication
project is necessary, viable and beneficial to the people. The discretion to award a contract is vested in the government
agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
Bellosillo and Kapunan, JJ., concur.
Padilla and Regalado, JJ., concurs in the result.
Romero, J., is on leave.

25

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION,respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD.,respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the
M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern
Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila,
5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co.,
Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and
accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments
consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by
respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine
Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The
respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were
thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having
been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the
amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

26

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it
is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00
and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an
appeal to the then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery
of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151),
imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting
circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is
established, the burden of proving negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US
$46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by
petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by
decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under
the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R.
No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration,
however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their
respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition for
Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was then pending
resolution with the First Division. The same was granted; the Resolution of the Second Division of September 25, 1985
was set aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer
thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are
represented by various counsel representing various consignees or insurance companies. The common
defendant in these cases is petitioner herein, being the operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are
deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received in
evidence against the pleader or his successor-in-interest on the trial of another action to which he is a party, in favor of a
party to the latter action. 3

27

The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on Common carriers or
the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their
loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the liability
of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the
rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 8 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;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or
calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so
as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of an act of
God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or
privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands
where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event,
considering that the law adopts a protection policy towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code
provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or
to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have
been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier
to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by
the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the
vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No.
3; that where the smoke was noticed, the fire was already big; that the fire must have started twenty-four
24) our the same was noticed; that carbon dioxide was ordered released and the crew was ordered to
open the hatch covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort
were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the
goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the
vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not
likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What

28

appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage. Consequently, the crew could not have even explain what could have
caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of
the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law,
Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of
the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the
carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have
started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage." The foregoing suffices to show that the
circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were
negligent in connection therewith. Consequently, the complete defense afforded by the COGSA when loss results from fire
is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the
COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money of
the United States, or in case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such goods have been declared
by the shipper before shipment and inserted in bill of lading. This declaration if embodied in the bill of
lading shall be prima facie evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be
less than the figure above named. In no event shall the carrier be Liable for more than the amount of
damage actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

29

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package
although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the
provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the carrier's
liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of
the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as
much a part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's
liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner
Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of payment of the value of
the goods lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the
amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by
respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would result
in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the
amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is
likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however,
multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44)
would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts, and not
P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA
which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate
Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it
multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained that
"since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding
said amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of
floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering, which
had been shipped in vessel supplied containers. The U.S. District Court for the Southern District of New York rendered
judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division, modified
and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container supplied by the carrier
and the number of such units is disclosed in the shipping documents, each of those units and not the
container constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea
Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished
containers whose contents are disclosed should be treated as packages, the interest in securing

30

international uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act,
4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a
package is inconsistent with the congressional purpose of establishing a reasonable minimum level of
liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there is, nonetheless, much
to commend it. It gives needed recognition to the responsibility of the courts to construe
and apply the statute as enacted, however great might be the temptation to "modernize"
or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers
from internal illness, Congress alone must undertake the surgery. There is, in this regard,
obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological
advancements, whether or not forseeable by the COGSA promulgators, do not warrant a
distortion or artificial construction of the statutory term "package." A ruling that these large
reusable metal pieces of transport equipment qualify as COGSA packages at least
where, as here, they were carrier owned and supplied would amount to just such a
distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing his
goods can rightly be considered "packages" standing by themselves, they do not
suddenly lose that character upon being stowed in a carrier's container. I would liken
these containers to detachable stowage compartments of the ship. They simply serve to
divide the ship's overall cargo stowage space into smaller, more serviceable loci.
Shippers' packages are quite literally "stowed" in the containers utilizing stevedoring
practices and materials analogous to those employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd
943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in
Matsushita and similarly rejected the functional economics test. Judge Kellam held that when rolls of
polyester goods are packed into cardboard cartons which are then placed in containers, the cartons and
not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were
then placed by the shipper into a carrier- furnished container. The number of cartons was disclosed to the
carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container,
as the COGSA packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per
container if the bill of lading failed to disclose the number of cartons or units within the container, or if the
parties indicated, in clear and unambiguous language, an agreement to treat the container as the
package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and
Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in
Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers

31

(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or
units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128
cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually,
however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for Petitioner
Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of the
Bill of Lading (Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading
are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and
carry them in any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the
goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the containers for if so,
"Two (2) Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it
is a cardinal principle in the construction of contracts that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of adhesion where
a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw.
up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in Japan
by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this point,
the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978,
when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference
was conducted for the last time, the defendant had more than nine months to prepare its evidence. Its
belated notice to take deposition on written interrogatories of its witnesses in Japan, served upon the
plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was
its undertaking on July 11 the that the deposition of the witnesses would be dispensed with if by next time
it had not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for
which reason it deserves no sympathy from the Court in that regard. The defendant has told the Court
since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take
until August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant
itself is to blame for its failure to adduce evidence in support of its defenses.
xxx xxx xxx 22

32

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was denied due
process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due process abhors is
absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the Trial
Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of
NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00
would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the
Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of calorized
lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of
the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30212 September 30, 1987
BIENVENIDO GELISAN, petitioner,
vs.
BENITO ALDAY, respondent.

PADILLA, J.:
Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11 October 1968, as amended by its
resolution, dated 11 February 1969, in CA-G.R. No. 32670-R, entitled: "Benito Alday, plaintiff-appellant, vs. Roberto
Espiritu and Bienvenido Gelisan, defendants-appellees," which ordered the herein petitioner Bienvenido Gelisan to pay,
jointly and severally, with Roberto Espiritu, the respondent Benito Alday the amount of P5,397.30, with. legal interest
thereon from the filing of the complaint, and the costs of suit; and for the said Roberto Espiritu to pay or refund the
petitioner Bienvenido Gelisan whatever amount the latter may have paid to the respondent Benito Alday by virtue of the
judgment.
The uncontroverted facts of the case are, as follows:

33

Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH-2377. On January 31,
1962, defendant Bienvenido Gelisan and Roberto Espiritu entered into a contract marked Exhibit 3Gelisan under which Espiritu hired the same freight truck of Gelisan for the purpose of hauling rice, sugar,
flour and fertilizer at an agreed price of P18.00 per trip within the limits of the City of Manila provided the
loads shall not exceed 200 sacks. It is also agreed that Espiritu shall bear and pay all losses and
damages attending the carriage of the goods to be hauled by him. The truck was taken by a driver of
Roberto Espiritu on February 1, 1962. Plaintiff Benito Alday, a trucking operator, and who owns about 15
freight trucks, had known the defendant Roberto Espiritu since 1948 as a truck operator. Plaintiff had a
contract to haul the fertilizers of the Atlas Fertilizer Corporation from Pier 4, North Harbor, to its
Warehouse in Mandaluyong. Alday met Espiritu at the gate of Pier 4 and the latter offered the use of his
truck with the driver and helper at 9 centavos per bag of fertilizer. The offer was accepted by plaintiff Alday
and he instructed his checker Celso Henson to let Roberto Espiritu haul the fertilizer. Espiritu made two
hauls of 200 bags of fertilizer per trip. The fertilizer was delivered to the driver and helper of Espiritu with
the necessary way bill receipts, Exhibits A and B. Espiritu, however, did not deliver the fertilizer to the
Atlas Fertolizer bodega at Mandaluyong. The signatures appearing in the way bill receipts Exhibits A and
B of the Alday Transportation admittedly not the signature of any representative or employee of the Atlas
Fertilizer Corporation. Roberto Espiritu could not be found, and plaintiff reported the loss to the Manila
Police Department. Roberto Espiritu was later arrested and booked for theft. ...
Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St. and he notified the Manila Police
Department, and it was impounded by the police. It was claimed by Bienvenido Gelisan from the Police
Department after he had been notified by his employees that the truck had been impounded by the police;
but as he could not produce at the time the registration papers, the police would not release the truck to
Gelisan. As a result of the impounding of the truck according to Gelisan, ... and that for the release of the
truck he paid the premium of P300 to the surety company.1
Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of P5,397.33, to Atlas Fertilizer
Corporation so that, on 12 February 1962, he (Alday) filed a complaint against Roberto Espiritu and Bienvenido Gelisan
with the Court of First Instance of Manila, docketed therein as Civil Case No. 49603, for the recovery of damages suffered
by him thru the criminal acts committed by the defendants.
The defendant, Roberto Espiritu failed to file an answer and was, accordingly, declared in default.
The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed that he had no contractual
relations with the plaintiff Benito Alday as regards the hauling and/or delivery of the 400 bags of fertilizer mentioned in the
complaint; that the alleged misappropriation or nondelivery by defendant Roberto Espiritu of plaintiff's 400 bags of
fertilizer, was entirely beyond his (Gelisan's) control and knowledge, and which fact became known to him, for the first
time, on 8 February 1962 when his freight truck, with plate No. TH-2377, was impounded by the Manila Police
Department, at the instance of the plaintiff; and that in his written contract of hire with Roberto Espiritu, it was expressly
provided that the latter will bear and pay all loss and damages attending the carriage of goods to be hauled by said
Roberto Espiritu.
After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was liable to Benito Alday, since
Bienvenido Gelisan was not privy to the contract between Espiritu and Alday. The dispositive portion of the decision reads,
as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Roberto
Espiritu for the sum of P6,000 with interest at the legal rate from the time of the filing of the complaint, and
the costs of the suit. Plantiff's complaint is dismissed with respect to defendant Bienvenido Gelisan, and
judgment is rendered in favor of defendant Bienvenido Gelisan and against the plaintiff for the sum of
P350. 2

34

On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3 found that Bienvenido Gelisan is
likewise liable for being the registered owner of the truck; and that the lease contract, executed by and between
Bienvenido Gelisan and Roberto Espiritu, is not binding upon Benito Alday for not having been previously approved by the
Public Service Commission. Accordingly, it sentenced Bienvenido Gelisan to pay, jointly and severally with Roberto
Espiritu, Benito Alday the amount of P5,397.30, with legal interest thereon from the filing of the complaint; and to pay the
costs. Roberto Espiritu, in turn, was ordered to pay or refund Bienvenido Gelisan whatever amount the latter may have
paid to Benito Alday by virtue of the judgment. 4
Hence, the present recourse by Bienvenido Gelisan.
The petition is without merit. The judgment rendered by the Court of Appeals, which is sought to be reviewed, is in accord
with the facts and the law on the case and we find no cogent reason to disturb the same. The Court has invariably held in
several decisions that the registered owner of a public service vehicle is responsible for damages that may arise from
consequences incident to its operation or that may be caused to any of the passengers therein. 5 The claim of the
petitioner that he is not hable in view of the lease contract executed by and between him and Roberto Espiritu which
exempts him from liability to third persons, cannot be sustained because it appears that the lease contract, adverted to,
had not been approved by the Public Service Commission. It is settled in our jurisprudence that if the property covered by
a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding upon the
public and third persons. 6
We also find no merit in the petitioner's argument that the rule requiring the previous approval by the Public Service
Commission, of the transfer or lease of the motor vehicle, may be applied only in cases where there is no positive
Identification of the owner or driver, or where there are very scant means of Identification, but not in those instances
where the person responsible for damages has been fixed or determined beforehand, as in the case at bar. The reason
for the rule we reiterate in the present case, was explained by the Court in Montoya vs. Ignacio, 7thus:
There is merit in this contention. The law really requires the approval of the Public Service Commission in
order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the
certificate issued to the grantee. The reason is obvious. Since a franchise is personal in nature any
transfer or lease thereof should be notified to the Public Service Commission so that the latter mav take
proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval is
granted, there should be a public hearing, with notice to all interested parties, in order that the
Commission may determine if there are good and reasonable grounds justifying the transfer or lease of
the property covered by the franchise, or if the sale or lease is detrimental to public interest. Such being
the reason and philosophy behind this requirement, it follows that if the property covered by the franchise
is transferred, or leased to another without obtaining the requisite approval, the transfer is not binding
against the Public Service Commission and in contemplation of law the grantee continues to be
responsible under the franchise in relation to the Commission and to the Public. Since the lease of the
jeepney in question was made without such approval the only conclusion that can be drawn is that
Marcelino Ignacio still continues to be its operator in contemplation of law, and as such is responsible for
the consequences incident to its operation, one of them being the collision under consideration.
Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to be indemnified by Roberto
Espiritu for the amount titat he may be required to pay as damages for the injury caused to Benito Alday, since the lease
contract in question, although not effective against the public for not having been approved by the Public Service
Commission, is valid and binding between the contracting parties. 8
We also find no merit in the petitioner's contention that his liability is only subsidiary. The Court has consistently
considered the registered owner/operator of a public service vehicle to be jointly and severally liable with the driver for
damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of said
vehicles. Thus, in the case of Vargas vs. Langcay, 9 the Court said:

35

We hold that the Court of Appeals erred in considering appellant-petitioner Diwata Vargas only
subsidiarily liable under Article 103 of the Revised Penal Code. This court, in previous decisions, has
always considered the registered owner/operator of a passenger vehicle, jointly and severally liable with
the driver, for damages incurred by passengers or third persons as a consequence of injuries (or death)
sustained in the operation of said vehicles. (Montoya vs. Ignacio, 94 Phil., 182; Timbol vs. Osias, G.R. No.
L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506; Necesito vs. Paras, 104 Phil., 75;
Erezo vs. Jepte, 102 Phil., 103; Tamayo vs. Aquino and Rayos vs Tamayo, 105 Phil., 949; 56 Off. Gaz.
[36] 5617.) In the case of Erezo vs. Jepte, Supra, We held:
* * * In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused * * * (Emphasis supplied)
In the case of Tamayo vs. Aquino, supra, We said:
* * * As Tamayo is the registered owner of the truck, his responsibffity to the public or to any passenger
riding in the vehicle or truck must be direct * * * (Emphasis supplied)
WHEREFORE, the petition is hereby DENIED. With costs against the petitioner.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.
THIRD DIVISION
[G.R. No. 120553. June 17, 1997]
PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG, petitioner, vs. COURT OF APPEALS
and HEIRS OF THE LATE RAMON ACUESTA, respondents.
DECISION
DAVIDE, JR., J.:
The petitioners interposed this appeal by way of a petition for review under Rule 45 of the Rules of Court from the 31
January 1995 Decision of the Court of Appeals in CA-G.R. CV No. 41140 [1] affirming the 22 January 1993[2] Decision of
Branch 31 of the Regional Trial Court, Calbayog City, in Civil Case No. 373, which ordered the petitioners to pay the
private respondents damages as a result of a vehicular accident.
Civil Case No. 373 was an action against herein petitioners for damages instituted by the heirs of Ramon A. Acuesta,
namely, Gregorio O. Acuesta; Julio O. Acuesta; Ramon O. Acuesta, Jr.; Baltazar O. Acuesta; Rufino O. Acuesta; Maximo
O. Acuesta; Neri O. Acuesta; Iluminada O. Acuesta; Rosario Acuesta-Sanz; and Pamfilo O. Acuesta. Atty. Julio O. Acuesta
also appeared as counsel for the plaintiffs (herein private respondents). [3] The private respondents alleged that the
petitioners were guilty of gross negligence, recklessness, violation of traffic rules and regulations, abandonment of victim,
and attempt to escape from a crime.
To support their allegations, the private respondents presented eight witnesses. On 10 February 1992, after the
cross-examination of the last witness, the private respondents counsel made a reservation to present a ninth witness. The
case was then set for continuation of the trial on 30 and 31 March 1992. Because of the non-appearance of the petitioners
counsel, the 30 March 1992 hearing was cancelled.The next day, private respondents counsel manifested that he would

36

no longer present the ninth witness. He thereafter made an oral offer of evidence and rested the case. The trial court
summarized private respondents evidence in this wise:
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta was riding in his easy rider
bicycle (Exhibit O), along the Gomez Street of Calbayog City. The Gomez Street is along the side of Nijaga Park. On the
Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco for brevity) Bus No.
4025 with plate No. EVA-725 driven by defendant Rogasiones Manilhig y Dolira was being pushed by some persons in
order to start its engine. The Magsaysay Blvd. runs perpendicular to Gomez St. and the said Philtranco bus 4025 was
heading in the general direction of the said Gomez Street. Some of the persons who were pushing the bus were on its
back, while the others were on the sides. As the bus was pushed, its engine started thereby the bus continued on its
running motion and it occurred at the time when Ramon A. Acuesta who was still riding on his bicycle was directly in front
of the said bus. As the engine of the Philtranco bus started abruptly and suddenly, its running motion was also enhanced
by the said functioning engine, thereby the subject bus bumped on the victim Ramon A. Acuesta who, as a result thereof
fell and, thereafter, was run over by the said bus. The bus did not stop although it had already bumped and ran [sic] over
the victim; instead, it proceeded running towards the direction of the Rosales Bridge which is located at one side of the
Nijaga Park and towards one end of the Gomez St., to which direction the victim was then heading when he was riding on
his bicycle. P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading and meeting the victim Ramon A.
Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being pushed by some passengers,
when its engine abruptly started and when the said bus bumped and ran over the victim. He approached the bus driver
defendant Manilhig herein and signalled to him to stop, but the latter did not listen. So the police officer jumped into the
bus and introducing himself to the driver defendant as policeman, ordered the latter to stop.The said defendant driver
stopped the Philtranco bus near the Nijaga Park and Sgt. Yabao thereafter, told the driver to proceed to the Police
Headquarter which was only 100 meters away from Nijaga Park because he was apprehensive that the said driver might
be harmed by the relatives of the victim who might come to the scene of the accident. Then Sgt. Yabao cordoned the
scene where the vehicular accident occurred and had P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an
investigation and make a sketch of the crime scene. Sgt. Yambao Yabao was only about 20 meters away when he saw
the bus of defendant Philtranco bumped [sic] and [sic] ran over the victim. From the place where the victim was actually
bumped by the bus, the said vehicle still had run to a distance of about 15 meters away.[4]
For their part, the petitioners filed an Answer [5] wherein they alleged that petitioner Philtranco exercised the diligence
of a good father of a family in the selection and supervision of its employees, including petitioner Manilhig who had
excellent record as a driver and had undergone months of rigid training before he was hired. Petitioner Manilhig had
always been a prudent professional driver, religiously observing traffic rules and regulations. In driving Philtranco's buses,
he exercised the diligence of a very cautious person.
As might be expected, the petitioners had a different version of the incident. They alleged that in the morning of 24
March 1990, Manilhig, in preparation for his trip back to Pasay City, warmed up the engine of the bus and made a few
rounds within the city proper of Calbayog. While the bus was slowly and moderately cruising along Gomez Street, the
victim, who was biking towards the same direction as the bus, suddenly overtook two tricycles and swerved left to the
center of the road. The swerving was abrupt and so sudden that even as Manilhig applied the brakes and blew the bus
horn, the victim was bumped from behind and run over by the bus. It was neither willful nor deliberate on Manilhig's part to
proceed with the trip after his bus bumped the victim, the truth being that when he looked at his rear-view window, he saw
people crowding around the victim, with others running after his bus. Fearing that he might be mobbed, he moved away
from the scene of the accident and intended to report the incident to the police. After a man boarded his bus and
introduced himself as a policeman, Manilhig gave himself up to the custody of the police and reported the accident in
question.
The petitioners further claimed that it was the negligence of the victim in overtaking two tricycles, without taking
precautions such as seeing first that the road was clear, which caused the death of the victim. The latter did not even give
any signal of his intention to overtake. The petitioners then counterclaimed for P50,000 as and for attorney's fees; P1
million as moral damages; and P50,000 for litigation expenses.

37

However, the petitioners were not able to present their evidence, as they were deemed to have waived that right by
the failure of their counsel to appear at the scheduled hearings on 30 and 31 March 1992. The trial court then issued an
Order[6] declaring the case submitted for decision. Motions for the reconsideration of the said Order were both denied.
On 22 January 1992, the trial court handed down a decision ordering the petitioners to jointly and severally pay the
private respondents the following amounts:
1) P55, 615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta;
3) P1 million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorneys fees; and
6) the costs of suit.[7]
Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals imputing upon the trial court the
following errors:
(1) in preventing or barring them from presenting their evidence;
(2) in finding that petitioner Manilhig was at fault;
(3) in not finding that Ramon was the one at fault and his own fault caused, or at least contributed to, his
unfortunate accident;
(4) in awarding damages to the private respondents; and
(5) in finding that petitioner Philtranco was solidarily liable with Manilhig for damages. [8]
In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the trial court. It held that the
petitioners were not denied due process, as they were given an opportunity to present their defense. The records show
that they were notified of the assignment of the case for 30 and 31 March 1992. Yet, their counsel did not appear on the
said dates. Neither did he file a motion for postponement of the hearings, nor did he appeal from the denial of the motions
for reconsideration of the 31 March 1992 Order of the trial court. The petitioners have thereby waived their right to present
evidence. Their expectation that they would have to object yet to a formal offer of evidence by the private respondents
was misplaced, for it was within the sound discretion of the court to allow oral offer of evidence.
As to the second and third assigned errors, the respondent court disposed as follows:
... We cannot help but accord with the lower court's finding on appellant Manilhig's fault. First, it is not disputed that the
bus driven by appellant Manilhig was being pushed at the time of the unfortunate happening. It is of common knowledge
and experience that when a vehicle is pushed to a jump-start, its initial movement is far from slow. Rather, its movement is
abrupt and jerky and it takes a while before the vehicle attains normal speed. The lower court had thus enough basis to
conclude, as it did, that the bumping of the victim was due to appellant Manilhig's actionable negligence and
inattention.Prudence should have dictated against jump-starting the bus in a busy section of the city. Militating further
against appellants' posture was the fact that the precarious pushing of subject bus to a jumpstart was done where the bus
had to take a left turn, thereby making the move too risky to take. The possibility that pedestrians on Gomez Street, where

38

the bus turned left and the victim was biking, would be unaware of a vehicle being pushed to a jumpstart, was too obvious
to be overlooked. Verily, contrary to their bare arguments, there was gross negligence on the part of appellants.
The doctrine of last clear chance theorized upon by appellants, is inapplicable under the premises because the victim,
who was bumped from behind, obviously, did not of course anticipate a Philtranco bus being pushed from a perpendicular
street.
The respondent court sustained the awards of moral and exemplary damages and of attorneys fees, for they are
warranted under Articles 2206, 2231, and 2208(1), respectively, of the Civil Code. Anent the solidary liability of petitioner
Philtranco, the same finds support in Articles 2180 and 2194 of the said Code. The defense that Philtranco exercised the
diligence of a good father of a family in the selection and supervision of its employees crumbles in the face of the gross
negligence of its driver, which caused the untimely death of the victim.
Their motion for reconsideration having been denied, the petitioners came to us claiming that the Court of Appeals
gravely erred
I
...IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT THEIR EVIDENCE, AND THAT
PETITIONERS WERE NOT DENIED DUE PROCESS.
II
...IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE, AND IN HOLDING THAT PETITIONER
PHILTRANCO CAN NOT INVOKE THE DEFENSE OF DILIGENCE OF A GOOD FATHER OF A FAMILY.
III
...IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING THE TRIAL COURT'S AWARD OF
DAMAGES EXCESSIVE.
We resolved to give due course to the petition and required the parties to submit their respective memoranda after
due consideration of the allegations, issues, and arguments adduced in the petition, the comment thereon by the private
respondents, and the reply to the comment filed by the petitioners. The petitioners filed their memorandum in due time;
while the private respondents filed theirs only on 3 January 1997, after their counsel was fined in the amount of P1,000 for
failure to submit the required memorandum.
The first imputed error is without merit. The petitioners and their counsel, Atty. Jose Buban, were duly notified in open
court of the order of the trial court of 10 February 1992 setting the case for hearing on 30 and 31 March 1992. [9] On both
dates neither the petitioners nor their counsel appeared. In his motion for reconsideration, [10] Atty. Buban gave the
following reasons for his failure to appear on the said hearings:
1. That when this case was called on March 27, 1992, counsel was very much indisposed due to the rigors of a very
hectic campaign as he is a candidate for City Councilor of Tacloban; he wanted to leave for Calbayog City, but he was
seized with slight fever on the morning of said date; but then, during the last hearing, counsel was made to understand
that plaintiffs would formally offer their exhibits in writing, for which reason, counsel for defendants waited for a copy of
said formal offer, but counsel did not receive any copy as counsel for plaintiffs opted to formally offer their exhibits orally in
open court;
2. That counsel for defendants, in good faith believed that he would be given reasonable time within which to comment on
the formal offer in writing, only to know that counsel for plaintiffs orally offered their exhibits in open court and that the

39

same were admitted by the Honorable Court; and that when this case was called on March 30 and 31, 1992, the
undersigned counsel honestly believed that said schedule would be cancelled, pending on the submission of the
comments made by the defendants on the formal offer; but it was not so, as the exhibits were admitted in open court. [11]
In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid of meritorious basis," as Atty.
Buban could have filed a motion for postponement. [12] Atty. Buban then filed a motion to reconsider[13] the order of denial,
which was likewise denied by the trial court in its order of 12 August 1992. [14] Nothing more was done by the petitioners
after receipt of the order of 12 August 1992. A perusal of the first and second motions for reconsideration discloses
absence of any claim that the petitioners have meritorious defenses. Clearly, therefore, the trial court committed no error
in declaring the case submitted for decision on the basis of private respondent's evidence.
The second imputed error is without merit either.
Civil Case No. 373 is an action for damages based on quasi-delict[15] under Article 2176 and 2180 of the Civil Code
against petitioner Manilhig and his employer, petitioner Philtranco, respectively. These articles pertinently provide:
ART. 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.
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for
those of persons for whom one is responsible.
...
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks even though the former are not engaged in any business or industry.
...
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.
We have consistently held that the liability of the registered owner of a public service vehicle, like petitioner
Philtranco,[16] for damages arising from the tortious acts of the driver is primary, direct, and joint and several
or solidary with the driver.[17] As to solidarity, Article 2194 expressly provides:
ART. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for damages is satisfied by it
is to recover what it has paid from its employee who committed the fault or negligence which gave rise to the action based
on quasi-delict. Article 2181 of the Civil Code provides:
ART. 2181. Whoever pays for the damage caused by his dependents or employees may recover from the latter what he
has paid or delivered in satisfaction of the claim.
There is, however, merit in the third imputed error.

40

The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended the award in
their Opposition to the Motion for Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of
Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for death is computed on the basis of the life
expectancy of the deceased." In that case, the "death indemnity" was computed by multiplying the victim's gross annual
income by his life expectancy, less his yearly living expenses. Clearly then, the "death indemnity" referred to was the
additional indemnity for the loss of earning capacity mentioned in Article 2206(1) of the Civil Code, and not the basic
indemnity for death mentioned in the first paragraph thereof. This article provides as follows:
ART. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos,
even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to
the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on
account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir
called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person
causing the death, for a period of not exceeding five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for
mental anguish by reason of the death of the deceased.
We concur with petitioners view that the trial court intended the award of "P200,000.00 as death indemnity" not as
compensation for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning
capacity, the same must be struck out for lack of basis. There is no evidence on the victim's earning capacity and life
expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by
current jurisprudence at P50,000.[18]
The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is excessive
and unreasonable.This was based solely on the testimony of one of the heirs, Atty. Julio Acuesta, contained in his "Direct
Testimony... As Plaintiff, conducted by Himself,"[19] to wit:
Q. What was your feeling or reaction as a result of the death of your father Ramon A. Acuesta?
A. We, the family members, have suffered much from wounded feelings, moral shock, mental anguish, sleepless
nights, to which we are entitled to moral damages at the reasonable amount of ONE MILLION
(P1,000,000.00) PESOS or at the sound discretion of this Hon. Court."
Since the other heirs of the deceased did not take the witness stand, the trial court had no basis for its award of moral
damages to those who did not testify thereon.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded
only to allow the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has
undergone due to the defendant's culpable action and must, perforce, be proportional to the suffering inflicted. [20] In light of
the circumstances in this case, an award ofP50,000 for moral damages is in order.
The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may be
awarded if the party at fault acted with gross negligence. [21] The Court of Appeals found that there was gross negligence
on the part of petitioner Manilhig.[22] Under Article 2229 of the Civil Code, exemplary damages are imposed by way of
example or correction for the public good, in addition to the moral, temperate, liquidated, or compensatory damages.

41

Considering its purpose, it must be fair and reasonable in every case and should not be awarded to unjustly enrich a
prevailing party. In the instant case, an award of P50,000 for the purpose would be adequate, fair, and reasonable.
Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's fees cannot be
recovered as part of damages because of the policy that no premium should be placed on the right to litigate. [23] Stated
otherwise, the grant of attorney's fees as part of damages is the exception rather than the rule, as counsel's fees are not
awarded every time a party prevails in a suit. [24] Such attorney's fees can be awarded in the cases enumerated in Article
2208 of the Civil Code, and in all cases it must be reasonable. In the instant case, the counsel for the plaintiffs is himself a
co-plaintiff; it is then unlikely that he demanded from his brothers and sisters P100,000 as attorney's fees as alleged in the
complaint and testified to by him. [25] He did not present any written contract for his fees. He is, however, entitled to a
reasonable amount for attorney's fees, considering that exemplary damages are awarded. Among the instances
mentioned in Article 2208 of the Civil Code when attorney's fees may be recovered is "(1) when exemplary damages are
awarded." Under the circumstances in this case, an award of P25,000 for attorney's fees is reasonable.
The petitioners did not contest the award for actual damages fixed by the trial court. Hence, such award shall stand.
IN VIEW OF THE FOREGOING, the petition is hereby partly granted and the challenged decision of CA-G.R. CV No.
41140 is AFFIRMED, subject to modifications as to the damages awarded, which are reduced as follows:
(a) Death indemnity, from P200,000 to P50,000;
(b) Moral damages, from P1 million to P50,000;
(c) Exemplary damages, from P500,000 to P50,000; and
(d) Attorney's fees, from P50,000 to P25,000.
No pronouncements as to costs in this instance.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, and Panganiban, JJ., concur.
Francisco, J., On Leave.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26815 May 26, 19810
ADOLFO L. SANTOS, petitioner,
vs.
ABRAHAM SIBUG and COURT OF APPEALS, respondents.

42

MELENCIO-HERRERA, J.:1wph1.t
The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (the
ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to
the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no
certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his
jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience. ln other words,
SANTOS became what is known in ordinary parlance as akabit operator. For the protection of SANTOS, VIDAD executed
a re-transfer document to the former, which was to be a private document presumably to be registered if and where it was
decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement.
On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney
operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against
VIDAD and Gragas with the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That
Civil Case will hereinafter be referred to as the BRANCH XVII CASE.
On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to
pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and
costs. 1
On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of
VIDAD, and scheduled the public auction sale thereof on May 8,1964.
On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle
levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of
VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a
bond issued by the Philippine Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from
liability if he were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld.
On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and
injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No.
56842 of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The
complaint was later amended to include the BONDING COMPANY as a party defendant although its bond had not
become effective. ln the Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject
of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes of
operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS did not receive any payment
from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle in question, VIDAD
in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH
XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that SANTOS derived
a daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood to suffer irreparable
damage will possession of said motor vehicle were not restored to him. SANTOS then prayed that 1,) pending trial, a Writ
of Preliminary Mandatory injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to
him and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be
declared absolutely fictitious and, therefore, null and void, and adjudging SANTOS to be the absolute owner of the vehicle
in questioned and 3) that damages be awarded to SANTOS as proven during the trial plus attorney's fees in the amount of
P450.00 and costs. 2
No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the
Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued
wrongfully. Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another
Court or by another Branch of the same Court. The Sheriff has the right to continue with the public sale on his own
responsibility, or he can desist from conducting the public sale unless the attaching creditor files a bond securing him

43

against the third-party-claim. But the decision to proceed or not with the public sale lies with him. As said in Uy Piaoco vs.
Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and personal liability." The mentioned
discretional power and personal liability have been further elucidated in Planes and Verdon vs. Madrigal & Co., et al., 94
Phil. 754, where it was held. 1wph1.t
The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is
governed by Rule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed
where the property levied on execution 'is claimed by a by person. lf the third-party claim is sufficient, the
sheriff, upon receiving it, is not bound to proceed with the levy of the property, unless he is given by the
judgment creditor an indemnity bond against the claim (Mangaoang vs. Provincial Sheriff, 91 Phil., 368).
Of course, the sheriff may proceed with the levy even without the Indemnity bond, but in such case he will
answer for any damages with his own personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al.
vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48 Phil., 565). And
the rule also provides that nothing therein contained shall prevent a third person from vindicating his claim
to the property by any proper action (Sec. 15 of Rule 39.).
It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with
the public auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from
proceeding, with the public auction. lf he decides to proceed, he will incur personal liability in favor of the successful thirdparty claimant.
On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence adduced,
and decreed: 1wph1.t
WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale of
the vehicle in question ordering its return to the plaintiff and furthermore sentencing the defendant
Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is
returned to him, and P500.00 as attorney's fee's as well as the costs. 4
This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include the
BONDING COMPANY as jointly slid severally liable with SIBUG. 51wph1.t
... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed
P6,500.00. Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc.
the same sums it is ordered to pay under this decision.
The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking
furnished to the Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold,
the public sale thereof having been restrained, there was no reason for promulgating judgment against the BONDING
COMPANY. lt has also been noted that the Complaint against VIDAD was dismissed.
Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in
question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business
known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically
provided: 1wph1.t
... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the
approval and authorization of the Commission previously had ... (g) to sell, alienate, mortgage,
encumber or lease its property, franchise, certificates, privileges, or rights, or any part thereof.
In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of
record at the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not

44

registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered
owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused to
SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle. 6 This ruling is based on
the principle that the operator of record is considered the operator of the vehicle in contemplation of law as regards the
public and third persons 7 even if the vehicle involved in the accident had been sold to another where such sale had not
been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle here in question was
registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the judgment in the
BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to
another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as
a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one way of curbing the
pernicious kabit system that facilitates the commission of fraud against the travelling public.
As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the
actual operator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by
reason of the execution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH XVII
CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well
as for exemplary damages. 10
From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution.
SIBUG opposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X had
no power to interfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11
On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH X
CASE is "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction
property not belonging to the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment
or decree of another court of concurrent jurisdiction." 12
Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court
in a Petition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the
enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13On September 28, 1966,
respondent Count of Appeals rendered the herein challenged Decision nullifying the judgment renderred in the Branch
X Case and permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled
that: 1wph1.t
... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch XVII
when it issued a restraining order and finally a decision permanently enjoining the other court from
excuting the decision rendered in Civil Case No. 54335. This to our mind constitutes an interference with
the powers and authority of the other court having co-equal and coordinate jurisdiction. To rule otherwise,
would indubitably lead to confusion which might hamper or hinder the proper administration of
justice. ... 14
Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being
levied upon but registered in another's name in a separated action, observing that: 1wph1.t
As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any person
affected by the representation that said vehicle is registered under the name of a particular person had
the right to rely on his declaration of ownership and registration: and the registered owner or any other
person for that matter cannot be permitted to repudiate said declaration with the objective of proving that
said registered vehicle is owned by another person and not by the registered owner (sec. 68, (a), Rule
123, and art. 1431, New Civil Code)
xxx xxx xxx

45

Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the
registered owner it would in effect be tantamount to sanctioning the attempt of the registered owner of the
particular vehicle in evading responsibility for it cannot be dispelled that the door would be opened to
collusion between a person and a registered owner for the latter to escape said responsibility to the public
or to any person. ...
SANTOS now seeks a review of respondent Court's Decision contending that: 1wph1.t
1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila
has no jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy
the judgment indebtedness of another person:
2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was
levied upon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in
Civil Case No. 54335 cannot be allowed to prove in a separate suit filed in Branch X of the same court
(Civil Case No. 56842) that he is the true owner of the said motor vehicle and not its registered owner;
3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First
Instance of Manila (Branch X ) in Civil Case No. 56482.
We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for
decision on July 20, 1967.
One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at the
instance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a
judgment creditor in another Court of First Instance. The corollary issue is whether or not the third-party claimant has a
right to vindicate his claim to the vehicle levied upon through a separate action.
Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador, 15speaking
through Mr. Justice Ramon Aquino, succinctly held: 1wph1.t
It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the
judgments or decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive
relief, is applied in cases, where no third-party claimant is involved, in order to prevent one court from
nullifying the judgment or process of another court of the same rank or category, a power which devolves
upon the proper appellate court.
xxx xxx xxx
When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of
injunction, which is issued to stop the auction sale of that property, is not an interference with the writ of
execution issued by another court because the writ of execution was improperly implemented by the
sheriff. Under that writ, he could attach the property of the judgment debtor. He is not authorized to levy
upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan, L-40666, January
22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102).
An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more extensively: 1wph1.t
Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court of
concurrent jurisdiction. No court has power to interfere by injunction with the judgments or decrees of a
court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction.

46

Same, Same; Same; When applicable. For this doctrine to apply, the injunction issued by one court
must interfere with the judgment or decree issued by another court of equal or coordinate jurisdiction and
the relief sought by such injunction must be one which could be granted by the court which rendered the
judgment or issued the decree.
Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims
property levied upon on execution. Under section 17 of Rule 39 a third person who claims property
levied upon on execution may vindicate such claim by action. A judgment rendered in his favor - declaring
him to be the owner of the property - would not constitute interference with the powers or processes of the
court which rendered the judgment to enforce which the execution was levied. lf that be so - and it is so
because the property, being that of a stranger, is not subject to levy - then an interlocutory order, such as
injunction, upon a claim and prima facie showing of ownership by the claimant, cannot be considered as
such interference either.
Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules
of Court, interpreted The right of a person who claims to be the owner of property levied upon on
execution to file a third-party claim with the sheriff is not exclusive, and he may file an action to vindicate
his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to answer for any
damages that may be suffered by the third party claimant. By "action", as stated in the Rule, what is
meant is a separate and independent action.
Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it was
appropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership
in a separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X, declaring him to be
the owner of the property, did not as a basic proposition, constitute interference with the powers or processes of Branch
XVII which rendered the judgment, to enforce which the was levied upon. And this is so because property belonging to a
stranger is not ordinarily subject to levy. While it is true that the vehicle in question was in custodia legis, and should not
be interfered with without the permission of the proper Court, the property must be one in which the defendant has
proprietary interest. Where the Sheriff seizes a stranger's property, the rule does not apply and interference with his
custody is not interference with another Court's Order of attachment. 17
However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision
of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property"
that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered
in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of public service, with its effects on the
riding public, is involved. Whatever legal technicalities may be invoked, we find the judgment of respondent Court of
Appeals to be in consonance with justice.
WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L.
Santos is dismissed with costs against the petitioner.
SO ORDERED.
Makasiar, Guerrero and De Castro, * JJ., concur.1wph1.t
Teehankee (Chairman), concurs in the result.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

47

G.R. No. L-65510 March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.

PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to
the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each
must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed
decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a
sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total
purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay
plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise and so
upon his own request, the period of paying the balance was extended to one year in monthly installments
until January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the
defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action
for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The
plaintiff also claims that as of February 20, 1978, the total account of the defendant was already
P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only the balance of
P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to
February 27, 1978; a 2% service charge; and P 546.21 representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment
of the balance of the purchase price. It has been the practice of financing firms that whenever there is a
balance of the purchase price the registration papers of the motor vehicle subject of the sale are not given
to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first mortgaged
to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the
same, because it was made to appear that way only as the defendant had no franchise of his own and he
attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to
undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to
this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the
mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to
register the motorcycle on that year on the ground that the defendant failed to comply with some
requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the
LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the
plaintiff explained also that though the ownership of the motorcycle was already transferred to the
defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of
Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with
the bank.

48

On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable
to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car
because of the condition that the plaintiff would be the one to register every year the motorcycle with the
Land Transportation Commission. In 1976, however, the plaintfff failed to register both the chattel
mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00
for mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros
(Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to
comply with his obligation to register the motorcycle the defendant suffered damages when he failed to
claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two
times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as
boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being
registered.
The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle
resulting in its not being registered. The truth being that the motorcycle was being used for transporting
passengers and it kept on travelling from one place to another. The motor vehicle sold to him was
mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that
the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks
and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle with
the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence of
the defendant shows that because of the filing of this case he was forced to retain the services of a lawyer
for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly
for the purpose of engaging and using the same in the transportation business and for this purpose said
trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in
the registration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to
have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the
yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year
1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well
as the insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against
private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner,
the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to
pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of
interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of
P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the
costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a
petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the
pertinent portion of which reads

49

However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private
respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior
approval of the Board of Transportation (formerly the Public Service Commission) was an illegal
transaction involving the fictitious registration of the motor vehicle in the name of the private respondent
so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a
tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to
enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja
Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No.
1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of
Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone
assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a
person who has been granted a certificate of public convenience allows another person who owns motor vehicles to
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been
Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to
public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the
court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it
would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It
provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue
of the contract, or demand, the performance of the other's undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere
lapse of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court
(now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.
Alampay, J., took no part.

50

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 94151

April 30, 1991

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE COURT OF APPEALS and THE FIRST NATIONWIDE ASSURANCE CORPORATION, respondents.
Jimenez, Dala & Zaragoza for petitioner.
Reloy Law Office for private respondent.

GANCAYCO, J.:
The extent of the liability of the common carrier and its insurer for damage to the cargo upon its delivery to the arrastre
operator is the center of this controversy.
The findings of fact of the trial court which were adopted by the appellate court and which are not disputed are as follows:
On September 4, 1978, thirteen coils of uncoated 7-wire stress relieved wire strand for prestressed concrete were
shipped on board the vessel "Japri Venture," owned and operated by the defendant Eastern Shipping Lines, Inc.,
at Kobe, Japan, for delivery to Stresstek Post-Tensioning Phils., Inc. in Manila, as evidenced by the bill of lading,
commercial invoice, packing list and commercial invoice marked Exhibits A, B, C, D; 3, 4, 5 and 6-Razon which
were insured by the plaintiff First Nationwide Assurance Corporation for P171,923 (Exhibit E).
On September 16, 1978, the carrying vessel arrived in Manila and discharged the cargo to the custody of the
defendant E. Razon, Inc. (Exhibits 1, 2, 3, 4 and 5-ESL), from whom the consignee's customs broker received it
for delivery to the consignee's warehouse.
On February 19, 1979, the plaintiff indemnified the consignee in the amount of P171,923.00 for damage and loss
to the insured cargo, whereupon the former was subrogated for the latter (Exhibit I).
The plaintiff now seeks to recover from the defendants what it has indemnified the consignee, less P48,293.70,
the salvage value of the cargo, or the total amount of P123,629.30.
It appears that while enroute from Kobe to Manila, the carrying vessel "encountered very rough seas and stormy
weather" for three days, more or less, which caused it to roll and pound heavily, moving its master to execute a
marine note of protest upon arrival at the port of Manila on September 15, 1978 (Exhibit 1-Razon); that the coils
wrapped in burlap cloth and cardboard paper were stored in the lower hold of the hatch of the vessel which was
flooded with water about one foot deep; that the water entered the hatch when the vessel encountered heavy
weather enroute to Manila (Exhibits G, 2, 2A, 2B-Razon); that upon request, a survey of bad order cargo was
conducted at the pier in the presence of the representatives of the consignee and the defendant E. Razon, Inc.
and it was found that seven coils were rusty on one side each (Exhibits F and 10-Razon); that upon survey
conducted at the consignee's warehouse it was found that the "wetting (of the cargo) was caused by fresh water"
that entered the hatch when the vessel encountered heavy weather enroute to Manila (p. 3, Exhibit G); and that
all thirteen coils were extremely rusty and totally unsuitable for the intended purpose (p. 3, Exhibit G), (pp. 217218, orig. rec.)1
The complaint that was filed by the First Nationwide Assurance Corporation (insurer) against Eastern Shipping Lines, Inc.
and E. Razon, Inc., in the Regional Trial Court, Manila, was dismissed in a decision dated November 25, 1985. An appeal

51

therefrom was interposed by the insurer to the Court of Appeals wherein in due course a decision was rendered on April
27, 1990, the dispositive part of which reads as follows:
WHEREFORE, the judgment appealed from is hereby SET ASIDE. The appellees are ordered to pay the
appellant the sum of P123,629.30, with legal rate of interest from July 24, 1979 until fully paid, Eastern Shipping
Lines, Inc. to assume 8/13 thereof, and E. Razon, Inc. to assume 5/13 thereof. No pronouncement as to costs.
SO ORDERED.2
Only Eastern Shipping Lines, Inc. filed this petition for review by certiorari based on the following assigned errors:
I. IT REFUSED TO CONSIDER THE COUNTER-ASSIGNMENT OF ERRORS OF PETITIONER AS CONTAINED
IN ITS BRIEF FOR THE DEFENDANT-APPELLEE EASTERN SHIPPING LINES, INC. AND WHICH ARE ONLY
MEANT TO SUSTAIN THE DECISION OF DISMISSAL OF THE TRIAL COURT;
II. AGAINST ITS OWN FINDINGS OF FACT THAT THE CARGO WAS DISCHARGED AND DELIVERED
COMPLETE UNTO THE CUSTODY OF THE ARRASTRE OPERATOR UNDER CLEAN TALLY SHEETS, IT
NEVERTHELESS ARBITRARILY CONCLUDED PETITIONER AS LIABLE FOR THE CLAIMED DAMAGES;
III. IT FAILED TO HOLD PETITIONER RELIEVED OF ANY LIABILITY OVER THE CARGO NOTWITHSTANDING
IT FOUND THAT THE SAME WAS DISCHARGED AND DELIVERED UNTO THE CUSTODY OF THE
ARRASTRE OPERATOR UNDER CLEAN TALLY SHEETS AND ERGO TO BE CONSIDERED GOOD ORDER
CARGO WHEN DELIVERED; and,
IV. IT ARBITRARILY AWARDED INTEREST AT THE LEGAL RATE TO COMMENCE FROM THE DATE OF THE
COMPLAINT IN VIOLATION OF THE DOCTRINAL RULE THAT IN CASE OF UNLIQUIDATED CLAIMS SUCH
AS THE CLAIM IN QUESTION, INTEREST SHOULD ONLY COMMENCE FROM THE DATE OF THE DECISION
OF THE TRIAL COURT.3
Under the first assigned error, petitioner contends that the appellate court did not consider its counter-assignment of
errors which was only meant to sustain the decision of dismissal of the trial court. An examination of the questioned
decision shows that the appellate court did not consider the counter-assignment of errors of petitioner as it did not appeal
the decision of the trial court.
Nevertheless, when such counter-assignments are intended to sustain the judgment appealed from on other grounds, but
not to seek modification or reversal thereof, the appellate court should consider the same in the determination of the case
but no affirmative relief can be granted thereby other than what had been obtained from the lower court. 4
The contention of petitioner on this aspect is, thus, well-taken.
Be that as it may, under the second and third assigned errors, petitioner claims it should not be held liable as the shipment
was discharged and delivered complete into the custody of the arrastre operator under clean tally sheets.
While it is true the cargo was delivered to the arrastre operator in apparent good order condition, it is also undisputed that
while en route from Kobe to Manila, the vessel encountered "very rough seas and stormy weather", the coils wrapped in
burlap cloth and cardboard paper were stored in the lower hatch of the vessel which was flooded with water about one
foot deep; that the water entered the hatch; that a survey of bad order cargo which was conducted in the pier in the
presence of representatives of the consignee and E. Razon, Inc., showed that seven coils were rusty on one side
(Exhibits F and 10-Razon); that a survey conducted at the consignee's warehouse also showed that the "wetting (of the
cargo) was caused by fresh water" that entered the hatch when the vessel encountered heavy rain en route to Manila
(Exhibit G); and that all thirteen coils were extremely rusty and totally unsuitable for the intended purpose. 5
Consequently, based on these facts, the appellate court made the following findings and conclusions:
Plainly, the heavy seas and rains referred to in the master's report were not caso fortuito, but normal occurrences
that an ocean-going vessel, particularly in the month of September which, in our area, is a month of rains and
heavy seas would encounter as a matter of routine. They are not unforeseen nor unforeseeable. These are

52

conditions that ocean-going vessels would encounter and provide for, in the ordinary course of a voyage. That
rain water (not sea water) found its way into the holds of the Jupri Venture is a clear indication that care and
foresight did not attend the closing of the ship's hatches so that rain water would not find its way into the cargo
holds of the ship.
Moreover, under Article 1733 of the Civil Code, common carriers are bound to observe "extra-ordinary vigilance
over goods . . . .according to all circumstances of each case," and Article 1735 of the same Code states, to wit:
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary diligence as required in article 1733.
Since the carrier has failed to establish any caso fortuito, the presumption by law of fault or negligence on the part
of the carrier applies; and the carrier must present evidence that it has observed the extraordinary diligence
required by Article 1733 of the Civil Code in order to escape liability for damage or destruction to the goods that it
had admittedly carried in this case. No such evidence exists of record. Thus, the carrier cannot escape liability.
The Court agrees with and is bound by the foregoing findings of fact made by the appellate court. The presumption,
therefore, that the cargo was in apparent good condition when it was delivered by the vessel to the arrastre operator by
the clean tally sheets has been overturned and traversed. The evidence is clear to the effect that the damage to the cargo
was suffered while aboard petitioner's vessel.
The last assigned error is untenable. The interest due on the amount of the judgment should commence from the date of
judicial demand.6
WHEREFORE, the petition is DISMISSED, with costs against petitioner.1wphi1
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
SECOND DIVISION
[G.R. No. 161833. July 8, 2005]
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs. UNKNOWN OWNER OF THE VESSEL M/V
NATIONAL HONOR, NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL
CONTAINER SERVICES, INC., respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the
Decision[1] dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 57357 which affirmed the Decision
dated February 17, 1997 of the Regional Trial Court (RTC) of Manila, Branch 37, in Civil Case No. 95-73338.
The Antecedent
On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts and accessories
in the port of Pusan, Korea, on board the vessel M/V National Honor, represented in the Philippines by its agent, National
Shipping Corporation of the Philippines (NSCP). The shipment was for delivery to Manila, Philippines. Freight forwarder,
Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No. SH9410306 [2] in the name of the shipper consigned to the order of

53

Metropolitan Bank and Trust Company with arrival notice in Manila to ultimate consignee Blue Mono International
Company, Incorporated (BMICI), Binondo, Manila.
NSCP, for its part, issued Bill of Lading No. NSGPBSML512565 [3] in the name of the freight forwarder, as shipper,
consigned to the order of Stamm International Inc., Makati, Philippines. It is provided therein that:
12.
This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent good order and condition
except as, otherwise, noted of the total number of Containers or other packages or units enumerated overleaf. Proof to
the contrary shall be admissible when this Bill of Lading has been transferred to a third party acting in good faith. No
representation is made by the Carrier as to the weight, contents, measure, quantity, quality, description, condition, marks,
numbers, or value of the Goods and the Carrier shall be under no responsibility whatsoever in respect of such description
or particulars.
13.
The shipper, whether principal or agent, represents and warrants that the goods are properly described, marked,
secured, and packed and may be handled in ordinary course without damage to the goods, ship, or property or persons
and guarantees the correctness of the particulars, weight or each piece or package and description of the goods and
agrees to ascertain and to disclose in writing on shipment, any condition, nature, quality, ingredient or characteristic that
may cause damage, injury or detriment to the goods, other property, the ship or to persons, and for the failure to do so the
shipper agrees to be liable for and fully indemnify the carrier and hold it harmless in respect of any injury or death of any
person and loss or damage to cargo or property. The carrier shall be responsible as to the correctness of any such mark,
descriptions or representations.[4]
The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2, complete and in good order
condition, covered by Commercial Invoice No. YJ-73564 DTD [5] and a Packing List.[6] There were no markings on the outer
portion of the crates except the name of the consignee. [7] Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs.
It contained the following articles: one (1) unit Lathe Machine complete with parts and accessories; one (1) unit Surface
Grinder complete with parts and accessories; and one (1) unit Milling Machine complete with parts and accessories. On
the flooring of the wooden crates were three wooden battens placed side by side to support the weight of the cargo.
Crate No. 2, on the other hand, measured 10 cubic meters and weighed 2,060 kgs. The Lathe Machine was stuffed in the
crate. The shipment had a total invoice value of US$90,000.00 C&F Manila. [8] It was insured for P2,547,270.00 with the
Philippine Charter Insurance Corporation (PCIC) thru its general agent, Family Insurance and Investment Corporation,
[9]
under Marine Risk Note No. 68043 dated October 24, 1994. [10]
The M/V National Honor arrived at the Manila International Container Terminal (MICT) on November 14, 1995. The
International Container Terminal Services, Incorporated (ICTSI) was furnished with a copy of the crate cargo list and bill of
lading, and it knew the contents of the crate. [11] The following day, the vessel started discharging its cargoes using its
winch crane. The crane was operated by Olegario Balsa, a winchman from the ICTSI,[12] the exclusive arrastre operator of
MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of the ICTSI, conducted
an inspection of the cargo.[13] They inspected the hatches, checked the cargo and found it in apparent good condition.
[14]
Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each end of Crate No. 1. [15] No sling cable was
fastened on the mid-portion of the crate. In Dauzs experience, this was a normal procedure. [16] As the crate was being
hoisted from the vessels hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high
from the vessels twin deck, sending all its contents crashing down hard, [17] resulting in extensive damage to the shipment.
BMICIs customs broker, JRM Incorporated, took delivery of the cargo in such damaged condition. [18] Upon receipt of
the damaged shipment, BMICI found that the same could no longer be used for the intended purpose. The Mariners
Adjustment Corporation hired by PCIC conducted a survey and declared that the packing of the shipment was considered
insufficient. It ruled out the possibility of taxes due to insufficiency of packing. It opined that three to four pieces of cable
or wire rope slings, held in all equal setting, never by-passing the center of the crate, should have been used, considering
that the crate contained heavy machinery.[19]

54

BMICI subsequently filed separate claims against the NSCP,[20] the ICTSI,[21] and its insurer, the PCIC,[22] for
US$61,500.00. When the other companies denied liability, PCIC paid the claim and was issued a Subrogation
Receipt[23] for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint for Damages [24] against
the Unknown owner of the vessel M/V National Honor, NSCP and ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed, among others
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered ordering defendants to pay
plaintiff, jointly or in the alternative, the following:
1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of the filing of this complaint
until fully paid;
2. Attorneys fees in the amount of P100,000.00;
3. Cost of suit.[25]
ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-defendant NSCP, claiming that
the loss/damage of the shipment was caused exclusively by the defective material of the wooden battens of the shipment,
insufficient packing or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden battens placed on the wooden
flooring of the crate was of good material but was not strong enough to support the weight of the machines inside the
crate. He averred that most stevedores did not know how to read and write; hence, he placed the sling cables only on
those portions of the crate where the arrow signs were placed, as in the case of fragile cargo. He said that unless
otherwise indicated by arrow signs, the ICTSI used only two cable slings on each side of the crate and would not place a
sling cable in the mid-section.[26] He declared that the crate fell from the cranes because the wooden batten in the midportion was broken as it was being lifted. [27] He concluded that the loss/damage was caused by the failure of the shipper or
its packer to place wooden battens of strong materials under the flooring of the crate, and to place a sign in its mid-term
section where the sling cables would be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage to the cargo could be
attributed to insufficient packing and unbalanced weight distribution of the cargo inside the crate as evidenced by the
types and shapes of items found.[28]
The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two defendants are dismissed, with
costs against the plaintiff.
SO ORDERED.[29]
According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the internal defect and
weakness of the materials used in the fabrication of the crates. The middle wooden batten had a hole (bukong-bukong).
The trial court rejected the certification[30] of the shipper, stating that the shipment was properly packed and secured, as
mere hearsay and devoid of any evidentiary weight, the affiant not having testified.
Not satisfied, PCIC appealed[31] to the CA which rendered judgment on January 19, 2004 affirming in toto the
appealed decision, with this fallo

55

WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated February 17, 1997, is AFFIRMED.
SO ORDERED.[32]
The appellate court held, inter alia, that it was bound by the finding of facts of the RTC, especially so where the
evidence in support thereof is more than substantial. It ratiocinated that the loss of the shipment was due to an excepted
cause [t]he character of the goods or defects in the packing or in the containers and the failure of the shipper to indicate
signs to notify the stevedores that extra care should be employed in handling the shipment. [33] It blamed the shipper for its
failure to use materials of stronger quality to support the heavy machines and to indicate an arrow in the middle portion of
the cargo where additional slings should be attached. [34] The CA concluded that common carriers are not absolute insurers
against all risks in the transport of the goods.[35]
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING THAT RESPONDENT
COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY THE SHIPMENT IN THE POSSESSION OF THE
ARRASTRE OPERATOR.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING THE STATUTORY
PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT BAR.
III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING THAT THE DAMAGE
SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE PACKING AND NOT TO THE FAULT AND
NEGLIGENCE OF THE RESPONDENTS.[36]
The petitioner asserts that the mere proof of receipt of the shipment by the common carrier (to the carrier) in good
order, and their arrival at the place of destination in bad order makes out a prima facie case against it; in such case, it is
liable for the loss or damage to the cargo absent satisfactory explanation given by the carrier as to the exercise of
extraordinary diligence. The petitioner avers that the shipment was sufficiently packed in wooden boxes, as shown by the
fact that it was accepted on board the vessel and arrived in Manila safely. It emphasizes that the respondents did not
contest the contents of the bill of lading, and that the respondents knew that the manner and condition of the packing of
the cargo was normal and barren of defects. It maintains that it behooved the respondent ICTSI to place three to four
cables or wire slings in equal settings, including the center portion of the crate to prevent damage to the cargo:
[A] simple look at the manifesto of the cargo and the bill of lading would have alerted respondents of the nature of the
cargo consisting of thick and heavy machinery. Extra-care should have been made and extended in the discharge of the
subject shipment. Had the respondent only bothered to check the list of its contents, they would have been nervous
enough to place additional slings and cables to support those massive machines, which were composed almost entirely of
thick steel, clearly intended for heavy industries. As indicated in the list, the boxes contained one lat[h]e machine, one
milling machine and one grinding machine-all coming with complete parts and accessories. Yet, not one among the
respondents were cautious enough. Here lies the utter failure of the respondents to observed extraordinary diligence in
the handling of the cargo in their custody and possession, which the Court of Appeals should have readily observed in its
appreciation of the pertinent facts.[37]
The petitioner posits that the loss/damage was caused by the mishandling of the shipment by therein respondent
ICTSI, the arrastre operator, and not by its negligence.

56

The petitioner insists that the respondents did not observe extraordinary diligence in the care of the goods. It argues
that in the performance of its obligations, the respondent ICTSI should observe the same degree of diligence as that
required of a common carrier under the New Civil Code of the Philippines. Citing Eastern Shipping Lines, Inc. v. Court of
Appeals,[38] it posits that respondents are liable in solidum to it, inasmuch as both are charged with the obligation to deliver
the goods in good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not solidarily liable with it. It further
avers that the carrier cannot discharge directly to the consignee because cargo discharging is the monopoly of the
arrastre. Liability, therefore, falls solely upon the shoulder of respondent ICTSI, inasmuch as the discharging of cargoes
from the vessel was its exclusive responsibility. Besides, the petitioner is raising questions of facts, improper in a petition
for review on certiorari.[39]
Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45 of the Rules of Court. It
claims that it is merely a depository and not a common carrier; hence, it is not obliged to exercise extraordinary diligence.
It reiterates that the loss/damage was caused by the failure of the shipper or his packer to place a sign on the sides and
middle portion of the crate that extra care should be employed in handling the shipment, and that the middle wooden
batten on the flooring of the crate had a hole. The respondent asserts that the testimony of Anthony Abarquez, who
conducted his investigation at the site of the incident, should prevail over that of Rolando Balatbat. As an alternative, it
argues that if ever adjudged liable, its liability is limited only to P3,500.00 as expressed in the liability clause of Gate Pass
CFS-BR-GP No. 319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition
for review on certiorari. This rule, however, is not ironclad and admits certain exceptions, such as when (1) the conclusion
is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3)
there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact are
conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the findings of absence
of facts are contradicted by the presence of evidence on record; (8) the findings of the Court of Appeals are contrary to
those of the trial court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the Court of Appeals are beyond the issues of
the case; and (11) such findings are contrary to the admissions of both parties. [40]
We have reviewed the records and find no justification to warrant the application of any exception to the general rule.
We agree with the contention of the petitioner that common carriers, from the nature of their business and for
reasons of public policy, are mandated 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. [41] The Court has defined
extraordinary diligence in the vigilance over the goods as follows:
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. [42]
The common carriers duty to observe the requisite diligence in the shipment of goods lasts from the time the articles
are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance, by the person entitled to receive them. [43] When
the goods shipped are either lost or arrive in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it liable. [44] To overcome the

57

presumption of negligence in the case of loss, destruction or deterioration of the goods, the common carrier must prove
that it exercised extraordinary diligence.[45]
However, under Article 1734 of the New Civil Code, the presumption of negligence does not apply to any of the
following causes:
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.
It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts the common carrier for
the loss or damage to the cargo is a closed list. [46] To exculpate itself from liability for the loss/damage to the cargo under
any of the causes, the common carrier is burdened to prove any of the aforecited causes claimed by it by a
preponderance of evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the
carrier is negligent.[47]
Defect is the want or absence of something necessary for completeness or perfection; a lack or absence of
something essential to completeness; a deficiency in something essential to the proper use for the purpose for which a
thing is to be used. [48] On the other hand, inferior means of poor quality, mediocre, or second rate. [49] A thing may be of
inferior quality but not necessarily defective. In other words, defectiveness is not synonymous with inferiority.
In the present case, the trial court declared that based on the record, the loss of the shipment was caused by the
negligence of the petitioner as the shipper:
The same may be said with respect to defendant ICTSI. The breakage and collapse of Crate No. 1 and the total
destruction of its contents were not imputable to any fault or negligence on the part of said defendant in handling the
unloading of the cargoes from the carrying vessel, but was due solely to the inherent defect and weakness of the
materials used in the fabrication of said crate.
The crate should have three solid and strong wooden batten placed side by side underneath or on the flooring of the crate
to support the weight of its contents. However, in the case of the crate in dispute, although there were three wooden
battens placed side by side on its flooring, the middle wooden batten, which carried substantial volume of the weight of
the crates contents, had a knot hole or bukong-bukong, which considerably affected, reduced and weakened its strength.
Because of the enormous weight of the machineries inside this crate, the middle wooden batten gave way and collapsed.
As the combined strength of the other two wooden battens were not sufficient to hold and carry the load, they too
simultaneously with the middle wooden battens gave way and collapsed (TSN, Sept. 26, 1996, pp. 20-24).
Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing in the record which would
indicate that defendant ICTSI had any role in the choice of the materials used in fabricating this crate. Said defendant,
therefore, cannot be held as blame worthy for the loss of the machineries contained in Crate No. 1. [50]
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code, particularly number (4)
thereof, i.e., the character of the goods or defects in the packing or in the containers. The trial court found that the

58

breakage of the crate was not due to the fault or negligence of ICTSI, but to the inherent defect and weakness of the
materials used in the fabrication of the said crate.
Upon examination of the records, We find no compelling reason to depart from the factual findings of the trial court.
It appears that the wooden batten used as support for the flooring was not made of good materials, which caused the
middle portion thereof to give way when it was lifted. The shipper also failed to indicate signs to notify the stevedores that
extra care should be employed in handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and responsibilities:
Q: With regard to crates, what do you do with the crates?
A:

Everyday with the crates, there is an arrow drawn where the sling is placed, Maam.

Q: When the crates have arrows drawn and where you placed the slings, what do you do with these crates?
A:

A sling is placed on it, Maam.

Q: After you placed the slings, what do you do with the crates?
A:

After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

Q: Now, what, if any, were written or were marked on the crate?

A:

The thing that was marked on the cargo is an arrow just like of a chain, Maam.

Q: And where did you see or what parts of the crate did you see those arrows?
A:

At the corner of the crate, Maam.

Q: How many arrows did you see?

A:

Four (4) on both sides, Maam.

Q: What did you do with the arrows?

A:

When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?

A:

Nothing more, Maam.

Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where there are no arrows?
A:

You can not place slings if there are no arrows, Maam.

Appellants allegation that since the cargo arrived safely from the port of [P]usan, Korea without defect, the fault should be
attributed to the arrastre operator who mishandled the cargo, is without merit. The cargo fell while it was being carried
only at about five (5) feet high above the ground. It would not have so easily collapsed had the cargo been properly
packed. The shipper should have used materials of stronger quality to support the heavy machines. Not only did the

59

shipper fail to properly pack the cargo, it also failed to indicate an arrow in the middle portion of the cargo where additional
slings should be attached. At any rate, the issue of negligence is factual in nature and in this regard, it is settled that
factual findings of the lower courts are entitled to great weight and respect on appeal, and, in fact, accorded finality when
supported by substantial evidence.[51]
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The petitioner failed to rebut the
testimony of Dauz, that the crates were sealed and that the contents thereof could not be seen from the outside. [52] While it
is true that the crate contained machineries and spare parts, it cannot thereby be concluded that the respondents knew or
should have known that the middle wooden batten had a hole, or that it was not strong enough to bear the weight of the
shipment.
There is no showing in the Bill of Lading that the shipment was in good order or condition when the carrier received
the cargo, or that the three wooden battens under the flooring of the cargo were not defective or insufficient or
inadequate. On the other hand, under Bill of Lading No. NSGPBSML512565 issued by the respondent NSCP and
accepted by the petitioner, the latter represented and warranted that the goods were properly packed, and disclosed in
writing the condition, nature, quality or characteristic that may cause damage, injury or detriment to the goods. Absent
any signs on the shipment requiring the placement of a sling cable in the mid-portion of the crate, the respondent ICTSI
was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to sustain a finding
of absence of defects in the merchandise. Case law has it that such statement will create a prima facie presumption only
as to the external condition and not to that not open to inspection. [53]
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 145483

November 19, 2004

LORENZO SHIPPING CORP., petitioner,

vs.
BJ MARTHEL INTERNATIONAL, INC., respondent.

DECISION

60

CHICO-NAZARIO, J.:
This is a petition for review seeking to set aside the Decision 1 of the Court of Appeals in CA-G.R. CV No. 54334 and its
Resolution denying petitioner's motion for reconsideration.
The factual antecedents of this case are as follows:
Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the
cargo vessel M/V Dadiangas Express.
Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and
selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare
parts.
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines.
Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request,
respondent furnished petitioner with a formal quotation, 2 thus:

May 31, 1989

MINQ-6093
LORENZO SHIPPING LINES
Pier 8, North Harbor
Manila
SUBJECT: PARTS FOR ENGINE MODEL
MITSUBISHI 6UET 52/60
Dear Mr. Go:
We are pleased to submit our offer for your above subject requirements.

Description

Qty.

Unit Price

Total Price

Nozzle Tip

6 pcs.

P 5,520.00

33,120.00

Plunger & Barrel

6 pcs.

27,630.00

165,780.00

Cylinder Head

2 pcs.

1,035,000.00

2,070,000.00

61

Cylinder Liner

1 set

477,000.00

TOTAL PRICE FOB

P2,745,900.00

MANILA ___________

DELIVERY: Within 2 months after receipt of firm order.

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
We trust you find our above offer acceptable and look forward to your most valued order.

Very truly yours,

(SGD) HENRY PAJARILLO
Sales Manager

Petitioner thereafter issued to respondent Purchase Order No. 13839, 3 dated 02 November 1989, for the procurement of
one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase order was co-signed
by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase
order:

Name of Description

Qty.

Amount

CYL. LINER M/E

1 SET

P477,000.00

NOTHING FOLLOW

INV. #

TERM OF PAYMENT: 25% DOWN PAYMENT

62

5 BI-MONTHLY INSTALLMENT[S]

Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated
checks4 to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to
represent the full payment of the aforementioned cylinder liner.
Subsequently, petitioner issued Purchase Order No. 14011, 5 dated 15 January 1990, for yet another unit of cylinder liner.
This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal
installment[s]."6 Like the purchase order of 02 November 1989, the second purchase order did not state the date of the
cylinder liner's delivery.
On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same
was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually
returned by respondent to petitioner.
The parties presented disparate accounts of what happened to the check which was previously dishonored. Petitioner
claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to
respondent. For its part, respondent insisted that it returned said postdated check to petitioner.
Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by
opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales
invoices7 evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the
signature of Eric Go, petitioner's warehouseman, appeared.
Respondent thereafter sent a Statement of Account dated 15 November 1990 8 to petitioner. While the other items listed in
said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990
remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02
January 19919 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of
heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter
dated 12 March 199110 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the
cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to
sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 1991 11 was furnished petitioner by respondent's counsel
requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees.
Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the
Regional Trial Court (RTC) of Makati City. In its complaint, 12 respondent (plaintiff below) alleged that despite its repeated
oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be
ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest
of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits;
exemplary damages; actual damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint with preliminary
attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court. 13 Aside from the prayer for the issuance of
writ of preliminary attachment, the amendments also pertained to the issuance by petitioner of the postdated checks and
the amounts of damages claimed.
In an Order dated 25 July 1991,14 the court a quo granted respondent's prayer for the issuance of a preliminary
attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment 15attaching
thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order 16 lifting the levy on
petitioner's properties and the garnishment of its bank accounts.

63

Petitioner afterwards filed its Answer17 alleging therein that time was of the essence in the delivery of the cylinder liners
and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2)
months after receipt of firm order"18 from petitioner. Petitioner likewise sought counterclaims for moral damages,
exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991. 19 The
amendment introduced dealt solely with the number of postdated checks issued by petitioner as full payment for the first
cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine postdated checks were
involved, in its second amended complaint, respondent claimed that petitioner actually issued ten postdated checks.
Despite the opposition by petitioner, the trial court admitted respondent's Second Amended Complaint with Preliminary
Attachment.20
Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners) 21 alleging therein that
"[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of
obsolescence and deterioration"22 to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to
sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This motion, unopposed
by respondent, was granted by the trial court through the Order of 17 March 1991. 23
After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay P50,000.00 to
the defendant as and by way of attorney's fees.24
The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of
payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract
of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and
compensatory damages were dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of merit. 25
Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals 26 which reversed and set
aside the Decision of the court a quo. The appellate court brushed aside petitioner's claim that time was of the essence in
the contract of sale between the parties herein considering the fact that a significant period of time had lapsed between
respondent's offer and the issuance by petitioner of its purchase orders. The dispositive portion of the Decision of the
appellate court states:
WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby
ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per annum
reckoned from May, 1991.27
The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no
demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of
Article 1169 of the Civil Code which provides:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by petitioner and
that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but this was denied
through the resolution of 06 October 2000.28 Hence, this petition for review which basically raises the issues of whether or
not respondent incurred delay in performing its obligation under the contract of sale and whether or not said contract was
validly rescinded by petitioner.

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That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that its obligation to
pay fully the purchase price was extinguished because the adverted contract was validly terminated due to respondent's
failure to deliver the cylinder liners within the two-month period stated in the formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to
disregard the terms of the contract considering that time was of the essence thereof?
In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the
parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself
or the surrounding circumstances of that intention.29 Petitioner insists that although its purchase orders did not specify the
dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of
delivery appearing on the quotation it submitted to petitioner.30 Petitioner theorizes that the quotation embodied the offer
from respondent while the purchase order represented its (petitioner's) acceptance of the proposed terms of the contract
of sale.31 Thus, petitioner is of the view that these two documents "cannot be taken separately as if there were two distinct
contracts."32 We do not agree.
It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning shall control. 33 However, in order to ascertain the intention of the parties, their
contemporaneous and subsequent acts should be considered. 34 While this Court recognizes the principle that contracts
are respected as the law between the contracting parties, this principle is tempered by the rule that the intention of the
parties is primordial35 and "once the intention of the parties has been ascertained, that element is deemed as an integral
part of the contract as though it has been originally expressed in unequivocal terms." 36
In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody the
terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in the formal
quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first cylinder liner and
the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the second cylinder
liner. While the quotation provided by respondent evidently stated that the cylinder liners were supposed to be delivered
within two months from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder
liners' delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The petitioner's
Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first cylinder liner and of the
payment of 25% down payment. Its Purchase Order No. 14011 likewise did not indicate the due date of delivery of the
second cylinder liner.
In the case of Bugatti v. Court of Appeals,37 we reiterated the principle that "[a] contract undergoes three distinct stages
preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The
perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last
stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof."
In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject contract
of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the terms and
conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or tendered a
counter-offer to respondent while the latter could have, under the pertinent provision of the Civil Code, 38 withdrawn or
modified the same. The parties were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this
connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed, renegotiated
prior to the issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping Corporation dated
rather marked as Exhibit A stating the terms of payment and delivery of the cylinder liner, did you not?
A: Yes sir.

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Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that the delivery
of the cylinder liner will be made in two months' time from the time you received the confirmation of the order. Is
that correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant make a
confirmation of the order?
A: After six months.
Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of payment which
you required of them of 25% down payment, now, it is stated in the purchase order the date of delivery, will you
explain to the court why the date of delivery of the cylinder liner was not mentioned in the purchase order which is
the contract between you and Lorenzo Shipping Corporation?
A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired [with] our supplier
in Japan to give us the price and delivery of that item. When we received that quotation from our supplier it is
stated there that they can deliver within two months but we have to get our confirmed order within June.
Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the order with your
Japanese supplier after receiving the purchase order dated November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%. 39
For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the
following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed upon by both
parties was 25% down payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?

66

A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the earliest
possible time. Again, that would depend on the customers. Even after receipt of the purchase order which was
what happened here, they re-negotiated the terms and sometimes we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.40
The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale did not undergo
further renegotiation, petitioner failed to proffer sufficient evidence to refute the above testimonies of Pajarillo and Kanaan,
Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011 yet it utterly
failed to adduce any justification as to why said documents contained terms which are at variance with those stated in the
quotation provided by respondent. The only plausible reason for such failure on the part of petitioner is that the parties
had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in the terms of the
contract between respondent and petitioner was caused by the latter when it omitted the date of delivery of the cylinder
liners in the purchase orders and varied the term with respect to the due date of the down payment, 41 said obscurity must
be resolved against it.42
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti, 43 instructive. There, we held that
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of the
contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of
anything to show that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair and
maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the record is
bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent of said date is
fatal to its claim that time was of the essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the Court of Appeals:
. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and January 15,
1990, no specific date of delivery was indicated therein. If time was really of the essence as claimed by the
appellee, they should have stated the same in the said purchase orders, and not merely relied on the quotation
issued by the appellant considering the lapse of time between the quotation issued by the appellant and the
purchase orders of the appellee.
In the instant case, the appellee should have provided for an allowance of time and made the purchase order
earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first week of
January, 1990. In fact, the appellee should have cancelled the first purchase order when the cylinder liner was not
delivered on the date it now says was necessary. Instead it issued another purchase order for the second set of

67

cylinder liner. This fact negates appellee's claim that time was indeed of the essence in the consummation of the
contract of sale between the parties.44
Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full payment
of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress. It is not an
indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of the checks was 18
January 1990. As delivery of said checks could produce the effect of payment only when they have been
cashed,45 respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02 January 1990 as
claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of the first
cylinder liner. As explained by respondent, it proceeded with the placement of the order for the cylinder liners with its
principal in Japan solely on the basis of its previously harmonious business relationship with petitioner.
As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect by one
of the parties may be waived by the other party's subsequently treating the contract as still in force." 46 Petitioner's receipt
of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the
contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by
petitioner, it no longer had any business receiving the cylinder liners even if said receipt was "subject to verification." By
accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay
in the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20
April 1990 was made within a reasonable period of time considering that respondent had to place the order for the
cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. 47
There having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract is
unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the
obligation assumed thereunder.48 The right, however, is not an unbridled one. This Court in the case of University of the
Philippines v. De los Angeles,49 speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever subject
to scrutiny and review by the proper court. If the other party denied that rescission is justified, it is free to resort to judicial
action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution
of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution
will be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis supplied)
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does
not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the
law itself requires that he should exercise due diligence to minimize its own damages. 50
Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them.
Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990
belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent
businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was
already rescinded by the other party.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of
Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs.

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SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 149019 August 15, 2006
DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan Transport Lines, Inc. (Delsan
hereafter) assails and seeks to set aside the Decision, 1 dated July 16, 2001, of the Court of Appeals (CA) in CA-G.R. CV
No. 40951 affirming an earlier decision of the Regional Trial Court (RTC) of Manila, Branch IX, in two separate complaints
for damages docketed as Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other hand, respondent
American Home Assurance Corporation (AHAC for brevity) is a foreign insurance company duly licensed to do business in
the Philippines through its agent, the American-International Underwriters, Inc. (Phils.). It is engaged, among others, in
insuring cargoes for transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l Automotive Diesel Oil
(diesel oil) at the Bataan Refinery Corporation for transportation and delivery to the bulk depot in Bacolod City of Caltex
Phils., Inc. (Caltex), pursuant to a Contract of Afreightment. The shipment was insured by respondent AHAC against all
risks under Inland Floater Policy No. AH-IF64-1011549P and Marine Risk Note No. 34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading operations commenced. The
discharging of the diesel oil started at about 1:30 PM of the same day. However, at about 10:30 PM, the discharging had
to be stopped on account of the discovery that the port bow mooring of the vessel was intentionally cut or stolen by
unknown persons. Because there was nothing holding it, the vessel drifted westward, dragged and stretched the flexible
rubber hose attached to the riser, broke the elbow into pieces, severed completely the rubber hose connected to the
tanker from the main delivery line at sea bed level and ultimately caused the diesel oil to spill into the sea. To avoid further
spillage, the vessels crew tried water flushing to clear the line of the diesel oil but to no avail. In the meantime, the shore
tender, who was waiting for the completion of the water flushing, was surprised when the tanker signaled a "red light"
which meant stop pumping. Unaware of what happened, the shore tender, thinking that the vessel would, at any time,
resume pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the diesel oil that was
earlier discharged from the vessel into the shore tank backflowed. Due to non-availability of a pump boat, the vessel could
not send somebody ashore to inform the people at the depot about what happened. After almost an hour, a gauger and an
assistant surveyor from the Caltexs Bulk Depot Office boarded the vessel. It was only then that they found out what had
happened. Thereafter, the duo immediately went ashore to see to it that the shore tank gate valve was closed. The loss of
diesel oil due to spillage was placed at 113.788 k/l while some 435,081 k/l thereof backflowed from the shore tank.

69

As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but the latter refused to
pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage, pursuant to Marine Risk Note No. 34-5093-6,
and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy No. AH-1F64-1011549P.
On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357 against Delsan before the Manila
RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be indemnified for damages suffered in the
amount of P652,432.57 plus legal interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559 against Delsan for the loss
caused by the backflow. It likewise prayed that it be awarded the amount of P1,939,575.37 for damages and reasonable
attorneys fees. As counterclaim in both cases, AHAC prayed for attorneys fees in the amount ofP200,000.00
and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same issues, the two were
consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for the loss of the cargo
for its negligence in its duty as a common carrier. Dispositively, the decision reads:
WHEREFORE, judgment is hereby rendered:
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum of P1,939,575.37 with interest
thereon at the legal rate from November 21, 1984 until fully paid and satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the legal rate from February 6,
1985 until fully paid and satisfied;
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.
SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951.
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling, the CA declared that Delsan
failed to exercise the extraordinary diligence of a good father of a family in the handling of its cargo. Applying Article
1736 4 of the Civil Code, the CA ruled that since the discharging of the diesel oil into Caltex bulk depot had not been
completed at the time the losses occurred, there was no reason to imply that there was actual delivery of the cargo to
Caltex, the consignee. We quote the fallo of the CA decision:

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WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila, Branch 09 in Civil Case
Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that attorneys fees awarded in Civil Case Nos. 8529357 and 85-30559 are hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the Civil Code cannot
exculpate it from liability for the loss of the subject cargo and in not applying the rule on contributory negligence against
Caltex, the shipper-owner of the cargo, and in not taking into consideration the fact that the loss due to backflow occurred
when the diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA, affirmatory of those of
the trial court, are binding on the Court unless there is a clear showing that such findings are tainted with arbitrariness,
capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds. First, the loss through
spillage was partly due to the contributory negligence of Caltex; and Second, the loss through backflow should not be
borne by Delsan because it was already delivered to Caltexs shore tank.
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. 6 To
overcome the presumption of negligence in 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:
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.
Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a contributory negligence
on the part of the owner of the goods Caltex. We see no reason to depart therefrom. As aptly pointed out by the CA, it
had been established that the proximate cause of the spillage and backflow of the diesel oil was due to the severance of
the port bow mooring line of the vessel and the failure of the shore tender to close the storage tank gate valve even as a
check on the drain cock showed that there was still a product on the pipeline. To the two courts below, the actuation of the
gauger and the escort surveyor, both personnel from the Caltex Bulk Depot, negates the allegation that Caltex was remiss
in its duties. As we see it, the crew of the vessel should have promptly informed the shore tender that the port mooring line
was cut off. However, Delsan did not do so on the lame excuse that there was no available banca. As it is, Delsans
personnel signaled a "red light" which was not a sufficient warning because such signal only meant that the pumping of

71

diesel oil had been finished. Neither did the blowing of whistle suffice considering the distance of more than 2 kilometers
between the vessel and the Caltex Bulk Depot, aside from the fact that it was not the agreed signal. Had the gauger and
the escort surveyor from Caltex Bulk Depot not gone aboard the vessel to make inquiries, the shore tender would have
not known what really happened. The crew of the vessel should have exerted utmost effort to immediately inform the
shore tender that the port bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by one of the excepted
causes if it were to seek exemption from responsibility. 7 Unfortunately, it miserably failed to discharge this burden by the
required quantum of proof.
Delsans argument that it should not be held liable for the loss of diesel oil due to backflow because the same had already
been actually and legally delivered to Caltex at the time it entered the shore tank holds no water. It had been settled that
the subject cargo was still in the custody of Delsan because the discharging thereof has not yet been finished when the
backflow occurred. Since the discharging of the cargo into the depot has not yet been completed at the time of the
spillage when the backflow occurred, there is no reason to imply that there was actual delivery of the cargo to the
consignee. Delsan is straining the issue by insisting that when the diesel oil entered into the tank of Caltex on shore, there
was legally, at that moment, a complete delivery thereof to Caltex. To be sure, the extraordinary responsibility of common
carrier lasts from the time the goods are unconditionally placed in the possession of, and received by, the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to a person who
has the right to receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been finished, Delsan still
has the duty to guard and to preserve the cargo. The carrier still has in it the responsibility to guard and preserve the
goods, a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in vigilance over the goods and for the safety of the passengers transported by them, according to
all the circumstances of each case. 9 The mere proof of delivery of goods in good order to the carrier, and their arrival in
the place of destination in bad order, make 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. 10
All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the performance of its duties.
Consequently, it is obliged to prove that the damage to its cargo was caused by one of the excepted causes if it were to
seek exemption from responsibility. 11 Having failed to do so, Delsan must bear the consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.
Cost against petitioner.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
SECOND DIVISION
[G.R. No. 137775. March 31, 2005]
FGU INSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and
ESTATE OF ANG GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO
TO,respondents.
[G.R. No. 140704. March 31, 2005]

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ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO TO, petitioners, vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE CORP.,respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision [1] of the Court of Appeals in CA-G.R. CV No.
49624 entitled, San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang Gui, represented by Lucio, Julian and
Jaime, all surnamed Ang, and Co To, Defendants-Appellants, ThirdParty Plaintiffs versus FGU Insurance Corporation,
Third-Party Defendant-Appellant, which affirmed in toto the decision[2] of the Regional Trial Court of Cebu City, Branch 22.
The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1)
Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of
6% per annum to be reckoned from the filing of this case on October 2, 1990;
2)
Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees
and an additional sum of P10,000.00 as litigation expenses;
3)

With cost against defendants.

For the Third-Party Complaint:

1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants the amount of P632,700.00.
[3]

The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged
in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which were operated as common
carriers. Since the D/B Lucio had no engine of its own, it could not maneuver by itself and had to be towed by a tugboat
for it to move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio,
for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing Division (BMD)-Estancia
Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by Bill of Lading No. 2 was SMCs BMDSan Jose Beer Sales Office, San Jose, Antique.

73

The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. The vessels arrived
at San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The tugboat M/T ANCO left the barge
immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the clouds over
the area were dark and the waves were already big. The arrastre workers unloading the cargoes of SMC on board the D/B
Lucio began to complain about their difficulty in unloading the cargoes. SMCs District Sales Supervisor, Fernando
Macabuag, requested ANCOs representative to transfer the barge to a safer place because the vessel might not be able
to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the barge could withstand the waves.
This, notwithstanding the fact that at that time, only the M/T ANCO was left at the wharf of San Jose, Antique, as all other
vessels already left the wharf to seek shelter. With the waves growing bigger and bigger, only Ten Thousand Seven
Hundred Ninety (10,790) cases of beer were discharged into the custody of the arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the vessel
because the barges rope attached to the wharf was cut off by the big waves. At around midnight, the barge run aground
and was broken and the cargoes of beer in the barge were swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten (29,210) cases of
Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case of Pale Pilsen was Forty-Five
Pesos and Twenty Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven Pesos and Ten Centavos
(P47.10), hence, SMCs claim against ANCO amounted to One Million Three Hundred Forty-Six Thousand One Hundred
Ninety-Seven Pesos (P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages against
ANCO for the amount of One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
(P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of the total claim as attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a second
amended complaint which was admitted by the Court impleading the surviving partner, Co To and the Estate of Ang Gui
represented by Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted the original answer with
counterclaim of ANCO since the substantial allegations of the original complaint and the amended complaint are
practically the same.
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were indeed
loaded on the vessel belonging to ANCO. It claimed however that it had an agreement with SMC that ANCO would not be
liable for any losses or damages resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale
Pilsen and Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and sunk the vessel in which
they were loaded, they should not be held liable. ANCO further asserted that there was an agreement between them and
SMC to insure the cargoes in order to recover indemnity in case of loss. Pursuant to that agreement, the cargoes to the
extent of Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the total amount of
Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before the vessel
of ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent of Twenty Thousand
(20,000) cases, were insured with FGU for a total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos
(P858,500.00) under Marine Insurance Policy No. 29591. ANCO further alleged that on or about 02 October 1979, by
reason of very strong winds and heavy waves brought about by a passing typhoon, the vessel run aground near the
vicinity of San Jose, Antique, as a result of which, the vessel was totally wrecked and its cargoes owned by SMC were lost
and/or destroyed. According to ANCO, the loss of said cargoes occurred as a result of risks insured against in the
insurance policy and during the existence and lifetime of said insurance policy. ANCO went on to assert that in the remote

74

possibility that the court will order ANCO to pay SMCs claim, the third-party defendant corporation should be held liable to
indemnify or reimburse ANCO whatever amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of the Insurance Policy
under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes covered by the said insurance
policy cannot be attributed directly or indirectly to any of the risks insured against in the said insurance policy. According to
FGU, it is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise ordinary diligence
or the diligence of a good father of the family in the care and supervision of the cargoes insured to prevent its loss and/or
destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for actual, moral, and
exemplary damages and attorneys fees.[1]
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure on ANCOs part,
through their representatives, to observe the degree of diligence required that would exonerate them from liability. The trial
court thus held the Estate of Ang Gui and Co To liable to SMC for the amount of the lost shipment. With respect to the
Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of the amount of the lost
cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was broken and the beer
cargoes on the said barge were swept away. It is the sense of this Court that the risk insured against was the cause of the
loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of the policy was only
for P858,500.00, defendants as assured, therefore, were considered co-insurers of third-party defendant FGU Insurance
Corporation to the extent of 975,405.00 value of the cargo.Consequently, inasmuch as there was partial loss of only
P1,346,197.00, the assured shall bear 53% of the loss[4] [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for reconsideration and the
supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into two: 1) Whether or not
respondent Court of Appeals committed grave abuse of discretion in holding FGU liable under the insurance contract
considering the circumstances surrounding the loss of the cargoes; and 2) Whether or not the Court of Appeals committed
an error of law in holding that the doctrine of res judicata applies in the instant case.

75

In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate court based on the
following assignments of error: 1) The Court of Appeals committed grave abuse of discretion in affirming the findings of
the lower court that the negligence of the crewmembers of the D/B Lucio was the proximate cause of the loss of the
cargoes; and 2) The respondent court acted with grave abuse of discretion when it ruled that the appeal was without merit
despite the fact that said court had accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals
and the Supreme Court, as res judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their respective petitions for
review, that is, whether or not the doctrine of res judicata applies in the instant case.
It is ANCOs contention that the decision in Civil Case No. R-19341, [5] which was decided in its favor, constitutes res
judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No. R-19341 and the case at
bar. In order for res judicata to be made applicable in a case, the following essential requisites must be present: 1) the
former judgment must be final; 2) the former judgment must have been rendered by a court having jurisdiction over the
subject matter and the parties; 3) the former judgment must be a judgment or order on the merits; and 4) there must be
between the first and second action identity of parties, identity of subject matter, and identity of causes of action. [6]
There is no question that the first three elements of res judicata as enumerated above are indeed satisfied by the
decision in Civil Case No. R-19341. However, the doctrine is still inapplicable due to the absence of the last essential
requisite of identity of parties, subject matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the instant case, SMC
is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang and Co To as
defendants, with the latter merely impleading FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO, the owner of the
vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the subject matter of litigation is the loss of the
cargoes of SMC, as shipper, loaded in the D/B Lucio and the resulting failure of ANCO to deliver to SMCs consignees the
lost cargo. Otherwise stated, the controversy in the first case involved the rights and liabilities of the shipowner vis-vis that of the insurer, while the present case involves the rights and liabilities of the shipper vis--vis that of the shipowner.
Specifically, Civil Case No. R-19341 was an action for Specific Performance and Damages based on FGU Marine Hull
Insurance Policy No. VMF-MH-13519 covering the vessel D/B Lucio, while the instant case is an action for Breach of
Contract of Carriage and Damages filed by SMC against ANCO based on Bill of Lading No. 1 and No. 2, with defendant
ANCO seeking reimbursement from FGU under Insurance Policy No. MA-58486, should the former be held liable to pay
SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different from that in Civil Case
No. R-19341. In the latter, ANCO was suing FGU for the insurance contract over the vessel while in the former, the thirdparty complaint arose from the insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already passed upon by a court of
competent jurisdiction in a former judgment, in another action between the same parties based on a different claim or
cause of action. The judgment in the prior action operates as estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was rendered. [7] If a particular point or question is in
issue in the second action, and the judgment will depend on the determination of that particular point or question, a former
judgment between the same parties or their privies will be final and conclusive in the second if that same point or question
was in issue and adjudicated in the first suit.[8]

76

Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341, only findings with
respect to matters passed upon by the court in the former judgment are conclusive in the disposition of the instant case. A
careful perusal of the decision in Civil Case No. R-19341 will reveal that the pivotal issues resolved by the lower court, as
affirmed by both the Court of Appeals and the Supreme Court, can be summarized into three legal conclusions: 1) that the
D/B Lucio before and during the voyage was seaworthy; 2) that there was proper notice of loss made by ANCO within the
reglementary period; and 3) that the vessel D/B Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was any discussion
regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court pass upon the issue of the alleged
negligence of the crewmembers of the D/B Lucio being the cause of the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of Appeals that there is res
judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding that the negligence of
ANCOs representatives was the proximate cause of the loss, said issue is a question of fact assailing the lower courts
appreciation of evidence on the negligence or lack thereof of the crewmembers of the D/B Lucio. As a rule, findings of fact
of lower courts, particularly when affirmed by the appellate court, are deemed final and conclusive. The Supreme Court
cannot review such findings on appeal, especially when they are borne out by the records or are based on substantial
evidence.[9] As held in the case of Donato v. Court of Appeals,[10] in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and
cogent reasons because the trial court is in a better position to examine real evidence, as well as to observe the
demeanor of the witnesses while testifying in the case. [11]
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a showing that the
findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave
abuse of discretion.[12]
A careful study of the records shows no cogent reason to fault the findings of the lower court, as sustained by the
appellate court, that ANCOs representatives failed to exercise the extraordinary degree of diligence required by the law to
exculpate them from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine Thousand Two Hundred
Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had no engine of its own
and could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO left it to fend for itself notwithstanding the
fact that as the two vessels arrived at the port of San Jose, Antique, signs of the impending storm were already manifest.
As stated by the lower court, witness Mr. Anastacio Manilag testified that the captain or patron of the tugboat M/T ANCO
left the barge D/B Lucio immediately after it reached San Jose, Antique, despite the fact that there were already big waves
and the area was already dark. This is corroborated by defendants own witness, Mr. Fernando Macabueg. [13]
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary diligence in the
vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO, representing the defendant could have placed
D/B Lucio in a very safe location before they left knowing or sensing at that time the coming of a typhoon. The presence of
big waves and dark clouds could have warned the patron or captain of M/T ANCO to insure the safety of D/B Lucio
including its cargo. D/B Lucio being a barge, without its engine, as the patron or captain of M/T ANCO knew, could not
possibly maneuver by itself. Had the patron or captain of M/T ANCO, the representative of the defendants observed
extraordinary diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could not have

77

occurred. In short, therefore, defendants through their representatives, failed to observe the degree of diligence required
of them under the provision of Art. 1733 of the Civil Code of the Philippines. [14]
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of respondents SMC and
FGU that the crewmembers of D/B Lucio should have left port at the onset of the typhoon is like advising the fish to jump
from the frying pan into the fire and an advice that borders on madness. [15]
The argument does not persuade. The records show that the D/B Lucio was the only vessel left at San Jose, Antique,
during the time in question. The other vessels were transferred and temporarily moved to Malandong, 5 kilometers from
wharf where the barge remained.[16]Clearly, the transferred vessels were definitely safer in Malandong than at the port of
San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the typhoon Sisang, a fortuitous
event (caso fortuito), and there was no fault or negligence on their part. In fact, ANCO claims that their crewmembers
exercised due diligence to prevent or minimize the loss of the cargoes but their efforts proved no match to the forces
unleashed by the typhoon which, in petitioners own words was, by any yardstick, a natural calamity, a fortuitous event, an
act of God, the consequences of which petitioners could not be held liable for.[17]
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and 1745 Nos. 5, 6,
and 7 . . .
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;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have
been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent
or minimize loss before, during and after the occurrence of flood, storm, or other natural disaster in order that the common
carrier may be exempted from liability for the loss, destruction, or deterioration of the goods . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) [18] by
definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though
foreseen, were inevitable. It is therefore not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. [19]
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable. In fact,
the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance which prompted
SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had
no engine and could not maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no longer had any
means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the
tugboat should have had the foresight not to leave the barge alone considering the pending storm.

78

While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not
escape liability to respondent SMC. The records clearly show the failure of petitioners representatives to exercise the
extraordinary degree of diligence mandated by law. To be exempted from responsibility, the natural disaster should have
been the proximate and only cause of the loss. [20]There must have been no contributory negligence on the part of the
common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.:[21]
. . . To be exempt from liability because of an act of God, the tug must be free from any previous negligence or misconduct
by which that loss or damage may have been occasioned. For, although the immediate or proximate cause of the loss in
any given instance may have been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such
accident by any culpable act or omission of its own, it is not excused. [22]
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part of M/T ANCOs
crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without the assistance of the
tugboat, and again in failing to heed the request of SMCs representatives to have the barge transferred to a safer place,
as was done by the other vessels in the port; thus, making said blatant negligence the proximate cause of the loss of the
cargoes.
We now come to the issue of whether or not FGU can be held liable under the insurance policy to reimburse ANCO
for the loss of the cargoes despite the findings of the respondent court that such loss was occasioned by the blatant
negligence of the latters employees.
One of the purposes for taking out insurance is to protect the insured against the consequences of his own
negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and negligence of the insured
or his agents constitute no defense on the part of the insurer. [23] This rule however presupposes that the loss has occurred
due to causes which could not have been prevented by the insured, despite the exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured or his agents that will
deprive him the right to recover under the insurance contract. We say there is. However, to what extent such negligence
must go in order to exonerate the insurer from liability must be evaluated in light of the circumstances surrounding each
case. When evidence show that the insureds negligence or recklessness is so gross as to be sufficient to constitute a
willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,[24] the United States Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the insurer takes
upon himself, and the existence of which, where it is the proximate cause of the loss, does not absolve the insurer from
liability. But willful exposure, gross negligence, negligence amounting to misconduct, etc., have often been held to release
the insurer from such liability.[25] [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners of an insured vessel
attempted to put her across the bar at Hatteras Inlet. She struck on the bar and was wrecked. The master knew that the
depth of water on the bar was such as to make the attempted passage dangerous. Judge Clifford held that, under the
circumstances, the loss was not within the protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful acts are hardly
necessary, as the proposition involves an elementary principle of universal application. Losses may be recovered by the
insured, though remotely occasioned by the negligence or misconduct of the master or crew, if proximately caused by the
perils insured against, because such mistakes and negligence are incident to navigation and constitute a part of the perils
which those who engage in such adventures are obliged to incur; but it was never supposed that the insured could

79

recover indemnity for a loss occasioned by his own wrongful act or by that of any agent for whose conduct he was
responsible.[26] [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a distinction between ordinary
negligence and gross negligence or negligence amounting to misconduct and its effect on the insureds right to recover
under the insurance contract. According to the Court, while mistake and negligence of the master or crew are incident to
navigation and constitute a part of the perils that the insurer is obliged to incur, such negligence or recklessness must not
be of such gross character as to amount to misconduct or wrongful acts; otherwise, such negligence shall release the
insurer from liability under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the evidence that the
crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when the patron (operator) of the tug
boat immediately left the barge at the San Jose, Antique wharf despite the looming bad weather. Negligence was likewise
exhibited by the defendants-appellants representative who did not heed Macabuags request that the barge be moved to a
more secure place. The prudent thing to do, as was done by the other sea vessels at San Jose, Antique during the time in
question, was to transfer the vessel to a safer wharf. The negligence of the defendants-appellants is proved by the fact
that on 01 October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.[27] [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the lower court, as
sustained by the Court of Appeals, that ANCOs representatives had failed to exercise extraordinary diligence required of
common carriers in the shipment of SMCs cargoes. Such blatant negligence being the proximate cause of the loss of the
cargoes amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that the blatant negligence
of ANCOs employees is of such gross character that it amounts to a wrongful act which must exonerate FGU from liability
under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is hereby
AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 101426 May 17, 1993

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and TRANSPACIFIC TOWAGE, INC., respondents.

80

Linsangan Law Office for petitioner.

Misa, Castro & Associates for private respondent.

PADILLA, J.:
In this petition for review on certiorari, Philippine American General Insurance Company, Incorporated assails the
decision * of the Court of Appeals, dated 31 July 1991, rendered in CA-G.R. CV. No. 21252, which reversed and set aside
the decision of the Regional Trial Court of Manila, Branch 16 1 and entered a new one dismissing the petitioner's complaint
which sought to collect the sum of P1,511,210.00 from the private respondent.
The facts of the case, as found by the Court of Appeals, 2 are as follows:
On September 4, 1985 the Davao Union Marketing Corporation of Davao City shipped on board the
vessel M/V "Crazy Horse" operated by the Transpacific Towage, Inc. cargo consisting of 9,750 sheets of
union brand GI sheets with a declared value of P1,086,750.00 and 86,860 bags of union Pozzolan and
union Portland Cement with a declared value of P4,300,000.00. The cargo was consigned to the Bicol
Union Center of Pasacao, Camarines Sur, with a certain Pedro Olivan as the "Notify-Party."
The cargo was insured by the Philippine American General Insurance Co., Inc., under Marine Note No.
023408 covering 86,000, of Union Pozzolan and POrtland cement for the amount of P3,440,000.00.
The vessel M/V "Crazy Horse" arrived on September 7, 1985 as scheduled as the port of Pasacao,
Camarines Sur. Upon arrival the shipmaster notified the consignee's "Notify-Party" that the vessel was
already (sic) to discharge the cargo. The discharging could not be affected immediately and continuously
because of certain reasons. First, the buoys were installed only on September 11, 1985; second, the
dischrage permit was secured by the consignee only on September 13, 1985; third a wooden catwalk had
to be installed and extension of the wharf had to be made, which was completed only on September 26,
1985; fourth, the discharging was not continuous because there were intermittent rains and the
stevedores supplied by the consignee did not work during the town fiesta. (Emphasis supplied ours)
On October 16, 1985, a super typhoon code named "Saling" entered the Philippine area of responsibility
and was felt in the eastern coast of the country on October 17, 1985. It had a strength of 240 KPH and
Pasacao was placed under Storm Signal No. 3. The discharging of the cargo had to be suspended at
11:40 A.M. on October 17, 1985 due to the heavy downpour, strong winds, and turbulent sea. To prevent
damage to the cargo all hatches of the vessel were closed and secured. (Emphasis supplied ours)
At the time the discharging of the cargo was suspended, a total of 59,625 bags of cement and 26 crates
of GI sheets had already been discharged.
In further preparation for the typhoon the vessel was loaded with 22 tons of fresh water and 3,000 liters of
fuel. The shipmaster ordered the vessel to be moved about 300 meters seaward in order that it would not
hit the cat walk or the wooden bridge or the wharf, or the rocks. The vessel was ready for any maneuver
that may have to be made.
According to the shipmaster who was plotting the typhoon's path in a chart, the radius was so wide that
there was no way the typhoon could be evaded. From 8:00 P.M. of October 17, 1985 to 8:00 P.M. of
October 18, 1985 the typhoon raged in the area. It was at about 5:20 A.M. of October 18, 1985 when the
shipmaster ordered the maneuvering of the vessel but it could not be steered on account of the strong
winds and rough seas. The vessel's lines snapped, causing her to be dragged against the rocks, and the

81

anchor chain stopper gave way. The vessel sustained holes in the engine room and there was a power
failure in the vessel. Water started to fill the engine room and at about 6:15 A.M. the engine broke down.
The shipmaster had no choice but to order the ship to be abandoned. He told the crew to secure the
vessel while he went to the Municipal Mayor of Pasacao to request for police assistance to prevent
pilferage of the vessel and its cargo. He was, however, unable to get any assistance. When he returned to
the vessel he found that it was being continuously pounded by the strong sea waves against the rocks.
This caused the vessel to break into two (2) parts and to sink partially. The shipmaster reported the
incident to the Philippine Coast Guard but inspite the presence of three (3) coast guards, nothing could be
done about the pilferage done on the vessel and its cargo. Almost the whole barrio and because there
were so many of them the crew and the guards were helpless to stop the pilferage and looting. As a result
of the incident the cargo of cement was damaged while the GI sheets were looted and nothing was left of
the undischarged pieces.
The total number of cement bags damaged and/or lost was 26,424 costing P1,056,960.00 while there
were 4,000 pieces of the GI sheets unrecovered, the cost of which was P454,250.00.
Because the cargo was insured by it the Philippine American General Insurance Co., Inc. paid the shipper
Davao Union Marketing Corporation the sum of P1,511,210.00. Thereafter, the said insurer made
demands upon the Transpacific Towage, Inc. for the payment of said amount as subrogee of the insured,
claiming that the loss of the cargo was directly and exclusively brought about by the fault and negligence
of the shipmaster and the crew of M/V "Crazy Horse". Because the latter refused to pay the amount of
P1,511,210.00 demanded, the Philippine American General Insurance Co., Inc. filed the present
complaint.
The lower court found that although the immediate cause of the loss may have been due to an act of God,
the defendant carrier had exposed the property to the accident. The court also found plaintiff guilty of
contributory negligence and mitigated the plaintiff's claim to three-fourths (3/4) of its value. Thus the lower
court, in its Decision, ordered the defendant:
1) To pay plaintiff the mitigated amount of P1,133,408.00 plus 12% legal interest per annumcomputed
from the date of the filing of herein complaint on May 15, 1986, until duly paid;
2) To pay P8,000.00 as attorney's fees; and
3) To pay costs of suit.
SO ORDERED.
In its now assailed decision, respondent Court of Appeals reversed the decision of the trial court and ruled instead that
private respondent, as a common carrier, is not responsible for the loss of the insured cargo involved in the case at bar, as
said loss was due solely to a fortituous event.
Petitioner in the present petition contends that respondent appellate court erred in not holding private respondent liable for
the loss of the said insured cargo.
We affirm the decision of the Court of Appeals.
It is not disputed that private respondent is a common carrier as defined in Article 1732 of the Civil Code. 3 The following
facts are also not contested: (1) that the cargo-carrying vessel was wrecked and partially sank on 18 October 1985 due to
typhoon "Saling"; (2) that typhoon "Saling" was a fortuitous event; and (3) that at the time said vessel sank, the remaining
undischarged cargo, consisting of 26,424 cement bags and 4,000 pieces of G.I. sheets, were still on board the vessel.

82

However, the Court notes the fact that as of 17 October 1985, the time when the Pasacao area was placed under storm
signal No. 3 due to "Saling", the unloading of the cargo from the vessel was still unfinished, notwithstanding the lapse of
forty (40) days from the time the vessel arrived in Pasacao on 7 September 1985, or the lapse of thirty-four (34) days from
the time actual discharge of the cargo commenceds on 13 September 1985.
In the opinion of the trial court, this lapse of thirty four (34) days with private respondent not having completed the
unloading of the goods, is tantamount to unreasonable delay, which delay exposed the unloaded cargo to accident. The
trial court held private respondent liable for the loss of goods under Article 1740 of the Civil Code which provides that if the
common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free the carrier from
responsibility.
On the other hand, the appellate court ruled out any negligence committed by private respondent and held that the delay
in fully unloading the cargo from the vessel "was occasioned by causes that may not be attributed solely to human factors,
among which were the natural conditions of the port where the M/V "Crazy Horse" had docked, the customs of the place
and the weather conditions. 4
The appellate court in exempting private respondent from liability applied Article 1739 of the Civil Code which provides as
follows:
In order that the common carrier may be exempted from responsibility, the natural disaster must have
been the proximate and only cause of the loss. However, the common carrier must exercise due diligence
to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods.
The appellate court ruled that the los of cargo in the present case was due solely to typhoon "Saling" and that private
respondent had shown that it had observed due diligence before, during and after the occurrence of "Saling"; hence, it
should not be liable under Article 1739.
Considering the disputed fact that there really was delay in completing the unloading of the goods from the vessel, the
Court believes that the real issue at bar centers on the application of Article 1740 of the Civil Code. In short, the principal
question, in determining which of the parties in the present case should bear the loss of the goods, is whether the delay
involved in the unloading of the goods is deemed negligently incurred in, so as not to free private respondent from liability,
notwithstanding the fact that the ultimate cause of the loss of the goods was the sinking of the vessel brought about by
typhoon "Saling."
Indeed, from the time the vessel arrived at port Pasacao on 7 September 1985 up to 17 October 1985 when the Pasacao
area was placed under storm signal No. 3 due to typhoon "Saling", forty (40) days had passed. Under normal conditions, a
period of forty (40) days is undoubtedly more than enough time within which the unloading of the cargo (given its nature)
from the vessel could be completed. Hence, the question boils down further to which party should be faulted for this delay.
Private respondent argues that its duty to unload ceased on 7 September 1985 when the shipmaster notified the
consignee's "Notify-Party" that the vessel was ready to discharge the cargo. On the other hand, petitioner contends that
the duty to unload the cargo from the vessel continued to remain with private respondent. Respondent appellate court,
however, ruled that the question as to which party had the task to discharge the cargo is actually immaterial under the
circumstances, as the delay could not be attributed to any of the parties, but to several causes such as the natural
conditions of the Pasacao port, the customs of the place and the weather conditions obtaining at the time. The appellate
court made the following observations:
xxx xxx xxx

83

To our mind whichever of the parties had the obligation to unload the cargo is not material. For, analyzing
the causes for the delay in such unloading, we find that such delay was not due to the negligence of any
party but was occasioned by causes that may not be attributed solely to human factors, among which
were the natural conditions of the port where the M/V "Crazy Horse" had docked, the customs of the
place, and the weather conditions.
The wharf where the vessel had to dock was shallow and rocky, hence it had to drop anchor some
distance away in a private port. Buoys had to be constructed in order that the vessel may properly
moored. After the buoys were installed a wooden stage had to be constructed so that the stevedores
could reach the vessel. For this they needed a floating crane which was not immediately available. The
barges that were to load the cargo from the vessel could not go near the wharf because of the shallow
and rocky condition. A catwalk had to be installed between the barge and the wharf. This necessitated the
dismantling of the wooden stage previously installed.
Apart from these preparations and constructions that had to be made, the weather was not cooperative.
Even before the typhoon struck there were intermittent rains, hence the unloading was not continuous.
The actual unloading started on September 13, 1985 and could have been finished in 4 or 5 days but
because of the rains it was delayed. Another factor that caused further delay was the fact that the fiesta of
the Virgin of Penafrancia was celebrated and for the length of time that the celebrations were held, the
stevedores who were from the place refused to work.
xxx xxx xxx
The Court of Appeals summarized the reasons which adversely affected the completion of the unloading of the cargo from
the time the vessel arrived at the Pasacao area on 7 September 1985, namely: first, the buoys were installed only on 11
September 1985; second, the consignee secured the discharge permit only on 13 September 1985; third, a wooden
catwalk had to be installed and the extension of the wharf had to be made, which was completed only on 16 September
1985; fourth, there were intermittent rains and the stevedores supplied by the consignee did not work during the town
fiesta of the Virgin of Penafrancia, hence, the unloading was not continuous.
We respect the above-mentioned factual findings of the appellate court as to the natural conditions of the port of Pasacao
were the vessel was docked, and several other factors which harshly affected the completion of the discharge of the
cargo, as these findings of fact are substantially supported by evidence. 6
While it is true that there was indeed delay in discharging the cargo from the vessel, we agree with the Court of Appeals
that neither of the parties herein could be faulted for such delay, for the same (delay) was due not to negligence, but to
several factors earlier discussed. The cargo having been lost due to typhoon "Saling", and the delay incurred in its
unloading not being due to negligence, private respondent is exempt from liability for the loss of the cargo, pursuant to
Article 1740 of the Civil Code.
The records also show that before, during and after the occurrence of typhoon "Saling", private respondent through its
shipmaster exercised due negligence to prevent or minimize the loss of the cargo, as shown by the following facts: (1) at
5:20 a.m. of 18 October 1985, as typhoon "Saling" continued to batter the Pasacao area, the shipmaster tried to
maneuver the vesel amidst strong winds and rough seas; (2) when water started to enter the engine room and later the
engine broke down, the shipmaster ordered ths ship to be abandoned, but he sought police assistance to prevent
pilferage of the vessel and its cargo; (3) after the vessel broke into two (2) parts and sank partially, the shipmaster
reported th eincident to the Philippine Coast Guard, but unfortunately, despite the presence of three (3) coast guards,
nothing could be done to stop the pilferage as almost the entire barrio folk came to loot the vessel and its cargo, including
the G.I. sheets.
The diligennced exercised by the shipmaster further supports the exemption of private respondent from liability for the
loss of the cargo, in accordance with Article 1739 of the Civil Code.

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Although we find private respondent free from liability for the loss of the cargo, we disagree with its contention that the
doctrine of res judicata applies in the case at bar, because the Board of Marine Inquiry rendered a decision dated 11 April
1988 (acting on the marine protest filed on 19 October 1985 by the shipmaster of M/V "Crazy Horse") holding that said
shipmaster was not guilty of "negligence as the proximate cause of the grounding and subsequent wreckage of M/S
"Crazy Horse", hence, recommending that the captain, his officers and crew be absolved from any administrative liability
arising out of the subject incident." 7
The resolution of the present case is not barred by the judgment of the Board of Marine Inquiry. One of the requisites of
the principle of res judicata is that there must be, among other things, identity of subject matters and causes of action
between a first and second case in order that the judgment in the prior case may bar that in the subsequent case. 8
The cause of action in the marine protest was to enforce the administrative liability of the shipmaster/captain of M/V
"Crazy Horse", its officers and crew for the wreckage and sinking of the subject vessel. On the other hand, the cause of
action at bar is to enforce the civil liability of private respondent, a common carrier, for its failure to unload the subject
cargo within a period of time considered unreasonably long by the petitioner. While it may be true that the Court is bound
to accord great weight to factual findings of the Board, 9 we hold that the protest filed before it and the present case assert
different causes of action and seek different reliefs.
All told, we find private respondent not legally liable for the loss of the insured cargo involved in the present case.
WHEREFORE, the petition is DENIED. The appealed decision of the Court of Appeals, dated 31 July 1991, rendered in
CA-G.R. CV No. 21252, is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Regalado and Nocon, JJ., concur.
THIRD DIVISION
[G.R. No. 146018. June 25, 2003]
EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL INSURANCE COMPANY,
INC.,respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to the value
declared by the shipper. On the other hand, the liability of the insurer is determined by the actual value covered by the
insurance policy and the insurance premiums paid therefor, and not necessarily by the value declared in the bill of lading.
The Case
Before the Court is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to set aside the August 31,
2000 Decision[2] and the November 17, 2000 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 62751. The
dispositive part of the Decision reads:
IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED. [Petitioner]
is hereby condemned to pay to [respondent] the total amount of P148,500.00, with interest thereon, at the rate of 6% per

85

annum, from date of this Decision of the Court.[Respondents] claim for attorneys fees [is] DISMISSED. [Petitioners]
counterclaims are DISMISSED.[5]
The assailed Resolution denied petitioners Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Courts [6] Decision,[7] which was later reversed by the CA,
states:
WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.
No cost.[8]
The Facts
The facts of the case are summarized by the appellate court in this wise:
Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong
Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas dcor and two (2) sacks of plastic
toys, to be transported on board the M/V Tandag on itsVoyage No. T-189 scheduled to depart from Cebu City, on
December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the
cargo. Nestor Angelia was both the shipper and consignee of the cargo valued, on the face thereof, in the amount
ofP6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic toys and
Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted goods for transportation thereof from
Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said voyage. [Petitioner] issued Bill of Lading No.
59 covering the cargo which, on the face thereof, was valued in the amount of P14,000.00. Under theBill of Lading,
Zosimo Mercado was both the shipper and consignee of the cargo.
On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB General
Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 against all risks under Open Policy No.
002/91/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date. She also insured the
cargo covered by Bill of Lading No. 58, with [respondent], for the amount of P50,000.00, under Open Policy No.
002/91/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on said date.
When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods of
Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and, despite
earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the entire vessel resulting in the loss
of the vessel and the cargoes therein. The Captain filed the required Marine Protest.
Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured under Marine Risk
Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her claim, a Receipt, dated
December 11, 1991, purportedly signed by Zosimo Mercado, andOrder Slips purportedly signed by him for the goods he
received from Feliciana Legaspi valued in the amount of P110,056.00. [Respondent] approved the claim of Feliciana
Legaspi and drew and issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of P99,000.00, in
settlement of her claim after which she executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent].
She also filed a claim for the value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent]
a Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received
from Feliciana Legaspi valued at P60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the net
amount of P49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].
On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against [petitioner],
with the Regional Trial Court of Makati City, for the collection of the total principal amount of P148,500.00, which it paid to

86

Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and against the [petitioner] as
follows:
WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered ordering
[petitioner] to pay [respondent] the following.
1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the time of filing of this
complaint until fully paid;
2. Attorneys fees in the amount of P10,000.00; and
3. Cost of suit.
[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and equitable
under the premises.
[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and received by,
[petitioner] for transportation to Tandag, Surigao del Sur under Bill of Ladings, Annexes A and B of the complaint; that the
loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana Legaspi had executed Subrogation
Receipts/Deeds in favor of [respondent] after paying to her the value of the cargo on account of theMarine Risk Notes it
issued in her favor covering the cargo.
In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel; (b) the complaint stated no cause of action against [petitioner]; and (c) the
shippers/consignee had already been paid the value of the goods as stated in the Bill of Lading and, hence, [petitioner]
cannot be held liable for the loss of the cargo beyond the value thereof declared in the Bill of Lading.
After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the depositions of
Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident of Cebu City, and of Noel
Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu City, to be given before the
Presiding Judge of Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by
way of deposition, before the Court and declared inter alia, that: [petitioner] is a family corporation like the Chester
Marketing, Inc.; Nestor Angelia had been doing business with [petitioner] and Chester Marketing, Inc., for years, and
incurred an account with Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of
Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees,
respectively; the engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in the
total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine Inquiry of the Philippine
Coast Guard which rendered a Report, dated February 13, 1992 absolving [petitioner] of any responsibility on account of
the fire, which Report of the Board was approved by the District Commander of the Philippine Coast Guard; a few days
after the sinking of the vessel, a representative of the Legaspi Marketing filed claims for the values of the goods
under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo Mercado;
[petitioner] was able to ascertain, from the shippers/consignees and the representative of the Legaspi Marketing that the
cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned to Zosimo Mercado while that
covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the Legaspi Marketing; that [petitioner] approved
the claim of Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing
the said amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in the amount
ofP14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated August 12, 1992, for
the said amount of P14,000.00 in full payment of claims under Bill of Lading No. 59; that [petitioner] approved the claim
of Nestor Angelia in the amount of P6,500.00 but that since the latter owed Chester Marketing, Inc., for some purchases,
[petitioner] merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against his account with Chester
Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received by Legaspi Marketing, hence, the
production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner] never knew, before

87

settling with Legaspi Marketing and Nestor Angelia that the cargo under both Bills of Lading were insured with
[respondent], or that Feliciana Legaspi filed claims for the value of the cargo with [respondent] and that the latter approved
the claims of Feliciana Legaspi and paid the total amount of P148,500.00 to her; [petitioner] came to know, for the first
time, of the payments by [respondent] of the claims of Feliciana Legaspi when it was served with the summons and
complaint, on October 8, 1992; after settling his claim, Nestor Angelia x x x executed the Release and Quitclaim, dated
July 2, 1993, and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for
the loss of the cargo covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the
value of the cargo as stated in the Bills of Lading.
[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x [9] (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed to prove that the fire which consumed the vessel and its cargo was caused by
something other than its negligence in the upkeep, maintenance and operation of the vessel. [10]
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA, however,
held that the payment did not extinguish petitioners obligation to respondent, because there was no evidence that
Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the impropriety of
treating the claim under Bill of Lading No. 58 -- covering cargo valued therein at P6,500 -- as a setoff against Nestor
Angelias account with Chester Enterprises, Inc.
Finally, it ruled that respondent is not bound by the valuation of the cargo under the Bills of Lading, x x x nor is the
value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in the first place, the
goods were insured with the [respondent] for the total amount of P150,000.00, which amount may be considered as the
face value of the goods.[11]
Hence this Petition.[12]
Issues
Petitioner raises for our consideration the following alleged errors of the CA:
I
The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioners liability should
be based on the actual insured value of the goods and not from actual valuation declared by the shipper/consignee in the
bill of lading.
II
The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial court a
quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure
and due diligence was [exercised] by petitioner prior to, during and immediately after the fire on [petitioners] vessel.
III
The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action against the
petitioner.[13]

88

In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent of its
liability?
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that its
exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag sank
due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and
dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the
fuel oil tank, which had a mere two-inch gap from the engine room walling, thus precluding constant inspection and care
by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused by force
majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy.[14] Hence, fire is not considered a natural disaster or calamity. In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court,[15] we explained:
x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the
category of an act of God unless caused by lighting or by other natural disaster or calamity. It may even be caused by the
actual fault or privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands
where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event,
considering that the law adopts a protective policy towards agriculture.
As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code
provides that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have been
at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to discover
the existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence of those officials. [16]
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the first step in
exercising the required vigilance. Petitioner did not present sufficient evidence showing what measures or acts it had
undertaken to ensure the seaworthiness of the vessel. It failed to show when the last inspection and care of the auxiliary
engine fuel oil service tank was made, what the normal practice was for its maintenance, or some other evidence to
establish that it had exercised extraordinary diligence. It merely stated that constant inspection and care were not
possible, and that the last time the vessel was dry-docked was in November 1990. Necessarily, in accordance with Article
1735[17] of the Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of Lading Nos. 58 and
59.
Second Issue:

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Extent of Liability
Respondent contends that petitioners liability should be based on the actual insured value of the goods, subject of
this case. On the other hand, petitioner claims that its liability should be limited to the value declared by the
shipper/consignee in the Bill of Lading.
The records[18] show that the Bills of Lading covering the lost goods contain the stipulation that in case of claim for
loss or for damage to the shipped merchandise or property, [t]he liability of the common carrier x x x shall not exceed the
value of the goods as appearing in the bill of lading. [19] The attempt by respondent to make light of this stipulation is
unconvincing. As it had the consignees copies of the Bills of Lading, [20] it could have easily produced those copies, instead
of relying on mere allegations and suppositions. However, it presented mere photocopies thereof to disprove petitioners
evidence showing the existence of the above stipulation.
A stipulation that limits liability is valid[21] as long as it is not against public policy. In Everett Steamship Corporation v.
Court of Appeals,[22] the Court stated:
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Code which provides:
Art. 1749. A stipulation that the common carriers liability is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly
agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea-Land
Service, Inc. vs. Intermediate Appellate Court, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding
effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the
cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750
itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of the law itself, and this the private respondent does not
pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it
giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous
expedient of declaring the nature and value of the shipment in the bill of lading.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carriers liability for
loss must be reasonable and just under the circumstances, and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shippers net invoice cost
plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or
any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding
One Hundred Thousand Yen in Japanese Currency (100,000.00) or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by

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the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as
required.
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability
would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option
to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the
shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. (Italics supplied)
In the present case, the stipulation limiting petitioners liability is not contrary to public policy. In fact, its just and
reasonable character is evident. The shippers/consignees may recover the full value of the goods by the simple expedient
of declaring the true value of the shipment in the Bill of Lading. Other than the payment of a higher freight, there was
nothing to stop them from placing the actual value of the goods therein. In fact, they committed fraud against the common
carrier by deliberately undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper and just
transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier. Such
stipulation obliges the shipper/consignee to notify the common carrier of the amount that the latter may be liable for in
case of loss of the goods. The common carrier can then take appropriate measures -- getting insurance, if needed, to
cover or protect itself. This precaution on the part of the carrier is reasonable and prudent. Hence, a shipper/consignee
that undervalues the real worth of the goods it seeks to transport does not only violate a valid contractual stipulation, but
commits a fraudulent act when it seeks to make the common carrier liable for more than the amount it declared in the bill
of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their respective Bills of
Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from which it could not protect
itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance company
was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than what it was entitled
to for transporting the goods that had been deliberately undervalued by the shippers in the Bill of Lading. Between the two
of them, the insurer should bear the loss in excess of the value declared in the Bills of Lading. This is the just and
equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature and the value of the goods
shipped were declared and reflected in the bill of lading, like in the present case. The Court therein considered this
declaration as the basis of the carriers liability and ordered payment based on such amount. Following this ruling,
petitioner should not be held liable for more than what was declared by the shippers/consignees as the value of the goods
in the bills of lading.
We find no cogent reason to disturb the CAs finding that Feliciana Legaspi was the owner of the goods covered by
Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia and Zosimo Mercado,
respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in case of loss, to
compensation therefor. There is no evidence showing that petitioner paid her for the loss of those goods. It does not even
claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading No. 59, for
which the latter subsequently paid P14,000. But nothing in the records convincingly shows that the former was the owner
of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi who owned those goods, and who
was thus entitled to payment for their loss. Hence, the claim for the goods under Bill of Lading No. 59 cannot be deemed
to have been extinguished, because payment was made to a person who was not entitled thereto.

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With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at P6,500, the parties
have not convinced us to disturb the findings of the CA that compensation could not validly take place. Thus, we uphold
the appellate courts ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense that
petitioner isORDERED to pay respondent the sums of P14,000 and P6,500, which represent the value of the goods stated
in Bills of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

THIRD DIVISION
[G.R. No. 102316. June 30, 1997]
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs. COURT OF APPEALS AND SEVEN
BROTHERS SHIPPING CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split, short-landing, breakages
and any kind of damages to the cargo[1] valid? This is the main question raised in this petition for review assailing the
Decision of Respondent Court of Appeals [2] in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of
Appeals modified the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive
portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff the sum
of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal interest thereon
from the date of demand on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven Brothers
Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS (P2,000,000.00) representing the value of lost
logs plus legal interest from the date of demand on April 24, 1984 until full payment thereof; the reasonable attorneys fees
in the amount equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Companys counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven Brothers
Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. [3]
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:

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It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement
with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V
Seven Ambassador the formers lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to
Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and
Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229
for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffs
insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium and documentary stamps due on
the policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc.
cancelled the insurance policy it issued as of the date of the inception for non-payment of the premium due in accordance
with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the
proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant
Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both defendants
shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following assignment of
errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors, was not due
to fortuitous event but to the negligence of the captain in stowing and securing the logs on board, causing the iron chains
to snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation from logs
(sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking article 1745 of the New
Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the alternative and
ordering/directing it to pay plaintiff-appellee the amount of two million (P2,000,000.00) pesos representing the value of the
logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee
reasonable attorneys fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for attorneys
fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:

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A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and Insurance
Company, Inc. and likewise erred in not holding that he was the representative of the insurance broker Columbia
Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid on the
policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the receipt of payment clause attached to and forming part of the Marine Cargo
Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and documentary stamps
to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the indorsement of cancellation of the policy due to non-payment of premium and
documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay plaintiffappellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until the amount is fully
paid,
H. The trial court erred in not awarding to the defendant-appellant the attorneys fees alleged and proven in its
counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are liable
to the plaintiff for the latters lost logs.[4]
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and Insurance
Company (South Sea), but modified it by holding that Seven Brothers Shipping Corporation (Seven Brothers) was not
liable for the lost cargo.[5] In modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case of
loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the
shipping corporation. The provisions on common carriers should not be applied where the carrier is not acting as such but
as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person
only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (Home
Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. [6]
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (Valenzuela) filed separate
petitions for review before this Court. In a Resolution dated June 2, 1995, this Court denied the petition of South Sea.
[7]
There the Court found no reason to reverse the factual findings of the trial court and the Court of Appeals that Chua was

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indeed an authorized agent of South Sea when he received Valenzuelas premium payment for the marine cargo
insurance policy which was thus binding on the insurer.[8]
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision which
exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuelas arguments revolve around a single issue: whether or not respondent Court (of Appeals)
committed a reversible error in upholding the validity of the stipulation in the charter party executed between the petitioner
and the private respondent exempting the latter from liability for the loss of petitioners logs arising from the negligence of
its (Seven Brothers) captain.[9]
The Courts Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the (o)wners shall not be responsible
for loss, split, short-landing, breakages and any kind of damages to the cargo. [10] The validity of this stipulation is the lis
mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking
of M/V Seven Ambassadors resulting in the loss of its cargo was the snapping of the iron chains and the subsequent
rolling of the logs to the portside due to the negligence of the captain in stowing and securing the logs on board the vessel
and not due to fortuitous event.[11] Likewise undisputed is the status of Private Respondent Seven Brothers as a private
carrier when it contracted to transport the cargo of Petitioner Valenzuela.Even the latter admits this in its petition. [12]
The trial court deemed the charter party stipulation void for being contrary to public policy, [13] citing Article 1745 of the
Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public
policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of
ordinary prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) That the common carriers liability for acts committed by thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.

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Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of
Commerce[14] and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil
Code,[15] petitioner further contends that said stipulation gives no duty or obligation to the private respondent to observe
the diligence of a good father of a family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as a private
carrier in transporting petitioners lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which
were cited by petitioner may not be applied unless expressly stipulated by the parties in their charter party. [16]
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the
charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the
ship captain. Pursuant to Article 1306[17]of the Civil Code, such stipulation is valid because it is freely entered into by the
parties and the same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We stress that in a contract of private carriage, the parties may freely
stipulate their duties and obligations which perforce would be binding on them. Unlike in a contract involving a common
carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a private
carrier.Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen or
remove the protection given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by
this Court in Home Insurance Co. vs. American Steamship Agencies, Inc. [18] In that case, the trial court similarly nullified a
stipulation identical to that involved in the present case for being contrary to public policy based on Article 1744 of the Civil
Code and Article 587 of the Code of Commerce.Consequently, the trial court held the shipowner liable for damages
resulting from the partial loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P.
Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a
private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not
against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier
is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such
policy has no force where the public at large is not involved, as in this case of a ship totally chartered for the use of a
single party.[19] (Underscoring supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract
of transportation with common carriers without a hand or a voice in the preparation thereof. The riding public merely
adheres to the contract; even if the public wants to, it cannot submit its own stipulations for the approval of the common
carrier. Thus, the law on common carriers extends its protective mantle against one-sided stipulations inserted in tickets,
invoices or other documents over which the riding public has no understanding or, worse, no choice. Compared to the
general public, a charterer in a contract of private carriage is not similarly situated. It can -- and in fact it usually does -enter into a free and voluntary agreement. In practice, the parties in a contract of private carriage can stipulate the carriers
obligations and liabilities over the shipment which, in turn, determine the price or consideration of the charter. Thus, a
charterer, in exchange for convenience and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it covers only a
stipulation exempting a private carrier from liability for the negligence of his agent, but it does not apply to a stipulation
exempting a private carrier like private respondent from the negligence of his employee or servant which is the situation in

96

this case.[20] This contention of petitioner is bereft of merit, for it raises a distinction without any substantive difference. The
case of Home Insurance specifically dealt with the liability of the shipowner for acts or negligence of its captain and
crew[21] and a charter party stipulation which exempts the owner of the vessel from any loss or damage or delay arising
from any other source, even from the neglect or fault of the captain or crew or some other person employed by the owner
on board, for whose acts the owner would ordinarily be liable except for said paragraph. [22] Undoubtedly, Home
Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the
Philippines[23] deserves scant consideration. The Court there categorically held that said rule was reasonable and
proceeded to apply it in the resolution of that case. Petitioner miserably failed to show such circumstances or arguments
which would necessitate a departure from a well-settled rule.Consequently, our ruling in said case remains a binding
judicial precedent based on the doctrine of stare decisis and Article 8 of the Civil Code which provides that (j)udicial
decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines.
In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a stipulation exempting the
owner from liability even for the negligence of its agent is valid. [24]
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will discuss the
other arguments of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code of
Commerce which confer on petitioner the right to recover damages from the shipowner and ship agent for the acts or
conduct of the captain.[25] We are not persuaded. Whatever rights petitioner may have under the aforementioned statutory
provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is contrary to law, public order,
public policy, morals, or good customs, or prejudicial to a person with a right recognized by law. As a general rule
patrimonial rights may be waived as opposed to rights to personality and family rights which may not be made the subject
of waiver.[26] Being patently and undoubtedly patrimonial, petitioners right conferred under said articles may be
waived. This, the petitioner did by acceding to the contractual stipulation that it is solely responsible for any damage to the
cargo, thereby exempting the private carrier from any responsibility for loss or damage thereto.Furthermore, as discussed
above, the contract of private carriage binds petitioner and private respondent alone; it is not imbued with public policy
considerations for the general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles 1170 and
1173 of the Civil Code[27] which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father
of a family shall be required.

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The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to
perform. In the instant case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for this
obligation to bear the loss was shifted to petitioner by virtue of the charter party. This shifting of responsibility, as earlier
observed, is not void. The provisions cited by petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article 1173 of the
Civil Code which prescribes the standard of diligence to be observed in the event the law or the contract is silent. In the
instant case, Article 362 of the Code of Commerce [28] provides the standard of ordinary diligence for the carriage of goods
by a carrier. The standard of diligence under this statutory provision may, however, be modified in a contract of private
carriage as the petitioner and private respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc.[29] which, in turn, quoted Juan Ysmael & Co. vs. Gabino Barreto
& Co.[30] and argues that the public policy considerations stated there vis--vis contractual stipulations limiting the carriers
liability be applied with equal force to this case. [31] It also cites Manila Railroad Co. vs. Compaia Transatlantica [32] and
contends that stipulations exempting a party from liability for damages due to negligence should not be countenanced and
should be strictly construed against the party claiming its benefit. [33]We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the application of
such policy considerations and concomitantly stricter rules. As already discussed above, the public policy considerations
behind the rigorous treatment of common carriers are absent in the case of private carriers. Hence, the stringent laws
applicable to common carriers are not applied to private carriers. The case of Manila Railroad is also inapplicable because
the action for damages there does not involve a contract for transportation. Furthermore, the defendant therein made a
promise to use due care in the lifting operations and, consequently, it was bound by its undertaking; besides, the
exemption was intended to cover accidents due to hidden defects in the apparatus or other unforseeable occurrences not
caused by its personal negligence. This promise was thus construed to make sense together with the stipulation against
liability for damages.[34] In the present case, we stress that the private respondent made no such promise. The agreement
of the parties to exempt the shipowner from responsibility for any damage to the cargo and place responsibility over the
same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,[35] Walter A. Smith & Co. vs. Cadwallader
Gibson Lumber Co.,[36] N. T. Hashim and Co. vs. Rocha and Co., [37] Ohta Development Co. vs.
SteamshipPompey[38] and Limpangco Sons vs. Yangco Steamship Co.[39] in support of its contention that the shipowner be
held liable for damages.[40] These however are not on all fours with the present case because they do not involve a similar
factual milieu or an identical stipulation in the charter party expressly exempting the shipowner from responsibility for any
damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court has
earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private respondent submits that petitioner is
not legally entitled to collect twice for a single loss. [41] In view of the above disquisition upholding the validity of the
questioned charter party stipulation and holding that petitioner may not recover from private respondent, the present issue
is moot and academic. It suffices to state that the Resolution of this Court dated June 2, 1995 [42] affirming the liability of
South Sea does not, by itself, necessarily preclude the petitioner from proceeding against private respondent. An
aggrieved party may still recover the deficiency from the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the Civil Code provides:
ART. 2207. If the 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 has violated the contract. If the amount paid by the

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insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible error
on the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

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