[G.R. No. L-47822. December 22, 1988.

]
PEDRO DE GUZMAN, petitioner, vs. COURT OF APPEALS and
ERNESTO CENDAA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
SYLLABUS
1. CIVIL CODE; COMMON CARRIERS; ARTICLE 1732, DEFINITION UNDER
ARTICLE 1732 OF THE CODE. The Civil Code defines "common carriers" in
the following terms: "Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation, offering
their services to the public." The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity (in local idiom, as "a
sideline"). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services
to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making such
distinctions.
2. ID.; ID.; ID.; LAW ON COMMON CARRIERS SUPPLEMENTED BY THE
PUBLIC SERVICE ACT; SCOPE OF PUBLIC SERVICE. So understood, the
concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth
Act No. 1416, as amended) which at least partially supplements the law on
common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes: ". . . every person that now or

hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional
or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation
of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services . . ." (Emphasis supplied) It appears to the Court that private
respondent is properly characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to Pangasinan, although
such backhauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent's principal occupation
was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here.
3. ID.; ID.; ID.; ID.; CERTIFICATE OF PUBLIC CONVENIENCE; NOT A
REQUISITE FOR INCURRING LIABILITY AS A COMMON CARRIER; NATURE
OF THE BUSINESS OF A COMMON CARRIER. The Court of Appeals
referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error.
A certificate of public convenience is not a requisite for the incurring of liability
under the Civil Code provisions governing common carriers. That liability arises
the moment a person or firm acts as a common carrier, without regard to whether
or not such carrier has also complied with the requirements of the applicable
regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public
policy; that would be to reward private respondent precisely for failing to comply
with applicable statutory requirements. The business of a common carrier

impinges directly and intimately upon the safety and well being and property of
those members of the general community who happen to deal with such carrier.
The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
4. ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF, COMMON CARRIERS.
Common carriers, "by the nature of their business and for reasons of public
policy," are held to a very high degree of care and diligence ("extraordinary
diligence") in the carriage of goods as well as of passengers. The specific import
of extraordinary diligence in the care of goods transported by a common carrier
is, according to Article 1733, "further expressed in Articles 1734, 1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
5. ID.; ID.; ID.; LIABILITY OF COMMON CARRIERS. Article 1734 establishes
the general rule that common carriers are responsible for the loss, destruction or
deterioration of the goods which they carry, "unless the same is due to any of the
following causes only: (1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) Act of the public enemy in war, whether international or
civil; (3) Act or omission of the shipper or owner of the goods; (4) The character
of the goods or defects in the packing or in the containers; and (5) Order or act of
competent public authority." It is important to point out that the above list of
causes of loss, destruction or deterioration which exempt the common carrier for
responsibility therefor, is a closed list. Causes falling outside the foregoing list,
even if they appear to constitute a species of force majeure, fall within the scope
of Article 1735, which provides as follows: "In all cases other than those
mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are
lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733." (Emphasis supplied)
6. ID.; ID.; ID.; ID.; COMMON CARRIER'S ARE NOT ABSOLUTE INSURERS
AGAINST ALL RISKS; NO LIABILITY ATTACHES IN CASE OF FORTUITOUS
EVENTS. Under Article 1745 (6) above, a common carrier is held responsible
and will not be allowed to divest or to diminish such responsibility even for

acts of strangers like thieves or robbers, except where such thieves or robbers in
fact acted "with grave or irresistible threat, violence or force." We believe and so
hold that the limits of the duty of extraordinary diligence in the vigilance over the
goods carried are reached where the goods are lost as a result of a robbery
which is attended by "grave or irresistible threat, violence or force." In these
circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly
regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport
of goods, and are not held liable for acts or events which cannot be foreseen or
are inevitable, provided that they shall have complied with the rigorous standard
of extraordinary diligence.
DECISION
FELICIANO, J :
p

Respondent Ernesto Cendaa, a junk dealer, was engaged in buying up used

bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities of
such scrap material, respondent would bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks which he owned for hauling the material to
Manila. On the return trip to Pangasinan, respondent would load his vehicles with
cargo which various merchants wanted delivered to differing establishments in
Pangasinan. For that service, respondent charged freight rates which were
commonly lower than regular commercial rates.
llcd

Sometime in November 1970, petitioner Pedro de Guzman, a merchant and

authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta,
Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty
filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1
December 1970, respondent loaded in Makati the merchandise on to his trucks:
150 cartons were loaded on a truck driven by respondent himself; while 600

cartons were placed on board the other truck which was driven by Manuel
Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600
boxes never reached petitioner, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed
men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in
the Court of First Instance of Pangasinan, demanding payment of P22,150.00,
the claimed value of the lost merchandise, plus damages and attorney's fees.
Petitioner argued that private respondent, being a common carrier, and having
failed to exercise the extraordinary diligence required of him by the law, should be
held liable for the value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and
argued that he could not be held responsible for the value of the lost goods, such
loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision' finding private
respondent to be a common carrier and holding him liable for the value of the
undelivered goods (P22,150.00) as well as for P4,000.00 as damages and
P2,000.00 as attorney's fees.
cdrep

On appeal before the Court of Appeals, respondent urged that the trial court had
erred in considering him a common carrier; in finding that he had habitually
offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that
respondent had been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as errors
the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendaa
may, under the facts earlier set forth, be properly characterized as a common
carrier.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public."

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or
solicits business only from a narrowsegment of the general population. We think
that Article 1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen
to coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements
the law on common carriers set forth in the Civil Code. Under Section 13,
paragraph (b) of the Public Service Act, "public service" includes:
". . . every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service,

steamboat, or steamship line, pontines, ferries and water craft, engaged

in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public
services . . ." (Emphasis supplied)

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and even though private
respondent'sprincipal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling
their goods; that fee frequently fell below commercial freight rates is not relevant
here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common carrier.
This is palpable error. A certificate of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations
and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he
has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety
and well being and property of those members of the general community who
happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services
and the law cannot allow a common carrier to render such duties and liabilities
merely facultative by simply failing to obtain the necessary permits and
authorizations.
cdphil

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public
policy," 2 are held to a very high degree of care and diligence ("extraordinary
diligence") in the carriage of goods as well as of passengers. The specific import
of extraordinary diligence in the care of goods transported by a common carrier
is, according to Article 1733, "further expressed in Articles 1734, 1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for
the loss, destruction or deterioration of the goods which they carry, "unless the
same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers; and
(5) Order or act of competent public authority."

It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is a
closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure, fall within the scope of Article 1735,
which provides as follows:
"In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of
the preceding article, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733." (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the
specific cause alleged in the instant case the hijacking of the carrier's truck does not fall within any of the five (5) categories of exempting causes listed in
Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle

must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to
have acted negligently. This presumption, however, may be overthrown by proof
of extraordinary diligence on the part of private respondent.
cdll

Petitioner insists that private respondent had not observed extraordinary

diligence in the care of petitioner's goods. Petitioner argues that in the
circumstances of this case, private respondent should have hired a security
guard presumably to ride with the truck carrying the 600 cartons of Liberty filled
milk. We do not believe, however, that in the instant case, the standard of
extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a fire fight at the risk of his own life
and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the
duty of extraordinary diligence in the vigilance over the goods carried in the
specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is,
under Article 1733, given additional specification not only by Articles 1734 and
1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in
relevant part:
"Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the
acts or omissions of his or its employees;
(6) that the common carrier's liability for acts committed by
thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the
loss, destruction or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage." (Emphasis supplied)

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

We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendaa is not liable for the value of the undelivered merchandise
which was lost because of an event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on Certiorari is hereby DENIED and the
Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
|||

(De Guzman v. Court of Appeals, G.R. No. L-47822, [December 22, 1988], 250

PHIL 613-624)
[G.R. No. 186312. June 29, 2010.]
SPOUSES DANTE CRUZ and LEONORA CRUZ, petitioners, vs.
SUN HOLIDAYS, INC., respondent.
DECISION
CARPIO MORALES, J :
p

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on

January 25, 2001 1 against Sun Holidays, Inc. (respondent) with the Regional
Trial Court (RTC) of Pasig City for damages arising from the death of their son
Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, 2000
on board the boat M/B Coco Beach III that capsized en route to Batangas
from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco
Beach Island Resort (Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from
September 9 to 11, 2000 was by virtue of a tour package-contract with
respondent that included transportation to and from the Resort and the point
of departure in Batangas.
Miguel C. Matute (Matute), 2 a scuba diving instructor and one of the
survivors, gave his account of the incident that led to the filing of the complaint
as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was
originally scheduled to leave the Resort in the afternoon of September 10,

2000, but was advised to stay for another night because of strong winds and
heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other
Resort guests including petitioners' son and his wife trekked to the other side
of the Coco Beach mountain that was sheltered from the wind where they
boarded M/B Coco Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away
from Puerto Galera and into the open seas, the rain and wind got stronger,
causing the boat to tilt from side to side and the captain to step forward to the
front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which
came one after the other,M/B Coco Beach III capsized putting all passengers
underwater.
The passengers, who had put on their life jackets, struggled to get out
of the boat. Upon seeing the captain, Matute and the other passengers who
reached the surface asked him what they could do to save the people who
were still trapped under the boat. The captain replied "Iligtas niyo na lang ang
sarili niyo" (Just save yourselves).
AcCTaD

Help came after about 45 minutes when two boats owned by Asia
Divers in Sabang, Puerto Galera passed by the capsized M/B Coco Beach
III. Boarded on those two boats were 22 persons, consisting of 18 passengers
and four crew members, who were brought to Pisa Island. Eight passengers,
including petitioners' son and his wife, died during the incident.
At the time of Ruelito's death, he was 28 years old and employed as a
contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi
Arabia, with a basic monthly salary of $900. 3
Petitioners, by letter of October 26, 2000, 4 demanded indemnification
from respondent for the death of their son in the amount of at least
P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any
responsibility for the incident which it considered to be a fortuitous event. It

nevertheless offered, as an act of commiseration, the amount of P10,000 to

petitioners upon their signing of a waiver.
As petitioners declined respondent's offer, they filed the Complaint, as
earlier reflected, alleging that respondent, as a common carrier, was guilty of
negligence in allowing M/B Coco Beach III to sail notwithstanding storm
warning bulletins issued by the Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of
September 11, 2000. 6
In its Answer, 7 respondent denied being a common carrier, alleging that
its boats are not available to the general public as they only ferry Resort
guests and crew members. Nonetheless, it claimed that it exercised the
utmost diligence in ensuring the safety of its passengers; contrary to
petitioners' allegation, there was no storm on September 11, 2000 as the
Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled
to capacity and had sufficient life jackets for its passengers. By way of
Counterclaim, respondent alleged that it is entitled to an award for attorney's
fees and litigation expenses amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
customarily requires four conditions to be met before a boat is allowed to sail,
to wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3)
there is clearance from the captain and (4) there is clearance from the
Resort's assistant manager. 8He added that M/B Coco Beach III met all four
conditions on September 11, 2000, 9 but a subasco or squall, characterized by
strong winds and big waves, suddenly occurred, causing the boat to
capsize. 10
By Decision of February 16, 2005, 11 Branch 267 of the Pasig RTC
dismissed petitioners' Complaint and respondent's Counterclaim.
Petitioners' Motion for Reconsideration having been denied by Order
dated September 2, 2005, 12 they appealed to the Court of Appeals.
By Decision of August 19, 2008, 13 the appellate court denied
petitioners' appeal, holding, among other things, that the trial court correctly
ruled that respondent is a private carrier which is only required to observe

ordinary diligence; that respondent in fact observed extraordinary diligence in

transporting its guests on board M/B Coco Beach III; and that the proximate
cause of the incident was a squall, a fortuitous event.
Petitioners' Motion for Reconsideration having been denied by
Resolution dated January 16, 2009, 14 they filed the present Petition for
Review. 15
Petitioners maintain the position they took before the trial court, adding
that respondent is a common carrier since by its tour package, the
transporting of its guests is an integral part of its resort business. They inform
that another division of the appellate court in fact held respondent liable for
damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to
present evidence to prove that it is a common carrier; that the Resort's ferry
services for guests cannot be considered as ancillary to its business as no
income is derived therefrom; that it exercised extraordinary diligence as shown
by the conditions it had imposed before allowing M/B Coco Beach III to sail;
that the incident was caused by a fortuitous event without any contributory
negligence on its part; and that the other case wherein the appellate court
held it liable for damages involved different plaintiffs, issues and evidence. 16
The petition is impressed with merit.

ETDHSa

Petitioners correctly rely on De Guzman v. Court of Appeals

characterizing respondent as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity (in local
idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation

17

in

service on a regular or scheduled basis and one offering such service

on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to
the "general
public," i.e., the
general
community
or
population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may
be seen to coincide neatly with the notion of "public service," under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
"public service" includes:
. . . every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship
line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply
and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations
and other similar public services . . . 18 (emphasis and
underscoring supplied.)

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

intertwined with its main business as to be properly considered ancillary
thereto. The constancy of respondent's ferry services in its resort operations is
underscored by its having its own Coco Beach boats. And the tour packages it
offers, which include the ferry services, may be availed of by anyone who can
afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry
services is of no moment. It would be imprudent to suppose that it provides
said services at a loss. The Court is aware of the practice of beach resort
operators offering tour packages to factor the transportation fee in arriving at
the tour package price. That guests who opt not to avail of respondent's ferry
services pay the same amount is likewise inconsequential. These guests may
only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining
"common carriers" has deliberately refrained from making distinctions on
whether the carrying of persons or goods is the carrier's principal business,
whether it is offered on a regular basis, or whether it is offered to the general
public. The intent of the law is thus to not consider such distinctions.
Otherwise, there is no telling how many other distinctions may be concocted
by unscrupulous businessmen engaged in the carrying of persons or goods in
order to avoid the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary
diligence for the safety of the passengers transported by them, according to all
the circumstances of each case. 19 They are bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances. 20
When a passenger dies or is injured in the discharge of a contract of
carriage, it is presumed that the common carrier is at fault or negligent. In fact,
there is even no need for the court to make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may
only be overcome by evidence that the carrier exercised extraordinary
diligence. 21
Respondent nevertheless harps on its strict compliance with the earlier
mentioned conditions of voyage before it allowed M/B Coco Beach III to sail
on September 11, 2000. Respondent's position does not impress.
ITcCaS

The evidence shows that PAGASA issued 24-hour public weather

forecasts and tropical cyclone warnings for shipping on September 10 and 11,

2000 advising of tropical depressions in Northern Luzon which would also

affect the province of Mindoro. 22 By the testimony of Dr. Frisco Nilo,
supervising weather specialist of PAGASA, squalls are to be expected under
such weather condition. 23
A very cautious person exercising the utmost diligence would thus not
brave such stormy weather and put other people's lives at risk. The
extraordinary diligence required of common carriers demands that they take
care of the goods or lives entrusted to their hands as if they were their own.
This respondent failed to do.
Respondent's insistence that the incident was caused by a fortuitous
event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors to comply
with their obligations, must have been independent of human will; (b) the
event that constituted the caso fortuito must have been impossible to foresee
or, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a
normal manner; and (d) the obligor must have been free from any participation
in the aggravation of the resulting injury to the creditor. 24
To fully free a common carrier from any liability, the fortuitous event
must have been the proximate and only cause of the loss. And it should
have exercised due diligence to prevent or minimize the loss before, during
and after the occurrence of the fortuitous event. 25
Respondent cites the squall that occurred during the voyage as the
fortuitous event that overturned M/B Coco Beach III. As reflected above,
however, the occurrence of squalls was expected under the weather condition
of September 11, 2000. Moreover, evidence shows that M/B Coco Beach
III suffered engine trouble before it capsized and sank. 26 The incident was,
therefore, not completely free from human intervention.
The Court need not belabor how respondent's evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the squall.

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

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

30

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

2/3 x [80 age of deceased at the time of death]

2/3 x [80 - 28]

Life expectancy

2/3 x [52]
35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$900 35 which, when converted to Philippine peso applying the annual average
exchange rate of $1 = P44 in 2000, 36 amounts to P39,600. Ruelito's net earning
capacity is thus computed as follows:
Net Earning Capacity

Net Earning Capacity

life expectancy x (gross annual income - reasonable

and necessary living expenses).

35 x (P475,200 - P237,600)

=
=

35 x (P237,600)
P8,316,000

Respecting the award of moral damages, since respondent common

carrier's breach of contract of carriage resulted in the death of petitioners' son,
following Article 1764 vis--vis Article 2206 of the Civil Code, petitioners are
entitled to moral damages.
DAETHc

Since respondent failed to prove that it exercised the extraordinary

diligence required of common carriers, it is presumed to have acted recklessly,
thus warranting the award too of exemplary damages, which are granted in
contractual obligations if the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. 37
Under the circumstances, it is reasonable to award petitioners the
amount of P100,000 as moral damages and P100,000 as exemplary
damages. 38
Pursuant to Article 2208 39 of the Civil Code, attorney's fees may also
be awarded where exemplary damages are awarded. The Court finds that
10% of the total amount adjudged against respondent is reasonable for the
purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that
when an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for payment of interest in the concept of actual and compensatory
damages, subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a

sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
TcaAID

3. When the judgment of the court awarding a sum of money becomes

final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit. (emphasis supplied).

Since the amounts payable by respondent have been determined with

certainty only in the present petition, the interest due shall be computed upon
the finality of this decision at the rate of 12% per annum until satisfaction, in
accordance with paragraph number 3 of the immediately cited guideline
in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008
is REVERSED and SET ASIDE. Judgment is rendered in favor of petitioners
ordering respondent to pay petitioners the following: (1) P50,000 as indemnity

for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito's loss of
earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against
respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the
rate of 12% per annum computed from the finality of this decision until full
payment.
SO ORDERED.
|||

(Spouses Cruz v. Sun Holidays, Inc., G.R. No. 186312, [June 29, 2010], 636

PHIL 396-413)

VIRGINES CALVO doing business under the name and style

TRANSORIENT CONTAINER TERMINAL SERVICES,
INC., petitioner, vs. UCPB GENERAL INSURANCE CO., INC.
(formerly Allied Guarantee Ins. Co., Inc.) respondent.
Montilla Law Office for petitioner.
Leano and Leano Law Office for respondent.
SYNOPSIS
Petitioner, Virgines Calvo is the owner of Transorient Container Terminal
Services, Inc., a sole proprietorship customs broker, was held liable by the RTC
and the CA for damages to the cargo handled by petitioner. On appeal, petitioner
contended that: she is not liable beyond what ordinary diligence in the vigilance
over the goods transported by her would require because her company is not a
common carrier but a private or special carrier; and that the cargo could not have
been damaged while in her custody as she immediately delivered the containers
to SMC's compound.
DHITcS

The Supreme Court upheld the assailed decision on appeal, ruling: that petitioner
is a common carrier because the transportation of goods is an integral part of her
business: that as such, she is bound to observe extraordinary diligence in the
carriage of goods; that to prove extraordinary diligence, petitioner must do more
than merely show the possibility that some other party could be responsible for
the damage; and that improper packing of the goods could be a basis to exempt
petitioner from liability, but petitioner accepted the cargo without exception
despite the apparent defects in some of the container vans.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; CUSTOMS BROKER AND
WAREHOUSEMAN AS COMMON CARRIER; CASE AT BAR. Petitioner
contends that contrary to the findings of the trial court and the Court of Appeals,
she is not a common carrier but a private carrier because, as a customs broker
and warehouseman, she does not indiscriminately hold her services out to the
public but only offers the same to select parties with whom she may contract in
the conduct of her business. The contention has no merit. In De Guzman v. Court
of Appeals, the Court dismissed a similar contention and held the party to be a
common carrier, . . . as defined in Article 1732 of the Civil Code. . . . There is
greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners'
contention would be to deprive those with whom she contracts the protection
which the law affords them notwithstanding the fact that the obligation to carry
goods for her customers, as already noted, is part and parcel of petitioner's
business.
2. ID.; ID.; ID.; PROOF OF THE EXERCISE OF EXTRAORDINARY DILIGENCE
IN THE CARRIAGE OF GOODS; CASE AT BAR. Anent petitioner's insistence
that the cargo could not have been damaged while in her custody as she
immediately delivered the containers to SMC's compound, suffice it to say that to
prove the exercise of extraordinary diligence, petitioner must do more than
merely show the possibility that some other party could be responsible for the
damage. It must prove that it used "all reasonable means to ascertain the nature
and characteristic of goods tendered for [transport] and that [it] exercise[d] due

care in the handling [thereof]." Petitioner failed to do this. Nor is there basis to
exempt petitioner from liability under Art. 1734(4), . . . For this provision to apply,
the rule is that if the improper packing or, in this case, the defect/s in the
container, is/are known to the carrier or his employees or apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage resulting
therefrom. In this case, petitioner accepted the cargo without exception despite
the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of
goods in this case or that she is exempt from liability, the presumption of
negligence as provided under Art. 1735 holds.
EDISaA

DECISION
MENDOZA, J :
p

This is a petition for review of the decision, 1 dated May 31, 2001, of the Court of
Appeals, affirming the decision 2 of the Regional Trial Court, Makati City, Branch
148, which ordered petitioner to pay respondent, as subrogee, the amount of
P93,112.00 with legal interest, representing the value of damaged cargo handled
by petitioner, 25% thereof as attorney's fees, and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services,
Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this
case, petitioner entered into a contract with San Miguel Corporation (SMC) for
the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner
board from the Port Area in Manila to SMC's warehouse at the Tabacalera
Compound, Romualdez St., Ermita, Manila. The cargo was insured by
respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived
in Manila on board "M/V Hayakawa Maru" and, after 24 hours, were unloaded
from the vessel to the custody of the arrastre operator, Manila Port Services, Inc.

From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC,
withdrew the cargo from the arrastre operator and delivered it to SMC's
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by
Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting
paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn.
The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for
the aforementioned amount. In turn, respondent, as subrogee of SMC, brought
suit against petitioner in the Regional Trial Court, Branch 148, Makati City, which,
on December 20, 1995, rendered judgment finding petitioner liable to respondent
for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while
in the custody of defendants. Evidence such as the Warehouse Entry
Slip (Exh. "E"); the Damage Report (Exh. "F") with entries appearing
therein, classified as "TED" and "TSN", which the claims processor, Ms.
Agrifina De Luna, claimed to be tearrage at the end and tearrage at the
middle of the subject damaged cargoes respectively, coupled with the
Marine Cargo Survey Report (Exh. "H" "H-4-A") confirms the fact of
the damaged condition of the subject cargoes. The surveyor[s'] report
(Exh. "H-4-A") in particular, which provides among others that:
" . . . we opine that damages sustained by shipment
is attributable to improper handling in transit presumably
whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her]
defense that [she is] are not liable. Defendant by reason of the nature of
[her] business should have devised ways and means in order to prevent
the damage to the cargoes which it is under obligation to take custody of
and to forthwith deliver to the consignee. Defendant did not present any
evidence on what precaution [she] performed to prevent [the] said
incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence
because of the nature of the cargo.

xxx xxx xxx

Generally speaking under Article 1735 of the Civil Code, if the goods are
proved to have been lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they
prove that they have observed the extraordinary diligence required by
law. The burden of the plaintiff, therefore, is to prove merely that the
goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been
held that the mere proof of delivery of goods in good order to a carrier,
and of their arrival at the place of destination in bad order, makes out
a prima facie case against the carrier, so that if no explanation is given
as to how the injury occurred, the carrier must be held responsible. It is
incumbent upon the carrier to prove that the loss was due to accident or
some other circumstances inconsistent with its liability." (cited
inCommercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989
Ed.)
Defendant, being a customs brother, warehouseman and at the same
time a common carrier is supposed [to] exercise [the] extraordinary
diligence required by law, hence the extraordinary responsibility lasts
from the time the goods are unconditionally placed in the possession of
and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person
who has the right to receive the same. 3

Accordingly, the trial court ordered petitioner to pay the following

amounts
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit. 4

The decision was affirmed by the Court of Appeals on appeal. Hence this petition
for review on certiorari.
Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND

REVERSIBLE ERROR [IN] DECIDING THE CASE NOT ON
THE EVIDENCE PRESENTED BUT ON PURE SURMISES,
SPECULATIONS AND MANIFESTLY MISTAKEN
INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN CLASSIFYING THE PETITIONER
AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES
TO THE PUBLIC. 5
It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of
Appeals held otherwise, then she is indeed not liable beyond what ordinary
diligence in the vigilance over the goods transported by her, would
require. 6 Consequently, any damage to the cargo she agrees to transport cannot
be presumed to have been due to her fault or negligence.

Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs
broker and warehouseman, she does not indiscriminately hold her services out to
the public but only offers the same to select parties with whom she may contract
in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals, 7 the Court
dismissed a similar contention and held the party to be a common carrier, thus
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms
or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public."
The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity . . .

Article 1732 also carefully avoids making any distinction between a

person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We
think that Article 1732 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under Article 1732 may
be seen to coincide neatly with the notion of "public service," under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
"public service" includes:
". . . every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. . . . " 8

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioner's
contention would be to deprive those with whom she contracts the protection
which the law affords them notwithstanding the fact that the obligation to carry

goods for her customers, as already noted, is part and parcel of petitioner's
business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each
case. . . .

In Compania Maritima v. Court of Appeals, 9 the meaning of "extraordinary

diligence in the vigilance over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted
to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristic of goods tendered for
shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires."

In the case at bar, petitioner denies liability for the damage to the cargo. She
claims that the "spoilage or wettage" took place while the goods were in the
custody of either the carrying vessel "M/V Hayakawa Maru," which transported
the cargo to Manila, or the arrastre operator, to whom the goods were unloaded
and who allegedly kept them in open air for nine days from July 14 to July 23,
1998 notwithstanding the fact that some of the containers were deformed,
cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H),
to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached

loosened. 10

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino

testified that he has no personal knowledge on whether the container vans were
first stored in petitioner's warehouse prior to their delivery to the consignee. She
likewise claims that after withdrawing the container vans from the arrastre
operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMC's
warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port
Area where the cargo came from. Thus, the damage to the cargo could not have
taken place while these were in her custody. 11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine
Cargo Surveyors indicates that when the shipper transferred the cargo in
question to the arrastre operator, these were covered by clean Equipment
Interchange Report (EIR) and, when petitioner's employees withdrew the cargo
from the arrastre operator, they did so without exception or protest either with
regard to the condition of container vans or their contents. The Survey Report
pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted
discharged ex vessel to dock of Pier #13 South Harbor, Manila on 14
July 1990, containerized onto 30' x 20' secure metal vans, covered by
clean EIRs. Except for slight dents and paint scratches on side and roof
panels, these containers were deemed to have [been] received in good
condition.
xxx xxx xxx
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was
[withdrawn] by Transorient Container Services, Inc. . . . without
exception.
[The cargo] was finally delivered to the consignee's storage warehouse
located at Tabacalera Compound, Romualdez Street, Ermita, Manila
from July 23/25, 1990. 12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged
from the vessel to the arrastre, Marina Port Services Inc., in good order
and condition as evidenced by clean Equipment Interchange Reports
(EIRs). Had there been any damage to the shipment, there would have
been a report to that effect made by the arrastre operator. The cargoes
were withdrawn by the defendant-appellant from the arrastre still in good
order and condition as the same were received by the formerwithout
exception, that is, without any report of damage or loss. Surely, if the
container vans were deformed, cracked, distorted or dented, the
defendant-appellant would report it immediately to the consignee or
make an exception on the delivery receipt or note the same in the
Warehouse Entry Slip (WES). None of these took place. To put it simply,
the defendant-appellant received the shipment in good order and
condition and delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred while it was in the
possession of the defendant-appellant. Whenever the thing is lost (or
damaged) in the possession of the debtor (or obligor), it shall be
presumed that the loss (or damage) was due to his fault, unless there is
proof to the contrary. No proof was proffered to rebut this legal
presumption and the presumption of negligence attached to a common
carrier in case of loss or damage to the goods. 13

Anent petitioner's insistence that the cargo could not have been damaged while
in her custody as she immediately delivered the containers to SMC's compound,
suffice it to say that to prove the exercise of extraordinary diligence, petitioner
must do more than merely show the possibility that some other party could be
responsible for the damage. It must prove that it used "all reasonable means to
ascertain the nature and characteristic of goods tendered for [transport] and that
[it] exercise[d] due care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides
Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:

xxx xxx xxx

(4) The character of the goods or defects in the packing or in the
containers.
xxx xxx xxx

For this provision to apply, the rule is that if the improper packing or, in this case,
the defect/s in the container, is/are known to the carrier or his employees or
apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of
liability for damage resulting therefrom. 14 In this case, petitioner accepted the
cargo without exception despite the apparent defects in some of the container
vans. Hence, for failure of petitioner to prove that she exercised extraordinary
diligence in the carriage of goods in this case or that she is exempt from liability,
the presumption of negligence as provided under Art. 1735 15 holds.

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
aDcTHE

SO ORDERED.
|||

(Calvo v. UCPB General Insurance Co., Inc., G.R. No. 148496, [March 19,

2002], 429 PHIL 244-255)

G.R. No. 147246. August 19, 2003.]
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT
OF APPEALS and PRUDENTIAL GUARANTEE AND
ASSURANCE, INC., respondents.
Soo Gutierrez Leogardo & Lee for petitioner.
Linsangan Linsangan & Linsangan Law Offices for respondent.
SYNOPSIS

Petitioner was contracted as carrier by a corporation from Portland, Oregon to

deliver a cargo to the consignee's warehouse at Pasig City. The cargo, however,
never reached the consignee as the barge that carried the cargo sank
completely, resulting in damage to the cargo. Private respondent, as insurer,
indemnified the consignee for the lost cargo and thus, as subrogee, sought
recovery from petitioner. Both the trial court and the appellate court ruled in favor
of private respondent.
The Court ruled in favor of private respondent. Whether or not petitioner is a
common carrier, the Court ruled in the affirmative. The principal business of
petitioner is that of lighterage and drayage, offering its barges to the public,
although for limited clientele, for carrying or transporting goods by water for
compensation. Whether or not petitioner failed to exercise extraordinary diligence
in its care and custody of the consignee's goods, the Court also ruled in the
affirmative. The barge completely sank after its towing bits broke, resulting in the
loss of the cargo. Petitioner failed to prove that the typhoon was the proximate
and only cause of the loss and that it has exercised due diligence before, during
and after the occurrence.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIERS; DEFINITION;
ELUCIDATED. Article 1732 of the Civil Code defines common carriers as
persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for
compensation.. offering their services to the public. Petitioner contends that it is
not a common carrier but a private carrier. Allegedly, it has no fixed and publicly
known route, maintains no terminals, and issues no tickets. It points out that it is
not obliged to carry indiscriminately for any person. It is not bound to carry goods
unless it consents. In short, it does not hold out its services to the general public.
In De Guzman vs. Court of Appeals, we held that the definition of common
carriers in Article 1732 of the Civil Code makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity. We also did not
distinguish between a person or enterprise offering transportation service on a

regular or scheduled basis and one offering such service on an occasional,

episodic or unscheduled basis. Further, we ruled that Article 1732 does not
distinguish between a carrier offering its services to the general public, and one
who offers services or solicits business only from a narrow segment of the
general population.
2. ID.; ID.; ID.; HOW DETERMINED. Petitioner is a common carrier whether
its carrying of goods is done on an irregular rather than scheduled manner, and
with an only limited clientele. A common carrier need not have fixed and publicly
known routes. Neither does it have to maintain terminals or issue tickets. To be
sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court
of Appeals. The test to determine a common carrier is "whether the given
undertaking is a part of the business engaged in by the carrier which he has held
out to the general public as his occupation rather than the quantity or extent of
the business transacted." In the case at bar, the petitioner admitted that it is
engaged in the business of shipping and lighterage, offering its barges to the
public, despite its limited clientele for carrying or transporting goods by water for
compensation.
3. ID.; ID.; ID.; REQUIRED TO OBSERVE EXTRAORDINARY DILIGENCE;
PRESUMPTION OF NEGLIGENCE IN CASE OF LOSS, DESTRUCTION OR
DETERIORATION OF GOODS; EXCEPTIONS. Common carriers are bound
to observe extraordinary diligence in the vigilance over the goods transported by
them. They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated. To overcome the presumption of
negligence in the case of loss, destruction or deterioration of the goods,
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.
4. ID.; ID.; ID.; ID.; ID.; ID.; TYPHOON; NOT APPRECIATED IN THE ABSENCE
OF PROOF THAT IT WAS THE PROXIMATE AND ONLY CAUSE OF LOSS AND
DUE DILIGENCE EXERCISED BEFORE, DURING AND AFTER THE
TYPHOON. In the case at bar, the barge completely sank after its towing bits
broke, resulting in the total loss of its cargo. Petitioner claims that this was
caused by a typhoon, hence, it should not be held liable for the loss of the cargo.
However, petitioner failed to prove that the typhoon is the proximate and only
cause of the loss of the goods, and that it has exercised due diligence before,
during and after the occurrence of the typhoon to prevent or minimize the loss.
The evidence show that, even before the towing bits of the barge broke, it had
already previously sustained damage when it hit a sunken object while docked at
the Engineering Island. It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel was refloated but its hole
was patched with only clay and cement. The patch work was merely a provisional
remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to
proceed with the voyage, it recklessly exposed the cargo to further damage.
DECISION
PUNO, J :
p

On appeal is the Court of Appeals' May 11, 2000 Decision 1 in CA-G.R. CV No.
49195 and February 21, 2001 Resolution 2 affirming with modification the April 6,
1994 Decision 3 of the Regional Trial Court of Manila which found petitioner liable
to pay private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk,
valued at US$423,192.35 4 was shipped by Marubeni American Corporation of
Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery to
the consignee, General Milling Corporation in Manila, evidenced by Bill of Lading

No. PTD/Man-4. 5The shipment was insured by the private respondent Prudential
Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90. 6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was
transferred to the custody of the petitioner Asia Lighterage and Shipping, Inc. The
petitioner was contracted by the consignee as carrier to deliver the cargo to
consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge
PSTSI III, evidenced by Lighterage Receipt No. 0364 7 for delivery to consignee.
The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended
due to a warning of an incoming typhoon. On August 22, 1990, the petitioner
proceeded to pull the barge to Engineering Island off Baseco to seek shelter from
the approaching typhoon. PSTSI III was tied down to other barges which arrived
ahead of it while weathering out the storm that night. A few days after, the barge
developed a list because of a hole it sustained after hitting an unseen
protruberance underneath the water. The petitioner filed a Marine Protest on
August 28, 1990. 8 It likewise secured the services of Gaspar Salvaging
Corporation which refloated the barge. 9 The hole was then patched with clay and
cement.
The barge was then towed to ISLOFF terminal before it finally headed towards
the consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa
spillways, the barge again ran aground due to strong current. To avoid the
complete sinking of the barge, a portion of the goods was transferred to three
other barges. 10
The next day, September 6, 1990, the towing bits of the barge broke. It sank
completely, resulting in the total loss of the remaining cargo. 11 A second Marine
Protest was filed on September 7, 1990. 12
On September 14, 1990, a bidding was conducted to dispose of the damaged
wheat retrieved and loaded on the three other barges. 13 The total proceeds from
the sale of the salvaged cargo was P201,379.75. 14

On the same date, September 14, 1990, consignee sent a claim letter to the
petitioner, and another letter dated September 18, 1990 to the private respondent
for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the
amount of P4,104,654.22. 15 Thereafter, as subrogee, it sought recovery of said
amount from the petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for
recovery of the amount of indemnity, attorney's fees and cost of suit. 16 Petitioner
filed its answer with counterclaim. 17
The Regional Trial Court ruled in favor of the private respondent. The dispositive
portion of its Decision states:
WHEREFORE, premises considered, judgment is hereby rendered
ordering defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff
Prudential Guarantee & Assurance Co., Inc. the sum of P4,104,654.22
with interest from the date complaint was filed on July 3, 1991 until fully
satisfied plus 10% of the amount awarded as and for attorney's fees.
Defendant's counterclaim is hereby DISMISSED. With costs against
defendant. 18

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

carrier. The appellate court affirmed the decision of the trial court with
modification. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with
modification in the sense that the salvage value of P201,379.75 shall be
deducted from the amount of P4,104,654.22. Costs against appellant.
SO ORDERED.

Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied
by the appellate court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed
by the appellate court, viz: 19

(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A

WAY NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A
WAY NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE
PROVISIONS OF THE CIVIL CODE APPLICABLE TO
COMMON CARRIERS, "THE LOSS OF THE CARGO IS,
THEREFORE, BORNE BY THE CARRIER IN ALL CASES
EXCEPT IN THE FIVE (5) CASES ENUMERATED."
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A
WAY NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER
FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS
NEGLIGENT IN ITS CARE AND CUSTODY OF THE
CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised
extraordinary diligence in its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations,
firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public.

Petitioner contends that it is not a common carrier but a private carrier. Allegedly,
it has no fixed and publicly known route, maintains no terminals, and issues no
tickets. It points out that it is not obliged to carry indiscriminately for any person. It
is not bound to carry goods unless it consents. In short, it does not hold out its
services to the general public. 20
We disagree.
In De Guzman vs. Court of Appeals, 21 we held that the definition of common
carriers in Article 1732 of the Civil Code makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity. We also did not
distinguish between a person or enterprise offering transportation service on a
regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Further, we ruled that Article 1732 does not
distinguish between a carrier offering its services to the general public, and one
who offers services or solicits business only from a narrow segment of the
general population.
In the case at bar, the principal business of the petitioner is that of lighterage and
drayage 22 and it offers its barges to the public for carrying or transporting goods
by water for compensation. Petitioner is clearly a common carrier. In De Guzman,
supra, 23 we considered private respondent Ernesto Cendaa to be a common
carrier even if his principal occupation was not the carriage of goods for others,
but that of buying used bottles and scrap metal in Pangasinan and selling these
items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of
goods is done on an irregular rather than scheduled manner, and with an only
limited clientele. A common carrier need not have fixed and publicly known
routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs.
Court of Appeals. 24 The test to determine a common carrier is "whether the given
undertaking is a part of the business engaged in by the carrier which he has held
out to the general public as his occupation rather than the quantity or extent of
the business transacted." 25 In the case at bar, the petitioner admitted that it is

engaged in the business of shipping and lighterage, 26 offering its barges to the
public, despite its limited clientele for carrying or transporting goods by water for
compensation. 27
On the second issue, we uphold the findings of the lower courts that petitioner
failed to exercise extraordinary diligence in its care and custody of the
consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance
over the goods transported by them. 28 They are presumed to have been at fault
or to have acted negligently if the goods are lost, destroyed or deteriorated. 29 To
overcome the presumption of negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. There are, however, exceptions to this rule. Article 1734
of the Civil Code enumerates the instances when the presumption of negligence
does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke, resulting
in the total loss of its cargo. Petitioner claims that this was caused by a typhoon,
hence, it should not be held liable for the loss of the cargo. However, petitioner
failed to prove that the typhoon is the proximate and only cause of the loss of the
goods, and that it has exercised due diligence before, during and after the
occurrence of the typhoon to prevent or minimize the loss. 30 The evidence show
that, even before the towing bits of the barge broke, it had already previously

sustained damage when it hit a sunken object while docked at the Engineering
Island. It even suffered a hole. Clearly, this could not be solely attributed to the
typhoon. The partly-submerged vessel was refloated but its hole was patched
with only clay and cement. The patch work was merely a provisional remedy, not
enough for the barge to sail safely. Thus, when petitioner persisted to proceed
with the voyage, it recklessly exposed the cargo to further damage. A portion of
the cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue
Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE: 31
xxx xxx xxx
q Can you tell us what else transpired after that incident?
a After the first accident, through the initiative of the barge owners, they
tried to pull out the barge from the place of the accident, and bring
it to the anchor terminal for safety, then after deciding if the vessel
is stabilized, they tried to pull it to the consignee's warehouse,
now while on route another accident occurred, now this time the
barge totally hitting something in the course.
q You said there was another accident, can you tell the court nature of
the second accident?
a The sinking, sir.
q Can you tell the nature . . . can you tell the court, if you know what
caused the sinking?
a Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.
xxx xxx xxx

This is not all. Petitioner still headed to the consignee's wharf despite knowledge
of an incoming typhoon. During the time that the barge was heading towards the
consignee's wharf on September 5, 1990, typhoon "Loleng" has already entered
the Philippine area of responsibility. 32 A part of the testimony of Robert Boyd,
Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE: 33

xxx xxx xxx

q Now, Mr. Witness, did it not occur to you it might be safer to just allow
the Barge to lie where she was instead of towing it?
a Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their
goods to be delivered at their Wharf since they needed badly the
wheat that was loaded in PSTSI-3. It was needed badly by the
consignee.
q And this is the reason why you towed the Barge as you did?
a Yes, sir.
xxx xxx xxx
CROSS-EXAMINATION BY ATTY. IGNACIO: 34
xxx xxx xxx
q And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?
a The next day, in the morning, we hired for additional two (2) tugboats
as I have stated.
q Despite of the threats of an incoming typhoon as you testified a while
ago?
a It is already in an inner portion of Pasig River. The typhoon would be
coming and it would be dangerous if we are in the vicinity of
Manila Bay.
q But the fact is, the typhoon was incoming? Yes or no?
a Yes.
q And yet as a standard operating procedure of your Company, you have
to secure a sort of Certification to determine the weather
condition, am I correct?
a Yes, sir.
q So, more or less, you had the knowledge of the incoming typhoon,
right?

a Yes, sir.
q And yet you proceeded to the premises of the GMC?
a ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig
entrance, it is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force
majeure to escape liability for the loss sustained by the private respondent.
Surely, meeting a typhoon head-on falls short of due diligence required from a
common carrier. More importantly, the officers/employees themselves of
petitioner admitted that when the towing bits of the vessel broke that caused its
sinking and the total loss of the cargo upon reaching the Pasig River, it was no
longer affected by the typhoon. The typhoon then is not the proximate cause of
the loss of the cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution dated
February 21, 2001 are hereby AFFIRMED. Costs against petitioner.
HIEAcC

SO ORDERED.
|||

(Asia Lighterage and Shipping Inc. v. Court of Appeals, G.R. No. 147246,

[August 19, 2003], 456 PHIL 610-622)

[G.R. No. 171194. February 4, 2010.]
ASIAN TERMINALS, INC., petitioner, vs. DAEHAN FIRE AND
MARINE INSURANCE CO., LTD., respondent.
DECISION
NACHURA, J :
p

This is a petition for review on certiorari under Rule 45 of the Rules of

Court, assailing the Court of Appeals (CA) September 14, 2005
Decision 1 and December 20, 2005 Resolution 2 in CA-G.R. CV No. 83647.
The assailed Decision reversed and set aside the Regional Trial Court
(RTC) 3 August 4, 2004 Decision 4 in Civil Case No. 01-101309, while the
assailed resolution denied petitioner Asian Terminals, Inc.'s motion for
reconsideration.
The case stemmed from the following facts:
On July 8, 2000, Doosan Corporation (Doosan) shipped twenty-six (26)
boxes of printed aluminum sheets on board the vessel Heung-A
Dragon owned by Dongnama Shipping Co., Ltd. (Dongnama). 5 The shipment
was covered by Bill of Lading No. DNALHMBUMN010010 6 and consigned to
Access International, with address at No. 9 Parada St., San Juan, Metro
Manila. Doosan insured the subject shipment with respondent Daehan Fire
and Marine Insurance Co., Ltd. under an "all-risk" marine cargo insurance
policy, 7 payable to its settling agent in the Philippines, the Smith Bell & Co.,
Inc. (Smith Bell).
On July 12, 2000, the vessel arrived in Manila and the containerized
van was discharged and unloaded in apparent good condition, as no survey
and exceptions were noted in the Equipment Interchange Receipt (EIR) issued
by petitioner. 8 The container van was stored in the Container Yard of the Port.
On July 18, 2000, Access International requested 9 from petitioner and the
licensed Customs Broker, Victoria Reyes Lazo (V. Reyes Lazo), a joint survey
of the shipment at the place of storage in the Container Yard, but no such
inspection was conducted.
cDCSTA

On July 19, 2000, V. Reyes Lazo withdrew, and petitioner released, the
shipment and delivered it to Access International's warehouse in Binondo,
Manila. 10While the shipment was at Access International's warehouse, the
latter, together with its surveyor, Lloyd's Agency, conducted an inspection and
noted that only twelve (12) boxes were accounted for, while fourteen (14)
boxes were missing. 11 Access International thus filed a claim against
petitioner and V. Reyes Lazo for the missing shipment amounting to
$34,993.28. 12 For failure to collect its claim, Access International sought

indemnification from respondent in the amount of $45,742.81. 13 On

November 8, 2000, respondent paid the amount of the claim and Access
International accordingly executed a Subrogation Receipt in favor of the
former. 14
On July 10, 2001, respondent, represented by Smith Bell, instituted the
present case against Dongnama, Uni-ship, Inc. (Uni-ship), petitioner, and V.
Reyes Lazo before the RTC. 15 Respondent alleged that the losses, shortages
and short deliveries sustained by the shipment were caused by the joint fault
and negligence of Dongnama, petitioner and V. Reyes Lazo.
Dongnama and Uni-ship filed a Motion to Dismiss 16 on the grounds that
Daehan lacked legal capacity to sue and that the complaint stated no cause of
action. The trial court, however, denied the motion in an Order dated August
31, 2001. 17
Thereafter, Dongnama and Uni-ship filed their Answer with
Counterclaim and Cross-Claim Ad Cautelam denying any liability for the
damages/losses sustained by the shipment, pointing out that it was on a "Full
Container Load," "Said to Contain," and "Shipper's Load and Count" bases,
under which they had no means of verifying the contents of the containers.
They also alleged that the container van was properly discharged from the
vessel with seals intact and no exceptions noted. Moreover, they claimed that
the losses occurred while the subject shipment was in the custody, possession
or control of the shipper, its trucker, the arrastre operator, or their
representatives, or due to the consignee's own negligence. They further
questioned the absence of notice of loss within the three (3)-day period
provided under the Carriage of Goods by Sea Act. Finally, they averred that
their liability, if there be any, should only be limited to US$500.00 per package
or customary freight unit. 18
For its part, petitioner denied liability, claiming that it exercised due
diligence in handling and storing the subject container van. It, likewise,
assailed the timeliness of the complaint, having been filed beyond the fifteen
(15)-day period under its Contract for Cargo Handling Services with the
Philippine Ports Authority (PPA). If at all, petitioner added, its liability should
only be limited to P5,000.00. 19
ISCaTE

In her answer, V. Reyes Lazo questioned respondent's capacity to sue

in Philippine courts. She accused respondent of engaging in a fishing
expedition since the latter could not determine with clarity the party at fault. 20
On December 2, 2002, in their Joint Motion to Dismiss, 21 respondent,
on one hand, and Dongnama and Uni-ship, on the other, prayed that the
complaint be dismissed against the latter, alleging that they could not be held
liable based on the EIR. The motion was granted on December 9,
2002. 22 Consequently, the case proceeded as against petitioner and V. Reyes
Lazo.
As no amicable settlement was reached during the pretrial, trial on the
merits ensued.
On August 4, 2004, the RTC dismissed the complaint for insufficiency of
evidence. 23 It found the complaint fatally flawed, having been signed by a
person who had no authority from complainant (respondent herein)
corporation to act for and on behalf of the latter. 24 The RTC, likewise, held
that respondent failed to prove that the loss/damage of the subject cargoes
was due to the fault or negligence of petitioner or V. Reyes Lazo. It added that
the cargoes were damaged when they were already in Access International's
possession, considering that an inspection was conducted in the latter's
warehouse. 25
On appeal, the CA reversed and set aside the RTC decision. The
dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the present appeal is hereby
GRANTED. The appealed Decision dated August 4, 2004 of the
Regional Trial Court of Manila, Branch 21 in Civil Case No. 01-101309 is
hereby REVERSED and SET ASIDE. A new judgment is hereby entered
ordering the defendants-appellees Asian Terminals, Inc. and V. Reyes
Lazo to pay, jointly and severally, the plaintiff-appellant Daehan Fire &
Marine Insurance Co., Ltd. the sums of P2,295,374.20 with interest at
the legal rate (6% per annum) from the date of the filing of the complaint
and P229,537.42 by way of attorney's fees.
No pronouncement as to costs.
SO ORDERED. 26

Applying the principle of substantial compliance, the CA recognized the

validity of respondent's complaint after the submission, albeit late, of the board
resolution, indicating the authority of the signatory to represent the
corporation. 27 Pursuant to the Management Contract between petitioner and
the PPA, the former may not disclaim responsibility for the shortage of the
subject cargoes while the container van remained in its custody for seven (7)
days, despite the withdrawal of the subject shipment by the broker's
representative without any complaint. Applying E. Razon, Inc. v. Court of
Appeals, 28 the CA refused to impose the P5,000.00 limitation, considering
that petitioner was aware of the value of the subject goods shown in the
pertinent shipping documents. 29 The CA added that petitioner could not
disclaim any liability, having refused or ignored Access International's request
for a joint survey at the time when the goods were still in the possession and
custody of the former. 30 Lastly, V. Reyes Lazo was also made liable jointly
and severally with petitioner in negligently withdrawing the container van from
the premises of the pier, notwithstanding Access International's request for a
joint survey. 31
AcICTS

Aggrieved, petitioner comes before us in this petition for review

on certiorari, raising the following issues:
1. WHETHER OR NOT PETITIONER ATI IS LIABLE FOR THE LOSS
TO THE SUBJECT SHIPMENT NOTWITHSTANDING THE
ACKNOWLEDGMENT
BY
THE
CONSIGNEE'S
BROKER/REPRESENTATIVE IN THE EQUIPMENT INTERCHANGE
RECEIPT THAT THE SHIPMENT WAS RECEIVED IN GOOD ORDER
AND WITHOUT EXCEPTION.
2. WHAT IS THE EXTENT OF PETITIONER ATI'S LIABILITY, IF
ANY? 32

Simply put, we are tasked to determine the propriety of making

petitioner, as arrastre operator, liable for the loss of the subject shipment, and
if so, the extent of its liability.
Petitioner denies liability for the loss of the subject shipment,
considering that the consignee's representative signified receipt of the goods
in good order without exception. This being the case, respondent, as

subrogee, is bound by such acknowledgment. As to the extent of its liability, if

there be any, petitioner insists that it be limited to P5,000.00 per package, as
provided for in its Management Contract with the PPA. 33
We do not agree with petitioner.
Respondent, as insurer, was subrogated to the rights of the consignee,
pursuant to the subrogation receipt executed by the latter in favor of the
former. The relationship, therefore, between the consignee and the arrastre
operator must be examined. This relationship is akin to that existing between
the consignee and/or the owner of the shipped goods and the common carrier,
or that between a depositor and warehouseman. 34 In the performance of its
obligations, an arrastre operator should observe the same degree of diligence
as that required of a common carrier and a warehouseman. Being the
custodian of the goods discharged from a vessel, an arrastre operator's duty is
to take good care of the goods and to turn them over to the party entitled to
their possession. 35
The loss of 14 out of 26 boxes of printed aluminum sheets is
undisputed. It is, likewise, settled that Dongnama (the shipping company) and
Uni-ship were absolved from liability because respondent realized that they
had no liability based on the EIR issued by Dongnama. This resulted in the
withdrawal of the complaint against them. What remained was the complaint
against petitioner as the arrastre operator and V. Reyes Lazo as the customs
broker. Records show that the subject shipment was discharged from the
vessel and placed under the custody of petitioner for a period of seven (7)
days. Thereafter, the same was withdrawn from the container yard by the
customs broker, then delivered to the consignee. It was after such delivery
that the loss of 14 boxes was discovered. Hence, the complaint against both
the arrastre operator and the customs broker.
cTAaDC

In a claim for loss filed by the consignee (or the insurer), the burden of
proof to show compliance with the obligation to deliver the goods to the
appropriate party devolves upon the arrastre operator. Since the safekeeping
of the goods is its responsibility, it must prove that the losses were not due to
its negligence or to that of its employees. 36 To prove the exercise of diligence
in handling the subject cargoes, petitioner must do more than merely show the

possibility that some other party could be responsible for the loss or the
damage. It must prove that it exercised due care in the handling
thereof. 37 Petitioner failed to do this. Instead, it insists that it be exonerated
from liability, because the customs broker's representative received the
subject shipment in good order and condition without exception. The appellate
court's conclusion on this matter is instructive:
ATI may not disclaim responsibility for the shortage/pilferage of fourteen
(14) boxes of printed aluminum sheet while the container van remained
in its custody for seven (7) days (at the Container Yard) simply because
the alleged representative of the customs broker had withdrawn the
shipment from its premises and signed the EIR without any complaint.
The signature of the person/broker representative merely signifies that
said person thereby frees the ATI from any liability for loss or damage to
the cargo so withdrawn while the same was in the custody of such
representative to whom the cargo was released. It does not foreclose
any remedy or right of the consignee to prove that any loss or damage to
the subject shipment occurred while the same was under the custody,
control and possession of the arrastre operator. 38

Clearly, petitioner cannot be excused from culpability simply because

another person could be responsible for the loss. This is especially true in the
instant case because, while the subject shipment was in petitioner's custody,
Access International requested 39 that a joint survey be conducted at the place
of storage. And as correctly observed by the CA:
There is no dispute that it was the customs broker who in behalf of the
consignee took delivery of the subject shipment from the arrastre
operator. However, the trial court apparently disregarded documentary
evidence showing that the consignee made a written request on both the
appellees ATI and V. Reyes Lazo for a joint survey of the container van
on July 18, 2000 while the same was still in the possession, control and
custody of the arrastre operator at the Container Yard of the pier. Both
ATI and Lazo merely denied being aware of the letter (Exhibits "M" and
"N"). The fact remains that the consignee complained of short-delivery
and while inspection of the cargo was made only at its warehouse after
delivery by the customs broker, the arrastre ATI together with said broker
both refusal or ignored the written request for a joint survey at the

premises of the arrastre. Instead of complying with the consignee's

demand, the broker withdrew and the arrastre released the shipment the
very next day, July 19, 2000 without even acting upon the consignee's
request for a joint survey. 40
SDITAC

Moreover, it was shown in the Survey Report prepared by Access

International's surveyor that petitioner was remiss in its obligations to handle
the goods with due care and to ensure that they reach the proper party in
good order as to quality and quantity. Specifically, the Survey Report states:
DELIVERY
On July 19, 2000, V. Reyes-Lazo (Licensed Customs Broker) effected
delivery of the 1 x 20' Van Container from the Container Yard of said port
to the Consignee's designated warehouse at No. 622 Asuncion Street,
Binondo, Manila.
Prior to withdrawal from the said port, the Broker's representative noticed
that the padlock secured to the doors of the Van Container was forcibly
pulled-out resulting to its breakage. He then immediately informed the
Arrastre Contractors (ATI) and requested that Van Container be opened
and inventory of its contents be made as he suspected the contents
might have been pilfered.
However, his request was denied averring that stripping of "FCL Van
Containers" are not allowed inside the Customs Zone. As all efforts
exerted proved futile, he instead bought new padlock and secured same
to the Van. He then informed the Consignee about the incident upon
delivery of the Container at the Consignee's designated warehouse, who
immediately requested for survey. 41

Considering that both petitioner and V. Reyes Lazo were negligent in

the performance of their duties in the handling, storage and delivery of the
subject shipment to the consignee, resulting in the loss of 14 boxes of printed
aluminum sheets, both shall be solidarily liable for such loss.
As to the extent of petitioner's liability, we cannot sustain its contention
that it be limited to P5,000.00 per package. Petitioner's responsibility and
liability for losses and damages are set forth in Section 7.01 of the

Management Contract drawn between the PPA and the Marina Port Services,
Inc., petitioner's predecessor-in-interest, to wit:
CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES
Section 7.01. Responsibility and Liability for Losses and Damages;
Exceptions. The CONTRACTOR shall, at its own expense, handle all
merchandise in all work undertaken by it, hereunder, diligently and in a
skillful, workman-like and efficient manner. The CONTRACTOR shall be
solely responsible as an independent contractor, and hereby agrees to
accept liability and to pay to the shipping company, consignees,
consignors or other interested party or parties for the loss, damage or
non-delivery of cargoes in its custody and control to the extent of the
actual invoice value of each package which in no case shall be more
than FIVE THOUSAND PESOS (P5,000.00) each, unless the value of
the cargo shipment is otherwise specified or manifested or
communicated in writing together with the declared Bill of Lading value
and supported by a certified packing list to the CONTRACTOR by the
interested party or parties before the discharge or loading unto vessel of
the goods. This amount of Five Thousand Pesos (P5,000.00) per
package may be reviewed and adjusted by the AUTHORITY from time to
time. The CONTRACTOR shall not be responsible for the condition or
the contents of any package received, nor for the weight nor for any loss,
injury or damage to the said cargo before or while the goods are being
received or remains in the piers, sheds, warehouses or facility, if the
loss, injury or damage is caused by force majeure or other causes
beyond the CONTRACTOR'S control or capacity to prevent or remedy:
PROVIDED that a formal claim together with the necessary copies of Bill
of Lading, Invoice, Certified Packing List and Computation arrived at
covering the loss, injury or damage or non-delivery of such goods shall
have been filed with the CONTRACTOR within fifteen (15) days from day
of issuance by the CONTRACTOR of a certificate of non-delivery:
PROVIDED, however, that if said CONTRACTOR fails to issue such
certification within fifteen (15) days from receipt of a written request by
the shipper/consignee or his duly authorized representative or any
interested party, said certification shall be deemed to have been issued,
and thereafter, the fifteen (15) day period within which to file the claim
commences: PROVIDED, finally, that the request for certification of loss

shall be made within thirty (30) days from the date of delivery of the
package to the consignee.
ECHSDc

xxx xxx xxx

The CONTRACTOR shall be solely responsible for any and all injury or
damage that may arise on account of the negligence or carelessness of
the CONTRACTOR, its agent or employees in the performance of the
undertaking under the Contract. Further, the CONTRACTOR hereby
agrees to hold free the AUTHORITY, at all times, from any claim that
may be instituted by its employee by reason of the provisions of the
Labor Code, as amended. 42

As clearly stated above, such limitation does not apply if the value of the cargo
shipment is communicated to the arrastre operator before the discharge of the
cargoes.
It is undisputed that Access International, upon arrival of the shipment,
declared the same for taxation purposes, as well as for the assessment of
arrastre charges and other fees. For the purpose, the invoice, packing list and
other shipping documents were presented to the Bureau of Customs as well
as to petitioner for the proper assessment of the arrastre charges and other
fees. Such manifestation satisfies the condition of declaration of the actual
invoices of the value of the goods before their arrival, to overcome the
limitation on the liability of the arrastre operator. 43 Then, the arrastre operator,
by reason of the payment to it of a commensurate charge based on the higher
declared value of the merchandise, could and should take extraordinary care
of the special or valuable cargo. 44 What would, indeed, be unfair and arbitrary
is to hold the arrastre operator liable for the full value of the merchandise after
the consignee has paid the arrastre charges only on a basis much lower than
the true value of the goods. 45
What is essential is knowledge beforehand of the extent of the risk to be
undertaken by the arrastre operator, as determined by the value of the
property committed to its care. This defines its responsibility for loss of or
damage to such cargo and ascertains the compensation commensurate to
such risk assumed. Having been duly informed of the actual invoice value of
the merchandise under its custody and having received payment of arrastre

charges based thereon, petitioner cannot therefore insist on a limitation of its

liability under the contract to less than the value of each lost cargo. 46
The stipulation requiring the consignee to inform the arrastre operator
and to give advance notice of the actual invoice value of the goods to be put in
its custody is adopted for the purpose of determining its liability, that it may
obtain compensation commensurate to the risk it assumes, not for the
purpose of determining the degree of care or diligence it must exercise as a
depositary or warehouseman. 47
WHEREFORE, premises considered, the petition is hereby DENIED for
lack of merit. The Court of Appeals September 14, 2005 Decision and
December 20, 2005 Resolution in CA-G.R. CV No. 83647 are AFFIRMED.
HAICcD

SO ORDERED.
|||

(Asian Terminals, Inc. v. Daehan Fire and Marine Insurance Co., Ltd., G.R. No.

171194, [February 4, 2010], 625 PHIL 394-407)

[G.R. No. 157917. August 29, 2012.]

SPOUSES TEODORO 1 and NANETTE PEREA, petitioners, vs.
SPOUSES NICOLAS and TERESITA L. ZARATE, PHILIPPINE
NATIONAL
RAILWAYS,
and
the
COURT
OF
APPEALS, respondents.
DECISION
BERSAMIN, J :
p

The operator of a school bus service is a common carrier in the eyes of the law.
He is bound to observe extraordinary diligence in the conduct of his business. He
is presumed to be negligent when death occurs to a passenger. His liability may

include indemnity for loss of earning capacity even if the deceased passenger
may only be an unemployed high school student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perea
(Pereas) appeal the adverse decision promulgated on November 13, 2002, by
which the Court of Appeals (CA) affirmed with modification the decision rendered
on December 3, 1999 by the Regional Trial Court (RTC), Branch 260, in
Paraaque City that had decreed them jointly and severally liable with Philippine
National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita
Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate
(Aaron), then a high school student of Don Bosco Technical Institute (Don
Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from their
respective residences in Paraaque City to Don Bosco in Pasong Tamo, Makati
City, and back. In their business, the Pereas used a KIA Ceres Van (van) with
Plate No. PYA 896, which had the capacity to transport 14 students at a time, two
of whom would be seated in the front beside the driver, and the others in the rear,
with six students on either side. They employed Clemente Alfaro (Alfaro) as driver
of the van.
ACcHIa

In June 1996, the Zarates contracted the Pereas to transport Aaron to and from
Don Bosco. On August 22, 1996, as on previous school days, the van picked
Aaron up around 6:00 a.m. from the Zarates' residence. Aaron took his place on
the left side of the van near the rear door. The van, with its air-conditioning unit
turned on and the stereo playing loudly, ultimately carried all the 14 student riders
on their way to Don Bosco. Considering that the students were due at Don Bosco
by 7:15 a.m., and that they were already running late because of the heavy
vehicular traffic on the South Superhighway, Alfaro took the van to an alternate
route at about 6:45 a.m. by traversing the narrow path underneath the
Magallanes Interchange that was then commonly used by Makati-bound vehicles
as a short cut into Makati. At the time, the narrow path was marked by piles of
construction materials and parked passenger jeepneys, and the railroad crossing
in the narrow path had no railroad warning signs, or watchmen, or other

responsible persons manning the crossing. In fact, the bamboo barandilla was
up, leaving the railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter
No. 302 (train), operated by Jhonny Alano (Alano), was in the vicinity of the
Magallanes Interchange travelling northbound. As the train neared the railroad
crossing, Alfaro drove the van eastward across the railroad tracks, closely tailing
a large passenger bus. His view of the oncoming train was blocked because he
overtook the passenger bus on its left side. The train blew its horn to warn
motorists of its approach. When the train was about 50 meters away from the
passenger bus and the van, Alano applied the ordinary brakes of the train. He
applied the emergency brakes only when he saw that a collision was imminent.
The passenger bus successfully crossed the railroad tracks, but the van driven by
Alfaro did not. The train hit the rear end of the van, and the impact threw nine of
the 12 students in the rear, including Aaron, out of the van. Aaron landed in the
path of the train, which dragged his body and severed his head, instantaneously
killing him. Alano fled the scene on board the train, and did not wait for the police
investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced
this action for damages against Alfaro, the Pereas, PNR and Alano. The
Pereas and PNR filed their respective answers, with cross-claims against each
other, but Alfaro could not be served with summons.
HCDaAS

At the pre-trial, the parties stipulated on the facts and issues, viz.:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron
John L. Zarate;
(2) Spouses Zarate engaged the services of spouses Perea for
the adequate and safe transportation carriage of the former
spouses' son from their residence in Paraaque to his
school at the Don Bosco Technical Institute in Makati City;
(3) During the effectivity of the contract of carriage and in the
implementation thereof, Aaron, the minor son of spouses
Zarate died in connection with a vehicular/train collision

which occurred while Aaron was riding the contracted

carrier Kia Ceres van of spouses Perea, then driven and
operated by the latter's employee/authorized driver
Clemente Alfaro, which van collided with the train of PNR,
at around 6:45 A.M. of August 22, 1996, within the vicinity
of the Magallanes Interchange in Makati City, Metro Manila,
Philippines;
(4) At the time of the vehicular/train collision, the subject site of
the vehicular/train collision was a railroad crossing used by
motorists for crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were
no appropriate and safety warning signs and railings at the
site commonly used for railroad crossing;
(6) At the material time, countless number of Makati bound public
utility and private vehicles used on a daily basis the site of
the collision as an alternative route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on
board the commuter train involved without waiting for the
police investigator;
(8) The site commonly used for railroad crossing by motorists was
not in fact intended by the railroad operator for railroad
crossing at the time of the vehicular collision;
ACTaDH

(9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge
vehicular/train collision;

any

liability

for

the

(11) The eventual closure of the railroad crossing alleged by PNR

was an internal arrangement between the former and its
project contractor; and
(12) The site of the vehicular/train collision was within the vicinity
or less than 100 meters from the Magallanes station of
PNR.
B. ISSUES

(1) Whether or not defendant-driver of the van is, in the

performance of his functions, liable for negligence
constituting the proximate cause of the vehicular collision,
which resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the
employer of defendant Alfaro are liable for any negligence
which may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being
the operator of the railroad system is liable for negligence
in failing to provide adequate safety warning signs and
railings in the area commonly used by motorists for railroad
crossings, constituting the proximate cause of the vehicular
collision which resulted in the death of the plaintiff spouses'
son;
(4) Whether or not defendant spouses Perea are liable for
breach of the contract of carriage with plaintiff-spouses in
failing to provide adequate and safe transportation for the
latter's son;
(5) Whether or not defendants spouses are liable for actual, moral
damages, exemplary damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette
Perea observed the diligence of employers and school
bus operators;
HCSAIa

(7) Whether or not defendant-spouses are civilly liable for the

accidental death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in
operating the commuter train involved in the accident, in
allowing or tolerating the motoring public to cross, and its
failure to install safety devices or equipment at the site of
the accident for the protection of the public;
(9) Whether or not defendant PNR should be made to reimburse
defendant spouses for any and whatever amount the latter
may be held answerable or which they may be ordered to
pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly

and fully on the amounts claimed by the latter in their
Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants
spouses for actual, moral and exemplary damages and
attorney's fees. 2

The Zarates' claim against the Pereas was upon breach of the contract of
carriage for the safe transport of Aaron; but that against PNR was based on
quasi-delict under Article 2176, Civil Code.
In their defense, the Pereas adduced evidence to show that they had exercised
the diligence of a good father of the family in the selection and supervision of
Alfaro, by making sure that Alfaro had been issued a driver's license and had not
been involved in any vehicular accident prior to the collision; that their own son
had taken the van daily; and that Teodoro Perea had sometimes accompanied
Alfaro in the van's trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had
been the reckless crossing of the van whose driver had not first stopped, looked
and listened; and that the narrow path traversed by the van had not been
intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision, 3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendants ordering them to jointly
and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity Php2,109,071.00;
(4) Moral damages in the amount of (Php)4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorney's fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Pereas' motion for
reconsideration, 4 reiterating that the cooperative gross negligence of the
Pereas and PNR had caused the collision that led to the death of Aaron; and
that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.
The CA's Ruling
Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit: 5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly
and severally liable together with defendant-appellants spouses
Teodorico and Nanette Perea and defendant-appellant Clemente
Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and
damages.
CaAIES

2. In giving full faith and merit to the oral testimonies of plaintiffsappellees witnesses despite overwhelming documentary evidence
on record, supporting the case of defendants-appellants
Philippine National Railways.

The Pereas ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and
severally liable for actual, moral and exemplary damages and
attorney's fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants
Pereas against the Philippine National Railways and in not holding the
latter and its train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorney's
fees.

The trial court erred in awarding damages in the form of deceased's

loss of earning capacity in the absence of sufficient basis for such an
award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of
the RTC, but limited the moral damages to P2,500,000.00; and deleted the
attorney's fees because the RTC did not state the factual and legal bases, to
wit: 6
WHEREFORE, premises considered, the assailed Decision of the
Regional Trial Court, Branch 260 of Paraaque City is AFFIRMED with
the modification that the award of Actual Damages is reduced
to P59,502.76; Moral Damages is reduced to P2,500,000.00; and the
award for Attorney's Fees is Deleted.
SO ORDERED.

The CA upheld the award for the loss of Aaron's earning capacity, taking
cognizance of the ruling in Cariaga v. Laguna Tayabas Bus Company and Manila
Railroad Company, 7 wherein the Court gave the heirs of Cariaga a sum
representing the loss of the deceased's earning capacity despite Cariaga being
only a medical student at the time of the fatal incident. Applying the formula
adopted in the American Expectancy Table of Mortality:
cSIHCA

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon
reckoning his life expectancy from age of 21 (the age when he would have
graduated from college and started working for his own livelihood) instead of
15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aaron's death were unknown, it used the prevailing
minimum wage of P280.00/day to compute Aaron's gross annual salary to be
P110,716.65, inclusive of the thirteenth month pay. Multiplying this annual
salary by Aaron's life expectancy of 39.3 years, his gross income would
aggregate to P4,351,164.30, from which his estimated expenses in the sum of
P2,189,664.30 was deducted to finally arrive at P2,161,500.00 as net income.
Due to Aaron's computed net income turning out to be higher than the amount
claimed by the Zarates, only P2,109,071.00, the amount expressly prayed for
by them, was granted.

On April 4, 2003, the CA denied the Pereas' motion for reconsideration. 8

Issues
In this appeal, the Pereas list the following as the errors committed by the CA, to
wit:
I. The lower court erred when it upheld the trial court's decision holding
the petitioners jointly and severally liable to pay damages with
Philippine National Railways and dismissing their cross-claim
against the latter.
II. The lower court erred in affirming the trial court's decision of awarding
damages for loss of earning capacity of a minor who was only a
high school student at the time of his death in the absence of
sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.

Ruling
The petition has no merit.

aEHTSc

1.
Were the Pereas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the
Pereas and the PNR, basing their claim against the Pereas on breach of
contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the
findings.
We concur with the CA.
To start with, the Pereas' defense was that they exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, the van driver,
by seeing to it that Alfaro had a driver's license and that he had not been involved
in any vehicular accident prior to the fatal collision with the train; that they even
had their own son travel to and from school on a daily basis; and that Teodoro

Perea himself sometimes accompanied Alfaro in transporting the passengers to

and from school. The RTC gave scant consideration to such defense by
regarding such defense as inappropriate in an action for breach of contract of
carriage.
We find no adequate cause to differ from the conclusions of the lower courts that
the Pereas operated as a common carrier; and that their standard of care was
extraordinary diligence, not the ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually
regarded as a private carrier, 9 primarily because he only caters to some specific
or privileged individuals, and his operation is neither open to the indefinite public
nor for public use, the exact nature of the operation of a school bus service has
not been finally settled. This is the occasion to lay the matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods
or persons from one place to another, gratuitously or for hire. The carrier is
classified either as a private/special carrier or as a common/public carrier. 10 A
private carrier is one who, without making the activity a vocation, or without
holding himself or itself out to the public as ready to act for all who may desire his
or its services, undertakes, by special agreement in a particular instance only, to
transport goods or persons from one place to another either gratuitously or for
hire. 11 The provisions on ordinary contracts of the Civil Code govern the contract
of private carriage. The diligence required of a private carrier is only ordinary, that
is, the diligence of a good father of the family. In contrast, a common carrier is a
person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering such services to the public. 12 Contracts of common
carriage are governed by the provisions on common carriers of the Civil Code,
the Public Service Act, 13 and other special laws relating to transportation. A
common carrier is required to observe extraordinary diligence, and is presumed
to be at fault or to have acted negligently in case of the loss of the effects of
passengers, or the death or injuries to passengers. 14
EITcaD

In relation to common carriers, the Court defined public use in the following terms
in United States v. Tan Piaco, 15 viz.:

"Public use" is the same as "use by the public". The essential feature of
the public use is not confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted quality that gives it its
public character. In determining whether a use is public, we must look
not only to the character of the business to be done, but also to the
proposed mode of doing it. If the use is merely optional with the owners,
or the public benefit is merely incidental, it is not a public use,
authorizing the exercise of the jurisdiction of the public utility
commission. There must be, in general, a right which the law compels
the owner to give to the general public. It is not enough that the general
prosperity of the public is promoted. Public use is not synonymous with
public interest. The true criterion by which to judge the character of the
use is whether the public may enjoy it by right or only by permission.

In De Guzman v. Court of Appeals, 16 the Court noted that Article 1732 of

the Civil Code avoided any distinction between a person or an enterprise offering
transportation on a regular or an isolated basis; and has not distinguished a
carrier offering his services to the general public, that is, the general community
or population, from one offering his services only to a narrow segment of the
general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of
the Civil Code coincides neatly with the notion of public service under the Public
Service Act,which supplements the law on common carriers found in the Civil
Code. Public service, according to Section 13, paragraph (b) of the Public
Service Act, includes:
. . . every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientle, whether permanent or occasional, and done for
the general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine
repair shop, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage

system, wire or wireless communications systems, wire or wireless

broadcasting stations and other similar public services. . . . .

17

AEITDH

Given the breadth of the aforequoted characterization of a common carrier, the

Court has considered as common carriers pipeline operators, 18 custom brokers
and warehousemen, 19 and barge operators 20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the quantity
or extent of the business actually transacted, or the number and character of the
conveyances used in the activity, but whether the undertaking is a part of the
activity engaged in by the carrier that he has held out to the general public as his
business or occupation. If the undertaking is a single transaction, not a part of the
general business or occupation engaged in, as advertised and held out to the
general public, the individual or the entity rendering such service is a private, not
a common, carrier. The question must be determined by the character of the
business actually carried on by the carrier, not by any secret intention or mental
reservation it may entertain or assert when charged with the duties and
obligations that the law imposes. 21
Applying these considerations to the case before us, there is no question that the
Pereas as the operators of a school bus service were: (a) engaged in
transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by the
method by which the business was conducted; and (c) transporting students for a
fee. Despite catering to a limited clientle, the Pereas operated as a common
carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near where
they operated the service and for a fee.
EHTISC

The common carrier's standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for reasons of
public policy, the common carrier is 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." 22 Article 1755 of
the Civil Code specifies that the common carrier should "carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with a due regard for all the circumstances." To

successfully fend off liability in an action upon the death or injury to a passenger,
the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted
negligently would stand. 23 No device, whether by stipulation, posting of notices,
statements on tickets, or otherwise, may dispense with or lessen the
responsibility of the common carrier as defined under Article 1755 of the Civil
Code. 24
And, secondly, the Pereas have not presented any compelling defense or
reason by which the Court might now reverse the CA's findings on their liability.
On the contrary, an examination of the records shows that the evidence fully
supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already
presumed to be negligent at the time of the accident because death had occurred
to their passenger. 25 The presumption of negligence, being a presumption of law,
laid the burden of evidence on their shoulders to establish that they had not been
negligent.26 It was the law no less that required them to prove their observance of
extraordinary diligence in seeing to the safe and secure carriage of the
passengers to their destination. Until they did so in a credible manner, they stood
to be held legally responsible for the death of Aaron and thus to be held liable for
all the natural consequences of such death.
There is no question that the Pereas did not overturn the presumption of their
negligence by credible evidence. Their defense of having observed the diligence
of a good father of a family in the selection and supervision of their driver was not
legally sufficient. According to Article 1759 of the Civil Code, their liability as a
common carrier did not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employee. This
was the reason why the RTC treated this defense of the Pereas as inappropriate
in this action for breach of contract of carriage.
HCTDIS

The Pereas were liable for the death of Aaron despite the fact that their driver
might have acted beyond the scope of his authority or even in violation of the
orders of the common carrier. 27 In this connection, the records showed their
driver's actual negligence. There was a showing, to begin with, that their driver
traversed the railroad tracks at a point at which the PNR did not permit motorists

going into the Makati area to cross the railroad tracks. Although that point had
been used by motorists as a shortcut into the Makati area, that fact alone did not
excuse their driver into taking that route. On the other hand, with his familiarity
with that shortcut, their driver was fully aware of the risks to his passengers but
he still disregarded the risks. Compounding his lack of care was that loud music
was playing inside the air-conditioned van at the time of the accident. The
loudness most probably reduced his ability to hear the warning horns of the
oncoming train to allow him to correctly appreciate the lurking dangers on the
railroad tracks. Also, he sought to overtake a passenger bus on the left side as
both vehicles traversed the railroad tracks. In so doing, he lost his view of the
train that was then coming from the opposite side of the passenger bus, leading
him to miscalculate his chances of beating the bus in their race, and of getting
clear of the train. As a result, the bus avoided a collision with the train but the van
got slammed at its rear, causing the fatality. Lastly, he did not slow down or go to
a full stop before traversing the railroad tracks despite knowing that his
slackening of speed and going to a full stop were in observance of the right of
way at railroad tracks as defined by the traffic laws and regulations. 28 He thereby
violated a specific traffic regulation on right of way, by virtue of which he was
immediately presumed to be negligent. 29
The omissions of care on the part of the van driver constituted
negligence, 30 which, according to Layugan v. Intermediate Appellate Court, 31 is
"the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a prudent and reasonable man would not
do, 32 or as Judge Cooley defines it, '(t)he failure to observe for the protection of
the interests of another person, that degree of care, precaution, and vigilance
which the circumstances justly demand, whereby such other person suffers
injury.'" 33
The test by which to determine the existence of negligence in a particular case
has been aptly stated in the leading case of Picart v. Smith, 34 thuswise:
ITSaHC

The test by which to determine the existence of negligence in a particular

case may be stated as follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an

ordinarily prudent person would have used in the same situation? If

not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in a
given case is not determined by reference to the personal judgment of
the actor in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent
man in a given situation must of course be always determined in
the light of human experience and in view of the facts involved in
the particular case. Abstract speculation cannot here be of much value
but this much can be profitably said:Reasonable men govern their
conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the
future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as a result
of the course actually pursued? If so, it was the duty of the actor to take
precautions to guard against that harm.Reasonable foresight of harm,
followed by the ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to exist.Stated in
these terms, the proper criterion for determining the existence of
negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have
foreseen that an effect harmful to another was sufficiently probable
to warrant his foregoing the conduct or guarding against its
consequences. (Emphasis supplied)
SDHTEC

Pursuant to the Picart v. Smith test of negligence, the Pereas' driver was entirely
negligent when he traversed the railroad tracks at a point not allowed for a
motorist's crossing despite being fully aware of the grave harm to be thereby
caused to his passengers; and when he disregarded the foresight of harm to his
passengers by overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite side of the bus.

Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate

Court, 35 where the Court held the PNR solely liable for the damages caused to a
passenger bus and its passengers when its train hit the rear end of the bus that
was then traversing the railroad crossing. But the circumstances of that case and
this one share no similarities. In Philippine National Railways v. Intermediate
Appellate Court, no evidence of contributory negligence was adduced against the
owner of the bus. Instead, it was the owner of the bus who proved the exercise of
extraordinary diligence by preponderant evidence. Also, the records are replete
with the showing of negligence on the part of both the Pereas and the PNR.
Another distinction is that the passenger bus in Philippine National Railways v.
Intermediate Appellate Courtwas traversing the dedicated railroad crossing when
it was hit by the train, but the Pereas' school van traversed the railroad tracks at
a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR "jointly
and severally" liable for damages arising from the death of Aaron. They had been
impleaded in the same complaint as defendants against whom the Zarates had
the right to relief, whether jointly, severally, or in the alternative, in respect to or
arising out of the accident, and questions of fact and of law were common as to
the Zarates. 36 Although the basis of the right to relief of the Zarates (i.e., breach
of contract of carriage) against the Pereas was distinct from the basis of the
Zarates' right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil
Code), they nonetheless could be held jointly and severally liable by virtue of their
respective negligence combining to cause the death of Aaron. As to the PNR, the
RTC rightly found the PNR also guilty of negligence despite the school van of the
Pereas traversing the railroad tracks at a point not dedicated by the PNR as a
railroad crossing for pedestrians and motorists, because the PNR did not ensure
the safety of others through the placing of crossbars, signal lights, warning signs,
and other permanent safety barriers to prevent vehicles or pedestrians from
crossing there. The RTC observed that the fact that a crossing guard had been
assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the
PNR was aware of the risks to others as well as the need to control the vehicular
and other traffic there. Verily, the Pereas and the PNR were joint tortfeasors.
HCEcAa

2.

Was the indemnity for loss of

Aaron's earning capacity proper?
The RTC awarded indemnity for loss of Aaron's earning capacity. Although
agreeing with the RTC on the liability, the CA modified the amount. Both lower
courts took into consideration that Aaron, while only a high school student, had
been enrolled in one of the reputable schools in the Philippines and that he had
been a normal and able-bodied child prior to his death. The basis for the
computation of Aaron's earning capacity was not what he would have become or
what he would have wanted to be if not for his untimely death, but the minimum
wage in effect at the time of his death. Moreover, the RTC's computation of
Aaron's life expectancy rate was not reckoned from his age of 15 years at the
time of his death, but on 21 years, his age when he would have graduated from
college.
We find the considerations taken into account by the lower courts to be
reasonable and fully warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was
speculative and unfounded. They cited People v. Teehankee, Jr., 37 where the
Court deleted the indemnity for victim Jussi Leino's loss of earning capacity as a
pilot for being speculative due to his having graduated from high school at the
International School in Manila only two years before the shooting, and was at the
time of the shooting only enrolled in the first semester at the Manila Aero Club to
pursue his ambition to become a professional pilot. That meant, according to the
Court, that he was for all intents and purposes only a high school graduate.
We reject the Pereas' submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation
there of Jussi Leino was not akin to that of Aaron here. The CA and the RTC
were not speculating that Aaron would be some highly-paid professional, like a
pilot (or, for that matter, an engineer, a physician, or a lawyer). Instead, the
computation of Aaron's earning capacity was premised on him being a lowly
minimum wage earner despite his being then enrolled at a prestigious high
school like Don Bosco in Makati, a fact that would have likely ensured his
success in his later years in life and at work.
TEcADS

And, secondly, the fact that Aaron was then without a history of earnings should
not be taken against his parents and in favor of the defendants whose negligence
not only cost Aaron his life and his right to work and earn money, but also
deprived his parents of their right to his presence and his services as well. Our
law itself states that the loss of the earning capacity of the deceased shall be the
liability of the guilty party in favor of the heirs of the deceased, and shall in every
case be assessed and awarded by the court "unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning
capacity at the time of his death."38 Accordingly, we emphatically hold in favor of
the indemnification for Aaron's loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time
or earnings but for loss of the deceased's power or ability to earn money. 39
This favorable treatment of the Zarates' claim is not unprecedented. In Cariaga v.
Laguna Tayabas Bus Company and Manila Railroad Company, 40 fourth-year
medical student Edgardo Carriaga's earning capacity, although he survived the
accident but his injuries rendered him permanently incapacitated, was computed
to be that of the physician that he dreamed to become. The Court considered his
scholastic record sufficient to justify the assumption that he could have finished
the medical course and would have passed the medical board examinations in
due time, and that he could have possibly earned a modest income as a medical
practitioner. Also, in People v. Sanchez, 41 the Court opined that murder and rape
victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed
good-paying jobs had they graduated in due time, and that their jobs would
probably pay them high monthly salaries from P10,000.00 to P15,000.00 upon
their graduation. Their earning capacities were computed at rates higher than the
minimum wage at the time of their deaths due to their being already senior
agriculture students of the University of the Philippines in Los Baos, the
country's leading educational institution in agriculture.
TAEDcS

3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages
awarded to the Zarates in the respective amounts of P2,500,000.00 and
P1,000,000.00 on the ground that such amounts were excessive.

The plea is unwarranted.

The moral damages of P2,500,000.00 were really just and reasonable under the
established circumstances of this case because they were intended by the law to
assuage the Zarates' deep mental anguish over their son's unexpected and
violent death, and their moral shock over the senseless accident. That amount
would not be too much, considering that it would help the Zarates obtain the
means, diversions or amusements that would alleviate their suffering for the loss
of their child. At any rate, reducing the amount as excessive might prove to be an
injustice, given the passage of a long time from when their mental anguish was
inflicted on them on August 22, 1996.
Anent the P1,000,000.00 allowed as exemplary damages, we should not reduce
the amount if only to render effective the desired example for the public good. As
a common carrier, the Pereas needed to be vigorously reminded to observe
their duty to exercise extraordinary diligence to prevent a similarly senseless
accident from happening again. Only by an award of exemplary damages in that
amount would suffice to instill in them and others similarly situated like them the
ever-present need for greater and constant vigilance in the conduct of a business
imbued with public interest.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the
decision promulgated on November 13, 2002; and ORDER the petitioners to pay
the costs of suit.
SO ORDERED.
|||

(Spouses Perea v. Spouses Zarate, G.R. No. 157917, [August 29, 2012], 693

PHIL 373-399)
G.R. No. 8095. November 5, 1914 & March 31, 1915.]
F. C. FISHER, plaintiff, vs. YANGCO STEAMSHIP COMPANY, J.
S. STANLEY, as Acting Collector of Custom of the Philippine
Islands, IGNACIO VILLAMOR, as Attorney-General of the
Philippine Islands, and W. H. BISHOP, as prosecuting attorney
of the city of Manila, respondents.

Haussermann, Cohn & Fisher, for plaintiff.

Solicitor-General Harvey, for respondents.
SYLLABUS
1. COMMON CARRIERS; PREFERENCES AND DISCRIMINATIONS.
Whatever may have been the rule at common law, common carriers in this
jurisdiction cannot lawfully decline to accept a particular class of goods for
carriage to the prejudice of the traffic in those goods unless it appears that for
some sufficient reason the discrimination against the traffic in such goods is
reasonable and necessary. Mere prejudice or whim will not suffice. The
grounds of the discrimination must be substantial ones, such as will justify the
courts in holding the discrimination to have been reasonable and necessary
under all the circumstances of the case.
2. ID.; ID.; PENAL PROVISIONS OF ACT NO. 98. The penalties
prescribed for violations of Act No. 98 of the Philippine Commission are
neither excessive nor cruel and unusual in the sense in which those words are
used in the organic legislation in force in the Islands.
3. ID.; ID.; ID. There is nothing in that statute which would deprive
any person of his liberty "by requiring him to engage in business against his
will." The prohibition of the statute against undue, unnecessary, or
unreasonable preferences and discriminations are merely the reasonable
regulations which the legislator has seen fit to prescribe for the conduct of the
business in which the carrier is engaged of his own free will and accord.
4. ID.; CONTROL AND REGULATION OF CARRIERS. The nature of
the business of a common carrier as a public employment is such that it is
clearly within the power of the state to impose such just and reasonable
regulations thereon in the interest of the public as the legislator may deem
proper. Of course such regulations must not have the effect of depriving an
owner of his property without due course of law, nor of confiscating or
appropriating private property without just compensation, nor of limiting or
prescribing irrevocably vested rights or privileges lawfully acquired under a
charter or franchise. But aside from such constitutional limitations, the

determination of the nature and extent of the regulations which should be

prescribed rests in the hands of the legislator.
5. ID.; ID. The right to enter the public employment as a common
carrier and to offer one's services to the public for hire does not carry with it
the right to conduct that business as one pleases, without regard to the
interests of the public, and free from such reasonable and just regulations as
may be prescribed for the protection of the public from the reckless or
careless indifference of the carrier as to the public welfare and for the
prevention of unjust and unreasonable discriminations of any kind whatsoever
in the performance of the carrier's duties as a servant of the public.
6. ID.; ID.; JUDICIAL, INTERFERENCE. The judiciary ought not to
interfere with such regulations established under legislative sanction unless
they are so plainly and palpably unreasonable as to make their enforcement
equivalent to the taking of property for public use without such compensation
as under all the circumstances is just both to the owner and to the public; that
is, judicial interference should never occur unless the case presents, clearly
and beyond all doubt, such a flagrant attack upon the rights of property under
the guise of regulations as -to compel the court to say that the regulations in
question will have the effect to deny just compensation for private property
taken for the public use.
7. ID.; ID. When one devotes his property to a use in which the
public has an interest, he, in effect, grants to the public an interest in that use
and must submit to be controlled by the public for the common good to the
extent of the interest he has thus created. He may withdraw his grant by
discontinuing the use, but so long as he maintains the use he must submit to
control.
8. ID.; ID.; EXERCISE OF POWER THROUGH BOARDS OF
COMMISSIONERS. So far beyond question is this right of regulation that it
is well settled that the power of the state to exercise legislative control over
railroad companies and other common carriers "in all respects necessary to
protect the public against danger, injustice and oppression" may be exercised
through boards of commissioners.

9. ID.; ID.; ACT No. 98; STATUTORY PROVISIONS. Correctly

construed, the provisions of the Philippine statute (Act No. 98) do not force a
common carrier to engage in any business against his will or to make use of
his facilities in a manner or for a purpose for which they are not reasonably
adapted. It is only when he offers his facilities as a common carrier to the
public for hire, that the statute steps in and prescribes that he must treat all
alike, that he may not pick and choose which customer he will serve, and,
specifically, that he shall not make any undue or unreasonable preferences or
discriminations whatsoever to the prejudice not only of any person or locality,
but also of any particular kind of traffic.
10. ID.; PREFERENCES AND DISCRIMINATIONS; EXPLOSIVES. It
cannot be doubted that the refusal of a "steamship company, the owner of a
large number of vessels" engaged in the coastwise trade of the Philippine
Islands as a common carrier of merchandise, to accept explosives for carriage
on any of its vessels subjects the traffic in such explosives to a manifest
prejudice and discrimination, and in each case it is a question of fact whether
such prejudice or discrimination is undue, unnecessary or unreasonable.
11. ID.; ID.; ID.; CONSIDERATION OF ATTENDANT
CIRCUMSTANCES. The making of a finding as to whether a refusal, by a
steamship company engaged in the coastwise trade in the Philippine Islands
as a common carrier, to carry such products subjects any person, locality, or
the traffic in such products to an unnecessary, undue or unreasonable
prejudice or discrimination, involves a consideration of the suitability of the
vessels of the company for the transportation of such products; the
reasonable possibility of danger or disaster resulting from their transportation
in the form and under the conditions in which they are offered for carriage; the
general nature of the business done by the carrier, and, in a word, all the
attendant circumstances which might affect the question of the reasonable
necessity for the refusal by the carrier to undertake the transportation of this
class of merchandise.
12. ID.; ID.; ID.; ID. The mere fact that violent and destructive
explosions can be obtained by the use of dynamite under certain conditions is
not sufficient in itself to justify the refusal of a vessel, duly licensed as a

common carrier of merchandise, to accept it for carriage, if it can be proven

that in the condition in which it is offered for carriage there is no real danger to
the carrier nor reasonable ground to fear that his vessel or those on board his
vessel will be exposed to unnecessary or unreasonable risks in transporting it,
having in mind the nature of his business as a common carrier engaged in the
coastwise trade in the Philippine Islands, and his duty as a servant of the
public engaged in a public employment.
13. ID.; ID.; ID.; ID. If by the exercise of due diligence, taking all
reasonable precautions, the danger of explosions can be eliminated, the
carrier would not be justified in subjecting the traffic in this commodity to
prejudice or discrimination by proof that there would be a possibility of danger
from explosion when no such precautions are taken.
14. ID.; ID.; ID.; ID. The traffic in dynamite, gunpowder and other
explosives is vitally essential to the material and general welfare of the
inhabitants of these Islands, and if these products are to continue in general
use throughout the Philippines they must be transported by water from port to
port in the various islands which make up the Archipelago. It follows that the
refusal by a particular vessel engaged as a common carrier of merchandise in
the coastwise trade in the Philippine Islands to accept such explosives for
carriage constitutes a violation of the prohibitions against discrimination
penalized under the statute, unless it can be shown that there is so real and
substantial a danger of disaster necessarily involved in the carriage of any or
all of these articles of merchandise as to render such refusal a due or a
necessary or a reasonable exercise of prudence and discretion on the part of
the shipowner.
DECISION
CARSON, J :
p

The real question involved in these proceedings is whether the refusal

of the owners and officers of a steam vessel, duly licensed to engage in the
coastwise trade of the Philippine Islands and engaged in that trade as a

common carrier, to accept for carriage "dynamite, powder or other explosives"

from any and all shippers who may offer such explosives for carriage can be
held to be a lawful act without regard to any question as to the conditions
under which such explosives are offered for carriage, or as to the suitableness
of the vessel for the transportation of such explosives, or as to the possibility
that the refusal to accept such articles of commerce in a particular case may
have the effect of subjecting any person or locality or the traffic in such
explosives to an undue, unreasonable or unnecessary prejudice or
discrimination.
Summarized briefly, the complaint alleges that plaintiff is a stockholder
in the Yangco Steamship Company, the owner of a large number of steam
vessels, duly licensed to engage in the coastwise trade of the Philippine
Islands; that on or about June 10, 1912, the directors of the company adopted
a' resolution which was thereafter ratified and affirmed by the shareholders of
the company, "expressly declaring and providing that the classes of
merchandise to be carried by the company in its business as a common
carrier do not include dynamite, powder or other explosives, and expressly
prohibiting the officers, agents and servants of the company from offering to
carry, accepting for carriage or carrying said dynamite, powder or other
explosives;" that thereafter the respondent Acting Collector of Customs
demanded and required of the company the acceptance and carriage of such
explosives; that he has refused and suspended the issuance of the necessary
clearance documents of the vessels of the company unless and until the
company consents to accept such explosives for carriage; that plaintiff is
advised and believes that should the company decline to accept such
explosives for carriage, the respondent Attorney-General of the Philippine
Islands and the respondent prosecuting attorney of the city of Manila intend to
institute proceedings under the penal provisions of sections 4, 5, and 6 of Act
No. 98 of the Philippine Commission against the company, its managers,
agents and servants, to enforce the requirements of the Acting-Collector of
Customs as to the acceptance of such explosives for carriage; that
notwithstanding the demands of the plaintiff stockholder, the manager, agents
and servants of the company decline and refuse to cease the carriage of such
explosives, on the ground that by reason of the severity of the penalties with

which they are threatened upon failure to carry such explosives, they cannot
subject themselves to "the ruinous consequences which would inevitably
result" from failure on their part to obey the demands and requirements of the
Acting Collector of Customs as to the acceptance for carriage of explosives;
that plaintiff believes that the Acting Collector of Customs erroneously
construes the provisions of Act No. 98 in holding that they require the
company to accept such explosives for carriage notwithstanding the above
mentioned resolution of the directors and stockholders of the company, and
that if the Act does in fact require the company to carry such explosives it is to
that extent unconstitutional and void; that notwithstanding this belief of
complainant as to the true meaning of the Act, the questions involved cannot
be raised by the refusal of the company or its agents to comply with the
demands of the Acting Collector of Customs, without the risk of irreparable
loss and damage resulting from his refusal to facilitate the documentation of
the company's vessels, and without assuming a risk of pains and penalties
under the drastic provisions of the Act which prohibit any attempt on the part
of the company to test the questions involved by refusing to accept such
explosives for carriage.
The prayer of the complaint is as follows:
"Wherefore your petitioner prays to this honorable court as
follows:
"First. That to the due hearing of the above entitled action be
issued a writ of prohibition perpetually restraining the respondent Yangco
Steamship Company, its appraisers, agents, servants or other
representatives from accepting to carry and from carrying, in steamers of
said company dynamite, powder or other explosive substance, in
accordance with the resolution of the board of directors and of the
shareholders of said company.
"Second. That a writ of prohibition be issued perpetually enjoining
the respondent J. S. Stanley as Acting Collector of Customs of the
Philippine Islands, his successors, deputies, servants or other
representatives, from obligating the said Yangco Steamship Company,

by any means whatever, to carry dynamite, powder or other explosive

substance.
"Third. That a writ of prohibition be issued perpetually enjoining
the respondent Ignacio Villamor as Attorney-General of the Philippine
Islands, and W. H. Bishop as prosecuting attorney of the city of Manila,
their deputies, representatives or employees, from accusing the said
Yangco Steamship Company, its officers, agents or servants, of the
violation of Act No. 98 by reason of the failure or omission of the said
company to accept for carriage or to carry dynamite, powder or other
explosive.
"Fourth. That the petitioner be granted such other remedy as may
be meet and proper."

To this complaint the respondents demurred, and we are of opinion that

the demurrer must be sustained, on the ground that the complaint does not
set forth facts sufficient to constitute a cause of action.
It will readily be seen that plaintiff seeks in these proceedings to enjoin
the steamship company from accepting for carriage on any of its vessels,
dynamite, powder or other explosives, under any conditions whatsoever; to
prohibit the Collector of Customs and the prosecuting officers of the
government from all attempts to compel the company to accept such
explosives for carriage on any of its vessels under any conditions whatsoever;
and to prohibit these officials from any attempt to invoke the penal provisions
of Act No. 98, in any case of a refusal by the company or its officers so to do;
and this without regard to the conditions as to safety and so forth under which
such explosives are offered for carriage, and without regard also to any
question as to the suitableness for the transportation of such explosives of the
particular vessel upon which the shipper offers them for carriage; and further
without regard to any question as to whether such conduct on the part of the
steamship company and its officers involves in any instance an undue,
unnecessary or unreasonable discrimination to the prejudice of any person,
locality or particular kind of traffic.
There are no allegations in the complaint that for some special and
sufficient reasons all or indeed any of the company's vessels are unsuitable
for the business of transporting explosives; or that shippers have declined or

will in future decline to comply with such reasonable regulations and to take
such reasonable precautions as may be necessary and proper to secure the
safety of the vessels of the company in transporting such explosives. Indeed
the contention of petitioner is that a common carrier in the Philippine Islands
may decline to accept for carriage any shipment of merchandise of a class
which it expressly or impliedly declines to accept from all shippers alike,
because, as he contends "the duty of a common carrier to carry for all who
offer arises from the public profession he has made, and is limited by it."
In support of this contention counsel cites a number of English and
American authorities, discussing and applying the doctrine of the common law
with reference to common carriers. But it is unnecessary now to decide
whether, in the absence of statute, the principles on which the American and
English cases were decided would be applicable in this jurisdiction. The duties
and liabilities of common carriers in this jurisdiction are defined and fully set
forth in Act No. 98 of the Philippine Commission, and, until and unless that
statute be declared invalid or unconstitutional, we are bound by its provisions.
Sections 2, 3 and 4 of the Act are as follows:
"SEC. 2. It shall be unlawful for any common carrier engaged in
the transportation of passengers or property as above set forth to make
or give any unnecessary or unreasonable preference or advantage to
any particular person, company, firm, corporation or locality, or any
particular kind of traffic in any respect whatsoever, or to subject any
particular person, company, firm, corporation or locality, or any particular
kind of traffic, to any undue or unreasonable prejudice or discrimination
whatsoever, and such unjust preference or discrimination is also hereby
prohibited and declared to be unlawful.
"SEC. 3. No common carrier engaged in the carriage of
passengers or property as aforesaid shall, under any pretense
whatsoever, fail or refuse to receive for carriage, and as promptly as it is
able to do so without discrimination, to carry any person or property
offering for carriage, and in the order in which such persons or property
are offered for carriage, nor shall any such common carrier enter into any
arrangement, contract or agreement with any other person or corporation
whereby the latter is given an exclusive or preferential privilege over any
other person or persons to control or monopolize the carriage of any

class or kind of property to the exclusion or partial exclusion of any other

person or persons, and the entering into any such arrangement, contract
or agreement, under any form or pretense whatsoever, is hereby
prohibited and declared to be unlawful.
"SEC. 4. Any willful violation of the provisions of this Act by any
common carrier engaged in the transportation of passengers or property
as hereinbefore set forth is hereby declared to be punishable by a fine
not exceeding five thousand dollars money of the United States, or by
imprisonment not exceeding two years, or both, within the discretion of
the court."

The validity of this Act has been questioned on various grounds, and it
is vigorously contended that in so far as it imposes any obligation on a
common carrier to accept for carriage merchandise of a class which he makes
no public profession to carry, or which he has expressly or impliedly
announced his intention to decline to accept for carriage from all shippers
alike, it is ultra vires, unconstitutional and void.
We may dismiss without extended discussion any argument or
contention as to the invalidity of the statute based on alleged absurdities
inherent in its provisions or on alleged unreasonable or impossible
requirements which may be read into it by a strained construction of its terms.
We agree with counsel for petitioner that the provision of the Act which
prescribes that, "No common carrier . . . shall, under any pretense
whatsoever, fail or refuse to receive for carriage, and . . . to carry any person
or property offering for carriage," is not to be construed in its literal sense and
without regard to the context, so as to impose an imperative duty on all
common carriers to accept for carriage, and to carry all and any kind of freight
which may be offered for carriage without regard to the facilities which they
may have at their disposal. The legislator could not have intended and did not
intend to prescribe that a common carrier running passenger automobiles for
hire must transport coal in his machines; nor that the owner of a tank steamer,
expressly constructed in small watertight compartments for the carriage of
crude oil must accept a load of cattle or of logs in the rough; nor that any
common carrier must accept and carry contraband articles, such as opium,
morphine, cocaine, or the like, the mere possession of which is declared to be

a criminal offense; nor that common carriers must accept eggs offered for
transportation in paper parcels or any merchandise whatever so defectively
packed as to entail upon the company unreasonable and unnecessary care or
risks.
Read in connection with its context this, as well as all the other
mandatory and prohibitory provisions of the statute, was clearly intended
merely to forbid failures or refusals to receive persons or property for carriage
involving any "unnecessary or unreasonable preference or advantage to any
particular person, company, firm, corporation or locality, or any particular kind
of traffic in any respect whatsoever," or which would "subject any particular
person, company, firm, corporation or locality, or any particular kind of traffic to
any undue or unreasonable prejudice or discrimination whatsoever."
The question, then, of construing and applying the statute, in cases of
alleged violations of its provisions, always involves a consideration as to
whether the acts complained of had the effect of making or giving an
"unreasonable or unnecessary preference or advantage" to any person,
locality or particular kind of traffic, or of subjecting any person, locality, or
particular kind of traffic to any undue or unreasonable prejudice or
discrimination. It is very clear therefore that the language of the statute itself
refutes any contention as to its invalidity based on the alleged
unreasonableness of its mandatory or prohibitor provisions.
So also we may dismiss without much discussion the contentions as to
the invalidity of the statute, which are based on the alleged excessive severity
of the penalties prescribed for violation of its provisions. Upon general
principles it is peculiarly and exclusively within the province of the legislator to
prescribe the pains and penalties which may be imposed upon persons
convicted of violations of the laws in force within his territorial jurisdiction. With
the exercise of his discretion in this regard the courts have nothing to do, save
only in cases where it is alleged that excessive fines or cruel and unusual
punishments have been prescribed, and even in such cases the courts will not
presume to interfere in the absence of the clearest and most convincing
argument and proof in support of such contentions. (Weems vs. United States,
217 U. S., 349; U. S. vs. Pico, 18 Phil. Rep., 386.) We need hardly add that

there is no ground upon which to rest a contention that the penalties

prescribed in the statute under consideration are either excessive or cruel and
unusual, in the sense in which these terms are used in the organic legislation
in force in the Philippine Islands.
But it is contended that on account of the penalties prescribed the
statute should be held invalid upon the principles announced in Ex
parte Young (209 U. S., 123, 147, 148); Cotting vs. Godard (183 U. S., 79,
102); Mercantile Trust Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs.
McCord (103 Fed., 216); Cons. Gas Co. vs. Mayer (416 Fed., 150). We are
satisfied however that the reasoning of those cases is not applicable to the
statute under consideration. The principles announced in those decisions are
fairly indicated in the following citations found in petitioner's brief:
"But when the legislature, in an effort to prevent any inquiry of the
validity of a particular statute, so burdens any challenge thereof in the
courts that the party affected is necessarily constrained to submit rather
than take the chances of the penalties imposed, then it becomes a
serious question whether the party is not deprived of the equal protection
of the laws. (Cotting vs. Godard, 183 U. S., 79, 102.)
"It may therefore be said that when the penalties for disobedience
are by fines so enormous and imprisonment so severe as to intimidate
the company and its officers from resorting to the courts to test the
validity of the legislation, the result is the same as if the law in terms
prohibited the company from seeking judicial construction of laws which
deeply affect its rights.
"It is urged that there is no principle upon which to base the claim
that a person is entitled to disobey a statute at least once, for the
purpose of testing its validity, without subjecting himself to the penalties
for disobedience provided by the statute in case it is valid. This is not an
accurate statement of the case. Ordinarily a law creating offenses in the
nature of misdemeanors or felonies relates to a subject over which the
jurisdiction of the legislature is complete in any event. In the case,
however, of the establishment of certain rates without any hearing, the
validity of such rates necessarily depends upon whether they are high
enough to permit at least some return upon the investment (how much it

is not now necessary to state), and an inquiry as to that fact is a proper

subject of judicial investigation. If it turns out that the rates are too low for
that purpose, then they are illegal. Now, to impose upon a party
interested the burden of obtaining a judicial decision of such a question
(no prior hearing having ever been given) only upon the condition that, if
unsuccessful, he must suffer imprisonment and pay fines, as provided in
these acts, is, in effect, to close up all approaches to the courts, and thus
prevent any hearing upon the question whether the rates as provided by
the acts are not too low, and therefore invalid. The distinction is obvious
between a case where the validity of the act depends upon the existence
of a fact which can be determined only after investigation of a very
complicated and technical character, and the ordinary case of a statute
upon a subject requiring no such investigation, and over which the
jurisdiction of the legislature is complete in any event.
"We hold, therefore, that the provisions of the acts relating to the
enforcement of the rates, either for freight or passengers, by imposing
such enormous fines and possible imprisonment as a result of an
unsuccessful effort to test the validity of the laws themselves, are
unconstitutional on their face, without regard to the question of the
insufficiency of those rates. (Ex parte Young, 209 U. S., 123, 147, 148.)"

An examination of the general provisions of our statute, of the

circumstances under which it was enacted, the mischief which it sought to
remedy and of the nature of the penalties prescribed for violations of its terms
convinces us that, unlike the statutes under consideration in the above cited
cases, its enactment involved no attempt to prevent common carriers "from
resorting to the courts to test the validity of the legislation;" no "effort to
prevent any inquiry" as to its validity. It imposes no arbitrary obligation upon
the company to do or to refrain from doing anything. It makes no attempt to
compel such carriers to do business at a fixed or arbitrarily designated rate, at
the risk of separate criminal prosecutions for every demand of a higher or a
different rate. Its penalties can be imposed only upon proof of "unreasonable,"
"unnecessary" and "unjust" discriminations, and range from a maximum which
is certainly not excessive for willful, deliberate and contumacious violations of
its provisions by a great and powerful corporation, to a minimum which may
be a merely nominal fine. With so wide a range of discretion conferred upon

the courts, there is no substantial basis for a contention on the part of any
common carrier that it or its officers are "intimidated from resorting to the
courts to test the validity" of the provisions of the statute prohibiting such
"unreasonable," "unnecessary" and "unjust" discriminations, or to test in any
particular case whether a given course of conduct does in fact involve such
discrimination. We will not presume, for the purpose of declaring the statute
invalid, that there is so real a danger that the Courts of First Instance and this
court on appeal will abuse the discretion thus conferred upon us, as to
intimidate any common carrier, acting in good faith, from resorting to the
courts to test the validity of the statute. Legislative enactments, penalizing
unreasonable discriminations, unreasonable restraints of trade, and
unreasonable conduct in various forms of human activity are so familiar and
have been so frequently sustained in the courts, as to render extended
discussion unnecessary to refute any contention as to the invalidity of the
statute under consideration, merely because it imposes upon the carrier the
obligation of adopting one of various courses of conduct open to it, at the risk
of incurring a prescribed penalty in the event that the course of conduct
actually adopted by it should be held to have involved an unreasonable,
unnecessary or unjust discrimination. Applying the test announced in Ex
parte Young, supra, it will be seen that the validity of the Act does not depend
upon the existence of a fact which can be determined only after investigation
of a very complicated and technical character," and that "the jurisdiction of the
legislature'" over the subject with which the statute deals "is complete in any
event." There can be no real question as to the plenary power of the
legislature to prohibit and to penalize the making of undue, unreasonable and
unjust discriminations by common carriers to the prejudice of any person,
locality or particular kind of traffic. (See Munn vs. Illinois, 94 U. S., 113, and
other cases hereinafter cited in support of this proposition.)
Counsel for petitioner contends also that the statute, if construed so as
to deny the right of the steamship company to elect at will whether or not it will
engage in a particular business, such as that of carrying explosives, is
unconstitutional "because it is a confiscation of property, a taking of the
carrier's property without due process of law," and because it deprives him of

his liberty by compelling him to engage in business against his will. The
argument continues as follows:
"To require of a carrier, as a condition to his continuing in said
business, that he must carry anything and everything is to render
useless the facilities he may have for the carriage of certain lines of
freight. It would be almost as complete a confiscation of such facilities as
if the same were destroyed. Their value as a means of livelihood would
be utterly taken away. The law is a prohibition to him to continue in
business; the alternative is to get out or to go into some other business
the same alternative as was offered in the case of the Chicago & N.
W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there
commented on as follows:
"'Whatever of force there may be in such arguments, as applied to
mere personal property capable of removal and use elsewhere, or in
other business, it is wholly without force as against railroad corporations,
so large a proportion of whose investment is in the soil and fixtures
appertaining thereto, which cannot be removed. For a government,
whether that government be a single sovereign or one of the majority, to
say to an individual who has invested his means in so laudable an
enterprise as the construction of a railroad, one which tends so much to
the wealth and prosperity of the community, that, if he finds that the rates
imposed will cause him to do business at a loss, he may quit business,
and abandon that road, is the very irony of despotism. Apples of Sodom
were fruit of joy in comparison. Reading, as I do, in the preamble of the
Federal Constitution, that it was ordained to "establish justice," I can
never believe that it is within the power of state or nation thus practically
to confiscate the property of an individual invested in and used for a
purpose in which even the Argus eyes of the police power can see
nothing injurious to public morals, public health, or the general welfare. I
read also in the first section of the bill of rights of this state that "all men
are by nature free and equal, and have certain inalienable rights, among
which are those of enjoying and defending life and liberty, acquiring,
possessing, and protecting property, and pursuing and obtaining safety
and happiness;" and I know that, while that remains as the supreme law
of the state, no legislature can directly or indirectly lay its withering or

destroying hand on a single dollar invested in the legitimate business of

transportation.' " (Chicago & N. W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)

It is manifest, however, that this contention is directed against a

construction of the statute, which, as we have said, is not warranted by its
terms. As we have already indicated, the statute does not "require of a carrier,
as a condition to his continuing in said business, that he must carry anything
and everything," and thereby "render useless the facilities he may have for the
carriage of certain lines of freight." It merely forbids failures or refusals to
receive persons or property for carriage which have the effect of giving an
"unreasonable or unnecessary preference or advantage" to any person,
locality or particular kind of traffic, or of subjecting any person, locality or
particular kind of traffic to any undue or unreasonable prejudice or
discrimination.
Counsel expressly admits, that the statute, "as a prohibition against
discrimination is a fair, reasonable and valid exercise of government," and that
"it is necessary and proper that such discrimination be prohibited and
prevented," but he contends that "on the other hand there is no reasonable
warrant nor valid excuse for depriving a person of his liberty by requiring him
to engage in business against his will. If he has a rolling boat, unsuitable and
unprofitable for passenger trade, he may devote it to lumber carrying. To
prohibit him from using it unless it is fitted out with doctors and stewards and
staterooms to carry passengers would be an invalid confiscation of his
property. A carrier may limit his business to the branches thereof that suit his
convenience. If his wagon be old, or the route dangerous, he may avoid
liability for loss of passengers' lives and limbs by carrying freight only. If his
vehicles require expensive pneumatic tires, unsuitable for freight
transportation, he may nevertheless carry passengers. The only limitation
upon his action that it is competent for the governing authority to impose is to
require him to treat all alike. His limitations must apply to all, and they must be
established limitations. He cannot refuse to carry a case of red jusi on the
ground that he has carried for others only jusi that was green, or blue, or
black. But he can refuse to carry red jusi, if he has publicly professed such a

limitation upon his business and held himself out as unwilling to carry the
same for anyone."
To this it is sufficient answer to say that there is nothing in the statute
which would deprive any person of his liberty "by requiring him to engage in
business against his will." The prohibitions of the statute against undue,
unnecessary or unreasonable preferences and discriminations are merely the
reasonable regulations which the legislator has seen fit to prescribe for the
conduct of the business in which the carrier is engaged of his own free will
and accord. In so far as the self-imposed limitations by the carrier upon the
business conducted by him, in the various examples given by counsel, do not
involve an unreasonable or unnecessary discrimination the statute would not
control his action in any wise whatever. It operates only in cases involving
such unreasonable or unnecessary preferences or discriminations. Thus in
the hypothetical case suggested by the petitioner, a carrier engaged in the
carriage of green, blue or black jusi, and duly equipped therefor would
manifestly be guilty of "giving an unnecessary and unreasonable preference to
a particular kind of traffic" and of subjecting to "an undue and unreasonable
prejudice a particular kind of traffic," should he decline to carry red jusi, to the
prejudice of a particular shipper or of those engaged in the manufacture of
that kind of jusi, basing his refusal on the ground of "mere whim or caprice" or
of mere personal convenience. So a public carrier of passengers would not be
permitted under this statute to absolve himself from liability for a refusal to
carry a Chinaman, a Spaniard, an American, a Filipino, or a mestizo by proof
that from "mere whim or caprice or personal scruple," or to suit his own
convenience, or in the hope of increasing his business and thus making larger
profits, he had publicly announced his intention not to carry one or other of
these classes of passengers.
The nature of the business of a common carrier as a public employment
is such that it is clearly within the power of the state to impose such just and
reasonable regulations thereon in the interest of the public as the legislator'
may deem proper. Of course such regulations must not have the effect of
depriving an owner of his property without due process of law, nor of
confiscating or appropriating private property without just compensation, nor
of limiting or prescribing irrevocably vested rights or privileges lawfully

acquired under a charter or franchise. But aside from such constitutional

limitations, the determination of the nature and extent of the regulations which
should be prescribed rests in the hands of the legislator.
Common carriers exercise a sort of public office, and have duties to
perform in which the public is interested. Their business is, therefore, affected
with a public interest, and is subject of public regulation. (New Jersey Steam
Nav. Co. vs. Merchants Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U. S.,
113, 130.) Indeed, this right of regulation is so far beyond question that it is
well settled that the power of the state to exercise legislative control over
railroad companies and other carriers "in all respects necessary to protect the
public against danger, injustice and oppression" may be exercised through
boards of commissioners. (New York etc. R. Co.vs. Bristol, 151 U. S., 556,
571; Connecticut etc. R. Co. vs. Woodruff, 153 U. S., 689.)
Regulations limiting the number of passengers that may be carried in a
particular vehicle or steam vessel, or forbidding the loading of a vessel beyond
a certain point, or prescribing the number and qualifications of the personnel
in the employ of a common carrier, or forbidding unjust discrimination as to
rates, all tend to limit and restrict his liberty and to control to some degree the
free exercise of his discretion in the conduct of his business. But since the
Granger cases were decided by the Supreme Court of the United States no
one questions the power of the legislator to prescribe such reasonable
regulations upon property clothed with a public interest as he may deem
expedient or necessary to protect the public against danger, injustice or
oppression. (Munn vs. Illinois, 94 U. S., 113, 130; Chicago etc. R. Co.vs.
Cutts, 94 U. S., 155; Budd vs. New York, 143 U. S., 517; Cotting vs. Godard,
183 U. S., 79.) The right to enter the public employment as a common carrier
and to offer one's services to the public for hire does not carry with it the right
to conduct that business as one pleases, without regard to the interests of the
public and free from such reasonable and just regulations as may be
prescribed for the protection of the public from the reckless or careless
indifference of the carrier as to the public welfare and for the prevention of
unjust and unreasonable discrimination of any kind whatsoever in the
performance of the carrier's duties as a servant of the public.

Business of certain kinds, including the business of a common carrier,

holds such a peculiar relation to the public interest that there is super induced
upon it the right of public regulation. (Budd vs. New York, 143 U. S., 517, 533.)
When private property is "affected with a public interest it ceases to be juris
privati only." Property becomes clothed with a public interest when used in a
manner to make it of public consequence and affect the community at large.
"When, therefore, one devotes his property to a use in which the public has an
interest, he, in effect, grants to the public an interest in that use, and must
submit to be controlled by the public for the common good, to the extent of the
interest he has thus created. He may withdraw his grant by discontinuing the
use, but so long as he maintains the use he must submit to control." (Munn vs.
Illinois, 94 U. S., 113; Georgia R. & Bkg. Co. vs. Smith, 128 U. S., 174;
Budd vs. New York, 143 U. S., 517; Louisville etc. Ry. Co.vs. Kentucky, 161 U.
S., 677, 695.)
Of course this power to regulate is not a power to destroy, and limitation
is not the equivalent of confiscation. Under pretense of regulating fares and
freight the state can not require a railroad corporation to carry persons or
property without reward. Nor can it do that which in law amounts to a taking of
private property for public use without just compensation, or without due
process of law. (Chicago etc. R. Co. vs. Minnesota, 134 U. S., 418;
Minneapolis Eastern R. Co. vs. Minnesota, 134 U. S., 467.) But the judiciary
ought not to interfere with regulations established under legislative sanction
unless they are so plainly and palpably unreasonable as to make their
enforcement equivalent to the taking of property for public use without such
compensation as under all the circumstances is just both to the owner and to
the public, that is, judicial interference should never occur unless the case
presents, clearly and beyond all doubt, such a flagrant attack upon the rights
of property under the guise of regulations as to compel the court to say that
the regulation in question will have the effect to deny just compensation for
private property taken for the public use. (Chicago etc. R. Co. vs. Wellman,
143 U. S., 339; Smyth vs. Ames, 169 U. S., 466, 524; Henderson Bridge
Co. vs. Henderson City, 173 U. S., 592, 614.)
Under the common law of England it was early recognized that common
carriers owe to the public the duty of carrying indifferently for all who may

employ them, and in the order in which application is made, and without
discrimination as to terms. True, they were allowed to restrict their business so
as to exclude particular classes of goods, but as to the kinds of property which
the carrier was in the habit of carrying in the prosecution of his business he
was bound to serve all customers alike (State vs. Cincinnati etc. R. Co., 47
Ohio St., 130, 134, 138; Louisville etc. Ry. Co. vs. Queen City Coal Co., 13 Ky.
L. Rep., 832); and it is to be observed in passing that these common law rules
are themselves regulations controlling, limiting and prescribing the conditions
under which common carriers were permitted to conduct their business.
(Munn vs. Illinois, 94 U. S., 113, 133.)
It was found, in the course of time, that the correction of abuses which
had grown up with the enormously increasing business of common carriers
necessitated the adoption of statutory regulations controlling the business of
common carriers, and imposing severe and drastic penalties for violations of
their terms. In England, the Railway Clauses Consolidation Act was enacted in
1845, the Railway and Canal Traffic Act in 1854, and since the passage of
those Acts much additional legislation has been adopted tending to limit and
control the conduct of their business by common carriers. In the United States,
the business of common carriers has been subjected to a great variety of
statutory regulations. Among others Congress enacted "The Interstate
Commerce Act" (1887 ) and its amendments, and the Elkins Act as amended
(1906); and most if not all of the States of the Union have adopted similar
legislation regulating the business of common carriers within their respective
jurisdictions Unending litigation has arisen under these statutes and their
amendments, but nowhere has the right of the state to prescribe just and
reasonable regulations controlling and limiting the conduct of the business of
common carriers in the public interest and for the general welfare been
successfully challenged, though of course there has been wide divergence of
opinion as to the reasonableness, the validity and legality of many of the
regulations actually adopted.
The power of the Philippine legislator to prohibit and to penalize all and
any unnecessary or unreasonable discriminations by common carriers may be

maintained upon the same reasoning which justified the enactment by the
Parliament of England and the Congress of the United States of the above
mentioned statutes prohibiting and penalizing the granting of certain
preferences and discriminations in those countries. As we have said before,
we find nothing confiscatory or unreasonable in the conditions imposed in the
Philippine statute upon the business of common carriers. Correctly construed
they do not force him to engage in any business against his will or to make
use of his facilities in a manner or for a purpose for which they are not
reasonably adapted. It is only when he offers his facilities as a common carrier
to the public for hire, that the statute steps in and prescribes that he must treat
all alike, that he may not pick and choose which customer he will serve, and,
specifically, that he shall not make any undue or unreasonable preferences or
discriminations whatsoever to the prejudice not only of any person or locality
but also of any particular kind of traffic.
The legislator having enacted a regulation prohibiting common carriers
from giving unnecessary or unreasonable preferences or advantages to any
particular kind of traffic or subjecting any particular kind of traffic to any undue
or unreasonable prejudice or discrimination whatsoever, it is clear that
whatever may have been the rule at the common law, common carriers in this
jurisdiction cannot lawfully decline to accept a particular class of goods for
carriage, to the prejudice of the traffic in those goods, unless it appears that
for some sufficient reason the discrimination against the traffic in such goods
is reasonable and necessary. Mere whim or prejudice will not suffice. The
grounds for the discrimination must be substantial ones, such as will justify the
courts in holding the discrimination to have been reasonable and necessary
under all the circumstances of the case.
The prayer of the petition in the case at bar cannot be granted unless
we hold that the refusal of the defendant steamship company to accept for
carriage on any of its vessels "dynamite, gunpowder or other explosives"
would in no instance involve a violation of the provisions of this statute. There
can be little doubt, however, that cases may and will arise wherein the refusal
of a vessel "engaged in the coastwise trade of the Philippine Islands as a
common carrier" to accept such explosives for carriage would subject some
person, company; firm or corporation, or locality, or particular kind of traffic to

a certain prejudice or discrimination. Indeed it cannot be doubted that the

refusal of a "steamship company, the owner of a large number of vessels"
engaged in that trade to receive for carriage any such explosives on any of its
vessels would subject the traffic in such explosives to a manifest prejudice and
discrimination. The only question to be determined therefore is whether such
prejudice or discrimination might in any case prove to be undue, unnecessary
or unreasonable.
This of course is, in each case, a question of fact, and we are of opinion
that the facts alleged in the complaint are not sufficient to sustain a finding in
favor of the contentions of the petitioner. It is not alleged in the complaint that
"dynamite, gunpowder and other explosives" can in no event be transported
with reasonable safety on board steam vessels engaged in the business of
common carriers. It is not alleged that all, or indeed any of the defendant
steamship company's vessels are unsuited for the carriage of such explosives.
It is not alleged that the nature of the business in which the steamship
company is engaged is such. as to preclude a finding that a refusal to accept
such explosives on any of its vessels would subject the traffic in such
explosives to an undue and unreasonable prejudice and discrimination.
Plaintiff's contention in this regard is as follows:
"In the present case, the respondent company has expressly and
publicly renounced the carriage of explosives, and expressly excluded
the same in terms from the business it conducts. This in itself were
sufficient, even though such exclusion of explosives were based on no
other ground than the mere whim, caprice or personal scruple of the
carrier. It is unnecessary, however, to indulge in academic discussion of
a moot question, for the decision not to carry explosives rests on
substantial grounds which are self-evident."

We think however that the answer to the question whether such a

refusal to carry explosives involves an unnecessary or unreasonable
preference or advantage to any person, locality or particular kind of traffic or
subjects any person, locality or particular kind of traffic to an undue or
unreasonable prejudice or discrimination is by no means "self-evident," and
that it is a question of fact to be determined by the particular circumstances of
each case.

The words "dynamite, powder or other explosives" are broad enough to

include matches, and other articles of like nature, and may fairly be held to
include also kerosene oil, gasoline and similar products of a highly
inflammable and explosive character. Many of these articles of merchandise
are in the nature of necessities in any country open to modern progress and
advancement. We are not fully advised as to the methods of transportation by
which they are made commercially available throughout the world, but certain
it is that dynamite, gunpowder, matches, kerosene oil and gasoline are
transported on many vessels sailing the high seas. Indeed it is matter of
common knowledge that common carriers throughout the world transport
enormous quantities of these explosives, on both land and sea, and there can
be little doubt that a general refusal of the common carriers in any country to
accept such explosives for carriage would involve many persons, firms and
enterprises in utter ruin, and would disastrously affect the interests of the
public and the general welfare of the community.
It would be going far to say that a refusal by a steam vessel engaged in
the business of transporting general merchandise as a common carrier to
accept for carriage a shipment of matches, solely on the ground of the
dangers incident to the explosive quality of this class of merchandise, would
not subject the traffic in matches to an unnecessary, undue or unreasonable
prejudice or discrimination without proof that for some special reason the
particular vessel is not fitted to carry articles of that nature. There may be and
doubtless are some vessels engaged in business as common carriers of
merchandise, which for, lack of suitable deck space or storage rooms might
be justified in declining to carry kerosene oil, gasoline, and similar products,
even when offered for carriage securely packed in cases; and few vessels are
equipped to transport those products in bulk. But in any case of a refusal to
carry such products which would subject any person, locality or the traffic in
such products to any prejudice or discrimination whatsoever, it would be
necessary to hear evidence before making an affirmative finding that such
prejudice or discrimination was or was not unnecessary, undue or
unreasonable. The making of such a finding would involve a consideration of
the suitability of the vessel for the transportation of such products; the
reasonable possibility of danger or disaster resulting from their transportation

in the form and under the conditions in which they are offered for carriage; the
general nature of the business done by the carrier and, in a word, all the
attendant circumstances which might affect the question of the reasonable
necessity for the refusal by the carrier to undertake the transportation of this
class of merchandise.
But it is contended that whatever the rule may be as to other explosives,
the exceptional power and violence of dynamite and gunpowder in explosion
will always furnish the owner of a vessel with a reasonable excuse for his
failure or refusal to accept them for carriage or to carry them on board his
boat. We think however that even as to dynamite and gunpowder we would
not be justified in making such a holding unaided by evidence sustaining the
proposition that these articles can never be carried with reasonable safety on
any vessel engaged in the business of a common carrier. It is said that
dynamite is so erratic and uncontrollable in its action that it is impossible to
assert that it can be handled with safety in any given case. On the other hand
it is contended that while this may be true of some kinds of dynamite, it is a
fact that dynamite can be and is manufactured so as to eliminate any real
danger from explosion during transportation. These are of course questions of
fact upon which we are not qualified to pass judgment without the assistance
of expert witnesses who have made special studies as to the chemical
composition and reactions of the different kinds of dynamite, or attained a
thorough knowledge of its properties as a result of wide experience in its
manufacture and transportation.
As we construe the Philippine statute, the mere fact that violent and
destructive explosions can be obtained by the use of dynamite under certain
conditions would not be sufficient in itself to justify the refusal of a vessel, duly
licensed as a common carrier of merchandise, to accept it for carriage, if it can
be proven that in the condition in which it is offered for carriage there is no real
danger to the carrier, nor reasonable ground to fear that his vessel or those on
board his vessel will be exposed to unnecessary and unreasonable risk in
transporting it, having in mind the nature of his business as a common carrier
engaged in the coastwise trade in the Philippine Islands, and his duty as a
servant of the public engaged in a public employment. So also, if by the
exercise of due diligence and the taking of reasonable precautions the danger

of explosions can be practically eliminated, the carrier would not be justified in

subjecting the traffic in this commodity to prejudice or discrimination by proof
that there would be a possibility of danger from explosion when no such
precautions are taken.
The traffic in dynamite, gunpowder and other explosives is vitally
essential to the material and general welfare of the people of these Islands. If
dynamite, gunpowder and other explosives are to continue in general use
throughout the Philippines, they must be transported by water from port to port
in the various islands which make up the Archipelago. We are satisfied
therefore that the refusal by a particular vessel, engaged as a common carrier
of merchandise in the coastwise trade of the Philippine Islands, to accept any
or all of these explosives for carriage would constitute a violation of the
prohibitions against discriminations penalized under the statute, unless it can
be shown by affirmative evidence that there is so real and substantial a
danger of disaster necessarily involved in the carriage of any or all of these
articles of merchandise as to render such refusal a due or a necessary or a
reasonable exercise of prudence and discretion on the part of the shipowner.
The complaint in the case at bar lacking the necessary allegations
under this ruling, the demurrer must be sustained on the ground that the facts
alleged do not constitute a cause of action.
A number of interesting questions of procedure are raised and
discussed in the briefs of counsel. As to all of these questions we expressly
reserve our opinion, believing as we do that in sustaining the demurrer on the
grounds indicated in this opinion we are able to dispose of the real issue
involved in the proceedings without entering upon the discussion of the nice
questions which it might have been necessary to pass upon had it appeared
that the facts alleged in the complaint constitute a cause of action.
We think, however, that we should not finally dispose of the case
without indicating that since the institution of these proceedings the enactment
of Acts No. 2307 and No. 2362 (creating a Board of Public Utility
Commissioners and for other purposes) may have materially modified the right
to institute and maintain such proceedings in this jurisdiction. But the demurrer

having been formally submitted for judgment before the enactment of these
statutes, counsel have not been heard in this connection. We therefore refrain
from any comment upon any questions which might be raised as to whether or
not there may be another adequate and appropriate remedy for the alleged
wrong set forth in the complaint. Our disposition of the question raised by the
demurrer renders that unnecessary at this time, though it may not be improper
to observe that a careful examination of those acts confirms us in the holding
upon which we base our ruling on this demurrer, that is to say "That whatever
may have been the rule at the common law, common carriers in this
jurisdiction cannot lawfully decline to accept a particular class of goods for
carriage, to the prejudice of the traffic in those goods, unless it appears that
for some sufficient reason the discrimination against the traffic in such goods
is reasonable and necessary. Mere prejudice or whim will not suffice. The
grounds of the discrimination must be substantial ones, such as will justify the
courts in holding the discrimination to have been reasonable and necessary
under all the circumstances of the case."
Unless an amended complaint be filed in the meantime let judgment be
entered ten days hereafter sustaining the demurrer and dismissing the
complaint with costs against the complainant, and twenty days thereafter let
the record be filed in the archives of original actions in this court. So ordered.
Arellano, C.J., and Trent, J. concur.
Torres and Johnson, JJ., concur in the result.
|||

(Fisher v. Yangco Steamship Co., G.R. No. 8095, [March 31, 1915], 31 PHIL 1-

47)
[G.R. No. 8686. July 30, 1915.]
THE UNITED STATES, plaintiff-appellee, vs. PASCUAL
QUINAJON and EUGENIO QUITORIANO, defendants-appellants.
Irineo Javier for appellants.
Attorney-General Villamor for appellee.

SYLLABUS
1. COMMON CARRIERS; WHO ARE COMMON CARRIERS; ACT No.
98 CONSTRUED. A common carrier is a person or corporation whose
regular business is to carry passengers or property for all persons who may
choose to employ and remunerate him. A common carrier is a person or
corporation who undertakes to carry goods or persons for hire. Act No. 98 of
the United States Philippine Commission is an Act to regulate commerce in
the Philippine Islands.
2. ID.; PREFERENCES AND DISCRIMINATIONS. Act No. 98
provides that no common carrier shall, directly or indirectly, by any special
rate, rebate, drawback, or other device, charge, demand, collect, or receive
from any person or persons a greater or less compensation for any services
rendered in the transportation of passengers or property, between points in
the Philippine Islands, than he charges, demands, collects, or receives from
any other person or persons, for doing a like or contemporaneous service,
under substantially similar conditions or circumstances. A common carrier
cannot, under the law, give any unnecessary or unreasonable preference or
advantage to any particular person, company, firm, corporation or locality, or
any particular kind of traffic, or subject any particular person, company, firm,
or corporation or locality, or any particular kind of traffic, to any undue or
unreasonable prejudice or discrimination whatsoever.
3. ID.; ID. Said Act No. 98 does not require that the same charge
shall be made for carrying passengers or property, unless all the conditions
are alike and contemporaneous. It does not prohibit the charging of a different
rate for the carrying of passengers or property when the actual cost of
handling and transporting the same is different. Common carriers can not
make a different rate to different persons for carrying persons or merchandise,
unless the actual cost of handling and shipping is different. It is when the price
charged is for the purpose of favoring persons or localities or particular kinds
of merchandise, that the law intervenes and prohibits. It is favoritism and
discrimination which the law prohibits. If the services are alike and
contemporaneous, discrimination in the price charged is prohibited.

DECISION
JOHNSON, J :
p

The defendants were charged with a violation of the provisions of Act

No. 98. A complaint was presented in the court of the justice of the peace on
the 11th day of November, 1912. A preliminary examination was had and the
defendants were held for trial in the Court of First Instance of the Province of
Ilocos Norte.
On the 17th day of November, 1912, the prosecuting attorney of the
Province of Ilocos Norte presented the following complaint:
"The undersigned charges Pascual Quinajon and Eugenio
Quitoriano, residents of the municipality of Paoay, Ilocos Norte, P. I., with
violating Act No. 98 of the Civil Commission, within the jurisdiction of this
court, as follows:
"That the aforementioned accused are now and have been
engaged for more than four years prior to this date in the transportation
of passengers and merchandise in the port of Currimao that is, in the
loading and unloading of passengers and merchandise by means
of virayes from the shore to the steamers that anchor in the said port,
and vice versa.
"That the said accused have been regularly charging 6 centavos
for the unloading and loading of each package of merchandise or cargo,
large or small, heavy or light, off or on the steamers that anchor in the
said port of Currimao, and that the unloading is understood to be from
the steamer to the storage warehouses.
"That, in the months of June, July, and September, 1912, the said
accused, by means of their virayes and employees. did unload in the port
of Currimao aforementioned 5,986 sacks of rice belonging to the
provincial government of Ilocos Norte, P. I., that had come from Manila,
P. I., which sacks were unloaded from the steamers in which they had
been shipped and were carried to the storage warehouses in which they
were deposited; that the said accused did willfully, unlawfully, and
criminally demand and collect from the provincial treasurer for the

unloading of each one of the said sacks of rice 10 centavos, which

amount was paid in the said port, instead of 6 centavos which, as set
forth in the preceding paragraph, they have been regularly charging for
such services in the unloading of the same kind of merchandise and
under virtually the same circumstances and conditions; that the total sum
of the payments so made by the provincial treasurer amounted to
P598.60 for the aforesaid 5,986 sacks of rice, the provincial government
of Ilocos Norte, P. I., being thereby damaged in the sum of P359.16,
inasmuch as it should have paid only P239.44, in accordance with the
said rate of 6 centavos for each package.
"Acts committed in violation of the said Act No. 98 of the Civil
Commission."

Upon that complaint the defendants were duly arraigned, tried, found
guilty of the crime charged, and sentenced by the Honorable Dionisio Chanco,
judge, to pay a fine of $100 (P200) and costs, and to return to the provincial
government of the Province of Ilocos Norte the sum of P359.16.
From that sentence each of the defendants appealed to this court. In
this court they allege that the lower court committed the following errors:
"1. The court erred in holding that the accused had been regularly
collecting 6 centavos for the loading or the unloading of each sack of rice
from steamers in the port of Currimao.
"2. The court erred in holding that the defendants established
preferential privileges and made discriminations in favor of certain
shippers, against the provincial government of Ilocos Norte, in the
loading or unloading of merchandise on to or from the steamers in the
port of Currimao.
"3. The court erred, further, in sentencing the accused to pay to
the provincial government of Ilocos Norte the sum of P359.16."

The first assignment of error presents a question of fact only. The

appellants allege that the lower court committed an error in its conclusions of
fact. They allege that the lower court committed an error in deciding that they
had regularly charged 6 centavos for each sack of rice loaded or unloaded at
the port of Currimao. The decision of the lower court contains the following
statement of facts:

"It is proven that the defendants, acting as representatives of

the Union Obrera, established at the port of Currimao, Ilocos Norte, and
engaged by means ofvirayes as common carriers of passengers and in
loading and unloading freight from steamers anchoring at said port, to
the shore or to the warehouses, and vice versa, have regularly collected,
during the last four years, 6 centavos for each sack of rice loaded or
unloaded by said association.
"It is likewise proven that the same defendants, representing the
same association, collected from the provincial government of Ilocos
Norte 10 centavos for each of the 5,986 sacks of rice which they
unloaded from the steamers during the months of June, July, and
September, as property belonging to the said government, a price which
differed from the usual charge of 6 centavos made to other shippers of
said commodity.
"The provincial fiscal presented as witnesses in support of the
information the Chinese merchants Cu Chatco, Cu Joco, Sy Yacco, Lim
Anco, and Francisco Castro, who testified that they paid to the
defendants for loading and unloading supplies from the steamers at
Currimao 6 centavos for each package of any kind of supplies, large or
small, heavy or light. The two first named, Cu Chatco and Cu Joco,
testified, furthermore, that formerly they paid transportation charges for
the loading and discharge of their supplies from the steamers according
to the weight and size of each package, for which purpose a
classification was previously made by weighing and measuring said
packages or merchandise. Cu Joco does not remember how much was
paid at that time for each package, but Cu Chatco states that 10
centavos was paid for the transportation of each sack of rice weighing 60
kilos or more. The two above-named witnesses, Cu Chatco and Cu
Joco, add that as the task of weighing and measuring was very annoying
to the Chinese merchants at Laoag, Ilocos Norte, they suggested to the
defendants, and entered into an agreement with them, to pay by the lot
the transportation charges covering supplies loaded onto or unloaded
from the steamers, at the rate of 6 centavos for each package, heavy or
light, large or small."

We have made a careful examination of the evidence adduced during

the trial of the cause, and conclude that said facts are substantially sustained

thereby. The evidence clearly shows that the defendant collected 6 centavos
for each package, of whatever kind of merchandise, large or small, heavy or
light, from those merchants only with whom they had a special contract. From
other merchants, with whom they had not made said special contract, as well
as the Province of Ilocos Norte, they collected a different rate. The evidence
shows that they collected from the Province of Ilocos Norte 10 centavos for
each sack of rice which they unloaded from the steamers during the months of
June, July, and September. There seems to be no reason for reversing or
modifying the conclusions of the lower court based upon said finding of facts.
The effect of collecting a different amount from different persons for exactly
analogous or similar service performed by the defendants will be discussed
when we come to a discussion of the law applicable to the foregoing facts.
The second assignment of error, to wit, that "the lower court committed
an error in holding that the defendants established preferential privileges in
favor of certain shippers," presents the question whether or not the
defendants and appellants, in view of the foregoing facts, have violated the
provisions of said Act No. 98.
The facts, as they are disclosed by the record and the findings of the
lower court, may be stated concretely as follows: (1) The defendants, as
common carriers, charged and collected from some shippers and merchants,
a certain price for each package of merchandise, loaded or unloaded,
according to a certain schedule. (See Exhibit A.) The prices fixed in the
schedule depended upon the size and weight of the package. (2) The
defendants entered into a special contract with certainmerchants, under and
by virtue of the terms of which they charged and collected, for loading and
unloading merchandise in said port, the sum of 6 centavos for each package,
without reference to its size or weight.
It is not contended that it cost any more to load or unload the rice for the
province than it did for the merchants with whom the special contract was
made. There is no proof that the conditions were different. There is no proof
that the services rendered by the defendants for the different parties were
unlike or even not contemporaneous. The defendants justify their acts by the

fact that they handled all the merchandise of some merchants, whether the
packages were large or small, at the same price. Under these facts, the
question is squarely presented whether or not the defendants are guilty of a
violation of the spirit or the letter of said Act No. 98. Said Act No. 98 was
largely borrowed from the Act of Congress of February 4, 1887. The language
of the two Acts, so far as they relate to the present case, is practically the
same. Said Act of Congress has been construed by the Federal courts of the
United States in several decisions. In view of the similarity of the two Acts, we
feel justified in adopting the interpretation given by the Federal courts of the
United States to said Act of Congress.
The similarity of Act No. 98 and the Act of Congress may be seen in the
following quotations:
(Sec. 1, Act No. 98.)
"No person or corporation engaged as a common carrier of
passengers or property shall directly or indirectly by any special rate,
rebate,, drawback or other device, charge, demand, collect or receive
from any person or persons, a greater or less compensation for any
service rendered in the transportation of passengers or property on land
or water between any points in the Philippine Islands than such common
carriers charges, demands, collects or receives from any other person or
persons from doing for him a like or contemporaneous service in the
transportation of a like kind of traffic under substantially similar
circumstances and conditions, and any such unjust discrimination is
hereby prohibited and declared to be lawful."

(Sec. 2, Act of Congress, Feb. 4, 1887.)

"That if any common carrier subject to the provision of this Act
shall, directly, or indirectly, by any special rate, rebate, drawback, or
other device, charge, demand, collect, or receive from any person or
persons a greater or less compensation for any service rendered, or to
be rendered, in the transportation of passengers or property, subject to
the provisions of this Act, than it charges, demands, collects, or receives
from any person or persons for doing for him or them a like and
contemporaneous service in the transportation of a like kind of traffic
under substantially similar circumstances and conditions, such common

carrier shall be deemed guilty of unjust discrimination, which is hereby

prohibited and declared to be unlawful."

(Sec. 2, Act No. 98.)

"It shall be unlawful for any common carrier engaged in the
transportation of passengers or property as above set forth to make or
give any unnecessary or unreasonable preference or advantage to any
particular person, company, firm, corporation or locality, or any particular
kind of traffic in any respect whatsoever, or to subject any particular
person, company, firm, corporation or locality or any kind of traffic, to any
undue or unreasonable prejudice or discrimination is also hereby
prohibited and declared to be unlawful."

(Sec. 3, Act of Congress, Feb. 4, 1887.)

"That it shall be unlawful for any common carrier subject to the
provision of this Act to make or give any undue or unreasonable
preference or advantage to any particular person, company, firm,
corporation, or locality, or any particular description of traffic, to any
undue or unreasonable prejudice or disadvantage in any respect
whatsoever."

Said Act No. 98 is "An Act to regulate commerce in the Philippine

Islands." Its purpose, so far as it is possible, is to compel common carriers to
render to all persons exactly the same or analogous service for exactly the
same price, to the end that there may be no unjust advantage or
unreasonable discrimination. It applies to persons or corporations engaged
as common carriers of passengers or property. A common carrier is a person
or corporation whose regular business is to carry passengers or property for
all persons who may choose to employ and remunerate him. A common
carrier is a person or corporation who undertakes to carry goods or persons
for hire. The appellants admit that they are common carriers. The only
question presented is whether or not, under the facts, they have violated the
Act regulating commerce in the Philippine Islands.
The law provides that no common carrier shall directly or indirectly, by
any special rate, rebate, drawback, or other device, charge, demand, collect,
or receive from any person or persons, a greater or less compensation for any
service rendered in the transportation of passengers or property, between

points in the Philippine Islands, than he charges, demands, collects, or

receives from any other person or persons, for doing a like or
contemporaneous service, under substantially similar conditions or
circumstances.
The law prohibits any common carrier from making or giving any
unnecessary or unreasonable preference or advantage to any particular
person, company, firm, corporation or locality, or any particular kind of traffic,
or to subject any particular person, company, firm, corporation, or locality, or
any particular kind of traffic, to any undue or unreasonable prejudice or
discrimination whatsoever.
It will be noted that the law requires common carriers to carry for all
persons, either passengers or property, for exactly the same charge for a like
or contemporaneous service in the transportation of like kind of traffic under
substantially similar circumstances or conditions. The law prohibits common
carriers from subjecting any person, etc., or locality, or any particular kind of
traffic, to any undue or unreasonable prejudice or discrimination whatsoever.
The law does not require that the same charge shall be made for the carrying
of passengers or property, unless all the conditions are alike and
contemporaneous. It is not believed that the law prohibits the charging of a
different rate for the carrying of passengers or property when the actual cost
of handling and transporting the same is different. It is not believed that the
law intended to require common carriers to carry the same kind of
merchandise, even at the same price, under different and unlike conditions
and where the actual cost is different. The actual cost of handling and
transporting the same quantity of rice, for example, might be different,
depending upon the form of the package or other conditions. It would cost
more to handle and transport rice packed in open boxes or baskets, for
example, than it would to handle and transport the same quantity of rice neatly
packed in sacks. It would cost more to handle and transport hemp, when it is
unbaled and loose, than it would when it is baled. It might cost more to handle
and transport household goods uncrated than when they are crated. It is not
believed that the law prohibits the charging of a different price for handling and
shipping merchandise when the shipper exercises greater care in preparing
the same for shipment, thereby reducing the actual cost of handling and

transporting. If the shipper puts his merchandise in a condition which costs

less to handle and transport, he is certainly entitled to a better rate. The
difference in the charge to different merchants or shippers must be based
upon the actual cost of handling and transporting. The law does not require
common carriers to perform different services for the same price, unless the
actual cost is the same. It is when the price charged is for the purpose of
favoring persons by localities or particular kinds of merchandise, that the law
intervenes and prohibits. It is favoritism and discrimination which the law
prohibits. The difference in charge must not be made to favor one merchant,
or shipper, or locality, to the disadvantage of another merchant, or shipper, or
locality. If the services are alike and contemporaneous, discrimination in the
price charged is prohibited. For the purposes of the law, it is not sufficient
always to say that merchandise is alike, simply because it is of a like kind or
quantity. The quantity, kind, and quality may be exactly the same, and yet not
be alike, so far as the cost of transportation is concerned. Examples have
been given above. Many others might be given. A and B are each shippers of
bananas between the same points. A delivers his bananas to the carrier in
separate bundles or bunches, without a wrapper or any kind of protection,
while B delivers exactly the same number of bunches of bananas, but they are
neatly packed in a few boxes or baskets. It does not require much argument to
convince men conversant with the shipping of merchandise, in such a case,
that the actual cost of handling and shipping would be different and would,
therefore, not be "alike," although contemporaneous, perhaps. Neither is it
believed that shipments may be rendered unlike by the fact that the total
shipment is composed of different kinds or classes of merchandise. For
example, A is a shipper of rice and hemp and B is a shipper of rice alone.
Both A and B prepare their rice for shipment in exactly the same form of
package. It is not believed that the carrier is permitted, under the law, to carry
A's rice for a less price than he carries B's rice, simply because A is also a
shipper of hemp. A difference in the charge for handling and transporting may
only be made when the difference is based upon actual cost. The actual cost
may depend upon quantity. A man who ships freight by the car-load, by
reason of the actual cost of handling and shipping, may be entitled, under
certain conditions, to a better rate than the man who ships a single article or

package of the same class or kind of merchandise. A train-load of cattle might

be shipped from Dagupan to Manila, for example, at less cost per head than it
would cost to ship just a few head, less than a car-load. The actual cost of
each shipment must necessarily depend upon and be settled by its own proof.
This rule, however, does not prohibit the making of general schedules,
providing they are made applicable to all. The difference in the charge made
by the common carrier cannot be made for the purpose of favoring any person
or locality, to the prejudice or disadvantage of another person or locality. A
common carrier may discriminate between shippers when the amount of
goods shipped by one actually costs less to handle and transport, but he
cannot discriminate upon the ground simply that he carries all of the goods of
one shipper, while he does not carry all of the goods of another. The
difference in the charge must be the difference in the cost.
It is competent for a common carrier under the law, we believe, to enter
into special agreements for handling and transporting merchandise, whereby
advantage may accrue to individuals, when it is made clearly to appear that by
such agreements the common carrier has only its interests and the legitimate
increase of its profits in view, and when the consideration given to the
individual is for the interest of the common carrier alone, and when the
common carrier gives all shippers exactly the same rate, under the same
conditions.
The appellants justify the different charge upon the ground that they
carried pianos and matches, for the merchants with whom they had the
special contracts, at the same price. It is not believed that a merchant who
happens to be a shipper of both pianos and matches, should have any
advantage over the merchant who ships pianos alone, unless there is some
other actual additional cost in the one case, which does not exist in the other.
A common carrier can not discriminate upon the ground that he carries all of
the goods of one shipper, while he does not of another.
In the present case there is no pretense that it actually cost more to
handle the rice for the province than it did for the merchants with whom the
special contracts were made. From the evidence it would seem that there was

a clear discrimination made against the province. Discrimination is the thing

which is specifically prohibited and punished under the law.
It is not believed that the law prohibits common carriers from making
special rates for the handling and transporting of merchandise, when the
same are made for the purpose of increasing their business, and to manage
their important interests upon the same principles which are regarded as
sound, and adopted in other trades and pursuits. It is not believed that the law
requires absolute equality in all cases. Circumstances and conditions may
make it injurious to the carrier. Absolute equality, under certain circumstances
and conditions, may give some shippers an advantage over others. It is only
unjust, undue, and unreasonable discrimination which the law forbids. The law
of equality is in force only where the services performed in the different cases
are substantially the same, and the circumstances and conditions are similar.
Many considerations may properly enter into the agreement for the carriage or
shipment rate, such as the quantity carried, its nature, its risks, the expense of
carriage at different periods of time, and the like. Numerous circumstances
may intervene, which bear upon the cost and expense of transportation, and it
is but just to the carrier that he be permitted to take these circumstances into
consideration, in determining the rate or amount of his compensation. A
question of fact is raised in each case for the courts to decide.
The foregoing conclusions are based upon literally hundreds of
decisions of the courts of different states, and the Supreme Court of the
United States, as well as those of England, which have interpreted statutes
analogous to the one under consideration.
In the third assignment of error the appellants allege that the lower court
committed an error in condemning them to pay or return to the provincial
government the sum of P359.16. It is not exactly clear from the decision of the
lower court just how he arrived at that conclusion. Section 5 of Act No. 98
provides that any person or corporation, who may be damaged by reason of
the doing by a common carrier of any matters and things prohibited, shall be
en- titled to sue for and recover all damages so incurred, etc. It would seem
that the defendants and appellants had a right to charge the provincial
government 6 centavos for each sack of rice unloaded. They unloaded for the

province 5,986 sacks, for which they charged the sum of P598.60. They had a
right to collect 6 centavos, or the sum of P359.16. The appellants therefore
collected from the province more than they had a right to collect, the difference
between P598.60 and P359.16, or P239.44. They should be required,
therefore, to return to the province the excess which they collected, or the sum
of P239.44. The judgment of the lower court, therefore, should be modified in
this respect. The defendants are hereby ordered to return to the Province of
Ilocos Norte the sum P239.44, for which sum a judgment is hereby ordered to
be entered against them, for which execution may issue when this judgment
becomes final, in case the same is not paid.
After a careful analysis of the facts, and the law applicable thereto, the
judgment of the lower court, as herein modified, should be and is hereby
affirmed with costs. So ordered.
|||

(United States v. Quinajon, G.R. No. 8686, [July 30, 1915], 31 PHIL 189-202)
[G.R. No. 131621. September 28, 1999.]
LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF
APPEALS and THE MANILA INSURANCE CO.,
INC., respondents.

King Capuchino Tan & Associates for petitioner.

Zapa Law Office for private respondent.
SYNOPSIS
When LOADSTAR's M/V "Cherokee" sank off Limasawa Island, Manila
Insurance, Co., Inc., as insurer of its wood shipment, paid the total loss thereof,
then filed a complaint against LOADSTAR. The trial court ruled in favor of MIC,
and the Court of Appeals affirmed the same. Hence, this appeal with the issue:
whether M/V "Cherokee" is a public carrier and, whether LOADSTAR observed
due diligence in the premises.

LOADSTAR is a common carrier under Art. 1732 of the Civil Code. It is not
necessary that the carrier be issued a certificate of public convenience and that
the carriage of the goods was periodic or unscheduled. Further, on that fateful
day, the vessel was not chartered for a special cargo or to a special person only.
It was carrying a particular type of cargo for one shipper, but that is no reason to
convert the vessel from a common to a private carrier, especially as it was also
carrying passengers. On the second issue, the Court found M/V "Cherokee" not
seaworthy as it was not even sufficiently manned at the time. The Court affirmed
the decision of the Court of Appeals.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIERS; ELUCIDATED.
LOADSTAR is a common carrier. It is not necessary that the carrier be issued
a certificate of public convenience, and this public character is not altered by the
fact that the carriage of the goods in question was periodic, occasional, episodic
or unscheduled. In the case of De Guzman v. Court of Appeals, the Court
juxtaposed the statutory definition of "common carriers" with the peculiar
circumstances of that case, viz: The Civil Code defines "common carriers" in the
following terms: "Article 1732. Common carriers are persons, corporations, firms
or associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their services to
the public." The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity (in local idiom, as "a
sideline." Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services
to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making such
distinctions.
SacTCA

2. ID.; ID.; ID.; CASE OF HOME INSURANCE CO. V. AMERICAN STEAMSHIP

AGENCIES, INC. [23 SCRA 24 (1968)]; NOT APPLICABLE IN ABSENCE OF
EVIDENCE THAT VESSEL WAS SPECIALLY CHARTERED. LOADSTAR
relied on the 1968 case of Home Insurance Co. v. American Steamship
Agencies, Inc., where this Court held that a common carrier transporting special
cargo or chartering the vessel to a special person becomes a private carrier that
is not subject to the provisions of the Civil Code. However, the records do not
disclose that the M/V "Cherokee," on the date in question, undertook to carry a
special cargo or was chartered to a special person only. There was no charter
party. The bills of lading failed to show any special arrangement, but only a
general provision to the effect that the M/V "Cherokee" was a "general cargo
carrier." Further, the bare fact that the vessel was carrying a particular type of
cargo for one shipper, which appears to be purely coincidental, is not reason
enough to convert the vessel from a common to a private carrier, especially
where, as in this case, it was shown that the vessel was also carrying
passengers.
3. ID.; ID.; ID.; FAILURE TO KEEP VESSEL SEAWORTHY. M/V "Cherokee"
was not seaworthy when it embarked on its voyage on 19 November 1984. The
vessel was not even sufficiently manned at the time. "For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common carrier
to maintain in seaworthy condition its vessel involved in a contract of carriage is a
clear breach of its duty prescribed in Article 1755 of the Civil Code."
4. ID.; ID.; ID.; DOCTRINE OF LIMITED LIABILITY; NOT APPLICABLE WHERE
THERE WAS NEGLIGENCE ON PART OF THE VESSEL OWNER. The
doctrine of limited liability does not apply where there was negligence on the part
of the vessel owner or agent. LOADSTAR was at fault or negligent in not
maintaining a seaworthy vessel and in having allowed its vessel to sail despite
knowledge of an approaching typhoon. In any event, it did not sink because of
any storm that may be deemed as force majeure, inasmuch as the wind condition
in the area where it sank was determined to be moderate. Since it was remiss in
the performance of its duties, LOADSTAR cannot hide behind the "limited liability"
doctrine to escape responsibility for the loss of the vessel and its cargo.

5. ID.; ID.; ID.; STIPULATION OF SHIPMENTS MADE AT OWNER'S RISK;

VOID. The stipulation in the case at bar effectively reduces the common
carrier's liability for the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss
or damage to shipments made at "owner's risk." Such stipulation is obviously null
and void for being contrary to public policy. It has been said: Three kinds of
stipulations have often been made in a bill of lading. The first is one exempting
the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the
carrier to an agreed valuation unless the shipper declares a higher value and
pays a higher rate of freight. According to an almost uniform weight of authority,
the first and second kinds of stipulations are invalid as being contrary to public
policy, but the third is valid and enforceable. Since the stipulation in question is
null and void, it follows that when MIC paid the shipper, it was subrogated to all
the rights which the latter has against the common carrier, LOADSTAR.
6. ID.; ID.; ID.; PRESCRIPTION OF CLAIMS FOR LOSS. MIC's cause of
action had not yet prescribed at the time it was concerned. Inasmuch as 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. This
one-year prescriptive period also applies to the insurer of the goods. In this case,
the period for filing the action for recovery has not yet elapsed. Moreover, a
stipulation reducing the one-year period is null and void; it must, accordingly, be
struck down.
STcADa

DECISION
DAVIDE, JR., C.J :
p

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to

reverse and set aside the following: (a) the 30 January 1997 decision 1 of the
Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4
October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil Case No.
85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co.
(hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the
complaint until fully paid, P8,000 as attorney's fees, and the costs of the suit; and
(b) its resolution of 19 November 1997, 3 denying LOADSTAR's motion for
reconsideration of said decision.
The facts are undisputed.

LLjur

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee"

(hereafter, the vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with
MIC against various risks including "TOTAL LOSS BY TOTAL LOSS OF THE
VESSEL." The vessel, in turn, was insured by Prudential Guarantee &
Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its
way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with
its cargo, sank off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with LOADSTAR which, however, ignored the
same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its
claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI,
alleging that the sinking of the vessel was due to the fault and negligence of
LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the
insurance proceeds from the loss of the vessel directly to MIC, said amount to be
deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods
and claimed that the sinking of its vessel was due to force majeure. PGAI, on the
other hand, averred that MIC had no cause of action against it, LOADSTAR being

the party insured. In any event, PGAI was later dropped as a party defendant
after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC,
prompting LOADSTAR to elevate the matter to the Court of Appeals, which,
however, agreed with the trial court and affirmed its decision in toto.

In dismissing LOADSTAR's appeal, the appellate court made the following

observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground
that there was a single shipper on that fateful voyage. The court
noted that the charter of the vessel was limited to the ship, but
LOADSTAR retained control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil Code,
which should be applied in determining the rights and liabilities of
the parties.
3) The vessel was not seaworthy because it was undermanned on the
day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate.
The vessel sank, not because of force majeure, but because it
was not seaworthy. LOADSTAR'S allegation that the sinking was
probably due to the "convergence of the winds," as stated by a
PAGASA expert, was not duly proven at the trial. The "limited
liability" rule, therefore, is not applicable considering that, in this
case, there was an actual finding of negligence on the part of the
carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do
not apply because said provisions bind only the
shipper/consignee and the carrier. When MIC paid the shipper for
the goods insured, it was subrogated to the latter's rights as
against the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's

defense of "diligence of a good father of a family" in the training

and selection of its crew is unavailing because this is not a proper
or complete defense in culpa contractual.
cdll

6) "Art. 361 (of the Code of Commerce) has been judicially construed to
mean that when goods are delivered on board a ship in good
order and condition, and the shipowner delivers them to the
shipper in bad order and condition, it then devolves upon the
shipowner to both allege and prove that the goods were damaged
by reason of some fact which legally exempts him from liability."
Transportation of the merchandise at the risk and venture of the
shipper means that the latter bears the risk of loss or deterioration
of his goods arising from fortuitous events, force majeure, or the
inherent nature and defects of the goods, but not those caused by
the presumed negligence or fault of the carrier, unless otherwise
proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following

issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these
premises?

Regarding the first issue, LOADSTAR submits that the vessel was a private
carrier because it was not issued a certificate of public convenience, it did not
have a regular trip or schedule nor a fixed route, and there was only "one shipper,
one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V
"Cherokee" was not timely raised below; hence, it is barred by estoppel. While it
is true that the vessel had on board only the cargo of wood products for delivery
to one consignee, it was also carrying passengers as part of its regular business.
Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there
any "special arrangement" between LOADSTAR and the shipper regarding the
shipment of the cargo. The singular fact that the vessel was carrying a particular

type of cargo for one shipper is not sufficient to convert the vessel into a private
carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it
cannot be presumed to have been negligent, and the burden of proving otherwise
devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful
voyage on 19 November 1984, the vessel was allegedly dry docked at Keppel
Philippines Shipyard and was duly inspected by the maritime safety engineers of
the Philippine Coast Guard, who certified that the ship was fit to undertake a
voyage. Its crew at the time was experienced, licensed and unquestionably
competent. With all these precautions, there could be no other conclusion except
that LOADSTAR exercised the diligence of a good father of a family in ensuring
the vessel's seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo,
such loss being due to force majeure. It points out that when the vessel left
Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the
next day when the vessel sank due to strong waves. MIC's witness, Gracelia
Tapel, fully established the existence of two typhoons, "WELFRING" and
"YOLING," inside the Philippine area of responsibility. In fact, on 20 November
1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa
Island. Tapel also testified that the convergence of winds brought about by these
two typhoons strengthened wind velocity in the area, naturally producing strong
waves and winds, in turn, causing the vessel to list and eventually sink.
LibLex

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting
its liability, such as what transpired in this case, is valid. Since the cargo was
being shipped at "owner's risk," LOADSTAR was not liable for any loss or
damage to the same. Therefore, the Court of Appeals erred in holding that the
provisions of the bills of lading apply only to the shipper and the carrier, and not
to the insurer of the goods, which conclusion runs counter to the Supreme
Court's ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray &
Co., Inc., 9 and National Union Fire Insurance Company of Pittsburgh v. StoltNielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case
having been instituted beyond the period stated in the bills of lading for instituting
the same suits based upon claims arising from shortage, damage, or nondelivery of shipment shall be instituted within sixty days from the accrual of the
right of action. The vessel sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that
the loss of the cargo was due to force majeure, because the same concurred with
LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below;
hence, the same must be deemed waived.
Thirdly, the "limited liability" theory is not applicable in the case at bar because
LOADSTAR was at fault or negligent, and because it failed to maintain a
seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a
typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is
not necessary that the carrier be issued a certificate of public convenience, and
this public character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance
Co. v. American Steamship Agencies, Inc., 11 where this Court held that a
common carrier transporting special cargo or chartering the vessel to a special
person becomes a private carrier that is not subject to the provisions of the Civil
Code. Any stipulation in the charter party absolving the owner from liability for
loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at large is
not involved, as in the case of a ship totally chartered for the use of a single party.
LOADSTAR also citedValenzuela Hardwood and Industrial Supply, Inc. v. Court
of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which
upheld the Home Insurancedoctrine.
LLjur

These cases invoked by LOADSTAR are not applicable in the case at bar for the
simple reason that the factual settings are different. The records do not disclose
that the M/V "Cherokee," on the date in question, undertook to carry a special
cargo or was chartered to a special person only. There was no charter party. The
bills of lading failed to show any special arrangement, but only a general
provision to the effect that the M/V "Cherokee" was a "general cargo
carrier." 14 Further, the bare fact that the vessel was carrying a particular type of
cargo for one shipper, which appears to be purely coincidental, is not reason
enough to convert the vessel from a common to a private carrier, especially
where, as in this case, it was shown that the vessel was also carrying
passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the
definition of a common carrier under Article 1732 of the Civil Code. In the case
of De Guzman v. Court of Appeals, 15 the Court juxtaposed the statutory
definition of "common carriers" with the peculiar circumstances of that case, viz.:
The Civil Code defines "common carriers" in the following terms:
"ARTICLE 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public."
The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in
local idiom, as "a sideline". Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public,"
i.e., the general community or population, and one who offers services or
solicits business only from a narrowsegment of the general population.
We think that Article 1733 deliberately refrained from making such
distinctions.

xxx xxx xxx

It appears to the Court that private respondent is properly characterized
as a common carrier even though he merely "back-hauled" goods for
other merchants from Manila to Pangasinan, although such backhauling
was done on a periodic or occasional rather than regular or scheduled
manner, and even though private respondent's principal occupation was
not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that that
fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common
carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or
firm acts as a common carrier, without regard to whether or not such
carrier has also complied with the requirements of the applicable
regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not
secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory
requirements. The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those members
of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a
common carrier to render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not
seaworthy when it embarked on its voyage on 19 November 1984. The vessel
was not even sufficiently manned at the time. "For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to

maintain in seaworthy condition its vessel involved in a contract of carriage is a

clear breach of its duty prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory
should be applied in this case. The doctrine of limited liability does not apply
where there was negligence on the part of the vessel owner or
agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy
vessel and in having allowed its vessel to sail despite knowledge of an
approaching typhoon. In any event, it did not sink because of any storm that may
be deemed as force majeure, inasmuch as the wind condition in the area where it
sank was determined to be moderate. Since it was remiss in the performance of
its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the
loss of the goods, in utter disregard of this Court's pronouncements in St. Paul
Fire & Marine Ins. Co. v. Macondray & Co., Inc., 18 and National Union Fire
Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that after
paying the claim of the insured for damages under the insurance policy, the
insurer is subrogated merely to the rights of the assured, that is, it can recover
only the amount that may, in turn, be recovered by the latter. Since the right of the
assured in case of loss or damage to the goods is limited or restricted by the
provisions in the bills of lading, a suit by the insurer as subrogee is necessarily
subject to the same limitations and restrictions. We do not agree. In the first
place, the cases relied on by LOADSTAR involved a limitation on the carrier's
liability to an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-1750).
On the other hand, the stipulation in the case at bar effectively reduces the
common carrier's liability for the loss or destruction of the goods to a degree less
than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for
any loss or damage to shipments made at "owner's risk." Such stipulation is
obviously null and void for being contrary to public policy. 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading.
The first is one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence. The second is one providing

for an unqualified limitation of such liability to an agreed valuation. And

the third is one limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher rate of
freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy,
but the third is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid
the shipper, it was subrogated to all the rights which the latter has against the
common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by
prescription. MIC's cause of action had not yet prescribed at the time it was
concerned. Inasmuch as 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. This one-year prescriptive period also applies to the insurer of
the goods. 22 In this case, the period for filing the action for recovery has not yet
elapsed. Moreover, a stipulation reducing the one-year period is null and
void; 23 it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30
January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
|||

LLphil

(Loadstar Shipping Co., Inc. v. Court of Appeals, G.R. No. 131621, [September

28, 1999], 373 PHIL 976-990)

[G.R. No. 112287. December 12, 1997.]
NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF
APPEALS AND VLASONS SHIPPING, INC., respondents.
[G.R. No. 112350. December 12, 1997.]

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

and NATIONAL STEEL CORPORATION, respondents.
Poblador, De los Reyes & Dacayo, Jr. for National Steel Corp.
De Rosario & Del Rosario for Vlasons Shipping, Inc.
SYNOPSIS
The cases under consideration are two separate petitions for review filed by
National Steel Corporation (NSC) and Vlasons Shipping Inc. (VSI), both assailing
the decision of the Court of Appeals. The records of the case reveal that NSC
hired MV Vlasons I, a private vessel owned by VSI. They entered into a contract
of affreightment or contract of voyage charter hire wherein the contract states that
NSC hired VSI's vessel to make one voyage to load steel products at Iligan City
and discharge them at North Harbor, Manila. Thereafter, in accordance with the
voyage charter hire, NSC's shipment of 1,677 skids of tinplates and 92 packages
of hot rolled sheets were loaded to MV Vlasons I for carriage to Manila. The
vessel arrived safely at North Harbor, Manila but upon opening the three hatches
containing the shipment, nearly all the skids of tinplates and hot rolled sheets
were allegedly found to be wet and rusty. On the basis of this incident, NSC filed
a complaint against VSI for damages due to the downgrading of the damaged
tinplates in the amount of P941,145.18. After trial on the merits, the court a quo
rendered judgment dismissing the complaint and ordering NSC to pay VSI on the
counterclaim prayed for by the latter. NSC seasonably filed an appeal to the
Court of Appeals, but the said court just modified the appealed decision by
reducing the award of demurrage and deleting the award of attorney's fees and
expenses of litigation. Both parties filed their separate motions for
reconsideration, but the appellate court denied both motions. Hence, this petition.
The Supreme Court affirms the assailed decision of the Court of Appeals, except
in respect with the demurrage. It is undisputed that VSI did not offer its services
to the general public. As correctly concluded by the Court of Appeals, MV
Vlasons I was not a common but a private carrier. Verily, the extent of VSI's
responsibility and liability over NSC's cargo are determined primarily by the

stipulations in the contract of carriage or charter party and the Code of

Commerce. In the instant case, the burden of proof lies on the part of NSC and
not the VSI. Additionally, the Court ruled that the since the problems raised by
NSC were all factual issues already threshed out and decided by the trial court
and subsequently affirmed by the Court of Appeals, the factual findings of both
courts are binding on this Court. However, the Court disagrees with the findings
of both courts to have found and affirmed respectively that NSC incurred eleven
days of delay in unloading the cargo. In this case, the contract of voyage charter
hire provided four-day laytime; it also qualified laytime as WWDSHINC or weather
working days Sundays and holidays included. Consequently, NSC cannot be held
liable for demurrage as the four-day laytime allowed it did not lapse, having been
tolled by unfavorable weather condition in view of WWDSHINC qualification
agreed upon by the parties. In view thereof, the consolidated petitions are denied
and the questioned decision is affirmed with modification that the award of
demurrage awarded to VSI is deleted.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; THE TRUE TEST OF A COMMON
CARRIER IS THE CARRIAGE OF PASSENGERS OR GOODS, PROVIDED IT
HAS SPACE, FOR ALL WHO OPT TO AVAIL THEMSELVES OF ITS
TRANSPORTATION SERVICE FOR A FEE. Article 1732 of the Civil Code
defines a common carrier as "persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water or air, for compensation, offering their services to the public." It has
been held that the true test of a common carrier is the carriage of passengers or
goods, provided it has space, for all who opt to avail themselves of its
transportation service for a fee. A carrier which does not qualify under the above
test is deemed a private carrier. "Generally, private carriage is undertaken by
special agreement and the carrier does not hold himself out to carry goods for the
general public. . . ."
2. ID.; ID.; A CARRIER CARRYING PASSENGERS OR GOODS ONLY FOR
THOSE IT CHOSE UNDER A SPECIAL CONTRACT OF CHARTER PARTY IS
PRIVATE CARRIER; CASE AT BAR. It is undisputed that VSI did not offer its

services to the general public. As found by the Regional Trial Court, it carried
passengers or goods only for those it chose under a "special contract of charter
party." As correctly concluded by the Court of Appeals, the MV Vlason I "was not
a common but a private carrier." Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or charter
party.
3. ID.; ID.; IN A CONTRACT OF PRIVATE CARRIAGE, THE BURDEN OF
PROOF IN CASE OF ACCIDENT IS ON THE CARRIER. In view of the
aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSI's willful negligence or failure to exercise due
diligence in making MV Vlason I seaworthy and fit for holding, carrying and
safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by
the parties' agreement. Because the MV Vlason I was a private carrier, the
shipowner's obligations are governed by the provisions of the Code of Commerce
(Arts. 361 & 362) and not by the Civil Code which, as a general rule places the
prima facie presumption of negligence on a common carrier. In the instant case,
the Court of Appeals correctly found that NSC "has not taken the correct position
in relation to the question of who has the burden of proof. Thus in its brief, after
citing Clause 10 and Clause 12 of the NANYOZAI Charter Party it argues that 'a
careful examination of the evidence will show that VSI miserably failed to comply
with any of these obligations' as if defendant-appellee [VSI] had the burden of
proof."
4. COMMERCIAL LAW; CARRIAGE OF GOODS BY SEA ACT; DEMURRAGE;
DEFINED. The Court defined demurrage in its strict sense as the
compensation provided for in the contract of affreightment for the detention of the
vessel beyond the laytime or that period of time agreed on for loading and
unloading of cargo. It is given to compensate the shipowner for the nonuse of the
vessel.
5. ID.; ID.; PETITIONER NSC, NOT LIABLE FOR DEMURRAGE, AS THE
FOUR-DAY LAYTIME ALLOWED IN THE CHARTER CONTRACT DID NOT
LAPSE; CASE AT BAR. The contract of voyage charter hire provided for a four
day laytime; it also qualified laytime as WWDSHINC or weather working days

Sundays and holidays included. The running of laytime was thus made subject to
the weather, and would cease to run in the event unfavorable weather interfered
with the unloading of cargo. Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather condition in view of the WWDSHINC qualification agreed
upon by the parties. Clearly, it was error for the trial court and the Court of
Appeals to have found and affirmed respectively that NSC incurred eleven days
of delay in unloading the cargo. The trial court arrived at this erroneous finding by
subtracting from the twelve days, specifically August 13, 1974 to August 24,
1974, the only day of unloading unhampered by unfavorable weather or rain,
which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error.
6. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL TO THE SUPREME COURT;
WHERE THE FACTUAL FINDINGS OF BOTH THE TRIAL COURT AND THE
COURT OF APPEALS COINCIDE, THE SAME ARE BINDING ON THE COURT.
The questions of fact were threshed out and decided by the trial court, which
had the firsthand opportunity to hear the parties' conflicting claims and to
carefully weigh their respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the factual findings of both
the trial court and the Court of Appeals coincide, the same are binding on this
Court. We stress that, subject to some exceptional instances, only questions of
law not questions of fact may be raised before this Court in a petition for
review under Rule 45 of the Rules of Court. After a thorough review of the case at
bar, we find no reason to disturb the lower courts' factual findings, as indeed NSC
has not successfully proven the application of any of the aforecited exceptions.
7. ID.; EVIDENCE; ADMISSIBILITY OF EVIDENCE; AN ORIGINAL
CERTIFICATE ISSUED BY AN OFFICER OF THE PHILIPPINE COAST GUARD,
IS ADMISSIBLE UNDER A WELL-SETTLED EXCEPTION TO THE HEARSAY
RULE UNDER SECTION 44, RULE 130 OF THE RULES OF COURT. Exhibit
11 is admissible under a well-settled exception to the hearsay rule per Section 44
of Rule 130 of the Rules of Courts which provides that "(e)ntries in official records
made in the performance of a duty by a public officer of the Philippines, or by a
person in the performance of a duty especially enjoined by law, are prima

facie evidence of the facts therein stated." Exhibit 11 is an original certificate of

the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C.
Flores to the effect that "the vessel 'VLASONS I was drydocked . . . and PCG
Inspectors were sent on board for inspection. . . . After completion of drydocking
and duly inspected by PCG Inspectors, the vessel 'VLASONS I', a cargo vessel,
is in seaworthy condition, meets all requirements, fitted and equipped for trading
as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu
Port on July 10, 1974." NSC's claim, therefore, is obviously misleading and
erroneous.

8. CIVIL LAW; DAMAGES; ATTORNEY'S FEES; RESPONDENT VSI NOT

ENTITLED THERETO, IN THE ABSENCE OF BAD FAITH ON THE PART OF
THE PETITIONER NSC. VSI assigns as error of law the Court of Appeals'
deletion of the award of attorney's fees. We disagree. While VSI was compelled
to litigate to protect its rights, such fact by itself will not justify an award of
attorney's fees under Article 2208 of the Civil Code when ". . . no sufficient
showing of bad faith would be reflected in a party's persistence in a case other
than an erroneous conviction of the righteousness of his cause. . . ." Moreover,
attorney's fees may not be awarded to a party for the reason alone that the
judgment rendered was favorable to the latter, as this is tantamount to imposing a
premium on one's right to litigate or seek judicial redress of legitimate grievances.
DECISION
PANGANIBAN, J :
p

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

a private carrier, its owner's responsibility for damage to the cargo and its liability
for demurrage and attorney's fees. The Court also reiterates the well-known rule
that findings of facts of trial courts, when affirmed by the Court of Appeals, are
binding on this Court.
cdasia

The Case

Before us are two separate petitions for review filed by National Steel Corporation
(NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993
Decision of the Court of Appeals. 1 The Court of Appeals modified the decision of
the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No.
23317. The RTC disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of defendant and
against the plaintiff dismissing the complaint with cost against plaintiff,
and ordering plaintiff to pay the defendant on the counterclaim as
follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as
demurrage with interest at the legal rate on both amounts from April 7,
1976 until the same shall have been fully paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00;
and
3. Cost of suit.
SO ORDERED." 2

On the other hand, the Court of Appeals ruled:

"WHEREFORE, premises considered, the decision appealed from is
modified by reducing the award for demurrage to P44,000.00 and
deleting the award for attorney's fees and expenses of litigation. Except
as thus modified, the decision is AFFIRMED. There is no
pronouncement as to costs.
SO ORDERED." 3

The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does
not transport cargo or shipment for the general public. Its services are available
only to specific persons who enter into a special contract of charter party with its
owner. It is undisputed that the ship is a private carrier. And it is in this capacity
that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or
contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

"(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as

Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered
into a Contract of Voyage Charter Hire (Exhibit 'B'; also Exhibit '1')
whereby NSC hired VSI's vessel, the MV 'VLASONS I' to make one (1)
voyage to load steel products at Iligan City and discharge them at North
Harbor, Manila, under the following terms and conditions, viz:
'1. . . .
2. Cargo: Full cargo of steel products of not less than 2,500 MT,
10% more or less at Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment
upon presentation of Bill of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
(Weather Working Day of 24 consecutive hours, Sundays
and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure the
cargoes. Shipowners not responsible for losses/damages
except on proven willful negligence of the officers of the
vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or
other internationally recognized Charter Party Agreement
shall form part of this Contract.
xxx xxx xxx'
The terms 'F.I.O.S.T.' which is used in the shipping business is a
standard provision in the NANYOZAI Charter Party which stands for
'Freight In and Out including Stevedoring and Trading', which means that
the handling, loading and unloading of the cargoes are the responsibility
of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it

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

unloaded by stevedores hired by the Charterer. Unloading was

completed only on August 24, 1974 after incurring a delay of eleven (11)
days due to the heavy rain which interrupted the unloading operations.
(Exhibit 'E')
(4) To determine the nature and extent of the wetting and rusting, NSC
called for a survey of the shipment by the Manila Adjusters and
Surveyors Company (MASCO). In a letter to the NSC dated March 17,
1975 (Exhibit 'G'), MASCO made a report of its ocular inspection
conducted on the cargo, both while it was still on board the vessel and
later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the
cargo was taken and stored. MASCO reported that it found wetting and
rusting of the packages of hot rolled sheets and metal covers of the
tinplates; that tarpaulin hatch covers were noted torn at various extents;
that container/metal casings of the skids were rusting all over. MASCO
ventured the opinion that 'rusting of the tinplates was caused by contact
with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while
en route to destination (Exhibit 'F'). It was also reported that MASCO's
surveyors drew at random samples of bad order packing materials of the
tinplates and delivered the same to the M.I.T. Testing Laboratories for
analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued
Report No. 1770 (Exhibit 'I') which in part, states, 'The analysis of bad
order samples of packing materials . . . shows that wetting was caused
by contact with SEA WATER'.
(5) On September 6, 1974, on the basis of the aforesaid Report No.
1770, plaintiff filed with the defendant its claim for damages suffered due
to the downgrading of the damaged tinplates in the amount of
P941,145.18. Then on October 3, 1974, plaintiff formally demanded
payment of said claim but defendant VSI refused and failed to pay.
Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the
aforesaid amount of P941,145.18 as a result of the act, neglect and
default of the master and crew in the management of the vessel as well
as the want of due diligence on the part of the defendant to make the
vessel seaworthy and to make the holds and all other parts of the vessel

in which the cargo was carried, fit and safe for its reception, carriage and
preservation all in violation of defendant's undertaking under their
Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage
claiming that the MV 'VLASONS I' was seaworthy in all respects for the
carriage of plaintiff's cargo; that said vessel was not a 'common carrier'
inasmuch as she was under voyage charter contract with the plaintiff as
charterer under the charter party; that in the course of the voyage from
Iligan City to Manila, the MV 'VLASONS I' encountered very rough seas,
strong winds and adverse weather condition, causing strong winds and
big waves to continuously pound against the vessel and seawater to
overflow on its deck and hatch covers; that under the Contract of Voyage
Charter Hire, defendant shall not be responsible for losses/damages
except on proven willful negligence of the officers of the vessel, that the
officers of said MV 'VLASONS I' exercised due diligence and proper
seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on
FIOST terms which means that the vessel was free of risk and expense
in connection with the loading and discharging of the cargo; that the
damage, if any, was due to the inherent defect, quality or vice of the
cargo or to the insufficient packing thereof or to latent defect of the cargo
not discoverable by due diligence or to any other cause arising without
the actual fault or privity of defendant and without the fault of the agents
or servants of defendant; consequently, defendant is not liable; that the
stevedores of plaintiff who discharged the cargo in Manila were negligent
and did not exercise due care in the discharge of the cargo; and that the
cargo was exposed to rain and seawater spray while on the pier or in
transit from the pier to plaintiff's warehouse after discharge from the
vessel; and that plaintiff's claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on the edges
of the tinplates were magnified and considered total loss of the cargo.
Finally, defendant claimed that it had complied with all its duties and
obligations under the Voyage Charter Hire Contract and had no
responsibility whatsoever to plaintiff. In turn, it alleged the following
counterclaim:

(a) That despite the full and proper performance by defendant of

its obligations under the Voyage Charter Hire Contract, plaintiff
failed and refused to pay the agreed charter hire of P75,000.00
despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had
agreed to pay defendant the sum of P8,000.00 per day for
demurrage. The vessel was on demurrage for eleven (11) days in
Manila waiting for plaintiff to discharge its cargo from the vessel.
Thus, plaintiff was liable to pay defendant demurrage in the total
amount of P88,000.00.
cdasia

(c) For filing a clearly unfounded civil action against defendant,

plaintiff should be ordered to pay defendant attorney's fees and all
expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out
with the following findings which were set forth in its decision:
(a) The MV 'VLASONS I' is a vessel of Philippine registry
engaged in the tramping service and is available for hire only
under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of
Voyage Charter Hire (Exh. '1'), the MV 'VLASONS I' was covered
by the required seaworthiness certificates including the
Certification of Classification issued by an international
classification society, the NIPPON KAIJI KYOKAI (Exh. '4');
Coastwise License from the Board of Transportation (Exh. '5');
International Loadline Certificate from the Philippine Coast Guard
(Exh. '6'); Cargo Ship Safety Equipment Certificate also from the
Philippine Coast Guard (Exh. '7'); Ship Radio Station License
(Exh. '8'); Certificate of Inspection by the Philippine Coast Guard
(Exh. '12'); and Certificate of Approval for Conversion issued by
the Bureau of Customs (Exh. '9'). That being a vessel engaged in
both overseas and coastwise trade, the MV 'VLASONS I' has a
higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called
for by the Contract of Voyage Charter Hire, the MV 'VLASONS I'
underwent drydocking in Cebu and was thoroughly inspected by

the Philippine Coast Guard. In fact, subject voyage was the

vessel's first voyage after the drydocking. The evidence shows
that the MV 'VLASONS I' was seaworthy and properly manned,
equipped and supplied when it undertook the voyage. It had all
the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches
of the ship. The hatch openings were covered by hatchboards
which were in turn covered by two or double tarpaulins. The hatch
covers were water tight. Furthermore, under the hatchboards were
steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of
carriage is not supported by evidence. The provisions of the Civil
Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo
are not applicable. As to the damage to the tinplates which was
allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Vicente Angliongto that tinplates
'sweat' by themselves when packed even without being in contract
(sic) with water from outside especially when the weather is bad
or raining. The rust caused by sweat or moisture on the tinplates
may be considered as a loss or damage but then, defendant
cannot be held liable for it pursuant to Article 1734 of the Civil
Case which exempts the carrier from responsibility for loss or
damage arising from the 'character of the goods . . .'. All the 1,769
skids of the tinplates could not have been damaged by water as
claimed by plaintiff. It was shown as claimed by plaintiff that the
tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from
outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of
tinplates were negligent in not closing the hatch openings of the
MV 'VLASONS I' when rains occurred during the discharging of
the cargo thus allowing rainwater to enter the hatches. It was
proven that the stevedores merely set up temporary tents to cover
the hatch openings in case of rain so that it would be easy for
them to resume work when the rains stopped by just removing the

tent or canvas. Because of this improper covering of the hatches

by the stevedores during the discharging and unloading
operations which were interrupted by rains, rainwater drifted into
the cargo through the hatch openings. Pursuant to paragraph 5 of
the NANYOSAI [sic] Charter Party which was expressly made part
of the Contract of Voyage Charter Hire, the loading, stowing and
discharging of the cargo is the sole responsibility of the plaintiff
charterer and defendant carrier has no liability for whatever
damage may occur or maybe [sic] caused to the cargo in the
process.
(g) It was also established that the vessel encountered rough
seas and bad weather while en route from Iligan City to Manila
causing sea water to splash on the ship's deck on account of
which the master of the vessel (Mr. Antonio C. Dumlao) filed a
'Marine Protest' on August 13, 1974 (Exh. '15') which can be
invoked by defendant as a force majeure that would exempt the
defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in
paragraph 9 of the Voyage Charter Hire contract that it was to
insure the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from
the insurer. Plaintiff also violated the charter party contract when it
loaded not only 'steel products', i.e. steel bars, angular bars and
the like but also tinplates and hot rolled sheets which are high
grade cargo commanding a higher freight. Thus plaintiff was able
to ship high grade cargo at a lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage
charter hire under paragraph 4 thereof, fixed the freight at P30.00
per metric ton payable to defendant carrier upon presentation of
the bill of lading within fifteen (15) days. Plaintiff has not paid the
total freight due of P75,000.00 despite demands. The evidence
also showed that the plaintiff was required and bound under
paragraph 7 of the same Voyage Charter Hire contract to pay
demurrage of P8,000.00 per day of delay in the unloading of the
cargoes. The delay amounted to eleven (11) days thereby making

plaintiff liable to pay defendant for demurrage in the amount of

P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
"I
The trial court erred in finding that the MV 'VLASONS I' was seaworthy,
properly manned, equipped and supplied, and that there is no proof of
willful negligence of the vessel's officers.
"II
The trial court erred in finding that the rusting of NSC's tinplates was due
to the inherent nature or character of the goods and not due to contact
with seawater.
"III
The trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSC's shipment.
"IV
The trial court erred in exempting VSI from liability on the ground of force
majeure.
"V
The trial court erred in finding that NSC violated the contract of voyage
charter hire.
"VI
The trial court erred in ordering NSC to pay freight, demurrage and
attorney's fees, to VSI." 4

As earlier stated, the Court of Appeals modified the decision of the trial court by
reducing the demurrage from P88,000.00 to P44,000.00 and deleting the award
of attorneys fees and expenses of litigation. NSC and VSI filed separate motions
for reconsideration. In a Resolution 5 dated October 20, 1993, the appellate court
denied both motions. Undaunted, NSC and VSI filed their respective petitions for
review before this Court. On motion of VSI, the Court ordered on February 14,
1994 the consolidation of these petitions. 6

The Issues
In its petition 7 and memorandum, 8 NSC raises the following questions of law
and fact:
Questions of Law
"1. Whether or not a charterer of a vessel is liable for demurrage due to
cargo unloading delays caused by weather interruption;
2. Whether or not the alleged 'seaworthiness certificates' (Exhibits '3', '4',
'5', '6', '7', '8', '9', '11' and '12') were admissible in evidence and
constituted evidence of the vessel's seaworthiness at the
beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the
shipowner from liability for cargo damage."
Questions of Fact
"1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling
and caring for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage
and, hence, rusted on their own; and
4. Whether or not NSC's stevedores were negligent and caused the
wetting[/]rusting of NSC's tinplates."

In its separate petition, 9 VSI submits for the consideration of this Court the
following alleged errors of the CA:
"A. The respondent Court of Appeals committed an error of law in
reducing the award of demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in
deleting the award of P10,000 for attorney's fees and expenses of
litigation."

Amplifying the foregoing, VSI raises the following issues in its memorandum: 10
"I. Whether or not the provisions of the Civil Code of the Philippines on
common carriers pursuant to which there exist[s] a presumption of

negligence against the common carrier in case of loss or damage to the

cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage
Charter Hire, including the Nanyozai Charter, are valid and binding on
both contracting parties."

The foregoing issues raised by the parties will be discussed under the following
headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo

3. Admissibility of Certificates Proving Seaworthiness

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

maritime contract by which the charterer, a party other than the shipowner,
obtains the use and service of all or some part of a ship for a period of time or a
voyage or voyages." 12
In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a "special contract of charter party." 13 As
correctly concluded by the Court of Appeals, the MV Vlasons I "was not a
common but a private carrier."14 Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or charter
party. 15 Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court
of Appeals and Seven Brothers Shipping Corporation, 16 the Court ruled:
". . . in a contract of private carriage, the parties may freely stipulate their
duties and obligations which perforce would be binding on them. Unlike
in a contract involving a common carrier, private carriage does not
involve the general public. Hence, the stringent provisions of the Civil
Code on common carriers protecting the general public cannot justifiably
be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given
by law in contracts involving common carriers." 17

Extent of VSI's Responsibility and

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

not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew." 19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the
damage to its shipment was caused by VSI's willful negligence or failure to
exercise due diligence in making MV Vlasons I seaworthy and fit for holding,
carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed
on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently
provides:
"Art. 361. Merchandise shall be transported at the risk and venture of the
shipper, if the contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event, force majeure, or the nature and
inherent defect of the things, shall be for the account and risk of the
shipper.
The burden of proof of these accidents is on the carrier."
"Art. 362. The carrier, however, shall be liable for damages arising from
the cause mentioned in the preceding article if proofs against him show
that they occurred on account of his negligence or his omission to take
the precautions usually adopted by careful persons, unless the shipper
committed fraud in the bill of lading, making him to believe that the goods
were of a class or quality different from what they really were."

Because the MV Vlasons I was a private carrier, the shipowner's obligations are
governed by the foregoing provisions of the Code of Commerce and not by the
Civil Code which, as a general rule, places the prima facie presumption of
negligence on a common carrier. It is a hornbook doctrine that:
"In an action against a private carrier for loss of, or injury to, cargo, the
burden is on the plaintiff to prove that the carrier was negligent or
unseaworthy, and the fact that the goods were lost or damaged while in
the carrier's custody does not put the burden of proof on the carrier.

Since . . . a private carrier is not an insurer but undertakes only to

exercise due care in the protection of the goods committed to its care,
the burden of proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo while in the carrier's
possession does not cast on it the burden of proving proper care and
diligence on its part or that the loss occurred from an excepted cause in
the contract or bill of lading. However, in discharging the burden of proof,
plaintiff is entitled to the benefit of the presumptions and inferences by
which the law aids the bailor in an action against a bailee, and since the
carrier is in a better position to know the cause of the loss and that it was
not one involving its liability, the law requires that it come forward with
the information available to it, and its failure to do so warrants an
inference or presumption of its liability. However, such inferences and
presumptions, while they may affect the burden of coming forward with
evidence, do not alter the burden of proof which remains on plaintiff, and,
where the carrier comes forward with evidence explaining the loss or
damage, the burden of going forward with the evidence is again on
plaintiff.
Where the action is based on the shipowner's warranty of
seaworthiness, the burden of proving a breach thereof and that such
breach was the proximate cause of the damage rests on plaintiff, and
proof that the goods were lost or damaged while in the carrier's
possession does not cast on it the burden of proving seaworthiness. . . .
Where the contract of carriage exempts the carrier from liability for
unseaworthiness not discoverable by due diligence, the carrier has the
preliminary burden of proving the exercise of due diligence to make the
vessel seaworthy." 20

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

Based on the foregoing, the determination of the following factual questions is

manifestly relevant: (1) whether VSI exercised due diligence in making MV
Vlasons Iseaworthy for the intended purpose under the charter party; (2) whether
the damage to the cargo should be attributed to the willful negligence of the
officers and crew of the vessel or of the stevedores hired by NSC; and (3)
whether the rusting of the tinplates was caused by its own "sweat" or by contact
with seawater.
LibLex

These questions of fact were threshed out and decided by the trial court, which
had the firsthand opportunity to hear the parties' conflicting claims and to
carefully weigh their respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the factual findings of both
the trial court and the Court of Appeals coincide, the same are binding on this
Court. 22 We stress that, subject to some exceptional instances, 23 only questions
of law not questions of fact may be raised before this Court in a petition for
review under Rule 45 of the Rules of Court. After a thorough review of the case at
bar, we find no reason to disturb the lower courts' factual findings, as indeed NSC
has not successfully proven the application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship
seaworthy and fit for the carriage of NSC's cargo of steel and tinplates. This is
shown by the fact that it was drydocked and harbored by the Philippine Coast
Guard before it proceeded to Iligan City for its voyage to Manila under the
contract of voyage charter hire. 24 The vessel's voyage from Iligan to Manila was
the vessel's first voyage after drydocking. The Philippine Coast Guard Station in
Cebu cleared it asseaworthy, fitted and equipped; it met all requirements for
trading as cargo vessel. 25 The Court of Appeals itself sustained the conclusion of
the trial court that MV Vlasons I was seaworthy. We find no reason to modify or
reverse this finding of both the trial and the appellate courts.

Who Were Negligent :

Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo
was caused by the negligence of the officers and the crew of MV Vlasons I in
making their vessel seaworthy and fit for the carriage of tinplates. NSC failed to
discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and
torn tarpaulin or canvas to cover the hatches through which the cargo was loaded
into the cargo hold of the ship. It faults the Court 26 of Appeals for failing to
consider such claim as an "uncontroverted fact and denies that MV Vlasons
I "was equipped with new canvas covers in tandem with the old ones as indicated
in the Marine Protest . . ." 27 We disagree.
The records sufficiently support VSI's contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ship's
hatches watertight. The foregoing are clear from the marine protest of the master
of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship's
boatswain, Jose Pascua. The salient portions of said marine protest read:
". . . That the M/V "VLASONS I" departed Iligan City on or about 0730
hours of August 8, 1974, loaded with approximately 2,487.9 tons of steel
plates and tin plates consigned to National Steel Corporation; that before
departure, the vessel was rigged, fully equipped and cleared by the
authorities; that on or about August 9, 1974, while in the vicinity of the
western part of Negros and Panay, we encountered very rough seas and
strong winds and Manila office was advised by telegram of the adverse
weather conditions encountered; that in the morning of August 10, 1974,
the weather condition changed to worse and strong winds and big waves
continued pounding the vessel at her port side causing sea water to
overflow on deck and hatch (sic) covers and which caused the first layer
of the canvass covering to give way while the new canvass covering still
holding on;
That the weather condition improved when we reached Dumali Point
protected by Mindoro; that we re-secured the canvass covering back to
position; that in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to moderate seas and
heavy rains; that while approaching Fortune Island, we encountered

again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;
xxx xxx xxx" 28

And the relevant portions of Jose Pascua's deposition are as follows:

"q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the hatch
opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas flowing
over the sides and we place[d] a flat bar over the canvas on the
side of the hatches and then we place[d] a stopper so that the
canvas could not be removed.

ATTY. DEL ROSARIO

q And will you tell us the size of the hatch opening? The length and the
width of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch opening?
a There is a hatch board.
ATTY. DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material there to
cover the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.

q Is the beam that was placed in the hatch opening covering the whole
hatch opening?
a No, sir.
q How many hatch beams were there placed across the opening?
a There are five beams in one hatch opening.
ATTY. DEL ROSARIO
q And on top of the beams you said there is a hatch board. How many
pieces of wood are put on top?
a Plenty, sir, because there are several pieces on top of the hatch beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards, according to you, is the canvas cover.
How many canvas covers?
a Two, sir." 29

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

Indeed, NSC failed to discharge its burden to show negligence on the part of the
officers and the crew of MV Vlasons I, On the contrary, the records reveal that it
was the stevedores of NSC who were negligent in unloading the cargo from the
ship.
cdasia

The stevedores employed only a tent-like material to cover the hatches when
strong rains occasioned by a passing typhoon disrupted the loading of the cargo.
This tent-like covering, however, was clearly inadequate for keeping rain and
seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI,
testified thus:
"ATTY. ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on
August 14 you went on board the vessel upon notice from the
National Steel Corporation in order to conduct the inspection of
the cargo. During the course of the investigation, did you chance
to see the discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates
already discharged on the pier but majority of the tinplates were
inside the hall, all the hatches were opened.
Q In connection with these cargoes which were unloaded, where is the
place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY. LOPEZ:
We object, your Honor, this question was already asked. This particular
matter . . . the transcript of stenographic notes shows the same
was covered in the direct examination.
ATTY. ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious
part of the testimony.
COURT:

All right, witness may answer.

ATTY. LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tinplates, and tents
were built at the opening of the hatches.
Q You also stated that the hatches were already opened and that there
were tents constructed at the opening of the hatches to protect the
cargo from the rain. Now, will you describe [to] the Court the tents
constructed.
A The tents are just a base of canvas which look like a tent of an Indian
camp raise[d] high at the middle with the whole side separated
down to the hatch, the size of the hatch and it is soaks [sic] at the
middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents
proper?
A No sir, at the time they were discharging the cargo, there was a
typhoon passing by and the hatch tent was not good enough to
hold all of it to prevent the water soaking through the canvas and
enter the cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact
the water enter and soak into the canvas and tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel
Corporation [of] the procedure adopted by its stevedores in
discharging the cargo particularly in this tent covering of the
hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the
stevedores but the stevedores did not mind at all, so, I called the
attention of the representative of the National Steel but nothing
was done, just the same. Finally, I wrote a letter to them." 31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to

complain immediately about the stevedores' negligence on the first day of
unloading, pointing out that he wrote his letter to petitioner only seven days
later. 32 The Court is not persuaded. Angliongto's candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSC's
representative, about the negligent and defective procedure adopted in unloading
the cargo. This series of actions constitutes a reasonable response in accord with
common sense and ordinary human experience. Vicente Angliongto could not be
blamed for calling the stevedores' attention first and then the NSC's
representative on location before formally informing NSC of the negligence he
had observed, because he was not responsible for the stevedores or the
unloading operations. In fact, he was merely expressing concern for NSC which
was ultimately responsible for the stevedores it had hired and the performance of
their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts' findings and
conclusions on this point, viz:
"In the THIRD assigned error, [NSC] claims that the trial court erred in
finding that the stevedores hired by NSC were negligent in the unloading
of NSC's shipment. We do not think so. Such negligence according to
the trial court is evident in the stevedores hired by [NSC], not closing the
hatch of MV 'VLASONS I' when rains occurred during the discharging of
the cargo thus allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was proven that the
stevedores merely set up temporary tents or canvas to cover the hatch
openings when it rained during the unloading operations so that it would
be easier for them to resume work after the rains stopped by just
removing said tents or canvass. It has also been shown that on August
20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention
to the manner the stevedores hired by [NSC] were discharging the cargo
on rainy days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the tinplates'
covers and [Vicente Angliongto] also suggesting that due to four (4) days
continuous rains with strong winds that the hatches be totally closed
down and covered with canvas and the hatch tents lowered. (Exh '13').

This letter was received by [NSC] on 22 August 1974 while discharging

operations were still going on (Exhibit '13-A') " 33

The fact that NSC actually accepted and proceeded to remove the cargo from the
ship during unfavorable weather will not make VSI liable for any damage caused
thereby. In passing, it may be noted that the NSC may seek indemnification,
subject to the laws on prescription, from the stevedoring company at fault in the
discharge operations. "A. stevedore company engaged in discharging cargo . . .
has the duty to load the cargo . . . in a prudent manner, and it is liable for injury
to, or loss of, cargo caused by its negligence . . . and where the officers and
members and crew of the vessel do nothing and have no responsibility in the
discharge of cargo by stevedores . . . the vessel is not liable for loss of, or
damage to, the cargo caused by the negligence of the stevedores . . ." 34 as in
the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that " . . .
tinplates 'sweat' by themselves when packed even without being in contact with
water from outside especially when the weather is bad or raining . . ." 35 The
Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As
previously discussed, the damage to the tinplates was occasioned not by
airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.
Second Issue : Effect of NSC's Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage
Charter Hire is totally separate and distinct from the contractual or statutory
responsibility that may be incurred by VSI for damage to the cargo caused by the
willful negligence of the officers and the crew of MV Vlasons I . Clearly, therefore,
NSC's failure to insure the cargo will not affect its right, as owner and real party in
interest, to file an action against VSI for damages caused by the latter's willful
negligence. We do not find anything in the charter party that would make the

liability of VSI for damage to the cargo contingent on or affected in any manner by
NSC's obtaining an insurance over the cargo.
Third Issue : Admissibility of Certificates Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the
alleged inadmissibility of the certificates of seaworthiness offered in evidence by
VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast
Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of
Customs 36
NSC argues that the certificates are hearsay for not having been presented in
accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11
allegedly are "not written records or acts of public officers"; while Exhibits 5, 6, 7,
8, 9, 11 and 12 are not "evidenced by official publications or certified true copies"
as required bySections 25 and 26, Rule 132, of the Rules of Court. 37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5,
6, 7, 8, 9 and 12 are inadmissible, for they have not been properly offered as
evidence. Exhibits 3 and 4 are certificates issued by private parties, but they have
not been proven by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing witness.
Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best
evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to
the hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides
that "(e)ntries in official records made in the performance of a duty by a public
officer of the Philippines, or by a person in the performance of a duty specially
enjoined by law, are prima facie evidence of the facts therein stated." 38 Exhibit

11 is an original certificate of the Philippine Coast Guard in Cebu issued by

Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel 'VLASONS I',
was drydocked . . . and PCG Inspectors were sent on board for inspection . . .
After completion of drydocking and duly inspected by PCG Inspectors, the vessel
'VLASONS I', a cargo vessel, is in seaworthy condition, meets all requirements,
fitted and equipped for trading as a cargo vessel was cleared by the Philippine
Coast Guard and sailed for Cebu Port on July 10, 1974." (sic) NSC's Claim,
therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV
Vlasons I was not seaworthy. As observed earlier, the vessel was a private carrier
and, as such, it did not have the obligation of a common carrier to show that it
was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the
willful negligence of VSI in making the ship seaworthy resulting in damage to its
cargo. Assailing the genuineness of the certificate of seaworthiness is not
sufficient proof that the vessel was not seaworthy.
Fourth Issue : Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
"xxx xxx xxx
2. Cargo : Full cargo of steel products of not less than 2,500 MT, 10%
more or less at Master's option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day."

39

The Court defined demurrage in its strict sense as the compensation provided for
in the contract of affreightment for the detention of the vessel beyond the laytime
or that period of time agreed on for loading and unloading of cargo. 40 It is given
to compensate the shipowner for the nonuse of the vessel. On the other hand,
the following is well-settled:
"Laytime runs according to the particular clause of the charter party. . . If
laytime is expressed in 'running days,' this means days when the ship
would be run continuously, and holidays are not excepted. A qualification

of 'weather permitting' excepts only those days when bad weather

reasonably prevents the work contemplated." 41

In this case, the contract of voyage charter hire provided for a four-day laytime; it
also qualified laytime as WWDSHINC or weather working days Sundays and
holidays included. 42 The running of laytime was thus made subject to the
weather, and would cease to run in the event unfavorable weather interfered with
the unloading of cargo. 43 Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather condition in view of the WWDSHINC qualification agreed
upon by the parties. Clearly, it was error for the trial court and the Court of
Appeals to have found and affirmed respectively that NSC incurred eleven days
of delay in unloading the cargo. The trial court arrived at this erroneous finding by
subtracting from the twelve days, specifically August 13, 1974 to August 24,
1974, the only day of unloading unhampered by unfavorable weather or rain
which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred in ruling
that NSC was liable to VSI for demurrage, even if it reduced the amount by
half.
LibLex

Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of
attorney's fees. We disagree. While VSI was compelled to litigate to protect its
rights, such fact by itself will not justify an award of attorney's fees under Article
2208 of the Civil Code when" . . . no sufficient showing of bad faith would be
reflected in a party's persistence in a case other than an erroneous conviction of
the righteousness of his cause . . ." 44 Moreover, attorney's fees may not be
awarded to a party for the reason alone that the judgment rendered was
favorable to the latter, as this is tantamount to imposing a premium on one's right
to litigate or seek judicial redress of legitimate grievances. 45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who
caused the damage to the cargo? Ranged against NSC are two formidable
truths. First, both lower courts found that such damage was brought about during
the unloading process when rain and seawater seeped through the cargo due to

the fault or negligence of the stevedores employed by it. Basic is the rule that
factual findings of the trial court, when affirmed by the Court of Appeals, are
binding on the Supreme Court. Although there are settled exceptions, NSC has
not satisfactorily shown that this case is one of them. Second, the agreement
between the parties the Contract of Voyage Charter Hire placed the burden
of proof for such loss or damage upon the shipper, not upon the shipowner. Such
stipulation, while disadvantageous to NSC, is valid because the parties entered
into a contract of private charter, not one of common carriage. Basic too is the
doctrine that courts cannot relieve a party from the effects of a private contract
freely entered into, on the ground that it is allegedly one-sided or unfair to the
plaintiff. The charter party is a normal commercial contract and its stipulations are
agreed upon in consideration of many factors, not the least of which is the
transport price which is determined not only by the actual costs but also by the
risks and burdens assumed by the shipper in regard to possible loss or damage
to the cargo. In recognition of such factors, the parties even stipulated that the
shipper should insure the cargo to protect itself from the risks it undertook under
the charter party. That NSC failed or neglected to protect itself with such
insurance should not adversely affect VSI, which had nothing to do with such
failure or neglect.

WHEREFORE, premises considered, the instant consolidated petitions are

hereby DENIED. The questioned Decision of the Court of Appeals is AFFIRMED
with the MODIFICATION that the demurrage awarded to VSI is deleted. No
pronouncement as to costs.
SO ORDERED.
|||

(National Steel Corp. v. Court of Appeals, G.R. No. 112287, 112350, [December

12, 1997], 347 PHIL 345-378)

[G.R. No. 150403. January 25, 2007.]
CEBU SALVAGE CORPORATION, petitioner, vs. PHILIPPINE
HOME ASSURANCE CORPORATION, respondent.

DECISION
CORONA, J :
p

May a carrier be held liable for the loss of cargo resulting from the sinking of a
ship it does not own?
This is the issue presented for the Court's resolution in this petition for review
on certiorari 1 assailing the March 16, 2001 decision 2 and September 17, 2001
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn
affirmed the December 27, 1989 decision 4 of the Regional Trial Court (RTC),
Branch 145, Makati, Metro Manila. 5
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and
Maria Cristina Chemicals Industries, Inc. [MCCII] (as charterer) entered into a
voyage charter 6 wherein petitioner was to load 800 to 1,100 metric tons of silica
quartz on board the M/T Espiritu Santo 7 at Ayungon, Negros Occidental for
transport to and discharge at Tagoloan, Misamis Oriental to consignee
Ferrochrome Phils., Inc. 8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded
1,100 metric tons of silica quartz on board the M/T Espiritu Santo which left
Ayungon for Tagoloan the next day. 9 The shipment never reached its destination,
however, because the M/T Espiritu Santo sank in the afternoon of December 24,
1984 off the beach of Opol, Misamis Oriental, resulting in the total loss of the
cargo. 10
MCCII filed a claim for the loss of the shipment with its insurer, respondent
Philippine Home Assurance Corporation. 11 Respondent paid the claim in the
amount of P211,500 and was subrogated to the rights of MCCII. 12 Thereafter, it
filed a case in the RTC 13 against petitioner for reimbursement of the amount it
paid MCCII.

After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner
to pay respondent P211,500 plus legal interest, attorney's fees equivalent to 25%
of the award and costs of suit.
TCDHaE

On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of
affreightment wherein the ship was leased for a single voyage for the conveyance
of goods, in consideration of the payment of freight. 14 Under a voyage charter,
the shipowner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his
payment of freight. 15 An owner who retains possession of the ship remains liable
as carrier and must answer for loss or non-delivery of the goods received for
transportation. 16
Petitioner argues that the CA erred when it affirmed the RTC finding that the
voyage charter it entered into with MCCII was a contract of carriage. 17 It insists
that the agreement was merely a contract of hire wherein MCCII hired the vessel
from its owner, ALS Timber Enterprises (ALS). 18 Not being the owner of the M/T
Espiritu Santo, petitioner did not have control and supervision over the vessel, its
master and crew. 19 Thus, it could not be held liable for the loss of the shipment
caused by the sinking of a ship it did not own.
We disagree.
Based on the agreement signed by the parties and the testimony of petitioner's
operations manager, it is clear that it was a contract of carriage petitioner signed
with MCCII. It actively negotiated and solicited MCCII's account, offered its
services to ship the silica quartz and proposed to utilize the M/T Espiritu Santo in
lieu of the M/T Seebees or the M/T Shirley (as previously agreed upon in the
voyage charter) since these vessels had broken down. 20
There is no dispute that petitioner was a common carrier. At the time of the loss
of the cargo, it was engaged in the business of carrying and transporting goods
by water, for compensation, and offered its services to the public. 21
From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they

transport according to the circumstances of each case. 22 In the event of loss of

the goods, common carriers are responsible, unless they can prove that this was
brought about by the causes specified in Article 1734 of the Civil Code. 23 In all
other cases, common carriers are presumed to be at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence. 24
Petitioner was the one which contracted with MCCII for the transport of the cargo.
It had control over what vessel it would use. All throughout its dealings with
MCCII, it represented itself as a common carrier. The fact that it did not own the
vessel it decided to use to consummate the contract of carriage did not negate its
character and duties as a common carrier. The MCCII (respondent's subrogor)
could not be reasonably expected to inquire about the ownership of the vessels
which petitioner carrier offered to utilize. As a practical matter, it is very difficult
and often impossible for the general public to enforce its rights of action under a
contract of carriage if it should be required to know who the actual owner of the
vessel is. 25 In fact, in this case, the voyage charter itself denominated petitioner
as the "owner/operator" of the vessel.26
Petitioner next contends that if there was a contract of carriage, then it was
between MCCII and ALS as evidenced by the bill of lading ALS issued. 27
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the fact that the
goods had been received for transportation. It was not signed by MCCII, as in
fact it was simply signed by the supercargo of ALS. 28 This is consistent with the
fact that MCCII did not contract directly with ALS. While it is true that a bill of
lading may serve as the contract of carriage between the parties, 29 it cannot
prevail over the express provision of the voyage charter that MCCII and petitioner
executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering
goods shipped aboard a vessel under a charter party, and the charterer
is also the holder of the bill of lading, "the bill of lading operates as the
receipt for the goods, and as document of title passing the property of
the goods, but not as varying the contract between the charterer and the
shipowner." The Bill of Lading becomes, therefore, only a receipt and not
the contract of carriage in a charter of the entire vessel, for the contract

is the Charter Party, and is the law between the parties who are bound
by its terms and condition provided that these are not contrary to law,
morals, good customs, public order and public policy. 30

Finally, petitioner asserts that MCCII should be held liable for its own loss since
the voyage charter stipulated that cargo insurance was for the charterer's
account. 31This deserves scant consideration. This simply meant that the
charterer would take care of having the goods insured. It could not exculpate the
carrier from liability for the breach of its contract of carriage. The law, in fact,
prohibits it and condemns it as unjust and contrary to public policy. 32
To summarize, a contract of carriage of goods was shown to exist; the cargo was
loaded on board the vessel; loss or non-delivery of the cargo was proven; and
petitioner failed to prove that it exercised extraordinary diligence to prevent such
loss or that it was due to some casualty or force majeure. The voyage charter
here being a contract of affreightment, the carrier was answerable for the loss of
the goods received for transportation. 33
The idea proposed by petitioner is not only preposterous, it is also dangerous. It
says that a carrier that enters into a contract of carriage is not liable to the
charterer or shipper if it does not own the vessel it chooses to use. MCCII never
dealt with ALS and yet petitioner insists that MCCII should sue ALS for
reimbursement for its loss. Certainly, to permit a common carrier to escape its
responsibility for the goods it agreed to transport (by the expedient of alleging
non-ownership of the vessel it employed) would radically derogate from the
carrier's duty of extraordinary diligence. It would also open the door to collusion
between the carrier and the supposed owner and to the possible shifting of
liability from the carrier to one without any financial capability to answer for the
resulting damages. 34
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
|||

(Cebu Salvage Corporation v. Philippine Home Assurance Corporation, G.R.

No. 150403, [January 25, 2007], 541 PHIL 641-650)

G.R. No. 101503. September 15, 1993.]

PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF

APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI
KISEN KABUSHIKI KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
DECISION
BELLOSILLO, J :
p

Does a charter-party 1 between a shipowner and a charterer transform a common

carrier into a private one as to negate the civil law presumption of negligence in
case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International
Corporation (MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of
Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974 aboard the
cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen
Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San
Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed
by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V
"Sun Plum" pursuant to the Uniform General Charter 2 was entered into between
Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo,
Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charterparty were also subsequently entered into on the 18th, 20th, 21st and 27th of
May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all
presumably inspected by the charterer's representative and found fit to take a
load of urea in bulk pursuant to par. 16 of the charter-party which reads:

"16. . . . At loading port, notice of readiness to be accomplished by

certificate from National Cargo Bureau inspector or substitute appointed
by charterers for his account certifying the vessel's readiness to receive
cargo spaces. The vessel's hold to be properly swept, cleaned and dried
at the vessel's expense and the vessel to be presented clean for use in
bulk to the satisfaction of the inspector before daytime
commences" (emphasis supplied).

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the
supervision of the shipper, the steel hatches were closed with heavy iron lids,
covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches
remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon
hatches were opened with the use of the vessel's boom. Petitioner unloaded the
cargo from the holds into its steel-bodied dump trucks which were parked
alongside the berth, using metal scoops attached to the ship, pursuant to the
terms and conditions of the charter-party (which provided for an F.I.O.S.
clause). 6 The hatches remained open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin
before it was transported to the consignee's warehouse located some fifty (50)
meters from the wharf. Midway to the warehouse, the trucks were made to pass
through a weighing scale where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area was windy, certain
portions of the route to the warehouse were sandy and the weather was variable,
raining occasionally while the discharge was in progress. 8 The petitioner's
warehouse was made of corrugated galvanized iron (GI) sheets, with an opening
at the front where the dump trucks entered and unloaded the fertilizer on the
warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside
the trucks to contain spillages of the fertilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18
July 1974 (except July 12th, 14th and 18th). 10 A private marine and cargo
surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to
determine the "outturn" of the cargo shipped, by taking draft readings of the
vessel prior to and after discharge. 11 The survey report submitted by CSCI to

the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of
106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T
was contaminated with dirt. The same results were contained in a Certificate
of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which
showed that the cargo delivered was indeed short of 94.839 M/T and about 23
M/T were rendered unfit for commerce, having been polluted with sand, rust
and dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont
Steamship Agencies (SSA), the resident agent of the carrier, KKKK, for
P245,969.31 representing the cost of the alleged shortage in the goods shipped
and the diminution in value of that portion said to have been contaminated with
dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's
claim for payment because, according to them, what they received was just a
request for shortlanded certificate and not a formal claim, and that this "request"
was denied by them because they "had nothing to do with the discharge of the
shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the
Court of First Instance of Manila. The defendant carrier argued that the strict
public policy governing common carriers does not apply to them because they
have become private carriers by reason of the provisions of the charter-party. The
court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15
". . . Prescinding from the provision of the law that a common carrier is
presumed negligent in case of loss or damage of the goods it contracts
to transport, all that a shipper has to do in a suit to recover for loss or
damage is to show receipt by the carrier of the goods and delivery by it
of less than what it received. After that, the burden of proving that the
loss or damage was due to any of the causes which exempt him from
liability is shifted to the carrier, common or private he may be. Even if the
provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them
to prove that the shortage or contamination sustained by the cargo is
attributable to the fault or negligence on the part of the shipper or
consignee in the loading, stowing, trimming and discharge of the

cargo. This they failed to do. By this omission, coupled with their failure
to destroy the presumption of negligence against them, the defendants
are liable" (italics supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved
the carrier from liability for the value of the cargo that was lost or
damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V
"Sun Plum" owned by private respondent KKKK was a private carrier and not a
common carrier by reason of the time charter-party. Accordingly, the Civil Code
provisions on common carriers which set forth a presumption of negligence do
not find application in the case at bar. Thus
". . . In the absence of such presumption, it was incumbent upon the
plaintiff-appellee to adduce sufficient evidence to prove the negligence of
the defendant carrier as alleged in its complaint. It is an old and well
settled rule that if the plaintiff, upon whom rests the burden of proving his
cause of action, fails to show in a satisfactory manner the facts upon
which he bases his claim, the defendant is under no obligation to prove
his exception or defense (Moran, Commentaries on the Rules of Court,
Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
"But, the record shows that the plaintiff-appellee dismally failed to prove
the basis of its cause of action, i.e., the alleged negligence of defendant
carrier. It appears that the plaintiff was under the impression that it did
not have to establish defendant's negligence. Be that as it may, contrary
to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing
its obligations . . ." 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision
of the Court of Appeals. Petitioner theorizes that the Home Insurance case has
no bearing on the present controversy because the issue raised therein is the
validity of a stipulation in the charter-party delimiting the liability of the shipowner
for loss or damage to goods caused by want of due diligence on its part or that of
its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common
carriers and not to private carriers. 19 Petitioner further argues that since the

possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should be made liable for the
negligence of the captain and crew. In fine, PPI faults the appellate court in not
applying the presumption of negligence against respondent carrier, and instead
shifting the onus probandi on the shipper to show want of due diligence on the
part of the carrier, when he was not even at hand to witness what transpired
during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes
a private carrier by reason of a charter-party; in the negative, whether the
shipowner in the instant case was able to prove that he had exercised that
degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial

cases. This being so, we find it fitting to first define important terms which are
relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some
principal part thereof, is let by the owner to another person for a specified time or
use; 20 a contract of affreightment by which the owner of a ship or other vessel
lets the whole or a part of her to a merchant or other person for the conveyance
of goods, on a particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of affreightment which
involves the use of shipping space on vessels leased by the owner in part or as a
whole, to carry goods for others; and, (b) charter by demise or bareboat charter,
by the terms of which the whole vessel is let to the charterer with a transfer to him
of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased
for a single voyage. 22 In both cases, the charter-party provides for the hire of the
vessel only, either for a determinate period of time or for a single or consecutive
voyage, the shipowner to supply the ship's stores, pay for the wages of the
master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732
of the Civil Code. 23 The definition extends to carriers either by land, air or water
which hold themselves out as ready to engage in carrying goods or transporting
passengers or both for compensation as a public employment and not as a
casual occupation. The distinction between a "common or public carrier" and a
"private or special carrier" lies in the character of the business, such that if the
undertaking is a single transaction, not a part of the general business or
occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of
the nature of their business, should observe extraordinary diligence in the
vigilance over the goods they carry. 25 In the case of private carriers, however, the
exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in
case of loss, destruction or deterioration of the goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of
proving otherwise rests on them. 26 On the contrary, no such presumption applies
to private carriers, for whosoever alleges damage to or deterioration of the goods
carried has the onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business,
operates as a common carrier, transporting goods indiscriminately for all persons.
When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its
officers and compliment were under the employ of the shipowner and therefore
continued to be under its direct supervision and control. Hardly then can we
charge the charterer, a stranger to the crew and to the ship, with the duty of
caring for his cargo when the charterer did not have any control of the means in
doing so. This is evident in the present case considering that the steering of the
ship, the manning of the decks, the determination of the course of the voyage
and other technical incidents of maritime navigation were all consigned to the
officers and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a timecharter or voyage-charter. It is only when the charter includes both the vessel and

its crew, as in a bareboat or demise that a common carrier becomes private, at

least insofar as the particular voyage covering the charter-party is concerned.
Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of
the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v.
American Steamship Agencies, supra, is misplaced for the reason that the meat
of the controversy therein was the validity of a stipulation in the charter-party
exempting the shipowner from liability for loss due to the negligence of its agent,
and not the effects of a special charter on common carriers. At any rate, the rule
in the United States that a ship chartered by a single shipper to carry special
cargo is not a common carrier, 29 does not find application in our jurisdiction, for
we have observed that the growing concern for safety in the transportation of
passengers and/or carriage of goods by sea requires a more exacting
interpretation of admiralty laws, more particularly, the rules governing common
carriers.
We quote with approval the observations of Raoul Colinvaux, the learned
barrister-at-law 30
"As a matter of principle, it is difficult to find a valid distinction between
cases in which a ship is used to convey the goods of one and of several
persons. Where the ship herself is let to a charterer, so that he takes
over the charge and control of her, the case is different; the shipowner is
not then a carrier. But where her services only are let, the same grounds
for imposing a strict responsibility exist, whether he is employed by one
or many. The master and the crew are in each case his servants, the
freighter in each case is usually without any representative on board the
ship; the same opportunities for fraud or collussion occur; and the same
difficulty in discovering the truth as to what has taken place arises . . ."

In an action for recovery of damages against a common carrier on the goods

shipped, the shipper or consignee should first prove the fact of shipment and its
consequent loss or damage while the same was in the possession, actual or
constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to
prove that he has exercised extraordinary diligence required by law or that the

loss, damage or deterioration of the cargo was due to fortuitous event, or some
other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and
convincing proof, the prima facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition
taken on 19 April 1977 before the Philippine Consul and Legal Attache in the
Philippine Embassy in Tokyo, Japan, testified that before the fertilizer was
loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated.
After completing the loading of the cargo in bulk in the ship's holds, the steel
pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The
hatches remained close and tightly sealed while the ship was in transit as the
weight of the steel covers made it impossible for a person to open without the
use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water
inside the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing
place, representatives of the consignee boarded, and in the presence of a
representative of the shipowner, the foreman, the stevedores, and a cargo
surveyor representing CSCI, opened the hatches and inspected the condition of
the hull of the vessel. The stevedores unloaded the cargo under the watchful
eyes of the shipmates who were overseeing the whole operation on rotation
basis. 34
Verily, the presumption of negligence on the part of respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity
exercised by the carrier in the care of the cargo. This was confirmed by
respondent appellate court thus
". . . Be that as it may, contrary to the trial court's finding, the record of
the instant case discloses ample evidence showing that defendant
carrier was not negligent in performing its obligations. Particularly, the
following testimonies of plaintiff-appellee's own witnesses clearly show
absence of negligence by the defendant carrier; that the hull of the
vessel at the time of the discharge of the cargo was sealed and nobody

could open the same except in the presence of the owner of the cargo
and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the
cover of the hatches was made of steel and it was overlaid with
tarpaulins, three layers of tarpaulins and therefore their contents were
protected from the weather (TSN, 5 April 1978, p. 24); and, that to open
these hatches, the seals would have to be broken, all the seals were
found to be intact (TSN, 20 July 1977, pp. 15-16)" (italics supplied).

The period during which private respondent was to observe the degree of
diligence required of it as a public carrier began from the time the cargo was
unconditionally placed in its charge after the vessel's holds were duly inspected
and passed scrutiny by the shipper, up to and until the vessel reached its
destination and its hull was re-examined by the consignee, but prior to unloading.
This is clear from the limitation clause agreed upon by the parties in the
Addendum to the standard "GENCON" time charter-party which provided for an
F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the cargo
was to be done by the charterer, free from all risk and expense to the
carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from
improper stowage only when the stowing is done by stevedores employed by him,
and therefore under his control and supervision, not when the same is done by
the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not
responsible for the loss, destruction or deterioration of the goods if caused by the
character of the goods or defects in the packaging or in the containers. The Code
of Commerce also provides that all losses and deteriorations which the goods
may suffer during the transportation by reason of fortuitous event, force
majeure, or the inherent defect of the goods, shall be for the account and risk of
the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage
resulting from the preceding causes if it is proved, as against him, that they arose
through his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the

fertilizer shipped and the expected risks of bulk shipping. Mr. Estanislao
Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea as
a chemical compound consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not
normally evaporate even on a long voyage, provided that the temperature inside
the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further
added that in unloading fertilizer in bulk with the use of a clamped shell, losses
due to spillage during such operation amounting to one percent (1%) against the
bill of lading is deemed "normal" or "tolerable." The primary cause of these
spillages is the clamped shell which does not seal very tightly. Also, the wind
tends to blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its deterioration in value, is caused
either by an extremely high temperature in its place of storage, or when it comes
in contact with water. When Urea is drenched in water, either fresh or saline,
some of its particles dissolve. But the salvaged portion which is in liquid form still
remains potent and usable although no longer saleable in its original market
value.
The probability of the cargo being damaged or getting mixed or contaminated
with foreign particles was made greater by the fact that the fertilizer was
transported in "bulk," thereby exposing it to the inimical effects of the elements
and the grimy condition of the various pieces of equipment used in transporting
and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for
sea water to seep into the vessel's holds during the voyage since the hull of the
vessel was in good condition and her hatches were tightly closed and firmly
sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo
she was chartered for. If there was loss or contamination of the cargo, it was
more likely to have occurred while the same was being transported from the ship
to the dump trucks and finally to the consignee's warehouse. This may be
gleaned from the testimony of the marine and cargo surveyor of CSCI who
supervised the unloading. He explained that the 18 M/T of alleged "bad order

cargo" as contained in their report to PPI was just an approximation or estimate

made by them after the fertilizer was discharged from the vessel and segregated
from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and
unloaded her cargo. It rained from time to time at the harbor area while the cargo
was being discharged according to the supply officer of PPI, who also testified
that it was windy at the waterfront and along the shoreline where the dump trucks
passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble
goods like fertilizer carries with it the risk of loss or damage. More so, with a
variable weather condition prevalent during its unloading, as was the case at bar.
This is a risk the shipper or the owner of the goods has to face. Clearly,
respondent carrier has sufficiently proved the inherent character of the goods
which makes it highly vulnerable to deterioration; as well as the inadequacy of its
packaging which further contributed to the loss. On the other hand, no proof was
adduced by the petitioner showing that the carrier was remiss in the exercise of
due diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of
Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case
No. 98623 of the then Court of the First Instance, now Regional Trial Court, of
Manila should be, as it is hereby, DISMISSED.
Costs against petitioner.
|||

(Planters Products, Inc. v. Court of Appeals, G.R. No. 101503, [September 15,

1993])
G.R. No. L-61461 & 61501. August 21, 1987.]
EPITACIO SAN PABLO (substituted by Heirs of E. San
Pablo), petitioners, vs. PANTRANCO SOUTH EXPRESS,
INC., respondent.

CARDINAL SHIPPING CORPORATION, petitioner, vs. HONORABLE

BOARD OF TRANSPORTATION and PANTRANCO SOUTH
EXPRESS, INC., respondents.
SYLLABUS
1. MERCANTILE LAW; PUBLIC SERVICE ACT; COMMON CARRIERS;
FERRY SERVICE DISTINGUISHED FROM INTERISLAND SERVICE. In
Javellana case (98 Phil. 964) We made clear distinction between a ferry
service and coastwise or interisland service by holding that:" . . . We are
inclined to believe that the Legislature intended ferry to mean the service
either by barges or rafts, even by motor or steam vessels, between the banks
of a river or stream to continue the highway which is interrupted by the body of
water, or in some cases, to connect two points on opposite shores of an arm
of the sea such as bay or lake which does not involve too great a distance or
too long a time to navigate. But where the line or service involves crossing the
open sea like the body of water between the province of Batangas and the
island of Mindoro which the oppositors describe thus "the intervening waters
between Calapan and Batangas are wide and dangerous with big waves
where small boat, barge or raft are not adapted to the service,' then it is more
reasonable to regard said line or service as more properly belonging to
interisland or coastwise trade." . . .
2. ID.; ID.; ID.; CONVEYANCE OF PASSENGERS, TRUCKS AND
CARGO TRAVERSING SAN BERNARDINO STRAIT, AN INTERISLAND
SHIPPING SERVICE; CASE AT BAR. This Court takes judicial notice of the
fact, and as shown by an examination of the map of the Philippines, that
Matnog which is on the southern tip of the island of Luzon and within the
province of Sorsogon and Allen which is on the northeastern tip of the island
of Samar, is traversed by the San Bernardino Strait which leads towards the
Pacific Ocean. The parties admit that the distance between Matnog and Allen
is about 23 kilometers which may be negotiated by motorboat or vessel in
about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours
according to petitioners. As the San Bernardino Strait which separates
Matnog and Allen leads to the ocean it must at times be choppy and rough so

that it will not be safe to navigate the same by small boats or barges but only
by such steamboats or vessels as the M/V "Black Double." Considering the
environmental circumstances of the case, the conveyance of passengers,
trucks and cargo from Matnog to Allen is certainly not a ferryboat service but a
coastwise or interisland shipping service.
3. ID.; ID.; ID.; OPEN SEA, NOT A CONTINUATION OF HIGHWAY.
Under no circumstance can the sea between Matnog and Allen be considered
a continuation of the highway. While a ferryboat service has been considered
as a continuation of the highway when crossing rivers or even lakes, which are
small body of waters separating the land, however, when as in this case the
two terminals, Matnog and Allen are separated by an open sea it can not be
considered as a continuation of the highway.
4. ID.; ID.; ID.; ID.; SEPARATE CERTIFICATE OF PUBLIC
CONVENIENCE MUST BE SECURED. Respondent PANTRANCO should
secure a separate CPC for the operation of an interisland or coastwise
shipping service in accordance with the provisions of law. Its CPC as a bus
transportation cannot be merely amended to include this water service under
the guise that it is a mere private ferry service. Thus the Court holds that the
water transport service between Matnog and Allen is not a ferryboat service
but a coastwise or interisland shipping service. Before private respondent may
be issued a franchise or CPC for the operation of the said service as a
common carrier, it must comply with the usual requirements of filing an
application, payment of the fees, publication, adducing evidence at a hearing
and affording the oppositors the opportunity to be heard, among others, as
provided by law.
DECISION
GANCAYCO, J :
p

The question that is posed in these petitions for review is whether the
sea can be considered as a continuation of the highway. The corollary issue is
whether a land transportation company can be authorized to operate a ferry

service or coastwise or interisland shipping service along its authorized route

as an incident to its franchise without the need of filing a separate application
for the same.
The Pantranco South Express, Inc., hereinafter referred to as
PANTRANCO is a domestic corporation engaged in the land transportation
business with PUB service for passengers and freight and various certificates
for public conveniences (CPC) to operate passenger buses from Metro Manila
to Bicol Region and Eastern Samar. On March 27, 1980 PANTRANCO
through its counsel wrote to Maritime Industry Authority (MARINA) requesting
authority to lease/purchase a vessel named M/V "Black Double" "to be used
for its project to operate a ferryboat service from Matnog, Sorsogon and Allen,
Samar that will provide service to company buses and freight trucks that have
to cross San Bernardo Strait. 1 In a reply of April 29, 1981 PANTRANCO was
informed by MARINA that it cannot give due course to the request on the
basis of the following observations:
"1. The Matnog-Allen run is adequately serviced by Cardinal Shipping
Corp. and Epitacio San Pablo; MARINA policies on interisland shipping
restrict the entry of new operators to Liner trade routes where these are
adequately serviced by existing/authorized operators.
2. Market conditions in the proposed route cannot support the entry of
additional tonnage; vessel acquisitions intended for operations therein
are necessarily limited to those intended for replacement purposes
only." 2

PANTRANCO nevertheless acquired the vessel M/V "Black Double" on

May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of
Transportation (BOT) through its counsel, that it proposes to operate a ferry
service to carry its passenger buses and freight trucks between Allen and
Matnog in connection with its trips to Tacloban City invoking the case of
Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can
operate a ferry service in connection with its franchise for bus operation in the
highway from Pasay City to Tacloban City "for the purpose of continuing the
highway, which is interrupted by a small body of water, the said proposed ferry
operation is merely a necessary and incidental service to its main service and

obligation of transporting its passengers from Pasay City to Tacloban City.

Such being the case . . . there is no need . . . to obtain a separate certificate
for public convenience to operate a ferry service between Allen and Matnog to
cater exclusively to its passenger buses and freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate
said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered
PANTRANCO not to operate its vessel until the application for hearing on Oct.
1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from
operating the M/V "Black Double" otherwise it will be cited to show cause why
its CPC should not be suspended or the pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal
Shipping Corporation who are franchise holders of the ferry service in this
area interposed their opposition. They claim they adequately service
the PANTRANCO by ferrying its buses, trucks and passengers. BOT then
asked the legal opinion from the Minister of Justice whether or not a bus
company with an existing CPC between Pasay City and Tacloban City may
still be required to secure another certificate in order to operate a ferry
service between two terminals of a small body of water. On October 20, 1981
then Minister of Justice Ricardo Puno rendered an opinion to the effect that
there is no need for bus operators to secure a separate CPC to operate a
ferryboat service holding as follows:
"Further, a common carrier which has been granted a certificate of public
convenience is expected to provide efficient, convenient and adequate
service to the riding public. (Hocking Valley Railroad Co. vs. Public
Utilities Commission, 110 NE 521; Louiseville and N.R. Co. vs. Railroad
Commissioners, 58 SO 543) It is the right of the public which has
accepted the service of a public utility operator to demand that the
service should be conducted with reasonable efficiency. (Almario, supra,
citing 73 C.J.S. 990-991) Thus, when the bus company in the case at
bar proposes to add a ferry service to its Pasay-Tacloban route, it merely
does so in the discharge of its duty under its current certificate of public
convenience to provide adequate and convenient service to its riders.
Requiring said bus company to obtain another certificate to operate such
ferry service when it merely forms a part and constitutes an

improvement of its existing transportation service would simply be

duplicitous and superfluous." 7

Thus on October 23, 1981 the BOT rendered its decision holding that the
ferryboat service is part of its CPC to operate from Pasay to Samar/Leyte by
amending PANTRANCO's CPC so as to reflect the same in this wise:
"Let the original Certificate of public convenience granted to Pantranco
South Express Co., Inc. be amended to embody the grant of authority to
operate a private ferryboat service as one of the conditions for the grant
of the certificate subject to the condition that the ferryboat shall be for the
exclusive use of Pantranco buses, its passengers and freight trucks, and
should it offer itself to the public for hire other than its own passengers, it
must apply for a separate certificate of public convenience as a public
ferryboat service, separate and distinct from its land transport
systems." 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate
motions for reconsideration of said decision and San Pablo filed a
supplemental motion for reconsideration that were denied by the BOT on July
21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with
prayer for preliminary injunction 10 seeking the revocation of said decision, and
pending consideration of the petition, the issuance of a restraining order or
preliminary injunction against the operation by PANTRANCO of said ferry
service. San Pablo raised the following issues:
Cdpr

"A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT

TO DUE PROCESS, THE RULES OF PROCEDURE AND SECTION 16
(m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A
COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981
WHICH MOTU PROPIO AMENDED RESPONDENT PANTRANCO'S
PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A
SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON
ALLEN, SAMAR EVEN AS THERE MUST BE A FORMAL
APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS
HELD THEREFOR, ASSUMING AMENDMENT IS PROPER?

B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS

DECISION OF OCTOBER 23, 1981, THAT THE SEA FROM THE PORT
OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF
ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR
ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY
IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT
2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS,
NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY
SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT
RESPONDENT PANTRANCO'S VESSEL M/V BLACK DOUBLE IS
MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING
FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA
ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN
IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES
AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED
RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING
SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN
AFTER THOUGHT THAT IT NEED NOT APPLY THEREFOR, AND IN
SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE
MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO
ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE
ANY SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT
MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26,
1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED
RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING
SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY
'SATURATED' WITH THE SERVICES OF TWO (2) EXISTING
OPERATORS (PETITIONERS AND CARDINAL SHIPPING CORP.) IN
VIOLATION OF THE PRINCIPLE OF 'PRIOR OPERATOR RULE'?" 11

By the same token Cardinal Shipping Corporation filed a separate

petition raising similar issues, namely:
LibLex

"a. the decision did not conform to the procedures laid down by law for
an amendment of the original certificate of public convenience, and the
authority to operate a private ferry boat service to PANTRANCO was
issued without ascertaining the established essential requisites for such
grant, hence, violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service
as a private carrier on said route contravenes existing government
policies relative to the rationalization of operations of all water transport
utilities;
c. it contravenes the memorandum of agreement between MARINA and
the Board of Transportation;
d. the grant of authority to operate a ferry service as a private carrier is
not feasible; it lessens PANTRANCO's liability to passengers and cargo
to a degree less than extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the 'old operator' doctrine; and
g. the operation by PANTRANCO of the ferry service constitutes undue
competition.
The foregoing considerations constitutes the substantial errors
committed by the respondent Board which would more than amply justify
review of the questioned decision by this Honorable Court." 12

Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned
BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the
highway and thus is a part of the authority originally granted PANTRANCO in the
following manner:
"A ferry service, in law, is treated as a continuation of the highway from
one side of the water over which passes to the other side for
transportation of passengers or of travellers with their teams vehicles
and such other property as, they may carry or have with them. (U.S. vs.
Pudget Sound Nev. Co. D.C. Washington, 24 F. Supp. 431). It may be

said to be a necessary service of a specially constructed boat to carry

passengers and property across rivers or bodies of water from a place in
one shore to a point conveniently opposite on the other shore and
continuation of the highway making a connection with the thoroughfare
at each terminal (U.S. vs. Canadian Pac, N.Y. Co. 4 P. Supp. 85). It
comprises not merely the privilege of transportation but also the use for
that purpose of the respective landings with outlets therefrom. (Nole vs.
Record, 74 OKL. 77; 176 Pac. 756). A ferry service may be a public ferry
or a private ferry. A public ferry service is one which all the public have
the right to resort to and for which a regular fare is established and the
ferryman is a common carrier be inbound to take all who apply and
bound to keep his ferry in operation and good repair. (Hudspeth v. Hall,
11 Oa. 510; 36 S.B. 770). A ferry (private) service is mainly for the use of
the owner and though he may take pay for ferriage, he does not follow it
as a business. His ferry is not open to the public at its demand and he
may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul
Fire and Marine Ins. 696), Harrison, 140 Ark. 158; 215 S.W. 698).
The ferryboat service of Pantranco is a continuation of the highway
traversed by its buses from Pasay City to Samar, Leyte passing through
Matnog (Sorsogon) through San Bernardino Strait to Allen (Samar). It is
a private carrier because it will be used exclusively to transport its own
buses, passengers and freight trucks traversing the said route. It will
cater exclusively to the needs of its own clientele (passengers on board
Pantranco buses) and will not offer itself indiscriminately for hire or for
compensation to the general public. Legally therefore, Pantranco has the
right to operate the ferryboat M/V BLACK DOUBLE, along the route from
Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive use
of its own buses, passengers and freight trucks without the need of
applying for a separate certificate of public convenience or provisional
authority. Since its operation is an integral part of its land transport
system, its original certificate of public convenience should be amended
to include the operation of such ferryboat for its own exclusive use." 13

In Javellana 14 this Court recited the following definition of "ferry":

"The term ' ferry implied the continuation by means of boats,
barges, or rafts of a highway or the connection of highways located on
the opposite banks of a stream or other body of water. The term

necessarily implies transportation for a short distance, almost

invariably between two points, which is unrelated to other
transportation, (Oppositors' Emphasis.)
The term 'ferry' is often employed to denote the right or
franchise granted by the state or its authorized mandatories to
continue by means of boats, an interrupted land highway over the
interrupting waters and to charge toll for the use thereof by the public.
In this sense it has also been defined as a privilege, a liberty, to take
tolls for transporting passengers and goods across a lake or stream,
or some other body of water, with no essential difference from a
bridge franchise except as to the mode of transportation 22 Am. Jur.
553.
A 'ferry' has been defined by many courts as 'a public highway
or thoroughfare across a stream of water or river by boat instead of a
bridge.' (St. Claire Country v. Interstate Car and Sand Transfer Co.,
192 U.S. 464, 48 L. ed. 518; etc.).
'The term ferry is often employed to denote the right or
franchise granted by the state or its authorized mandatories to
continue by means of boats, an interrupted land highway over the
interrupting waters and to charge toll for the use thereof by the public.'
(Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864,
Ann. Cas. 1914C, 1179; etc.) (Oppositors' Italics.).
'Ferry' is service necessity for common good to reach point
across a stream, lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co.
D.C. Was., 4 Supp. 851, 853)'
'Ferry' properly means a place of transit across a river or arm of
the sea, but in law it is treated as a franchise, and defined as the
exclusive right to carry passengers across a river, or arm of the sea,
from one vill to another, or to connect a continuous line of road leading
from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C.A.
Wash., 73 F. 2d. 831, 832)'
'Includes various waters: (1) But an arm of the sea may include
various subordinate descriptions of waters, where the tide ebbs and
flows. It may be a river, harbor, creek, basin, or bay; and it is
sometimes used to designate very extensive reaches of waters within
the projecting capes or points or a country. (See Rex. vs. Bruce,

Deach, C.C. 1093). (2) In an early case the court said: 'The distinction
between rivers navigable and not navigable, that is, where the sea
does, or does not, ebb and flow, is very ancient. Rex. vs. Smith, 2
Dougl. 441, 99 Reprint 283. The former are called arms of the sea,
while the latter pass under the denomination of private or inland rivers'
Adams vs. Pease 2 Conn. 481, 484." (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 15 Cababa vs.

Remigio & Carillo 16 and Municipality of Gattaran vs. Elizaga 17 this Court
considered as ferry service such water service that crosses rivers.
cdrep

However, in Javellana We made clear distinction between a ferry

service and coastwise or interisland service by holding that:
"We are not unmindful of the reasons adduced by the Commission in
considering the motorboat service between Calapan and Batangas as
ferry; but from our consideration of the law as it stands,
particularly Commonwealth Act No. 146, known as the Public Service
Act and the provisions of the Revised Administrative Code regarding
municipal ferries and those regarding the jurisdiction of the Bureau of
Customs over documentation, registration, licensing, inspection, etc. of
steamboats, motorboats or motor vessels, and the definition of ferry as
above quoted, we have the impression and we are inclined to believe
that the Legislature intended ferry to mean the service either by barges
or rafts, even by motor or steam vessels, between the banks of a river or
stream to continue the highway which is interrupted by the body of water,
or in some cases, to connect two points on opposite shores of an arm of
the sea such as bay or lake which does not involve too great a distance
or too long a time to navigate. But where the line or service involves
crossing the open sea like the body of water between the province of
Batangas and the island of Mindorowhich the oppositors describe thus
"the intervening waters between Calapan and Batangas are wide and
dangerous with big waves where small boat, barge or raft are not
adapted to the service,' then it is more reasonable to regard said line or
service as more properly belonging to interisland or coastwise
trade. According to the finding of the Commission itself the distance
between Calapan and Batangas is about 24 nautical miles or about 44.5
kilometers. We do not believe that this is the short distance contemplated

by the Legislature in referring to ferries whether within the jurisdiction of

a single municipality or ferries between two municipalities or provinces. If
we are to grant that water transportation between Calapan and Batangas
is ferry service, then there would be no reason for not considering the
same service between the different islands of the Philippines, such as
Boac, Marinduque and Batangas; Roxas City of Capiz and Romblon;
Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao;
and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and
motorship in the coastwise trade, thus: cdll
'A ferry service is distinguished from a motorship or motorboat service
engaged in the coastwise trade in that the latter is intended for the
transportation of passengers and/or freight for hire or compensation
between ports or places in the Philippines without definite routes or lines
of service.'
We cannot agree. The definiteness of the route of a boat is not the
deciding factor. A boat of say the William Lines, Inc. goes from Manila to
Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week.
It has a definite route, and yet it may not for that reason be regarded as
engaged in ferry service. Again, a vessel of the Compaia Maritima
makes the trip from Manila to Tacloban and back, twice a week.
Certainly, it has a definite route. But that service is not ferry service, but
rather interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to
consider steamboat or motorboat service between the different islands,
involving more or less great distance and over more or less turbulent and
dangerous waters of the open sea, to be coastwise or inter-island
service. Anyway, whether said service between the different islands is
regarded as ferry service or coastwise trade service, as long as the
water craft used are steamboats, motorboats or motor vessels, the result
will be the same as far as the Commission is concerned."
supplied)

18

(Emphasis

This Court takes judicial notice of the fact, and as shown by an

examination of the map of the Philippines, that Matnog which is on the
southern tip of the island of Luzon and within the province of Sorsogon and

Allen which is on the northeastern tip of the island of Samar, is traversed by

the San Bernardino Strait which leads towards the Pacific Ocean. The parties
admit that the distance between Matnog and Allen is about 23 kilometers
which may be negotiated by motorboat or vessel in about 1-1/2 hours as
claimed by respondent PANTRANCO to 2 hours according to petitioners. As
the San Bernardino Strait which separates Matnog and Allen leads to the
ocean it must at times be choppy and rough so that it will not be safe to
navigate the same by small boats or barges but only by such steamboats or
vessels as the M/V "Black Double." 19
Considering the environmental circumstances of the case, the
conveyance of passengers, trucks and cargo from Matnog to Allen is certainly
not a ferryboat service but a coastwise or interisland shipping service. Under
no circumstance can the sea between Matnog and Allen be considered a
continuation of the highway. While a ferryboat service has been considered as
a continuation of the highway when crossing rivers or even lakes, which are
small body of waters separating the land, however, when as in this case the
two terminals, Matnog and Allen are separated by an open sea it can not be
considered as a continuation of the highway. Respondent PANTRANCO
should secure a separate CPC for the operation of an interisland or coastwise
shipping service in accordance with the provisions of law. Its CPC as a bus
transportation cannot be merely amended to include this water service under
the guise that it is a mere private ferry service.
The contention of private respondent PANTRANCO that its ferry service
operation is as a private carrier, not as a common carrier for its exclusive use
in the ferrying of its passenger buses and cargo trucks is absurd.
PANTRANCO does not deny that it charges its passengers separately from
the charges for the bus trips and issues separate tickets whenever they board
the M/V "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot
pretend that in issuing tickets to its passengers it did so as a private carrier
and not as a common carrier. The Court does not see any reason why inspite
of its amended franchise to operate a private ferryboat service it cannot
accept walk-in passengers just for the purpose of crossing the sea between
Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What
is even more difficult to comprehend is that while in one breath respondent

PANTRANCO claims that it is a private carrier insofar as the ferryboat service

is concerned, in another breath it states that it does not thereby abdicate from
its obligation as a common carrier to observe extraordinary diligence and
vigilance in the transportation of its passengers and goods. Nevertheless,
considering that the authority granted to PANTRANCO is to operate a private
ferry, it can still assert that it cannot be held to account as a common carrier
towards its passengers and cargo. Such an anomalous situation that will
jeopardize the safety and interests of its passengers and the cargo owners
cannot be allowed.
LLjur

What appears clear from the record is that at the beginning

PANTRANCO planned to operate such ferryboat service between Matnog and
Allen as a common carrier so it requested authority from MARINA to purchase
the vessel M/V "Black Double" 22 in accordance with the procedure provided
for by law for such application for a certificate of public
convenience. 23 However when its request was denied as the said routes "are
adequately serviced by existing/authorized operators," 24 it nevertheless
purchased the vessel and started operating the same. Obviously to go about
this obstacle to its operation, it then contrived a novel theory that what it
proposes to operate is a private ferryboat service across a small body of
water for the exclusive use of its buses, trucks and passengers as an incident
to its franchise to convey passengers and cargo on land from Pasay City to
Tacloban so that it believes it need not secure a separate certificate of public
convenience. 25 Based on this representation, no less than the Secretary of
Justice was led to render an affirmative opinion on October 20,
1981 26 followed a few days later by the questioned decision of public
respondent of October 23, 1981. 27 Certainly the Court cannot give
its imprimatur to such a situation.
Thus the Court holds that the water transport service between Matnog
and Allen is not a ferryboat service but a coastwise or interisland shipping
service. Before private respondent may be issued a franchise or CPC for the
operation of the said service as a common carrier, it must comply with the
usual requirements of filing an application, payment of the fees, publication,
adducing evidence at a hearing and affording the oppositors the opportunity to
be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of

the respondent Board of Transportation (BOT) of October 23, 1981 in BOT
Case No. 81-348-C and its Order of July 21, 1982 in the same case denying
the motions for reconsideration filed by petitioners are hereby Reversed and
set aside and declared null and void. Respondent PANTRANCO is hereby
permanently enjoined from operating the ferryboat service and/or
coastwise/interisland services between Matnog and Allen until it shall have
secured the appropriate Certificate of Public Convenience (CPC) in
accordance with the requirements of the law, with costs against respondent
PANTRANCO.
SO ORDERED.
|||

(San Pablo v. Pantranco South Express, Inc., G.R. No. L-61461 & 61501,

[August 21, 1987], 237 PHIL 200-215)

[G.R. No. 149038. April 9, 2003.]
PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, petitioner, vs. PKS SHIPPING
COMPANY, respondent.
Gerard M. Linsangan for petitioner.
Arthur D. Lim for respondent.
SYNOPSIS
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS shipping company (PKS) to transport its 75,000 bags of cement.
DUMC insured the full amount of the goods with the petitioner insurance
company (Philamgen). Ironically, the barge sank bringing down the entire cargo
of 75,000 bags of cement. DUMC filed a formal claim for the entire amount of
insurance, to which Philamgen promptly paid. Philamgen then sought a
reimbursement of the amount it paid to DUMC but the PKS refused to pay, which
prompted Philamgen to file a suit against PKS. The trial court, finding the cause

of the loss to be through fortuitous event, dismissed the complaint filed.

Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. In this appeal before the Supreme Court,
Philamgen contended that the appellate court committed patent error in ruling
that PKS is not a common carrier and it is not liable for the loss of the subject
cargo.
According to the Supreme Court, the issue of whether a carrier is private or
common carrier on the basis of facts found by the trial court or the appellate court
can be a valid and reviewable question of law. Contrary to the conclusion made
by the appellate court, its factual findings indicated that PKS engaged itself in the
business of carrying goods for others, although for a limited clientele, undertaking
to carry such goods for a fee. Hence, the Court found PKS to be a common
carrier. However, the Court also found that PKS exercised the proper diligence
demanded of a common carrier. The factual findings of the appellate court were
strengthened by the Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate, which attested to the
seaworthiness of the vessel involved in this case. Hence, the Court found no
error in the judgment made by the appellate court in absolving PKS from liability
for the loss of the DUMC cargo.
SYLLABUS
1. CIVIL LAW; TRANSPORTATION; COMMON CARRIERS; DEFINED AND
CONSTRUED. The Civil Code defines "common carriers" in the following
terms: "Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air for compensation, offering their services to
the public." Complementary to the codal definition is Section 13, paragraph (b), of
the Public Service Act; it defines "public service" to be ". . . every person that
now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its

classification, freight or carrier service of any class, express service, steamboat,

or steamship, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop,
wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage
system, wire or wireless communication systems, wire or wireless broadcasting
stations and other similar public services. . . . . "The prevailing doctrine on the
question is that enunciated in the leading case of De Guzman vs. Court of
Appeals. Applying Article 1732 of the Code, in conjunction with Section 13(b) of
the Public Service Act, this Court has held: "The above article makes no
distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as 'a sideline'). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the 'general public,' i.e.,
the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1732 deliberately refrained from making such distinctions. "So understood,
the concept of 'common carrier' under Article 1732 may be seen to coincide
neatly with the notion of 'public service,' under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements
the law on common carriers set forth in the Civil Code."
AaCTcI

2. ID.; ID.; ID.; COMMON OR PUBLIC CARRIER DISTINGUISHED FROM

PRIVATE OR SPECIAL CARRIER. Much of the distinction between a
"common or public carrier" and a "private or special carrier" lies in the character
of the business, such that if the undertaking is an isolated transaction, not a part
of the business or occupation, and the carrier does not hold itself out to carry the
goods for the general public or to a limited clientele, although involving the
carriage of goods for a fee, the person or corporation providing such service
could very well be just a private carrier. A typical case is that of a charter party
which includes both the vessel and its crew, such as in a bareboat or demise,
where the charterer obtains the use and service of all or some part of a ship for a

period of time or a voyage or voyages and gets the control of the vessel and its
crew.
3. ID.; ID.; ID.; PRESUMED TO BEAT FAULT OR TO HAVE ACTED
NEGLIGENTLY IN CASE OF LOSS, DESTRUCTION OR DETERIORATION OF
GOODS UNDER ITS CARE; EXCEPTION. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to
have acted negligently, and the burden of proving otherwise rests on them. The
provisions of Article 1733, notwithstanding, common carriers are exempt from
liability for loss, destruction, or deterioration of the goods due to any of the
following causes: (1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity; (2) Act of the public enemy in war, whether international or civil; (3)
Act or omission of the shipper or owner of the goods; (4) The character of the
goods or defects in the packing or in the containers; and (5) Order or act of
competent public authority.
4. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF THE COURT OF
APPEALS; CONCLUSIVE UPON THE SUPREME COURT; EXCEPTIONS.
Findings of fact of the Court of Appeals generally conclude this Court; none of
the recognized exceptions from the rule (1) when the factual findings of the
Court of Appeals and the trial court are contradictory; (2) when the conclusion is
a finding grounded entirely on speculation, surmises, or conjectures; (3) when the
inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in
the appreciation of facts; (5) when the appellate court, in making its findings,
went beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee; (6) when the judgment of the Court of
Appeals is premised on a misapprehension of facts; (7) when the Court of
Appeals failed to notice certain relevant facts which, if properly considered, would
justify a different conclusion; (8) when the findings of fact are themselves
conflicting; (9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of evidence but such findings
are contradicted by the evidence on record would appear to be clearly extant
in this instance.

DECISION
VITUG, J :
p

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in totothe judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS Shipping Company (PKS Shipping) for the shipment to Tacloban
City of seventy-five thousand (75,000) bags of cement worth Three Million Three
Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC insured the
goods for its full value with petitioner Philippine American General Insurance
Company (Philamgen). The goods were loaded aboard the dumb barge Limar
I belonging to PKS Shipping. On the evening of 22 December 1988, about nine
o'clock, while Limar I was being towed by respondent's tugboat, MT Iron Eagle,
the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga
del Sur, bringing down with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance.
Philamgen promptly made payment; it then sought reimbursement from PKS
Shipping of the sum paid to DUMC but the shipping company refused to pay,
prompting Philamgen to file suit against PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo
could have been caused either by a fortuitous event, in which case the ship
owner was not liable, or through the negligence of the captain and crew of the
vessel and that, under Article 587 of the Code of Commerce adopting the
"Limited Liability Rule," the ship owner could free itself of liability by abandoning,
as it apparently so did, the vessel with all her equipment and earned freightage.

Philamgen interposed an appeal to the Court of Appeals which affirmed in

toto the decision of the trial court. The appellate court ruled that evidence to

establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the
shipping company's carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not
being a common carrier, was not expected to observe the stringent extraordinary
diligence required of common carriers in the care of goods. The appellate court,
moreover, found that the loss of the goods was sufficiently established as having
been due to fortuitous event, negating any liability on the part of PKS Shipping to
the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed
a patent error in ruling that PKS Shipping is not a common carrier and that it is
not liable for the loss of the subject cargo. The fact that respondent has a limited
clientele, petitioner argues, does not militate against respondent's being a
common carrier and that the only way by which such carrier can be held exempt
for the loss of the cargo would be if the loss were caused by natural disaster or
calamity. Petitioner avers that typhoon "APIANG" has not entered the Philippine
area of responsibility and that, even if it did, respondent would not be exempt
from liability because its employees, particularly the tugmaster, have failed to
exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because
what Philamgen seeks is not a review on points or errors of law but a review of
the undisputed factual findings of the RTC and the appellate court. In any event,
PKS Shipping points out, the findings and conclusions of both courts find support
from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to
the question of whether it is a private carrier or a common carrier and, in either
case, to the other question of whether or not it has observed the proper diligence
(ordinary, if a private carrier, or extraordinary, if a common carrier) required of it
given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be reviewed
by this Court in a petition for review under Rule 45 of the Rules of
Court. 1 The conclusions derived from those factual findings, however, are not

necessarily just matters of fact as when they are so linked to, or inextricably
intertwined with, a requisite appreciation of the applicable law. In such instances,
the conclusions made could well be raised as being appropriate issues in a
petition for review before this Court. Thus, an issue whether a carrier is private or
common on the basis of the facts found by a trial court or the appellate court can
be a valid and reviewable question of law.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public."

Complementary to the codal definition is Section 13, paragraph (b), of the

Public Service Act; it defines "public service" to be
". . . every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, railroad, street
railway, subway motor vehicle, either for freight or passenger, or both,
with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or
steamship, or steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communication
systems, wire or wireless broadcasting stations and other similar public
services. . . .. (Emphasis supplied)."

The prevailing doctrine on the question is that enunciated in the leading case
of De Guzman vs. Court of Appeals. 2 Applying Article 1732 of the Code, in
conjunction with Section 13(b) of the Public Service Act, this Court has held:
"The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in
local idiom, as 'a sideline'). Article 1732 also carefully avoids making any

distinction between a person or enterprise offering transportation service

on a regular or scheduled basis and 'one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general
public,' i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making
such distinctions.
"So understood, the concept of 'common carrier' under Article 1732 may
be seen to coincide neatly with the notion of 'public service,' under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code."

Much of the distinction between a "common or public carrier" and a "private or

special carrier" lies in the character of the business, such that if the undertaking
is an isolated transaction, not a part of the business or occupation, and the
carrier does not hold itself out to carry the goods for the general public or to a
limited clientele, although involving the carriage of goods for a fee, 3 the person or
corporation providing such service could very well be just a private carrier. A
typical case is that of a charter party which includes both the vessel and its crew,
such as in a bareboat or demise, where the charterer obtains the use and service
of all or some part of a ship for a period of time or a voyage or voyages 4 and gets
the control of the vessel and its crew. 5 Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has engaged itself
in the business of carrying goods for others, although for a limited clientele,
undertaking to carry such goods for a fee. The regularity of its activities in this
area indicates more than just a casual activity on its part. 6 Neither can the
concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation
would make it easy for a common carrier to escape liability by the simple
expedient of entering into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the
proper diligence demanded of common carriers, Article 1733 of the Civil Code
requires common carriers to observe extraordinary diligence in the vigilance over

the goods they carry. In case of loss, destruction or deterioration of goods,

common carriers are presumed to have been at fault or to have acted negligently,
and the burden of proving otherwise rests on them. 7 The provisions of Article
1733, notwithstanding,common carriers are exempt from liability for loss,
destruction, or deterioration of the goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers; and
(5) Order or act of competent public authority. 8
The appellate court ruled, gathered from the testimonies and sworn marine
protests of the respective vessel masters of Limar I and MT Iron Eagle, that there
was no way by which the barge's or the tugboat's crew could have prevented the
sinking of Limar I. The vessel was suddenly tossed by waves of extraordinary
height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barge's hatches. The official Certificate of
Inspection of the barge issued by the Philippine Coastguard and the Coastwise
Load Line Certificate would attest to the seaworthiness of Limar I and should
strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of
the recognized exceptions from the rule (1) when the factual findings of the
Court of Appeals and the trial court are contradictory; (2) when the conclusion is
a finding grounded entirely on speculation, surmises, or conjectures; (3) when the
inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in
the appreciation of facts; (5) when the appellate court, in making its findings,
went beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee; (6) when the judgment of the Court of
Appeals is premised on a misapprehension of facts; (7) when the Court of

Appeals failed to notice certain relevant facts which, if properly considered, would
justify a different conclusion; (8) when the findings of fact are themselves
conflicting; (9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of evidence but such findings
are contradicted by the evidence on record would appear to be clearly extant
in this instance.
ADTCaI

All given then, the appellate court did not err in its judgment absolving PKS
Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., c
|||

(Philippine American General Insurance Company v. PKS Shipping Company,

G.R. No. 149038, [April 9, 2003], 449 PHIL 223-232)

G.R. No. 141910. August 6, 2002.]
FGU INSURANCE CORPORATION, petitioner, vs. G.P.
SARMIENTO TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents.
Dollete Blanco Ejercito and Associates for petitioner.
Marbibi & Associates Law Office for private respondents.
SYNOPSIS
Respondent G.P. Sarmiento trucking company (GTS) undertook to transport
cargoes for Concepcion Industries, Inc. when it collided with an unidentified truck,
causing damage to the cargoes. Petitioner, FGU, insurer of the shipment, paid to
Concepcion Industries the value of the covered cargoes. Then, as subrogee of
Concepcion Industries, Inc., petitioner FGU sued GPS for breach of contract of

carriage for reimbursement. Instead of filing an answer, GPS filed a demurrer to

evidence, claiming that it cannot be held liable as a common carrier because it
was only a private carrier, being the exclusive hauler only of Concepcion
Industries, Inc. since 1988.
The lower court granted the motion, ruling that plaintiff FGU failed to prove that
GPS is a common carrier. The CA affirmed the trial court's order.
On appeal, the Supreme Court held; that GPS cannot be considered a common
carrier as it renders service exclusively to Concepcion Industries; that
notwithstanding, GPS cannot escape from liability since in culpa contractual,
mere proof of the existence of the contract and the failure of its compliance
justify prima facie a corresponding right of relief. Respondent driver, however,
who is not a party to the contract of carriage, may not be held liable under the
agreement without concrete proof of his negligence or fault.
HScAEC

Hence, the Supreme Court affirmed the assailed order of the trial court and the
CA insofar as the respondent driver was concerned but GPS trucking company
was ordered to pay the petitioner FGU the value of the damaged and lost
cargoes.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; DEFINED; CASE AT BAR. The Court
finds the conclusion of the trial court and the Court of Appeals to be amply
justified. GPS, being an exclusive contractor and hauler of Concepcion
Industries, Inc., rendering or offering its services to no other individual or entity,
cannot be considered a common carrier. Common carriers are persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for hire or
compensation, offering their services to the public, whether to the public in
general or to a limited clientele in particular, but never on an exclusive basis. The
true test of a common carrier is the carriage of passengers or goods, providing
space for those who opt to avail themselves of its transportation service for a fee.
Given accepted standards, GPS scarcely falls within the term "common carrier."

2. ID.; OBLIGATIONS AND CONTRACTS; CULPA CONTRACTUAL; MERE

PROOF OF THE EXISTENCE OF THE CONTRACT AND FAILURE OF ITS
COMPLIANCE JUSTIFY,PRIMA FACIE, A CORRESPONDING RIGHT OF
RELIEF; CASE AT BAR. In culpa contractual, upon which the action of
petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere
proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for
any kind of misperformance of the contractual undertaking or a contravention of
the tenor thereof. A breach upon the contract confers upon the injured party a
valid cause for recovering that which may have been lost or suffered. The remedy
serves to preserve the interests of the promisee that may include his "expectation
interest," which is his interest in having the benefit of his bargain by being put in
as good a position as he would have been in had the contract been performed, or
his "reliance interest," which is his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a position as he would have
been in had the contract not been made; or his "restitution interest," which is his
interest in having restored to him any benefit that he has conferred on the other
party. Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every infraction is
to create a new duty, that is, to make recompense to the one who has been
injured by the failure of another to observe his contractual obligation unless he
can show extenuating circumstances, like proof of his exercise of due diligence
(normally that of the diligence of a good father of a family or, exceptionally by
stipulation or by law such as in the case of common carriers, that of extraordinary
diligence) or of the attendance of fortuitous event, to excuse him from his ensuing
liability. Respondent trucking corporation recognizes the existence of a contract
of carriage between it and petitioner's assured, and admits that the cargoes it has
assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation in this case,
the delivery of the goods in its custody to the place of destination gives rise to
a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has
failed to do so.

3. ID.; ID.; ID.; ID.; CONTRACT CAN BIND ONLY THE PARTIES WHO HAVE
ENTERED INTO IT; CASE AT BAR. Respondent driver, on the other hand,
without concrete proof of his negligence or fault, may not himself be ordered to
pay petitioner. The driver, not being a party to the contract of carriage between
petitioner's principal and defendant, may not be held liable under the agreement.
A contract can only bind the parties who have entered into it or their successors
who have assumed their personality or their juridical position. Consonantly with
the axiom res inter alios acta aliis neque nocet prodest, such contract can neither
favor nor prejudice a third person. Petitioner's civil action against the driver can
only be based on culpa aquiliana, which, unlike culpa contractual, would require
the claimant for damages to prove negligence or fault on the part of the
defendant.
4. ID.; ID.; RESIPSA LOQUITOR; RELIEVES THE PLAINTIFF OF THE BURDEN
OF PRODUCING SPECIFIC PROOF OF NEGLIGENCE; CASE AT BAR. Res
ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable
where the thing which caused the injury complained of is shown to be under the
latter's management and the accident is such that, in the ordinary course of
things, cannot be expected to happen if those who have its management or
control use proper care. It affords reasonable evidence, in the absence of
explanation by the defendant, that the accident arose from want of care. It is not
a rule of substantive law and, as such, it does not create an independent ground
of liability. Instead, it is regarded as a mode of proof, or a mere procedural
convenience since it furnishes a substitute for, and relieves the plaintiff of, the
burden of producing specific proof of negligence. The maxim simply places on
the defendant the burden of going forward with the proof. Resort to the doctrine,
however, may be allowed only when (a) the event is of a kind which does not
ordinarily occur in the absence of negligence; (b) other responsible causes,
including the conduct of the plaintiff and third persons, are sufficiently eliminated
by the evidence; and (c) the indicated negligence is within the scope of the
defendant's duty to the plaintiff. Thus, it is not applicable when an unexplained
accident may be attributable to one of several causes, for some of which the
defendant could not be responsible. Res ipsa loquitur generally finds relevance
whether or not a contractual relationship exists between the plaintiff and the
defendant, for the inference of negligence arises from the circumstances and

nature of the occurrence and not from the nature of the relation of the parties.
Nevertheless, the requirement that responsible causes other than those due to
defendant's conduct must first be eliminated, for the doctrine to apply, should be
understood as being confined only to cases of pure (non-contractual) tort since
obviously the presumption of negligence in culpa contractual, as previously so
pointed out, immediately attaches by a failure of the covenant or its tenor. In the
case of the truck driver, whose liability in a civil action is predicated on culpa
acquiliana, while he admittedly can be said to have been in control and
management of the vehicle which figured in the accident, it is not equally shown,
however, that the accident could have been exclusively due to his negligence, a
matter that can allow, forthwith, res ipsa loquitur to work against him.
TcSaHC

DECISION
VITUG, J :
p

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June

1994 thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu
truck, driven by Lambert Eroles, from the plant site of Concepcion Industries,
Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon
Appliances in Dagupan City. While the truck was traversing the north diversion
road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided
with an unidentified truck, causing it to fall into a deep canal, resulting in damage
to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to
Concepcion Industries, Inc., the value of the covered cargoes in the sum of
P204,450.00. FGU, in turn, being the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement of the amount it had paid to
the latter from GPS. Since the trucking company failed to heed the claim, FGU
filed a complaint for damages and breach of contract of carriage against GPS
and its driver Lambert Eroles with the a Regional Trial Court, Branch 66, of
Makati City. In its answer, respondents asserted that GPS was the exclusive
hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged

in business as a common carrier. Respondents further claimed that the cause of

damage was purely accidental.

The issues having thus been joined, FGU presented its evidence, establishing
the extent of damage to the cargoes and the amount it had paid to the assured.
GPS, instead of submitting its evidence, filed with leave of court a motion to
dismiss the complaint by way of demurrer to evidence on the ground that
petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996, 1 granted the motion to dismiss,
explaining thusly:
"Under Section 1 of Rule 131 of the Rules of Court, it is provided that
'Each party must prove his own affirmative allegation, . . . '
"In the instant case, plaintiff did not present any single evidence that
would prove that defendant is a common carrier.
"xxx xxx xxx
"Accordingly, the application of the law on common carriers is not
warranted and the presumption of fault or negligence on the part of a
common carrier in case of loss, damage or deterioration of goods during
transport under 1735 of the Civil Code is not availing.
"Thus, the laws governing the contract between the owner of the cargo to
whom the plaintiff was subrogated and the owner of the vehicle which
transports the cargo are the laws on obligation and contract of the Civil
Code as well as the law on quasi delicts.
"Under the law on obligation and contract, negligence or fault is not
presumed. The law on quasi delict provides for some presumption of
negligence but only upon the attendance of some circumstances. Thus,
Article 2185 provides:
'Art. 2185. Unless there is proof to the contrary, it is presumed
that a person driving a motor vehicle has been negligent if at the
time of the mishap, he was violating any traffic regulation.'

"Evidence for the plaintiff shows no proof that defendant was violating
any traffic regulation. Hence, the presumption of negligence is not
obtaining.
"Considering that plaintiff failed to adduce evidence that defendant is a
common carrier and defendant's driver was the one negligent, defendant
cannot be made liable for the damages of the subject cargoes." 2

The subsequent motion for reconsideration having been denied, 3 plaintiff

interposed an appeal to the Court of Appeals, contending that the trial court had
erred (a) in holding that the appellee corporation was not a common carrier
defined under the law and existing jurisprudence; and (b) in dismissing the
complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS.
The appellate court, in its decision of 10 June 1999, 4 discoursed, among other
things, that
". . . in order for the presumption of negligence provided for under the
law governing common carrier (Article 1735, Civil Code) to arise, the
appellant must first prove that the appellee is a common carrier. Should
the appellant fail to prove that the appellee is a common carrier, the
presumption would not arise; consequently, the appellant would have to
prove that the carrier was negligent.
"xxx xxx xxx
"Because it is the appellant who insists that the appellees can still be
considered as a common carrier, despite its 'limited clientele', (assuming
it was really a common carrier), it follows that it (appellant) has the
burden of proving the same. It (plaintiff-appellant) 'must establish his
case by a preponderance of evidence, which means that the evidence as
a whole adduced by one side is superior to that of the other.' (Summa
Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This,
unfortunately, the appellant failed to do hence, the dismissal of the
plaintiffs complaint by the trial court is justified.
"xxx xxx xxx
"Based on the foregoing disquisitions and considering the circumstances
that the appellee trucking corporation has been 'its exclusive contractor,

hauler since 1970, defendant has no choice but to comply with the
directive of its principal,' the inevitable conclusion is that the appellee is a
private carrier.
"xxx xxx xxx
". . . the lower court correctly ruled that 'the application of the law on
common carriers is not warranted and the presumption of fault or
negligence on the part of a common carrier in case of loss, damage or
deterioration of good[s] during transport under [article] 1735 of the Civil
Code is not availing.' . . .
"Finally, We advert to the long established rule that conclusions and
findings of fact of a trial court are entitled to great weight on appeal and
should not be disturbed unless for strong and valid reasons." 5

Petitioner's motion for reconsideration was likewise denied; 6 hence, the instant
petition, 7 raising the following issues:
I
WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A
COMMON CARRIER AS DEFINED UNDER THE LAW AND EXISTING
JURISPRUDENCE.
II
WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER
OR A PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN
NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT
SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.
III
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS
APPLICABLE IN THE INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of
Appeals to be amply justified. GPS, being an exclusive contractor and hauler of
Concepcion Industries, Inc., rendering or offering its services to no other
individual or entity, cannot be considered a common carrier. Common carriers are
persons, corporations, firms or associations engaged in the business of carrying

or transporting passengers or goods or both, by land, water, or air, for hire or

compensation, offering their services to the public, 8 whether to the public in
general or to a limited clientele in particular, but never on an exclusive
basis. 9 The true test of a common carrier is the carriage of passengers or goods,
providing space for those who opt to avail themselves of its transportation service
for a fee. 10 Given accepted standards, GPS scarcely falls within the term
"common carrier."
The above conclusion notwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a corresponding right
of relief. 11 The law, recognizing the obligatory force of contracts, 12 will not permit
a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. 13 A breach upon
the contract confers upon the injured party a valid cause for recovering that which
may have been lost or suffered. The remedy serves to preserve the interests of
the promisee that may include his "expectation interest," which is his interest in
having the benefit of his bargain by being put in as good a position as he would
have been in had the contract been performed, or his "reliance interest," which is
his interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract not
been made; or his "restitution interest," which is his interest in having restored to
him any benefit that he has conferred on the other party. 14 Indeed, agreements
can accomplish little, either for their makers or for society, unless they are made
the basis for action. 15 The effect of every infraction is to create a new duty, that
is, to make recompense to the one who has been injured by the failure of another
to observe his contractual obligation 16 unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the
diligence of a good father of a family or, exceptionally by stipulation or by law
such as in the case of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of
carriage between it and petitioner's assured, and admits that the cargoes it has

assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation in this case,
the delivery of the goods in its custody to the place of destination gives rise to
a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has
failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or
fault, may not himself be ordered to pay petitioner. The driver, not being a party to
the contract of carriage between petitioner's principal and defendant, may not be
held liable under the agreement. A contract can only bind the parties who have
entered into it or their successors who have assumed their personality or their
juridical position. 17 Consonantly with the axiom res inter alios acta aliis neque
nocet prodest, such contract can neither favor nor prejudice a third person.
Petitioner's civil action against the driver can only be based on culpa aquiliana,
which, unlike culpa contractual, would require the claimant for damages to prove
negligence or fault on the part of the defendant. 18
A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds
a defendant liable where the thing which caused the injury complained of is
shown to be under the latter's management and the accident is such that, in the
ordinary course of things, cannot be expected to happen if those who have its
management or control use proper care. It affords reasonable evidence, in the
absence of explanation by the defendant, that the accident arose from want of
care. 19 It is not a rule of substantive law and, as such, it does not create an
independent ground of liability. Instead, it is regarded as a mode of proof, or a
mere procedural convenience since it furnishes a substitute for, and relieves the
plaintiff of, the burden of producing specific proof of negligence. The maxim
simply places on the defendant the burden of going forward with the
proof. 20 Resort to the doctrine, however, may be allowed only when (a) the event
is of a kind which does not ordinarily occur in the absence of negligence; (b)
other responsible causes, including the conduct of the plaintiff and third persons,
are sufficiently eliminated by the evidence; and (c) the indicated negligence is
within the scope of the defendant's duty to the plaintiff. 21 Thus, it is not

applicable when an unexplained accident may be attributable to one of several

causes, for some of which the defendant could not be responsible. 22
Res ipsa loquitur generally finds relevance whether or not a contractual
relationship exists between the plaintiff and the defendant, for the inference of
negligence arises from the circumstances and nature of the occurrence and not
from the nature of the relation of the parties. 23 Nevertheless, the requirement
that responsible causes other than those due to defendant's conduct must first be
eliminated, for the doctrine to apply, should be understood as being confined only
to cases of pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out, immediately
attaches by a failure of the covenant or its tenor. In the case of the truck driver,
whose liability in a civil action is predicated on culpa acquiliana, while he
admittedly can be said to have been in control and management of the vehicle
which figured in the accident, it is not equally shown, however, that the accident
could have been exclusively due to his negligence, a matter that can allow,
forthwith, res ipsa loquitur work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is
reversed, the movant shall be deemed to have waived the right to present
evidence. 24 Thus, respondent corporation may no longer offer proof to establish
that it has exercised due care in transporting the cargoes of the assured so as to
still warrant a remand of the case to the trial court.
WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court,
Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of
Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is
concerned, but said assailed order of the trial court and decision of the appellate
court are REVERSED as regards G.P. Sarmiento Trucking Corporation which,
instead, is hereby ordered to pay FGU Insurance Corporation the value of the
damaged and lost cargoes in the amount of P204,450.00. No costs.
SO ORDERED.
|||

(FGU Insurance Corp. v. G.P. Sarmiento Trucking Corp., G.R. No. 141910,

[August 6, 2002], 435 PHIL 333-345)

[G.R. No. 1963. April 30, 1906.]

BAER SENIOR & CO.'S SUCCESSORS, plaintiff-appellee, vs. LA
COMPAIA MARITIMA, defendant-appellant.
Chicote, Miranda & Sierra, for appellant.
Pillsbury & Sutro, for appellee.
SYLLABUS
1. CONTRACTS; TOWAGE. A contract of towage is not a contract for
the carriage of goods.
2. ID.; ID.; NEGLIGENCE. Such a contract, so far as the question of
negligence is concerned, is governed by article 1104 of the Civil Code, and
not by articles 1601, 1602, or 1902 of the same code.
DECISION
WILLARD, J :
p

The plaintiff, being the owner of the launch Mascota, which was then at
Aparri, made a contract with the defendant about the 2d of February, 1903, by
the terms of which the defendant agreed to tow the launch from Aparri to
Manila. In accordance with this agreement the launch was delivered to the
defendant at Aparri on the day named, and the defendant's
steamer Churruca left Aparri on that day with the launch in tow. The steamer,
with the launch in tow, arrived safely at Vigan. Two or three hours after leaving
Vigan the wind increased in violence, with a rough sea. The speed of the
streamer was decreased so that the tow might travel more easily. About halfpast 11 at night the lookout, who was stationed in the stern of the steamer for
the purpose of watching the launch, reported to the officer of the deck that the
launch had disappeared. The steamer was stopped and search was made the

rest of the night for the launch, but without success, and in the morning the
steamer proceeded on her way to Manila. This action was brought to recover
the value of the launch. Judgment was rendered in the court below in favor of
plaintiff. The defendant moved for a new trial, which was denied, and it has
brought the case here by bill of exceptions.
The first question to be determined is as to the nature of the liability of
the defendant. Articles 1601 and 1602 of the Civil Code are as follows:
"ART. 1601. Carriers of goods by land or by water shall be subject
with regard to the keeping and preservation of the things intrusted to
them, to the same obligations as determined for in keepers by articles
1783 and 1784.
"The provisions of this article shall be understood without
prejudice to what is prescribed by the Code of Commerce with regard to
transportation by sea and land.
"ART. 1602. Carriers are also liable for the loss of and damage to
the things which they receive, unless they prove that the loss or damage
arose from a fortuitous event or force majuere."

Article 618 of the Code of Commerce is in part as follows:

"ART. 618. The captain shall be civilly liable to the agent and the
latter to the third persons who may have made contracts with the former

"1. For all the damages suffered by the vessel and its cargo by
reason of want skill or negligence on his part. If a misdemeanor with the
Penal Code.

Article 620 of the same code is in part as follows:

"ART. 620. The captain shall not be liable for the damages caused
to the vessel or to the cargo by reason of force majuere; but he shall
always be so no agreement to the contrary being valid for those
arising through his own fault."

These articles treat of the liability of a carrier of goods, but we do not

think that the defendant was a carrier of goods in respect to this launch. The
reasons for so holding under the American law found in the case of The J. P.

Donaldson (167 U. S., 599, 602, 603) are equally cogent when applied to the
Spanish law. The court there said:
"While the tug is performing her contract of towing the barges they
may indeed be regarded as part of herself, in the sense that her master
is bound to use due care to provide for their safety as well as her own
and to avoid collision, either of them or of herself, with other vessels.
(The Syracuse, 9 Wall., 672, 675, 676; The Civilta, 103 U. S., 699, 701.)
"But the barges in tow are by no means put under the control of
the master of the tug to the same extent as the tug herself, and the
cargo, if any, on board of her.
"A general ship carrying goods for hire, whether employed in
internal, in coasting, or in foreign commerce, is a common carrier; and
the ship and her owners, in the absence of a valid agreement to the
contrary, are liable to the owners of the goods carried as insurers against
all losses, excepting only such irresistible causes as the act of God and
public enemies. (Liverpool Steamship Co. vs. Phoenix Ins. Co., 129 U.
S., 397, 437.) But a tug and her owners are subject to no such liability to
the owners of the vessels towed, or of the cargoes can not maintain any
action for the loss of either against the tug of her owners, without proving
negligence on her part. As was said by Mr. Justice Strong, and repeated
by the present Chief Justice: "An engagement to tow does not impose
either an obligation to insure or the liability of common carriers. The
burden is always upon him who alleges the breach of such a contract to
show either that there has been no attempt at performance, or that there
has been negligence or unskillfulness to his injury in the performance.
Unlike the case of common carriers, damage sustained by the tow does
not ordinarily raise a presumption that the tug has been in fault. The
contract requires no more than that he who undertakes to tow shall carry
out his undertaking with that degree of caution and skill which prudent
navigators usually employ in similar services." (The Webb, 14 Wall., 406,
414; The Burlington, 137 U. S., 386, 391. See also The L. P. Dayton, 120
U. S., 337, 351.)

The obligation of the defendant grew out of a contract made between it

and the plaintiff, and the liability of the former is defined in articles 1101 and
1104 of the Civil Code, which are as follows:

"ART. 1101. Those who in fulfilling their obligations are guilty of

fraud, negligence, or delay, and those who in any manner whatsoever
act in contravention of the stipulations of the same, shall be subject to
indemnify for the losses and damages caused thereby."
"ART. 1104. The fault or negligence of the debtor consists of the
omission of the steps which may be required by the character of the
obligation, and which may pertain to the circumstances of the persons,
time, and place.
"Should the obligation not state what conduct is to be observe in
its fulfillment, that observed by a good father of a family shall be
required."

We do not think that the provisions of articles 1902 and 1903 are
applicable to this case. (Manresa's Commentaries on the Civil Code, vol. 8,
pp. 29, 69.)
By the terms of articles 1104 the defendant was bound to exercise what
is known in the American law as ordinary diligence, taking into consideration
the nature of the obligation and the circumstances of persons, time, and
place. We think the evidence in the case shows that the defendant did
exercise the diligence required of it by law. As we understand the evidence the
towing line was passed from the steamer to the launch, around the stern of
the launch once or twice, and one or two other lines passed entirely around
the bow of the launch and under the keel. These lines were fastened to a post
in the bow of the launch, which post, according to the testimony of the
defendant's witnesses, was used for fastening ropes in cases of towing, and,
according to one witness of the plaintiff, for the purpose of fastening the
launch to the wharf. At the time the loss occurred the towing line did not break,
but this post did, and was found fastened to the towing lines when they were
pulled on board the steamer. The captain of the steamer and the first mate,
both men of experience in the matter, testified that the lines were properly
adjusted and the tow properly made fast to the steamer. The only evidence to
the contrary was the evidence furnished by one witness of the plaintiff, who
testified that he was present when the towing lines were made fast by the
captain himself, of the steamer; that he then told the captain it should be done
another way. The captain denied this. This witness had no experience,

according to his own testimony, in the matter of towing; had never had
occasion to make fast a tow to a tug, and had never seen it done, with one
exception; and that when this same launch was towed from Manila to Aparri.
We do not think his evidence is sufficient to overcome the evidence of the
defendant.
The judgment of the court below is reversed, and judgment entered for
the defendant, absolving it from the complaint, with the costs of the lower
court. No costs will be allowed to either party in this court. After the expiration
of twenty days final judgment will be entered in accordance herewith and ten
days thereafter the case remanded to the lower court for proper procedure. So
ordered.
Arellano, C. J., Torres, Mapa, and Carson, JJ., concur.
|||

(Baer Senior & Co.'s Successors v. La Compaia Maritima, G.R. No. 1963,

[April 30, 1906], 6 PHIL 215-219)