G.R.

No. 149019 August 15, 2006

DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
D E C I S I O N

GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan Transport Lines, Inc.
1
(Delsan hereafter) assails and seeks to set aside the Decision, 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.

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 of P200,000.00 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.

2
On August 31, 1989, the trial court rendered its decision 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.

3
In the herein challenged decision, 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
4
Article 1736 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:

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. 85-
29357 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
5
arbitrariness, capriciousness or palpable error.

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.
6
They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated.
To overcome the presumption of negligence in 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 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
7
causes if it were to seek exemption from responsibility. 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
8
consignee, or to a person who has the right to receive them. 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,
9
according to all the circumstances of each case. 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
10
to prove that the loss was due to accident or some other circumstances inconsistent with its liability.

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
11
seek exemption from responsibility. 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.






 G.R. No. 143133 June 5, 2002
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.
PANGANIBAN, J.:

Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their destination
constitutes prima facie fault or negligence on the part of the carrier. If no adequate explanation is given as to how the
loss, the destruction or the deterioration of the goods happened, the carrier shall be held liable therefor.

Statement of the Case
1
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998 Decision and the May
2 3
2, 2000 Resolution of the Court of Appeals (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads as
follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and SET ASIDE.
Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following:
1. '1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual damages, representing
the value of the damaged cargo, plus interest at the legal rate from the time of filing of the complaint on July 25, 1991,
until fully paid;
2. '2) Attorney's fees amounting to 20% of the claim; and
4
3. '3) Costs of suit.'"
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had disposed as
follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as defendant's
5
counterclaim."

The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:

"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of various
Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. On
July 28, 1990, M/V Anangel Sky arrived at the port of Manila and, within the subsequent days, discharged the subject
cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their
damaged state to be unfit for the intended purpose, the consignee Philippine Steel Trading Corporation declared the
same as total loss.1wphi1.nt
"Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee's claim. Consequently,
plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (P506,086.50), and was
subrogated to the latter's rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant
instituted this complaint for recovery of the amount paid by them, to the consignee as insured.

"Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss was due
to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the
sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their representatives.
In addition thereto, defendants-appellees argued that their liability, if there be any, should not exceed the limitations of
liability provided for in the bill of lading and other pertinent laws. Finally, defendants-appellees averred that, in any
6
event, they exercised due diligence and foresight required by law to prevent any damage/loss to said shipment."

Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of proof required
7
by law.
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous or primarily
8
intended to harass them.

Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods shipped,
because they had failed to overcome the presumption of negligence imposed on common carriers.

The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the goods was due to
9
pre-shipment damage. It likewise opined that the notation "metal envelopes rust stained and slightly dented" placed
10
on the Bill of Lading had not been the proximate cause of the damage to the four (4) coils.

As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not applicable,
because the words "L/C No. 90/02447" indicated that a higher valuation of the cargo had been declared by the shipper.
The CA, however, affirmed the award of attorney's fees.

11
Hence, this Petition.

Issues
In their Memorandum, petitioners raise the following issues for the Court's consideration:
I
"Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and whose
testimony is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage and to
exempt herein defendants from liability;
IV
12
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is applicable to the case at bar."
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable

This Court's Ruling
The Petition is partly meritorious.

First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the basis of
the lone testimony offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they
13
transport. Thus, common carriers are required to render service with the greatest skill and foresight and "to use all
reason[a]ble means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due
14
care in the handling and stowage, including such methods as their nature requires." The extraordinary responsibility
lasts from the time the goods are unconditionally placed in the possession of and received for transportation by the
carrier until they are delivered, actually or constructively, to the consignee or to the person who has a right to receive
15
them.

This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such contract, the
16
riding public enters into a contract of transportation with common carriers. Even if it wants to, it cannot submit its
17
own stipulations for their approval. Hence, it merely adheres to the agreement prepared by them.

Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been
18
at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that
19
they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or
20
damage, therefore, they have the burden of proving that they observed such diligence.

21
However, the presumption of fault or negligence will not arise if the loss is due to any of the following causes: (1)
flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of the goods or
22
defects in the packing or the container; or (5) an order or act of competent public authority. This is a closed list. If the
cause of destruction, loss or deterioration is other than the enumerated circumstances, then the carrier is liable
23
therefor.

Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their arrival in
bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, the loss or the destruction of the goods happened, the transporter
24
shall be held responsible.

That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a review of
25
the records and more so by the evidence adduced by respondent.

First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in Hamburg,
26
Germany.

27
Second, prior to the unloading of the cargo, an Inspection Report prepared and signed by representatives of both
parties showed the steel bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof
exposed and rusty.

28
Third, Bad Order Tally Sheet No. 154979 issued by Jardine Davies Transport Services, Inc., stated that the four coils
were in bad order and condition. Normally, a request for a bad order survey is made in case there is an apparent or a
29
presumed loss or damage.

30
Fourth, the Certificate of Analysis stated that, based on the sample submitted and tested, the steel sheets found in
bad order were wet with fresh water.
31
Fifth, petitioners -- in a letter addressed to the Philippine Steel Coating Corporation and dated October 12, 1990 --
admitted that they were aware of the condition of the four coils found in bad order and condition.

These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent portions of his
testimony are reproduce hereunder:

"Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what
company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos checkers Agency related or connected with defendant Jardine Davies Transport Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and
responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.
x x x x x x x x x
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and inspection of cold steel sheets in
coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
x x x x x x x x x
Q. Based on your inspection since you were also present at that time, will you inform this Honorable Court the
condition or the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL SKY?

ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the best evidence is
the document itself, Your Honor that shows the condition of the steel sheets.
COURT:

Let the witness answer.
32
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides."
All these conclusively prove the fact of shipment in good order and condition and the consequent damage to the four
33 34
coils while in the possession of petitioner, who notably failed to explain why.
Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the law
requires a common carrier to know and to follow to avoid damage to or destruction of the goods entrusted to it for safe
35
carriage and delivery.
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading; however, there is
36
no showing that petitioners exercised due diligence to forestall or lessen the loss. Having been in the service for
several years, the master of the vessel should have known at the outset that metal envelopes in the said state would
37
eventually deteriorate when not properly stored while in transit. Equipped with the proper knowledge of the nature of
steel sheets in coils and of the proper way of transporting them, the master of the vessel and his crew should have
undertaken precautionary measures to avoid possible deterioration of the cargo. But none of these measures was
38
taken. Having failed to discharge the burden of proving that they have exercised the extraordinary diligence required
39
by law, petitioners cannot escape liability for the damage to the four coils.
In their attempt to escape liability, petitioners further contend that they are exempted from liability under Article
1734(4) of the Civil Code. They cite the notation "metal envelopes rust stained and slightly dented" printed on the Bill of
Lading as evidence that the character of the goods or defect in the packing or the containers was the proximate cause of
the damage. We are not convinced.

From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to the
40
condition noted on the Bill of Lading. The aforecited exception refers to cases when goods are lost or damaged while
in transit as a result of the natural decay of perishable goods or the fermentation or evaporation of substances liable
therefor, the necessary and natural wear of goods in transport, defects in packages in which they are shipped, or the
41
natural propensities of animals. None of these is present in the instant case.

Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary
observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding
42
such condition. Thus, petitioners have not successfully proven the application of any of the aforecited exceptions in
43
the present case.

Second Issue:
Notice of Loss
44
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act (COGSA), respondent
should have filed its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July
45
31, 1990, but that respondent filed its Notice of Claim only on September 18, 1990.

We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be given if
the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey. As stated earlier,
46
prior to unloading the cargo, an Inspection Report as to the condition of the goods was prepared and signed by
47
representatives of both parties.

Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar recovery if it is
48
nonetheless filed within one year. This one-year prescriptive period also applies to the shipper, the consignee, the
49
insurer of the goods or any legal holder of the bill of lading.

50
In Loadstar Shipping Co., Inc, v. Court of Appeals, we ruled that a claim is not barred by prescription as long as the one-
year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:

"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter,
the Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar."
51
In the present case, the cargo was discharged on July 31, 1990, while the Complaint was filed by respondent on July
25, 1991, within the one-year prescriptive period.

Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability should be limited to
52 53
US$500 per package as provided in the Bill of Lading and by Section 4(5) of COGSA.

On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the subject
shipment was declared by petitioners beforehand, as evidenced by the reference to and the insertion of the Letter of
54
Credit or "L/C No. 90/02447" in the said Bill of Lading.

53
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three
parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and assume stipulated
56
obligations. In a nutshell, the acceptance of the bill of lading by the shipper and the consignee, with full knowledge of
57
its contents, gives rise to the presumption that it constituted a perfected and binding contract.

Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or destruction of
58 59
a cargo -- unless the shipper or owner declares a greater value -- is sanctioned by law. There are, however, two
conditions to be satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has been fairly and
60
freely agreed upon by the parties. The rationale for this rule is to bind the shippers by their agreement to the value
61
(maximum valuation) of their goods.

It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per
62
package. In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be
63
governed by the Code of Commerce and special laws. Thus, the COGSA, which is suppletory to the provisions of the
Civil Code, supplements the latter by establishing a statutory provision limiting the carrier's liability in the absence of a
64
shipper's declaration of a higher value in the bill of lading. The provisions on limited liability are as much a part of the
65
bill of lading as though physically in it and as though placed there by agreement of the parties.

66
In the case before us, there was no stipulation in the Bill of Lading limiting the carrier's liability. Neither did the shipper
declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words "L/C No.
90/02447 cannot be the basis for petitioners' liability.

First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the
67
importation of steel sheets did not effect a declaration of the value of the goods as required by the bill. That notation
68
was made only for the convenience of the shipper and the bank processing the Letter of Credit.

69
Second, in Keng Hua Paper Products v. Court of Appeals, we held that a bill of lading was separate from the Other
Letter of Credit arrangements. We ruled thus:

"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the
contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount
of goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will
not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot
be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the
carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-
-vis the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in
the invoice and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from
70
the contract of transportation."

In the light of the foregoing, petitioners' liability should be computed based on US$500 per package and not on the per
71 72
metric ton price declared in the Letter of Credit. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, we
explained the meaning of packages:

"When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number
of such units is disclosed in the shipping documents, each of those units and not the container constitutes the 'package'
referred to in the liability limitation provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the
contents of the containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should
be considered as the shipping unit subject to the US$500 limitation.1wphi1.nt

WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners' liability is reduced to
US$2,000 plus interest at the legal rate of six percent from the time of the filing of the Complaint on July 25, 1991 until
the finality of this Decision, and 12 percent thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.


G.R. No. 150751 September 20, 2004
CENTRAL SHIPPING COMPANY, INC., petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
D E C I S I O N

PANGANIBAN, J.:
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its
cargo, unless it can prove that the sole and proximate cause of such event is one of the causes enumerated in Article
1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize the loss. In the present case,
the weather condition encountered by petitioners vessel was not a "storm" or a natural disaster comprehended in the
law. Given the known weather condition prevailing during the voyage, the manner of stowage employed by the carrier
was insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly
securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.

The Case
1
Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to reverse and set aside the
2
March 23, 2001 Decision of the Court of Appeals (CA) in CA-GR CV No. 48915. The assailed Decision disposed as
follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is hereby
3
MODIFIED in so far as the award of attorneys fees is DELETED. The decision is AFFIRMED in all other respects."
4
The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution.

The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows:
"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V Central Bohol,
376 pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment to Manila for delivery to Alaska
Lumber Co., Inc.
"The cargo was insured for P3,000,000.00 against total loss under [respondents] Marine Cargo Policy No. MCPB-00170.

"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the voyage to
Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboardside, due
to the shifting of logs in the hold.

"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered his men to
abandon ship and at about 0130 hours of the same day the vessel completely sank. Due to the sinking of the vessel, the
cargo was totally lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and
its captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00.

"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the latter
failed and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be
subrogated to all the rights and actions of the consignee as against the [petitioner].

"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully
equipped and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessels master
exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the storm.

"It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo was a
5
natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen."

The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso
fortuito. It noted that monsoons, which were common occurrences during the months of July to December, could have
been foreseen and provided for by an ocean-going vessel. Applying the rule of presumptive fault or negligence against
the carrier, the trial court held petitioner liable for the loss of the cargo. Thus, the RTC deducted the salvage value of the
logs in the amount of P200,000 from the principal claim of respondent and found that the latter was entitled to be
subrogated to the rights of the insured. The court a quo disposed as follows:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and against the
[petitioner] ordering the latter to pay the following:

1) the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same is
fully paid;
2) P80,000.00 as and for attorneys fees;
6
3) Plus costs of suit."

Ruling of the Court of Appeals
The CA affirmed the trial courts finding that the southwestern monsoon encountered by the vessel was not
unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have anticipated the
perils of the sea. The appellate court further held that the weather disturbance was not the sole and proximate cause of
the sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted
only from improper stowage. Thus, the carrier was held responsible for the consequent loss of or damage to the cargo,
because its own negligence had contributed thereto.

The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that the Certificates of Inspection
and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be seaworthy, it must be fit to meet
the perils of the sea.
Found untenable was petitioners insistence that the trial court should have given greater weight to the factual findings
of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the ship captain, Enriquito
Cahatol. The CA further observed that what petitioner had presented to the court a quo were mere excerpts of the
testimony of Captain Cahatol given during the course of the proceedings before the BMI, not the actual findings and
7
conclusions of the agency. Citing Arada v. CA, it said that findings of the BMI were limited to the administrative liability
of the owner/operator, officers and crew of the vessel. However, the determination of whether the carrier observed
extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of petitioners negligence --
particularly its improper stowage of the logs.
8
Hence, this Petition.

Issues
In its Memorandum, petitioner submits the following issues for our consideration:
"(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol was a fortuitous
event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay evidence under
Section 36, Rule 130 of the Rules of Court.

"(iii) Whether or not the finding of the Court of Appeals that the logs in the hold shifted and such shifting could only be
due to improper stowage has a valid and factual basis.

"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of the Board of Marine
Inquiry (BMI), an independent government agency tasked to conduct inquiries on maritime accidents.

9
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar."

The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of
limited liability is applicable. These issues involve a determination of factual questions of whether the loss of the cargo
was due to the occurrence of a natural disaster; and if so, whether its sole and proximate cause was such natural
disaster or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss.

The Courts Ruling
The Petition is devoid of merit.
 First Issue:

Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary
10
diligence over the goods they transport, according to all the circumstances of each case. In the event of loss,
destruction or deterioration of the insured goods, common carriers are responsible; that is, unless they can prove that
such loss, destruction or deterioration was brought about -- among others -- by "flood, storm, earthquake, lightning or
11
other natural disaster or calamity." In all other cases not specified under Article 1734 of the Civil Code, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
12
extraordinary diligence.

In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a "storm"
under Article 1734(1). It attributes the sinking of its vessel solely to the weather condition between 10:00 p.m. on July
25, 1990 and 1:25 a.m. on July 26, 1990.

13
At the outset, it must be stressed that only questions of law may be raised in a petition for review on certiorari under
14
Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of appeal, for "[t]he Supreme
15 16
Court is not a trier of facts." Factual findings of the CA may be reviewed on appeal only under exceptional
17
circumstances such as, among others, when the inference is manifestly mistaken, the judgment is based on a
18
misapprehension of facts, or the CA manifestly overlooked certain relevant and undisputed facts that, if properly
19
considered, would justify a different conclusion.

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that
the weather encountered by the vessel was not a "storm" as contemplated by Article 1734(1). Established is the fact
that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a
southwestern monsoon in the course of its voyage.
20
The Note of Marine Protest, which the captain of the vessel issued under oath, stated that he and his crew
encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on
July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V Central Bohol had been caused by the
21
strong southwest monsoon. Having made such factual representation, it cannot now be allowed to retreat and claim
that the southwestern monsoon was a "storm."

The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a
southwestern monsoon at the time. Normally expected on sea voyages, however, were such monsoons, during which
strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and
Astronomical Services Administration (PAGASA), testified that a thunderstorm might occur in the midst of a southwest
monsoon. According to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded
22
by the PAGASA Weather Bureau.

Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a "storm" within
the absolutory causes enumerated in the law. Significantly, no typhoon was observed within the Philippine a rea of
23
responsibility during that period.

24
According to PAGASA, a storm has a wind force of 48 to 55 knots, equivalent to 55 to 63 miles per hour or 10 to 11 in
the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around force 7 to 8 on the Beaufort
25
Scale. Consequently, the strong winds accompanying the southwestern monsoon could not be classified as a "storm."
26
Such winds are the ordinary vicissitudes of a sea voyage.

Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code,
petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the loss. Human
agency must be entirely excluded from the cause of injury or loss. In other words, the damaging effects blamed on the
event or phenomenon must not have been caused, contributed to, or worsened by the presence of human
27
participation. The defense of fortuitous event or natural disaster cannot be successfully made when the injury could
28
have been avoided by human precaution.

Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of the particular
case demand -- to prevent or minimize the loss before, during and after the occurrence of the natural disaster, the
carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster under
29
Article 1734(1).

We also find no reason to disturb the CAs finding that the loss of the vessel was caused not only by the southwestern
monsoon, but also by the shifting of the logs in the hold. Such shifting could been due only to improper stowage. The
assailed Decision stated:

"Notably, in Master Cahatols account, the vessel encountered the first southwestern monsoon at about 1[0]:00 in the
evening. The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught. The second
monsoon attack occurred at about 12:00 midnight. During this occasion, the master felt that the logs in the hold
shifted, prompting him to order second mate Percival Dayanan to look at the bodega. Complying with the captains
order, 2nd mate Percival Dayanan found that there was seawater in the bodega. 2nd mate Dayanans account was:
14.T Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na paglubog sa barkong
M/V Central Bohol?
S Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay nagnanabegar
patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain
Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na maraming
tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako
kay Captain Enriquito Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega ng barko na ito
ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at tinawag ang lahat
ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang pagtatagilid
na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si
Captain Cahatol at kami ay nagkanya-kanya nang talunan at languyan sa dagat na malakas ang alon at nang ako ay
lumingon sa barko ito ay di ko na nakita.

"Additionally, [petitioners] own witnesses, boatswain Eduardo Vias Castro and oiler Frederick Perena, are one in
saying that the vessel encountered two weather disturbances, one at around 10 oclock to 11 oclock in the evening and
the other at around 12 oclock midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel
endured the first and not the second. Why? The reason is plain. The vessel felt the strain during the second onslaught
30
because the logs in the bodega shifted and there were already seawater that seeped inside."

The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon
without any mishap, and that it began to list only during the second monsoon immediately after the logs had shifted
and seawater had entered the hold. In the hold, the sloshing of tons of water back and forth had created pressures that
eventually caused the ship to sink. Had the logs not shifted, the ship could have survived and reached at least the port
of El Nido. In fact, there was another motor launch that had been buffeted by the same weather condition within the
31
same area, yet it was able to arrive safely at El Nido.

In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latters Complaint
"[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V Central Bohol listed about 10 degrees
starboardside, due to the shifting of logs in the hold." Further, petitioner averred that "[t]he vessel, while navigating
through this second southwestern monsoon, was under extreme stress. At about 0125 hours, 26 July 1990, a thud was
heard in the cargo hold and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten
32
(10) degrees starboardside."

Yet, petitioner now claims that the CAs conclusion was grounded on mere speculations and conjectures. It alleges that
it was impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the starboard
side.

After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they had been
improperly loaded.
According to the boatswains testimony, the logs were piled properly, and the entire shipment was lashed to the vessel
33
by cable wire. The ship captain testified that out of the 376 pieces of round logs, around 360 had been loaded in the
lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not secured by cable wire, because they
fitted exactly from floor to ceiling. However, while they were placed side by side, there were unavoidable clearances
between them owing to their round shape. Those loaded on deck were lashed together several times across by cable
34
wire, which had a diameter of 60 millimeters, and were secured from starboard to port.
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure
the logs in the event the ship should roll in heavy weather. Notably, they were of different lengths ranging from 3.7 to
35
12.7 meters. Being clearly prone to shifting, the round logs should not have been stowed with nothing to hold them
securely in place. Each pile of logs should have been lashed together by cable wire, and the wire fastened to the side of
the hold. Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not
rule out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll towards the
bottom of the ship.

The adjusters Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not shifted,
stated that "the logs were still properly lashed by steel chains on deck." Parenthetically, this statement referred only to
those loaded on deck and did not mention anything about the condition of those placed in the lower hold. Thus, the
finding of the surveyor that the logs were still intact clearly pertained only to those lashed on deck.

The evidence indicated that strong southwest monsoons were common occurrences during the month of July. Thus, the
officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas.
They should then have taken extra precaution in stowing the logs in the hold, in consonance with their duty of
observing extraordinary diligence in safeguarding the goods. But the carrier took a calculated risk in improperly securing
the cargo. Having lost that risk, it cannot now escape responsibility for the loss.
Second Issue:

Doctrine of Limited Liability
36
The doctrine of limited liability under Article 587 of the Code of Commerce is not applicable to the present case. This
rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the shipowner and
37
the captain. It has already been established that the sinking of M/V Central Bohol had been caused by the fault or
negligence of the ship captain and the crew, as shown by the improper stowage of the cargo of logs. "Closer supervision
38
on the part of the shipowner could have prevented this fatal miscalculation." As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.





























G.R. No. 168151 September 4, 2009
REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING AGENCY, Petitioners,
vs.
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.
D E C I S I O N

BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional Container Lines of Singapore (RCL)
1 2
and EDSA Shipping Agency (EDSA Shipping) to annul and set aside the decision and resolution of the Court of Appeals
(CA) dated May 26, 2004 and May 10, 2005, respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its agent, EDSA Shipping, a
domestic corporation organized and existing under Philippine laws. Respondent Netherlands Insurance Company
(Philippines), Inc. (Netherlands Insurance) is likewise a domestic corporation engaged in the marine underwriting
business.

FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.
On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped from Singapore to Manila
3
for Temic Telefunken Microelectronics Philippines (Temic). U-Freight Singapore PTE Ltd. (U-Freight Singapore), a
forwarding agent based in Singapore, contracted the services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport
the subject cargo. The cargo was packed, stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660
with Seal No. 13223. As the cargo was highly perishable, the inside of the container had to be kept at a temperature of
0 Celsius. Pacific Eagle then loaded the refrigerated container on board the M/V Piya Bhum, a vessel owned by RCL,
with which Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill of Lading in favor of Pacific Eagle.

To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open Policy in favor of Temic, as
shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to cover all losses/damages to the shipment.

On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated container, it was plugged
to the power terminal of the pier to keep its temperature constant. Fidel Rocha (Rocha), Vice-President for Operations
of Marines Adjustment Corporation, accompanied by two surveyors, conducted a protective survey of the cargo. They
found that based on the temperature chart, the temperature reading was constant from October 18, 1995 to October
25, 1995 at 0 Celsius. However, at midnight of October 25, 1995 when the cargo had already been unloaded from the
ship the temperature fluctuated with a reading of 33 Celsius. Rocha believed the fluctuation was caused by the burnt
condenser fan motor of the refrigerated container.

On November 9, 1995, Temic received the shipment. It found the cargo completely damaged. Temic filed a claim for
cargo loss against Netherlands Insurance, with supporting claims documents. The Netherlands Insurance paid Temic the
sum of P1,036,497.00 under the terms of the Marine Open Policy. Temic then executed a loss and subrogation receipt in
favor of Netherlands Insurance.

Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a complaint for subrogation of
insurance settlement with the Regional Trial Court, Branch 5, Manila, against "the unknown owner of M/V Piya Bhum"
4
and TMS Ship Agencies (TMS), the latter thought to be the local agent of M/V Piya Bhums unknown owner. The
complaint was docketed as Civil Case No. 96-78612.

Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping, RCL, Eagle Liner Shipping
Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (U-Ocean), as additional defendants. A third amended
complaint was later made, impleading Pacific Eagle in substitution of Eagle Liner Shipping Agencies.

TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with cross-claim and
compulsory counterclaim to the second amended complaint. U-Ocean likewise filed an answer with compulsory
counterclaim and cross-claim. During the pendency of the case, U-Ocean, jointly with U-Freight Singapore, filed another
answer with compulsory counterclaim. Only Pacific Eagle and TMS filed their answers to the third amended complaint.

The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons why Netherland
Insurances claims must be rejected. Specifically, RCL and EDSA Shipping denied negligence in the transport of the cargo;
they attributed any negligence that may have caused the loss of the shipment to their co-defendants. They likewise
asserted that no valid subrogation exists, as the payment made by Netherlands Insurance to the consignee was invalid.
By way of affirmative defenses, RCL and EDSA Shipping averred that the Netherlands Insurance has no cause of action,
and is not the real party-in-interest, and that the claim is barred by laches/prescription.

After Netherlands Insurance had made its formal offer of evidence, the defendants including RCL and EDSA Shipping
sought leave of court to file their respective motions to dismiss based on demurrer to evidence.

RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to prove any valid
subrogation, and (2) failed to establish that any negligence on their part or that the loss was sustained while the cargo
was in their custody.

On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on demurrer to evidence.
The trial court ruled that while there was valid subrogation, the defendants could not be held liable for the loss or
damage, as their respective liabilities ended at the time of the discharge of the cargo from the ship at the Port of
Manila.

Netherlands Insurance seasonably appealed the order of dismissal to the CA.

On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants Regional Container Lines and
Its local agent, EDSA Shipping Agency, is REVERSED and SET ASIDE. The dismissal of the complaint against the other
defendants is AFFIRMED. Pursuant to Section 1, Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional
Container Lines and EDSA Shipping Agency are deemed to have waived the right to present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to reimburse plaintiff in the sum of
P1,036,497.00 with interest from date hereof until fully paid.
No costs.

SO ORDERED.

The CA dismissed Netherland Insurances complaint against the other defendants after finding that the claim had
5
already been barred by prescription.

Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion for reconsideration, but the
CA maintained its original conclusions.

The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable as common carriers under
the theory of presumption of negligence.

THE COURTS RULING
The present case is governed by the following provisions of the Civil Code:
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 the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5,
6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles1755 and 1756.
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 of 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.

 ART. 1735. In all cases other that 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 by article 1733.

ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the sane are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to
the provisions of articles 1738.

ART. 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods
are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival
of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.

ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods, or
the faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or
lessen the loss.
6
In Central Shipping Company, Inc. v. Insurance Company of North America, we reiterated the rules for the liability of a
common carrier for lost or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence over the goods they transport, according to all the
circumstances of each case;
(2) In the event of loss, destruction, or deterioration of the insured goods, common carriers are responsible, unless they
can prove that such loss, destruction, or deterioration was brought about by, among others, "flood, storm, earthquake,
lightning, or other natural disaster or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault
7
or to have acted negligently, unless they observed extraordinary diligence.

In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage to the goods in question.
They contend that the cause of the damage to the cargo was the "fluctuation of the temperature in the reefer van,"
which fluctuation occurred after the cargo had already been discharged from the vessel; no fluctuation, they point out,
arose when the cargo was still on board M/V Piya Bhum. As the cause of the damage to the cargo occurred after the
same was already discharged from the vessel and was under the custody of the arrastre operator (International
Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of negligence provided in
Article 1735 of the Civil Code should not apply. What applies in this case is Article 1734, particularly paragraphs 3 and 4
thereof, which exempts the carrier from liability for loss or damage to the cargo when it is caused either by an act or
omission of the shipper or by the character of the goods or defects in the packing or in the containers. Thus, RCL and
EDSA Shipping seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.

A common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over
8
the goods it transported. When the goods shipped are either lost or arrived 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
9
to hold it liable. 1avvphi1

To overcome the presumption of negligence, the common carrier must establish by adequate proof that it exercised
extraordinary diligence over the goods. It must do more than merely show that some other party could be responsible
10
for the damage.

In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of diligence required by
law over the goods they transported. Indeed, there is sufficient evidence showing that the fluctuation of the
temperature in the refrigerated container van, as recorded in the temperature chart, occurred after the cargo had been
discharged from the vessel and was already under the custody of the arrastre operator, ICTSI. This evidence, however,
does not disprove that the condenser fan which caused the fluctuation of the temperature in the refrigerated
container was not damaged while the cargo was being unloaded from the ship. It is settled in maritime law
11
jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier; RCL and EDSA
Shipping failed to dispute this.1avvphi1

RCL and EDSA Shipping could have offered evidence before the trial court to show that the damage to the condenser
fan did not occur: (1) while the cargo was in transit; (2) while they were in the act of discharging it from the vessel; or (3)
while they were delivering it actually or constructively to the consignee. They could have presented proof to show that
they exercised extraordinary care and diligence in the handling of the goods, but they opted to file a demurrer to
evidence. As the order granting their demurrer was reversed on appeal, the CA correctly ruled that they are deemed to
12
have waived their right to present evidence, and the presumption of negligence must stand.

It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or damage to the cargo was caused
by a defect in the packing or in the containers. 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 causes in Article 1734 of the Civil Code claimed
by it by a preponderance of evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove
13
that the carrier is negligent. RCL and EDSA Shipping, however, failed to satisfy this standard of evidence and in fact
offered no evidence at all on this point; a reversal of a dismissal based on a demurrer to evidence bars the defendant
from presenting evidence supporting its allegations.

WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container Lines of Singapore and EDSA
Shipping Agency. The decision of the Court of Appeals dated May 26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN
TOTO. Costs against the petitioners.
SO ORDERED.








































G.R. No. 135645 March 8, 2002
THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,
vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.
KAPUNAN, J.:
This petition for review seeks the reversal of the Decision, dated September 23, 1998, of the Court of Appeals in CA-G.R.
1
CV No. 43915, which absolved private respondents MCG Marine Services, Inc. and Doroteo Gaerlan of any liability
regarding the loss of the cargo belonging to San Miguel Corporation due to the sinking of the M/V Peatheray Patrick-G
owned by Gaerlan with MCG Marine Services, Inc. as agent.

On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an aggregate value of P5,836,222.80
2
with petitioner Philippine American General Insurance Company. The cargo were loaded on board the M/V Peatheray
Patrick-G to be transported from Mandaue City to Bislig, Surigao del Sur.

After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the port of Mandaue City
for Bislig, Surigao del Sur on March 2, 1987. The weather was calm when the vessel started its voyage.

The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit Point, Cortes,
Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel Corporation was lost.

Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner.

Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a surveyor from the Manila Adjusters and Surveyors
Co., went to Taganauan Island, Cortes, Surigao del Sur where the vessel was cast ashore, to investigate the
circumstances surrounding the loss of the cargo. In his report, Mr. Sayo stated that the vessel was structurally sound
and that he did not see any damage or crack thereon. He concluded that the proximate cause of the listing and
subsequent sinking of the vessel was the shifting of ballast water from starboard to portside. The said shifting of ballast
water allegedly affected the stability of the M/V Peatheray Patrick-G.

Thereafter, petitioner paid San Miguel Corporation the full amount of P5,836,222.80 pursuant to the terms of their
insurance contract.1wphi1.nt
On November 3, 1987, petitioner as subrogee of San Miguel Corporation filed with the Regional Trial Court (RTC) of
Makati City a case for collection against private respondents to recover the amount it paid to San Miguel Corporation
for the loss of the latter's cargo.

Meanwhile, the Board of Marine Inquiry conducted its own investigation of the sinking of the M/V Peatheray Patrick-G
3
to determine whether or not the captain and crew of the vessel should be held responsible for the incident. On May
11, 1989, the Board rendered its decision exonerating the captain and crew of the ill-fated vessel for any administrative
liability. It found that the cause of the sinking of the vessel was the existence of strong winds and enormous waves in
Surigao del Sur, a fortuitous event that could not have been for seen at the time the M/V Peatheray Patrick-G left the
port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate and only cause of
the vessel's sinking.

On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its Decision finding private respondents solidarily
liable for the loss of San Miguel Corporation's cargo and ordering them to pay petitioner the full amount of the lost
4
cargo plus legal interest, attorney's fees and costs of suit.

Private respondents appealed the trial court's decision to the Court of Appeals. On September 23, 1998, the appellate
court issued the assailed Decision, which reversed the ruling of the RTC. It held that private respondents could not be
held liable for the loss of San Miguel Corporation's cargo because said loss occurred as a consequence of a fortuitous
5
event, and that such fortuitous event was the proximate and only cause of the loss.

Petitioner thus filed the present petition, contending that:
(A)
IN REVERSING AND SETTING ASIDE THE DECISION OF RTC BR. 134 OF MAKATI CITY ON THE BASIS OF THE FINDINGS OF
THE BOARD OF MARINE INQUIRY, APPELLATE COURT DECIDED THE CASE AT BAR NOT IN ACCORD WITH LAW OR WITH
THE APPLICABLE DECISIONS OF THE HONORABLE COURT;
(B)
IN REVERSING THE TRIAL COURT'S DECISION, THE APPELLATE COURT GRAVELY ERRED IN CONTRADICTING AND IN
DISTURBING THE FINDINGS OF THE FORMER;
(C)
THE APPELLATE COURT GRAVELY ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND IN DISMISSING THE
6
COMPLAINT.

Common carriers, from the nature of their business and for reasons of public policy, are mandated to observe
7
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them. Owing
to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at
8
fault or negligent if the goods transported by them are lost, destroyed or if the same deteriorated.

However, this presumption of fault or negligence does not arise in the cases enumerated under Article 1734 of the Civil
Code:
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any
of the following causes only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In order that a common carrier may be absolved from liability where the loss, destruction or deterioration of the goods
is due to a natural disaster or calamity, it must further be shown that the such natural disaster or calamity was the
9
proximate and only cause of the loss; there must be "an entire exclusion of human agency from the cause of the injury
10
of the loss."

Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a common carrier is still
required to exercise due diligence to prevent or minimize loss before, during and after the occurrence of the natural
11
disaster, for it to be exempt from liability under the law for the loss of the goods. If a common carrier fails to exercise
12
due diligence--or that ordinary care which the circumstances of the particular case demand -- to preserve and protect
the goods carried by it on the occasion of a natural disaster, it will be deemed to have been negligent, and the loss will
not be considered as having been due to a natural disaster under Article 1734 (1).

In the case at bar, the issues may be narrowed down to whether the loss of the cargo was due to the occurrence of a
natural disaster, and if so, whether such natural disaster was the sole and proximate cause of the loss or whether
private respondents were partly to blame for failing to exercise due diligence to prevent the loss of the cargo.
The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel encountered strong winds and
huge waves ranging from six to ten feet in height. The vessel listed at the port side and eventually sunk at Cawit Point,
Cortes, Surigao del Sur.
The Court of Appeals, citing the decision of the Board of Marine Inquiry in the administrative case against the vessel's
crew (BMI--646-87), found that the loss of the cargo was due solely to the existence of a fortuitous event, particularly
the presence of strong winds and huge waves at Cortes, Surigao del Sur on March 3, 1987:
x x x

III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?
Evidence shows that when "LCT Peatheray Patrick-G" left the port of Mandawe, Cebu for Bislig, Surigao del Sur on
March 2, 1987 the Captain had observed the fair atmospheric condition of the area of the pier and confirmed this good
weather condition with the Coast Guard Detachment of Mandawe City. However, on March 3, 1987 at about 10:00
o'clock in the evening, when the vessel had already passed Surigao Strait. the vessel started to experience waves as high
as 6 to 7 feet and that the Northeasterly wind was blowing at about five (5) knot velocity. At about 11:00 o'clock P.M.
when the vessel was already about 4.5 miles off Cawit Point, Cortes, Surigao del Sur, the vessel was discovered to be
listing 15 degrees to port side and that the strength of the wind had increased to 15 knots and the waves were about
ten (10) feet high [Ramilo TSN 10-27-87 p. 32). Immediately thereafter, emergency measures were taken by the crew.
The officers had suspected that a leak or crack might had developed at the bottom hull particularly below one or two of
the empty wing tanks at port side serving as buoyancy tanks resulting in ingress of sea water in the tanks was confirmed
 when the Captain ordered to use the cargo pump. The suction valves to the said tanks of port side were opened in order
to suck or draw out any amount of water that entered into the tanks. The suction pressure of the pump had drawn out
sea water in large quantity indicating therefore, that a leak or crack had developed in the hull as the vessel was
continuously batted and pounded by the huge waves. Bailing out of the water through the pump was done continuously
in an effort of the crew to prevent the vessel from sinking. but then efforts were in vain. The vessel still continued to list
even more despite the continuous pumping and discharging of sea water from the wing tanks indicating that the
amount of the ingress of sea water was greater in volume that that was being discharged by the pump. Considering
therefore, the location of the suspected source of the ingress of sea water which was a crack or hole at the bottom hull
below the buoyancy tank's port side which was not accessible (sic) for the crew to check or control the flow of sea water
into the said tank. The accumulation of sea water aggravated by the continuous pounding, rolling and pitching of the
vessel against huge waves and strong northeasterly wind, the Captain then had no other recourse except to order
13
abandonship to save their lives.

The presence of a crack in the ill-fated vessel through which water seeped in was confirmed by the Greutzman Divers
who were commissioned by the private respondents to conduct an underwater survey and inspection of the vessel to
determine the cause and circumstances of its sinking. In its report, Greutzman Divers stated that "along the port side
14
platings, a small hole and two separate cracks were found at about midship."

The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge waves while the M/V
Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed fortuitous. A fortuitous
15
event has been defined as one which could not be foreseen, or which though foreseen, is inevitable. An event is
considered fortuitous if the following elements concur:

xxx (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the
caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any
16
participation in the aggravation of the injury resulting to the creditor. xxx

In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left the port of Mandaue City, the
Captain confirmed with the Coast Guard that the weather condition would permit the safe travel of the vessel to Bislig,
Surigao del Sur. Thus, he could not be expected to have foreseen the unfavorable weather condition that awaited the
vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves which caused the vessel
to list, keel over, and consequently lose the cargo contained therein. The appellate court likewise found that there was
no negligence on the part of the crew of the M/V Peatheray Patrick-G, citing the following portion of the decision of the
Board of Marine Inquiry:

I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN SHE LEFT THE PORT OF MANDAWE, CEBU AND AT THE TIME OF
SINKING?

Evidence clearly shows that the vessel was propelled with three (3) diesel engines of 250 BHP each or a total of 750
BHP. It had three (3) propellers which were operating satisfactorily from the time the vessel left the port of Mandawe
up to the time when the hull on the double bottom tank was heavily floaded (sic) by uncontrollable entry of sea water
resulting in the stoppage of engines. The vessel was also equipped with operating generator pumps for emergency
cases. This equipment was also operating satisfactorily up to the time when the engine room was heavily floaded (sic)
with sea water. Further, the vessel had undergone emergency drydocking and repair before the accident occurred (sic)
on November 9, 1986 at Trigon Shipyard, San Fernando, Cebu as shown by the billing for the Drydocking and Repair and
certificate of Inspection No. 2588-86 issued by the Philippine coast Guard on December 5, 1986 which expired on
November 8, 1987.

LCT Peatheray Patrick-G was skippered by Mr. Manuel P. Ramilo, competent and experienced licensed Major Patron
who had been in command of the vessel for more than three (3) years from July 1984 up to the time of sinking March 3,
1987. His Chief Mate Mr. Mariano Alalin also a licensed Major Patron had been the Chief Mate of " LCT Peatheray
Patrick-G" for one year and three months at the time of the accident. Further Chief Mate Alalin had commanded a
tanker vessel named M/T Mercedes of MGM Corporation for almost two (2) years from 1983-1985 (Alalin TSN-4-13-88
pp. 32-33).

That the vessel was granted SOLAS clearance by the Philippine Coast Guard on March 1, 1987 to depart from Mandawe
City for Bislig, Surigao del Sur as evidenced by a certification issued to D.C. Gaerlan Oil Products by Coast Guard Station
Cebu dated December 23, 1987.1wphi1.nt

Based on the foregoing circumstances, "LCT Peatheray Patrick-G" should be considered seaworthy vessel at the time
she undertook that fateful voyage on March 2, 1987.

To be seaworthy, a vessel must not only be staunch and fit in the hull for the voyage to be undertaken but also must be
properly equipped and for that purpose there is a duty upon the owner to provide a competent master and a crew
adequate in number and competent for their duty and equals in disposition and seamanship to the ordinary in that
17
calling. (Ralph 299 F-52, 1924 AMC 942). American President 2td v. Ren Fen Fed 629. AMC 1723 LCA 9 CAL 1924).

Overloading was also eliminated as a possible cause of the sinking of the vessel, as the evidence showed that its
18
freeboard clearance was substantially greater than the authorized freeboard clearance.

Although the Board of Marine Inquiry ruled only on the administrative liability of the captain and crew of the M/V
Peatheray Patrick-G, it had to conduct a thorough investigation of the circumstances surrounding the sinking of the
vessel and the loss of its cargo in order to determine their responsibility, if any. The results of its investigation as
embodied in its decision on the administrative case clearly indicate that the loss of the cargo was due solely to the
attendance of strong winds and huge waves which caused the vessel accumulate water, tilt to the port side and to
eventually keel over. There was thus no error on the part of the Court of Appeals in relying on the factual findings of the
Board of Marine Inquiry, for such factual findings, being supported by substantial evidence are persuasive, considering
19
that said administrative body is an expert in matters concerning marine casualties.

Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3, 1987 was shown to be
the proximate and only cause of the sinking of the M/V Peatheray Patrick-G and the loss of the cargo belonging to San
Miguel Corporation, private respondents cannot be held liable for the said loss.

WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED and the petition is hereby DENIED.
SO ORDERED.



























 G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,
vs.
*
MALAYAN INSURANCE CO., INC., Respondent.

D E C I S I O N
PANGANIBAN, J.:
ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods entrusted to them, as
required by the nature of their business and for reasons of public policy. Consequently, the law presumes that common
carriers are at fault or negligent for any loss or damage to the goods that they transport. In the present case, the
evidence submitted by petitioner to overcome this presumption was sorely insufficient.

The Case

1 2
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision and the
3
December 29, 2003 Resolution of the Court of Appeals (CA) in CA-GR CV No. 66028. The challenged Decision disposed
as follows:

"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial Court of Manila, Branch 42
in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein respondent] the
4
value of the lost cargo in the amount of P565,000.00. Costs against the [herein petitioner]."

The assailed Resolution denied reconsideration.

The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900 metric tons
5
of silica sand valued at P565,000. Consigned to Vulcan Industrial and Mining Corporation, the cargo was to be
transported from Palawan to Manila. On October 25, 1991, the silica sand was placed on board Judy VII, a barge leased
6 7
by Lea Mer. During the voyage, the vessel sank, resulting in the loss of the cargo.

8
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. To recover the amount paid and in the
exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply.
Consequently, Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992, for
9
the collection of P565,000 representing the amount that respondent had paid Vulcan.

On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was a fortuitous
10
event. The RTC noted that the vessel had sunk because of the bad weather condition brought about by Typhoon
Trining. The court ruled that petitioner had no advance knowledge of the incoming typhoon, and that the vessel had
11
been cleared by the Philippine Coast Guard to travel from Palawan to Manila.

Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus, the loss of the
12
cargo was occasioned by petitioners fault, not by a fortuitous event.
13
Hence, this recourse.

The Issues
Petitioner states the issues in this wise:
II. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as a witness of the
said report during the trial of this case before the lower court can be admitted in evidence to prove the alleged facts
cited in the said report.
III. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of the Regional Trial
Court which clearly and unequivocally held that the loss of the cargo subject of this case was caused by fortuitous event
for which herein petitioner could not be held liable.
IV. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of discretion in
disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel
Judy VII was seaworthy at the time of incident and further in disregarding the testimony of the PAG-ASA weather
14
specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon Trining did not hit Metro Manila or Palawan."

In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2) whether the
survey report of Jesus Cortez is admissible in evidence.

The Courts Ruling
The Petition has no merit.

First Issue:
Liability for Loss of Cargo

Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous event. This issue
involves primarily a question of fact, notwithstanding petitioners claim that it pertains only to a question of law. As a
15
general rule, questions of fact may not be raised in a petition for review. The present case serves as an exception to
16
this rule, because the factual findings of the appellate and the trial courts vary. This Court meticulously reviewed the
records, but found no reason to reverse the CA.

Rule on Common Carriers
Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting
17
passengers or goods, or both -- by land, water, or air -- when this service is offered to the public for compensation.
Petitioner is clearly a common carrier, because it offers to the public its business of transporting goods through its
18
vessels.

19
Thus, the Court corrects the trial courts finding that petitioner became a private carrier when Vulcan chartered it.
Charter parties are classified as contracts of demise (or bareboat) and affreightment, which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage
or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice,
subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must
completely and exclusively relinquish possession, command and navigation thereof to the charterer; anything short of
20
such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all."

The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is private in
21
character. Consequently, the rights and obligations of the parties to a contract of private carriage are governed
22
principally by their stipulations, not by the law on common carriers.

The Contract in the present case was one of affreightment, as shown by the fact that it was petitioners crew that
23
manned the tugboat M/V Ayalit and controlled the barge Judy VII. Necessarily, petitioner was a common carrier, and
the pertinent law governs the present factual circumstances.

Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the
24
passengers they transport, as required by the nature of their business and for reasons of public policy. Extraordinary
diligence requires rendering service with the greatest skill and foresight to avoid damage and destruction to the goods
25
entrusted for carriage and delivery.

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods that
26
they have transported. This presumption can be rebutted only by proof that they observed extraordinary diligence, or
27
that the loss or damage was occasioned by 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;
28
"(5) Order or act of competent public authority."

Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable." Thus, if the loss or damage was due to such an event, a common
carrier is exempted from liability.

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been independent of human will;
(b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a
normal manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury
29
to the creditor.
To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and only cause of
30
the loss. Moreover, it should have exercised due diligence to prevent or minimize the loss before, during and after the
31
occurrence of the fortuitous event.

Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the common carrier, petitioner bore the
burden of proving that it had exercised extraordinary diligence to avoid the loss, or that the loss had been occasioned
by a fortuitous event -- an exempting circumstance.

It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss of the cargo was
32
due to the bad weather condition brought about by Typhoon Trining. Evidence was presented to show that petitioner
had not been informed of the incoming typhoon, and that the Philippine Coast Guard had given it clearance to begin the
33
voyage. On October 25, 1991, the date on which the voyage commenced and the barge sank, Typhoon Trining was
34
allegedly far from Palawan, where the storm warning was only "Signal No. 1."

The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As required by
the pertinent law, it was not enough for the common carrier to show that there was an unforeseen or unexpected
occurrence. It had to show that it was free from any fault -- a fact it miserably failed to prove.

First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during or after the
35
alleged fortuitous event. Its witness, Joey A. Draper, testified that he could no longer remember whether anything had
36
been done to minimize loss when water started entering the barge. This fact was confirmed during his cross-
examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s] exercised by you and the crew of
Judy VII so as to prevent the los[s] or sinking of barge Judy VII?
x x x x x x x x x
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit and barge Judy VII x
x x to prevent the sinking of barge Judy VII?
x x x x x x x x x
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?
Joey Draper:
37
I can no longer remember sir, because that happened [a] long time ago."

Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a preponderance of
38
evidence that the barge was not seaworthy when it sailed for Manila. Respondent was able to prove that, in the hull of
39
the barge, there were holes that might have caused or aggravated the sinking. Because the presumption of negligence
or fault applied to petitioner, it was incumbent upon it to show that there were no holes; or, if there were, that they did
not aggravate the sinking.

Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified that the barge
40 41
was in "tip-top" or excellent condition, but that he had not personally inspected it when it left Palawan.

The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July 31, 1991, did not
42
conclusively prove that the barge was seaworthy. The regularity of the issuance of the Certificate is disputably
 43
presumed. It could be contradicted by competent evidence, which respondent offered. Moreover, this evidence did
not necessarily take into account the actual condition of
44
the vessel at the time of the commencement of the voyage.

Second Issue:
Admissibility of the Survey Report
45
Petitioner claims that the Survey Report prepared by Jesus Cortez, the cargo surveyor, should not have been admitted
46
in evidence. The Court partly agrees. Because he did not testify during the trial, then the Report that he had prepared
was hearsay and therefore inadmissible for the purpose of proving the truth of its contents.

The Survey Report Not the Sole Evidence
The facts reveal that Cortezs Survey Report was used in the testimonies of respondents witnesses -- Charlie M.
47
Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vice-president of Toplis and Harding Company.
Soriano testified that the Survey Report had been used in preparing the final Adjustment Report conducted by their
48
company. The final Report showed that the barge was not seaworthy because of the existence of the holes. Manlapig
testified that he had prepared that Report after taking into account the findings of the surveyor, as well as the pictures
49
and the sketches of the place where the sinking occurred. Evidently, the existence of the holes was proved by the
testimonies of the witnesses, not merely by Cortez Survey Report.

Rule on Independently
Relevant Statement
50
That witnesses must be examined and presented during the trial, and that their testimonies must be confined to
personal knowledge is required by the rules on evidence, from which we quote:

"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. A witness can testify only to those
facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as
51
otherwise provided in these rules."
On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which respondent had offered as
52 53
evidence. Well-settled is the rule that, unless the affiant is presented as a witness, an affidavit is considered hearsay.

An exception to the foregoing rule is that on "independently relevant statements." A report made by a person is
54
admissible if it is intended to prove the tenor, not the truth, of the statements. Independent of the truth or the falsity
55
of the statement given in the report, the fact that it has been made is relevant. Here, the hearsay rule does not apply.
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the testimonies of
respondents witnesses. The referral to Cortezs Report was in relation to Manlapigs final Adjustment Report. Evidently,
it was the existence of the Survey Report that was testified to. The admissibility of that Report as part of the testimonies
of the witnesses was correctly ruled upon by the trial court.

At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption of fault that
applies to common carriers.

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against petitioner.
SO ORDERED.














G.R. No. 137775. March 31, 2005
FGU INSURANCE CORPORATION, Petitioners,
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
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.

D E C I S I O N
CHICO-NAZARIO, J.:
1
Before Us are two separate Petitions for review assailing the Decision 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
2
Defendant-Appellant," which affirmed in toto the decision 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
3
P632,700.00.

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 BMD-San Jose
Beer Sales Office, San Jose, Antique.

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 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.

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
4
of only P1,346,197.00, the assured shall bear 53% of the loss [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.

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.
5
It is ANCOs contention that the decision in Civil Case No. R-19341, 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
6
be between the first and second action identity of parties, identity of subject matter, and identity of causes of action.

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 third-
party 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
7
controverted, upon the determination of which the finding or judgment was rendered. 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
8
or question was in issue and adjudicated in the first suit.

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
9 10
substantial evidence. As held in the case of Donato v. Court of Appeals, 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
11
to observe the demeanor of the witnesses while testifying in the case.

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
12
of discretion.

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
13
Macabueg.

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 occurred. In short, therefore, defendants through their representatives, failed to observe the degree of diligence
14
required of them under the provision of Art. 1733 of the Civil Code of the Philippines.

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
15
jump from the frying pan into the fire and an advice that borders on madness."

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
16
from wharf where the barge remained. 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,
17
an act of God, the consequences of which petitioners could not be held liable for.

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)

18
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) 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
19
believed but it must be one impossible to foresee or to avoid.

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.

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
20
have been the proximate and only cause of the loss. There must have been no contributory negligence on the part of
21
the common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.:

. . . 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
22
two to such accident by any culpable act or omission of its own, it is not excused.
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
23
agents constitute no defense on the part of the insurer. 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.

24
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co., 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
25
release the insurer from such liability. [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
recover indemnity for a loss occasioned by his own wrongful act or by that of any agent for whose conduct he was
26
responsible. [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
27
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.
[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.
























G.R. No. 140349 June 29, 2005
SULPICIO LINES, INC., petitioner,
vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, respondent.

D E C I S I O N
CHICO-NAZARIO, J.:
1 2
Before Us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals reversing the Decision of
the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing the complaint for damages for failure of the plaintiff to
3
prove its case with a preponderance of evidence. Assailed as well is the Resolution of the Court of Appeals denying
petitioners Motion for Reconsideration.

THE FACTS
On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a
contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor of the owner of the goods, for
Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden crates containing one hundred thirty-six
(136) cartons of inductors and LC compound on board the V Singapore V20 from Cebu City to Singapore in favor of the
consignee, Taiyo Yuden Singapore Pte, Ltd.

For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the vessel M/V
Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). The vessel arrived at the North
Harbor, Manila, on 24 February 1992.
During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the cargo hatch to the
pier apron. The owner of the goods examined the dropped cargo, and upon an alleged finding that the contents of the
crate were no longer usable for their intended purpose, they were rejected as a total loss and returned to Cebu City.

The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the rejected cargo
which was refused by the latter. Thereafter, the owner of the goods sought payment from respondent First Lepanto-
Taisho Insurance Corporation (insurer) under a marine insurance policy issued to the former. Respondent-insurer paid
the claim less thirty-five percent (35%) salvage value or P194, 220.31.

The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated the latter to
whatever right or legal action the owner of the goods may have against Delbros, Inc. and petitioner-carrier, Sulpicio
Lines, Inc. Thus, respondent-insurer then filed claims for reimbursement from Delbros, Inc. and petitioner-carrier
Sulpicio Lines, Inc. which were subsequently denied.

On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case No. 92-63337 with the trial
court against Delbros, Inc. and herein petitioner-carrier. On 05 February 1993, petitioner-carrier filed its Answer with
Counterclaim. Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming
the contents of the crate in question were truly in bad order, fault is with herein petitioner-carrier which was
responsible for the unloading of the crates.

Petitioner-carrier filed its Answer to Delbros, Inc.s cross-claim asserting that it observed extraordinary diligence in the
handling, storage and general care of the shipment and that subsequent inspection of the shipment by the Manila
Adjusters and Surveyors Company showed that the contents of the third crate that had fallen were found to be in
apparent sound condition, except that "2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c) were
unaccounted for and missing as per packaging list."

After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by therein defendant
Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. According to the RTC:
The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified about the payment of the
claim based on the documents accompanying the claim which were the Packing List, Commercial Invoices, Bill of Lading,
Claims Statement, Marine Policies, Survey Report, Marine Risk Note, and the letter to Third Party carriers and shipping
lines (Exhibit A-J).

The check was paid and delivered to the assured as evidenced by the check voucher and the subrogation receipt.
On cross-examination by counsel for the Sulpicio Lines, he said that their company paid the claim less 35% salvage value
based on the adjuster report. This testimony is hearsay.

The second witness for the plaintiff, Arturo Valdez, testified, among others, that he, together with a co-surveyor and a
representative of Sulpicio Lines had conducted a survey of the shipment at the compound of Sulpicio Lines. He prepared
a survey report (Exhibits G and G-1) and took a picture of shipment (Exhibit G-2).

On cross-examination, he said that two cartons were torn at the sides with top portion flaps opened and the 41 cartons
were properly sealed and in good order conditions. Two cartons were already opened and slightly damaged. He merely
looked at them but did not conduct an inspection of the contents. What he was referring to as slightly damaged were
the cartons only and not the contents.
From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case with a preponderance of
evidence.
.
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing the Complaint, defendant
4
Sulpicio Lines counterclaim and defendant Delbros Inc.s cross-claim.
A Motion for Reconsideration was then filed by herein respondent-insurer and subsequently denied by the trial court in
an Order dated 07 February 1995 on the ground that it did not raise any new issue. Thus, respondent-insurer instituted
an appeal with the Court of Appeals, which reversed the dismissal of the complaint by the lower court, the decretal
portion of which reads:

WHEREFORE, the appeal is granted. The decision appealed from is REVERSED. Defendants-appellees Delbros and
Sulpicio Lines are hereby ordered to pay, jointly and severally, plaintiff-appellant the sum of P194,220.31 representing
5
actual damages, plus legal interest counted from the filing of the complaint until fully paid.

The appellate court disposed of the issues in the case in this wise:
Furthermore, the evidence shows that one of the three crates fell during the unloading at the pier in Manila. The
wooden crate which fell was damaged such that this particular crate was not anymore sent to Singapore and was
instead shipped back to Cebu from Manila. Upon examination, it was found that two (2) cartons of the forty-two (42)
cartons contained in this crate were externally damaged. They were torn at the sides and their top portions or flaps
were open. These facts were admitted by all the parties. Defendant-appellees, however, insist that it was only the
external packaging that was damaged, and that there was no actual damage to the goods such that would make them
liable to the shipper. This theory is erroneous. When the goods are placed at a common carriers possession for delivery
to a specified consignee, they are in good order and condition and are supposed to be transported and delivered to the
consignee in the same state. In the case herein, the goods were received by defendant-appellee Delbros in Cebu
properly packed in cardboard cartons and then placed in wooden crates, for delivery to the consignee in Singapore.
However, before the shipment reached Singapore (while it was in Manila) one crate and 2 cartons contained therein
were not anymore in their original state. They were no longer fit to be sent to Singapore.
.
As We have already found, there is damage suffered by the goods of the shipper. This consists in the destruction of one
wooden crate and the tearing of two of the cardboard boxes therein rendering then unfit to be sent to Singapore.
Defendant-appellee Sulpicio Lines admits that this crate fell while it was being unloaded at the Manila pier. Falling of
the crate was negligence on the part of defendant-appellee Sulpicio Lines under the doctrine of res ipsa loquitur.
Defendant-appellee Sulpicio Lines cannot exculpate itself from liability because it failed to prove that it exercised due
6
diligence in the selection and supervision of its employees to prevent the damage.

On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision of the Court of Appeals
which was subsequently denied in a Resolution dated 13 October 1999. Hence, the instant petition.

7
During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating that its appeal filed
before this Court had been dismissed for being filed out of time and thus the case as against it was declared closed and
terminated. As a consequence, it paid in full the amount of the damages awarded by the appellate court to the
respondent-insurer. Before this Court, Delbros, Inc. prays for reimbursement, contribution, or indemnity from its co-
defendant, herein petitioner-carrier Sulpicio Lines, Inc. for whatever it had paid to respondent-insurer in consonance
with the decision of the appellate court declaring both Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. jointly and
severally liable.

ISSUES
Petitioner-carrier raises the following issues in its petition:
1. The Court of Appeals erred in not holding that the trial court justly and correctly dismissed the complaint against
Sulpicio Lines, which dismissal is already final.
2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to comply with the technical
requirement of the Rules of Court.

RULING OF THE COURT
We shall first address the procedural issue raised by petitioner-carrier, Sulpicio Lines, Inc. that the Court of Appeals
should have dismissed the appeal for failure of respondent-insurer to attach a copy of the decision of the trial court to
8
its appellants brief in violation of Rule 44, Section 13(h) of the Rules of Civil Procedure.
9
A perusal of the records will show, however, that in a Resolution dated 13 August 1996, the Court of Appeals required
herein respondent-insurer to submit seven (7) copies of the questioned decision within five (5) days from notice. Said
Resolution was properly complied with.

As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must comply with the manner
required by the pertinent rules for the perfection of an appeal. Nevertheless, this Court has allowed the filing of an
appeal upon subsequent compliance with the requirements imposed by law, where a strict application of the technical
rules will impair the proper administration of justice. As enunciated by the Court in the case of Jaro v. Court of
10
Appeals:

There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the
relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz [336 SCRA 113] and Piglas-Kamao vs. National Labor
Relations Commission [357SCRA 640], we ruled that the subsequent submission of the missing documents with the
motion for reconsideration amounts to substantial compliance. The reasons behind the failure of the petitioners in
11
these two cases to comply with the required attachments were no longer scrutinized.

We see no error, therefore, on the part of the Court of Appeals when it gave due course to the appeal after respondent-
insurer had submitted copies of the RTC decision, albeit belatedly.

We now come to the substantial issues alleged by petitioner-carrier. The pivotal question to be considered in the
resolution of this issue is whether or not, based on the evidence presented during the trial, the owner of the goods,
respondent-insurers predecessor-in-interest, did incur damages, and if so, whether or not petitioner-carrier is liable for
the same.

It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It is not disputed
that one of the three (3) crates did fall from the cargo hatch to the pier apron while petitioner-carrier was unloading the
cargo from its vessel. Neither is it impugned that upon inspection, it was found that two (2) cartons were torn on the
side and the top flaps were open and that two (2) cello bags, each of 50 pieces ferri inductors, were missing from the
cargo.

Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or loss and should not
include the lack of fitness of the shipment for transport to Singapore due to the damaged packing. This is erroneous.
Petitioner-carrier seems to belabor under the misapprehension that a distinction must be made between the cargo
packaging and the contents of the cargo. According to it, damage to the packaging is not tantamount to damage to the
cargo. It must be stressed that in the case at bar, the damage sustained by the packaging of the cargo while in
petitioner-carriers custody resulted in its unfitness to be transported to its consignee in Singapore. Such failure to ship
the cargo to its final destination because of the ruined packaging, indeed, resulted in damages on the part of the owner
of the goods.

The falling of the crate during the unloading is evidence of petitioner-carriers negligence in handling the cargo. As a
common carrier, it is expected to observe extraordinary diligence in the handling of goods placed in its possession for
12
transport. The standard of extraordinary diligence imposed upon common carriers is considerably more demanding
than the standard of ordinary diligence, i.e., the diligence of a good paterfamilias established in respect of the ordinary
13
relations between members of society. A common carrier is bound to transport its cargo and its passengers safely "as
far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all
14
circumstances." 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 the damage to, or destruction of, the goods
 15
entrusted to it for safe 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,
16
and to exercise due care in the handling and stowage, including such methods as their nature requires."

Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to have been
17 18
negligent in the handling of the damaged cargo. Under Articles 1735 and 1752 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently in case the goods transported by them are lost, destroyed
or had deteriorated. To overcome the presumption of liability for loss, destruction or deterioration of goods under
19
Article 1735, the common carrier must prove that they observed extraordinary diligence as required in Article 1733 of
20
the Civil Code.

Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence to overcome
the presumption that it was negligent in transporting the cargo.

Coming now to the issue of the extent of petitioner-carriers liability, it is undisputed that respondent-insurer paid the
owner of the goods under the insurance policy the amount of P194,220.31 for the alleged damages the latter has
incurred. Neither is there dispute as to the fact that Delbros, Inc. paid P194,220.31 to respondent-insurer in satisfaction
of the whole amount of the judgment rendered by the Court of Appeals. The question then is: To what extent is Sulpicio
Lines, Inc., as common carrier, liable for the damages suffered by the owner of the goods?

Upon respondent-insurers payment of the alleged amount of loss suffered by the insured (the owner of the goods), the
insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the common
21
carrier whose negligence or wrongful act caused the loss. Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in
22
relation to a debt or claim, including its remedies or securities. The rights to which the subrogee succeeds are the
same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim,
23
security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by
24
the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise
25
could have recovered.

As found by the Court of Appeals, there was damage suffered by the goods which consisted in the destruction of one
26
wooden crate and the tearing of two (2) cardboard boxes therein which rendered them unfit to be sent to Singapore.
The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for which it cannot exculpate itself from liability
27
because it failed to prove that it exercised extraordinary diligence.

Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the amount paid by
respondent-insurer for the damages sustained by the owner of the goods.
As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid the full amount
granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for respondent-insurer to again
recover damages from herein petitioner-carrier.

With respect to Delbros, Inc.s prayer contained in its manifestation that, in case the decision in the instant case be
adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement, indemnification or contribution in
favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue since Delbros, Inc. has no
personality before this Court, it not being a party to the instant case. Notwithstanding, this shall not bar any action
Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is liable to
pay.

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999 and its Resolution
dated 13 October 1999 are hereby AFFIRMED. No costs.
SO ORDERED.







G.R. No. 151783 July 8, 2003
VICTORINO SAVELLANO, VIRGINIA B. SAVELLANO and DEOGRACIAS B. SAVELLANO, petitioners,
vs.
NORTHWEST AIRLINES, respondent.
PANGANIBAN, J.:

When, as a result of engine malfunction, a commercial airline is unable to ferry its passengers on the original contracted
route, it nonetheless has the duty of fulfilling its responsibility of carrying them to their contracted destination on the
most convenient route possible. Failing in this, it cannot just unilaterally shuttle them, without their consent, to other
routes or stopping places outside of the contracted sectors. However, moral damages cannot be awarded without proof
of the carrier's bad faith, ill will, malice or wanton conduct. Neither will actual damages be granted in the absence of
convincing and timely proof of loss. But nominal damages may be allowed under the circumstances in the case herein.

The Case
Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the June 29, 2001
1 2
Decision of the Court of Appeals (CA) in CA-GR CV No. 47165. The dispositive part of the Decision reads:

"WHEREFORE, the judgment of July 29, 1994 is hereby REVERSED and SET ASIDE and another rendered DISMISSING
3
[petitioners'] Complaint. No pronouncement as to costs."
4
On the other hand, the dispositive portion of the Regional Trial Court (RTC) Decision that was reversed by the CA
disposed thus:
"WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiffs and against the defendant,
sentencing the latter to pay to the former, the following amounts:

1. P500,000.00 as actual damages;
2. P3,000,000.00 as moral damages;
3. P500,000.00 as exemplary damages; and
4. P500,000.00 as attorney's fees;
"All such sums shall bear legal interest, i.e., 6% per annum pursuant to Article 2209 of the Civil Code (Reformina vs.
Tomol, 139 SCRA 260) from the date of the filing of the complaint until fully paid. Costs against the x x x Northwest
Airlines, Inc.
5
"[Respondent's] counterclaim is ordered dismissed, for lack of merit."

The Facts

The facts of the case are summarized by the CA as follows:
"[Petitioner] Victorino Savellano (Savellano) was a Cabugao, Ilocos Sur mayor for many terms, former Chairman of the
Commission on Elections and Regional Trial Court (RTC) judge. His wife, [Petitioner] Virginia is a businesswoman and
operates several rural banks in Ilocos Sur. The couple's x x x son [Petitioner] Deogracias was, at the time [of] the
incident subject of the case, the Vice-Governor of Ilocos Sur.

"On October 27, 1991, at around 1:45 p.m., [petitioners] departed from San Francisco, USA on board Northwest Airlines
(NW) Flight 27, Business Class, bound for Manila, Philippines using the NW round-trip tickets which were issued at
[respondent's] Manila ticketing office.
"[Petitioners] were expected to arrive at the Ninoy Aquino International Airport (NAIA), Manila on October 29, 1991
(Manila time) or after twelve (12) hours of travel.

"After being airborne for approximately two and one-half (2) hours or at about 4:15 p.m. of the same day, October 27,
1991 (Seattle, USA time), NW Flight 27's pilot made an emergency landing in Seattle after announcing that a fire had
started in one of the plane's engines.

"[Petitioners] and the other passengers proceeded to Gate 8 of the Seattle Airport where they were instructed to go
home to Manila the next day, 'using the same boarding passes with the same seating arrangements'.

"[Respondent's] shuttle bus thereafter brought all passengers to the Seattle Red Lion Hotel where they were billeted by,
and at the expense of [respondent].

"[Petitioners] who were travelling as a family were assigned one room at the hotel. At around 12:00 midnight, they
were awakened by a phone call from [respondent's] personnel who advised them to be at the Seattle Airport by 7:00
a.m. (Seattle time) the following day, October 28, 1991, for departure. To reach the airport on time, the NW shuttle bus
fetched them early, making them skip the 6:30 a.m. hotel breakfast.

"Prior to leaving the hotel, however, [petitioners] met at the lobby Col. Roberto Delfin, a Filipino co-passenger who was
also travelling Business Class, who informed them that he and some passengers were leaving the next day, October 29,
1991, on board the same plane with the same itinerary.

"On account of the 'engine failure' of the plane, [petitioner] Virginia developed nervousness. On getting wind of
information that they were 'bumped off', she took 'valium' to calm her nerves and 'cough syrup' for the fever and colds
she had developed during the trip.
"When [petitioners] reached the Seattle Airport, [respondent's] ground stewardess belatedly advised them that instead
of flying to Manila they would have to board NW Flight 94, a DC-10 plane, bound for a 3-hour flight to Los Angeles for a
connecting flight to Manila. When [Petitioner] Savellano insisted theirs was a direct flight to Manila, the female ground
stewardess just told them to hurry up as they were the last passengers to board.

"In Los Angeles, [petitioners] and the other passengers became confused for while 'there was a sort of a board' which
announced a Seoul-Bangkok flight, none was posted for a Manila flight. It was only after they complained to the NW
personnel that the latter 'finally changed the board to include Manila.'

"Before boarding NW Flight 23 for Manila via Seoul, [petitioners] encountered another problem. Their three small
handcarried items which were not padlocked as they were merely closed by zippers were 'not allowed' to be placed
inside the passengers' baggage compartments of the plane by an arrogant NW ground stewardess.
"On [petitioners'] arrival at the NAIA, Manila where they saw Col. Delfin and his wife as well as the other passengers of
the distressed flight who unlike them [petitioners] who left Seattle on October 28, 1991, left Seattle on October 29,
1991, they were teased for taking the longer and tiresome route to the Philippines.

"When [petitioners] claimed their luggage at the baggage carousel, they discovered that the would-have-been
handcarried items which were not allowed to be placed inside the passengers' baggage compartment had been
ransacked and the contents thereof stolen. Virginia was later to claim having lost her diamond earrings costing
P300,000.00, two (2) Perry Gan shoes worth US$250.00, four (4) watches costing US$40.00 each, two (2) pieces of Tag
Heuer watch and three (3) boxes of Elizabeth Arden [perfumes]. Deogracias, on the other hand, claimed to have lost
two (2) pairs of Cole Haan shoes which he bought for his wife, and the clothes, camera, personal computer, and jeans
he bought for his children.

"By letter of November 22, 1991, [petitioners] through counsel demanded from [respondent] the amount of
P3,000,000.00 as damages for what they claimed to be the humiliation and inconvenience they suffered in the hands of
its personnel.

[Respondent] did not accede to the demand, however, impelling [petitioners] to file a case for damages at the RTC of
Cabugao, Ilocos Sur subject of the present appeal.

"[Petitioners] concede that they were not downgraded in any of the flights on their way home to Manila. Their only
complaint is that they suffered inconvenience, embarrassment, and humiliation for taking a longer route.

"During the trial, the [RTC], on motion of [petitioners], issued on October 29, 1993 a subpoena duces tecum directing
[respondent] to submit the passengers' manifest of the distressed flight from San Francisco to Tokyo on October 27,
1991, the passengers' manifest of the same distressed plane from Seattle to Tokyo which took off on October 29, 1991,
and the passenger manifest of the substitute plane from Seattle to Los Angeles and Los Angeles to Seoul enroute to
Manila which took off on October 28, 1991.

"The subpoena duces tecum was served on December 1, 1993 but was not complied with, however, by [respondent], it
proffering that its Minneapolis head office retains documents only for one year after which they are destroyed.

" x x x Branch 24 of the RTC of Cabugao, Ilocos Sur rendered judgment in favor of [petitioners] x x x.
"In granting moral and actual damages to [petitioners], the [RTC] credited [petitioners'] claim that they were excluded
from the Seattle-Tokyo-Manila flight to accommodate several Japanese passengers bound for Japan. And as basis of its
award of actual damages arising from the allegedly lost articles contained in the would-have-been handcarried
[luggage], the [RTC], passing on the lack of receipts covering the same, took judicial notice of the Filipinos' practice of
6
often bringing home pasalubong for friends and relatives."

Ruling of the Court of Appeals

The CA ruled that petitioners had failed to show respondent's bad faith, negligence or malice in transporting them via
the Seattle-Los Angeles-Seoul-Manila route. Hence, it held that there was no basis for the RTC's award of moral and
exemplary damages. Neither did it find any reason to grant attorney's fees.
It further ruled:

"[Petitioners'] testimonial claim of losses is unsupported by any other evidence at all. It is odd and even contrary to
human experience for [petitioner] Virginia not to have taken out a P300,000.00 pair of diamond earrings from an
unlocked small luggage after such luggage was not allowed to be placed inside the passenger's baggage compartment,
given the ease with which it could have been done as the small luggage was merely closed by zipper. Just as it is odd
why no receipts for alleged purchases for valuable pasalubongs including Tag Huer watches, camera and personal
7
computer were presented x x x "

Thus, even the trial court's award of actual damages was reversed by the appellate court.
8
Hence this Petition.

Issues
In their appeal, petitioners ask this Court to rule on these issues:
" x x x [W]hether or not petitioners' discriminatory bump-off from NW Flight No. 0027 on 28 October 1991 (not the
diversion of the distressed plane to Seattle the day before, i.e. NW Flight 27 on 27 October 1991) constitutes breach by
respondent airline of its air-carriage contract?
"And if so, whether or not petitioners are entitled to actual, moral and exemplary damages including attorney's fees
9
as a consequence?"

The Court's Ruling
\
The Petition is partly meritorious.

First Issue:
Breach of Contract

Petitioners' contract of carriage with Northwest was for the San Francisco-Tokyo (Narita)-Manila flights scheduled for
October 27, 1991. This itinerary was not followed when the aircraft used for the first segment of the journey developed
engine trouble. Petitioners stress that they are questioning, not the cancellation of the original itinerary, but its
substitution, which they allegedly had not contracted for or agreed to. They insist that, like the other passengers of the
distressed flight, they had the right to be placed on Flight 27, which had a connecting flight from Japan to Manila. They
add that in being treated differently and shabbily, they were being discriminated against.

10
A contract is the law between the parties. Thus, in determining whether petitioners' rights were violated, we must
look into its provisions, which are printed on the airline ticket. Condition 9 in the agreement states that a " x x x [c]arrier
may without notice substitute alternate carriers or aircraft, and may alter or omit stopping places shown on the ticket in
11
case of necessity. x x x ."
The basis of the Complaint was the way respondent allegedly treated petitioners like puppets that could be shuttled to
12
Manila via Los Angeles and Seoul without their consent. Undeniably, it did not take the time to explain how it would
be meeting its contractual obligation to transport them to their final destination. Its employees merely hustled the
confused petitioners into boarding one plane after another without giving the latter a choice from other courses of
action that were available. It unilaterally decided on the most expedient way for them to reach their final destination.

Passengers' Consent
After an examination of the conditions printed on the airline ticket, we find nothing there authorizing Northwest to
decide unilaterally, after the distressed flight landed in Seattle, what other stopping places petitioners should take and
when they should fly. True, Condition 9 on the ticket allowed respondent to substitute alternate carriers or aircraft
without notice. However, nothing there permits shuttling passengers without so much as a by your-leave to
stopping places that they have not been previously notified of, much less agreed to or been prepared for. Substituting
aircrafts or carriers without notice is entirely different from changing stopping places or connecting cities without
notice.

The ambiguities in the contract, being one of adhesion, should be construed against the party that caused its
13
preparation in this case, respondent. Since the conditions enumerated on the ticket do not specifically allow it to
change stopping places or to fly the passengers to alternate connecting cities without consulting them, then it must be
construed to mean that such unilateral change was not permitted.

Proof of Necessity of Alteration
Furthermore, the change in petitioners' flight itinerary does not fall under the situation covered by the phrase "may
14
alter or omit stopping places shown on the ticket in case of necessity." A case of necessity must first be proven. The
burden of proving it necessarily fell on respondent. This responsibility it failed to discharge.
Petitioners do not question the stop in Seattle, so we will not delve into this matter. The airplane engine trouble that
developed during the flight bound for Tokyo from San Francisco definitely merited the "necessity" of landing the plane
at some place for repair in this case, Seattle but not that of shuttling petitioners to other connecting points
thereafter without their consent.

Northwest failed to show a "case of necessity" for changing the stopping place from Tokyo to Los Angeles and Seoul. It
is a fact that some of the passengers on the distressed flight continued on to the Tokyo (Narita) connecting place. No
explanation whatsoever was given to petitioners as to why they were not similarly allowed to do so. It may be that the
Northwest connecting flight from Seattle to Tokyo to Manila could no longer accommodate them. Yet it may also be
that there were other carriers that could have accommodated them for these sectors of their journey, and whose route
they might have preferred to the more circuitous one unilaterally chosen for them by respondent.
In the absence of evidence as to the actual situation, the Court is hard pressed to determine if there was a "case of
necessity" sanctioning the alteration of the Tokyo stopping place in the case of petitioners. Thus, we hold that in the
absence of a demonstrated necessity thereof and their rerouting to Los Angeles and Seoul as stopping places without
their consent, respondent committed a breach of the contract of carriage.

Second Issue:
Damages
Being guilty of a breach of their contract, respondent may be held liable for damages suffered by petitioners in
accordance with Articles 1170 and 2201 of the Civil Code, which state:
"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." (Emphasis supplied)

"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted."

"In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation."

As a general rule, the factual findings of the CA when supported by substantial evidence on record are final and
15
conclusive and may not be reviewed on appeal. An exception to this rule is when the lower court and the CA arrive at
16
different factual findings. In this case, the trial court found the presence of bad faith and hence awarded moral and
exemplary damages; while the CA found none and hence deleted the award of damages.

Thus, the Court is now behooved to review the basis for sustaining the award or deletion of damages.
Petitioners impute oppression, discrimination, recklessness and malevolence to respondent. We are not convinced.
There is no persuasive evidence that they were maliciously singled out to fly the Seattle-Los Angeles-Seoul-Manila
route. It appears that the passengers of the distressed flight were randomly divided into two groups. One group was
made to take the Tokyo-Manila flight; and the other, the Los Angeles-Seoul-Manila flight. The selection of who was to
take which flight was handled via the computer reservation system, which took into account only the passengers' final
 17
destination.
The records show that respondent was impelled by sincere motives to get petitioners to their final destination by
whatever was the most expeditious course in its judgment, if not in theirs. Though they claim that they were not
accommodated on Flight 27 from Seattle to Tokyo because respondent had taken on Japanese passengers, petitioners
failed to present convincing evidence to back this allegation. In the absence of convincing evidence, we cannot find
respondent guilty of bad faith.

Lopez, Zulueta and Ortigas Rulings Not Applicable
18 19
Petitioners cite the cases of Lopez v. Pan American World Airways, Zulueta v. Pan American World Airways, Inc. and
20
Ortigas Jr. v. Lufthansa German Airlines to support their claim for moral and exemplary damages.

In Lopez, Honorable Fernando Lopez, then an incumbent senator and former Vice President of the Philippines
together with his wife, his daughter and his son-in-law made first-class reservations with the Pan American World
Airways on its Tokyo-San Francisco flight. The reservation having been confirmed, first-class tickets were subsequently
issued in their favor. Mistakenly, however, defendant's agent cancelled the reservation. But expecting other
cancellations before the flight scheduled a month later, the reservations supervisor decided to withhold the information
from them, with the result that upon arrival in Tokyo, the Lopezes discovered they had no first-class accommodations.
Thus, they were compelled to take the tourist class, just so the senator could be on time for his pressing engagements in
the United States.

In the light of these facts, the Court held there was a breach of the contract of carriage. The failure of the defendant to
inform the plaintiffs on time that their reservations for the first class had long been cancelled was considered as the
element of bad faith entitling them to moral damages for the contractual breach. According to the Court, such omission
had placed them in a predicament that enabled the company to keep them as their passengers in the tourist class.
Thus, the defendant was able to retain the business and to promote its self-interest at the expense of embarrassment,
discomfort and humiliation on their part.

In Zulueta, the passenger was coming home to Manila from Honolulu via a Pan-American flight. The plane had a
stopover at Wake Island, where Rafael Zulueta went down to relieve himself. At flight time, he could not be located
immediately. Upon being found, an altercation ensued between him and the Pan-Am employees. One of them
remonstrated: "What in the hell do you think you are? Get on that plane." An exchange of angry words followed, and
the pilot went to the extent of referring to the Zuluetas as "those monkeys." Subsequently, for his "belligerent" attitude,
Rafael Zulueta was intentionally off-loaded and left at Wake Island with the prospect of being stranded there for a
week, with malice aforethought. The Court awarded to the Zuluetas P500,000.00 as moral damages, P200,000.00 as
exemplary damages and P75,000.00 as attorney's fees, apart from the actual damages of P5,502.85.

In Ortigas, Francisco Ortigas Jr. had a confirmed and validated first-class ticket for Lufthansa's Flight No. 646. His
reserved first class seat was, however, given to a Belgian. As a result, he was forced to take economy class on the same
flight. Lufthansa succeeded in keeping him as a passenger by assuring him that he would be given first-class
accommodation at the next stop. The proper arrangements therefor had supposedly been made already, when in truth
such was not the case. In justifying the award of moral and exemplary damages, the Court explained.

" x x x [W]hen it comes to contracts of common carriage, inattention and lack of care on the part of the carrier resulting
in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud which
entitles the passenger to the award of moral damages in accordance with Article 2220 of the Civil Code. But in the
instant case, the breach appears to be of graver nature, since the preference given to the Belgian passenger over
plaintiff was done willfully and in wanton disregard of plaintiff's rights and his dignity as a human being and as a Filipino,
who may not be discriminated against with impunity."

To summarize, in Loipez despite sufficient time one month to inform the passengers of what had happened to
their booking, the airline agent intentionally withheld that information from them. In Zulueta, the passenger was
deliberately off-loaded after being gravely insulted during an altercation. And in Ortigas, the passenger was
intentionally downgraded in favor of a European.

These cases are different from and inapplicable to the present case. Here, there is no showing that the breach of
contract was done with the same entrepreneurial motive or self-interest as in Lopez or with ill will as in Zulueta and
Ortigas. Petitioners have failed to show convincingly that they were rerouted by respondent to Los Angeles and Seoul
because of malice, profit motive or self-interest. Good faith is presumed, while bad faith is a matter of fact that needs to
21
be proved by the party alleging it.

In the absence of bad faith, ill will, malice or wanton conduct, respondent cannot be held liable for moral damages.
22
Article 2219 of the Civil Code enumerates the instances in which moral damages may be awarded. In a breach of
contract, such damages are not awarded if the defendant is not shown to have acted fraudulently or with malice or bad
23
faith. Insufficient to warrant the award of moral damages is the fact that complainants suffered economic hardship, or
24
that they worried and experienced mental anxiety.

Neither are exemplary damages proper in the present case. The Civil Code provides that "[i]n contracts and quasi-
contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless,
25
oppressive, or malevolent manner."
Respondent has not been proven to have acted in that manner. At most, it can only be found guilty of having acted
without first considering and weighing all other possible courses of actions it could have taken, and without consulting
petitioners and securing their consent to the new stopping places.

The unexpected and sudden requirement of having to arrange the connecting flights of every single person in the
distressed plane in just a few hours, in addition to the Northwest employees' normal workload, was difficult to satisfy
perfectly. We cannot find respondent liable for exemplary damages for its imperfection of neglecting to consult with the
passengers beforehand.

Nevertheless, herein petitioners will not be totally deprived of compensation. Nominal damages may be awarded as
provided by the Civil Code, from which we quote:

"Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him."

"Art. 2222. The court may award nominal damages in every obligation arising from any source enumerated in article
1157, or in every case where any property right has been invaded."

Nominal damages are recoverable if no actual, substantial or specific damages were shown to have resulted from the
26
breach. The amount of such damages is addressed to the sound discretion of the court, taking into account the
27
relevant circumstances.

In the present case, we must consider that petitioners suffered the inconvenience of having to wake up early after a bad
night and having to miss breakfast; as well as the fact that they were business class passengers. They paid more for
better service; thus, rushing them and making them miss their small comforts was not a trivial thing. We also consider
their social and official status. Victorino Savellano was a former mayor, regional trial court judge and chairman of the
Commission on Elections. Virginia B. Savellano was the president of five rural banks, and Deogracias Savellano was then
the incumbent vice governor of Ilocos Sur. Hence, it will be proper to grant one hundred fifty thousand pesos
28 29
(P150,000) as nominal damages to each of them, in order to vindicate and recognize their right to be notified and
consulted before their contracted stopping place was changed.

A claim for the alleged lost items from the baggage of petitioners cannot prosper, because they failed to give timely
notice of the loss to respondent. The Conditions printed on the airline ticket plainly read:
"2. Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw Convention
unless such carriage is not `International carriage' as defined by that Convention.

xxx xxx xxx
"7. Checked baggage will be delivered to bearer of the baggage check. In case of damage to baggage moving in
international transportation complaint must be made in writing to carrier forthwith after discovery of damage, and at
the latest, within 7 days from receipt; in case of delay, complaint must be made within 21 days from date the baggage
30
was delivered. x x x ."

The pertinent provisions of the Rules Relating to International Carriage by Air (Warsaw Convention) state:
"Article 26

1. Receipt by the person entitled to delivery of luggage or goods without complaint is prima facie evidence that the
same have been delivered in good condition and in accordance with the document of carriage.
2. In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the
damage, and, at the latest, within three days from the date of receipt in the case of luggage and seven days from date
of receipt in the case of goods. In the case of delay the complaint must be made at the latest within fourteen days from
the date on which the luggage or goods have been placed at his disposal.
3. Every complaint must be made in writing upon the document of carriage or by separate notice in writing dispatched
within the times aforesaid.
4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his
part."
After allegedly finding that their luggage had been ransacked, petitioners never lodged a complaint with any Northwest
airport personnel. Neither did they mention the alleged loss of their valuables in their November 22, 1991 demand
31
letter. Hence, in accordance with the parties' contract of carriage, no claim can be heard or admitted against
respondent with respect to alleged damage to or loss of petitioners' baggage.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED, and the assailed Decision MODIFIED. Respondent is ORDERED
to pay one hundred fifty thousand pesos (P150,000) to each of the three petitioners as nominal damages. No.
pronouncement as to costs.
SO ORDERED.