PHILIPPINE AIRLINES, INC., petitioner, vs. FRANCISCO LAO
Thus, on the award of moral
LIM, THE HEIRS OF HENRY GO, MANUEL LIMTONG and
RAINBOW TOURS AND TRAVEL, INC., respondents
G.R. No. 168987. October 17, 2012
Remedial Law; Civil Procedure; Appeals; Witnesses; Findings of the
trial court on the matter of credibility of witnesses are entitled to the
highest degree of respect and will not be disturbed on appeal, because
said lower court had the opportunity to observe, firsthand, how the
witnesses testified.—The Court again emphasizes that “findings of the
trial court on the matter of credibility of witnesses are entitled to the
highest degree of respect and will not be disturbed on appeal,”
because said lower court had the opportunity to observe, firsthand,
how the witnesses testified. The trial court ruled that respondents’ Lao
Lim and Henry Go were indeed holding confirmed tickets for PR300
on February 26, 1991, as they did not have their bookings cancelled.
Such factual finding was upheld by the appellate court. Petitioner
should bear in mind that findings of fact of the trial court, when
affirmed by the CA, are binding and conclusive on this Court, as it is
not a trier of facts. Although there are accepted exceptions to this
general rule, this case does not fall under any such exceptions.
Damages; Moral Damages; The award of moral damages must be
anchored on a clear showing that [the complainant] actually
experienced mental anguish, besmirched reputation, sleepless nights,
wounded feelings or similar injury.—In Philippine Savings Bank vs.
Manalac, Jr., 457 SCRA 203 (2005), the Court ruled, thus: x x x [T]he
award of moral damages must be anchored on a clear showing that
[the complainant] actually experienced mental anguish, besmirched
reputation, sleepless nights, wounded feelings or similar injury. There
was no better witness to this experience than [complainant] himself.
Since [complainant] failed to testify on the witness stand, the trial
court did not have any factual basis to award moral damages to him.
x x x Mere allegations do not suffice; they must be substantiated by
clear and convincing proof. (Emphasis supplied) Indeed, in this case,
since respondent Henry Go was not able to testify, there is then no
evidence on record to prove that he suffered mental anguish,
besmirched reputation, sleepless nights, wounded feelings or similar
injury by reason of petitioner’s conduct.
damages in favor of deceased respondent Go, substituted by his heirs,
the Court finds the same improper as it lacks the required factual
basis.
Same; Exemplary Damages; Article 2229 of the Civil Code provides
that exemplary or corrective damages are imposed in addition to the
moral, temperate, liquidated or compensatory damages. Exemplary
damages are not recoverable as a matter of right. — As to the award
of exemplary damages in favor of respondent Go, Gatmaitan vs.
Gonzales, 492 SCRA 591 (2006), is instructive, to wit: x x x Article
2229 of the Civil Code provides that exemplary or corrective damages
are imposed in addition to the moral, temperate, liquidated or
compensatory damages. Exemplary damages are not recoverable as
a matter of right. The requirements of an award of exemplary
damages are: (1) they may be imposed by way of example in addition
to compensatory damages, and only after the claimant’s right to them
has been established; (2) that they cannot be recovered as a matter
of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant; (3) the
act must be accompanied by bad faith or done in a wanton, fraudulent,
oppressive or malevolent manner. x x x
Same; Same; Air Transportation; Exemplary damages are in order
because petitioner and Rainbow Tours, through their respective
employees, acted in bad faith by not informing respondents Lao Lim
and Go of the erroneous cancellation of their bookings on the PR300
flight on February 26, 1991. — Since respondent Go is entitled to
temperate damages, then the court may also award exemplary
damages in his favor. Indeed, exemplary damages are in order
because petitioner and Rainbow Tours, through their respective
employees, acted in bad faith by not informing respondents Lao Lim
and Go of the erroneous cancellation of their bookings on the PR300
flight on February 26, 1991. Both the trial and appellate courts are
correct in their interpretation that Ms. Mancao, petitioner’s employee,
and Rainbow Tours’ Ms. Dingal acted in concert in not telling
respondents Lao Lim and Go of the problems regarding their bookings.
Ms. Mancao in effect reinforced and agreed to Ms. Dingal’s decision
not to tell respondents Lao Lim and Go, by telling Ms. Dingal that “if
you tell the passengers, it might just create further problems.”
Same; Attorney’s Fees; Clearly, respondents were forced to obtain
services of counsel to enforce a just claim, for which they should be
awarded attorney’s fees. — Petitioner is also liable for attorney’s fees,
because records show that respondents demanded payment for
damages from petitioner but it was only after respondents filed a case
in court that petitioner offered some form of restitution to
respondents, which the latter found insufficient. Clearly, respondents
were forced to obtain services of counsel to enforce a just claim, for
which they should be awarded attorney’s fees.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Almase, Suarez and Almase-Martinez for respondents Francisco Lao
Lim, Heirs of Henry Go and Manuel Limtong.
Fernando D. Yu for respondent Rainbow Tours & Travel, Inc.
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of
the Rules of Court, praying that the Decision of the Court of Appeals
(CA), dated March 22, 2005, and its Resolution dated July 15, 2005,
denying herein petitioner’s Motion for Reconsideration of the
aforementioned Decision, be reversed and set aside.
The records reveal the CA’s narration of the facts to be accurate, to
wit:
Plaintiffs are Cebu-based businessmen, that is, plaintiff Francisco Lao
Lim is engaged in real estate and trading, Mr. Henry Go in export and
distribution of weighing scales and Mr. Manuel Limtong in the printing
press business. All three plaintiffs decided to venture into business
transactions involving the purchase of weighing scales from one Mrs.
Ng Yuen Ming of Hongkong and printing press equipments from Mrs.
Myrna Irsch of Germany. In line with these ventures, they scheduled
important appointments with the said dealers in Hongkong on 26
February 1991 in order to conclude their agreements and thereafter
sign the necessary contracts.
On 22 February 1991, plaintiff Francisco Lao Lim went to the office of
third-party defendant Rainbow Tours and Travel, Inc. (“Rainbow
Tours”) and purchased three (3) confirmed PAL roundtrip tickets. They
were booked on a Link-Flight PR842 Cebu-Manila on February 25,
1991 (Monday) at 12:05 P.M. and Flight PR300 Manila-Hongkong on
February 26, 199[1] (Tuesday) at 8:00 A.M. The return trip was on
March 1, 199[1] at 11:05 A.M. Hongkong-Manila (Flight PR301) and
Manila-Cebu (Link-Flight PR512) at 2:50 P.M. of the same day.
On February 23, 1991, plaintiff Francisco Lao Lim returned to the office
of Rainbow Tours to inquire on the availability of seats for the PAL
Manila-Hongkong flight on February 26, 1992 at 5:00 p.m. so that
they could reset their Hongkong meetings scheduled on 26 February
1991 to a later time. Francisco Lao Lim was referred to Rainbow Tours
travel agent, Gemma Dingal, who called up PAL Reservations. Upon
being informed of the unavailability of seats for the 5:00 p.m. flight,
Francisco Lao Lim left Rainbow Tours without making any
cancellations of their confirmed bookings that were stated in their
respective tickets.
As scheduled, plaintiffs took the Cebu-Manila Flight No. PR842 on
February 25, 1991. The next day, February 26, 1991, at the check-in
counter at the Ninoy Aquino International Airport (NAIA), plaintiffs
Francisco Lao Lim and Henry Go were informed by PAL’s check-in clerk
that their bookings on Flight PR300 Manila-Hongkong (8:00 a.m.) had
been cancelled and that their names were not on the computer’s
passenger list for the said flight. Plaintiff Manuel Limtong, however,
was able to board the flight. Francisco Lao Lim and Henry Go explained
to the check-in clerk that they were holding confirmed bookings and
that they did not have the same cancelled. They likewise begged and
pleaded that they be allowed to board the said flight but their pleas
fell on deaf ears. At 5:00 p.m. of the same day, plaintiffs Francisco
Lao Lim and Henry Go took Flight No. PR301 leaving Manila to
Hongkong.
Plaintiffs brought this suit for breach of contract of carriage and
damages against PAL alleging that the PAL personnel at the check-in
clerk at NAIA arrogantly shouted at them and humiliated them in front
of the other passengers by labeling their tickets “cheap tickets” thus
entitling them to moral damages in the amount of P350,000.00 each
as such abusive and injurious language had humiliated them,
wounded their feelings and besmirched their reputations. Plaintiffs
further claimed that because of their failure to reach Hongkong in time
for the scheduled business conferences, their contacts did not
anymore wait for them. They claimed that the 26 February 1991
business meeting with Mrs. Ng involving the purchase of weighing
scales at discounted rates should have pushed through since this was
the last day given to the plaintiffs to close the deal otherwise Mrs. Ng
is selling the stocks to other interested buyers. Even though Manuel
Limtong was able to meet with Mrs. Ng, the deal was not finalized
since it was only plaintiff Henry Go who could properly negotiate with
Mrs. Ng as to what kind of scales they should purchase. Plaintiffs
likewise claim that the transaction on the purchase of several German
printing press equipments on consignment was not consummated
because their German contact, Mrs. Irche, insisted on meeting all
three plaintiffs considering that the proposed transaction involved a
huge amount. According to the plaintiffs, Mrs. Ng disposed the stocks
of weighing scales to another buyer whereas Mrs. Irche left Hongkong
without meeting with them despite their efforts to schedule another
meeting with her. Since the business deals that could have earned
them a profit of P3,567,000.00 were not consummated, they should
then be entitled to the said amount. Plaintiffs also seek the payment
of exemplary damages and attorney’s fees.
In its defense, PAL contended that plaintiffs were revenue passengers
who made their travel arrangements with Rainbow Tours. [PAL then
impleaded Rainbow Tours and Travel, Inc. as third-party defendants,
ascribing liability on the latter for whatever damages were suffered by
plaintiff’s Lao Lim and Go.] Based on the Post Date Investigation Print-
out and the testimonies of PAL witnesses Racil Corcuera (PAL
Passenger load analyst at Cebu Mactan Office) and Rosy Mancao
(Sales Representative), PAL contended that the cancellation of
plaintiffs Mr. Lao Lim and Mr. Go’s confirmed bookings for the 8:00
a.m. Manila-Hongkong flight on 26 February 1991 was upon request
of Gemma Dingal (“Gemma”) of Rainbow Tours. PAL alleges that
Gemma called Racil Corcuera (“Racil”) at 10:46 a.m. of 23 February
1991 and instructed Racil to cancel the original confirmed bookings of
plaintiffs Mr. Lao Lim and Mr. Go. While in the process of encoding the
new itinerary, Racil found out that PR310 Manila-Hongkong (5:00 p.m.
flight) on 26 February 1991 was already fully booked. Racil asked
Gemma if she was definite about the new itinerary even if there was
no confirmation of the PR310 flight and that plaintiffs will be put on
the waitlist, to which, Gemma replied that plaintiffs clearly instructed
her that they did not want to stay overnight in Manila and that it was
alright to cancel their original confirmed reservations, put the plaintiffs
on waitlist status for PR310 February 26, 1991 and then book them
for the PR511 (Cebu-Manila) flight at 12:10 p.m. on 26 February 1991
to be connected to PR310 (Manila-Hongkong) flight at 5:00 p.m. on
26 February 1991. As for the Hongkong-Manila trip, Gemma instructed
that plaintiffs be booked on PR301 at 11:05 a.m. on 3 March 1991
with connecting flight to Cebu at 2:50 p.m. of the same day. After
giving all the foregoing instructions, Gemma then requested Racil to
retain plaintiffs’ confirmed booking PR300 (8:00 a.m.) Manila-
Hongkong on 26 February 1991). Records show, however, that Racil
erroneously requested for the reinstatement for the PR 300 flight on
February 25, 1991 instead of February 26, 1991. Three hours later,
Racil made the proper correction by requesting for the reinstatement
of plaintiffs’ booking for PR300 on 26 February 1991. Several requests
for reinstatement were subsequently made but there was no respond
from the flight controller. Eventually, Racil learned from Violy of the
Manila Office that the request was on critical status because of the
overflow of passengers since the PR300 (Manila-Hongkong) flight on
25 February 1991 had been cancelled. Despite several efforts by PAL
employees, viz, Rosy Mancao, Lyndon Maceren (Senior Passenger
Loan Analyst) and Lito Camboanga (Shift Supervisor), plaintiffs’
bookings for the PR300 flight could not be confirmed.
A perusal of the records shows that PAL witness Rosy Mancao testified
that PAL and Rainbow Tours agreed not to tell the plaintiffs that their
confirmed bookings for PR300 on 26 February 1991 had been
erroneously cancelled and that the said flight was on critical status
due to an overbooking of passengers because if they inform the
plaintiffs “it would just create further problems.”
PAL witness Mariano Aldee III who was assigned at the Check-In
Counter disputed plaintiffs’ claims that they were rudely treated by
PAL employees, giving five reasons why passengers must be handled
politely and courteously, to wit: (1) PAL employees underwent 5-week
trainings on proper handling and courteous treatment; (2) airline
employees’ uniform practice of treating passengers politely; (3) PAL’s
corporate policy is “Total Passenger Care”; (4) PAL subjects
employees to administrative sanctions when employees are impolite
and discourteous, and (5) their superiors would make them explain if
employees exhibit any rudeness or discourtesy to passengers. Mr.
Aldee further testified that Flight PR300 on February 26, 1991 was an
Airbus 300 with a capacity of 344 passengers, 24 of these on the
business class while 220 seats for the economy class. Two jump seats
were occupied by non-revenue passengers who were PAL employees
but not on duty on that particular flight. For that said flight, PAL
overbooked for 44 more passengers, that is, 28 for the business class
and 260 for the economy class. Since there were only 22 business
class passengers who showed up, two passengers from the economy
class were “upgraded” to business class. Witness further testified that
no waitlisted passenger was accepted for boarding on that flight.
Rainbow Tours presented Gemma Dingal and Ruby Lim (one of the
owners of Rainbow Tours) as its witnesses, whose testimonies mainly
attributed the erroneous cancellation of Mr. Lao Lim and Mr. Go’s
confirmed bookings for the PR300 Manila-Hongkong flight at 8:00 a.m.
to Racil Corcuera. According to Gemma, she called up PAL merely to
inquiry (sic) as to the availability of seats for the 5:00 p.m. Manila-
Hongkong flight on 26 February 1991. She was taken by surprise when
Racil immediately cancelled the confirmed bookings even if there was
no instruction on her part to do so. Gemma immediately informed
Ruby Lim of the erroneous cancellation and despite all their efforts to
reinstate the original confirmed bookings, the same could not be done.
On 18 June 1996, the court a quo [RTC] rendered a Decision with the
following dispositive portion:
WHEREFORE, judgment is hereby rendered sentencing the defendant
Philippine Airlines and third-party defendant Rainbow Tours and
Travel, Inc. to jointly and severally pay unto the plaintiff Francis Lao
Lim the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00), in
concept of reasonable temperate or moderate damages, and a like or
similar sum to the substituted plaintiff-heirs of the late Henry Go,
likewise by way of reasonable temperate or moderate damages plus
the aggregate sum of TWENTY-FIVE THOUSAND PESOS (P25,000.00)
as and for attorney’s fees.
Costs against defendant Philippine Airlines and third-party defendant
Rainbow Tours and Travel Incorporated.
SO ORDERED.
Aggrieved by the court a quo’s ruling, plaintiffs and PAL interposed
their respective appeals.
On March 22, 2005, the CA promulgated its Decision, holding that
petitioner clearly breached its contract of carriage with Mr. Lao Lim
and Mr. Go. The CA disposed as follows:
WHEREFORE, based on the foregoing premises, the 18 June 1996
Decision of the court a quo is MODIFIED, to wit:
1. Defendant-appellant and third-party plaintiff-appellee Philippine
Airlines and third-party defendant-appellee Rainbow Tours and Travel,
Inc. are jointly and severally liable to pay plaintiffs-appellants
Francisco Lao Lim the sum of PESOS: Fifty Thousand (P50,000.00) in
concept of moral damages and PESOS: Fifty Thousand (P50,000.00)
by way of exemplary damages for breach of contract of carriage;
2. Defendant-appellant and third-party plaintiff-appellee Philippine
Airlines and third-party defendant-appellee Rainbow Tours and Travel
Inc. are jointly and severally liable to pay the substituted heirs of
plaintiff-appellant of the late Henry Go (sic) the sum of PESOS: Fifty
Thousand (P50,000.00) in concept of moral damages and PESOS: Fifty
Thousand (P50,000.00) by way of exemplary damages for breach of
contract of carriage;
3. Defendant-appellant and third-party plaintiff-appellee Philippine
Airlines and third-party defendant-appellee Rainbow Tours and Travel
Inc. are jointly and severally liable to pay each of the plaintiffs-
appellants the sum of PESOS: One Hundred Thousand (P100,000.00)
by way of temperate or moderate damages;
4. Defendant-appellant and third-party plaintiff-appellee Philippine
Airlines and third-party defendant-appellee Rainbow Tours and Travel
Inc. are jointly and severally liable to pay the aggregate sum of
PESOS: Sixty Thousand (P60,000.00) as and for attorney’s fees;
5. Defendant-appellant and third-party plaintiff-appellee Philippine
Airlines’ claim for contribution, indemnity, subrogation and other
reliefs from third-party defendant-appellee Rainbow Tours and Travel
Inc. is DENIED for lack of merit;
6. Costs against defendant-appellant and third-party plaintiff-
appellee Philippine Airlines and third-party defendant-appellee
Rainbow Tours and Travel Incorporated.
SO ORDERED.
Petitioner’s motion for reconsideration of the CA Decision was denied
per Resolution dated July 15, 2005.
Hence, this petition before the Court, with petitioner alleging that:
I
THE MARCH 22, 2005 DECISION AND JULY 15, 2005 RESOLUTION OF
THE COURT OF APPEALS DID NOT RESOLVE THE PETITIONER’S
NOVEMBER 3, 1998 MOTION TO SUSPEND PROCEEDINGS ON THE
GROUND OF THE LATTER’S REHABILITATION RECEIVERSHIP.
II
RESPONDENTS FRANCISCO LAO LIM AND THE LATE HENRY GO
WERE NOT HOLDING CONFIRMED BOOKINGS OR RESERVATION ON
PAL’S PR300 (MANILA-HONGKONG) ON FEBRUARY 26, 1991 SINCE
THE SAME WAS CANCELLED PURSUANT TO THE CATEGORICAL
INSTRUCTION OF [GEMMA] DINGAL OF RESPONDENT RAINBOW
TOURS.
III
THE LATE RESPONDENT HENRY GO OR HIS HEIRS DID NOT TESTIFY
IN COURT. HENCE, HE IS NOT ENTITLED TO THE AWARDS OF
P50,000 AS MORAL DAMAGES AND P50,000 AS EXEMPLARY
DAMAGES AND ATTORNEY’S FEES.
IV
RESPONDENT MANUEL LIMTONG IS NOT ENTITLED TO P100,000 AS
TEMPERATE OR MODERATE DAMAGES AND ATTORNEY’S FEES
BECAUSE HE BOARDED, SANS ANY PROBLEM, PR 300/MANILA-
HONG-KONG/FEBRUARY 26, 1991 WHICH WAS THE FLIGHT AND
DATE ON WHICH HE HELD A CONFIRMED BOOKING.
V
THE AWARD OF TEMPERATE OR MODERATE DAMAGES OF P100,000
TO EACH OF THE OTHER INDIVIDUALS IS BEREFT OF FACTUAL AND
LEGAL SUPPORT.
VI
RESPONDENT RAINBOW TOURS AND TRAVEL, INC. SHOULD BE
MADE LIABLE TO THE INDIVIDUAL RESPONDENTS AND PETITIONER
SHOULD BE ABSOLVED OF ANY LIABILITY.
The petition deserves some consideration.
First, the issue of whether proceedings should be suspended on the
ground that petitioner is under rehabilitation receivership, is now moot
and academic. Petitioner is no longer under such status effective
September 28, 2007, pursuant to the Order dated September 28, 2007
issued by the Securities and Exchange Commission. Therefore, this
can no longer be an obstacle to legal proceedings against petitioner.
Going into the merits of the case, it is best to set it against the
backdrop of the basic tenet that “in an action based on a breach of
contract of carriage, the aggrieved party does not have to prove that
the common carrier was at fault or was negligent. All that he has to
prove is the existence of the contract and the fact of its non-
performance by the carrier.”
Petitioner then questions first, whether respondents Francisco Lao Lim
and the late Henry Go had confirmed bookings on petitioner’s flight
PR300 (Manila-Hongkong) on February 26, 1991. Petitioner insists
that respondents’ Lao Lim’s and Go’s bookings were cancelled because
of the instructions of Ms. Dingal of the travel agency Rainbow Tours,
with whom respondents were transacting. Petitioner points out
supposed inconsistencies in the testimony, affidavits and other
documents of Ms. Dingal, arguing that her testimony, i.e., that the
erroneous cancellation of respondents’ Lao Lim’s and Go’s bookings
were done by PAL’s employee, Racil, without any instruction from her
or respondent Lao Lim, should not be given credence as she appears
to be a “coached” witness.
A close examination of the supposed inconsistencies, however, reveals
that the same are too inconsequential to give any serious
consideration. Moreover, petitioner presented this matter regarding
the alleged inconsistencies in the statements of witnesses before the
trial court, and yet said court still found the witness and her
testimony—that there was no instruction given to cancel respondents’
bookings for the PR300 flight on February 26, 1991—to be worthy of
belief. The Court again emphasizes that “findings of the trial court on
the matter of credibility of witnesses are entitled to the highest degree
of respect and will not be disturbed on appeal,” because said lower
court had the opportunity to observe, firsthand, how the witnesses
testified. The trial court ruled that respondents’ Lao Lim and Henry Go
were indeed holding confirmed tickets for PR300 on February 26,
1991, as they did not have their bookings cancelled. Such factual
finding was upheld by the appellate court. Petitioner should bear in
mind that findings of fact of the trial court, when affirmed by the CA,
are binding and conclusive on this Court, as it is not a trier of facts.
Although there are accepted exceptions to this general rule, this case
does not fall under any such exceptions. Thus, the findings of the
lower courts that respondents Francisco Lao Lim and Henry Go were
holding confirmed plane tickets and yet were not transported by
petitioner, are binding on this Court. Having proven the existence of a
contract of carriage between respondents’ Lao Lim and Go, and the
fact of non-performance by petitioner of its obligation as a common
carrier, it is clear that petitioner breached its contract of carriage with
respondents’ Lao Lim and Go.
The next question posed by petitioner is, are the appellate court’s
awards for damages in favor of respondents proper? The Court finds
some of petitioner’s arguments meritorious.
Petitioner assails the award of P50,000.00 as moral damages granted
to the heirs of Henry Go despite the fact that neither Henry Go nor
any of his heirs testified on matters that could be the basis for such
monetary award. In Philippine Savings Bank vs. Manalac, Jr., the Court
ruled, thus:
x x x [T]he award of moral damages must be anchored on a clear
showing that [the complainant] actually experienced mental anguish,
besmirched reputation, sleepless nights, wounded feelings or similar
injury. There was no better witness to this experience than
[complainant] himself. Since [complainant] failed to testify on the
witness stand, the trial court did not have any factual basis to award
moral damages to him. x x x Mere allegations do not suffice; they
must be substantiated by clear and convincing proof. (Emphasis
supplied)
Indeed, in this case, since respondent Henry Go was not able to
testify, there is then no evidence on record to prove that he suffered
mental anguish, besmirched reputation, sleepless nights, wounded
feelings or similar injury by reason of petitioner’s conduct. Thus, on
the award of moral damages in favor of deceased respondent Go,
substituted by his heirs, the Court finds the same improper as it lacks
the required factual basis.
However, there was no error committed by the lower courts with
regard to the award of temperate or moderate damages of
P100,000.00 to respondents’ Lao Lim and Go. The New Civil Code
provides:
Art. 2224. Temperate or moderate damages, which are more than
nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but
its amount cannot, from the nature of the case, be proved, with
certainty.
Here, the trial and appellate courts also made the factual findings that
the purpose for respondents’ Lao Lim’s, Henry Go’s, and Manuel
Limtong’s trip to Hongkong was to conduct business negotiations, but
respondents Lao Lim and Henry Go were not able to meet their
counterparts as they were not allowed to board the PR300 flight on
February 26, 1991. As discussed earlier, said factual finding is deemed
conclusive and the circumstances appearing on record convinced this
Court that respondents Lao Lim and Henry Go suffered some
pecuniary loss due to their failure to meet with their business
associates. Understandably, it is difficult, if not impossible, to adduce
solid proof of the losses suffered by respondents due to their failure
to make it to their business meetings. Certainly, respondents’ time and
effort were wasted when they left their businesses in Cebu, all for
naught, as the business negotiations they were supposed to conduct
in Hongkong did not push through. One cannot discount the fact that
business opportunities were lost. Thus, it is only just that respondents’
Lao Lim and Henry Go be awarded temperate or moderate damages.
As to the award of exemplary damages in favor of respondent Go,
Gatmaitan vs. Gonzales, is instructive, to wit:
x x x Article 2229 of the Civil Code provides that exemplary or
corrective damages are imposed in addition to the moral, temperate,
liquidated or compensatory damages. Exemplary damages are not
recoverable as a matter of right. The requirements of an award of
exemplary damages are: (1) they may be imposed by way of example
in addition to compensatory damages, and only after the claimant’s
right to them has been established; (2) that they cannot be recovered
as a matter of right, their determination depending upon the amount
of compensatory damages that may be awarded to the claimant; (3)
the act must be accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner. x x x (Emphasis
supplied)
Since respondent Go is entitled to temperate damages, then the court
may also award exemplary damages in his favor. Indeed, exemplary
damages are in order because petitioner and Rainbow Tours, through
their respective employees, acted in bad faith by not informing
respondents Lao Lim and Go of the erroneous cancellation of their
bookings on the PR300 flight on February 26, 1991. Both the trial and
appellate courts are correct in their interpretation that Ms. Mancao,
petitioner’s employee, and Rainbow Tours’ Ms. Dingal acted in concert
in not telling respondents Lao Lim and Go of the problems regarding
their bookings. Ms. Mancao in effect reinforced and agreed to Ms.
Dingal’s decision not to tell respondents Lao Lim and Go, by telling Ms.
Dingal that “if you tell the passengers, it might just create further
problems.”
However, the Court agrees with petitioner that respondent Manuel
Limtong is not entitled to any award for damages because, as to said
respondent, petitioner faithfully complied with their contract of
carriage. Respondent Limtong was able to board PR300 on February
26, 1991, as stated in his confirmed plane ticket. The contract of
carriage does not carry with it an assurance that he will be travelling
on the same flight with his chosen companions. Even if petitioner
failed to transport respondents’ Lao Lim and Go on the same flight as
respondent Limtong, there is absolutely no breach of the contract of
carriage between the latter and petitioner. Hence, petitioner should
not be made liable for any damages in favor of respondent Limtong.
Petitioner is also liable for attorney’s fees, because records show that
respondents demanded payment for damages from petitioner but it
was only after respondents filed a case in court that petitioner offered
some form of restitution to respondents, which the latter found
insufficient. Clearly, respondents were forced to obtain services of
counsel to enforce a just claim, for which they should be awarded
attorney’s fees.
Lastly, the Court finds petitioner’s claim that only herein respondent,
(third-party defendant before the trial court) Rainbow Tours and
Travel, Inc., should be made liable to respondents Lao Lim and Go, to
be untenable. They have acted together in creating the confusion
leading to the erroneous cancellation of aforementioned respondents’
confirmed bookings and the failure to inform respondents of such fact.
As such, they have become joint tortfeasors, and in Loadmasters
Customs Services, Inc. vs. Glodel Brokerage Corporation, the Court
elucidated thus:
x x x Where there are several causes for the resulting damages, a SO ORDERED.
party is not relieved from liability, even partially. It is sufficient that
the negligence of a party is an efficient cause without which the Velasco, Jr. (Chairperson), Leonardo-De Castro, Abad and Mendoza,
damage would not have resulted. It is no defense to one of the JJ., concur.
concurrent tortfeasors that the damage would not have resulted from Judgment modified.
his negligence alone, without the negligence or wrongful acts of the
other concurrent tortfeasor. As stated in the case of Far Eastern Notes. — The amount of Php 30,000 as exemplary damages should
Shipping v. Court of Appeals, be awarded, as per current jurisprudence. (People vs. De Jesus, 640
SCRA 660 [2011])
x x x. Where several causes producing an injury are concurrent and
each is an efficient cause without which the injury would not have An airline company is not completely exonerated from any liability for
happened, the injury may be attributed to all or any of the causes and the tort committed by its agent’s employees. (Viloria vs. Continental
recovery may be had against any or all of the responsible persons Airlines, Inc., 663 SCRA 57 [2012])
although under the circumstances of the case, it may appear that one
of them was more culpable, and that the duty owed by them to the ——o0o——
injured person was not the same. No actor’s negligence ceases to be
a proximate cause merely because it does not exceed the negligence
of other actors. Each wrongdoer is responsible for the entire result
and is liable as though his acts were the sole cause of the injury.

There is no contribution between joint tortfeasors whose liability is

solidary since both of them are liable for the total damage. Where the
concurrent or successive negligent acts or omissions of two or more
persons, although acting independently, are in combination the direct
and proximate cause of a single injury to a third person, it is impossible
to determine in what proportion each contributed to the injury and
either of them is responsible for the whole injury. Where their
concurring negligence resulted in injury or damage to a third party,
they become joint tortfeasors and are solidarily liable for the resulting
damage under Article 2194 of the Civil Code. [Emphasis supplied]

Thus, petitioner and Rainbow Tours and Travel, Inc. are jointly and
solidarily liable for damages awarded to respondents Lao Lim and Go.

IN VIEW OF THE FOREGOING, the Decision of the Court of Appeals,

dated March 22, 2005, is hereby MODIFIED by DELETING the award
for moral damages in favor of the substituted heirs of the late Henry
Go, and DELETING the award of temperate or moderate damages in
favor of respondent Manuel Limtong.
FERNANDO LOPEZ, ET AL., plaintiffs and appellants, vs. PAN
AMERICAN WORLD AIRWAYS, defendant and appellant
No. L-22415. March 30, 1966
Carriers; Breach of contract to provide first class accommodations;
Case at bar. — Plaintiffs made first class reservations with defendant
in its Tokyo-San Francisco flight. The reservations having been
confirmed, first class tickets were subsequently issued in favor of
plaintiffs. Through mistake, however, defendant’s agents cancelled
the said reservations. Expecting that some cancellations of bookings
would be made before the flight time, the reservations supervisor
decided to withhold from plaintiffs the information that their
reservations had been cancelled. Upon arrival in Tokyo, defendant
informed plaintiffs that there was no accommodation for them in the
first class stating that they could not go unless they take the tourist
class. Due to pressing engagements in the United States, plaintiffs
were constrained to take the flight as tourist passengers, but they did
so under protest. Query: Whether defendant acted in bad faith in the
breach of its contract with plaintiffs. Held: In so misleading plaintiffs
into purchasing first class tickets in the conviction that they had
confirmed reservations for the same, when in fact they had none,
defendant wilfully and knowingly placed itself into the position of
having to breach its aforesaid contracts with plaintiffs should there be
no last-minute cancellation by other passengers before flight time, as
it turned out in this case. Such actuation of defendant may indeed
have been promoted by nothing more than the promotion of its self-
interest in holding on to plaintiffs as passengers in its flight and
foreclosing their chances to seek the services of other airlines that
may have been able to afford them first class accommodations. All the
same, in legal contemplation, such conduct already amounts to action
in bad faith.
Same; Meaning of bad faith. — Bad faith means a breach of a known
duty through some motive of interest or ill-will. Selfenrichment or
fraternal interest, and not personal ill-will, may have been the motive,
but it is malice nevertheless.
Same; Moral damages and exemplary are recoverable for breach of
contract of carriage in bad faith. — As a proximate result of
defendant’s breach in bad faith of its contracts with plaintiffs, the latter
suffered social humiliation, wounded feelings, serious anxiety and
mental anguish. For plaintiffs were travelling with first class tickets
issued by defendant and yet they were given only the tourist class. At
stopovers, they were expected to be among the first-class passengers
by those awaiting to welcome them, only to be found among the
tourist passengers. It may not be humiliating to travel as tourist
passengers; it is humiliating to be compelled to travel as such,
contrary to what is rightfully to be expected from the contractual
undertaking.
The rationale behind exemplary or corrective damages is, as the name
implies, to provide an example or correction for public good.
Defendant having breached its contracts in bad faith, the court may
award exemplary damages in addition to moral damages (Articles
2229, 2232, New Civil Code). In view of its nature, it should be
imposed in such amount as to sufficiently and effectively deter similar
breach of contracts in the future by defendant or other airlines.
Same; Attorney’s fees; When written contract for attorney’s fees
controls the amount to be paid therefor is a case of breach of contract
of carriage. — A written contract for attorney’s services shall control
the amount to be paid therefor unless found by the court to be
unconscionable or unreasonable. A consideration of the subject matter
of the present controversy, of the professional standing of the attorney
for plaintiffs-appellants, and of the extent of the services rendered by
him, shows that the amount provided for in the written agreement is
reasonable.
Same; Factors considered in fixing damages. — In the case at bar the
damages were determined by considering the official, political, social
and financial standing of the offended parties on one hand and the
business and financial position of the offender on the other
(Dominding vs. Ng, 55 O.G. 10).
APPEAL from a decision of the Court of First Instance of Rizal.
The facts are stated in the opinion of the Court.
Ross, Selph & Carrascoso for the defendant and appellant.
 Vicente J. Francisco for the plaintiffs and appellants.
BENGZON, J.P., J.:
Plaintiffs and defendant appeal from a decision of the Court of First
Instance of Rizal. Since the value in controversy exceeds P200,000 the
appeals were taken directly to this Court upon all questions involved
(Sec. 17, par. 3[5], Judiciary Act).
Stated briefly the facts not in dispute are as follows: Reservations for
first class accommodations in Flight No. 2 of Pan American World
Airways—hereinafter otherwise called PAN-AM—from Tokyo to San
Francisco on May 24, 1960 were made with PAN-AM on March 29,
1960, by “Your Travel Guide” agency, specifically, by Delfin Faustino,
for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-
law Alfredo Montelibano, Jr., and his daughter, Mrs. Alfredo
Montelibano, ‘Jr., (Milagros Lopez Montelibano). PAN-AM’s San
Francisco head office confirmed the reservations on March 31, 1960.
First class tickets for the abovementioned flight were subsequently
issued by PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez
and his party. The total fare of P9,444 for all of them was fully paid
before the tickets were issued.
As scheduled Senator Lopez and party left Manila by Northwest
Airlines on May 24, 1960, arriving in Tokyo at 5:30 P.M. of that day.
As soon as they arrived Senator Lopez requested Minister Busuego of
the Philippine Embassy to contact PAN-AM’s Tokyo office regarding
their first-class accommodations for that evening’s flight. For the given
reason that the first-class seats therein were all booked up, however,
PAN-AM’s Tokyo office informed Minister Busuego that PAN-AM could
not accommodate Senator Lopez and party in that trip as first class
passengers. Senator Lopez thereupon gave their first-class tickets to
Minister Busuego for him to show the same to PAN-AM’s Tokyo office,
but the latter firmly reiterated that there was no accommodation for
them in the first class, stating that they could not go in that flight
unless they took the tourist class therein.
Due to pressing engagements awaiting Senator Lopez and his wife, in
the United States—he had to attend a business conference in San
Francisco the next day and she had to undergo a medical check-up in
Mayo Clinic, Rochester, Minnesota, on May 28, 1960 and needed three
days rest before that in San Francisco—Senator Lopez and party were
constrained to take PAN-AM’s flight from Tokyo to San Francisco as
tourist passengers. Senator Lopez however made it clear, as indicated
in his letter to PAN-AM’s Tokyo office on that date (Exh. A), that they
did so “under protest” and without prejudice to further action against
the airline.
Suit for damages was thereafter filed by Senator Lopez and party
against PAN-AM on June 2, 1960 in the Court of First Instance of Rizal.
Alleging breach of contracts in bad faith by defendant, plaintiffs asked
for P500,000 actual and moral damages, P100,000 exemplary
damages, P25,000 attorney’s fees plus costs. PAN-AM filed its answer
on June 22, 1960, asserting that its failure to provide first class
accommodations to plaintiffs was due to honest error of its employees.
It also interposed a counterclaim for attorney’s fees of P25,000.
Subsequently, further pleadings were filed, thus: plaintiffs’ answer to
the counterclaim, on July 25, 1960; plaintiffs’ reply attached to motion
for its admittance, on December 2, 1961; defendant’s supplemental
answer, on March 8, 1962; plaintiffs’ reply to supplemental answer,
on March 10, 1962; and defendant’s amended supplemental answer,
on July 10, 1962.
After trial—which took twenty-two (22) days ranging from November
25, 1960 to January 5, 1963—the Court of First Instance rendered its
decision on November 13, 1963, the dispositive portion stating:
“In view of the foregoing considerations, judgment is hereby rendered
in favor of the plaintiffs and against the defendant, which is
accordingly ordered to pay the plaintiffs the following: (a) P100,000
00 as moral damages; (b) P20,000.00 as exemplary damages; (c)
P25,000.00 as attorney’s fees, and the costs of this action.
“So ordered.”
Plaintiffs, however, on November 21, 1963, moved for reconsideration
of said judgment, asking that moral damages be increased to
P400,000 and that six per cent (6%) interest per annum on the
amount of the award be granted. And defendant opposed the same.
Acting thereon the trial court issued an order on December 14, 1963,
reconsidering the dispositive part of its decision to read as follows:
“In view of the foregoing considerations, judgment is hereby rendered
in favor of the plaintiffs and against the defendant, which is
accordingly ordered to pay the plaintiffs the following: (a)
P150,000.00 as moral damages; (b) P25,000.00 as exemplary
damages; with legal interest on both from the date of the filing of the
complaint until paid; and (c) P25,000.00 as attorney’s fees; and the
costs of this action.
“So ordered.”
It is from said judgment, as thus reconsidered, that both parties have
appealed.
Defendant, as stated, has from the start admitted that it breached its
contracts with plaintiffs to provide them with first class
accommodations in its Tokyo-San Francisco flight of May 24, 1960. In
its appeal, however, it takes issue with the finding of the court a quo
that it acted in bad faith in the branch of said contracts. Plaintiffs, on
the other hand, raise questions on the amount of damages awarded
in their favor, seeking that the same be increased to a total of
P650,000.
Anent the issue of bad faith the records show the respective
contentions of the parties as follows.
According to plaintiffs, defendant acted in bad faith because it
deliberately refused to comply with its contract to provide first class
accommodations to plaintiffs, out of racial prejudice against Orientals.
And in support of its contention that what was done to plaintiffs is an
oft-repeated practice of defendant, evidence was adduced relating to
two previous instances of alleged racial discrimination by defendant
against Filipinos in favor of “white” passengers. Said previous
occasions are what allegedly happened to (1) Benito Jalbuena and (2)
Cenon S. Cer-vantes and his wife.
And from plaintiffs’ evidence this is what allegedly happened; Jalbuena
bought a first class ticket from PANAM on April 13, 1960; he confirmed
it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20, 1960;
PANAM similarly confirmed it on April 20, 1960. At the airport he and
another Oriental—Mr. Tung—were asked to step aside while other
passengers—including “white” passengers—boarded PAN-AM’s plane.
Then PAN-AM officials told them that one of them had to stay behind.
Since Mr. Tung was going all the way to London, Jalbuena was chosen
to be left behind. PAN-AM’s officials could only explain by saying there
was “some mistake”. Jalbuena thereafter wrote PAN-AM to protest the
incident (Exh. B).
As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-
AM on September 29, 1958 from Bangkok to Hongkong, he and his
wife had to take tourist class, although they had first class tickets,
which they had previously confirmed, because their seats in first class
were given to “passengers from London.”
Against the foregoing, however, defendant’s evidence would seek to
establish its theory of honest mistake, thus:
The first-class reservations of Senator Lopez and party were made on
March 29, 1960 together with those of four members of the Rufino
family, for a total of eight (8) seats, as shown in their joint reservation
card (Exh. 1). Subsequently, on March 30, 1960, two other Rufinos
secured reservations and were given a separate reservation card (Exh.
2). A new reservation card consisting of two pages (Exhs. 3 and 4)
was then made for the original of eight passengers, namely, Senator
Lopez and party and four members of the Rufino family, the first page
(Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1 Rufino and the
second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 “Your
Travel Guide” agency cancelled the reservations of the Rufinos. A telex
message was thereupon sent on that date to PAN-AM’s head office at
San Francisco by Mariano Herranz, PAN-AM’s reservations employee
at its office in Escolta, Manila. (Annex A-Acker’s to Exh. 6.) In said
message, however, Herranz mistakenly cancelled all the seats that had
been reserved, that is, including those of Senator Lopez and party.
The next day—April 1960—Herranz discovered his mistake, upon
seeing the reservation card newly prepared by his co-employee Pedro
Asensi for Sen. Lopez and party to the exclusion of the Rufinos (Exh.
5). It was then that Herranz sent another telex wire to the San
Francisco head office, stating his error and asking for the
reinstatement of the four (4) first class seats reserved for Senator
Lopez and party (Annex A-Velasco’s to Exh. 6). San Francisco head
office replied on April 22, 1960 that Senator Lopez and party are
waitlisted and that said office is unable to reinstate them (Annex B-
Velasco’s to Exh. 6).
Since the flight involved was still more than a month away and
confident that reinstatement would be made, Herranz forgot the
matter and told no one about it except his co-employee, either
Armando Davila or Pedro Asensi or both of them (Tsn., 123-124, 127,
Nov. 17, 1961).
Subsequently, on April 27, 1960, Armando Davila, PANAM’s
reservations employee working in the same Escolta office as Herranz,
phoned PAN-AM’s ticket sellers at its other office in the Manila Hotel,
and confirmed the reservations of Senator Lopez and party.
PAN-AM’s reservations supervisor Alberto Jose, discovered Herranz’s
mistake after “Your Travel Guide” phone on May 18, 1960 to state that
Senator Lopez and party were, going to depart as scheduled.
Accordingly, Jose sent a telex wire on that date to PAN-AM’s head
office at San Francisco to report the error and asked said office to
continue holding the reservations of Senator Lopez and party (Annex
B-Acker’s to Exh. 6). Said message was reiterated by Jose in his telex
wire of May 19, 1960 (Annex C-Acker’s to Exh. 6). San Francisco head
office replied on May 19, 1960 that it regrets being unable to confirm
Senator Lopez and party for the reason that the flight was solidly
booked (Exh. 7). Jose sent a third telex wire on May 20, 1960
addressed to PAN-AM’s offices at San Francisco, New York (Idlewild
Airport), Tokyo and Hongkong, asking all-out assistance towards
restoring the cancelled spaces and for report of cancellations at their
end (Annex D-Acker’s to Exh. 6). San Francisco head office reiterated
on May 20, 1960 that it could not reinstate the spaces and referred
Jose to the Tokyo and Hongkong offices (Exh. 8). Also on May 20, the
Tokyo office of PAN-AM wired Jose stating it will do everything possible
(Exh. 9).
Expecting that some cancellations of bookings would be made before
the flight time, Jose decided to withhold from Senator Lopez and
party, or their agent, the information that their reservations had been
cancelled.
Armando Davila having previously confirmed Senator Lopez and
party’s first class reservations to PAN-AM’s ticket sellers at its Manila
Hotel office, the latter sold and issued in their favor the corresponding
first class tickets on the 21st and 23rd of May, 1960.
From the foregoing evidence of defendant it is in effect admitted that
defendant—through its agents—first cancelled plaintiffs’ reservations
by mistake and thereafter deliberately and intentionally withheld from
plaintiffs or their travel agent the fact of said cancellation, in fact they
had none, defendant wilfully and knowingly placed itself into the
position of having to breach its aforesaid contracts with plaintiffs
should there be no lastminute cancellation by other passengers before
flight time, as it turned out in this case. Such actuation of defendant
may indeed have been prompted by nothing more than the promotion
of its self-interest in holding on to Senator Lopez and party as
passengers in its flight and foreclosing on their chances to seek the
services of other airlines that may have been able to afford them first
class accommodations. All the time, in legal contemplation such
conduct already amounts to action m bad faith. For bad faith means
a bleach of a known duty through some motive of interest or ill-will
(Spiegel vs. Beacon Participations, 8 NE 2d 895, 907). As stated in
Kamm v. Flink. 113 N J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: “Self-
enrichment or fraternal interest, and not personal ill-will, may well
have been the motive; but it is malice nevertheless.”
As of May 18, 1960 defendant’s reservations supervisor Alberto Jose
knew that plaintiffs’ reservations had been cancelled As of May 20 he
knew that the San Francisco head office stated with finality that it
could not reinstate plaintiffs’ cancelled reservations And yet said
reservations supervisor made the “decision”—to use his own word—
to withhold the information from the plaintiffs Said Alberto Jose in his
testimony:
“Q: Why did you not notify them?
“A: Well, you see, sir, in my fifteen (15) years of service with the
airlines business my experience is that even if the flights are solidly
booked months in advance, usually the flight departs with plenty of
empty seats both on the first class and tourist class. This is due to late
cancellation of passengers, or because passengers do not show up in
the airport, and it was our hope others come in from another flight
and, therefore, are delayed and, therefore, missed their connections.
This experience of mine, coupled with that wire from Tokyo that they
would do everything possible prompted me to withhold the
information, but unfortunately, instead of the first-class seat that I
was hoping for and which I anticipated only the tourists class was
open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano
were accommodated. Well, I fully realize now the gravity of my
decision in not advising Senator and Mrs. Lopez, Mr. and Mrs.
Montelibano nor their agents about the erroneous cancellation and for
which II would like them to know that I am very sorry.
x x x x x wire to San Francisco head office on April 19, 1960 stating his error
“Q: So it was not your duty to notify Sen. Lopez and parties that their
reservations had been cancelled since May 18, 1960?
“A: As I said before it was my duty. It was my duty but as I said again
with respect to that duty I have the power to make a decision or use
my discretion and judgment whether I should go ahead and tell the
passenger about the cancellation.” (Tsn., pp. 17-19, 28-29, March 15,
1962.)
At the time plaintiffs bought their tickets, defendant, therefore, in
breach of its known duty, made plaintiffs believe that their reservation
had not been cancelled. An additional indication of this is the fact that
upon the face of the two tickets of record, namely, the ticket issued
to Alfredo Montelibano, Jr. on May 21, 1960 (Exh. 22) and that issued
to Mrs. Alfredo Monteliba-no, Jr., on May 23, 1960 (Exh. 23), the
reservation status is stated as “OK”. Such willful-non-disclosure of the
cancellation or pretense that the reservations for plaintiffs stood—and
not simply the erroneous cancellation itself—is the factor to which is
attributable the breach of the resulting contracts. And, as above-
stated, in this respect defendant clearly acted in bad faith.
As if to further emphasize its bad faith on the matter, defendant
subsequently promoted the employee who cancelled plaintiffs’
reservations and told them nothing about it. The record shows that
said employee—Mariano Herranz—was not subjected to investigation
and suspension by defendant but instead was given a reward in the
form of an increase of salary in June of the following year (Tsn., 86-
88, Nov. 20, 1961).
At any rate, granting all the mistakes advanced by the defendant,
there would at least be negligence so gross and reckless as to amount
to malice or bad faith (Fores vs. Miranda, L-12163, March 4, 1959;
Necesito v. Paras, L-10605-06, June 30, 1958). Firstly,
notwithstanding the entries m the reservation cards (Exhs. 1 & 3) that
the reservations cancelled are those of the Rufinos only, Heri-anz
made the mistake, after reading said entries, of sending a wire
cancelling all the reservations, including those of Senator Lopez and
party (Tsn., pp. 108-109, Nov. 17, 1961). Secondly, after sending a
and asking for reinstatement, Herranz simply forgot about the matter.
Notwithstanding the reply of San Francisco head Office on April 22,
1960 that it cannot reinstate Senator Lopez and party (Annex B-
Velasco’s to Exh. 6), it was assumed and taken for granted that
reinstatement would be made. Thirdly, Armando Davila confirmed
plaintiff’s reservations in a phone call on April 27, 1960 to defendant’s
ticket sellers, when at the time it appeared in plaintiffs’ reservation
card (Exh. 5) that they were only waitlisted passengers. Fourthly,
defendant’s ticket sellers issued plaintiffs’ tickets on May 21 and 23,
1960, without first checking their reservations just before issuing said
tickets. And, finally, no one among defendant’s agents notified
Senator Lopez and party that their reservations had been cancelled, a
precaution that could have averted their entering with defendant into
contracts that the latter had already placed beyond its power to
perform.
Accordingly, there being a clear admission in defendant’s evidence of
facts amounting to a bad faith on its part in regard to the breach of
its contracts with plaintiffs, it becomes unnecessary to further discuss
the evidence adduced by plaintiffs to establish defendant’s bad faith.
For what is admitted in the course of the trial does not need to be
proved (Sec. 2, Rule 129, Rules of Court).
Addressing ourselves now to the question of damages, it is well to
state at the outset those rules and principles. First, moral damages
are recoverable in breach of contracts where the defendant acted
fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in
addition to moral damages, exemplary or corrective damages may be
imposed by way of example or correction for the public good, in
breach of contract where the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner (Articles 2229, 2232, New
Civil Code). And, third, a written contract for an attorney’s services
shall control the amount to be paid therefor unless found by the court
to be unconscionable or unreasonable (Sec. 24, Rule 138, Rules of
Court).
First, then, as to moral damages. As a proximate result of defendant’s
breach in bad faith of its contracts with plaintiffs, the latter suffered
social humiliation, wounded feelings, serious anxiety and mental
anguish. For plaintiffs were travelling with first class tickets issued by
defendant and yet they were given only the tourist class. At stop-overs
they were expected to be among the firstclass passengers by those
awaiting to welcome them, only to be found among the tourist
passengers. It may not be humiliating to travel as tourist passengers.;
it is humiliating to be compelled to travel as such, contrary to what is
rightfully to be expected from the contractual undertaking.
Senator Lopez was then Senate President Pro Tempore. International
carriers like defendant know the prestige of such an office. For the
Senate is not only the Upper Chamber of the Philippine Congress, but
the nation’s treaty-ratifying body. It may also be mentioned that in his
aforesaid office Senator Lopez was in a position to preside in
impeachment cases should the Senate sit as Impeachment Tribunal.
And he was former Vice-President of the Philippines. Senator Lopez
was going to the United States to attend a private business conference
of the Binalbagan-Isabela Sugar Company; but his aforesaid rank and
position were by no means left behind, and in fact he had a second
engagement awaiting him in the United States: a banquet tendered
by Filipino friends in his honor as Senate President Pro Tempore (Tsn.,
pp. 14-15, NOV. 25, 1960). For the moral damages sustained by him,
therefore, an award of P100,000.00 is appropriate.
Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and
therefore his humiliation. In addition she suffered physical discomfort
during the 13-hour trip (5 hours from Tokyo to Honolulu and 8 hours
from Honolulu to San Francisco). Although Senator Lopez stated that
“she was quite well” (Tsn., p. 22, Nov. 25, 1960)—he obviously meant
relatively well, since the rest of his statement is that two months
before, she was attacked by severe flu and lost 10 pounds of weight
and that she was advised by Dr. Sison to go to the United States as
soon as possible for medical check-up and relaxation (Ibid). In fact,
Senator Lopez stated, as shown a few pages after in the transcript of
his testimony, that Mrs. Lopez was sick when she left the Philippines:
“A: Well, my wife really felt very bad during the entire trip from Tokyo
to San Francisco. In the first place, she was sick when we left the
Philippines, and then with that discomfort which she [experienced] or
suffered during that evening, it was her worst experience. I myself,
who was not sick, could not sleep because of the discomfort.” (Tsn.,
pp. 27-28, Nov. 25, 1960).
It is not hard to see that in her condition then a physical discomfort
sustained for thirteen hours may well be considered a physical
suffering. And even without regard to the noise and trepidation inside
the plane—which defendant contends, upon the strength of expert
testimony, to be practically the same in first class and tourist class—
the fact that the seating spaces in the tourist class are quite narrower
than in first class, there being six seats to a row in the former as
against four to a row in the latter, and that in tourist class there is
very little space for reclining in view of the closer distance between
rows (Tsn.r p. 24, Nov. 25, 1960), will suffice to show that the
aforesaid passenger indeed experienced physical suffering during the
trip. Added to this, of course, was the painful thought that she was
deprived by defendant—after having- paid for and expected the
same—of the most suitable place for her, the first class, where
evidently the best of everything would have been given her, the best
seat, service, food and treatment. Such difference in comfort between
first class and tourist class is too obvious to be recounted, is in fact
the reason for the former’s existence, and is recognized by the airline
in charging a higher fare for it and by the passengers in paying said
higher rate Accordingly, considering the totality of her suffering and
humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral
damages will be reasonable.
Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate
members of the family of Senator Lopez. They formed part of the
Senator’s party as shown also by the reservation cards of PAN-AM. As
such they likewise shared his prestige and humiliation. Although
defendant contends that a few weeks before the flight they had asked
their reservations to be charged from first class to tourist class—which
did not materialize due to alleged full booking in the tourist class—the
same does not mean they suffered no shared in having to take tourist
class during the flight. For by that time they had already been made
to pay for first class seats and therefore to expect first class
accommodations. As stated, it is one thing to take the tourist class by
free choice; a far different thing to be compelled to take it
notwithstanding having paid for first class seats. Plaintiffs-appellants
now ask P37,500.00 each for the two but we note that in their motion
for reconsideration filed in the court a quo, they were satisfied with
P25,000.00 each for said persons. (Record on Appeal, p. 102). For
their social humiliation, therefore, the award to them of P25,000.00
each is reasonable.
The rationale behind exemplary or corrective damages is, as the name
implies, to provide an example or correction for public good.
Defendant having breached its contracts in bad faith, the court, as
stated earlier, may award exemplary damages in addition to moral
damages (Articles 2229, 2232, New Civil Code).
In view of its nature, it should be imposed in such an amount as to
sufficiently and effectively deter similar breach of contracts in the
future by defendant or other airlines. In this light, we find it just to
award P75,000.00 as exemplary or corrective damages.
Now, as to attorney’s fees, the record shows a written contract of
services executed on June 1, 1960 (Exh. F) whereunder plaintiffs-
appellants engaged the services of their counsel—Atty. Vicente J.
Francisco—and agreed to pay the sum of P25,000.00 as attorney’s
fees upon the termination of the case in the Court of First Instance,
and an additional sum of P25,000.00 in the event the case is appealed
to the Supreme Court. As said earlier, a written contract for attorney’s
services shall control the amount to be paid therefor unless found by
the court to be unconscionable or unreasonable. A consideration of
the subject matter of the present controversy, of the professional
standing of the attorney for plaintiffs-appellants, and of the extent of
the service rendered by him, shows that said amount provided for in
the written agreement is reasonable. Said lawyer—whose prominence
in the legal profession is well known—studied the case, prepared and
filed the complaint, conferred with witnesses, analyzed documentary
evidence, personally appeared at the trial of the case in twenty-two
days during a period of three years, prepared four sets of cross-
interrogatories for deposition taking, prepared several memoranda
and the motion for reconsideration, filed a joint record on appeal with
defendant, filed a brief for plaintiffs as appellants consisting of 45
printed pages and a brief for plaintiffs as appellees consisting of 265
printed pages. And we are further convinced of its reasonableness
because defendant’s counsel likewise valued at P50,000.00 the proper
compensation for his services rendered to defendant in the trial court
and on appeal.
In concluding, let it be stressed that the amount of damages awarded
in this appeal has been determined by adequately considering the
official, political, social, and financial standing of the offended parties
on one hand, and the business and financial position of the offender
on the other (Domingding v. Ng, 55 O.G. 10). And further considering
the present rate of exchange and the terms at which the amount of
damages awarded would approximately be in U.S. dollars, this Court
is all the more of the view that said award is proper and reasonable.
Wherefore, the judgment appealed from is hereby modified so as to
award in favor of plaintiffs and against defendant, the following: (1)
P200,000.00 as moral damages, divided among plaintiffs, thus:
P100,000.00 for Senate President Pro Tempore Fernando Lopez;
P50,000.00 for his wife Maria J. Lopez; P25.000.00 for his son-in-law
Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo
Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages;
(3) interest at the legal rate of 6% per annum on the moral and
exemplary damages aforestated, from December 14, 1963, the date
of the amended decision of the court a quo, until said damages are
fully paid; (4) P50,000.00 as attorney’s fees; and (5) the costs.
Counterclaim dismissed. So ordered.

Chief Justice Bengzon and Justices Bautista Angelo, Concepcion,

J.B.L. Reyes, Barrera, Regala, Makalintal, Zaldivar and Sanchez,
concur. Justice Dizon is on leave.

Judgment modified.

Note. — As to cases similar to the Lopez case, see Northwest Airlines,

Inc. vs. Cuenca, L-22425, Aug. 31, 1965 and Air France vs.
Carrascoso, L-21438, Sept. 28, 1966. Lopez, et al. vs. Pan American
World Airways, 16 SCRA 431, No. L-22415 March 30, 1966

——o0o——
 VICTORY LINER, INC., petitioner, vs. ROSALITO GAMMAD,
APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and
DIANA FRANCES P. GAMMAD, respondents
G.R. No. 159636. November 25, 2004
Remedial Law; Pleadings and Practice; It is settled that the negligence
of counsel binds the client; Application of the general rule to a given
case should be looked into and adopted according to the surrounding
circumstances obtaining. — It is settled that the negligence of counsel
binds the client. This is based on the rule that any act performed by a
counsel within the scope of his general or implied authority is regarded
as an act of his client. Consequently, the mistake or negligence of
counsel may result in the rendition of an unfavorable judgment against
the client. However, the application of the general rule to a given case
should be looked into and adopted according to the surrounding
circumstances obtaining. Thus, exceptions to the foregoing have been
recognized by the court in cases where reckless or gross negligence
of counsel deprives the client of due process of law, or when its
application will result in outright deprivation of the client’s liberty or
property or where the interests of justice so require, and accord relief
to the client who suffered by reason of the lawyer’s gross or palpable
mistake or negligence.
Civil Law; Negligence; Common Carriers; In a contract of carriage, it
is presumed that the common carrier was at fault or was negligent
when a passenger dies or is injured; Unless the presumption is
rebutted, the court need not even make an express finding of fault or
negligence on the part of the common carrier. — Anent the second
issue, petitioner was correctly found liable for breach of contract of
carriage. A common carrier is bound to carry its passengers safely as
far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard to all the
circumstances. In a contract of carriage, it is presumed that the
common carrier was at fault or was negligent when a passenger dies
or is injured. Unless the presumption is rebutted, the court need not
even 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.
Same; Same; Same; Damages; Damages a common carrier bound to
pay in breach of its contract of carriage that results in the death of a
passenger. — Article 1764 in relation to Article 2206 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.
Same; Same; Same; Same; Loss of Earning Capacity; As a rule,
documentary evidence should be presented to substantiate the claim
for damages for loss of earning capacity, exceptions. — The award of
compensatory damages for the loss of the deceased’s earning capacity
should be deleted for lack of basis. As a rule, documentary evidence
should be presented to substantiate the claim for damages for loss of
earning capacity. By way of exception, damages for loss of earning
capacity may be awarded despite the absence of documentary
evidence when (1) the deceased is self-employed earning less than
the minimum wage under current labor laws, and judicial notice may
be taken of the fact that in the deceased’s line of work no documentary
evidence is available; or (2) the deceased is employed as a daily wage
worker earning less than the minimum wage under current labor laws.
Same; Same; Same; Same; Moral damages cannot be lumped with
exemplary damages because they are based on different jural
foundations. — Anent the award of moral damages, the same cannot
be lumped with exemplary damages because they are based on
different jural foundations. These damages are different in nature and
require separate determination. In culpa contractual or breach of
contract, moral damages may be recovered when the defendant acted
in bad faith or was guilty of gross negligence (amounting to bad faith)
or in wanton disregard of contractual obligations and, as in this case,
when the act of breach of contract itself constitutes the tort that
results in physical injuries. By special rule in Article 1764 in relation to
Article 2206 of the Civil Code, moral damages may also be awarded in
case the death of a passenger results from a breach of carriage. On
the other hand, exemplary damages, which are awarded by way of
example or correction for the public good may be recovered in
contractual obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.
Same; Same; Same; Same; In case of actual damages, only
substantiated and proven expenses or those that appear to have been
genuinely incurred in connection with the death, wake or burial of the
victim will be recognized. — The actual damages awarded by the trial
court reduced by the Court of Appeals should be further reduced. In
People v. Duban, it was held that only substantiated and proven
expenses or those that appear to have been genuinely incurred in
connection with the death, wake or burial of the victim will be
recognized. A list of expenses (Exhibit “J”), and the contract/receipt
for the construction of the tomb (Exhibit “F”) in this case, cannot be
considered competent proof and cannot replace the official receipts
necessary to justify the award. Hence, actual damages should be
further reduced to P78,160.00, which was the amount supported by
official receipts.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Dabu & Duque Law Office and Jose S. Songco for petitioner.
Romeo Calubaquib for private respondents.
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the April 11, 2003
decision of the Court of Appeals in CA-G.R. CV No. 63290 which
affirmed with modification the November 6, 1998 decision of the
Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding
petitioner Victory Liner, Inc. liable for breach of contract of carriage in
Civil Case No. 5023.
The facts as testified by respondent Rosalito Gammad show that on
March 14, 1996, his wife Marie Grace Pagulayan-Gammad,3 was on
board an air-conditioned Victory Liner bus bound for Tuguegarao,
Cagayan from Manila. At about 3:00 a.m., the bus while running at a
high speed fell on a ravine somewhere in Barangay Baliling, Sta. Fe,
Nueva Vizcaya, which resulted in the death of Marie Grace and
physical injuries to other passengers.
On May 14, 1996, respondent heirs of the deceased filed a complaint
for damages arising from culpa contractual against petitioner. In its
answer, the petitioner claimed that the incident was purely accidental
and that it has always exercised extraordinary diligence in its 50 years
of operation.
After several re-settings, pre-trial was set on April 10, 1997. For failure
to appear on the said date, petitioner was declared as in default.
However, on petitioner’s motion to lift the order of default, the same
was granted by the trial court.
At the pre-trial on May 6, 1997, petitioner did not want to admit the
proposed stipulation that the deceased was a passenger of the Victory
Liner Bus which fell on the ravine and that she was issued Passenger
Ticket No. 977785. Respondents, for their part, did not accept
petitioner’s proposal to pay P50,000.00.
After respondent Rosalito Gammad completed his direct testimony,
cross-examination was scheduled for November 17, 1997 but moved
to December 8, 1997, because the parties and the counsel failed to
appear. On December 8, 1997, counsel of petitioner was absent
despite due notice and was deemed to have waived right to cross-
examine respondent Rosalito.
Petitioner’s motion to reset the presentation of its evidence to March
25, 1998 was granted. However, on March 24, 1998, the counsel of
petitioner sent the court a telegram requesting postponement but the
telegram was received by the trial court on March 25, 1998, after it
had issued an order considering the case submitted for decision for
failure of petitioner and counsel to appear.
On November 6, 1998, the trial court rendered its decision in favor of
respondents, the dispositive portion of which reads:
“WHEREFORE, premises considered and in the interest of justice,
judgment is hereby rendered in favor of the plaintiffs and against the
defendant Victory Liner, Incorporated, ordering the latter to pay the
following:
1. Actual Damages ----------------------P122,000.00
2. Death Indemnity --------------------------50,000.00
 3. Exemplary and Moral Damages-----400,000.00
4. Compensatory Damages ------------1,500,000.00
5. Attorney’s Fees -----------10% of the total amount granted
6. Cost of the Suit.
SO ORDERED.”
On appeal by petitioner, the Court of Appeals affirmed the decision of
the trial court with modification as follows:
“[T]he Decision dated 06 November 1998 is hereby MODIFIED to
reflect that the following are hereby adjudged in favor of plaintiffs-
appellees:
1. Actual Damages in the amount of P88,270.00;
2. Compensatory Damages in the amount of P1,135,536.10;
3. Moral and Exemplary Damages in the amount of P400,000.00; and
4. Attorney’s fees equivalent to 10% of the sum of the actual,
compensatory, moral, and exemplary damages herein adjudged.
The court a quo’s judgment of the cost of the suit against defendant-
appellant is hereby AFFIRMED.
SO ORDERED.”
Represented by a new counsel, petitioner on May 21, 2003 filed a
motion for reconsideration praying that the case be remanded to the
trial court for cross-examination of respondents’ witness and for the
presentation of its evidence; or in the alternative, dismiss the
respondents’ complaint. Invoking APEX Mining, Inc. v. Court of
Appeals, petitioner argues, inter alia, that the decision of the trial court
should be set aside because the negligence of its former counsel, Atty.
Antonio B. Paguirigan, in failing to appear at the scheduled hearings
and move for reconsideration of the orders declaring petitioner to have
waived the right to cross-examine respondents’ witness and right to
present evidence, deprived petitioner of its day in court.
On August 21, 2003, the Court of Appeals denied petitioner’s motion
for reconsideration.
Hence, this petition for review principally based on the fact that the
mistake or gross negligence of its counsel deprived petitioner of due
process of law. Petitioner also argues that the trial court’s award of
damages were without basis and should be deleted.
The issues for resolution are: (1) whether petitioner’s counsel was
guilty of gross negligence; (2) whether petitioner should be held liable
for breach of contract of carriage; and (3) whether the award of
damages was proper.
It is settled that the negligence of counsel binds the client. This is
based on the rule that any act performed by a counsel within the scope
of his general or implied authority is regarded as an act of his client.
Consequently, the mistake or negligence of counsel may result in the
rendition of an unfavorable judgment against the client. However, the
application of the general rule to a given case should be looked into
and adopted according to the surrounding circumstances obtaining.
Thus, exceptions to the foregoing have been recognized by the court
in cases where reckless or gross negligence of counsel deprives the
client of due process of law, or when its application will result in
outright deprivation of the client’s liberty or property or where the
interests of justice so require, and accord relief to the client who
suffered by reason of the lawyer’s gross or palpable mistake or
negligence.
The exceptions, however, are not present in this case. The record
shows that Atty. Paguirigan filed an Answer and Pre-trial Brief for
petitioner. Although initially declared as in default, Atty. Paguirigan
successfully moved for the setting aside of the order of default. In
fact, petitioner was represented by Atty. Paguirigan at the pre-trial
who proposed settlement for P50,000.00. Although Atty. Paguirigan
failed to file motions for reconsideration of the orders declaring
petitioner to have waived the right to cross-examine respondents’
witness and to present evidence, he nevertheless, filed a timely appeal
with the Court of Appeals assailing the decision of the trial court.
Hence, petitioner’s claim that it was denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance of the
order declaring it as in default for not appearing at the pre-trial, three
notices (dated October 23, 1996, January 30, 1997, and March 26,
1997,) requiring attendance at the pre-trial were sent and duly
received by petitioner. However, it was only on April 27, 1997, after
the issuance of the April 10, 1997 order of default for failure to appear
at the pretrial when petitioner, through its finance and administrative
manager, executed a special power of attorney authorizing Atty.
Paguirigan or any member of his law firm to represent petitioner at
the pre-trial. Petitioner is guilty, at the least, of contributory
negligence and fault cannot be imputed solely on previous counsel.
The case of APEX Mining, Inc., invoked by petitioner is not on all fours
with the case at bar. In APEX, the negligent counsel not only allowed
the adverse decision against his client to become final and executory,
but deliberately misrepresented in the progress report that the case
was still pending with the Court of Appeals when the same was
dismissed 16 months ago. These circumstances are absent in this case
because Atty. Paguirigan timely filed an appeal from the decision of
the trial court with the Court of Appeals.
In Gold Line Transit, Inc. v. Ramos, the Court was similarly confronted
with the issue of whether or not the client should bear the adverse
consequences of its counsel’s negligence. In that case, Gold Line
Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial
despite notice and was declared as in default. After the plaintiff’s
presentation of evidence ex parte, the trial court rendered decision
ordering Gold Line to pay damages to the heirs of its deceased
passenger. The decision became final and executory because counsel
of Gold Line did not file any appeal. Finding that Goldline was not
denied due process of law and is thus bound by the negligence of its
lawyer, the Court held as follows—
This leads us to the question of whether the negligence of counsel
was so gross and reckless that petitioner was deprived of its right to
due process of law. We do not believe so. It cannot be denied that the
requirements of due process were observed in the instant case.
Petitioner was never deprived of its day in court, as in fact it was
afforded every opportunity to be heard. Thus, it is of record that
notices were sent to petitioner and that its counsel was able to file a
motion to dismiss the complaint, an answer to the complaint, and even
a pre-trial brief. What was irretrievably lost by petitioner was its
opportunity to participate in the trial of the case and to adduce
evidence in its behalf because of negligence.
In the application of the principle of due process, what is sought to be
safeguarded against is not the lack of previous notice but the denial
of the opportunity to be heard. The question is not whether petitioner
succeeded in defending its rights and interests, but simply, whether it
had the opportunity to present its side of the controversy. Verily, as
petitioner retained the services of counsel of its choice, it should, as
far as this suit is concerned, bear the consequences of its choice of a
faulty option. Its plea that it was deprived of due process echoes on
hollow ground and certainly cannot elicit approval nor sympathy.
To cater to petitioner’s arguments and reinstate its petition for relief
from judgment would put a premium on the negligence of its former
counsel and encourage the non-termination of this case by reason
thereof. This is one case where petitioner has to bear the adverse
consequences of its counsel’s act, for a client is bound by the action
of his counsel in the conduct of a case and he cannot thereafter be
heard to complain that the result might have been different had his
counsel proceeded differently. The rationale for the rule is easily
discernible. If the negligence of counsel be admitted as a reason for
opening cases, there would never be an end to a suit so long as a new
counsel could be hired every time it is shown that the prior counsel
had not been sufficiently diligent, experienced or learned.
Similarly, in Macalalag v. Ombudsman, a Philippine Postal Corporation
employee charged with dishonesty was not able to file an answer and
position paper. He was found guilty solely on the basis of
complainant’s evidence and was dismissed with forfeiture of all
benefits and disqualification from government service. Challenging the
decision of the Ombudsman, the employee contended that the gross
negligence of his counsel deprived him of due process of law. In
debunking his contention, the Court said—
Neither can he claim that he is not bound by his lawyer’s actions; it is
only in case of gross or palpable negligence of counsel when the courts
can step in and accord relief to a client who would have suffered
thereby. If every perceived mistake, failure of diligence, lack of
experience or insufficient legal knowledge of the lawyer would be
admitted as a reason for the reopening of a case, there would be no
end to controversy. Fundamental to our judicial system is the principle
that every litigation must come to an end. It would be a clear mockery
if it were otherwise. Access to the courts is guaranteed, but there must
be a limit to it.
Viewed vis-à-vis the foregoing jurisprudence, to sustain petitioner’s
argument that it was denied due process of law due to negligence of
its counsel would set a dangerous precedent.
It would enable every party to render inutile any adverse order or
decision through the simple expedient of alleging gross negligence on
the part of its counsel. The Court will not countenance such a farce
which contradicts long-settled doctrines of trial and procedure.
Anent the second issue, petitioner was correctly found liable for
breach of contract of carriage. A common carrier is bound to carry its
passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard
to all the circumstances. In a contract of carriage, it is presumed that
the common carrier was at fault or was negligent when a passenger
dies or is injured. Unless the presumption is rebutted, the court need
not even 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.
In the instant case, there is no evidence to rebut the statutory
presumption that the proximate cause of Marie Grace’s death was the
negligence of petitioner. Hence, the courts below correctly ruled that
petitioner was guilty of breach of contract of carriage.
Nevertheless, the award of damages should be modified.
Article 1764 in relation to Article 2206 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.
In the present case, respondent heirs of the deceased are entitled to
indemnity for the death of Marie Grace which under current
jurisprudence is fixed at P50,000.00.
The award of compensatory damages for the loss of the deceased’s
earning capacity should be deleted for lack of basis. As a rule,
documentary evidence should be presented to substantiate the claim
for damages for loss of earning capacity. By way of exception,
damages for loss of earning capacity may be awarded despite the
absence of documentary evidence when (1) the deceased is self-
employed earning less than the minimum wage under current labor
laws, and judicial notice may be taken of the fact that in the
deceased’s line of work no documentary evidence is available; or (2)
the deceased is employed as a daily wage worker earning less than
the minimum wage under current labor laws.
In People v. Oco, the evidence presented by the prosecution to
recover damages for loss of earning capacity was the bare testimony
of the deceased’s wife that her husband was earning P8,000.00
monthly as a legal researcher of a private corporation. Finding that
the deceased was neither self-employed nor employed as a daily-wage
worker earning less than the minimum wage under the labor laws
existing at the time of his death, the Court held that testimonial
evidence alone is insufficient to justify an award for loss of earning
capacity.
Likewise, in People v. Caraig, damages for loss of earning capacity
was not awarded because the circumstances of the 3 deceased did
not fall within the recognized exceptions, and except for the testimony
of their wives, no documentary proof about their income was
presented by the prosecution. Thus—
“The testimonial evidence shows that Placido Agustin, Roberto
Raagas, and Melencio Castro, Jr. were not self-employed or employed
as daily-wage workers earning less than the minimum wage under the
labor laws existing at the time of their death. Placido Agustin was a
Social Security System employee who received a monthly salary of
P5,000. Roberto Raagas was the President of Sinclair Security and
Allied Services, a family owned corporation, with a monthly
compensation of P30,000. Melencio Castro, Jr. was a taxi driver of
New Rocalex with an average daily earning of P500 or a monthly
earning of P7,500. Clearly, these cases do not fall under the
exceptions where indemnity for loss of earning capacity can be given
despite lack of documentary evidence. Therefore, for lack of
documentary proof, no indemnity for loss of earning capacity can be
given in these cases. (Emphasis supplied)
Here, the trial court and the Court of Appeals computed the award of
compensatory damages for loss of earning capacity only on the basis
of the testimony of respondent Rosalito that the deceased was 39
years of age and a Section Chief of the Bureau of Internal Revenue,
Tuguegarao District Office with a salary of P83,088.00 per annum
when she died. No other evidence was presented. The award is clearly
erroneous because the deceased’s earnings does not fall within the
exceptions.
However, the fact of loss having been established, temperate
damages in the amount of P500,000.00 should be awarded to
respondents. Under Article 2224 of the Civil Code, temperate or
moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount can not, from
the nature of the case, be proved with certainty.
In Pleno v. Court of Appeals, the Court sustained the trial court’s
award of P200,000.00 as temperate damages in lieu of actual
damages for loss of earning capacity because the income of the victim
was not sufficiently proven, thus—
The trial court based the amounts of damages awarded to the
petitioner on the following circumstances:
...
“As to the loss or impairment of earning capacity, there is no doubt
that Pleno is an ent[re]preneur and the founder of his own
corporation, the Mayon Ceramics Corporation. It appears also that he
is an industrious and resourceful person with several projects in line,
and were it not for the incident, might have pushed them through. On
the day of the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon Ceramics
Corporation. His actual income however has not been sufficiently
established so that this Court cannot award actual damages, but, an
award of temperate or moderate damages may still be made on loss
or impairment of earning capacity. That Pleno sustained a permanent
deformity due to a shortened left leg and that he also suffers from
double vision in his left eye is also established. Because of this, he
suffers from some inferiority complex and is no longer active in
business as well as in social life. In similar cases as in Borromeo v.
Manila Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et
al., L-11037, Dec. 29, 1960, and in Araneta, et al. v. Arreglado, et al.,
L-11394, Sept. 9, 1958, the proper award of damages were given.”
...
We rule that the lower court’s awards of damages are more consonant
with the factual circumstances of the instant case. The trial court’s
findings of facts are clear and well-developed. Each item of damages
is adequately supported by evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases
of People v. Singh and People v. Almedilla, to justify the award of
temperate damages in lieu of damages for loss of earning capacity
which was not substantiated by the required documentary proof.
Anent the award of moral damages, the same cannot be lumped with
exemplary damages because they are based on different jural
foundations. These damages are different in nature and require
separate determination. In culpa contractual or breach of contract,
moral damages may be recovered when the defendant acted in bad
faith or was guilty of gross negligence (amounting to bad faith) or in
wanton disregard of contractual obligations and, as in this case, when
the act of breach of contract itself constitutes the tort that results in
physical injuries. By special rule in Article 1764 in relation to Article
2206 of the Civil Code, moral damages may also be awarded in case
the death of a passenger results from a breach of carriage. On the
other hand, exemplary damages, which are awarded by way of
example or correction for the public good may be recovered in
contractual obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.
Respondents in the instant case should be awarded moral damages to
compensate for the grief caused by the death of the deceased
resulting from the petitioner’s breach of contract of carriage.
Furthermore, the petitioner failed to prove that it exercised the
extraordinary diligence required for common carriers, it is presumed
to have acted recklessly. Thus, the award of exemplary damages is
proper. Under the circumstances, we find it reasonable to award
respondents the amount of P100,000.00 as moral damages and
P100,000.00 as exemplary damages. These amounts are not
excessive.
The actual damages awarded by the trial court reduced by the Court
of Appeals should be further reduced. In People v. Duban, it was held
that only substantiated and proven expenses or those that appear to
have been genuinely incurred in connection with the death, wake or
burial of the victim will be recognized. A list of expenses (Exhibit “J”),
and the contract/receipt for the construction of the tomb (Exhibit “F”)
in this case, cannot be considered competent proof and cannot replace
the official receipts necessary to justify the award. Hence, actual
damages should be further reduced to P78,160.00, which was the
amount supported by official receipts.
Pursuant to Article 2208 of the Civil Code, attorney’s fees may also be
recovered in the case at bar where exemplary damages are awarded.
The Court finds the award of attorney’s fees equivalent to 10% of the
total amount adjudged against petitioner reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals, it was held
that when an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasidelicts is breached, the contravenor
can be held liable for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit—
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
(Emphasis supplied).
In the instant case, petitioner should be held liable for payment of
interest as damages for breach of contract of carriage. Considering
that the amounts payable by petitioner has been determined with
certainty only in the instant petition, the interest due shall be
computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, per paragraph 3 of the aforecited rule.
WHEREFORE, in view of all the foregoing, the petition is PARTIALLY
GRANTED. The April 11, 2003 decision of the Court of Appeals in CA-
G.R. CV No. 63290, which modified the decision of the Regional Trial
Court of Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED
with MODIFICATION. As modified, petitioner Victory Liner, Inc., is
ordered to pay respondents the following: (1) P50,000.00 as
indemnity for the death of Marie Grace Pagulayan-Gammad; (2)
P100,000.00 as moral damages; (3) P100,000.00 as exemplary
damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as
temperate damages; (6) 10% of the total amount as attorneys fees;
and the costs of suit.

Furthermore, the total amount adjudged against petitioner shall earn

interest at the rate of 12% per annum computed from the finality of
this decision until fully paid.

SO ORDERED.

Quisumbing (Actg. Chairman), Carpio and Azcuna, JJ., concur.

Davide, Jr. (C.J., Chairman), On Official Leave.

Petition partially granted, judgment affirmed with modification.

Note. — The Supreme Court has held that in every case, trial courts
must specify the award of each item of damages and make a finding
thereon in the body of the decision. (People vs. Galo, 349 SCRA 161
[2001])

——o0o——
 NAPOLEON TUGADE, SR., and RIZALINA FABRO-TUGADE,
substituted by her heirs, namely, Napoleon, Sr., Napoleon,
Jr., and Zenaida, all surnamed TUGADE, petitioners, vs.
COURT OF APPEALS and PANGASINAN ELECTRIC
COOPERATIVE, INC., respondents
G.R. No. 120874. July 31, 2003
Remedial Law; Appeals; Jurisdiction of the Court in cases brought to
it from the Court of Appeals is limited to the review and revision of
errors of law allegedly committed by the appellate court.—As
mentioned earlier, it is settled that as a rule, our jurisdiction in cases
brought to us from the Court of Appeals is limited to the review and
revision of errors of law allegedly committed by the appellate court,
as its findings of fact are deemed conclusive and we are not duty-
bound to analyze and weigh all over again the evidence already
considered in the proceedings below.
Same; Same; Instances where the Court may review the findings of
fact of the Court of Appeals.—However, we have consistently
enunciated that we may review the findings of fact of the Court of
Appeals: (a) where there is grave abuse of discretion; (b) when the
finding is grounded entirely on speculations, surmises or conjectures;
(c) when the inference made is manifestly mistaken, absurd or
impossible; (d) when the judgment of the Court of Appeals was based
on a misapprehension of facts; (e) when the factual findings are
conflicting; (f) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee; (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by
the parties and which, if properly considered, would justify a different
conclusion; and, (h) where the findings of fact of the Court of Appeals
are contrary to those of the trial court, or are mere conclusions without
citation of specific evidence, or where the facts set forth by the
petitioner are not disputed by the respondent, or where the findings
of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.
Same; Same; Findings of fact of trial courts are accorded by appellate
courts with great, if not conclusive effect. — It is basic that findings
of facts of trial courts are accorded by appellate courts with great, if
not conclusive effect. This is because of the unique advantage enjoyed
by trial courts of observing at close range the demeanor, deportment
and conduct of witnesses as they give their testimonies.
Civil Law; Damages; Employer may be relieved of responsibility for the
negligent acts of its driver, who at the time was acting within the scope
of his assigned task, only if it can show that it observed all the
diligence of a good father of a family to prevent damage. — Under
Art. 2180, Panelco as employer of Areola is primarily and solidarity
liable for the quasi-delict committed by the latter. It is presumed to
be negligent in the selection and supervision of its employees by
operation of law and may be relieved of responsibility for the negligent
acts of its driver, who at the time was acting within the scope of his
assigned task, only if it can show that it observed all the diligence of
a good father of a family to prevent damage. In this case, Panelco
failed to show that it exercised the diligence of a good father of a
family to prevent the damage and that it was diligent in the selection
and supervision of its employees.
Same; Same; Actual damages to be recoverable, must actually be
proved and supported by receipts. — Actual damages to be
recoverable, must actually be proved and supported by receipts. In
this case, the petitioners failed to present any receipt to prove the
expenses they incurred. Nonetheless, temperate damages may still be
given to the heirs of the victim under Art. 2224 of the Civil Code. Based
on prevailing jurisprudence, the amount of P25,000.00 as temperate
damages is in order.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Joanes G. Caacbay for petitioners.
Bengzon, Bengson, Baraan, Fernandez & Ramos Law Offices for
private respondents.
AUSTRIA-MARTINEZ, J.:
While this Court is not a trier of facts, there are instances however
when we are called upon to re-examine the factual findings of the trial
court and the Court of Appeals and weigh, after considering the
records of the case, which of the conflicting findings is more in accord
with law and justice. Such is the case at bar.
The antecedent facts of this case are as follows:
On June 12, 1980 at around 12:00 noon, Engr. Henry Tugade of the
Pangasinan Electric Cooperative, Inc. (Panelco) rode in a company
rover jeep together with four other employees bound from the Panelco
compound in Bani to Bolinao, Pangasinan. Somewhere in Tiep,
Pangasinan, a Dagupan bus that was also headed for Bolinao, began
to follow the rover jeep. While the bus was trying to overtake the jeep,
the latter turned turtle and caused four of its five occupants to fall out
of the jeep causing the death of Tugade and another passenger by
the name of Consuelo Estolonio.
Separate cases for damages, docketed as Civil Cases Nos. A-1368 and
A-1384 were filed by the heirs of the two deceased before the Regional
Trial Court of Pangasinan against Panelco and Dagupan Bus Co. and
their respective drivers, Honorato Areola and Renato Quiambao. It is
Civil Case No. A-1368 filed by the heirs of Henry Tugade, which is now
the subject of the present petition.
The Regional Trial Court of Pangasinan (Branch 55) held Panelco and
its driver liable, thus:
“As a consequence and in view of the evidence on record, the Court
holds and so finds that the accident occurred due to the fault or
negligence of Panelco and its driver Honorato Areola. The negligence
of Panelco consists in having allowed its rover jeep which is
mechanically defective, unsafe and not roadworthy to be operated on
a highway. On the other hand, the defendant-driver Honorato Areola
was likewise, negligent in driving a vehicle which was not roadworthy,
unsafe and with a mechanical defect.
The Court finds that the defendants Panelco and Honorato Areola are
liable to pay to the plaintiffs in Civil Case No. A-1368 damages, as
follows: actual damages, P99,131.00 (Exhibits “H” to “H-3”, “I” to “I-
4” and “K”), attorney’s fees, P20,000.00, moral damages, P20,000.00
and exemplary damages, P10,000.00
As to loss of earning capacity, it has been held in Villa-Rey Transit vs.
Court of Appeals, 31 SCRA 511, that this is based on net earnings and
not gross earnings. No evidence was introduced to show the net
earnings. However, under the Circumstances, the Court holds that a
monthly net earning of P500.00 would be reasonable. Using the
formula in the VillaRey case, the life expectancy of the late Henry
Tugade would be 36 years, hence the Court awards P216,000.00 for
loss of earning capacity.
WHEREFORE, the Court hereby renders judgment:
1. Dismissing the complaint and cross-claim as against Dagupan Bus
in Civil Case No. A-1368;
2. Dismissing the complaint in Civil Case No. A-1384;
3. In Civil Case No. A-1368, ordering the defendants Pangasinan
Electric Cooperative, Inc., and Honorato Areola to pay, jointly and
severally, to the plaintiffs, the following:
P 99,131.00 as actual damages;
216,000.00 for loss of earning capacity;
20,000.00 moral damages; and
10,000.00 exemplary damages; and
20,000.00 attorney’s fees
With costs against said defendants.”
In arriving at its decision, the trial court explained that:
x x x Rosie Castrence, a passenger of Bus No. 244 who saw the
accident testified categorically that the rover jeep turned turtle in front
of the Dagupan Bus when the jeep was about 5 meters in front of the
Bus and the jeep turned turtle even without being bumped by the
Dagupan Bus. The Court considers this witness as an unbiased witness
as she appears not to be an interested party. She was also in a good
position to observe in detail what actually happened at the scene of
the accident as she was seated on the right front seat of the bus. The
Court believes this witness more than the other witnesses who do not
appear to be disinterested.
Furthermore, it is not credible that if the rover jeep was hit on its left
rear, it will turn turtle on its left side. The natural effect or tendency
is for the jeep to be pushed or even thrown towards its right side. If
the jeep turned turtle towards the left, it must have been due to some
other cause than being hit by the bus on its left side.
The physical facts which do not lie as well as testimonial evidence
support the stand of Dagupan Bus that the bus did not hit the left rear
of the rover jeep.
If the bus did not hit the left rear of the jeep what then caused the
latter to turn turtle. There is merit in the contention of defendant
Dagupan Bus that the cause was due to some mechanical defect. By
Defendant Areola’s own admission, the rover jeep was “being fixed by
the Chief mechanic at the motor pool of Panelco, when he arrived at
their compound, and that the jeep was “Quite old”.
Likewise, Rosie Castrence also testified that when she first saw the
Panelco jeep at Tiep, Bani, Pangasinan, the jeep was already zig-
zagging and wiggling, a sign that indeed the jeep had some
mechanical defect.
Another mark of a mechanical defect in the jeep was the fact that the
right front wheel and rear wheel of the jeep were detached because
their spindles were broken. This came from the mouth of Panelco’s
witness Florencio Celeste.
The next issue to be resolved is what was the cause of death of Henry
Tugade? Plaintiff’s theory is, of course, that Henry Tugade died
because he was run over and pinned under the left front wheel of
Dagupan Bus No. 244 crushing his head and upper body. This is the
same theory of defendants Panelco and Areola. Defendants Dagupan
Bus and Quiambao deny this claim and their theory is that Henry
Tugade’s death was caused by the violent impact of his head against
the hard pavement of the road when he was thrown out of the rover
jeep.
The plaintiff’s theory is, however, contradicted by their own medico
legal expert Dr. Wilfredo Nazareno who testified positively that the
fatal injury which caused the death of Henry Tugade were the
fractures on his head which could have been due to the impact of the
head against the asphalted road.
Again plaintiff’s theory is contradicted by Panelco’s own witness
Florencio Celeste, Chief Engineer, who was the only one who did not
fall out of the jeep, when he testified that the left front wheel of the
bus did not rest on the head of Henry Tugade and the wheel of the
bus did not run over the head of the victim.
Rosie Castrence, a disinterested witness, also declared that the left
front tire of the bus did not run over the head of Henry Tugade.
Petitioners went to the Court of Appeals questioning only the award
of damages and attorney’s fees. They claimed that the lower court
erred in finding that the monthly earnings of the late Henry Tugade at
the time of his death was only P500.00; disregarding the evidence on
record showing the monthly earnings of the late Henry Tugade; not
considering the social, educational and economic status of the
plaintiffs in its assessment of the moral and exemplary damages; and
setting the sum of P20,000.00 as attorney’s fees.
Respondent Panelco also appealed to the Court of Appeals from the
decision of the trial court and assailed its ruling that the negligence of
Panelco and its driver was the proximate cause of the accident.
In its decision dated September 7, 1994, the Court of Appeals reversed
the findings of the trial court, declared that Dagupan Bus, as an
employer, had exercised due diligence in the selection and supervision
of its employees and disposed of the case in this wise:
“WHEREFORE, in view of all the foregoing, the decision of the court a
quo is reversed, but only insofar as it holds defendant Pangasinan
Electric Cooperative, Inc. liable, and defendant Renato Quiambao is
ordered to pay to defendant-appellant Pangasinan Electric
Cooperative, Inc., P7,500.00 as temperate damages, P10,000.00 as
attorney’s fees and costs of suit.
The appellate court explained, thus:
The testimony of Castrence, on which the court a quo heavily relied in
its finding of facts, is contradicted by the greater weight of evidence
on record.
First, there is no evidence whatsoever—for either one of the parties—
of a blown-out tire. What the evidence on record indicates is that the
two right wheels of the jeep were detached. The testimony regarding
a blown-out tire is not even in consonance with the theory of Dagupan,
that is, that the wheels were detached due to mechanical defects.
Second, her testimony that the jeep was wiggling and zigzagging is
contradicted by the testimonies of Florencio Celeste and Cipriano
Nacar, passengers of the jeep and witnesses for plaintiffs Tugade, to
the effect that their ride was smooth and normal. (TSN, September
29, 1983, pp. 10, 43 & 66; November 20, 1984, p. 7)
Third, her testimony regarding the sitting arrangement of passengers
of the jeep is contradicted by the testimony of Cipriano Nacar,
passenger of the jeep and witness for plaintiffs Tugade. According to
Nacar, he and Estolonio were seated at the rear of the jeep; the driver
Areola was behind the steering wheel, with Celeste to his right and
Tugade on the rightmost. In other words, Celeste was between Areola
and Tugade, and no one was seated to the left of the driver. (TSN,
September 29, 1983, pp. 9-10)
Fourth, her testimony that Tugade’s head was about one foot from
the left front tire of the bus is likewise contradicted by the testimonies
of Cipriano Nacar and Honorato Areola that the tire of the bus was
partly resting on the head of Tugade. In fact, the bus driver Renato
Quiambao even had to back up the bus so that Tugade’s body may be
pulled out from below. (ibid., pp. 22-23)
Fifth, her testimony that Tugade’s shirt was checkered is also
contradicted by Exhibit “G”, a photograph of the deceased as he lay
on the ground. The photograph shows Tugade wearing a plain white
shirt.
Finally, her testimony that she did not see Estolonio after the accident
because the latter was inside the jeep is again contradicted by the
finding of the court a quo that “all the passengers of the rover jeep
were thrown out of the vehicle except Florencio Celeste and the body
of Henry Tugade landed on the left lane of the road and was in front
of the left front wheel of Bus No. 244.” (italics ours, Decision, p. 2) In
other words, Estolonio, just like Tugade, was sprawled on the ground.
(ibid., p. 22)
Castrence’s testimony is also marred by improbabilities.
First, she claims to have noticed the color of Tugade’s pants who was
seated—in the front of the jeep. It is quite improbable that Castrence,
being seated inside the bus, could see the color of the pants of Tugade
who was seated on the front seat of the jeep. Second, while she
noticed the passengers in the front of the jeep—indeed she even
noticed the color of the pants one of them was wearing—she could
not tell whether or not there were passengers at the back. Third, it is
also improbable that the driver and the passengers of the jeep simply
continued with their journey, oblivious to the wiggling and zigzagging
of their vehicle.
Moreover, even disregarding the incredibility of Castrence’s testimony,
still the version that the accident was due to a mechanical defect that
allowed the wheels to be detached cannot be given credence. If the
cause of the accident was that both wheels on the right side were
detached, then the jeep would not have turned turtle to its left, but to
its right. If there had been no wheels to support its right side, the jeep
should have turned turtle to its right, but it turned to its left instead.
The court a quo reasons that “it is not credible that if the rover jeep
was hit on its left rear, it will turn turtle on its left side. The natural
effect or tendency is for the jeep to be pushed or even thrown towards
its right side.” (Decision, p. 3) The court a quo, however, seems to
have disregarded the testimony of Honorato Areola that the jeep first
swerved to the right, then to the left. (TSN, October 15, 1984, p. 48)
To be noted also is that a jeep is inherently maneuverable, and may
easily swerve from side to side when hit from its left rear portion.
Moreover, after the accident, both the jeep and the bus were at the
left side of the highway. If the bus were not attempting to overtake
the jeep, why then was it at the left side of the highway?
As may be seen from the foregoing, the court a quo failed to take into
account the discrepancies and inconsistencies of Castrence’s
testimony vis-à-vis established facts and other evidence on record.
Moreover, the court a quo misappreciated the testimony of Areola that
the jeep was being checked up at the Panelco motor pool, and
interpreted such testimony to mean that the jeep was being fixed or
repaired due to a mechanical defect. First, the mere fact that the jeep
was at the motor pool does not mean that it was there due to a
mechanical defect. As testified by Areola, it was being subjected to a
check-up (TSN, October 9, 1984, pp. 41-42), which may have been
simply routinary. Second, even assuming that the jeep had a
mechanical defect, its presence at the motor pool may also mean that
such defect had been repaired and that the jeep was “quite old” does
not necessarily mean that it had a mechanical defect. That two wheels
were detached from the jeep and that its spindle was broken can be
just as reasonably explained by-the fact that the jeep turned turtle
after being sideswiped by an overtaking bus.
On the contrary, Celeste and Nacar, witnesses for the plaintiffs
Tugade, consistently testified that their ride was normal and smooth.
In light of the foregoing, the conclusion must be that the accident was
caused by the negligence of Quiambao in driving Bus No. 244, as
testified to by Areola, Nacar and Celeste, for which he must be held
civilly liable. x x x
Hence, petitioner filed the present “petition for certiorari” of the
decision of the Court of Appeals and the resolution dated June 27,
1995 denying petitioners’ motion for reconsideration.
Petitioners contend that the Court of Appeals:
I trial court and substituted its own findings of fact. Petitioners claim
. . . COMMITTED AN ERROR OF LAW AND VIOLATED THE RULES OF
EVIDENCE BY REJECTING THE TESTIMONY OF A DISINTERESTED
WITNESS AND ADMITTED THE BIASED TESTIMONIES OF THE
EMPLOYEES-WITNESSES FOR PRIVATE RESPONDENT PANELCO.
II
. . . COMMITTED AN ERROR OF LAW BY SUBSTITUTING ITS
FINDINGS OF FACTS TO THAT OF THE TRIAL COURT WHICH WAS IN
A BETTER POSITION TO EVALUATE AT FIRST HAND THE EVIDENCE
ADDUCED BY THE PARTIES, PARTICULARLY THE SITUATION,
DEMEANOR AND SINCERITY OF THE WITNESSES.
III
. . . MISINTERPRETED, IF NOT DELIBERATELY DISREGARDED, THE
BREAKING OF THE SPINDLE AND THE DETACHMENTS OF THE FRONT
RIGHT AND REAR WHEELS OF THE ROVER JEEP OF PRIVATE
RESPONDENT PANELCO WHICH ARE CONCLUSIVE PROOF OF THE
ROAD UNWORTHINESS OF THE ROVER JEEP THAT TURNED TURTLE
CAUSING THE DEATH OF THE LATE HENRY TUGADE.
IV
. . . ERRED IN ARRIVING AT A CONCLUSION THAT PRIVATE
RESPONDENT WAS NOT NEGLIGENT AT THE TIME OF THE ACCIDENT
AND IS NOT THEREFORE LIABLE FOR THE UNTIMELY DEATH OF
HENRY TUGADE.
V
. . . ERRED IN NOT APPLYING PERTINENT JURISPRUDENCE AND
PROVISIONS OF LAWS IN REVERSING THE DECISION OF THE TRIAL
COURT.
Petitioners stress that they only questioned before the Court of
Appeals the amount of damages, loss of earning capacity and
attorney’s fees awarded by the trial court in its decision, but the
appellate court disregarded the factual findings and conclusions of the
that this violates the doctrine that the findings of the trial court on the
credibility of witnesses are entitled to great weight on appeal as it is
in a better position to decide the question on credibility having seen
and heard the witnesses themselves. Petitioners further claim that:
the Court of Appeals erroneously disregarded the testimony of Rosie
Castrence which the trial court found to be a disinterested party, based
on minor and trivial inconsistencies; the appellate court overlooked or
failed to consider the breaking of the spindles and the detachment of
the front and rear wheels of the rover jeep owned by and belonging
to respondent Panelco which led the trial court to conclude that the
accident was due to the negligence of private respondent as it allowed
its rover jeep which is mechanically defective and not roadworthy to
be operated on a highway and due to the negligence of defendant
Honorato Areola in driving a vehicle which was not roadworthy.
In its Comment, respondent Panelco points out that the factual
findings of the Court of Appeals is not reviewable by the Supreme
Court.
Petitioners in their Reply, meanwhile, argue that where the findings,
of the Court of Appeals and the trial court are contrary to each other,
such as in this case, the Supreme Court may scrutinize the evidence
on record.
In its Rejoinder, respondent Panelco reiterates that: the petitioners
raised only factual issues which in effect will make this Court a trier of
facts; the Court of Appeals, contrary to the contention of petitioners,
actually set the record straight by carefully scrutinizing the factual
evidence; the appellate court pointed out in detail the inconsistencies
in the findings of the lower court unlike the haphazard way by which
the lower court reached its conclusions.
We find the petition to be impressed with merit.
As mentioned earlier, it is settled that as a rule, our jurisdiction in
cases brought to us from the Court of Appeals is limited to the review
and revision of errors of law allegedly committed by the appellate
court, as its findings of fact are deemed conclusive and we are not
duty-bound to analyze and weigh all over again the evidence already
considered in the proceedings below.
However, we have consistently enunciated that we may review the
findings of fact of the Court of Appeals:
(a) where there is grave abuse of discretion; (b) when the finding is
grounded entirely on speculations, surmises or conjectures; (c) when
the inference made is manifestly mistaken, absurd or impossible; (d)
when the judgment of the Court of Appeals was based on a
misapprehension of facts; (e) when the factual findings are conflicting;
(f) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same are contrary to the admissions of both
appellant and appellee; (g) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and,
(h) where the findings of fact of the Court of Appeals are contrary to
those of the trial court, or are mere conclusions without citation of
specific evidence, or where the facts set forth by the petitioner are not
disputed by the respondent, or where the findings of fact of the Court
of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record. [Emphasis ours]
In this case, the factual findings of the trial court and the Court of
Appeals are conflicting. Thus, it behooves this Court to review the
findings of facts of the lower courts.
The trial court gave weight to the testimony of Rosie Castrence, a
passenger of Dagupan bus who testified that the Panelco rover jeep
turned turtle without being hit by the bus from behind; while the Court
of Appeals pointed out inconsistencies in her testimony and gave
weight to the version of the employees of Panelco that the jeep turned
turtle becauseit was hit by the bus from behind.
The trial court reasoned that Castrence, a fish vendor who happened
to be a passenger at the time of the accident, was credible and
unbiased being a disinterested witness, unlike the other witnesses
who are employees of Panelco. It also explained that she was in a
good position to observe in detail what actually happened at the scene
of the accident as she was seated at the right front seat of the bus.
On the other hand, the Court of Appeals considered her testimony not
worthy of belief because of inconsistencies especially vis-à-vis the
testimonies of the employees of Panelco, namely: Areola, Nacar and
Celeste, to which the appellate court gave greater weight and on
which basis it concluded that the accident was caused by the
negligence of Quiambao in driving Bus No. 244 for which he must be
held civilly liable.
In ascertaining the facts of the case, it would have greatly aided the
courts if photographs of the vehicles were presented during the trial.
However, none was presented. Hence, we are constrained to rely
mainly on the testimonies of the witnesses.
After reviewing the entire records of the case, we find compelling
reasons to reverse the findings of the Court of Appeals, and affirm the
appreciation of facts of the trial court.
It is basic that findings of facts of trial courts are accorded by appellate
courts with great, if not conclusive effect. This is because of the unique
advantage enjoyed by trial courts of observing at close range the
demeanor, deportment and conduct of witnesses as they give their
testimonies. Trial courts have the unique advantage of being able to
observe that elusive and incommunicable evidence of the witness’
deportment on the stand while testifying—the brazen face of the liar,
the glibness of the schooled witness in reciting a lesson, the itching
over-eagerness of the swift witness, as well as the honest face of the
truthful one. Indeed, assignment of values to declarations on the
witness stand is best done by the trial judge who, unlike appellate
magistrates, can weigh firsthand the testimony of a witness.
While there may be inaccuracies in Castrence’s testimony as pointed
out by the appellate court—the mention of a blown out tire, the
seating arrangement of the passengers of the rover jeep, the color of
the shirt of the deceased, and the location of all the passengers of the
jeep after it turned turtle—we deem such discrepancies negligible
considering the totality of her testimony. Records show that she was
called to the witness stand six years after the accident happened. It is
therefore understandable that she would miss recalling some details.
As we held in the recent case of People vs. Delim:
The inconsistencies in the testimonies of [witnesses] do not render
them incredible or their testimonies barren of probative weight. It
must be borne in mind that human memory is not as unerring as a
photograph and a person’s sense of observation is impaired by many
factors... A truthtelling witness is not always expected to give an error-
free testimony considering the lapse of time and the treachery of
human memory. What is primordial is that the mass of testimony jibes
on material points, the slight clashing of statements dilute neither the
witnesses’ credibility nor the veracity of his testimony . . .
Inconsistencies on minor and trivial matters only serve to strengthen
rather than weaken the credibility of witnesses for they erase the
suspicion of rehearsed testimony.
In her testimony, Rosie Castrence said that she saw the jeep turn
turtle in front of their bus.
Q: Mrs. Witness, you testified that the PANELCO jeep turned turtle
infront of the Dagupan Bus, how close was the Dagupan Bus to the
PANELCO jeep when you saw it turn turtle?
A: About five (5) meters infront the Dagupan Bus when it turn (sic)
turtle, sir.
Q: In other words, the jeep turned turtle even without being bumped
by the Dagupan Bus?
A: Yes, sir.
She also testified that before the jeep turned turtle she saw that it was
wiggling.
A: When we were still at Barangay Tiep I have seen already that jeep.
xxx xxx xxx
Q: What did you observe if any about the jeep that you were
following?
A: The jeep was already wiggling and was zigzagging along the way.
We find this testimony not only credible but also consistent with the
physical evidence as well as the testimonies of Panelco’s own
employees.
Engr. Florencio Celeste, who was seated beside Henry Tugade,
testified that after the jeep turned turtle he saw that the right wheels
were detached and that the spindle was broken.
Q: If it turned turtle, did you observe the jeep suffered (sic) any
mechanical defect or parts were broken?
A: After the jeep turned turtle, I noticed that the right front wheel and
rear wheel of the jeep were detached, sir.
xxx xxx xxx
Q: Did you see how the wheels were detached?
A: The spindle were (sic) broken, sir.
Engr. Agustin Erezo, the Officer-In-Charge of the Motorpool of Panelco
at the time of the accident, also admitted in his testimony that the
rover jeep was merely assembled in their motorpool, thus:
Q: You mentioned that the rover jeep was assembled in February
1980, if it was assembled in February 1980, what was the condition
before you assembled? (sic)
A: We put all the spare parts new, we bought all the spare parts new,
all spare parts are new.
Q: So you want to make us understand that it was almost a junk at
the time you repair it?
A: We bought the chassis, the engine and everything so all the spare
parts are new.
Q: At the time you repaired it in 1980 (interruption)
A: I assembled it.
xxx xxx xxx
Q: Before you repaired it in February 1980, was it in running condition?
A: Before we repaired it, it was not in running condition, there was no
jeep before the repair, they are all spare parts and we assembled it.
The driver of the jeep and one of the defendants, Honorato Areola,
also admitted that the engine of the jeep at the time of the accident
was already old.
Q: . . . And what year Mr. Witness is the model of the rover jeep if
you really know the model of the different vehicles?
A: I already forgot, sir. It is diesel model.
Q: To make specific Mr. Witness, what year was this model, was it the
model 69, 65 or what?
A: I cannot remember, sir.
Q: But in your experience as driver, did this rover jeepney, new or old,
at the time you drove it on June 12, 1980.
A: Quite old already, sir.
Q: What about the body of the jeepney, also old like the engine?
A: The body is newly assembled, sir.
Worth noting also is the admission of Engr. Celeste that the jeep did
not have a speedometer.
Q: Now, you estimated the speed of the jeep at 45 to 50 kilometers
per hour, because according to you, you are also a driver and you
always look at the speedometer is that correct?
A: Yes, sir.
Q: This rover jeep having been made, homemade at the Panelco Motor
pool, did not have speedometer, is that correct?
A: It does not have speedometer, so the speedometer does not
function, sir.
Q: Aside from the speedometer there were many parts of the jeep
which were not functioning is that correct?
A: All of those parts in the Panel board except its speedometer cable.
Q: And so, when you said that the jeep was running about 45 to 50
kilometers the truth is the speed could have been even less than 45
kilometers or more than 50 kilometers.
A: That is approximate, sir.
In sum, we find that with the testimony of Castrence, the broken
spindle of the rover jeep and the admissions of Panelco’s own
employees that the jeep was merely assembled, had an old engine,
and did not have any speedometer, manifest gross negligence on the
part of Panelco and its driver Honorato Areola for which they should
be held liable to pay damages. The trial court correctly held both
Panelco and its driver liable for using an unsafe vehicle in transporting
Panelco’s employees.
As provided for in the New Civil Code:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
done...
Art. 2180. The obligation imposed by Article 2176 is demandable not
only for one’s own acts or omissions, but also for those of persons for
whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damage caused by their employees
and household helpers acting within the scope of their assigned tasks,
even though the former are not engaged in any business or industry.
xxx xxx xxx
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence
of a good father of a family to prevent damage.
Areola, as driver of the vehicle, did not personally check the condition
of the vehicle before using it.
Q: And when you arrive at the Panelco compound this jeep was
already ready to be driven?
A: It was in the motor pool we were checking up.
Q: But you yourself did not go to the motor pool to get the jeep?
A: I Just see the jeep but Idid not go underthe Jeep, sir.
Q: You mean to say that the jeep was in an elevated flat (sic) form at
the time when you saw it at the Panelco compound being checked up?
A: It’s not in the elevated place but it was in the Panelco compound,
I am looking for the Chief Mechanic checkingup the jeep. I was looking
at the jeep being checked up by the Chief Mechanic, sir.
Q: How many mechanics were attending this rover jeep at the time
you were looking at the jeep?
A: They were many but who was looking after was the Chief Mechanic,
sir.
xxx xxx xxx
Q: And these mechanics of the Panelco were helping or attending the
Chief Mechanic?
A: I do not know, sir, because they were doing something.
Q: So all these persons were working on the rover jeep, is that correct?
A: No, sir. (sic)
What was admitted was the fact that it was his first time to drive said
vehicle and that he did not know whether or not the vehicle was
registered at the time of the accident.
Q: x x x You are aware that the rover jeep was not registered for that
year 1980, the jeep you were driving, is that correct?
A: That is what I do not know, sir.
xxx xxx xxx
Q: Is it a matter of your practice, that when you drive a vehicle you
do not determine and find out anymore whether the registration
certificate is found in the vehicle?
A: I relied that the papers are complete, sir.
Q: But you yourself do not examine anymore whether the vehicle that
you are driving, that you are going to drive has with the registration
certificate.
A: No more, sir.
Panelco meanwhile is liable both as owner of the mechanically
defective vehicle under Art. 2176 and as employer of the negligent
driver under Art. 2180.
Under Art. 2180, Pinalco asemployer of Areola is primarily and
solidarity liable for the quasi-delict committed by the latter. It is
presumed to be negligent in the selection and supervision of its
employees by operation of law and may be relieved of responsibility
for the negligent acts of its driver, who at the time was acting within
the scope of his assigned task, only if it can show that it observed all
the diligence of a good father of a family to prevent damage.
In this case, Panelco failed to show that it exercised the diligence of a
good father of a family to prevent the damage and that it was diligent
in the selection and supervision of its employees.
Areola in his testimony admitted that he did not undergo physical
examination when he was hired as driver of the company38 and that
there were no records of his examination and interview during his
application for employment.39 He also admitted that Panelco never
gave them seminars regarding driving but only received ‘personal
advice’ from the managers.
The use of a vehicle with a defective speedometer has been held by
this Court as an indication of the owner’s laxity in the operation of its
business and in the supervision of its employees; clearly, a conduct
below the diligence required by law. In this case, the rover jeep of
Panelco did not have a speedometer at all.
Finding both Panelco and its driver liable for the death of Henry
Tugade, we now consider the amount of damages that should be
awarded to the heirs of the deceased.
Following Art. 2206 of the Civil Code and recent jurisprudence, the
heirs of the victim in this case are automatically entitled to P50,000.00
as indemnity for the death of Henry Tugade.
Actual damages to be recoverable, must actually be proved and
supported by receipts. In this case, the petitioners failed to present
any receipt to prove the expenses they incurred. Nonetheless,
temperate damages may still be given to the heirs of the victim under
Art. 2224 of the Civil Code. Based on prevailing jurisprudence, the
amount of P25,000.00 as temperate damages is in order.
We also find that petitioners are entitled to the award of attorney’s
fees which is proper where the acts and omissions of a party have
compelled another to litigate or incur expenses to protect his rights
and when deemed by the court as just and equitable. We find no
cogent reason to disturb the award of P20,000.00 as attorney’s fees
fixed by the trial court.
Moral damages should also be awarded for the mental anguish and
moral suffering suffered by the heirs of Henry Tugade brought about
by his untimely demise. As held by this Court, the award of moral
damages is aimed at a restoration, within the limits possible, of the
spiritual status quo ante and therefore must be proportionate to the
suffering inflicted.
In this case, Napoleon Tugade, father of the deceased, testified as
follows:
Q: How many children do you have?
A: We have three (3), sir.
xxx xxx xxx
Q: . . . about your second child, what is his profession or employment
at present, will you name your second child?
A: He is the late Henry Tugade, an Agricultural Engineer.
xxx xxx xxx
Q: At the time you learned the death of your son Henry, how did you
feel?
A: I was shocked and had a little mental torture because it’s a shock
that he is still young to die and professional and he is the only one
earning among my children, so there was mental torture also to my
wife and to my family.
Rizalina Tugade, mother of the victim, also testified as follows:
Q: And Mrs. Witness, at the time your son died do you know if he was
a member of some civic organizations or associations?
A: During his lifetime when he was studying, when he was student, at
the Araneta Univeristy, he was the President of the Engineer’s Club
Society.
Q: And of course as a mother, having his son that caliber, if said Henry
your son, how did you feel on those occasions, as he was a member
of some organizations.
A: I had a feeling of great pride, sir.
Q: This pride enjoyed as a mother, did it continue to be still in you as
a pride enjoyed by a mother.
A: Well, my pride is no more sir, he already died.
Q: And when at the time you learned for the first time of the death of
your son Mrs. Witness, how did you feel as mother.
A: I was miserably shocked, sir.
Q: Aside from the shock, what else.
A: Well, I lost my hope, my pride and happiness.
Under Art. 2206 of the Civil Code, the ascendants of the deceased may
demand moral damages for mental anguish by reason of the death of
the deceased. Under the circumstances of the case at bar an award
of P100,000.00 would be appropriate.
As to indemnity for loss of earning capacity, we take note of Exh. “L-
1” showing Henry Tugade’s compensation to be Eight Hundred Three
Pesos (P803.00) a month which amounts to an annual income of
P9,636.00. He was 26 years old at the time of his death.
Using the formula enunciated in People vs. Napalit,51 we compute his
lost earning capacity thus:
Net earning capacity
= 2/3 x (80-26) x [P9,636.00–1/2 (P9,636.00)]
= 2/3 X(54)XP4,818.00
= 36 x P4,818.00
= P 173,448.00
WHEREFORE, we REVERSE and SET ASIDE the decision of the Court
of Appeals; AFFIRM the decision of the Regional Trial Court, dated July
24, 1990 with the MODIFICATION that Pangasinan Electric
Cooperative, Inc. (PANELCO) and Honorato Areola are ordered to pay
jointly and severally the following amounts to the heirs of Henry
Tugade:
1. Death indemnity in the amount of Fifty Thousand Pesos
(P50,000.00);
2. Temperate damages in the amount of Twenty-Five Thousand Pesos
(P25,000.00);
3. Attorney’s fees in the amount of Twenty Thousand Pesos
(P20,000.00);
4. Moral damages in the amount of One Hundred Thousand Pesos
(P100,000.00);
5. Loss of earning capacity in the amount of One Hundred Seventy
Three Thousand, Four Hundred and Forty Eight Pesos (P173,448.00);
and
6. The costs of suit.
SO ORDERED.

Bellosillo (Chairman), Quisumbing, Callejo, Sr. and Tinga,

JJ.,concur.

Assailed judgment reversed and set aside, that of the trial court
affirmed with modification.

Note. — Findings of fact of the Court of Appeals are binding upon the
Court. (De los Reyes vs. Court of Appeals, 313 SCRA 632 [1999])

——o0o——
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs.
PACIFIC AIRWAYS CORPORATION, ELY BUNGABONG, and
MICHAEL GALVEZ, respondents
G.R. No. 170414. August 25, 2010
PHILIPPINE AIRLINES, INC., ROGELIO CASIÑO, and RUEL
ISAAC, petitioners, vs. PACIFIC AIRWAYS CORPORATION,
ELY BUNGABONG and MICHAEL GALVEZ, respondents
G.R. No. 170418. August 25, 2010
AIR TRANSPORTATION OFFICE, DANILO ALZOLA, and
ERNESTO LIM, petitioners, vs. PACIFIC AIRWAYS
CORPORATION, ELY BUNGABONG, and MICHAEL GALVEZ,
respondents, GOVERNMENT SERVICE INSURANCE SYSTEM,
intervenor
G.R. No. 170460. August 25, 2010
Negligence; Air Transportation; Rules of the Air; To ascertain who
among the pilots of aircraft involved in an accident is liable for
negligence, reference must be made to the applicable rules governing
the specific traffic management of aircrafts at an airport; The Rules of
the Air of the Air Transportation Office apply to all aircrafts registered
in the Philippines.—To ascertain who among the parties is liable for
negligence, we must refer to the applicable rules governing the
specific traffic management of aircrafts at an airport. The Rules of the
Air of the Air Transportation Office apply to all aircrafts registered in
the Philippines. The Boeing 737 and the Twin Otter in this case were
both registered in the Philippines. Both are thus subject to the Rules
of the Air. In case of danger of collision between two aircrafts, the
Rules of the Air state: 2.2.4.7 Surface Movement of Aircraft. In case
of danger of collision between two aircrafts taxiing on the
maneuvering area of an aerodrome, the following shall apply: a) When
two aircrafts are approaching head on, or approximately so, each shall
stop or where practicable, alter its course to the right so as to keep
well clear. b) When two aircrafts are on a converging course, the one
which has the other on its right shall give way. (Emphasis supplied) In
this case, however, the Boeing 737 and the Twin Otter were not both
taxiing at the time of the collision. Only the Twin Otter was taxiing.
The Boeing 737 was already on take-off roll. The Rules of the Air
provide: 2.2.4.6 Taking Off. An aircraft taxiing on the maneuvering
area of an aerodrome shall give way to aircraft taking off or about to
take off. (Emphasis supplied) Therefore, PAL’s aircraft had the right of
way at the time of collision, not simply because it was on the right
side of PAC’s aircraft, but more significantly, because it was “taking
off or about to take off.”
Same; Same; Same; For disregarding Philippine Air Lines’ (PAL’s) right
of way, Pacific Airways Corporation’s (PAC’s) pilots were grossly
negligent; Gross negligence is one that is characterized by the want
of even slight care, acting or omitting to act in a situation where there
is a duty to act, not inadvertently but willfully and intentionally with a
conscious indifference to consequences insofar as other persons may
be affected.—For disregarding PAL’s right of way, PAC’s pilots were
grossly negligent. Gross negligence is one that is characterized by the
want of even slight care, acting or omitting to act in a situation where
there is a duty to act, not inadvertently but willfully and intentionally
with a conscious indifference to consequences insofar as other
persons may be affected. We find it hard to believe that PAC’s pilots
did not see the Boeing 737 when they looked to the left and to the
right before approaching the runway. It was a clear summer evening
in April and the Boeing 737, only 200 meters away, had its inboard
lights, outboard lights, taxi lights, and logo lights on before and during
the actual take-off roll. The only plausible explanation why PAC’s pilots
did not see the Boeing 737 was that they did not really look to the left
and to the right before crossing the active runway.
Same; Same; Same; Since the pilots-in-command have the final
authority as to the disposition of the aircraft, they cannot, in case a
collision occurs, pass the blame to Air Transportation Office (ATO) for
issuing clearances that turn out to be unsuitable. — Even if ATO gave
both PAL’s pilots and PAC’s pilots clearance to take off and clearance
to cross runway 13, respectively, it remained the primary responsibility
of the pilots-in-command to see to it that the respective clearances
given were suitable. Since the pilots-in-command have the final
authority as to the disposition of the aircraft, they cannot, in case a
collision occurs, pass the blame to ATO for issuing clearances that turn
out to be unsuitable. The clearance to cross runway 13, premature as
it was, was not an absolute license for PAC’s pilots to recklessly
maneuver the Twin Otter across an active runway. PAC’s pilots should
have stopped first at the holding point to ask for clearance to cross
the active runway. It was wrong for them to have relied on a
prematurely requested clearance which was issued while they were
still 350 meters away. Their defense, that it did not matter whether
the clearance was premature or not as long as the clearance was
actually granted, only reveals their poor judgment and gross
negligence in the performance of their duties.
Same; Same; Same; Under the Rules of the Air, the aircraft on take-
off roll undisputedly has the right of way. — Records show that PAL’s
pilots timely requested clearance to take off. Linog, Jr., ATO’s air
traffic controller, duly issued the clearance to take off. Under the Rules
of the Air, PAL’s aircraft being on take-off roll undisputedly had the
right of way. Further, the Rules of Air Control provide: 2.2.4.1 The
aircraft that has the right of way shall maintain its heading and speed,
x x x.
Same; Proximate Cause; Words and Phrases; Proximate cause is
defined as that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred; When a plaintiff’s
own negligence is the immediate and proximate cause of his injury,
he cannot recover damages.—After assiduously studying the records
of this case and carefully weighing the arguments of the parties, we
are convinced that the immediate and proximate case of the collision
is the gross negligence of PAC’s pilots. Proximate cause is defined as
that cause, which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without which
the result would not have occurred. In this case, the fact that PAC’s
pilots disregarded PAL’s right of way and did not ask for updated
clearance right before crossing an active runway was the proximate
cause of the collision. Were it not for such gross negligence on the
part of PAC’s pilots, the collision would not have happened.
The Civil Code provides that when a plaintiff’s own negligence is the
immediate and proximate cause of his injury, he cannot recover
damages.
PETITIONS for review on certiorari of the decision and resolution of
the Court of Appeals.
The facts are stated in the opinion of the Court.
GSIS Legal Services Group for GSIS.
Singson, Valdez & Associates for Pacific Airways, et al.
Saklolo Leaño for PAL, Casiño and Isaac.
Office of the Government Corporate Counsel for Air Transportation
Office.
CARPIO, J.:
The Case
Before the Court are three consolidated petitions for review of the 28
October 2004 Decision and the 15 November 2005 Resolution of the
Court of Appeals in CA-G.R. CV No. 73214. The 28 October 2004
Decision affirmed the 27 July 2001 Decision of the Regional Trial Court
(Branch 112) of Pasay City. The 15 November 2005 Resolution
modified the 28 October 2004 Decision of the Court of Appeals.
The Antecedent Facts
On 2 April 1996, at around 6:45 p.m., the Twin Otter aircraft of
Philippine Airways Corporation (PAC) arrived at the Manila
International Airport from El Nido, Palawan. In command of the
aircraft was Ely B. Bungabong. With Bungabong in the cockpit was
Michael F. Galvez as co-pilot.
Upon touchdown, the Twin Otter taxied along the runway and
proceeded to the Soriano Hangar to disembark its passengers. After
the last passenger disembarked, PAC’s pilots started the engine of the
Twin Otter in order to proceed to the PAC Hangar located at the other
end of the airport. At around 7:18 p.m., Galvez contacted ground
control to ask for clearance to taxi to taxiway delta. Rogelio Lim,
ground traffic controller on duty at the Air Transportation Office
(ATO), issued the clearance on condition that he be contacted again
upon reaching taxiway delta intersection.
PAC’s pilots then proceeded to taxi to taxiway delta at about 7:19 and
19 seconds. Upon reaching the intersection of taxiway delta, Galvez
repeated the request to taxi to taxiway delta, which request was
granted. Upon reaching fox 1, Galvez requested clearance to make a
right turn to fox 1 and to cross runway 13 in order to proceed to fox
1 bravo. ATO granted the request. At this point, the Twin Otter was
still 350 meters away from runway 13. Upon reaching runway 13,
PAC’s pilots did not make a full stop at the holding point to request
clearance right before crossing runway 13. Without such clearance,
PAC’s pilots proceeded to cross runway 13.
Meanwhile, the Philippine Airlines’ (PAL) Boeing 737, manned by pilots
Rogelio Casiño and Ruel Isaac, was preparing for take-off along
runway 13. The PAL pilots requested clearance to push and start on
runway 13. Ernesto Linog, Jr., air traffic controller on duty at the ATO
issued the clearance. Subsequently, at 7:20 and 18 seconds, Linog,
Jr. gave PAL’s Boeing 737 clearance to take off. Pilots Casiño and Isaac
then proceeded with the take-off procedure. While already on take-
off roll, Casiño caught a glimpse of the Twin Otter on the left side of
the Boeing 737 about to cross runway 13.
While the Twin Otter was halfway through runway 13, Galvez noticed
the Boeing 737 and told Bungabong that an airplane was approaching
them from the right side. Bungabong then said, “Diyos ko po” and
gave full power to the Twin Otter. The PAL pilots attempted to abort
the take-off by reversing the thrust of the aircraft. However, the
Boeing 737 still collided with the Twin Otter.
The Boeing 737 dragged the Twin Otter about 100 meters away. When
the Twin Otter stopped, PAC’s pilots ran away from the aircraft for
fear it might explode. While observing the Twin Otter from a safe
distance, they saw passengers running down from the Boeing 737.
When PAC’s pilots returned to the aircraft to get their personal
belongings, they saw that the Twin Otter was a total wreck.
At 7:21 and 2 seconds on that fateful evening, the PAL pilots informed
ATO’s control tower that they had hit another aircraft, referring to the
Twin Otter. Bungabong suffered sprain on his shoulder while Galvez
had laceration on his left thumb. An ambulance brought the two pilots
to Makati Medical Center where they were treated for serious and
slight physical injuries.
On 7 May 1996, PAC, Bungabong, and Galvez filed in the Regional
Trial Court (Branch 112) of Pasay City a complaint for sum of money
and damages against PAL, Casiño, Isaac, ATO, Lim, Linog, Jr., and
ATO’s traffic control supervisor, Danilo Alzola. The Government
Service Insurance System (GSIS), as insurer of the Boeing 737 that
figured in the collision, intervened.
The Ruling of the Trial Court
The trial court ruled that the proximate cause of the collision was the
negligence of Alzola, Lim, and Linog, Jr., as ATO’s traffic control
supervisor, ground traffic controller, and air traffic controller,
respectively, at the time of the collision. The trial court further held
that the direct cause of the collision was the negligence of Casiño and
Isaac, as the pilots of the Boeing 737 that collided with the Twin Otter.
The decretal portion of the trial court’s decision reads:
“PREMISES CONSIDERED, judgment is hereby rendered ordering
defendants Philippine Air Lines and its pilots, Rogelio Casiño and Ruel
Isaac, and Air Transportation Office and its comptrollers, Danilo Alzola,
Rogelio Lim and Ernesto Linog, Jr., jointly and severally, to pay:
a) Plaintiff Pacific Airways Corporation the amount of
Php15,000,000.00 and the further amount of Php100,000.00 a day
from April 2, 1996 until it is fully reimbursed for the value of its RP-
C1154 plane, as actual damages, and the amount of Php3,000,000.00,
as exemplary damages, and the amount of Php1,000,000.00, as and
for attorney’s fees and expenses of litigation;
b) Plaintiffs Ely B. Bongabong and Michael F. Galvez, the amount of
Php5,000.00 each, as actual damages; the amount of Php500,000.00,
as and for moral damages; Php500,000.00 as and for exemplary
damages, and the amount of Php50,000.00, as and for attorney’s fees;
c) Defendants are, likewise, ordered to pay, jointly and severally, to
plaintiffs the costs of this suit.
SO ORDERED.”
PAL, Casiño, Isaac, GSIS, ATO, Alzola, Lim, and Linog, Jr., all appealed
the trial court’s Decision to the Court of Appeals.
The Ruling of the Court of Appeals
The Court of Appeals found that the trial court did not commit any
reversible error. In its 28 October 2004 decision, the Court of Appeals
affirmed in toto the decision of the trial court, thus:
“WHEREFORE, the instant appeal is hereby DISMISSED. The decision
of the Regional Trial Court, Branch 112, Pasay City dated July 27, 2001
is hereby AFFIRMED in toto.
SO ORDERED.”
PAL, Casiño, Isaac, GSIS, ATO, Alzola, Lim, and Linog, Jr., filed their
respective motions for reconsideration. The appellate court denied for
lack of merit all the motions for reconsideration except the one filed
by Linog, Jr.
The Court of Appeals gave weight to the 20 March 2003 Decision on
appeal of the RTC (Branch 108) of Pasay City in Criminal Case No. 02-
1979 acquitting Linog, Jr., who was convicted in the original Decision
together with Alzola and Lim, of reckless imprudence resulting in
damage to property with serious and slight physical injuries in
connection with the collision. Since Alzola and Lim did not appeal, the
judgment of conviction against them became final. Alzola and Lim
were sentenced to arresto mayor or imprisonment for two (2) months.
The Court of Appeals reasoned that since the trial court in the criminal
case has ruled that Linog, Jr. was not negligent, then the act from
which the civil liability might arise did not exist. In its 15 November
2005 Resolution, the Court of Appeals decreed:
“WHEREFORE, the decision subject of the motions for reconsideration
is MODIFIED in that the case against defendant-appellant ERNESTO
LINOG, JR. is dismissed. The decision is AFFIRMED in all other
respects.
SO ORDERED.”
Hence, the instant consolidated petitions for review.
In G.R. No. 170418, petitioners PAL, Casiño, and Isaac argue that the
Court of Appeals should have applied the emergency rule instead of
the last clear chance doctrine. Petitioners claim that even if the PAL
pilots were negligent, PAL had exercised due diligence in the selection
and supervision of its pilots. Petitioners contend that the Court of
Appeals awarded damages without any specific supporting proof as
required by law. Petitioners also claim that the Court of Appeals should
have awarded their counterclaim for damages.
In G.R. No. 170414, petitioner GSIS points out that PAC’s pilots were
the ones guilty of negligence as they violated the Rules of the Air,
which provide that right of way belongs to the aircraft on take-off roll
and the aircraft on the right side of another. GSIS stresses that such
negligence was the proximate cause of the collision. GSIS posits that
PAC, Bungabong, and Galvez should be held solidarily liable to pay
GSIS the cost of repairing the insured aircraft.
In G.R. No. 170460, petitioners ATO, Alzola, and Lim call our attention
to the fact that PAC was a mere lessee, not the owner of the Twin
Otter. They argue that PAC, as mere lessee, was not the real party-
in-interest in the complaint seeking recovery for damages sustained
by the Twin Otter. Petitioners maintain that ground and air traffic
clearances were the joint responsibility of ATO and the pilots-in-
command. Petitioners aver that Bungabong and Galvez were negligent
in asking for clearance to cross an active runway while still 350 meters
away from the runway. Petitioners claim that PAL had the right of way
and that PAC’s pilots had the last clear chance to prevent the collision.
The Issue
The sole issue for resolution is who among the parties is liable for
negligence under the circumstances.
The Court’s Ruling
The petitions are meritorious.
In a petition for review under Rule 45, only questions of law may be
raised. This rule, however, admits of certain exceptions as when the
judgment of the Court of Appeals is premised on a misapprehension
of facts or the Court of Appeals fails to notice certain relevant facts
which, if properly considered, will justify a different conclusion.
After thoroughly going over the evidence on record in this case, we
are unable to sustain the finding of fact and legal conclusion of the
Court of Appeals.
To ascertain who among the parties is liable for negligence, we must
refer to the applicable rules governing the specific traffic management
of aircrafts at an airport. The Rules of the Air of the Air Transportation
Office apply to all aircrafts registered in the Philippines. The Boeing
737 and the Twin Otter in this case were both registered in the
Philippines. Both are thus subject to the Rules of the Air. In case of
danger of collision between two aircrafts, the Rules of the Air state:
2.2.4.7 Surface Movement of Aircraft. In case of danger of collision
between two aircrafts taxiing on the maneuvering area of an
aerodrome, the following shall apply:
a) When two aircrafts are approaching head on, or approximately so,
each shall stop or where practicable, alter its course to the right so as
to keep well clear.
b) When two aircrafts are on a converging course, the one which has
the other on its right shall give way. (Emphasis supplied)
In this case, however, the Boeing 737 and the Twin Otter were not
both taxiing at the time of the collision. Only the Twin Otter was
taxiing. The Boeing 737 was already on take-off roll. The Rules of the
Air provide:
“2.2.4.6 Taking Off. An aircraft taxiing on the maneuvering area of
an aerodrome shall give way to aircraft taking off or about to take
off.” (Emphasis supplied)
Therefore, PAL’s aircraft had the right of way at the time of collision,
not simply because it was on the right side of PAC’s aircraft, but more
significantly, because it was “taking off or about to take off.”
PAC’s Pilots
For disregarding PAL’s right of way, PAC’s pilots were grossly
negligent. Gross negligence is one that is characterized by the want
of even slight care, acting or omitting to act in a situation where there
is a duty to act, not inadvertently but willfully and intentionally with a
conscious indifference to consequences insofar as other persons may
be affected.
We find it hard to believe that PAC’s pilots did not see the Boeing 737
when they looked to the left and to the right before approaching the
runway. It was a clear summer evening in April and the Boeing 737,
only 200 meters away, had its inboard lights, outboard lights, taxi
lights, and logo lights on before and during the actual take-off roll.
The only plausible explanation why PAC’s pilots did not see the Boeing
737 was that they did not really look to the left and to the right before
crossing the active runway.
Records show that PAC’s pilots, while still 350 meters away,
prematurely requested clearance to cross the active runway. ATO
points out that PAC’s pilots should have made a full stop at the holding
point to ask for updated clearance right before crossing the active
runway. Had PAC’s pilots done so, ATO would by then be in a position
to determine if there was an aircraft on a take-off roll at the runway.
The collision would not have happened.
ATO, Alzola, Lim, and Linog, Jr.
The Rules of Air Control govern airplane traffic management and
clearance at the then Manila International Airport. It contains several
provisions indicating that airplane traffic management and clearance
are not the sole responsibility of ATO and its traffic controllers, but of
the pilots-in-command of aircrafts as well. The Rules of Air Control
state:
1.3 The pilot-in-command of an aircraft shall, whether manipulating
the controls or not, be responsible for the operation of the aircraft in
accordance with the rules of the air, except that he may depart from
these rules in circumstances that render such departure absolutely
necessary in the interest of safety. (Emphasis supplied)
1.5 The pilot-in-command of an aircraft shall have final authority as
to the disposition of the aircraft while he is in command. (Emphasis
supplied)
3.1 Clearances are based solely on expediting and separating aircraft
and do not constitute authority to violate any applicable regulations
for promoting safety of flight operations or for any other purpose.
(Emphasis supplied)
xxxx
If an air traffic control clearance is not suitable to the pilot-in-
command of an aircraft, he may request, and, if practicable, obtain an
amended clearance. (Emphasis supplied)
10.1.5 Clearances issued by controllers relate to traffic and
aerodrome conditions only and do not relieve a pilot of any
responsibility whatsoever in connection with a possible violation of
applicable rules and regulations. (Emphasis supplied)
Therefore, even if ATO gave both PAL’s pilots and PAC’s pilots
clearance to take off and clearance to cross runway 13, respectively,
it remained the primary responsibility of the pilots-in-command to see
to it that the respective clearances given were suitable. Since the
pilots-in-command have the final authority as to the disposition of the
aircraft, they cannot, in case a collision occurs, pass the blame to ATO
for issuing clearances that turn out to be unsuitable.
The clearance to cross runway 13, premature as it was, was not an
absolute license for PAC’s pilots to recklessly maneuver the Twin Otter
across an active runway. PAC’s pilots should have stopped first at the
holding point to ask for clearance to cross the active runway. It was
wrong for them to have relied on a prematurely requested clearance
which was issued while they were still 350 meters away. Their
defense, that it did not matter whether the clearance was premature
or not as long as the clearance was actually granted, only reveals their
poor judgment and gross negligence in the performance of their
duties.
On the other hand, evidence on record shows that the air traffic
controller properly issued the clearance to take off to the Boeing 737.
Nothing on record indicates any irregularity in the issuance of the
clearance. In fact, the trial court, in the criminal case for reckless
imprudence resulting in damage to property with serious and slight
physical injuries in connection with the collision, ruled that air traffic
controller Linog, Jr. was not negligent. The Court of Appeals, in its 15
November 2005 Resolution, absolved Linog, Jr. of civil liability for
damages based on his acquittal in the criminal case.
While Alzola and Lim, as found by the trial court in the criminal case
for reckless imprudence, may have been negligent in the performance
of their functions, such negligence is only contributory. Their
contributory negligence arises from their granting the premature
request of PAC’s pilots for clearance to cross runway 13 while the Twin
Otter was still 350 meters away from runway 13. However, as
explained earlier, the granting of their premature request for clearance
did not relieve PAC’s pilots from complying with the Rules of the Air.
PAL’s Pilots
Records show that PAL’s pilots timely requested clearance to take off.
Linog, Jr., ATO’s air traffic controller, duly issued the clearance to take
off. Under the Rules of the Air, PAL’s aircraft being on take-off roll
undisputedly had the right of way. Further, the Rules of Air Control
provide:
2.2.4.1 The aircraft that has the right of way shall maintain its heading
and speed, x x x. (Emphasis supplied)
Thus, even if Casiño noticed from the corner of his eye a small airplane
taxiing on the left side and approaching halfway of fox 1,59 it was
fairly reasonable for PAL’s pilots to assume that they may proceed with
the take-off because the taxiing aircraft would naturally respect their
right of way and not venture to cross the active runway while the
Boeing 737 was on take-off roll.
Applicable by analogy is the case of Vda. de Bonifacio v. BLTB, where
the Court applied the principle that a motorist who is properly
proceeding on his own side of the highway, even after he sees an
approaching motorist coming toward him on the wrong side, is
generally entitled to assume that the other motorist will return to his
proper lane of traffic.
Proximate Cause
After assiduously studying the records of this case and carefully
weighing the arguments of the parties, we are convinced that the
immediate and proximate case of the collision is the gross negligence
of PAC’s pilots. Proximate cause is defined as that cause, which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result
would not have occurred.61 In this case, the fact that PAC’s pilots
disregarded PAL’s right of way and did not ask for updated clearance
right before crossing an active runway was the proximate cause of the
collision. Were it not for such gross negligence on the part of PAC’s
pilots, the collision would not have happened.
The Civil Code provides that when a plaintiff’s own negligence is the
immediate and proximate cause of his injury, he cannot recover
damages.
“Art. 2179. When the plaintiff’s own negligence was the immediate
and proximate cause of his injury, he cannot recover damages. But if
his negligence was only contributory, the immediate and proximate
cause of the injury being the defendant’s lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the damages to
be awarded.” (Emphasis supplied)
Under the law and prevailing jurisprudence, PAC and its pilots, whose
own gross negligence was the immediate and proximate cause of their
own injuries, must bear the cost of such injuries. They cannot recover
damages. Civil Case No. 96-0565 for sum of money and damages,
which PAC, Bungabong, and Galvez filed against PAL, Casiño, Isaac,
ATO, Alzola, Lim, and Linog, Jr. should have been dismissed for lack
of legal basis.
PAL’s Counterclaims
We find supported by law and evidence on record PAL’s counterclaim
for actual or compensatory damages but only in the amount of
US$548,819.93 representing lease charges during the period the
Boeing 737 was not flying. The said amount cannot be claimed against
the insurance policy covering the Boeing 737. In this connection, the
Civil Code provides:
“Art. 2207. If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.” (Emphasis
supplied)
Under the law, GSIS, as insurer subrogee of PAL’s right to claim actual
or compensatory damages in connection with the repair of the
damaged Boeing 737, is entitled to reimbursement for the amount it
advanced. GSIS claims reimbursement for the amount of
US$2,775,366.84. In support of its claim, GSIS presented statements
of account, check vouchers, and invoices65 proving payment for the
repair of the Boeing 737 in the total amount of US$2,775,366.84. We
find the claim fully supported by evidence on record and thus we
resolve to grant the same.
With regard to PAL’s other counterclaims, settled is the rule that the
award of moral and exemplary damages as well as attorney’s fees is
discretionary based on the facts and circumstances of each case. The
actual losses sustained by the aggrieved parties and the gravity of the Peralta, Abad, Perez*** and Mendoza, JJ., concur.
injuries must be considered in arriving at reasonable levels.
Understandably, Casiño and Isaac suffered sleepless nights and were Petitions granted, judgment and resolution set aside. Government
temporarily unable to work after the collision. They are thus entitled Service Insurance System vs. Pacific Airways Corporation, 629 SCRA
to moral damages as well as exemplary damages considering that 219, G.R. No. 170414 August 25, 2010
PAC’s pilots acted with gross negligence. Attorney’s fees are generally ——o0o——
not recoverable except when exemplary damages are awarded as in
this case. We thus deem the amounts of P100,000 in moral damages,
P100,000 in exemplary damages, and P50,000 in attorney’s fees to be
in accordance with prevailing jurisprudence and appropriate given the
circumstances.

WHEREFORE, we GRANT the petitions. We SET ASIDE the 28 October

2004 Decision and the 15 November 2005 Resolution of the Court of
Appeals in CA-G.R. CV No. 73214 affirming in toto the 27 July 2001
Decision of the Regional Trial Court (Branch 112) of Pasay City.
However, we SUSTAIN the dismissal of the case against Ernesto Linog,
Jr.

Civil Case No. 96-0565 for sum of money and damages, filed by Pacific
Airways Corporation (PAC), Ely B. Bungabong, and Michael F. Galvez,
is DISMISSED for lack of legal basis.

Pacific Airways Corporation, Ely B. Bungabong, and Michael F. Galvez

are ORDERED to solidarily pay:

(1) Philippine Airlines, Inc. actual or compensatory damages in the

amount of US$548,819.93;

(2) Rogelio Casiño and Ruel Isaac individually moral damages in the
amount of P100,000, exemplary damages in the amount of P100,000,
and attorney’s fees in the amount of P50,000; and

(3) the Government Service Insurance System, as insurer subrogee

of Philippine Airlines, actual or compensatory damages in the amount
of US$2,775,366.84.

No pronouncement as to costs.

SO ORDERED.
 PURITA S. MAPA, CARMINA S. MAPA and CORNELIO P.
MAPA, petitioners, vs. COURT OF APPEALS and TRANS-
WORLD AIRLINES, INC., respondents
G.R. No. 122308. July 8, 1997
Civil Law; Common Carriers; Damages; Jurisdiction; Two categories of
international transportation.—There are then two categories of
international transportation, viz., (1) that where the place of departure
and the place of destination are situated within the territories of two
High Contracting Parties regardless of whether or not there be a break
in the transportation or a transshipment; and (2) that where the place
of departure and the place of destination are within the territory of a
single High Contracting Party if there is an agreed stopping place
within a territory subject to the sovereignty, mandate, or authority of
another power, even though the power is not a party to the
Convention.
Same; Same; Same; Same; Same; Contracts cannot come within the
purview of the first and second categories. — The contracts of
transportation in this case are evidenced by the two TWA tickets, No.
015:9475:153:304 and No. 015:9475:153:305, both purchased and
issued in Bangkok, Thailand. On the basis alone of the provisions
therein, it is obvious that the place of departure and the place of
destination are all in the territory of the United States, or of a single
High Contracting Party. The contracts, therefore, cannot come within
the purview of the first category of international transportation.
Neither can it be under the second category since there was NO
agreed stopping place within a territory subject to the sovereignty,
mandate, or authority of another power.
Same; Same; Same; Same; Dismissal of the second Amended
Complaint by the trial court and the Court of Appeals’ affirmance of
the dismissal were not based on indubitable facts or grounds, but on
inferences without established factual basis. — The flaw of
respondents’ position is the presumption that the parties have
“regarded” as an “undivided carriage” or as a “single operation” the
carriage from Manila to Los Angeles through PAL then to New York-
BostonSt. Louis-Chicago through TWA. The dismissal then of the
second Amended Complaint by the trial court and the Court of Appeals’
affirmance of the dismissal were not based on indubitable facts or
grounds, but on inferences without established factual basis.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Angara, Abello, Concepcion, Regala & Cruz for petitioners.
Quisumbing, Torres & Evangelista for private respondent.
DAVIDE, JR., J.:
The main issue in this petition for review under Rule 45 of the Rules
of Court is the applicability of Article 28(1) of the Warsaw Convention,
which provides as follows:
ARTICLE 28. (1) An action for damages must be brought, at the option
of the plaintiff, in the territory of one of the High Contracting Parties,
either before the court of the domicile of the carrier or of his principal
place of business, or where he has a place of business through which
the contract has been made, or before the court at the place of
destination.
We are urged by the petitioners to reverse the 31 May 1995 Decision
of the Court of Appeals in CA-G.R. CV No. 398962 affirming the 24
July 1992 Order of the Regional Trial Court of Quezon City, Branch
102, which dismissed Civil Case No. Q-91-96203 on the ground of lack
of jurisdiction in view of the aforementioned Article 28(1) of the
Warsaw Convention.
The antecedent facts, as summarized by the Court of Appeals, are as
follows:
Plaintiffs Cornelio P. Mapa and Purita S. Mapa are respectable
members of the society. Mr. Mapa is an established businessman and
currently the Regional General Manager of Akerlund and Rausing, a
multinational packaging material manufacturer based in Manila. He
was previously the Senior Vice President of Phimco Industries, an
affiliate company of Swedish Match Company. Mrs. Mapa is a
successful businesswoman engaged in the commercial transactions of
high value antique and oriental arts decor items originating from Asian
countries. Carmina S. Mapa is the daughter of plaintiffs Purita and
Cornelio and is a graduate of the International School in Bangkok,
Thailand, now presently enrolled at the Boston University where she
is majoring in communication.
Plaintiffs Mapa entered into contract of air transportation with
defendant TWA as evidenced by TWA ticket Nos. 015:9475:153:304
and 015:9475:153:305, purchased in Bangkok, Thailand. Said TWA
tickets are for Los Angeles-New York-Boston-St. Louis-Chicago . . . .
Domicile of carrier TWA is Kansas City, Missouri, USA. Its principal
place of business is Kansas City, Missouri, USA. TWA’s place of
business through which the contracts were made is Bangkok,
Thailand. The place of destination is Chicago, USA.
On August 10, 1990, plaintiffs Carmina and Purita left Manila on board
PAL flight No. 104 for Los Angeles. Carmina was to commence
schooling and thus was accompanied by Purita to assist her in settling
down at the University.
They arrived in Los Angeles on the same date and stayed there until
August 14, 1990 when they left for New York City.
On August 14, 1990, plaintiffs Purita and Carmina S. Mapa arrived at
the John F. Kennedy (JFK) Airport, New York, on TWA Flight No. 904.
On August 27, 1990, plaintiffs Purita and Carmina S. Mapa departed
for Boston, taking a connecting flight on TWA’s carrier, TW 0901, from
JFK Airport, New York, to Boston’s Logan Airport, checking in seven
(7) pieces of luggage at the TWA counter in the JFK Airport. The seven
baggages were received by a porter who issued seven TWA baggage
receipts numbered 17-8270, 71, 72, 73, 74, 75 and 76 therefor.
From the entrance gate of the terminal building, plaintiffs Purita and
Carmina proceeded to TWA’s ticket counter and presented their
confirmed TWA tickets numbered 015:9475:153:304 and
015:9475:153:305 with a 3:00 p.m. departure time. They were issued
their boarding passes and were instructed to proceed to gate 35 for
boarding. At about 2:40 p.m., plaintiffs noticed that there was still no
instruction to board the aircraft so they made inquiries. The TWA
ground stewardess informed plaintiffs that they were at the wrong
gate because their flight was boarding at gate 1. Upon hearing this,
plaintiffs rushed to gate 1 which was in another building terminal. At
gate 1, they were told by a TWA ground stewardess that flight 901
had just departed. However, they were consoled that another TWA
flight was leaving for Boston after 30 minutes and plaintiffs could use
the same boarding pass for the next flight. At around 3:15 p.m.,
plaintiffs Purita and Carmina were able to board the next flight.
However, the plane was not immediately cleared for take off on
account of a thunderstorm. The passengers were instructed to stay
inside the aircraft until 6:00 p.m. when the plane finally left for Boston.
Upon arriving in Boston, plaintiffs Purita and Carmina proceeded to
the carousel to claim their baggages and found only three out of the
seven they checked in, to wit: one Samsonite on the carousel, another
Samsonite lying on the floor near the carousel and a third baggage,
an American Tourister, inside the unclaimed baggage office. Plaintiffs
immediately reported the loss of their four baggages to the TWA
Baggage Office at Logan Airport. TWA’s representative confidently
assured them that their baggages would be located within 24 hours
and not more than 48 hours.
On September 2, 1990, plaintiffs received a letter from TWA, signed
by Mr. J.A. Butler, Customer Relations-Baggage Service, apologizing
for TWA’s failure to locate the missing luggage and requesting
plaintiffs to accomplish a passenger property questionnaire to facilitate
a further intensive and computerized search for the lost luggage.
Plaintiffs duly accomplished the passenger property questionnaire,
taking pains to write down in detail the contents of each missing
baggage. The total value of the lost items amounted to $11,283.79.
On September 20, 1990, plaintiffs’ counsel wrote TWA thru its General
Sales Manager in the Philippines, Daniel Tuason, with office address
at Ground Floor, Saville Building, Sen. Gil J. Puyat Avenue corner
Paseo de Roxas, Makati, Metro Manila demanding indemnification for
the grave damage and injury suffered by the plaintiffs.
TWA again assured plaintiffs that intensive search was being
conducted.
On October 8, 1990, TWA offered to amicably settle the case by giving
plaintiffs-appellants two options: (a) transportation credit for future
TWA travel or (b) cash settlement. Five months lapsed without any
result on TWA’s intensive search.
On January 3, 1991, plaintiffs-appellants opted for transportation
credit for future TWA travel.
On January 11, 1991, TWA disregarded plaintiffs’ option and
unilaterally declared the payment of $2,560.00 as constituting full
satisfaction of the plaintiffs’ claim.
On July 19, 1991, plaintiffs accepted the check for $2,560.00, as
partial payment for the actual cost of their lost baggages and their
contents.
Despite demands by plaintiffs, TWA failed and refused without just
cause to indemnify and redress plaintiffs for the grave injury and
damages they have suffered.
Purita S. Mapa, Carmina S. Mapa, and Cornelio P. Mapa (herein
petitioners) then filed with the trial court on 1 August 1991 a complaint
for damages, which was docketed as Civil
Case No. Q-91-9620. Before a responsive pleading was filed, the
petitioners filed an Amended Complaint. They prayed that after due
trial private respondent Trans-World Airlines, Inc. (hereafter, TWA),
be ordered to pay them the following amounts: (1) US$8,723.79, or
its equivalent in Philippine currency, representing the cost of the lost
luggage and its contents; (2) US$2,949.50, or its equivalent in
Philippine currency, representing the cost of hotel, board and lodging,
and communication expenses; (3) P1 million, by way of moral
damages; (4) P1 million, by way of exemplary damages, with legal
interest on said amounts from the date of extrajudicial demand
thereof; and (5) P500,000.00 as attorney’s fees, costs of the suit, and
other expenses of litigation.
On 26 February 1992, TWA filed its Answer to the Amended Complaint
raising, as special and affirmative defense, lack of jurisdiction of
Philippine courts over the action for damages in that pursuant to
Article 28(1) of the Warsaw Convention, the action could only be
brought either in Bangkok where the contract was entered into, or in
Boston which was the place of destination, or in Kansas City which is
the carrier’s domicile and principal place of business.
TWA further alleged that pursuant to the Warsaw Convention and the
Notice of Baggage Limitations at the back of the tickets, its liability to
the petitioners is limited to US$9.07 per pound, or US$20.00 per kilo,
which is in lieu of actual and compensatory damages. Even assuming
that petitioners’ bag weighed the maximum acceptable weight of 70
pounds, TWA’s maximum liability is $640.00 per bag or $2,560.00 for
the four pieces of baggage, which the petitioners have been offered
and have accepted. TWA also submitted that it could not be liable for
moral and exemplary damages and attorney’s fees because it did not
act in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.
On 7 February 1992, the petitioners filed their second Amended
Complaint to include a claim of US$2,500, or its equivalent in
Philippine Currency, representing the additional replacement cost of
the items and personal effects contained in their lost luggage; and
US$4,500 representing the travel expenses, hotel, lodging, food and
other expenses of petitioner Cornelio Mapa, who was constrained to
join his family in Boston to extend the necessary assistance in
connection with the lost luggage.
After the filing of TWA’s Answer to the second Amended Complaint,
and petitioners’ Reply thereto, the trial court gave TWA ten days within
which to submit a memorandum in support of its affirmative defenses;
after which the incident would be deemed submitted for resolution.
However, after TWA filed its Memorandum, the trial court gave the
petitioners five days within which to file a reply memorandum; and
TWA, two days from receipt of the latter to file its comment thereon.
The petitioners then filed their Opposition (by way of Reply
Memorandum) to which TWA filed a Reply. Thereafter, the petitioners
submitted a Rejoinder; TWA, a Surrejoinder.
On 24 July 1992, the trial court issued an Order dismissing the case
for lack of jurisdiction in light of Article 28(1) of the Warsaw
Convention. Thus:
It is plaintiffs’ theory that the Warsaw Convention does not apply to
the instant case because plaintiffs’ contract of transportation does not
constitute “international transportation” as defined in said convention.
This however is belied by the Passenger Property Questionnaire which
is Annex C of plaintiffs’ amended complaint. Page two of said
questionnaire accomplished by plaintiffs under the heading “Your
Complete Itinerary” shows that the TWA tickets issued to the plaintiffs
form part of the contract of transportation to be performed from
Manila to the United States. Since the Philippines and the United
States are parties to the convention, plaintiffs’ contracts of
transportation come within the meaning of International
Transportation.
...
On the basis of the foregoing, the Court holds that the Warsaw
Convention is applicable to the case at bar, even if the basis of
plaintiffs’ present action is breach of contract of carriage under the
New Civil Code.
The next question to be resolved is whether or not the Court has
jurisdiction to try the present case in the light of the provision of Art.
28(1) above-quoted.
Under Art. 28(1) supra, a complaint for damages against an air carrier
can be instituted only in any of the following places/courts:
(1) The court of the domicile of the carrier;
(2) The court of its principal place of business;
(3) The court where it has a place of business through which the
contract had been made;
(4) The court of the place of destination.
In interpreting the provision of Art. 28(1) of the Warsaw Convention,
the Supreme Court in the same case of Augusto Benedicto Santos vs.
Northwest Airlines held:
“Whether Article 28(1) refers to jurisdiction or only to venue is a
question over which authorities are sharply divided. While the
petitioner cites several cases holding that Article 28(1) refers to venue
rather than jurisdiction, there are later cases cited by the private
respondent supporting the conclusion that the provision is
jurisdictional.
Venue and jurisdiction are entirely distinct matters. Jurisdiction may
not be conferred by consent or waiver upon a court which otherwise
would have no jurisdiction over the subject-matter of an action; but
the venue of an action as fixed by statute may be changed by the
consent of the parties and an objection that the plaintiff brought his
suit in the wrong country may be waived by the failure of the
defendant to make a timely objection. In either case, the court may
render a valid judgment. Rules as to jurisdiction can never be left to
the consent or agreement of the parties, whether or not a prohibition
exists against their alteration.
A number of reasons tends to support the characterization of Article
28(1) as a jurisdiction and not a venue provision. First, the wording of
Article 32, which indicates the places where the action for damages
“must” be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives
of the Convention, which is to “regulate in a uniform manner the
conditions of international transportation by air.” Third, the
Convention does not contain any provision prescribing rules of
jurisdiction other than Article 28(1), which means that the phrase
“rules as to jurisdiction” used in Article 32 must refer only to Article
28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as “jurisdictions,” which, as
such, cannot be left to the will of the parties regardless of the time
when the damage occurred.”
...
It has been shown by the defendant that the domicile of the defendant
Trans World Airlines, Inc. is Kansas City, Missouri, its principal place
of business is also in Kansas City, Missouri, the carrier’s place of
business through which the contracts were made is Bangkok (Annexes
A and A-1, Amended Complaint), and the place of destination was
Boston.
The Philippines not being one of the places specified in Art. 28(1)
abovequoted where the complaint may be instituted, this Court
therefore, does not have jurisdiction over the present case.
Evidently discontented with the trial court’s order, the petitioners
appealed to the Court of Appeals, contending that the lower court
erred in not holding that (1) it has jurisdiction over the instant case
and (2) the Warsaw Convention is inapplicable in the instant case
because the subject matter of the case is not included within the
coverage of the said convention. They claimed that their cause of
action could be based on breach of contract of air carriage founded
on Articles 1733, 1734, 1735, 1755, and 1756 of the New Civil Code
governing common carriers or Article 2176 of the same Code
governing tort or quasi-delict.
The appellate court disagreed with the petitioners and affirmed the
order of the trial court. It held that the Warsaw Convention is the law
which governs the dispute between the petitioners and TWA because
what is involved is international transportation defined by said
Convention in Article I(2). This holding is founded on its determination
that the two TWA tickets for Los Angeles-New York-Boston-St. Louis-
Chicago purchased in Bangkok, Thailand, were issued in conjunction
with, and therefore formed part of, the contract of transportation
performed from Manila, Philippines, to the United States.
The respondent court further held that the cause of action of the
petitioners arose from the loss of the four checked pieces of baggage,
which then falls under Article 18(1), Chapter III (Liability of the
Carrier) of the Warsaw Convention. Pursuant to Article 24(1) of the
Convention, all actions for damages, whether based on tort, code law
or common law, arising from loss of baggage under Article 18 of the
Warsaw Convention, can only be brought subject to the conditions
and limits set forth in the Warsaw Convention. Article 28(1) thereof
set forth conditions and limits in that the action for damages may be
instituted only in the territory of one of the High Contracting Parties,
before the court of (1) the domicile of the carrier, (2) the carrier’s
principal place of business, (3) the place of business through which
the contract has been made, or (4) the place of destination. Since the
Philippines is not one of these places, a Philippine Court, like the RTC,
has no jurisdiction over the complaint for damages.
Respondent Court of Appeals likewise held that the petitioners could
not claim application of Articles 1733, 1734, 1735, 1755, and 1756 of
the New Civil Code on common carriers without taking into
consideration Article 1753 of the same Code, which provides that the
law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction,
or deterioration. Since the country of ultimate destination is Chicago,
the law of Chicago shall govern the liability of TWA for the loss of the
four pieces of baggage. Neither is Article 2176 of the New Civil Code
on torts or quasi-delicts applicable in view of the private international
law principle of lex loci delicti commissi. In addition, comformably with
Santos III v. Northwest Orient Airlines, mere allegation of willful
misconduct resulting in a tort is insufficient to exclude the case from
the comprehension of the Warsaw Convention.
Failing in their bid to reconsider the decision, the petitioners filed this
petition. They aver that respondent Court of Appeals gravely erred (1)
in holding that the Warsaw Convention is applicable to this case and
(2) in applying Article 1753 of the Civil Code and the principle of lex
loci delicti commissi.
We resolved to give due course to the petition after the filing by TWA
of its Comment on the petition and noted without action for the
reasons stated in the resolution of 25 September 1996 petitioners’
Reply and Rejoinder. We then required the parties to submit their
respective memoranda. They did in due time.
The petitioners insist that the Warsaw Convention is not applicable to
their case because the contracts they had with TWA did not involve
an international transportation. Whether the contracts were of
international transportation is to be solely determined from the TWA
tickets issued to them in Bangkok, Thailand, which showed that their
itinerary was Los Angeles-New York-Boston-St. Louis-Chicago.
Accordingly, since the place of departure (Los Angeles) and the place
of destination (Chicago) are both within the territory of one High
Contracting Party, with no agreed stopping place in a territory subject
to the sovereignty, mandate, suzerainty or authority of another Power,
the contracts did not constitute ‘international transportation’ as
defined by the convention. They also claim to be without legal basis
the contention of TWA that their transportation contracts were of
international character because of the handwritten notations in the
tickets re “INT’L TKT #079-4402956821-2” and “INT’L TKT #079-
4402956819.” Notwithstanding such notations, the TWA tickets, viz.,
(a) No. 015.9475:153:304 and (b) No. 015-9475:153:305 did not
cease to be for the itinerary therein designated. Besides, it is a fact
that petitioners Purita and Carmina Mapa traveled from Manila to Los
Angeles via Philippine Airlines (PAL) by virtue of PAL tickets issued
independently of the TWA tickets.
The pith issue to be resolved under the petitioners’ first assigned error
is whether the contracts of transportation between Purita and Carmina
Mapa, on the one hand, and TWA, on the other, were contracts of
“international transportation” under the Warsaw Convention. If they
were, then we should sustain the trial court and the Court of Appeals
in light of our ruling in Santos v. Northwest Orient Airlines. It appears
clear to us that TWA itself, the trial court, and the Court of Appeals
impliedly admit that if the sole basis were the two TWA tickets for Los
Angeles-New York-Boston-St. LouisChicago, the contracts cannot be
brought within the term “international transportation,” as defined in
Article I(2) of the Warsaw Convention. As provided therein, a contract
is one of international transportation only if according to the contract
made by the parties, the place of departure and the place of
destination, whether or not there be a break in the transportation or
a transshipment, are situated either within the territories of two High
Contracting Parties, or within the territory of a single High Contracting
Party, if there is an agreed stopping place within a territory subject to
the sovereignty, mandate or authority of another power, even though
that power is not a party to this convention.
There are then two categories of international transportation, viz., (1)
that where the place of departure and the place of destination are
situated within the territories of two High Contracting Parties
regardless of whether or not there be a break in the transportation or
a transshipment; and (2) that where the place of departure and the
place of destination are within the territory of a single High Contracting
Party if there is an agreed stopping place within a territory subject to
the sovereignty, mandate, or authority of another power, even though
the power is not a party to the Convention.
The High Contracting Parties referred to in the Convention are the
signatories thereto and those which subsequently adhered to it. In the
case of the Philippines, the Convention was concurred in by the
Senate, through Resolution No. 19, on 16 May 1950. The Philippine
instrument of accession was signed by President Elpidio Quirino on 13
October 1950 and was deposited with the Polish Government on 9
November 1950. The Convention became applicable to the Philippines
on 9 February 1951. Then, on 23 September 1955, President Ramon
Magsaysay issued Proclamation No. 201, declaring the Philippines’
formal adherence thereto, “to the end that the same and every article
and clause thereof may be observed and fulfilled in good faith by the
Republic of the Philippines and the citizens thereof.
The contracts of transportation in this case are evidenced by the two
TWA tickets, No. 015:9475:153:304 and No. 015:9475:153:305, both
purchased and issued in Bangkok, Thailand. On the basis alone of the
provisions therein, it is obvious that the place of departure and the
place of destination are all in the territory of the United States, or of
a single High Contracting Party. The contracts, therefore, cannot come
within the purview of the first category of international transportation.
Neither can it be under the second category since there was NO
agreed stopping place within a territory subject to the sovereignty,
mandate, or authority of another power.
The only way to bring the contracts between Purita and Carmina
Mapa, on the one hand, and TWA, on the other, within the first
category of “international transportation” is to link them with, or to
make them an integral part of, the Manila-Los Angeles travel of Purita
and Carmina through PAL aircraft. The “linkages” which have been
pointed out by the TWA, the trial court, and the Court of Appeals are
(1) the handwritten notations, viz., INT’L TKT # 079-4402956821-2
and INT’L TKT # 079-4402956819, on the two TWA tickets; and (2)
the entries made by petitioners Purita and Carmina Mapa in column
YOUR COMPLETE ITINERARY in TWA’s Passenger Property
Questionnaire, wherein they mentioned their travel from Manila to Los
Angeles in flight PR 102.
The alleged “international tickets” mentioned in the notations in
conjunction with which the two TWA tickets were issued were not
presented. Clearly then, there is at all no factual basis of the finding
that the TWA tickets were issued in conjunction with the international
tickets, which are even, at least as of now, non-existent.
As regards the petitioners’ entry in YOUR COMPLETE ITINERARY
column of the Passenger Property Questionnaire wherein they
included the Manila-Los Angeles travel, it must be pointed out that this
was made on 4 September 1990 by petitioners Purita and Carmina
Mapa, and only in connection with their claim for their lost pieces of
baggage. The loss occurred much earlier, or on 27 August 1990. The
entry can by no means be considered as a part of, or supplement to,
their contracts of transportation evidenced by the TWA tickets which
covered transportation within the United States only.
It must be underscored that the first category of international
transportation under the Warsaw Convention is based on “the contract
made by the parties.” TWA does not claim that the Manila-Los Angeles
contracts of transportation which brought Purita and Carmina to Los
Angeles were also its contracts. It does not deny the assertion of the
petitioners that those contracts were independent of the TWA tickets
issued in Bangkok, Thailand. No evidence was offered that TWA and
PAL had an agreement concerning transportation of passengers from
points of departures not served with aircrafts of one or the other.
There could have been no difficulty for such agreement, since TWA
admitted without qualification in paragraph 1 of its Answer to the
second Amended Complaint the allegation in paragraph 1.1 of the
latter that TWA “is a foreign corporation licensed to do business in the
Philippines with office address at Ground Floor, Saville Building, Sen.
Gil J. Puyat Avenue, corner Paseo de Roxas, Makati, Metro Manila.”
TWA relies on Article I(3) of the Convention, which provides as
follows:
3. A carriage to be performed by several successive air carriers is
deemed, for the purposes of this Convention, to be one undivided
carriage, if it has been regarded by the parties as a single operation,
whether it had been agreed upon under the form of a single contract
or of a series of contracts, and it shall not lose its international
character merely because one contract or a series of contracts is to be
performed entirely within a territory subject to the sovereignty,
suzerainty, mandate, or authority of the same High Contracting Party.
It also points to Article 15 of the IATA Recommend Practice 1724,
which provides: Carriage to be performed by several successive
carriers under one ticket, or under a ticket and any conjunction ticket
issued in connection therewith, is regarded as a single operation.”
The flaw of respondents’ position is the presumption that the parties
have “regarded” as an “undivided carriage” or as a “single operation”
the carriage from Manila to Los Angeles through PAL then to New
York-Boston-St. Louis-Chicago through TWA. The dismissal then of the
second Amended Complaint by the trial court and the Court of Appeals’
affirmance of the dismissal were not based on indubitable facts or
grounds, but on inferences without established factual basis.
TWA should have offered evidence for its affirmative defenses at the
preliminary hearing therefor. Section 5 of Rule 16 of the Rules of Court
expressly provides:
SEC. 5. Pleading grounds as affirmative defenses.—Any of the grounds
for dismissal provided for in this rule, except improper venue, may be
pleaded as an affirmative defense, and a preliminary hearing may be
had thereon as if a motion to dismiss had been filed.
Without any further evidence as earlier discussed, the trial court
should have denied the affirmative defense of lack of jurisdiction
because it did not appear to be indubitable. Section 3 of Rule 16 of
the Rules of Court provides:
SEC. 3. Hearing and order.—After hearing the court may deny or grant
the motion or allow amendment of pleading, or may defer the hearing
and determination of the motion until the trial if the ground alleged
therein does not appear to be indubitable.
WHEREFORE, the instant petition is GRANTED and the challenged
decision of 31 May 1995 of respondent Court of Appeals in CA-G.R.
CV No. 39896, as well as the Order of 24 July 1992 of the Regional
Trial Court of Quezon City, Branch 102, in Civil Case No. Q-91-9620,
is REVERSED and SET ASIDE.

The Regional Trial Court of Quezon City, Branch 102, is hereby

DIRECTED to proceed with the pre-trial, if it has not been terminated,
and with the trial on the merits of the case and then to render
judgment thereon, taking into account the foregoing observations on
the issue of jurisdiction.

SO ORDERED.

Narvasa (C.J., Chairman), Melo, Francisco and Panganiban, JJ.,

concur.

Petition granted.

——o0o——
EDNA DIAGO LHUILLIER, petitioner, vs. BRITISH AIRWAYS,
respondent
G.R. No. 171092. March 15, 2010
Civil Law; Common Carriers; Warsaw Convention; Damages; It is
settled that the Warsaw Convention has the force and effect of law in
this country. — It is settled that the Warsaw Convention has the force
and effect of law in this country. In Santos III v. Northwest Orient
Airlines, 210 SCRA 256 (1992), we held that: The Republic of the
Philippines is a party to the Convention for the Unification of Certain
Rules Relating to International Transportation by Air, otherwise known
as the Warsaw Convention. It took effect on February 13, 1933. The
Convention was concurred in by the Senate, through its Resolution
No. 19, on May 16, 1950. The Philippine instrument of accession was
signed by President Elpidio Quirino on October 13, 1950, and was
deposited with the Polish government on November 9, 1950. The
Convention became applicable to the Philippines on February 9, 1951.
On September 23, 1955, President Ramon Magsaysay issued
Proclamation No. 201, declaring our formal adherence thereto, “to the
end that the same and every article and clause thereof may be
observed and fulfilled in good faith by the Republic of the Philippines
and the citizens thereof.” The Convention is thus a treaty commitment
voluntarily assumed by the Philippine government and, as such, has
the force and effect of law in this country.
Same; Same; Same; Same; Meaning of “International Carriage.”—For
the purposes of this Convention the expression “inter­national
carriage” means any carriage in which, according to the contract made
by the parties, the place of departure and the place of destination,
whether or not there be a break in the carriage or a transhipment, are
situated either within the territories of two High Contracting Parties,
or within the territory of a single High Contracting Party, if there is an
agreed stopping place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another Power, even though that
Power is not a party to this Convention. A carriage without such an
agreed stopping place between territories subject to the sovereignty,
suzerainty, mandate or authority of the same High Contracting Party
is not deemed to be international for the purposes of this Convention.
Same; Same; Same; Same; Place where plaintiff may bring the action
for damages. — Under Article 28(1) of the Warsaw Convention, the
plaintiff may bring the action for damages before—the court where
the carrier is domiciled; 2. the court where the carrier has its principal
place of business; 3. the court where the carrier has an establishment
by which the contract has been made; or 4. the court of the place of
destination.
Same; Same; Same; Jurisdiction; Article 28(1) of the Warsaw
Convention is jurisdictional in character. — We further held that Article
28(1) of the Warsaw Convention is jurisdictional in character. Thus: A
number of reasons tends to support the characterization of Article
28(1) as a jurisdiction and not a venue provision. First, the wording of
Article 32, which indicates the places where the action for damages
“must” be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives
of the Convention, which is to “regulate in a uniform manner the
conditions of international transportation by air.” Third, the
Convention does not contain any provision prescribing rules of
jurisdiction other than Article 28(1), which means that the phrase
“rules as to jurisdiction” used in Article 32 must refer only to Article
28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as “jurisdictions,” which, as
such, cannot be left to the will of the parties regardless of the time
when the damage occurred.
Remedial Law; Jurisdiction; Voluntary Appearance; A defendant who
files a motion to dismiss assailing the jurisdiction of the court over his
person together with other grounds raised therein is not deemed to
have appeared voluntarily before the court. — The second sentence
of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly
provides: Sec. 20. Voluntary appearance. — The defendant’s
voluntary appearance in the action shall be equivalent to service of
summons. The inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the defendant shall not be
deemed a voluntary appearance. Thus, a defendant who files a motion
to dismiss, assailing the jurisdiction of the court over his person,
together with other grounds raised therein, is not deemed to have
appeared voluntarily before the court. What the rule on voluntary
appearance—the first sentence of the above-quoted rule—means is
that the voluntary appearance of the defendant in court is without
qualification, in which case he is deemed to have waived his defense
of lack of jurisdiction over his person due to improper service of
summons.
PETITION for review on certiorari of an order of the Regional Trial
Court of Makati City, Br. 132.
The facts are stated in the opinion of the Court.
PJL Legal Services Group for petitioner.
A.Q. Ancheta & Partners for respondent.
DEL CASTILLO, J.:
Jurisdictio est potestas de publico introducta cum necessitate juris
dicendi. Jurisdiction is a power introduced for the public good, on
account of the necessity of dispensing justice.
Factual Antecedents
On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint for
damages against respondent British Airways before the Regional Trial
Court (RTC) of Makati City. She alleged that on February 28, 2005,
she took respondent’s flight 548 from London, United Kingdom to
Rome, Italy. Once on board, she allegedly requested Julian Halliday
(Halliday), one of the respondent’s flight attendants, to assist her in
placing her hand-carried luggage in the overhead bin. However,
Halliday allegedly refused to help and assist her, and even sarcastically
remarked that “If I were to help all 300 passengers in this flight, I
would have a broken back!”
Petitioner further alleged that when the plane was about to land in
Rome, Italy, another flight attendant, Nickolas Kerrigan (Kerrigan),
singled her out from among all the passengers in the business class
section to lecture on plane safety. Allegedly, Kerrigan made her appear
to the other passengers to be ignorant, uneducated, stupid, and in
need of lecturing on the safety rules and regulations of the plane.
Affronted, petitioner assured Kerrigan that she knew the plane’s safety
regulations being a frequent traveler. Thereupon, Kerrigan allegedly
thrust his face a mere few centimeters away from that of the petitioner
and menacingly told her that “We don’t like your attitude.”
Upon arrival in Rome, petitioner complained to respondent’s ground
manager and demanded an apology. However, the latter declared that
the flight stewards were “only doing their job.”
Thus, petitioner filed the complaint for damages, praying that
respondent be ordered to pay P5 million as moral damages, P2 million
as nominal damages, P1 million as exemplary damages, P300,000.00
as attorney’s fees, P200,000.00 as litigation expenses, and cost of the
suit.
On May 16, 2005, summons, together with a copy of the complaint,
was served on the respondent through Violeta Echevarria, General
Manager of Euro-Philippine Airline Services, Inc. On May 30, 2005,
respondent, by way of special appearance through counsel, filed a
Motion to Dismiss on grounds of lack of jurisdiction over the case and
over the person of the respondent. Respondent alleged that only the
courts of London, United Kingdom or Rome, Italy, have jurisdiction
over the complaint for damages pursuant to the Warsaw Convention,
Article 28(1) of which provides:
“An action for damages must be brought at the option of the plaintiff,
either before the court of domicile of the carrier or his principal place
of business, or where he has a place of business through which the
contract has been made, or before the court of the place of
destination.”
Thus, since a) respondent is domiciled in London; b) respondent’s
principal place of business is in London; c) petitioner bought her ticket
in Italy (through Jeepney Travel S.A.S, in Rome); and d) Rome, Italy
is petitioner’s place of destination, then it follows that the complaint
should only be filed in the proper courts of London, United Kingdom
or Rome, Italy.
Likewise, it was alleged that the case must be dismissed for lack of
jurisdiction over the person of the respondent because the summons
was erroneously served on Euro-Philippine Airline Services, Inc. which
is not its resident agent in the Philippines.
On June 3, 2005, the trial court issued an Order requiring herein
petitioner to file her Comment/Opposition on the Motion to Dismiss
within 10 days from notice thereof, and for respondent to file a Reply
thereon. Instead of filing a Comment/Opposition, petitioner filed on
June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal
Amendment to the Complaint and Issuance of Alias Summons.
Petitioner alleged that upon verification with the Securities and
Exchange Commission, she found out that the resident agent of
respondent in the Philippines is Alonzo Q. Ancheta. Subsequently, on
September 9, 2005, petitioner filed a Motion to Resolve Pending
Incident and Opposition to Motion to Dismiss.
Ruling of the Regional Trial Court
On October 14, 2005, the RTC of Makati City, Branch 132, issued an
Order granting respondent’s Motion to Dismiss. It ruled that:
“The Court sympathizes with the alleged ill-treatment suffered by the
plaintiff. However, our Courts have to apply the principles of
international law, and are bound by treaty stipulations entered into by
the Philippines which form part of the law of the land. One of this is
the Warsaw Convention. Being a signatory thereto, the Philippines
adheres to its stipulations and is bound by its provisions including the
place where actions involving damages to plaintiff is to be instituted,
as provided for under Article 28(1) thereof. The Court finds no
justifiable reason to deviate from the indicated limitations as it will
only run counter to the provisions of the Warsaw Convention. Said
adherence is in consonance with the comity of nations and deviation
from it can only be effected through proper denunciation as
enunciated in the Santos case (ibid). Since the Philippines is not the
place of domicile of the defendant nor is it the principal place of
business, our courts are thus divested of juris-diction over cases for
damages. Neither was plaintiff’s ticket issued in this country nor was
her destination Manila but Rome in Italy. It bears stressing however,
that referral to the court of proper jurisdiction does not constitute
constructive denial of plaintiff’s right to have access to our courts since
the Warsaw Convention itself provided for jurisdiction over cases
arising from international transportation. Said treaty stipulations must
be complied with in good faith following the time honored principle of
pacta sunt servanda.
The resolution of the propriety of service of summons is rendered
moot by the Court’s want of jurisdiction over the instant case.
WHEREFORE, premises considered, the present Motion to Dismiss is
hereby GRANTED and this case is hereby ordered DISMISSED.”
Petitioner filed a Motion for Reconsideration but the motion was
denied in an Order dated January 4, 2006.
Petitioner now comes directly before us on a Petition for Review on
Certiorari on pure questions of law, raising the following issues:
Issues
I. WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION OVER
A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO
CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN
CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF ANY
FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE
WARSAW CONVENTION.
II. WHETHER X X X RESPONDENT AIR CARRIER OF PASSENGERS, IN
FILING ITS MOTION TO DISMISS BASED ON LACK OF
JURISDICTION OVER THE SUBJECT MATTER OF THE CASE AND
OVER ITS PERSON MAY BE DEEMED AS HAVING IN FACT AND IN
LAW SUBMITTED ITSELF TO THE JURISDICTION OF THE LOWER
COURT, ESPECIALLY SO, WHEN THE VERY LAWYER ARGUING
FOR IT IS HIMSELF THE RESIDENT AGENT OF THE CARRIER.
Petitioner’s Arguments
Petitioner argues that her cause of action arose not from the contract
of carriage, but from the tortious conduct committed by airline
personnel of respondent in violation of the provisions of the Civil Code
on Human Relations. Since her cause of action was not predicated on
the contract of carriage, petitioner asserts that she has the option to
pursue this case in this jurisdiction pursuant to Philippine laws.
Respondent’s Arguments
In contrast, respondent maintains that petitioner’s claim for damages
fell within the ambit of Article 28(1) of the Warsaw Convention. As
such, the same can only be filed before the courts of London, United
Kingdom or Rome, Italy.
Our Ruling
The petition is without merit.
The Warsaw Convention has the force and effect of law in this country.
It is settled that the Warsaw Convention has the force and effect of
law in this country. In Santos III v. Northwest Orient Airlines, we held
that:
“The Republic of the Philippines is a party to the Convention for the
Unification of Certain Rules Relating to International Transportation by
Air, otherwise known as the Warsaw Convention. It took effect on
February 13, 1933. The Convention was concurred in by the Senate,
through its Resolution No. 19, on May 16, 1950. The Philippine
instrument of accession was signed by President Elpidio Quirino on
October 13, 1950, and was deposited with the Polish government on
November 9, 1950. The Convention became applicable to the
Philippines on February 9, 1951. On September 23, 1955, President
Ramon Magsaysay issued Proclamation No. 201, declaring our formal
adherence thereto, “to the end that the same and every article and
clause thereof may be observed and fulfilled in good faith by the
Republic of the Philippines and the citizens thereof.”
The Convention is thus a treaty commitment voluntarily assumed by
the Philippine government and, as such, has the force and effect of
law in this country.”
The Warsaw Convention applies because the air travel, where the
alleged tortious conduct occurred, was between the United Kingdom
and Italy, which are both signatories to the Warsaw Convention.
Article 1 of the Warsaw Convention provides:
1. This Convention applies to all international carriage of persons,
luggage or goods performed by aircraft for reward. It applies equally
to gratuitous carriage by aircraft performed by an air transport
undertaking.
2. For the purposes of this Convention the expression “international
carriage” means any carriage in which, according to the contract made
by the parties, the place of departure and the place of destination,
whether or not there be a break in the carriage or a transhipment, are
situated either within the territories of two High Contracting Parties,
or within the territory of a single High Contracting Party, if there is an
agreed stopping place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another Power, even though that
Power is not a party to this Convention. A carriage without such an
agreed stopping place between territories subject to the sovereignty,
suzerainty, mandate or authority of the same High Contracting Party
is not deemed to be international for the purposes of this Convention.
(Emphasis supplied)
Thus, when the place of departure and the place of destination in a
contract of carriage are situated within the territories of two High
Contracting Parties, said carriage is deemed an “international
carriage.” The High Contracting Parties referred to herein were the
signatories to the Warsaw Convention and those which subsequently
adhered to it.
In the case at bench, petitioner’s place of departure was London,
United Kingdom while her place of destination was Rome, Italy. Both
the United Kingdom and Italy signed and ratified the Warsaw
Convention. As such, the transport of the petitioner is deemed to be
an “international carriage” within the contemplation of the Warsaw
Convention.
Since the Warsaw Convention applies in the instant case, then the
jurisdiction over the subject matter of the action is governed by the
provisions of the Warsaw Convention.
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring
the action for damages before—
1. the court where the carrier is domiciled;
2. the court where the carrier has its principal place of business;
3. the court where the carrier has an establishment by which the
contract has been made; or
4. the court of the place of destination.
In this case, it is not disputed that respondent is a British corporation
domiciled in London, United Kingdom with London as its principal
place of business. Hence, under the first and second jurisdictional
rules, the petitioner may bring her case before the courts of London
in the United Kingdom. In the passenger ticket and baggage check
presented by both the petitioner and respondent, it appears that the
ticket was issued in Rome, Italy. Consequently, under the third
jurisdictional rule, the petitioner has the option to bring her case
before the courts of Rome in Italy. Finally, both the petitioner and
respondent aver that the place of destination is Rome, Italy, which is
properly designated given the routing presented in the said passenger
ticket and baggage check. Accordingly, petitioner may bring her action
before the courts of Rome, Italy. We thus find that the RTC of Makati
correctly ruled that it does not have jurisdiction over the case filed by
the petitioner.
Santos III v. Northwest Orient Airlines applies in this case.
Petitioner contends that Santos III v. Northwest Orient Airlines cited
by the trial court is inapplicable to the present controversy since the
facts thereof are not similar with the instant case.
We are not persuaded.
In Santos III v. Northwest Orient Airlines, Augusto Santos III, a
resident of the Philippines, purchased a ticket from Northwest Orient
Airlines in San Francisco, for transport between San Francisco and
Manila via Tokyo and back to San Francisco. He was wait-listed in the
Tokyo to Manila segment of his ticket, despite his prior reservation.
Contending that Northwest Orient Airlines acted in bad faith and
discriminated against him when it canceled his confirmed reservation
and gave his seat to someone who had no better right to it, Augusto
Santos III sued the carrier for damages before the RTC. Northwest
Orient Airlines moved to dismiss the complaint on ground of lack of
jurisdiction citing Article 28(1) of the Warsaw Convention. The trial
court granted the motion which ruling was affirmed by the Court of
Appeals. When the case was brought before us, we denied the petition
holding that under Article 28(1) of the Warsaw Convention, Augusto
Santos III must prosecute his claim in the United States, that place
being the (1) domicile of the Northwest Orient Airlines; (2) principal
office of the carrier; (3) place where contract had been made (San
Francisco); and (4) place of destination (San Francisco).
We further held that Article 28(1) of the Warsaw Convention is
jurisdictional in character. Thus:
“A number of reasons tends to support the characterization of Article
28(1) as a jurisdiction and not a venue provision. First, the wording of
Article 32, which indicates the places where the action for damages
“must” be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives
of the Convention, which is to “regulate in a uniform manner the
conditions of international transportation by air.” Third, the
Convention does not contain any provision prescribing rules of
jurisdiction other than Article 28(1), which means that the phrase
“rules as to jurisdiction” used in Article 32 must refer only to Article
28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as “jurisdictions,” which, as
such, cannot be left to the will of the parties regardless of the time
when the damage occurred.
xxxx
In other words, where the matter is governed by the Warsaw
Convention, jurisdiction takes on a dual concept. Jurisdiction in the
international sense must be established in accordance with Article
28(1) of the Warsaw Convention, following which the jurisdiction of a
particular court must be established pursuant to the applicable
domestic law. Only after the question of which court has jurisdiction
is determined will the issue of venue be taken up. This second
question shall be governed by the law of the court to which the case
is submitted.”
Contrary to the contention of petitioner, Santos III v. Northwest Orient
Airlines is analogous to the instant case because (1) the domicile of
respondent is London, United Kingdom; (2) the principal office of
respondent airline is likewise in London, United Kingdom; (3) the ticket
was purchased in Rome, Italy; and (4) the place of destination is
Rome, Italy. In addition, petitioner based her complaint on Article
2176 of the Civil Code on quasi-delict and Articles 19 and 21 of the
Civil Code on Human Relations. In Santos III v. Northwest Orient
Airlines, Augusto Santos III similarly posited that Article 28 (1) of the
Warsaw Convention did not apply if the action is based on tort. Hence,
contrary to the contention of the petitioner, the factual setting of
Santos III v. Northwest Orient Airlines and the instant case are parallel
on the material points.
Tortious conduct as ground for the petitioner’s complaint is within the
purview of the Warsaw Convention.
Petitioner contends that in Santos III v. Northwest Orient Airlines, the
cause of action was based on a breach of contract while her cause of
action arose from the tortious conduct of the airline personnel and
violation of the Civil Code provisions on Human Relations. In addition,
she claims that our pronouncement in Santos III v. Northwest Orient
Airlines that “the allegation of willful misconduct resulting in a tort is
insufficient to exclude the case from the comprehension of the
Warsaw Convention,” is more of an obiter dictum rather than the ratio
decidendi. She maintains that the fact that said acts occurred aboard
a plane is merely incidental, if not irrelevant.
We disagree with the position taken by the petitioner. Black defines
obiter dictum as “an opinion entirely unnecessary for the decision of
the case” and thus “are not binding as precedent.” In Santos III v.
Northwest Orient Airlines, Augusto Santos III categorically put in issue
the applicability of Article 28(1) of the Warsaw Convention if the action
is based on tort.
In the said case, we held that the allegation of willful misconduct
resulting in a tort is insufficient to exclude the case from the realm of
the Warsaw Convention. In fact, our ruling that a cause of action
based on tort did not bring the case outside the sphere of the Warsaw
Convention was our ratio decidendi in disposing of the specific issue
presented by Augusto Santos III. Clearly, the contention of the herein
petitioner that the said ruling is an obiter dictum is without basis.
Relevant to this particular issue is the case of Carey v. United Airlines,
where the passenger filed an action against the airline arising from an
incident involving the former and the airline’s flight attendant during
an international flight resulting to a heated exchange which included
insults and profanity. The United States Court of Appeals (9th Circuit)
held that the “passenger’s action against the airline carrier arising from
alleged confrontational incident between passenger and flight
attendant on international flight was governed exclusively by the
Warsaw Convention, even though the incident allegedly involved
intentional misconduct by the flight attendant.”
In Bloom v. Alaska Airlines, the passenger brought nine causes of
action against the airline in the state court, arising from a
confrontation with the flight attendant during an international flight to
Mexico. The United States Court of Appeals (9th Circuit) held that the
“Warsaw Convention governs actions arising from international air
travel and provides the exclusive remedy for conduct which falls within
its provisions.” It further held that the said Convention “created no
exception for an injury suffered as a result of intentional conduct”
which in that case involved a claim for intentional infliction of
emotional distress.
It is thus settled that allegations of tortious conduct committed against
an airline passenger during the course of the international carriage do
not bring the case outside the ambit of the Warsaw Convention.
Respondent, in seeking remedies from the trial court through special
appearance of counsel, is not deemed to have voluntarily submitted
itself to the jurisdiction of the trial court.
Petitioner argues that respondent has effectively submitted itself to
the jurisdiction of the trial court when the latter stated in its
Comment/Opposition to the Motion for Reconsideration that
“Defendant [is at a loss] x x x how the plaintiff arrived at her erroneous
impression that it is/was Euro-
Philippines Airlines Services, Inc. that has been making a special
appearance since x x x British Airways x x x has been clearly specifying
in all the pleadings that it has filed with this Honorable Court that it is
the one making a special appearance.”
In refuting the contention of petitioner, respondent cited La Naval
Drug Corporation v. Court of Appeals where we held that even if a
party “challenges the jurisdiction of the court over his person, as by
reason of absence or defective service of summons, and he also
invokes other grounds for the dismissal of the action under Rule 16,
he is not deemed to be in estoppel or to have waived his objection to
the jurisdiction over his person.”
This issue has been squarely passed upon in the recent case of Garcia
v. Sandiganbayan, where we reiterated our ruling in La Naval Drug
Corporation v. Court of Appeals and elucidated thus:
Special Appearance to Question a Court’s Jurisdiction Is Not Voluntary
Appearance
The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil
Procedure clearly provides:
Sec. 20. Voluntary appearance.—The defendant’s voluntary
appearance in the action shall be equivalent to service of summons.
The inclusion in a motion to dismiss of other grounds aside from lack
of jurisdiction over the person of the defendant shall not be deemed
a voluntary appearance.
Thus, a defendant who files a motion to dismiss, assailing the
jurisdiction of the court over his person, together with other grounds
raised therein, is not deemed to have appeared voluntarily before the
court. What the rule on voluntary appearance—the first sentence of
the above-quoted rule—means is that the voluntary appearance of the
defendant in court is without qualification, in which case he is deemed
to have waived his defense of lack of jurisdiction over his person due
to improper service of summons.
The pleadings filed by petitioner in the subject forfeiture cases,
however, do not show that she voluntarily appeared without
qualification. Petitioner filed the following pleadings in Forfeiture I: (a)
motion to dismiss; (b) motion for reconsideration and/or to admit
answer; (c) second motion for reconsideration; (d) motion to
consolidate forfeiture case with plunder case; and (e) motion to
dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion
to dismiss and/or to quash Forfeiture II; and (b) motion for partial
reconsideration.
The foregoing pleadings, particularly the motions to dismiss, were filed
by petitioner solely for special appearance with the purpose of
challenging the jurisdiction of the SB over her person and that of her
three children. Petitioner asserts therein that SB did not acquire
jurisdiction over her person and of her three children for lack of valid
service of summons through improvident substituted service of
summons in both Forfeiture I and Forfeiture II. This stance the
petitioner never abandoned when she filed her motions for
reconsideration, even with a prayer to admit their attached Answer Ex
Abundante Ad Cautelam dated January 22, 2005 setting forth
affirmative defenses with a claim for damages. And the other
subsequent pleadings, likewise, did not abandon her stance and
defense of lack of jurisdiction due to improper substituted services of
summons in the forfeiture cases. Evidently, from the foregoing Sec.
20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner
and her sons did not voluntarily appear before the SB constitutive of
or equivalent to service of summons.
Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies
to the instant case. Said case elucidates the current view in our
jurisdiction that a special appearance before the court—challenging its
jurisdiction over the person through a motion to dismiss even if the
movant invokes other grounds—is not tantamount to estoppel or a
waiver by the movant of his objection to jurisdiction over his person;
and such is not constitutive of a voluntary submission to the
jurisdiction of the court.
Thus, it cannot be said that petitioner and her three children
voluntarily appeared before the SB to cure the defective substituted
services of summons. They are, therefore, not estopped from
questioning the jurisdiction of the SB over their persons nor are they
deemed to have waived such defense of lack of jurisdiction.
Consequently, there being no valid substituted services of summons
made, the SB did not acquire jurisdiction over the persons of petitioner
and her children. And perforce, the proceedings in the subject
forfeiture cases, insofar as petitioner and her three children are
concerned, are null and void for lack of jurisdiction.” (Emphasis
supplied)

In this case, the special appearance of the counsel of respondent in

filing the Motion to Dismiss and other pleadings before the trial court
cannot be deemed to be voluntary submission to the jurisdiction of
the said trial court. We hence disagree with the contention of the
petitioner and rule that there was no voluntary appearance before the
trial court that could constitute estoppel or a waiver of respondent’s
objection to jurisdiction over its person.

WHEREFORE, the petition is DENIED. The October 14, 2005 Order of

the Regional Trial Court of Makati City, Branch 132, dismissing the
complaint for lack of jurisdiction, is AFFIRMED.

SO ORDERED.

Carpio (Chairperson), Brion, Abad and Perez, JJ., concur.

Petition denied, order affirmed.

Note. — Jurisprudence in the Philippines and the United States also

recognizes that the Warsaw Convention does not “exclusively
regulate” the relationship between passenger and carrier on an
international flight. (Philippine Airlines, Inc. vs. Savillo, 557 SCRA 66
[2008])

——o0o——
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP
MAHTANI, and PHILIPPINE AIRLINES, respondents
G.R. No. 121824. January 29, 1998
Common Carriers; Air Transportation; The nature of an airline’s
contract of carriage partakes of two types, namely: a contract to
deliver a cargo or merchandise to its destination and a contract to
transport passengers to their destination.—Before we resolve the
issues raised by BA, it is needful to state that the nature of an airline’s
contract of carriage partakes of two types, namely: a contract to
deliver a cargo or merchandise to its destination and a contract to
transport passengers to their destination. A business intended to serve
the travelling public primarily, it is imbued with public interest, hence,
the law governing common carriers imposes an exacting standard.
Neglect or malfeasance by the carrier’s employees could predictably
furnish bases for an action for damages.
Same; Same; In determining the amount of compensatory damages
in breach of contract involving misplaced luggage, it is vital that the
claimant satisfactorily prove during the trial the existence of the
factual basis of the damages and its causal connection to defendant’s
acts. — In the instant case, it is apparent that the contract of carriage
was between Mahtani and BA. Moreover, it is indubitable that his
luggage never arrived in Bombay on time. Therefore, as in a number
of cases we have assessed the airlines’ culpability in the form of
damages for breach of contract involving misplaced luggage. In
determining the amount of compensatory damages in this kind of
cases, it is vital that the claimant satisfactorily prove during the trial
the existence of the factual basis of the damages and its causal
connection to defendant’s acts.
Same; Same; Warsaw Convention; In a contract of air carriage, a
declaration by the passenger of a higher value is needed to recover a
greater amount. — Admittedly, in a contract of air carriage a
declaration by the passenger of a higher value is needed to recover a
greater amount. Article 22(1) of the Warsaw Convention, provides as
follows: “x x x x x x x x x (2) In the transportation of checked baggage
and goods, the liability of the carrier shall be limited to a sum of 250
francs per kilogram, unless the consignor has made, at the time the
packages was handed over to the carrier, a special declaration of the
value at delivery and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is greater
than the actual value to the consignor at delivery.”
Same; Same; Tariffs; An air carrier is not liable for the loss of baggage
in an amount in excess of the limits specified in the tariff which was
filed with the proper authorities, such tariff being binding on the
passenger regardless of the passenger’s lack of knowledge thereof or
assent thereto.—American jurisprudence provides that an air carrier is
not liable for the loss of baggage in an amount in excess of the limits
specified in the tariff which was filed with the proper authorities, such
tariff being binding on the passenger regardless of the passenger’s
lack of knowledge thereof or assent thereto. This doctrine is
recognized in this jurisdiction.
Same; Same; Pleadings and Practice; Waivers; Benefits of limited
liability are subject to waiver such as when the air carrier failed to
raise timely objections during the trial when questions and answers
regarding the actual claims and damages sustained by the passenger
were asked. — Notwithstanding the foregoing, we have, nevertheless,
ruled against blind reliance on adhesion contracts where the facts and
circumstances justify that they should be disregarded. In addition, we
have held that benefits of limited liability are subject to waiver such
as when the air carrier failed to raise timely objections during the trial
when questions and answers regarding the actual claims and damages
sustained by the passenger were asked. Given the foregoing
postulates, the inescapable conclusion is that BA had waived the
defense of limited liability when it allowed Mahtani to testify as to the
actual damages he incurred due to the misplacement of his luggage,
without any objection.
Same; Same; Same; Same; Evidence; Objection to evidence deemed
inadmissible for any reason must be made at the earliest opportunity,
lest silence when there is opportunity to speak may operate as a
waiver of objections. — Indeed, it is a well-settled doctrine that where
the proponent offers evidence deemed by counsel of the adverse party
to be inadmissible for any reason, the latter has the right to object.
However, such right is a mere privilege which can be waived.
Necessarily, the objection must be made at the earliest opportunity,
lest silence when there is opportunity to speak may operate as a
waiver of objections. BA has precisely failed in this regard.
Same; Same; Evidence; Factual findings of the trial court, as affirmed
by the Court of Appeals, are entitled to great respect. — Needless to
say, factual findings of the trial court, as affirmed by the Court of
Appeals, are entitled to great respect. Since the actual value of the
luggage involved appreciation of evidence, a task within the
competence of the Court of Appeals, its ruling regarding the amount
is assuredly a question of fact, thus, a finding not reviewable by this
Court.
Actions; Pleadings and Practice; Third-Party Complaints; Words and
Phrases; The third-party complaint is a procedural device whereby a
‘third party’ who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave
of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff’s claim.—In
Firestone Tire and Rubber Company of the Philippines v. Tempengko,
we expounded on the nature of a third-party complaint thus: “The
third-party complaint is, therefore, a procedural device whereby a
‘third-party’ who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave
of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff’s claim. The
third-party complaint is actually independent of and separate and
distinct from the plaintiff’s complaint. Were it not for this provision of
the Rules of Court, it would have to be filed independently and
separately from the original complaint by the defendant against the
third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in
respect of plaintiff’s claim against a third-party in the original and
principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously
in one litigation the entire subject matter arising from one particular
set of facts.”
Air Transportation; Agency; Damages; An agent is also responsible for
any negligence in the performance of its function and is liable for
damages which the principal may suffer by reason of its negligent act.
— Parenthetically, the Court of Appeals should have been cognizant
of the well-settled rule that an agent is also responsible for any
negligence in the performance of its function and is liable for damages
which the principal may suffer by reason of its negligent act. Hence,
the Court of Appeals erred when it opined that BA, being the principal,
had no cause of action against PAL, its agent or subcontractor.
Same; Same; Same; International Air Transport Association (IATA);
Member airlines of the IATA are regarded as agents of each other in
the issuance of the tickets and other matters pertaining to their
relationship. — Also, it is worth mentioning that both BA and PAL are
members of the International Air Transport Association (IATA),
wherein member airlines are regarded as agents of each other in the
issuance of the tickets and other matters pertaining to their
relationship. Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being
the principal, since it was the one which issued the confirmed ticket,
and the latter the agent.
Actions; Pleadings and Practice; Third-Party Complaints; The purpose
of a third-party complaint is precisely to avoid delay and circuity of
action and to enable the controversy to be disposed of in one suit.—
Accordingly, to deny BA the procedural remedy of filing a third-party
complaint against PAL for the purpose of ultimately determining who
was primarily at fault as between them, is without legal basis. After
all, such proceeding is in accord with the doctrine against multiplicity
of cases which would entail receiving the same or similar evidence for
both cases and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party complaint is precisely
to avoid delay and circuity of action and to enable the controversy to
be disposed of in one suit. It is but logical, fair and equitable to allow
BA to sue PAL for indemnification, if it is proven that the latter’s
negligence was the proximate cause of Mahtani’s unfortunate Prior to his departure, Mahtani checked in at the PAL counter in Manila
experience, instead of totally absolving PAL from any liability. his two pieces of luggage containing his clothings and personal effects,
confident that upon reaching Hongkong, the same would be
PETITION for review on certiorari of a decision of the Court of Appeals. transferred to the BA flight bound for Bombay.
The facts are stated in the opinion of the Court. Unfortunately, when Mahtani arrived in Bombay he discovered that his
Quasha, Ancheta, Pena & Nolasco for petitioner. luggage was missing and that upon inquiry from the BA
representatives, he was told that the same might have been diverted
Siguion Reyna, Montecillo & Ongsiako for Philippine Airlines. to London. After patiently waiting for his luggage for one week, BA
finally advised him to file a claim by accomplishing the “Property
Wilfredo M. Sentillas for Gop Mahtani. Irregularity Report.”
ROMERO, J.: Back in the Philippines, specifically on June 11, 1990, Mahtani filed his
In this appeal by certiorari, petitioner British Airways (BA) seeks to set complaint for damages and attorney’s fees against BA and Mr. Gumar
aside the decision of respondent Court of Appeals promulgated on before the trial court, docketed as Civil Case No. CEB-9076.
September 7, 1995, which affirmed the award of damages and On September 4, 1990, BA filed its answer with counter claim to the
attorney’s fees made by the Regional Trial Court of Cebu, 7th Judicial complaint raising, as special and affirmative defenses, that Mahtani
Region, Branch 17, in favor of private respondent GOP Mahtani as well did not have a cause of action against it. Likewise, on November 9,
as the dismissal of its third-party complaint against Philippine Airlines 1990, BA filed a third-party complaint against PAL alleging that the
(PAL). reason for the non-transfer of the luggage was due to the latter’s late
The material and relevant facts are as follows: arrival in Hongkong, thus leaving hardly any time for the proper
transfer of Mahtani’s luggage to the BA aircraft bound for Bombay.
On April 16, 1989, Mahtani decided to visit his relatives in Bombay,
India. In anticipation of his visit, he obtained the services of a certain On February 25, 1991, PAL filed its answer to the third-party
Mr. Gumar to prepare his travel plans. The latter, in turn, purchased complaint, wherein it disclaimed any liability, arguing that there was,
a ticket from BA where the following itinerary was indicated: in fact, adequate time to transfer the luggage to BA facilities in
Hongkong. Furthermore, the transfer of the luggage to Hongkong
CARRIER FLIGHT DATE TIME STATUS authorities should be considered as transfer to BA.
MANILA MNL PR 310 Y 16 APR. 1730 OK
After appropriate proceedings and trial, on March 4, 1993, the trial
HONGKONG HKG BA 20 M 16 APR. 2100 OK
court rendered its decision in favor of Mahtani, the dispositive portion
BOMBAY BOM BA 19 M 23 APR. 0840 OK
of which reads as follows:
HONGKONG HKG PR 311 Y
MANILA MNL “WHEREFORE, premises considered, judgment is rendered for the
plaintiff and against the defendant for which defendant is ordered to
pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the
Since BA had no direct flights from Manila to Bombay, Mahtani had to value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
take a flight to Hongkong via PAL, and upon arrival in Hongkong he representing the value of the contents of plaintiff’s luggage; Fifty
had to take a connecting flight to Bombay on board BA. Thousand (P50,000.00) Pesos for moral and actual damages and
twenty percent (20%) of the total amount imposed against the
defendant for attorney’s fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine
Airlines is DISMISSED for lack of cause of action.
SO ORDERED.”
Dissatisfied, BA appealed to the Court of Appeals, which however,
affirmed the trial court’s findings. Thus:
“WHEREFORE, in view of all the foregoing considerations, finding the
Decision appealed from to be in accordance with law and evidence,
the same is hereby AFFIRMED in toto, with costs against defendant-
appellant.
SO ORDERED.”
BA is now before us seeking the reversal of the Court of Appeals’
decision.
In essence, BA assails the award of compensatory damages and
attorney’s fees, as well as the dismissal of its third-party complaint
against PAL.
Regarding the first assigned issue, BA asserts that the award of
compensatory damages in the separate sum of P7,000.00 for the loss
of Mahtani’s two pieces of luggage was without basis since Mahtani in
his complaint stated the following as the value of his personal
belongings:
“8. On said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging .............................................P10,000.00
2. gifts for his parents and relatives .........................$5,000.00”
Moreover, he failed to declare a higher valuation with respect to his
luggage, a condition provided for in the ticket, which reads:
“Liability for loss, delay, or damage to baggage is limited unless a
higher value is declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of
international journeys) the liability limit is approximately U.S. $9.07
per pound (U.S. $20.00) per kilo for checked baggage and U.S. $400
per passenger for unchecked baggage.”
Before we resolve the issues raised by BA, it is needful to state that
the nature of an airline’s contract of carriage partakes of two types,
namely: a contract to deliver a cargo or merchandise to its destination
and a contract to transport passengers to their destination. A business
intended to serve the travelling public primarily, it is imbued with
public interest, hence, the law governing common carriers imposes an
exacting standard. Neglect or malfeasance by the carrier’s employees
could predictably furnish bases for an action for damages.
In the instant case, it is apparent that the contract of carriage was
between Mahtani and BA. Moreover, it is indubitable that his luggage
never arrived in Bombay on time. Therefore, as in a number of cases
we have assessed the airlines’ culpability in the form of damages for
breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of
cases, it is vital that the claimant satisfactorily prove during the trial
the existence of the factual basis of the damages and its causal
connection to defendant’s acts. In this regard, the trial court granted
the following award as compensatory damages:
“Since plaintiff did not declare the value of the contents in his luggage
and even failed to show receipts of the alleged gifts for the members
of his family in Bombay, the most that can be expected for
compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars
($20.00) per kilo, or a combined value of Four Hundred ($400.00) U.S.
Dollars for Twenty kilos representing the contents plus Seven
Thousand (P7,000.00) Pesos representing the purchase price of the
two (2) suit cases.”
However, as earlier stated, it is the position of BA that there should
have been no separate award for the luggage and the contents thereof
since Mahtani failed to declare a separate higher valuation for the
luggage, and therefore, its liability is limited, at most, only to the
amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious
argument.
Admittedly, in a contract of air carriage a declaration by the passenger
of a higher value is needed to recover a greater amount. Article 22(1)
of the Warsaw Convention, provides as follows:
“x x x xxx xxx
(2) In the transportation of checked baggage and goods, the liability
of the carrier shall be limited to a sum of 250 francs per kilogram,
unless the consignor has made, at the time the package was handed
over to the carrier, a special declaration of the value at delivery and
has paid a supplementary sum if the case so requires. In that case the
carrier will be liable to pay a sum not exceeding the declared sum,
unless he proves that the sum is greater than the actual value to the
consignor at delivery.”
American jurisprudence provides that an air carrier is not liable for the
loss of baggage in an amount in excess of the limits specified in the
tariff which was filed with the proper authorities, such tariff being
binding on the passenger regardless of the passenger’s lack of
knowledge thereof or assent thereto. This doctrine is recognized in
this jurisdiction.
Notwithstanding the foregoing, we have, nevertheless, ruled against
blind reliance on adhesion contracts where the facts and
circumstances justify that they should be disregarded.
In addition, we have held that benefits of limited liability are subject
to waiver such as when the air carrier failed to raise timely objections
during the trial when questions and answers regarding the actual
claims and damages sustained by the passenger were asked.
Given the foregoing postulates, the inescapable conclusion is that BA
had waived the defense of limited liability when it allowed Mahtani to
testify as to the actual damages he incurred due to the misplacement
of his luggage, without any objection. In this regard, we quote the
pertinent transcript of stenographic notes of Mahtani’s direct
testimony:
Q: How much are you going to ask from this court?
A: P100,000.00.
Q: What else?
A: Exemplary damages.
Q: How much?
A: P100,000.00.
Q: What else?
A: The things I lost, $5,000.00 for the gifts I lost and my personal
belongings, P10,000.00.
Q: What about the filing of this case?
A: The court expenses and attorney’s fees is 30%.”
Indeed, it is a well-settled doctrine that where the proponent offers
evidence deemed by counsel of the adverse party to be inadmissible
for any reason, the latter has the right to object. However, such right
is a mere privilege which can be waived. Necessarily, the objection
must be made at the earliest opportunity, lest silence when there is
opportunity to speak may operate as a waiver of objections. BA has
precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose
a timely objection, but even conducted his own cross-examination as
well. In the early case of Abrenica v. Gonda, we ruled that:
“x x x (I)t has been repeatedly laid down as a rule of evidence that a
protest or objection against the admission of any evidence must be
made at the proper time, and that if not so made it will be understood
to have been waived. The proper time to make a protest or objection
is when, from the question addressed to the witness, or from the
answer thereto, or from the presentation of proof, the inad-missibility
of evidence is, or may be inferred.”
Needless to say, factual findings of the trial court, as affirmed by the
Court of Appeals, are entitled to great respect. Since the actual value
of the luggage involved appreciation of evidence, a task within the
competence of the Court of Appeals, its ruling regarding the amount
is assuredly a question of fact, thus, a finding not reviewable by this
Court.
As to the issue of the dismissal of BA’s third-party complaint against
PAL, the Court of Appeals justified its ruling in this wise, and we quote:
“Lastly, we sustain the trial court’s ruling dismissing appellant’s third-
party complaint against PAL.
The contract of air transportation in this case pursuant to the ticket
issued by appellant to plaintiff-appellee was exclusively between the
plaintiff Mahtani and defendant-appellant BA. When plaintiff boarded
the PAL plane from Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. This is shown by the fact that in the
ticket issued by appellant to plaintiff-appellee, it is specifically provided
on the “Conditions of Contract,” paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive
carriers is regarded as a single operation and that the carrier issuing
the passenger’s ticket is considered the principal party and the other
carrier merely subcontractors or agent, is a settled issue.”
We cannot agree with the dismissal of the third-party complaint.
In Firestone Tire and Rubber Company of the Philippines v.
Tempengko, we expounded on the nature of a third-party complaint
thus:
“The third-party complaint is, therefore, a procedural device whereby
a ‘third-party’ who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave
of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff’s claim. The
third-party complaint is actually independent of and separate and
distinct from the plaintiff’s complaint. Were it not for this provision of
the Rules of Court, it would have to be filed independently and
separately from the original complaint by the defendant against the
third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in
respect of plaintiff’s claim against a third-party in the original and
principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously
in one litigation the entire subject matter arising from one particular
set of facts.”
Undeniably, for the loss of his luggage, Mahtani is entitled to damages
from BA, in view of their contract of carriage. Yet, BA adamantly
disclaimed its liability and instead imputed it to PAL which the latter
naturally denies. In other words, BA and PAL are blaming each other
for the incident.
In resolving this issue, it is worth observing that the contract of air
transportation was exclusively between Mahtani and BA, the latter
merely endorsing the Manila to Hongkong leg of the former’s journey
to PAL, as its subcontractor or agent. In fact, the fourth paragraph of
the “Conditions of Contracts” of the ticket issued by BA to Mahtani
confirms that the contract was one of continuous air transportation
from Manila to Bombay.
“4. x x x carriage to be performed hereunder by several successive
carriers is regarded as a single operation.”
Prescinding from the above discussion, it is undisputed that PAL, in
transporting Mahtani from Manila to Hongkong acted as the agent of
BA.
Parenthetically, the Court of Appeals should have been cognizant of
the well-settled rule that an agent is also responsible for any
negligence in the performance of its function and is liable for damages
which the principal may suffer by reason of its negligent act. Hence,
the Court of Appeals erred when it opined that BA, being the principal,
had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member
airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their relationship. Therefore,
in the instant case, the contractual relationship between BA and PAL
is one of agency, the former being the principal, since it was the one
which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our
ruling in Lufthansa German Airlines v. Court of Appeals. In that case,
Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-
leg trip aboard different airlines. Unfortunately, Air Kenya, one of the
airlines which was to carry Antiporda to a specific destination
“bumped” him off.
An action for damages was filed against Lufthansa which, however,
denied any liability, contending that its responsibility towards its
passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its obligation
as a principal in the contract of carriage ceased; from there on, it
merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa’s argument, we ruled:
“In the very nature of their contract, Lufthansa is clearly the principal
in the contract of carriage with Antiporda and remains to be so,
regardless of those instances when actual carriage was to be
performed by various carriers. The issuance of confirmed Lufthansa
ticket in favor of Antiporda covering his entire five-leg trip aboard
successive carriers concretely attest to this.”
Since the instant petition was based on breach of contract of carriage,
Mahtani can only sue BA alone, and not PAL, since the latter was not
a party to the contract. However, this is not to say that PAL is relieved
from any liability due to any of its negligent acts. In China Air Lines,
Ltd. v. Court of Appeals, while not exactly in point, the case, however,
illustrates the principle which governs this particular situation. In that
case, we recognized that a carrier (PAL), acting as an agent of another
carrier, is also liable for its own negligent acts or omission in the
performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party
complaint against PAL for the purpose of ultimately determining who
was primarily at fault as between them, is without legal basis. After
all, such proceeding is in accord with the doctrine against multiplicity
of cases which would entail receiving the same or similar evidence for
both cases and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party complaint is precisely
to avoid delay and circuity of action and to enable the controversy to
be disposed of in one suit. It is but logical, fair and equitable to allow
BA to sue PAL for indemnification, if it is proven that the latter’s
negligence was the proximate cause of Mahtani’s unfortunate
experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of
Appeals in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby
MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No costs.
SO ORDERED.
Decision modified.
Notes.—The Warsaw Convention denies to the carrier availment of the
provisions which exclude or limit his liability if the damage is caused
by his wilful misconduct or by such default on his part as, in
accordance with the law of the court hearing of the case, is considered
to be equivalent to wilful misconduct, or if the damage is similarly
caused by any agent of the carrier acting within the scope of his
employment. (Sabena Belgian World Airlines vs. Court of Appeals, 255
SCRA 38 [1996])
When an airline submits for summary judgment the matter of its
liability only to the maximum allowed in Section 22(2) of the Warsaw
Convention, it is deemed to hypothetically admit arguendo that the
articles claimed were lost but does not waive the presentation of
evidence that it is not in fact liable for the alleged loss. (Northwest
Airlines, Inc. vs. Court of Appeals, 284 SCRA 408 [1998])
——o0o——
 NORTHWEST AIRLINES, INC., petitioner, vs. COURT OF
APPEALS and ROLANDO I. TORRES, respondents
G.R. No. 120334. January 20, 1998
ROLANDO I. TORRES, petitioner, vs. COURT OF APPEALS and
NORTHWEST AIRLINES, INC., respondents
G.R. No. 120337. January 20, 1998
Actions; Demurrer to Evidence; Where a court denies a demurrer to
evidence, it should set the date for the reception of the defendant’s
evidence in chief and not proceed to grant the plaintiff’s claims. — We
agree with the Court of Appeals in its holding that the trial court erred
in deciding the entire case on its merits. Indeed, as to the demurrer
to evidence, the trial court should have been solely guided by the
procedure laid down in the abovementioned rule on demurrer to
evidence. It had no choice other than to grant or to deny the
demurrer. It could not, without committing grave abuse of discretion
amounting to excess of jurisdiction, deny the motion and then
forthwith grant TORRES’ claims on a finding that TORRES has
established a preponderance of evidence in support of such claims. In
the instant case, the trial court did just that insofar as moral damages,
attorney’s fees, and expenses of litigation were concerned. What it
should have done was to merely deny the demurrer and set a date for
the reception of NORTHWEST’s evidence in chief.
Same; Motion for Summary Judgment; Summary judgments are now
governed by Rule 35 of the 1987 Rules of Civil Procedure, with the
amendments allowing the parties to submit not only affidavits but also
depositions or admissions in support of their respective contentions.—
As to the motion for summary judgment, both the trial court and the
Court of Appeals were in error. Summary judgments were formerly
governed by Rule 34 of the Rules of Court. The rule is now Rule 35 of
the 1987 Rules of Civil Procedure with the amendments allowing the
parties to submit not only affidavits but also depositions or admissions
in support of their respective contentions. Motions for summary
judgment may be filed by the claimant or by the defending party.
Same; Same; Summary judgment is allowed if, except as to the
amount of damages, there is no genuine issue as to any material fact
and the moving party is entitled to a judgment as a matter of law. —
Summary judgment is allowed if, except as to the amount of damages,
there is no genuine issue as to any material fact and the moving party
is entitled to a judgment as a matter of law. In this case, NORTHWEST
denied in its Answer the material allegations in the complaint and
asserted, in fact, that it was not liable for actual damages because the
box containing the alleged lost firearms was the one received by
TORRES when he arrived in Manila. It likewise contended that, even
granting that the firearms were lost, its liability was limited by the
Warsaw Convention and the contract of transportation to $9.07 per
pound, or a total of $640 as the box weighed 70 pounds. It also denied
having acted fraudulently or in bad faith.
Same; Same; Common Carriers; Air Transportation; Warsaw
Convention; When an airline submits for summary judgment the
matter of its liability only to the maximum allowed in Section 22(2) of
the Warsaw Convention, it is deemed to hypothetically admit
arguendo that the articles claimed were lost but does not waive the
presentation of evidence that it is not in fact liable for the alleged
loss.—In thus submitting for summary judgment the matter of its
liability only to the maximum allowed in Section 22(2) of the Warsaw
Convention, NORTHWEST was deemed to have hypothetically
admitted arguendo that the firearms were lost. It did not waive the
presentation of evidence that it was not in fact liable for the alleged
loss of firearms. And even if it were so liable, NORTHWEST could still
prove at the appropriate time that it was not liable beyond the
maximum provided in said Section 22(2). Notably, TORRES prayed for
actual damages in the amounts of (1) $9,009.32 representing the
value of the lost firearms; and (2) P39,065 representing the cost of
his plane tickets.
Common Carriers; Air Transportation; Warsaw Convention; The
Warsaw Convention should be deemed a limit of liability only in those
cases where the cause of the death or injury to person, or destruction,
loss or damage to property or delay in its transport is not attributable
to or attended by any willful misconduct, bad faith, recklessness, or
otherwise improper conduct on the part of any official or employee for
which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury.—We, however, agree with both
the trial court and the Court of Appeals that NORTHWEST’s liability for
actual damages may not be limited to that prescribed in Section 22(2)
of the Warsaw Convention. In Alitalia v. Intermediate Appellate Court,
we held: The [Warsaw] Convention does not operate as an exclusive
enumeration of the instances of an airline’s liability, or as an absolute
limit of the extent of that liability. Such a proposition is not borne out
by the language of the Convention, as this Court has now, and at an
earlier time, pointed out. Moreover, slight reflection readily leads to
the conclusion that it should be deemed a limit of liability only in those
cases where the cause of the death or injury to person, or destruction,
loss or damage to property or delay in its transport is not attributable
to or attended by any willful misconduct, bad faith, recklessness, or
otherwise improper conduct on the part of any official or employee for
which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Convention’s provisions, in
short, do not “regulate or exclude liability for other breaches of
contract by the carrier” or misconduct of its officers and employees,
or for some particular or exceptional type of damage.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Quisumbing, Torres & Evangelista for Northwest Airlines.
Umali, Soriano & Associates Law Offices for Rolando I. Torres.
DAVIDE, JR., J.:
Unable to accept the decision of the Court of Appeals in CA-G.R. CV
No. 24068, petitioner Northwest Airlines, Inc., (hereafter
NORTHWEST) and petitioner Rolando I. Torres (hereafter TORRES)
filed separate petitions for review under Rule 45 of the Rules of Court,
which were docketed as G.R. No. 120334 and G.R. No. 120337 and
thereafter consolidated.
The antecedents of these cases were summarized by the Court of
Appeals as follows:
The plaintiff, [Torres], allegedly on a special mission to purchase
firearms for the Philippine Senate, purchased a round trip ticket from
defendant [Northwest] for his travel to Chicago and back to Manila.
Via defendant’s flight, plaintiff left for United States.
After purchasing firearms and on the way back to Manila, plaintiff
checked-in and presented before defendant’s representative his two
identical baggages, one of which contained firearms. Defendant’s
representative required the baggage to be opened and the supporting
evidence to be presented. Plaintiff showed them his authorization from
the Philippine government and the purchase receipts. Plaintiff
thereafter sealed the baggage and defendant’s representative placed
a red tag on the baggage with firearms with the marking “CONTAINS
FIREARMS.”
Upon arrival in Manila on June 22, 1988 plaintiff was not able to claim
one of his baggages. Plaintiff was informed by defendant’s
representative that his baggage containing firearms was recalled back
to Chicago by defendant for US Customs verification. A telex to this
effect was shown to plaintiff.
On June 28, 1988, after being advised of the arrival of his other
baggage, plaintiff claimed and opened the baggage in the presence of
defendant’s representative and found out that the firearms were
missing. A Personal Property Missing Damage Report was issued by
defendant to plaintiff.
On account of the continuous refusal of defendant to settle amicably,
plaintiff then prayed before the trial court that defendant be ordered
to pay actual damages, moral damages, temperate damages,
exemplary damages and attorney’s fees (pp. 1-6, Complaint; p. 1,
Record).
In its answer, defendant pleaded: a) that it was the agents from the
US Customs who ordered for the return of the weapons which plaintiff
checked-in; b) that when opened in the presence of US Customs
agents the box contained no firearms; and c) that since the baggage
which was returned back to Chicago did not contain any firearms, then
the baggage which plaintiff received upon arrival in Manila must have
contained the firearms (pp. 3-5, Answer; pp. 32-34, Record).
After plaintiff had presented its evidence, defendant filed a “Motion to
Dismiss (By Way of Demurrer to the Evidence with Motion for
Summary Judgment)” dated April 24, 1989.
In said motion, defendant moved for the “dismissal of the complaint
in so far as it prays for moral, exemplary and temperate damages and
attorney’s fees” and further moved for “summary judgment to be
rendered awarding the plaintiff $640.00 as actual damages.” (Motion
to Dismiss By Way of Demurrer to Evidence with Motion for Summary
Judgment; p. 115, Records).
Plaintiff on the other hand, offered no objection to the submission of
the case for decision but insisted that he is entitled to damages as
prayed for (p. 1, Comment on Defendant’s Motion to Dismiss by Way
of Demurrer to Evidence with Summary Judgment; pp. 136-169,
Records).
We add to this summary the following relevant matters:
NORTHWEST argued in its motion for summary judgment that the
Warsaw Convention and the contract of carriage limited its liability to
US$640 and that the evidence presented by TORRES did not entitle
him to moral, exemplary, and temperate damages and attorney’s fees.
Instead of just ruling on NORTHWEST’s Motion to Dismiss (By Way of
Demurrer to Evidence) with Motion for Summary Judgment, which it
considered submitted for resolution in the order of 14 June 1989, the
trial court rendered on 13 September 1989 a full-blown decision5
ordering NORTHWEST to pay TORRES the following amounts:
1. The amount of $9,009.32, with legal interest thereon from the date
of the filing of the complaint, in its peso equivalent at the official rate
of exchange at the time payment is made, representing the value of
the goods lost by the plaintiff;
2. The amount of P100,000.00 by way of attorney’s fees;
3. The amount of P5,181.09 as filing fees paid by the plaintiff and the
amount of P20,000.00 for expenses of litigation, representing travel
expenses and hotel accommodations of plaintiff’s counsels; and
4. The amount of P50,000.00 as moral damages.
The award of US$9,009.32, representing the value of the lost firearms,
was grounded on the trial court’s finding that “the act of
[NORTHWEST’s] personnel in Tokyo or Narita Airport in just guessing
which baggage contained the firearms was careless and imprudent,
amounting to careless disregard for the safety of the luggage of the
passenger.” According to the trial court, such act constituted willful
misconduct which brought the case beyond the application of Section
22(2) of the Warsaw Convention, thereby depriving NORTHWEST of
the limitation of the liability provided for in said section.
The awards of attorney’s fees and expenses of litigation were
premised on NORTHWEST’s having ignored the demands of TORRES
forcing the latter to litigate in order to assert his right. TORRES was
also awarded moral damages because of the “inconvenience, anxiety
and worry” he suffered by reason of NORTHWEST’s unjustifiable
refusal to settle his claim.
Both TORRES and NORTHWEST appealed from the decision to the
Court of Appeals, which docketed the case as CA-G.R. CV No. 24068.
TORRES assailed the failure of the trial court to award the actual,
moral, and exemplary damages prayed for by him.6 NORTHWEST, on
the other hand, alleged that in prematurely resolving the case on the
merits the court prevented it from presenting evidence, thereby
denying it due process; and that even assuming that the trial court
could resolve the entire case on the merits, it erred in awarding
damages, attorney’s fees, and expenses of litigation.
In its Decision8 of 14 September 1994, the Court of Appeals sustained
the trial court’s judgment that TORRES was entitled to actual
damages, since NORTHWEST had, in effect, admitted the loss of the
firearms when it insisted that its liability was limited to $9.07 per
pound or $20 per kilo. The appellate court then concluded that
NORTHWEST’s guessing of which luggage contained the firearms
amounted to willful misconduct under Section 25(1) of the Warsaw
Convention which entitled TORRES to claim actual damages in excess
of the limitation provided for under Section 22(2) of said Convention.
Nevertheless, the Court of Appeals held that while the trial court
properly ruled on the right of TORRES to actual damages, it erred in
determining by way of summary judgment the amount of damages;
for under Section 3 of Rule 34 of the Rules of Court, a summary
judgment may be rendered upon proper motion except as to the
amount of damages.
As to the trial court’s act of disposing of the entire case by way of
summary judgment, the Court of Appeals noted that NORTHWEST
categorically moved for summary judgment only on the issue of actual
damages, but not on the claims for moral damages and attorney’s
fees. NORTHWEST moved for the dismissal of the latter claims by way
of demurrer to evidence. That being so, the trial court could not, by
way of summary judgment, dispose of the case on its entirety. Section
2 of Rule 34 of the Rules of Court required that summary judgment
should be issued only after the motion therefor has been heard. Since
there was such motion as to the claims for moral damages and
attorney’s fees, no summary judgment thereon could be made.
Anent the demurrer to evidence, the Court of Appeals held that the
trial court had to either grant or deny it. If granted, no award therefor
could have been validly made. If denied, then under Section 1 of Rule
35 of the Rules of Court, NORTHWEST should have been allowed to
present its evidence, as it was not deemed to have waived that right.
This section provided:
SECTION 1. Effect of judgment on demurrer to evidence. — After the
plaintiff has completed the presentation of his evidence, the defendant
without waiving his right to offer evidence in the event the motion is
not granted, may move for a dismissal on the ground that upon facts
and the law the plaintiff has shown no right to relief. However, if the
motion is granted and order of dismissal is reversed on appeal, the
movant loses his right to present evidence in his behalf.
The Court of Appeals then held that since the demurrer was impliedly
denied by the trial court, NORTHWEST should have been allowed to
present its evidence in accordance with the above rule.
Accordingly, the Court of Appeals affirmed the trial court’s finding as
to the right of TORRES to actual damages but set aside the rest of the
appealed decision. It then remanded the case to the court a quo for
further proceedings.
On 23 May 1995, the Court of Appeals denied NORTHWEST’s motion
for a partial reconsideration of the decision.
Hence, the present petitions.
NORTHWEST contests the right of TORRES to actual damages on the
following grounds: (1) the loss of firearms was disputed; (2) the
finding of willful misconduct was arbitrary; and (3) TORRES failed to
produce a United States license for the shipment of the firearms;
hence, the importation was illegal and no damages could arise
therefrom.
TORRES, on the other hand, claims that the Court of Appeals erred
(1) in setting aside the appealed decision of the court a quo as to the
awards of damages, attorney’s fees, and cost of suit; (2) in remanding
the case to the court a quo for further proceedings; and (3) in failing
to award other damages for breach of contract and willful misconduct
committed by Northwest for mishandling the cargo.
NORTHWEST’s Motion to Dismiss (By Way of Demurrer to Evidence)
with Motion for Summary Judgment involved two distinct and separate
processes, viz: (1) demurrer to evidence, which was then governed
by Rule 35, now by Rule 33; and (2) motion for summary judgment,
which was then governed by Rule 34, now Rule 35, of the Rules of
Court. The subject of the demurrer were the claims for moral,
exemplary, and temperate damages and attorney’s fees; while the
target of the motion for summary judgment was the claim for actual
damages.
We agree with the Court of Appeals in its holding that the trial court
erred in deciding the entire case on its merits. Indeed, as to the
demurrer to evidence, the trial court should have been solely guided
by the procedure laid down in the abovementioned rule on demurrer
to evidence. It had no choice other than to grant or to deny the
demurrer. It could not, without committing grave abuse of discretion
amounting to excess of jurisdiction, deny the motion and then
forthwith grant TORRES’ claims on a finding that TORRES has
established a preponderance of evidence in support of such claims. In
the instant case, the trial court did just that insofar as moral damages,
attorney’s fees, and expenses of litigation were concerned. What it
should have done was to merely deny the demurrer and set a date for
the reception of NORTHWEST’s evidence in chief.
As to the motion for summary judgment, both the trial court and the
Court of Appeals were in error. Summary judgments were formerly
governed by Rule 34 of the Rules of Court. The rule is now Rule 35 of
the 1987 Rules of Civil Procedure with the amendments allowing the
parties to submit not only affidavits but also depositions or admissions
in support of their respective contentions. Motions for summary
judgment may be filed by the claimant or by the defending party.
Sections 1, 2, and 3 of the old Rule 34, the governing law in this case,
provided as follows:
SECTION 1. Summary judgment for claimant. — A party seeking to
recover upon a claim, counterclaim, or cross-claim or to obtain a
declaratory relief may, at any time after the pleading in answer thereto
has been served, move with supporting affidavits for a summary
judgment in his favor upon all or any part thereof.
SEC. 2. Summary judgment for defending party. — A party against
whom a claim, counterclaim, or cross-claim is asserted or a declaratory
relief is sought may, at any time, move with supporting affidavits for
a summary judgment in his favor as to all or any part thereof.
SEC. 3. Motion and proceedings thereon. — The motion shall be
served at least ten (10) days before the time specified for the hearing.
The adverse party prior to the day of hearing may serve opposing
affidavits. After the hearing, the judgment sought shall be rendered
forthwith if the pleadings, depositions, and admissions on file together
with the affidavits, show that, except as to the amount of damages,
there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.
NORTHWEST, the defending party, moved for summary judgment on
the claim for actual damages after TORRES had presented his
evidence in chief. This was allowed by Section 2 where the motion
may be filed “at any time,” as distinguished from section 1 where the
claimant, like TORRES, may file the motion at any time after the
answer is filed.
Summary judgment is allowed if, except as to the amount of damages,
there is no genuine issue as to any material fact and the moving party
is entitled to a judgment as a matter of law.
In this case, NORTHWEST denied in its Answer the material allegations
in the complaint and asserted, in fact, that it was not liable for actual
damages because the box containing the alleged lost firearms was the
one received by TORRES when he arrived in Manila. It likewise
contended that, even granting that the firearms were lost, its liability
was limited by the Warsaw Convention and the contract of
transportation to $9.07 per pound, or a total of $640 as the box
weighed 70 pounds. It also denied having acted fraudulently or in bad
faith.
In thus submitting for summary judgment the matter of its liability
only to the maximum allowed in Section 22(2) of the Warsaw
Convention, NORTHWEST was deemed to have hypothetically
admitted arguendo that the firearms were lost. It did not waive the
presentation of evidence that it was not in fact liable for the alleged
loss of firearms. And even if it were so liable, NORTHWEST could still
prove at the appropriate time that it was not liable beyond the
maximum provided in said Section 22(2). Notably, TORRES prayed for
actual damages in the amounts of (1) $9,009.32 representing the
value of the lost firearms; and (2) P39,065 representing the cost of
his plane tickets.
Concretely then, there remained a genuine issue on the fact and
amount of actual damages. The motion for summary judgment was
not therefore in order. NORTHWEST must have resorted to it, in like
manner as it did in filing the demurrer, to delay the progress of the
trial of the case. Verily, it was grave abuse of discretion on the part of
the trial court to grant such motion and award TORRES actual
damages commensurate to the value of the firearms and based on his
evidence alone.
We, however, agree with both the trial court and the Court of Appeals
that NORTHWEST’s liability for actual damages may not be limited to
that prescribed in Section 22(2) of the Warsaw Convention. In Alitalia
v. Intermediate Appellate Court, we held:
The [Warsaw] Convention does not operate as an exclusive
enumeration of the instances of an airline’s liability, or as an absolute
limit of the extent of that liability. Such a proposition is not borne out
by the language of the Convention, as this Court has now, and at an
earlier time, pointed out. Moreover, slight reflection readily leads to
the conclusion that it should be deemed a limit of liability only in those
cases where the cause of the death or injury to person, or destruction,
loss or damage to property or delay in its transport is not attributable
to or attended by any willful misconduct, bad faith, recklessness, or
otherwise improper conduct on the part of any official or employee for
which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Convention’s provisions, in
short, do not “regulate or exclude liability for other breaches of
contract by the carrier” or misconduct of its officers and employees,
or for some particular or exceptional type of damage.
accordance with the law of the court seized of the case, is considered
to be equivalent to wilful misconduct, or if the damage is similarly
caused by any agent of the carrier acting within the scope of his
employment. (Sabena Belgian World Airlines vs. Court of Appeals, 255
SCRA 38 [1996])
The Warsaw Convention does not operate as an exclusive
enumeration of the instances for declaring a carrier liable for breach
of contract of carriage or as an absolute limit of the extent of that
liability—it must not be construed to preclude the operation of the Civil
Code and pertinent laws. (Philippine Airlines, Inc. vs. Court of Appeals,
257 SCRA 33 [1996])
——o0o——

IN VIEW WHEREOF, judgment is hereby rendered (1) PARTLY

GRANTING the petition in G.R. No. 120334 by setting aside that
portion of the challenged decision of the Court of Appeals in CA-G.R.
CV No. 24068 affirming the summary judgment as to the right of
respondent ROLANDO I. TORRES to actual damages; (2) DENYING for
want of merit the petition in G.R. No. 120337; and (3) REMANDING
this case to the trial court for the reception of the evidence for
Northwest Airlines, Inc. in Civil Case No. 88-46117 and, thereafter, for
the rendition of the judgment therein on the merits.

No pronouncement as to costs.

SO ORDERED.

Bellosillo, Kapunan and Vitug, JJ., concur.

Petition in G.R. No. 120334 partly granted; Petition in G.R. No. 120337
denied.

Notes.—The Warsaw Convention denies to the carrier availment of the

provisions which exclude or limit his liability if the damage is caused
by his wilful misconduct or by such default on his part as, in
UNITED AIRLINES, petitioner, vs. WILLIE J. UY, respondent
G.R. No. 127768. November 19, 1999
Actions; Appeals; Pleadings and Practice; Delay in the filing of a notice
of appeal does not justify the dismissal of the appeal where the
circumstances of the case show that there is no intent to delay the
administration of justice on the part of appellant’s counsel, or when
there are no substantial rights affected, or when appellant’s counsel
committed a mistake in the computation of the period of appeal, an
error not attributable to negligence or bad faith. — Section 1 of Rule
45 of the 1997 Rules of Civil Procedure provides that “a party may
appeal by certiorari, from a judgment of the Court of Appeals, by filing
with the Supreme Court a petition for certiorari, within fifteen (15)
days from notice of judgment or of the denial of his motion for
reconsideration filed in due time x x x x” This Rule however should not
be interpreted as “to sacrifice the substantial right of the appellant in
the sophisticated altar of technicalities with impairment of the sacred
principles of justice.” It should be borne in mind that the real purpose
behind the limitation of the period of appeal is to forestall or avoid an
unreasonable delay in the administration of justice. Thus, we have
ruled that delay in the filing of a notice of appeal does not justify the
dismissal of the appeal where the circumstances of the case show that
there is no intent to delay the administration of justice on the part of
appellant’s counsel, or when there are no substantial rights affected,
or when appellant’s counsel committed a mistake in the computation
of the period of appeal, an error not attributable to negligence or bad
faith.
Same; Same; Same; Notice of appeal filed two (2) days later than the
prescribed period given due course due to the unique and peculiar
facts of the case and the serious question of law posed. — Respondent
filed his notice of appeal two (2) days later than the prescribed period.
Although his counsel failed to give the reason for the delay, we are
inclined to give due course to his appeal due to the unique and peculiar
facts of the case and the serious question of law it poses. In the now
almost trite but still good principle, technicality, when it deserts its
proper office as an aid to justice and becomes its great hindrance and
chief enemy, deserves scant consideration.
Conflict of Laws; Air Transportation; Warsaw Convention; Within our
jurisdiction, the Warsaw Convention can be applied or ignored,
depending on the peculiar facts presented by each case.—Within our
jurisdiction we have held that the Warsaw Convention can be applied,
or ignored, depending on the peculiar facts presented by each case.
Thus, we have ruled that the Convention’s provisions do not regulate
or exclude liability for other breaches of contract by the carrier or
misconduct of its officers and employees, or for some particular or
exceptional type of damage. Neither may the Convention be invoked
to justify the disregard of some extraordinary sort of damage resulting
to a passenger and preclude recovery therefor beyond the limits set
by said Convention. Likewise, we have held that the Convention does
not preclude the operation of the Civil Code and other pertinent laws.
It does not regulate, much less exempt, the carrier from liability for
damages for violating the rights of its passengers under the contract
of carriage, especially if willful misconduct on the part of the carrier’s
employees is found or established.
Same; Same; Same; A cause of action arising from the slashing and
loss of personal effects by an airline passenger is well within the
bounds of the Warsaw Convention while a cause of action arising from
the shabby and humiliating treatment received from the airline
employees is not.—Respondent’s complaint reveals that he is suing on
two (2) causes of action: (a) the shabby and humiliating treatment he
received from petitioner’s employees at the San Francisco Airport
which caused him extreme embarrassment and social humiliation;
and, (b) the slashing of his luggage and the loss of his personal effects
amounting to US $5,310.00. While his second cause of action—an
action for damages arising from theft or damage to property or
goods—is well within the bounds of the Warsaw Convention, his first
cause of action—an action for damages arising from the misconduct
of the airline employees and the violation of respondent’s rights as
passenger—clearly is not.
Same; Same; Same; Prescription; The two (2)-year limitation
incorporated in Art. 29 of the Warsaw Convention as an absolute bar
to suit and not to be made subject to the various tolling provisions of
the laws of the forum—it therefore forecloses the application of the
forum’s rules on interruption of prescriptive periods, as Article 29, par.
(2) was intended only to let local laws determine whether an action
had been commenced within the two (2)-year period. — As for
respondent’s second cause of action, indeed the travaux preparatories
of the Warsaw Convention reveal that the delegates thereto intended
the two (2)-year limitation incorporated in Art. 29 as an absolute bar
to suit and not to be made subject to the various tolling provisions of
the laws of the forum. This therefore forecloses the application of our
own rules on interruption of prescriptive periods. Article 29, par. (2),
was intended only to let local laws determine whether an action had
been commenced within the two (2)-year period, and within our
jurisdiction an action shall be deemed commenced upon the filing of
a complaint. Since it is indisputable that respondent filed the present
action beyond the two (2)-year time frame his second cause of action
must be barred. Nonetheless, it cannot be doubted that respondent
exerted efforts to immediately convey his loss to petitioner, even
employed the services of two (2) lawyers to follow up his claims, and
that the filing of the action itself was delayed because of petitioner’s
evasion.
Same; Same; Same; Same; Despite the express mandate of Article 29
of the Warsaw Convention that an action for damages should be filed
within two (2) years from the arrival at the place of destination, such
rule shall not be applied where the airline employed delaying tactics.
— In the same vein must we rule upon the circumstances brought
before us. Verily, respondent filed his complaint more than two (2)
years later, beyond the period of limitation prescribed by the Warsaw
Convention for filing a claim for damages. However, it is obvious that
respondent was forestalled from immediately filing an action because
petitioner airline gave him the run-around, answering his letters but
not giving in to his demands. True, respondent should have already
filed an action at the first instance when his claims were denied by
petitioner but the same could only be due to his desire to make an
out-of-court settlement for which he cannot be faulted. Hence, despite
the express mandate of Art. 29 of the Warsaw Convention that an
action for damages should be filed within two (2) years from the arrival
at the place of destination, such rule shall not be applied in the instant
case because of the delaying tactics employed by petitioner airline
itself. Thus, private respondent’s second cause of action cannot be
considered as time barred under Art. 29 of the Warsaw Convention.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Quisumbing, Torres & Evangelista for petitioner.
Ramon U. Ampil for private respondent.
BELLOSILLO, J.:
UNITED AIRLINES assails in this petition for review on certiorari under
Rule 45 the 29 August 1995 Decision of the Court of Appeals in CA-
G.R. CV No. 39761 which reversed the 7 August 1992 order issued by
the trial court in Civil Case No. Q-92-12410 granting petitioner’s
motion to dismiss based on prescription of cause of action. The issues
sought to be resolved are whether the notice of appeal to the appellate
court was timely filed, and whether Art. 29 of the Warsaw Convention
should apply to the case at bar.
On 13 October 1989 respondent Willie J. Uy, a revenue passenger on
United Airlines Flight No. 819 for the San Francisco-Manila route,
checked in together with his luggage one piece of which was found to
be overweight at the airline counter. To his utter humiliation, an
employee of petitioner rebuked him saying that he should have known
the maximum weight allowance to be 70 kgs. per bag and that he
should have packed his things accordingly. Then, in a loud voice in
front of the milling crowd, she told respondent to repack his things
and transfer some of them from the overweight luggage to the lighter
ones. Not wishing to create further scene, respondent acceded only
to find his luggage still overweight. The airline then billed him
overweight charges which he offered to pay with a miscellaneous
charge order (MCO) or an airline pre-paid credit. However, the airline’s
employee, and later its airport supervisor, adamantly refused to honor
the MCO pointing out that there were conflicting figures listed on it.
Despite the explanation from respondent that the last figure written
on the MCO represented his balance, petitioner’s employees did not
accommodate him. Faced with the prospect of leaving without his
luggage, respondent paid the overweight charges with his American
Express credit card.
Respondent’s troubles did not end there. Upon arrival in Manila, he
discovered that one of his bags had been slashed and its contents
stolen. He particularized his losses to be around US $5,310.00. In a
letter dated 16 October 1989 respondent bewailed the insult,
embarrassment and humiliating treatment he suffered in the hands of
United Airlines employees, notified petitioner of his loss and requested
reimbursement thereof. Petitioner United Airlines, through Central
Baggage Specialist Joan Kroll, did not refute any of respondent’s
allegations and mailed a check representing the payment of his loss
based on the maximum liability of US $9.70 per pound. Respondent,
thinking the amount to be grossly inadequate to compensate him for
his losses, as well as for the indignities he was subjected to, sent two
(2) more letters to petitioner airline, one dated 4 January 1990
through a certain Atty. Pesigan, and another dated 28 October 1991
through Atty. Ramon U. Ampil demanding an out-of-court settlement
of P1,000,000.00. Petitioner United Airlines did not accede to his
demands.
Consequently, on 9 June 1992 respondent filed a complaint for
damages against United Airlines alleging that he was a person of good
station, sitting in the board of directors of several top 500 corporations
and holding senior executive positions for such similar firms; that
petitioner airline accorded him ill and shabby treatment to his extreme
embarrassment and humiliation; and, as such he should be paid moral
damages of at least P1,000,000.00, exemplary damages of at least
P500,000.00, plus attorney’s fees of at least P50,000.00. Similarly, he
alleged that the damage to his luggage and its stolen contents
amounted to around $5,310.00, and requested reimbursement
therefor.
United Airlines moved to dismiss the complaint on the ground that
respondent’s cause of action had prescribed, invoking Art. 29 of the
Warsaw Convention which provides—
Art. 29 (1) The right to damages shall be extinguished if an action is
not brought within two (2) years, reckoned from the date of arrival at
the destination, or from the date on which the aircraft ought to have
arrived, or from the date on which the transportation stopped.
(2) The method of calculating the period of limitation shall be
determined by the law of the court to which the case is submitted.
Respondent countered that par. (1) of Art. 29 of the Warsaw
Convention must be reconciled with par. (2) thereof which states that
“the method of calculating the period of limitation shall be determined
by the law of the court to which the case is submitted.” Interpreting
thus, respondent noted that according to Philippine laws the
prescription of actions is interrupted “when they are filed before the
court, when there is a written extrajudicial demand by the creditors,
and when there is any written acknowledgment of the debt by the
debtor.” Since he made several demands upon United Airlines: first,
through his personal letter dated 16 October 1989; second, through a
letter dated 4 January 1990 from Atty. Pesigan; and, finally, through
a letter dated 28 October 1991 written for him by Atty. Ampil, the two
(2)-year period of limitation had not yet been exhausted.
On 2 August 1992 the trial court ordered the dismissal of the action
holding that the language of Art. 29 is clear that the action must be
brought within two (2) years from the date of arrival at the destination.
It held that although the second paragraph of Art. 29 speaks of
deference to the law of the local court in “calculating the period of
limitation,” the same does not refer to the local forum’s rules in
interrupting the prescriptive period but only to the rules of determining
the time in which the action may be deemed commenced, and within
our jurisdiction the action shall be deemed “brought” or commenced
by the filing of a complaint. Hence, the trial court concluded that Art.
29 excludes the application of our interruption rules.
Respondent received a copy of the dismissal order on 17 August 1992.
On 31 August 1992, or fourteen (14) days later, he moved for the
reconsideration of the trial court’s order. The trial court denied the
motion and respondent received copy of the denial order on 28
September 1992. Two (2) days later, on 1 October 1992 respondent
filed his notice of appeal.
United Airlines once again moved for the dismissal of the case this
time pointing out that respondent’s fifteen (15)-day period to appeal
had already elapsed. Petitioner argued that having used fourteen (14)
days of the reglementary period for appeal, respondent Uy had only
one (1) day remaining to perfect his appeal, and since he filed his
notice of appeal two (2) days later, he failed to meet the deadline.
In its questioned Decision dated 29 August 1995 the appellate court
gave due course to the appeal holding that respondent’s delay of two
(2) days in filing his notice of appeal did not hinder it from reviewing
the appealed order of dismissal since jurisprudence dictates that an
appeal may be entertained despite procedural lapses anchored on
equity and justice.
On the applicability of the Warsaw Convention, the appellate court
ruled that the Warsaw Convention did not preclude the operation of
the Civil Code and other pertinent laws. Respondent’s failure to file his
complaint within the two (2)-year limitation provided in the Warsaw
Convention did not bar his action since he could still hold petitioner
liable for breach of other provisions of the Civil Code which prescribe
a different period or procedure for instituting an action. Further, under
Philippine laws, prescription of actions is interrupted where, among
others, there is a written extrajudicial demand by the creditors, and
since respondent Uy sent several demand letters to petitioner United
Airlines, the running of the two (2)-year prescriptive period was in
effect suspended. Hence, the appellate court ruled that respondent’s
cause of action had not yet prescribed and ordered the records
remanded to the Quezon City trial court for further proceedings.
Petitioner now contends that the appellate court erred in assuming
jurisdiction over respondent’s appeal since it is clear that the notice of
appeal was filed out of time. It argues that the courts relax the
stringent rule on perfection of appeals only when there are
extraordinary circumstances, e.g., when the Republic stands to lose
hundreds of hectares of land already titled and used for educational
purposes; when the counsel of record was already dead; and wherein
appellant was the owner of the trademark for more than thirty (30)
years, and the circumstances of the present case do not compare to
the above exceptional cases.
Section 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that
“a party may appeal by certiorari, from a judgment of the Court of
Appeals, by filing with the Supreme Court a petition for certiorari,
within fifteen (15) days from notice of judgment or of the denial of his
motion for reconsideration filed in due time x x x x” This Rule however
should not be interpreted as “to sacrifice the substantial right of the
appellant in the sophisticated altar of technicalities with impairment of
the sacred principles of justice.” It should be borne in mind that the
real purpose behind the limitation of the period of appeal is to forestall
or avoid an unreasonable delay in the administration of justice. Thus,
we have ruled that delay in the filing of a notice of appeal does not
justify the dismissal of the appeal where the circumstances of the case
show that there is no intent to delay the administration of justice on
the part of appellant’s counsel, or when there are no substantial rights
affected, or when appellant’s counsel committed a mistake in the
computation of the period of appeal, an error not attributable to
negligence or bad faith.
In the instant case, respondent filed his notice of appeal two (2) days
later than the prescribed period. Although his counsel failed to give
the reason for the delay, we are inclined to give due course to his
appeal due to the unique and peculiar facts of the case and the serious
question of law it poses. In the now almost trite but still good principle,
technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant
consideration.
Petitioner likewise contends that the appellate court erred in ruling
that respondent’s cause of action has not prescribed since delegates
to the Warsaw Convention clearly intended the two (2)-year limitation
incorporated in Art. 29 as an absolute bar to suit and not to be made
subject to the various tolling provisions of the laws of the forum.
Petitioner argues that in construing the second paragraph of Art. 29
private respondent cannot read into it Philippine rules on interruption
of prescriptive periods and state that his extrajudicial demand has
interrupted the period of prescription.12 American jurisprudence has
declared that “Art. 29 (2) was not intended to permit forums to
consider local limitation tolling provisions but only to let local law
determine whether an action had been commenced within the two-
year period, since the method of commencing a suit varies from
country to country.”
Within our jurisdiction we have held that the Warsaw Convention can
be applied, or ignored, depending on the peculiar facts presented by
each case. Thus, we have ruled that the Convention’s provisions do
not regulate or exclude liability for other breaches of contract by the
carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage. Neither may the Convention
be invoked to justify the disregard of some extraordinary sort of
damage resulting to a passenger and preclude recovery therefor
beyond the limits set by said Convention. Likewise, we have held that
the Convention does not preclude the operation of the Civil Code and
other pertinent laws. It does not regulate, much less exempt, the
carrier from liability for damages for violating the rights of its
passengers under the contract of carriage, especially if willful
misconduct on the part of the carrier’s employees is found or
established.
Respondent’s complaint reveals that he is suing on two (2) causes of
action: (a) the shabby and humiliating treatment he received from
petitioner’s employees at the San Francisco Airport which caused him
extreme embarrassment and social humiliation; and, (b) the slashing
of his luggage and the loss of his personal effects amounting to US
$5,310.00.
While his second cause of action—an action for damages arising from
theft or damage to property or goods—is well within the bounds of
the Warsaw Convention, his first cause of action—an action for
damages arising from the misconduct of the airline employees and the
violation of respondent’s rights as passenger—clearly is not.
Consequently, insofar as the first cause of action is concerned,
respondent’s failure to file his complaint within the two (2)-year
limitation of the Warsaw Convention does not bar his action since
petitioner airline may still be held liable for breach of other provisions
of the Civil Code which prescribe a different period or procedure for
instituting the action, specifically, Art. 1146 thereof which prescribes
four (4) years for filing an action based on torts.
As for respondent’s second cause of action, indeed the travaux
preparatories of the Warsaw Convention reveal that the delegates
thereto intended the two (2)-year limitation incorporated in Art. 29 as
an absolute bar to suit and not to be made subject to the various
tolling provisions of the laws of the forum. This therefore forecloses
the application of our own rules on interruption of prescriptive periods.
Article 29, par. (2), was intended only to let local laws determine
whether an action had been commenced within the two (2)-year
period, and within our jurisdiction an action shall be deemed
commenced upon the filing of a complaint. Since it is indisputable that
respondent filed the present action beyond the two (2)-year time
frame his second cause of action must be barred. Nonetheless, it
cannot be doubted that respondent exerted efforts to immediately
convey his loss to petitioner, even employed the services of two (2)
lawyers to follow up his claims, and that the filing of the action itself
was delayed because of petitioner’s evasion.
In this regard, Philippine Airlines, Inc. v. Court of Appeals19 is
instructive. In this case of PAL, private respondent filed an action for
damages against petitioner airline for the breakage of the front glass
of the microwave oven which she shipped under PAL Air Waybill No.
0-79-1013008-3. Petitioner averred that, the action having been filed
seven (7) months after her arrival at her port of destination, she failed
to comply with par. 12, subpar. (a) (1), of the Air Waybill which
expressly provided that the person entitled to delivery must make a
complaint to the carrier in writing in case of visible damage to the
goods, immediately after discovery of the damage and at the latest
within 14 days from receipt of the goods. Despite non-compliance
therewith the Court held that by private respondent’s immediate
submission of a formal claim to petitioner, which however was not
immediately entertained as it was referred from one employee to
another, she was deemed to have substantially complied with the
requirement. The Court noted that with private respondent’s own
zealous efforts in pursuing her claim it was clearly not her fault that
the letter of demand for damages could only be filed, after months of
exasperating follow-up of the claim, on 13 August 1990, and that if
there was any failure at all to file the formal claim within the
prescriptive period contemplated in the Air Waybill, this was largely
because of the carrier’s own doing, the consequences of which could
not in all fairness be attributed to private respondent.
In the same vein must we rule upon the circumstances brought before
us. Verily, respondent filed his complaint more than two (2) years
later, beyond the period of limitation prescribed by the Warsaw
Convention for filing a claim for damages. However, it is obvious that
respondent was forestalled from immediately filing an action because
petitioner airline gave him the run-around, answering his letters but
not giving in to his demands. True, respondent should have already
filed an action at the first instance when his claims were denied by
petitioner but the same could only be due to his desire to make an
out-of-court settlement for which he cannot be faulted. Hence, despite
the express mandate of Art. 29 of the Warsaw Convention that an
action for damages should be filed within two (2) years from the arrival
at the place of destination, such rule shall not be applied in the instant
case because of the delaying tactics employed by petitioner airline
itself. Thus, private respondent’s second cause of action cannot be
considered as time barred under Art. 29 of the Warsaw Convention.
WHEREFORE, the assailed Decision of the Court of Appeals reversing
and setting aside the appealed order of the trial court granting the
motion to dismiss the complaint, as well as its Resolution denying
reconsideration, is AFFIRMED. Let the records of the case be
remanded to the court of origin for further proceedings taking its
bearings from this disquisition.
The Warsaw Convention does not operate as an exclusive
enumeration of the instances for declaring a carrier liable for breach
of contract of carriage or as an absolute limit of the extent of that
liability—it must not be construed to preclude the operation of the Civil
Code and pertinent laws. (Philippine Airlines, Inc. vs. Court of Appeals,
257 SCRA 33 [1996])
The Warsaw Convention should be deemed a limit of liability only in
those cases where the cause of the death or injury to person, or
destruction, loss or damage to property or delay in its transport is not
attributable to or attended by any willful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official
or employee for which the carrier is responsible, and there is otherwise
no special or extraordinary form of resulting injury. (Northwest
Airlines, Inc. vs. Court of Appeals, 284 SCRA 408 [1998])
——o0o——

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

Assailed decision affirmed.

Notes.—The Warsaw Convention denies to the carrier availment of the

provisions which exclude or limit his liability if the damage is caused
by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered
to be equivalent to wilful misconduct, or if the damage is similarly
caused by any agent of the carrier acting within the scope of his
employment. (Sabena Belgian World Airlines vs. Court of Appeals, 255
SCRA 38 [1996])
PHILIPPINE AIRLINES, INC., petitioner, vs. HON. ADRIANO
SAVILLO, Presiding Judge of RTC Branch 30, Iloilo City, and
SIMPLICIO GRIÑO, respondents
G.R. No. 149547. July 4, 2008
Civil Law; Common Carriers; Damages; The cardinal purpose of the
Warsaw Convention is to provide uniformity of rules governing claims
arising from international air travel; thus, it precludes a passenger
from maintaining an action for personal injury damages under local
law when his or her claim does not satisfy the conditions of liability
under the Convention. — The Warsaw Convention applies to “all
international transportation of persons, baggage or goods performed
by any aircraft for hire.” It seeks to accommodate or balance the
interests of passengers seeking recovery for personal injuries and the
interests of air carriers seeking to limit potential liability. It employs a
scheme of strict liability favoring passengers and imposing damage
caps to benefit air carriers. The cardinal purpose of the Warsaw
Convention is to provide uniformity of rules governing claims arising
from international air travel; thus, it precludes a passenger from
maintaining an action for personal injury damages under local law
when his or her claim does not satisfy the conditions of liability under
the Convention.
Same; Same; Same; A claim covered by the Warsaw Convention can
no longer be recovered under local law, if the statute of limitations of
two years has already lapsed. — Article 19 of the Warsaw Convention
provides for liability on the part of a carrier for “damages occasioned
by delay in the transportation by air of passengers, baggage or
goods.” Article 24 excludes other remedies by further providing that
“(1) in the cases covered by articles 18 and 19, any action for
damages, however founded, can only be brought subject to the
conditions and limits set out in this convention.” Therefore, a claim
covered by the Warsaw Convention can no longer be recovered under
local law, if the statute of limitations of two years has already lapsed.
Same; Same; Same; Jurisprudence in the Philippines and the United
States also recognizes that the Warsaw Convention does not
“exclusively regulate” the relationship between passenger and carrier
on an international flight. — This Court notes that jurisprudence in the
Philippines and the United States also recognizes that the Warsaw
Convention does not “exclusively regulate” the relationship between
passenger and carrier on an international flight. This Court finds that
the present case is substantially similar to cases in which the damages
sought were considered to be outside the coverage of the Warsaw
Convention.
Same; Same; Same; Distinction between damages to the passenger’s
baggage and humiliation he suffered at the hands of the airline’s
employees. — In United Airlines v. Uy, 318 SCRA 576 (1999), this
Court distinguished between the (1) damage to the passenger’s
baggage and (2) humiliation he suffered at the hands of the airline’s
employees. The first cause of action was covered by the Warsaw
Convention which prescribes in two years, while the second was
covered by the provisions of the Civil Code on torts, which prescribes
in four years.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Padohinog, Amane, Gengos, Billena & Coo Law Offices for private
respondent S. Griño.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court, assailing the Decision dated 17 August 2001, rendered by
the Court of Appeals in CA-G.R. SP No. 48664, affirming in toto the
Order dated 9 June 1998, of Branch 30 of the Regional Trial Court
(RTC) of Iloilo City, dismissing the Motion to Dismiss filed by petitioner
Philippine Airlines, Inc. (PAL) in the case entitled, Simplicio Griño v.
Philippine Airlines, Inc. and Singapore Airlines, docketed as Civil Case
No. 23773.
PAL is a corporation duly organized under Philippine law, engaged in
the business of providing air carriage for passengers, baggage and
cargo.
Public respondent Hon. Adriano Savillo is the presiding judge of Branch
30 of the Iloilo RTC, where Civil Case No. 23773 was filed; while
private respondent Simplicio Griño is the plaintiff in the
aforementioned case.
The facts are undisputed.
Private respondent was invited to participate in the 1993 ASEAN
Seniors Annual Golf Tournament held in Jakarta, Indonesia. He and
several companions decided to purchase their respective passenger
tickets from PAL with the following points of passage: MANILA-
SINGAPORE-JAKARTA-SINGAPORE-MANILA. Private respondent and
his companions were made to understand by PAL that its plane would
take them from Manila to Singapore, while Singapore Airlines would
take them from Singapore to Jakarta.
On 3 October 1993, private respondent and his companions took the
PAL flight to Singapore and arrived at about 6:00 o’clock in the
evening. Upon their arrival, they proceeded to the Singapore Airlines
office to check-in for their flight to Jakarta scheduled at 8:00 o’clock
in the same evening. Singapore Airlines rejected the tickets of private
respondent and his group because they were not endorsed by PAL. It
was explained to private respondent and his group that if Singapore
Airlines honored the tickets without PAL’s endorsement, PAL would
not pay Singapore Airlines for their passage. Private respondent tried
to contact PAL’s office at the airport, only to find out that it was closed.
Stranded at the airport in Singapore and left with no recourse, private
respondent was in panic and at a loss where to go; and was subjected
to humiliation, embarrassment, mental anguish, serious anxiety, fear
and distress. Eventually, private respondent and his companions were
forced to purchase tickets from Garuda Airlines and board its last flight
bound for Jakarta. When they arrived in Jakarta at about 12:00 o’clock
midnight, the party who was supposed to fetch them from the airport
had already left and they had to arrange for their transportation to the
hotel at a very late hour. After the series of nerve-wracking
experiences, private respondent became ill and was unable to
participate in the tournament.
Upon his return to the Philippines, private respondent brought the
matter to the attention of PAL. He sent a demand letter to PAL on 20
December 1993 and another to Singapore Airlines on 21 March 1994.
However, both airlines disowned liability and blamed each other for
the fiasco. On 15 August 1997, private respondent filed a Complaint
for Damages before the RTC docketed as Civil Case No. 23773,
seeking compensation for moral damages in the amount of
P1,000,000.00 and attorney’s fees.
Instead of filing an answer to private respondent’s Complaint, PAL filed
a Motion to Dismiss dated 18 September 1998 on the ground that the
said complaint was barred on the ground of prescription under Section
1(f) of Rule 16 of the Rules of Court. PAL argued that the Warsaw
Convention, particularly Article 29 thereof, governed this case, as it
provides that any claim for damages in connection with the
international transportation of persons is subject to the prescription
period of two years. Since the Complaint was filed on 15 August 1997,
more than three years after PAL received the demand letter on 25
January 1994, it was already barred by prescription.
On 9 June 1998, the RTC issued an Order denying the Motion to
Dismiss. It maintained that the provisions of the Civil Code and other
pertinent laws of the Philippines, not the Warsaw Convention, were
applicable to the present case.
The Court of Appeals, in its assailed Decision dated 17 August 2001,
likewise dismissed the Petition for Certiorari filed by PAL and affirmed
the 9 June 1998 Order of the RTC. It pronounced that the application
of the Warsaw Convention must not be construed to preclude the
application of the Civil Code and other pertinent laws. By applying
Article 1144 of the Civil Code, which allowed for a ten-year prescription
period, the appellate court declared that the Complaint filed by private
respondent should not be dismissed.
Hence, the present Petition, in which petitioner raises the following
issues:
I
THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO
THE PETITION AS RESPONDENT JUDGE COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
DENYING PAL’S MOTION TO DISMISS.
II
THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS
OF THE WARSAW CONVENTION DESPITE THE FACT THAT GRIÑO’S
CAUSE OF ACTION AROSE FROM A BREACH OF CONTRACT FOR
INTERNATIONAL AIR TRANSPORT.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
COMPLAINT FILED BY GRIÑO BEYOND THE TWO (2)-YEAR PERIOD
PROVIDED UNDER THE WARSAW CONVENTION IS ALREADY BARRED
BY PRESCRIPTION.
The petition is without merit.
In determining whether PAL’s Motion to Dismiss should have been
granted by the trial court, it must be ascertained if all the claims made
by the private respondent in his Complaint are covered by the Warsaw
Convention, which effectively bars all claims made outside the two-
year prescription period provided under Article 29 thereof. If the
Warsaw Convention covers all of private respondent’s claims, then
Civil Case No. 23773 has already prescribed and should therefore be
dismissed. On the other hand, if some, if not all, of respondent’s claims
are outside the coverage of the Warsaw Convention, the RTC may still
proceed to hear the case.
The Warsaw Convention applies to “all international transportation of
persons, baggage or goods performed by any aircraft for hire.” It
seeks to accommodate or balance the interests of passengers seeking
recovery for personal injuries and the interests of air carriers seeking
to limit potential liability. It employs a scheme of strict liability favoring
passengers and imposing damage caps to benefit air carriers. The
cardinal purpose of the Warsaw Convention is to provide uniformity of
rules governing claims arising from international air travel; thus, it
precludes a passenger from maintaining an action for personal injury
damages under local law when his or her claim does not satisfy the
conditions of liability under the Convention.
Article 19 of the Warsaw Convention provides for liability on the part
of a carrier for “damages occasioned by delay in the transportation by
air of passengers, baggage or goods.” Article 24 excludes other
remedies by further providing that “(1) in the cases covered by articles
18 and 19, any action for damages, however founded, can only be
brought subject to the conditions and limits set out in this convention.”
Therefore, a claim covered by the Warsaw Convention can no longer
be recovered under local law, if the statute of limitations of two years
has already lapsed.
Nevertheless, this Court notes that jurisprudence in the Philippines
and the United States also recognizes that the Warsaw Convention
does not “exclusively regulate” the relationship between passenger
and carrier on an international flight. This Court finds that the present
case is substantially similar to cases in which the damages sought
were considered to be outside the coverage of the Warsaw
Convention.
In United Airlines v. Uy, this Court distinguished between the (1)
damage to the passenger’s baggage and (2) humiliation he suffered
at the hands of the airline’s employees. The first cause of action was
covered by the Warsaw Convention which prescribes in two years,
while the second was covered by the provisions of the Civil Code on
torts, which prescribes in four years.
Similar distinctions were made in American jurisprudence. In Mahaney
v. Air France, a passenger was denied access to an airline flight
between New York and Mexico, despite the fact that she held a
confirmed reservation. The court therein ruled that if the plaintiff were
to claim damages based solely on the delay she experienced – for
instance, the costs of renting a van, which she had to arrange on her
own as a consequence of the delay – the complaint would be barred
by the two-year statute of limitations. However, where the plaintiff
alleged that the airlines subjected her to unjust discrimination or
undue or unreasonable preference or disadvantage, an act punishable
under the United States laws, then the plaintiff may claim purely
nominal compensatory damages for humiliation and hurt feelings,
which are not provided for by the Warsaw Convention. In another
case, Wolgel v. Mexicana Airlines, the court pronounced that actions
for damages for the “bumping off” itself, rather than the incidental
damages due to the delay, fall outside the Warsaw Convention and do
not prescribe in two years.
In the Petition at bar, private respondent’s Complaint alleged that both
PAL and Singapore Airlines were guilty of gross negligence, which
resulted in his being subjected to “humiliation, embarrassment,
mental anguish, serious anxiety, fear and distress.” The emotional
harm suffered by the private respondent as a result of having been
unreasonably and unjustly prevented from boarding the plane should
be distinguished from the actual damages which resulted from the
same incident. Under the Civil Code provisions on tort, such emotional
harm gives rise to compensation where gross negligence or malice is
proven.
The instant case is comparable to the case of Lathigra v. British
Airways.
In Lathigra, it was held that the airlines’ negligent act of reconfirming
the passenger’s reservation days before departure and failing to
inform the latter that the flight had already been discontinued is not
among the acts covered by the Warsaw Convention, since the alleged
negligence did not occur during the performance of the contract of
carriage but, rather, days before the scheduled flight.
In the case at hand, Singapore Airlines barred private respondent from
boarding the Singapore Airlines flight because PAL allegedly failed to
endorse the tickets of private respondent and his companions, despite
PAL’s assurances to respondent that Singapore Airlines had already
confirmed their passage. While this fact still needs to be heard and
established by adequate proof before the RTC, an action based on
these allegations will not fall under the Warsaw Convention, since the
purported negligence on the part of PAL did not occur during the
performance of the contract of carriage but days before the scheduled
flight. Thus, the present action cannot be dismissed based on the
statute of limitations provided under Article 29 of the Warsaw
Convention.
Had the present case merely consisted of claims incidental to the
airlines’ delay in transporting their passengers, the private
respondent’s Complaint would have been time-barred under Article 29
of the Warsaw Convention. However, the present case involves a
special species of injury resulting from the failure of PAL and/or
Singapore Airlines to transport private respondent from Singapore to
Jakarta—the profound distress, fear, anxiety and humiliation that
private respondent experienced when, despite PAL’s earlier assurance
that Singapore Airlines confirmed his passage, he was prevented from
boarding the plane and he faced the daunting possibility that he would
be stranded in Singapore Airport because the PAL office was already
closed.
These claims are covered by the Civil Code provisions on tort, and not
within the purview of the Warsaw Convention. Hence, the applicable
prescription period is that provided under Article 1146 of the Civil
Code:
“Art. 1146. The following actions must be instituted within four
years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict.”
Private respondent’s Complaint was filed with the RTC on 15 August
1997, which was less than four years since PAL received his
extrajudicial demand on 25 January 1994. Thus, private respondent’s
claims have not yet prescribed and PAL’s Motion to Dismiss must be
denied.
Moreover, should there be any doubt as to the prescription of private
respondent’s Complaint, the more prudent action is for the RTC to
continue hearing the same and deny the Motion to Dismiss. Where it
cannot be determined with certainty whether the action has already
prescribed or not, the defense of prescription cannot be sustained on
a mere motion to dismiss based on what appears to be on the face of
the complaint. And where the ground on which prescription is based
does not appear to be indubitable, the court may do well to defer
action on the motion to dismiss until after trial on the merits.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The
assailed Decision of the Court of Appeals in CA-G.R. SP No. 48664,
promulgated on 17 August 2001 is AFFIRMED. Costs against the
petitioner.

SO ORDERED.

Ynares-Santiago (Chairperson), Austria-Martinez, Nachura and Reyes,

JJ., concur.

Petition denied, judgment affirmed.

Note. — In an action for breach of contract of carriage, the aggrieved

party does not have to prove that the common carrier was at fault or
was negligent—all that is necessary to prove is the existence of the
contract and the fact of its no-performance by the carrier. (Singapore
Airlines Limited vs. Fernandez, 417 SCRA 474 [2003])

——o0o——
 SULPICIO LINES, INC., petitioner, vs. DOMINGO E. CURSO,
LUCIA E. CURSO, MELECIO E. CURSO, SEGUNDO E. CURSO,
VIRGILIO E. CURSO, DIOSDADA E. CURSO, and CECILIA E.
CURSO, respondents
G.R. No. 157009. March 17, 2010
Common Carriers; Damages; Statutory Construction; The omission
from Article 2206(3) of the brothers and sisters of the deceased
passenger reveals the legislative intent to exclude them from the
recovery of moral damages for mental anguish by reason of the death
of the deceased—the solemn power and duty of the courts to interpret
and apply the law do not include the power to correct the law by
reading into it was is not written therein.—As a general rule, moral
damages are not recoverable in actions for damages predicated on a
breach of contract, unless there is fraud or bad faith. As an exception,
moral damages may be awarded in case of breach of contract of
carriage that results in the death of a passenger, in accordance with
Article 1764, in relation to Article 2206 (3), of the Civil Code, which
provide: x x x The foregoing legal provisions set forth the persons
entitled to moral damages. The omission from Article 2206 (3) of the
brothers and sisters of the deceased passenger reveals the legislative
intent to exclude them from the recovery of moral damages for mental
anguish by reason of the death of the deceased. Inclusio unius est
exclusio alterius. The solemn power and duty of the courts to interpret
and apply the law do not include the power to correct the law by
reading into it what is not written therein. Thus, the CA erred in
awarding moral damages to the respondents.
Same; Same; Moral Damages; To be entitled to moral damages, a
party must have a right based upon law.—The purpose of moral
damages is indemnity or reparation, that is, to enable the injured party
to obtain the means, diversions, or amusements that will serve to
alleviate the moral suffering he has undergone by reason of the tragic
event. According to Villanueva v. Salvador, 480 SCRA 39 (2006), the
conditions for awarding moral damages are: (a) there must be an
injury, whether physical, mental, or psychological, clearly
substantiated by the claimant; (b) there must be a culpable act or
omission factually established; (c) the wrongful act or omission of the
defendant must be the proximate cause of the injury sustained by the
claimant; and (d) the award of damages is predicated on any of the
cases stated in Article 2219 of the Civil Code. To be entitled to moral
damages, the respondents must have a right based upon law. It is
true that under Article 1003 of the Civil Code they succeeded to the
entire estate of the late Dr. Curso in the absence of the latter’s
descendants, ascendants, illegitimate children, and surviving spouse.
However, they were not included among the persons entitled to
recover moral damages, as enumerated in Article 2219 of the Civil
Code.
Same; Same; Same; Ejusdem Generis; The usage of the phrase
analogous cases in Article 2219 of the Civil Code means simply that
the situation must be held similar to those expressly enumerated in
the law in question following the ejusdem generis rule. — Article 2219
circumscribes the instances in which moral damages may be awarded.
The provision does not include succession in the collateral line as a
source of the right to recover moral damages. The usage of the phrase
analogous cases in the provision means simply that the situation must
be held similar to those expressly enumerated in the law in question
following the ejusdem generis rule. Hence, Article 1003 of the Civil
Code is not concerned with recovery of moral damages.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Arthur D. Lim Law Office for petitioner.
Clemencio C. Sabitsana for respondents.
BERSAMIN, J.:
Are the surviving brothers and sisters of a passenger of a vessel that
sinks during a voyage entitled to recover moral damages from the
vessel owner as common carrier?
This is the question presented in the appeal taken by the common
carrier from the reversal by the Court of Appeals (CA) of the decision
of the Regional Trial Court (RTC) dismissing the complaint for various
damages filed by the surviving brothers and sisters of the late Dr.
Cenon E. Curso upon a finding that force majeure had caused the
sinking. The CA awarded moral and other damages to the surviving
brothers and sisters.
Antecedents
On October 23, 1988, Dr. Curso boarded at the port of Manila the MV
Doña Marilyn, an inter-island vessel owned and operated by petitioner
Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately, the MV
Doña Marilyn sank in the afternoon of October 24, 1988 while at sea
due to the inclement sea and weather conditions brought about by
Typhoon Unsang. The body of Dr. Curso was not recovered, along
with hundreds of other passengers of the ill-fated vessel. At the time
of his death, Dr. Curso was 48 years old, and employed as a resident
physician at the Naval District Hospital in Naval, Biliran. He had a basic
monthly salary of P3,940.00, and would have retired from government
service by December 20, 2004 at the age of 65.
On January 21, 1993, the respondents, allegedly the surviving
brothers and sisters of Dr. Curso, sued the petitioner in the RTC in
Naval, Biliran to claim damages based on breach of contract of
carriage by sea, averring that the petitioner had acted negligently in
transporting Dr. Curso and the other passengers. They stated, among
others, that their parents had predeceased Dr. Curso, who died single
and without issue; and that, as such, they were Dr. Curso’s surviving
heirs and successors in interest entitled to recover moral and other
damages. They prayed for judgment, as follows: (a) compensatory
damages of P1,924,809.00; (b) moral damages of P100,000.00; (c)
exemplary or corrective damages in the amount deemed proper and
just; (d) expenses of litigation of at least P50,000.00; (e) attorney’s
fees of P50,000.00; and (f) costs of suit.
The petitioner denied liability, insisting that the sinking of the vessel
was due to force majeure (i.e., Typhoon Unsang), which exempted a
common carrier from liability. It averred that the MV Doña Marilyn was
seaworthy in all respects, and was in fact cleared by the Philippine
Coast Guard for the voyage; and that after the accident it conducted
intensive search and rescue operations and extended assistance and
aid to the victims and their families.
Ruling of the RTC
On July 28, 1995, the RTC dismissed the complaint upon its finding
that the sinking of the vessel was due to force majeure. The RTC
concluded that the officers of the MV Doña Marilyn had acted with the
diligence required of a common carrier; that the sinking of the vessel
and the death of its passengers, including Dr. Curso, could not have
been avoided; that there was no basis to consider the MV Doña
Marilyn not seaworthy at the time of the voyage; that the findings of
the Special Board of Marine Inquiry (SBMI) constituted to investigate
the disaster absolved the petitioner, its officers, and crew of any
negligence and administrative liability; and that the respondents failed
to prove their claim for damages.
Ruling of the CA
The respondents appealed to the CA, contending that the RTC erred:
(a) in considering itself barred from entertaining the case by the
findings of fact of the SBMI in SBMI-ADM Case No. 08-88; (b) in not
holding that the petitioner was negligent and did not exercise the
required diligence and care in conducting Dr. Curso to his destination;
(c) in not finding that the MV Doña Marilyn was unseaworthy at the
time of its sinking; and (d) in not awarding damages to them.
In its decision dated September 16, 2002, the CA held and disposed:
“Based on the events described by the appellee’s witness, the Court
found inadequate proof to show that Sulpicio Lines, Inc., or its officers
and crew, had exercised the required degree of diligence to acquit the
appellee of liability.
In the first place, the court finds inadequate explanation why the
officers of the M.V. Doña Marilyn had not apprised themselves of the
weather reports on the approach of typhoon “Unsang” which had the
power of a signal no. 3 cyclone, bearing upon the general direction of
the path of the M.V. Doña Marilyn. If the officers and crew of the Doña
Marilyn had indeed been adequately monitoring the strength and
direction of the typhoon, and had acted promptly and competently to
avoid the same, then such a mishap would not have occurred.
Furthermore, there was no account of the acts and decision of the
crew of the ill-fated ship from 8:00 PM on October 23, 1988 when the
Chief Mate left his post until 4:00 AM the next day when he resumed
duty. It does not appear what occurred during that time, or what
weather reports were received and acted upon by the ship captain.
What happened during such time is important in determining what
information about the typhoon was gathered and how the ship officers
reached their decision to just change course, and not take shelter
while a strong typhoon was approaching.
Furthermore, the Court doubts the fitness of the ship for the voyage,
since at the first sign of bad weather, the ship’s hydraulic system failed
and had to be repaired mid-voyage, making the vessel a virtual
derelict amidst a raging storm at sea. It is part of the appellee’s
extraordinary diligence as a common carrier to make sure that its ships
can withstand the forces that bear upon them during a voyage,
whether they be the ordinary stress of the sea during a calm voyage
or the rage of a storm. The fact that the stud bolts in the ships
hydraulic system gave way while the ship was at sea discredits the
theory that the appellee exercised due diligence in maintaining the
seaworthy condition of the M.V. Doña Marilyn. xxx.
xxx
Aside from these, the defendant must compensate the plaintiffs for
moral damages that they suffered as a result of the negligence
attending the loss of the M.V. Doña Marilyn. Plaintiffs, have
established that they took great pains to recover, in vain, the body of
their brother, at their own cost, while suffering great grief due to the
loss of a loved one. Furthermore, Plaintiffs were unable to recover the
body of their brother. Moral damages worth P100,000.00 is proper.
WHEREFORE, premises considered, the appealed decision of the RTC
of Naval, Biliran, Branch 16, rendered in Civil Case No. B-0851, is
hereby SET ASIDE. In lieu thereof, judgment is hereby rendered,
finding the defendant-appellee Sulpicio Lines, Inc, to have been
negligent in transporting the deceased Cenon E. Curso who was on
board the ill-fated M.V. Doña Marilyn, resulting in his untimely death.
Defendant-appellee is hereby ordered to pay the plaintiffs heirs of
Cenon E. Curso the following:
(1) Death indemnity in the amount of P50,000.00;
(2) Loss of Earning Capacity in the amount of P504,241.20;
(3) Moral Damages in the amount of P100,000.00.
(4) Costs of the suit.”
Hence, this appeal, in which the petitioner insists that the CA
committed grievous errors in holding that the respondents were
entitled to moral damages as the brothers and sisters of the late Dr.
Curso; that the CA thereby disregarded Article 1764 and Article 2206
of the Civil Code, and the ruling in Receiver for North Negros Sugar
Co., Inc. v. Ybañez, whereby the Supreme Court disallowed the award
of moral damages in favor of the brothers and sisters of a deceased
passenger in an action upon breach of a contract of carriage.
Issues
The petitioner raises the following issues:
ARE THE BROTHERS AND SISTERS OF A DECEASED PASSENGER IN
A CASE OF BREACH OF CONTRACT OF CARRIAGE ENTITLED TO AN
AWARD OF MORAL DAMAGES AGAINST THE CARRIER?
ASSUMING (THAT) THEY ARE ENTITLED TO CLAIM MORAL
DAMAGES, SHOULD THE AWARD BE GRANTED OR GIVEN TO THE
BROTHER OR SISTER NOTWITHSTANDING (THE) LACK OF EVIDENCE
AS REGARDS HIS OR HER PERSONAL SUFFERING?
Ruling
The petition is meritorious.
As a general rule, moral damages are not recoverable in actions for
damages predicated on a breach of contract, unless there is fraud or
bad faith. As an exception, moral damages may be awarded in case
of breach of contract of carriage that results in the death of a
passenger, in accordance with Article 1764, in relation to Article 2206
(3), of the Civil Code, which provide:
“Article 1764. Damages in cases comprised in this Section shall be
awarded in accordance with Title XVIII of this Book, concerning
Damages. Article 2206 shall also apply to the death of a passenger
caused by the breach of contract by a common carrier.
Article 2206. The amount of damages for death caused by a crime
or quasi-delict shall be at least three thousand pesos, even though
there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity
of the deceased, and the indemnity shall be paid to the heirs of the
latter; such indemnity shall in every case be assessed and awarded by
the court, unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the
time of his death;
(2) If the deceased was obliged to give support according to the
provisions of article 291, the recipient who is not an heir called to the
decedent’s inheritance by the law of testate or intestate succession,
may demand support from the person causing the death, for a period
not exceeding five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental
anguish by reason of the death of the deceased.”
The foregoing legal provisions set forth the persons entitled to moral
damages. The omission from Article 2206 (3) of the brothers and
sisters of the deceased passenger reveals the legislative intent to
exclude them from the recovery of moral damages for mental anguish
by reason of the death of the deceased. Inclusio unius est exclusio
alterius. The solemn power and duty of the courts to interpret and
apply the law do not include the power to correct the law by reading
into it what is not written therein. Thus, the CA erred in awarding
moral damages to the respondents.
The petitioner has correctly relied on the holding in Receiver for North
Negros Sugar Company, Inc. v. Ybañez, to the effect that in case of
death caused by quasi-delict, the brother of the deceased was not
entitled to the award of moral damages based on Article 2206 of the
Civil Code.
Essentially, the purpose of moral damages is indemnity or reparation,
that is, to enable the injured party to obtain the means, diversions, or
amusements that will serve to alleviate the moral suffering he has
undergone by reason of the tragic event. According to Villanueva v.
Salvador, the conditions for awarding moral damages are: (a) there
must be an injury, whether physical, mental, or psychological, clearly
substantiated by the claimant; (b) there must be a culpable act or
omission factually established; (c) the wrongful act or omission of the
defendant must be the proximate cause of the injury sustained by the
claimant; and (d) the award of damages is predicated on any of the
cases stated in Article 2219 of the Civil Code.
To be entitled to moral damages, the respondents must have a right
based upon law. It is true that under Article 1003 of the Civil Code
they succeeded to the entire estate of the late Dr. Curso in the
absence of the latter’s descendants, ascendants, illegitimate children,
and surviving spouse. However, they were not included among the
persons entitled to recover moral damages, as enumerated in Article
2219 of the Civil Code, viz.:
“Article 2219. Moral damages may be recovered in the following and
analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30,
32, 34 and 35.
The parents of the female seduced, abducted, raped or abused
referred to in No. 3 of this article, may also recover moral damages.
The spouse, descendants, ascendants and brothers and sisters may
bring the action mentioned in No. 9 of this article, in the order named.”
Article 2219 circumscribes the instances in which moral damages may
be awarded. The provision does not include succession in the collateral
line as a source of the right to recover moral damages. The usage of
the phrase analogous cases in the provision means simply that the
situation must be held similar to those expressly enumerated in the
law in question following the ejusdem generis rule. Hence, Article 1003
of the Civil Code is not concerned with recovery of moral damages.
In fine, moral damages may be recovered in an action upon breach of
contract of carriage only when: (a) where death of a passenger
results, or (b) it is proved that the carrier was guilty of fraud and bad
faith, even if death does not result.16 Article 2206 of the Civil Code
entitles the descendants, ascendants, illegitimate children, and
surviving spouse of the deceased passenger to demand moral
damages for mental anguish by reason of the death of the
deceased.17
WHEREFORE, the petition for review on certiorari is granted, and the
award made to the respondents in the decision dated September 16,
2002 of the Court of Appeals of moral damages amounting to
P100,000.00 is deleted and set aside.
SO ORDERED.
Puno (C.J., Chairperson), Carpio-Morales, Leonardo-De Castro and
Villarama, Jr., JJ., concur.
Petition granted.
Note.—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.
(Philippine American General Insurance Company vs. PKS Shipping
Company, 401 SCRA 222 [2003])
——o0o——
AMERICAN AIRLINES, petitioner, vs. COURT OF APPEALS,
HON. BERNARDO LL. SALAS and DEMOCRITO MENDOZA,
respondents
G.R. Nos. 116044-45. March 9, 2000
Common Carriers; Air Transportation; Warsaw Convention;
International Law; The Warsaw Convention to which the Republic of
the Philippines is a party and which has the force and effect of law in
this country applies to all international transportation of persons,
baggage or goods performed by an aircraft gratuitously or for hire. —
The Warsaw Convention to which the Republic of the Philippines is a
party and which has the force and effect of law in this country applies
to all international transportation of persons, baggage or goods
performed by an aircraft gratuitously or for hire. As enumerated in the
Preamble of the Convention, one of the objectives is “to regulate in a
uniform manner the conditions of international transportation by air.”
The contract of carriage entered into by the private respondent with
Singapore Airlines, and subsequently with the petitioner, to transport
him to nine cities in different countries with New York as the final
destination is a contract of international transportation and the
provisions of the Convention automatically apply and exclusively
govern the rights and liabilities of the airline and its passengers. This
includes Section 28 (1) which enumerates the four places where an
action for damages may be brought.
Same; Same; Same; Where an airline accepts an unused portion of a
conjunction ticket, enters it in the IATA clearing house and undertakes
to transport the passenger over the route covered by the unused
portion of a conjunction ticket, such airline tacitly recognizes its
commitment under the IATA pool arrangement to act as agent of the
principal contracting airline as to the segment of the trip the former
agreed to undertake; When an airline, constitutes itself as an agent of
the principal carrier, its undertaking should be taken as part of a single
operation under the contract of carriage executed by the passenger
and the principal carrier.—The contract of carriage between the
private respondent and Singapore Airlines although performed by
different carriers under a series of airline tickets, including that issued
by the petitioner, constitutes a single operation. Members of the IATA
are under a general pool partnership agreement wherein they act as
agent of each other in the issuance of tickets to contracted passengers
to boost ticket sales worldwide and at the same time provide
passengers easy access to airlines which are otherwise inaccessible in
some parts of the world. Booking and reservation among airline
members are allowed even by telephone and it has become an
accepted practice among them. A member airline which enters into a
contract of carriage consisting of a series of trips to be performed by
different carriers is authorized to receive the fare for the whole trip
and through the required process of interline settlement of accounts
by way of the IATA clearing house an airline is duly compensated for
the segment of the trip serviced. Thus, when the petitioner accepted
the unused portion of the conjunction tickets, entered it in the IATA
clearing house and undertook to transport the private respondent over
the route covered by the unused portion of the conjunction tickets,
i.e., Geneva to New York, the petitioner tacitly recognized its
commitment under the IATA pool arrangement to act as agent of the
principal contracting airline, Singapore Airlines, as to the segment of
the trip the petitioner agreed to undertake. As such, the petitioner
thereby assumed the obligation to take the place of the carrier
originally designated in the original conjunction ticket. The petitioner’s
argument that it is not a designated carrier in the original conjunction
tickets and that it issued its own ticket is not decisive of its liability.
The new ticket was simply a replacement for the unused portion of
the conjunction ticket, both tickets being for the same amount of US$
2,760 and having the same points of departure and destination. By
constituting itself as an agent of the principal carrier the petitioner’s
undertaking should be taken as part of a single operation under the
contract of carriage executed by the private respondent and Singapore
Airlines in Manila.
Same; Same; Same; Jurisdiction; An air carrier’s acquiescence to take
the place of the original designated carrier binds it under the contract
of carriage entered into by the latter, including the determination of
the place wherein the contract was made. — The quoted provision of
the Warsaw Convention Art. 1(3) clearly states that a contract of air
transportation is taken as a single operation whether it is founded on
a single contract or a series of contracts. The number of tickets issued
does not detract from the oneness of the contract of carriage as long
as the parties regard the contract as a single operation. The evident
purpose underlying this Article is to promote international air travel by
facilitating the procurement of a series of contracts for air
transportation through a single principal and obligating different
airlines to be bound by one contract of transportation. Petitioner’s
acquiescence to take the place of the original designated carrier binds
it under the contract of carriage entered into by the private respondent
and Singapore Airlines in Manila. The third option of the plaintiff under
Art. 28 (1) of the Warsaw Convention e.g., to sue in the place of
business of the carrier wherein the contract was made, is therefore,
Manila, and Philippine courts are clothed with jurisdiction over this
case. We note that while this case was filed in Cebu and not in Manila
the issue of venue is no longer an issue as the petitioner is deemed to
have waived it when it presented evidence before the trial court.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Quisumbing, Torres & Evangelista for petitioner.
Amadeo D. Seno for private respondent.
GONZAGA-REYES, J.:
Before us is a petition for review of the decision dated December 24,
1993 rendered by the Court of Appeals in the consolidated cases
docketed as CA-G.R. SP Nos. 30946 and 31452 entitled American
Airlines vs. The Presiding Judge Branch 8 of the Regional Trial Court
of Cebu and Democrito Mendoza, petitions for certiorari and
prohibition. In SP No. 30946, the petitioner assails the trial court’s
order denying the petitioner’s motion to dismiss the action for
damages filed by the private respondent for lack of jurisdiction under
Section 28 (1) of the Warsaw Convention; and in SP No. 31452 the
petitioner challenges the validity of the trial court’s order striking off
the record the deposition of the petitioner’s security officer taken in
Geneva, Switzerland for failure of the said security officer to answer
the cross interrogatories propounded by the private respondent.
The sole issue raised in SP No. 30946 is the questioned jurisdiction of
the Regional Trial Court of Cebu to take cognizance of the action for
damages filed by the private respondent against herein petitioner in
view of Art. 28 (1) of the Warsaw Convention. It is undisputed that
the private respondent purchased from Singapore Airlines in Manila
conjunction tickets for Manila-Singapore-Athens-Larnaca-Rome-Turin-
Zurich-Geneva-Copenhagen-New York. The petitioner was not a
participating airline in any of the segments in the itinerary under the
said conjunction tickets. In Geneva the petitioner decided to forego
his trip to Copenhagen and to go straight to New York and in the
absence of a direct flight under his conjunction tickets from Geneva to
New York, the private respondent on June 7, 1989 exchanged the
unused portion of the conjunction ticket for a one-way ticket from
Geneva to New York from the petitioner airline. Petitioner issued its
own ticket to the private respondent in Geneva and claimed the value
of the unused portion of the conjunction ticket from the IATA clearing
house in Geneva.
In September 1989, private respondent filed an action for damages
before the Regional Trial Court of Cebu for the alleged embarrassment
and mental anguish he suffered at the Geneva Airport when the
petitioner’s security officers prevented him from boarding the plane,
detained him for about an hour and allowed him to board the plane
only after all the other passengers have boarded. The petitioner filed
a motion to dismiss for lack of jurisdiction of Philippine courts to
entertain the said proceedings under Art. 28 (1) of the Warsaw
Convention. The trial court denied the motion. The order of denial was
elevated to the Court of Appeals which affirmed the ruling of the trial
court. Both the trial and the appellate courts held that the suit may be
brought in the Philippines under the pool partnership agreement
among the IATA members, which include Singapore Airlines and
American Airlines, wherein the members act as agents of each other
in the issuance of tickets to those who may need their services. The
contract of carriage perfected in Manila between the private
respondent and Singapore Airlines binds the petitioner as an agent of
Singapore Airlines and considering that the petitioner has a place of
business in Manila, the third option of the plaintiff under the Warsaw
Convention i.e., the action may be brought in the place where the
contract was perfected and where the airline has a place of business,
is applicable. Hence this petition assailing the order upholding the
jurisdiction of Philippine courts over the instant action.
Both parties filed simultaneous memoranda pursuant to the resolution
of this Court giving due course to the petition.
The petitioner’s theory is as follows: Under Art. 28 (1) of the Warsaw
Convention an action for damages must be brought at the option of
the plaintiff either before the court of the 1) domicile of the carrier; 2)
the carrier’s principal place of business; 3) the place where the carrier
has a place of business through which the contract was made; 4) the
place of destination. The petitioner asserts that the Philippines is
neither the domicile nor the principal place of business of the
defendant airline; nor is it the place of destination. As regards the third
option of the plaintiff, the petitioner contends that since the Philippines
is not the place where the contract of carriage was made between the
parties herein, Philippine courts do not have jurisdiction over this
action for damages. The issuance of petitioner’s own ticket in Geneva
in exchange for the conjunction ticket issued by Singapore Airlines for
the final leg of the private respondent’s trip gave rise to a separate
and distinct contract of carriage from that entered into by the private
respondent with Singapore Airlines in Manila. Petitioner lays stress on
the fact that the plane ticket for a direct flight from Geneva to New
York was purchased by the private respondent from the petitioner by
“exchange and cash” which signifies that the contract of carriage with
Singa-pore Airlines was terminated and a second contract was
perfected. Moreover, the second contract of carriage cannot be
deemed to have been an extension of the first as the petitioner airline
is not a participating airline in any of the destinations under the first
contract. The petitioner claims that the private respondent’s argument
that the petitioner is bound under the IATA Rules as agent of the
principal airline is irrelevant and the alleged bad faith of the airline
does not remove the case from the applicability of the Warsaw
Convention. Further, the IATA Rule cited by the private respondent
which is admittedly printed on the ticket issued by the petitioner to
him which states, “An air carrier issuing a ticket for carriage over the
lines of another carrier does so only as its agent” does not apply
herein, as neither Singapore Airlines nor the petitioner issued a ticket
to the private respondent covering the route of the other. Since the
conjunction tickets issued by Singapore Airlines do not include the
route covered by the ticket issued by the petitioner, the petitioner
airline submits that it did not act as an agent of Singapore Airlines.
Private respondent controverts the applicability of the Warsaw
Convention in this case. He posits that under Article 17 of the Warsaw
Convention a carrier may be held liable for damages if the “accident”
occurred on board the airline or in the course of “embarking or
disembarking” from the carrier and that under Article 25 (1)4 thereof
the provisions of the convention will not apply if the damage is caused
by the “willful misconduct” of the carrier. He argues that his cause of
action is based on the incident at the pre-departure area of the Geneva
airport and not during the process of embarking nor disembarking
from the carrier and that security officers of the petitioner airline acted
in bad faith. Accordingly, this case is released from the terms of the
Convention. Private respondent argues that assuming that the
Convention applies, his trip to nine cities in different countries
performed by different carriers under the conjunction tickets issued in
Manila by Singapore Airlines is regarded as a single transaction; as
such the final leg of his trip from Geneva to New York with the
petitioner airline is part and parcel of the original contract of carriage
perfected in Manila. Thus, the third option of the plaintiff under Art.
28 (1) e.g., where the carrier has a place of business through which
the contract of carriage was made, applies herein and the case was
properly filed in the Philippines. The private respondent seeks
affirmance of the ruling of the lower courts that the petitioner acted
as an agent of Singapore Airlines under the IATA Rules and as an
agent of the principal carrier the petitioner may be held liable under
the contract of carriage perfected in Manila, citing the judicial
admission made by the petitioner that it claimed the value of the
unused portion of the private respondent’s conjunction tickets from
the IATA Clearing House in Geneva where the accounts of both airlines
are respectively credited and debited. Accordingly, the petitioner
cannot now deny the contract of agency with Singapore Airlines after
it honored the conjunction tickets issued by the latter.
The petition is without merit.
The Warsaw Convention to which the Republic of the Philippines is a
party and which has the force and effect of law in this country applies
to all international transportation of persons, baggage or goods
performed by an aircraft gratuitously or for hire. As enumerated in the
Preamble of the Convention, one of the objectives is “to regulate in a
uniform manner the conditions of international transportation by air.”
The contract of carriage entered into by the private respondent with
Singapore Airlines, and subsequently with the petitioner, to transport
him to nine cities in different countries with New York as the final
destination is a contract of international transportation and the
provisions of the Convention automatically apply and exclusively
govern the rights and liabilities of the airline and its passengers. This
includes Section 28 (1) which enumerates the four places where an
action for damages may be brought.
The threshold issue of jurisdiction of Philippine courts under Art. 28
(1) must first be resolved before any pronouncements may be made
on the liability of the carrier thereunder. The objections raised by the
private respondent that this case is released from the terms of the
Convention because the incident on which this action is predicated did
not occur in the process of embarking and disembarking from the
carrier under Art. 17 and that the employees of the petitioner airline
acted with malice and bad faith under Art. 25 (1) pertain to the merits
of the case which may be examined only if the action has first been
properly commenced under the rules on jurisdiction set forth in Art.
28 (1).
Art. 28 (1) of the Warsaw Convention states:
Art. 28 (1) An action for damages must be brought at the option of
the plaintiff, in the territory of one of the High Contracting Parties,
either before the court of the domicile of the carrier or of his principal
place of business or where he has a place of business through which
the contract has been made, or before the court at the place of
destination.
There is no dispute that petitioner issued the ticket in Geneva which
was neither the domicile nor the principal place of business of
petitioner nor the respondent’s place of destination.
The question is whether the contract of transportation between the
petitioner and the private respondent would be considered as a single
operation and part of the contract of transportation entered into by
the latter with Singapore Airlines in Manila.
Petitioner disputes the ruling of the lower court that it is. Petitioner’s
main argument is that the issuance of a new ticket in Geneva created
a contract of carriage separate and distinct from that entered by the
private respondent in Manila.
We find the petitioner’s argument without merit.
Art. 1(3) of the Warsaw Convention which states:
“Transportation to be performed by several successive carriers shall
be deemed, for the purposes of this convention, to be one undivided
transportation, if it has been regarded by the parties as a single
operation, whether it has been agreed upon under the form of a single
contract or a series of contracts, and it shall not lose its international
character merely because one contract or series of contracts is to be
performed entirely within the territory subject of the sovereignty,
suzerainty, mandate or authority of the same High Contracting Party.”
The contract of carriage between the private respondent and
Singapore Airlines although performed by different carriers under a
series of airline tickets, including that issued by the petitioner,
constitutes a single operation. Members of the IATA are under a
general pool partnership agreement wherein they act as agent of each
other in the issuance of tickets to contracted passengers to boost
ticket sales worldwide and at the same time provide passengers easy
access to airlines which are otherwise inaccessible in some parts of
the world. Booking and reservation among airline members are
allowed even by telephone and it has become an accepted practice
among them. A member airline which enters into a contract of carriage
consisting of a series of trips to be performed by different carriers is
authorized to receive the fare for the whole trip and through the
required process of interline settlement of accounts by way of the
IATA clearing house an airline is duly compensated for the segment
of the trip serviced. Thus, when the petitioner accepted the unused
portion of the conjunction tickets, entered it in the IATA clearing house
and undertook to transport the private respondent over the route
covered by the unused portion of the conjunction tickets, i.e., Geneva
to New York, the petitioner tacitly recognized its commitment under
the IATA pool arrangement to act as agent of the principal contracting
airline, Singapore Airlines, as to the segment of the trip the petitioner
agreed to undertake. As such, the petitioner thereby assumed the
obligation to take the place of the carrier originally designated in the
original conjunction ticket. The petitioner’s argument that it is not a
designated carrier in the original conjunction tickets and that it issued
its own ticket is not decisive of its liability. The new ticket was simply
a replacement for the unused portion of the conjunction ticket, both
tickets being for the same amount of US$ 2,760 and having the same
points of departure and destination. By constituting itself as an agent
of the principal carrier the petitioner’s undertaking should be taken as
part of a single operation under the contract of carriage executed by
the private respondent and Singapore Airlines in Manila.
The quoted provision of the Warsaw Convention Art. 1(3) clearly
states that a contract of air transportation is taken as a single
operation whether it is founded on a single contract or a series of
contracts. The number of tickets issued does not detract from the
oneness of the contract of carriage as long as the parties regard the
contract as a single operation. The evident purpose underlying this
Article is to promote international air travel by facilitating the
procurement of a series of contracts for air transportation through a
single principal and obligating different airlines to be bound by one
contract of transportation. Petitioner’s acquiescence to take the place
of the original designated carrier binds it under the contract of carriage
entered into by the private respondent and Singapore Airlines in
Manila.
The third option of the plaintiff under Art. 28 (1) of the Warsaw
Convention e.g., to sue in the place of business of the carrier wherein
the contract was made, is therefore, Manila, and Philippine courts are
clothed with jurisdiction over this case. We note that while this case
was filed in Cebu and not in Manila the issue of venue is no longer an
issue as the petitioner is deemed to have waived it when it presented
evidence before the trial court.
The issue raised in SP No. 31452 which is whether or not the trial
court committed grave abuse of discretion in ordering the deposition
of the petitioner’s security officer taken in Geneva to be stricken off
the record for failure of the said security officer to appear before the
Philippine consul in Geneva to answer the cross-interrogatories filed
by the private respondent does not have to be resolved. The
subsequent appearance of the said security officer before the
Philippine consul in Geneva on September 19, 1994 and the answer
to the cross-interrogatories propounded by the private respondent
was transmitted to the trial court by the Philippine consul in Geneva
on September 23, 1994 should be deemed as full compliance with the
requisites of the right of the private respondent to cross-examine the
petitioner’s witness. The deposition filed by the petitioner should be
reinstated as part of the evidence and considered together with the
answer to the cross-interrogatories.
WHEREFORE, the judgment of the appellate court in CA-G.R. SP No.
30946 is affirmed. The case is ordered remanded to the court of origin
for further proceedings. The decision of the appellate court in CA-G.R.
SP No. 31452 is set aside. The deposition of the petitioner’s security
officer is reinstated as part of the evidence.
SO ORDERED.
Melo (Chairman), Vitug, Panganiban and Purisima, JJ., concur.
Judgment in CA-G.R. SP No. 30946 affirmed, case remanded to court
a quo for further proceedings. While set aside in CA-GR SP No. 31452.
Notes. — The Warsaw Convention should be deemed a limit of liability
only in those cases where the cause of the death or injury to person,
or destruction, loss or damage to property or delay in its transport is
not attributable to or attended by any willful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official
or employee for which the carrier is responsible, and there is otherwise
no special or extraordinary form or resulting injury. (Northwest
Airlines, Inc. vs. Court of Appeals, 284 SCRA 408 [1998])
Member airlines of the IATA are regarded as agents of each other in
the issuance of the tickets and other matters pertaining to their
relationship. (British Airways vs. Court of Appeals, 285 SCRA 450
[1998])
——o0o——
PHILIPPINE CHARTER INSURANCE CORPORATION,
petitioner, vs. NEPTUNE ORIENT LINES/OVERSEAS AGENCY
SERVICES, INC., respondents
G.R. No. 145044. June 12, 2008
Remedial Law; Appeals; Factual finding of the Regional Trial Court
(RTC) and the Court of Appeals (CA), which is supported by the
evidence on record, is conclusive upon the Court. — The records show
that the subject cargoes fell overboard the ship and petitioner should
not vary the facts of the case on appeal. This Court is not a trier of
facts, and, in this case, the factual finding of the RTC and the CA,
which is supported by the evidence on record, is conclusive upon this
Court.
Mercantile Law; Carriage of Goods by Sea Act; The rights and
obligations of respondent common carrier are governed by the
provision of the Civil Code, and the Carriage of Goods by Sea Act
(COGSA), which is a special law, applies suppletorily. — Since the
subject cargoes were lost while being transported by respondent
common carrier from Hong Kong to the Philippines, Philippine law
applies pursuant to the Civil Code which provides: Art. 1753. The law
of the country to which the goods are to be transported shall govern
the liability of the common carrier for their loss, destruction or
deterioration. Art. 1766. In all matters not regulated by this Code, the
rights and obligations of common carriers shall be governed by the
Code of Commerce and by special laws. The rights and obligations of
respondent common carrier are thus governed by the provisions of
the Civil Code, and the COGSA, which is a special law, applies
suppletorily.
Same; Same; Bill of Lading; Stipulation in the bill of lading limiting
respondent’s liability for the loss of the subject cargoes is allowed
under Article 1749 of the Civil Code, and Sec. 4, paragraph (5) of the
Carriage of Goods by Sea Act (COGSA). — The bill of lading submitted
in evidence by petitioner did not show that the shipper in Hong Kong
declared the actual value of the goods as insured by Fukuyama before
shipment and that the said value was inserted in the Bill of Lading,
and so no additional charges were paid. Hence, the stipulation in the
bill of lading that the carrier’s liability shall not exceed US$500 per
package applies. Such stipulation in the bill of lading limiting
respondents’ liability for the loss of the subject cargoes is allowed
under Art. 1749 of the Civil Code, and Sec. 4, paragraph (5) of the
COGSA. Everett Steamship Corporation v. Court of Appeals, 297 SCRA
496 (1998) held: A stipulation in the bill of lading limiting the common
carrier’s liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is sanctioned by
law, particularly Articles 1749 and 1750 of the Civil Code.
PETITION for review on certiorari of a resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Fajardo Law Offices for petitioner.
Del Rosario & Del Rosario Law Offices for respondents.
AZCUNA, J.:
This is a petition for review on certiorari of the Resolution of the Court
of Appeals (CA) in CA-G.R. CV No. 52855 promulgated on April 13,
2000 granting respondents’ motion for reconsideration dated March 9,
2000. The Resolution held respondents liable for damages to
petitioner subject to the limited-liability provision in the bill of lading.
The facts are as follows:
On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd.
shipped from Hong Kong three sets of warp yarn on returnable beams
aboard respondent Neptune Orient Lines’ vessel, M/V Baltimar Orion,
for transport and delivery to Fukuyama Manufacturing Corporation
(Fukuyama) of No. 7 Jasmin Street, AUV Subdivision, Metro Manila.
The said cargoes were loaded in Container No. IEAU-4592750 in good
condition under Bill of Lading No. HKG-0396180. Fukuyama insured
the shipment against all risks with petitioner Philippine Charter
Insurance Corporation (PCIC) under Marine Cargo Policy No. RN55581
in the amount of P228,085.
During the course of the voyage, the container with the cargoes fell
overboard and was lost.
Thus, Fukuyama wrote a letter to respondent Overseas Agency
Services, Inc. (Overseas Agency), the agent of Neptune Orient Lines
in Manila, and claimed for the value of the lost cargoes. However,
Overseas Agency ignored the claim. Hence, Fukuyama sought
payment from its insurer, PCIC, for the insured value of the cargoes
in the amount of P228,085, which claim was fully satisfied by PCIC.
On February 17, 1994, Fukuyama issued a Subrogation Receipt to
petitioner PCIC for the latter to be subrogated in its right to recover
its losses from respondents.
PCIC demanded from respondents reimbursement of the entire
amount it paid to Fukuyama, but respondents refused payment.
On March 21, 1994, PCIC filed a complaint for damages against
respondents with the Regional Trial Court (RTC) of Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying
liability. They alleged that during the voyage, the vessel encountered
strong winds and heavy seas making the vessel pitch and roll, which
caused the subject container with the cargoes to fall overboard.
Respondents contended that the occurrence was a fortuitous event
which exempted them from any liability, and that their liability, if any,
should not exceed US$500 or the limit of liability in the bill of lading,
whichever is lower.
In a Decision dated January 12, 1996, the RTC held that respondents,
as common carrier, failed to prove that they observed the required
extraordinary diligence to prevent loss of the subject cargoes in
accordance with the pertinent provisions of the Civil Code. The
dispositive portion of the Decision reads:
“WHEREFORE, judgment is rendered ordering the defendants, jointly
and severally, to pay the plaintiff the Peso equivalent as of February
17, 1994 of HK$55,000.00 or the sum of P228,085.00, whichever is
lower, with costs against the defendants.”
Respondents’ motion for reconsideration was denied by the RTC in an
Order dated February 19, 1996.
Respondents appealed the RTC Decision to the CA.
In a Decision promulgated on February 15, 2000, the CA affirmed the
RTC Decision with modification, thus:
“WHEREFORE, the assailed decision is hereby MODIFIED. Appellants
Neptune and Overseas are hereby ordered to pay jointly and severally
appellee PCIC P228,085.00, representing the amount it paid
Fukuyama. Costs against the appellants.”
Respondents moved for reconsideration of the Decision of t”he CA
arguing, among others, that their liability was only US$1,500 or
US$500 per package under the limited liability provision of the
Carriage of Goods by Sea Act (COGSA).
In its Resolution dated April 13, 2000, the CA found the said argument
of respondents to be meritorious. The dispositive portion of the
Resolution reads:
“WHEREFORE, the motion is partly granted in the sense that
appellants shall be liable to pay appellee PCIC the value of the three
packages lost computed at the rate of US$500 per package or a total
of US$1,500.00.”
Hence, this petition raising this lone issue:
THE COURT OF APPEALS ERRED IN AWARDING RESPONDENTS
DAMAGES SUBJECT TO THE US$500 PER PACKAGE LIMITATION.
Petitioner contends that the CA erred in awarding damages to
respondents subject to the US$500 per package limitation since the
vessel committed a “quasi deviation” which is a breach of the contract
of carriage when it intentionally threw overboard the container with
the subject shipment during the voyage to Manila for its own benefit
or preservation based on a Survey Report conducted by Mariner’s
Adjustment Corporation, which firm was tasked by petitioner to
investigate the loss of the subject cargoes. According to petitioner, the
breach of contract resulted in the abrogation of respondents’ rights
under the contract and COGSA including the US$500 per package
limitation. Hence, respondents cannot invoke the benefit of the
US$500 per package limitation and the CA erred in considering the
limitation and modifying its decision accordingly.
The contention lacks merit.
The facts as found by the RTC do not support the new allegation of
facts by petitioner regarding the intentional throwing overboard of the
subject cargoes and quasi deviation. The Court notes that in
petitioner’s Complaint before the RTC, petitioner alleged as follows:
xxx xxx xxx
2.03 In the course of the maritime voyage from Hongkong to Manila
subject shipment fell overboard while in the custody of the defendants
and were never recovered; it was part of the LCL cargoes packed by
defendants in container IEAU-4592750 that fell overboard during the
voyage.
Moreover, the same Survey Report cited by petitioner stated:
“From the investigation conducted, we noted that Capt. S.L. Halloway,
Master of MV “BALTIMAR ORION” filed a Note of Protest in the City of
Manila, and was notarized on 06 October 1993.
Based on Note of Protest, copy attached hereto for your reference,
carrier vessel sailed from Hongkong on 1st October 1993 carrying
containers bound for Manila.
Apparently, at the time the vessel [was] sailing at about 2400 hours
of 2nd October 1993, she encountered winds and seas such as to
cause occasional moderate to heavy pitching and rolling deeply at
times. At 0154 hours, same day, while in position Lat. 20 degrees, 29
minutes North, Long. 115 degrees, 49 minutes East, four (4) x 40 ft.
containers were lost/fell overboard. The numbers of these containers
are NUSU-3100789, TPHU-5262138, IEAU-4592750, NUSU-4515404.
xxx xxx xxx
Furthermore, during the course of voyage, high winds and heavy seas
were encountered causing the ship to roll and pitch heavily. The
course and speed was altered to ease motion of the vessel, causing
delay and loss of time on the voyage.
xxx xxx xxx
SURVEYORS REMARKS:
In view of the foregoing incident, we are of the opinion that the
shipment of 3 cases of Various Warp Yarn on Returnable Beams which
were containerized onto 40 feet LCL (no. IEAU-4592750) and fell
overboard the subject vessel during heavy weather is an “Actual Total
Loss.”
The records show that the subject cargoes fell overboard the ship and
petitioner should not vary the facts of the case on appeal. This Court
is not a trier of facts, and, in this case, the factual finding of the RTC
and the CA, which is supported by the evidence on record, is
conclusive upon this Court.
As regards the issue on the limited liability of respondents, the Court
upholds the decision of the CA.
Since the subject cargoes were lost while being transported by
respondent common carrier from Hong Kong to the Philippines,
Philippine law applies pursuant to the Civil Code which provides:
“Art. 1753. The law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their
loss, destruction or deterioration.
Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws.”
The rights and obligations of respondent common carrier are thus
governed by the provisions of the Civil Code, and the COGSA, which
is a special law, applies suppletorily.
The pertinent provisions of the Civil Code applicable to this case are
as follows:
“Art. 1749. A stipulation that the common carrier’s liability is limited
to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been fairly and freely agreed upon.”
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable
to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade, provides:
“Neither the carrier nor the ship shall in any event be or become liable
for any loss or damage to or in connection with the transportation of
goods in an amount exceeding $500 per package lawful money of the
United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading shall be prima facie
evidence, but shall be conclusive on the carrier.”
In this case, Bill of Lading No. 0396180 stipulates:
“Neither the Carrier nor the vessel shall in any event become liable for
any loss of or damage to or in connection with the transportation of
Goods in an amount exceeding US$500 (which is the package or
shipping unit limitation under U.S. COGSA) per package or in the case
of Goods not shipped in packages per shipping unit or customary
freight, unless the nature and value of such Goods have been declared
by the Shipper before shipment and inserted in this Bill of Lading and
the Shipper has paid additional charges on such declared value. . . .”
The bill of lading submitted in evidence by petitioner did not show that
the shipper in Hong Kong declared the actual value of the goods as
insured by Fukuyama before shipment and that the said value was
inserted in the Bill of Lading, and so no additional charges were paid.
Hence, the stipulation in the bill of lading that the carrier’s liability shall
not exceed US$500 per package applies.
Such stipulation in the bill of lading limiting respondents’ liability for
the loss of the subject cargoes is allowed under Art. 1749 of the Civil
Code, and Sec. 4, paragraph (5) of the COGSA. Everett Steamship
Corporation v. Court of Appeals held:
“A stipulation in the bill of lading limiting the common carrier’s liability
for loss or destruction of a cargo to a certain sum, unless the shipper
or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which provide:
‘Art. 1749. A stipulation that the common carrier’s liability is limited
to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been fairly and freely agreed upon.’
Such limited-liability clause has also been consistently upheld by this
court in a number of cases. Thus, in Sea-Land Service, Inc. vs.
Intermediate Appellate Court, we ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods
by Sea Act did not exist, the validity and binding effect of the liability
limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater
value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of
the law itself.... But over and above that consideration, the just and
reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation
by the simple and surely far from onerous expedient of declaring the
nature and value of the shipment in the bill of lading.’
The CA, therefore, did not err in holding respondents liable for
damages to petitioner subject to the US$500 per package limited-
liability provision in the bill of lading.
WHEREFORE, the petition is DENIED. The Resolution of the Court of
Appeals in CA-G.R. CV No. 52855 promulgated on April 13, 2000 is
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno (C.J., Chairperson), Carpio, Corona and Leonardo-De Castro, JJ.,
concur.
Petition denied, resolution affirmed.
Note. — A bill of lading aside from being a contract and a receipt is
also a symbol of the goods covered by it. (Lorenzo Shipping Corp. vs.
Chubb and Son, Inc., 431 SCRA 266 [2004])
——o0o——
PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF
APPEALS and GILDA C. MEJIA, respondents
G.R. No. 119706. March 14, 1996
Common Carriers; Air Transportation; Compromise Agreements; The
exposition of the factual ambience and the legal precepts in this
adjudication may hopefully channel the assertiveness of passengers
and the intransigence of carriers into the realization that at times a
bad extrajudicial compromise could be better than a good judicial
victory. — This is definitely not a case of first impression. The incident
which eventuated in the present controversy is a drama of common
contentious occurrence between passengers and carriers whenever
loss is sustained by the former. Withal, the exposition of the factual
ambience and the legal precepts in this adjudication may hopefully
channel the assertiveness of passengers and the intransigence of
carriers into the realization that at times a bad extrajudicial
compromise could be better than a good judicial victory.
Same; Same; Contracts; Contracts of Adhesion; Contracts of adhesion
are not invalid per se.—A review of jurisprudence on the matter
reveals the consistent holding of the Court that contracts of adhesion
are not invalid per se and that it has on numerous occasions upheld
the binding effect thereof.
Same; Same; Same; Same; The Supreme Court has construed
obscurities and ambiguities in the restrictive provisions of contracts of
adhesion strictly albeit not unreasonably against the drafter thereof
when justified in light of the operative facts and surrounding circum-
stances. — The peculiar nature of such contracts behooves the Court
to closely scrutinize the factual milieu to which the provisions are
intended to apply. Thus, just as consistently and unhesitatingly, but
without categorically invalidating such contracts, the Court has
construed obscurities and ambiguities in the restrictive provisions of
contracts of adhesion strictly albeit not unreasonably against the
drafter thereof when justified in light of the operative facts and
surrounding circumstances.
Same; Same; Warsaw Convention; Public International Law; While the
Warsaw Convention has the force and effect of law in the Philippines,
the same does not operate as an exclusive enumeration of the
instances when a carrier shall be liable for breach of contract or as an
absolute limit of the extent of liability, nor does it preclude the
operation of the Civil Code or other pertinent laws.—The appellate
court declared correct the non-application by the trial court of the
limited liability of therein defendant-appellant under the “Conditions
of the Contract” contained in the air waybill, based on the ruling in
Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al., which
substantially enunciates the rule that while the Warsaw Convention
has the force and effect of law in the Philippines, being a treaty
commitment by the government and as a signatory thereto, the same
does not operate as an exclusive enumeration of the instances when
a carrier shall be liable for breach of contract or as an absolute limit
of the extent of liability, nor does it preclude the operation of the Civil
Code or other pertinent laws.
Same; Same; Contracts; Contracts of Adhesion; The validity of
provisions limiting the liability of carriers contained in bills of lading
have been consistently upheld, though the Supreme Court has likewise
cautioned against blind reliance on adhesion contracts where the facts
and circumstances warrant that they should be disregarded. — The
validity of provisions limiting the liability of carriers contained in bills
of lading have been consistently upheld for the following reason: “x x
x. The stipulation in the bill of lading limiting the common carrier’s
liability to the value of goods appearing in the bill, unless the shipper
or owner declares a greater value, is valid and binding. The limitation
of the carrier’s liability is sanctioned by the freedom of the contracting
parties to establish such stipulations, clauses, terms, or conditions as
they may deem convenient, provided they are not contrary to law,
morals, good customs and public policy. x x x.” However, the Court
has likewise cautioned against blind reliance on adhesion contracts
where the facts and circumstances warrant that they should be
disregarded.
Same; Same; There is no absolute obligation on the part of a carrier
to accept a cargo. — There is no absolute obligation on the part of a
carrier to accept a cargo. Where a common carrier accepts a cargo for
shipment for valuable consideration, it takes the risk of delivering it in
good condition as when it was loaded. And if the fact of improper
packing is known to the carrier or its personnel, or apparent upon
observation but it accepts the goods notwithstanding such condition,
it is not relieved of liability for loss or injury resulting therefrom.
Same; Same; Estoppel; A common carrier is estopped from blaming a
passenger for not declaring the value of the cargo shipped and which
would have otherwise entitled her to recover a higher amount of
damages where she had been effectively prevented from doing so
upon the advice of the carrier’s personnel for reasons best known to
themselves.—In other words, private respondent Mejia could and
would have complied with the conditions stated in the air waybill, i.e.,
declaration of a higher value and payment of supplemental
transportation charges, entitling her to recovery of damages beyond
the stipulated limit of US$20 per kilogram of cargo in the event of loss
or damage, had she not been effectively prevented from doing so
upon the advice of PAL’s personnel for reasons best known to
themselves. As pointed out by private respondent, the aforestated
facts were not denied by PAL in any of its pleadings nor rebutted by
way of evidence presented in the course of the trial, and thus in effect
it judicially admitted that such an advice was given by its personnel in
San Francisco, U.S.A. Petitioner, therefore, is estopped from blaming
private respondent for not declaring the value of the cargo shipped
and which would have otherwise entitled her to recover a higher
amount of damages. The Court’s bidding in the Fieldmen’s Insurance
case once again rings true: “x x x. As estoppel is primarily based on
the doctrine of good faith and the avoidance of harm that will befall
an innocent party due to its injurious reliance, the failure to apply it in
this case would result in gross travesty of justice.”
Same; Same; Prescription; Where the failure to file the formal claim
within the prescriptive period contemplated in the air waybill was
largely due to the carrier’s own doing, the consequences of which
cannot, in all fairness, be attributed to the passenger.—Considering
the abovementioned incidents and private respondent Mejia’s own
zealous efforts in following up the claim, it was clearly not her fault
that the letter of demand for damages could only be filed, after
months of exasperating follow-up of the claim, on August 13, 1990. If
there was any failure at all to file the formal claim within the
prescriptive period contemplated in the air waybill, this was largely
because of PAL’s own doing, the consequences of which cannot, in all
fairness, be attributed to private respondent.
Same; Same; Same; Equity; Even if the claim for damages was
conditioned on the timely filing of a formal claim, that condition was
deemed fulfilled considering that the collective action of the carrier’s
personnel in tossing around the claim and leaving it unresolved for an
indefinite period of time was tantamount to “voluntarily preventing its
fulfillment,” and the filing of the baggage freight claim constituted
substantial compliance with the requirement for the filing of a formal
claim.—Even if the claim for damages was conditioned on the timely
filing of a formal claim, under Article 1186 of the Civil Code that
condition was deemed fulfilled, considering that the collective action
of PAL’s personnel in tossing around the claim and leaving it
unresolved for an indefinite period of time was tantamount to
“voluntarily preventing its fulfillment.” On grounds of equity, the filing
of the baggage freight claim, which sufficiently informed PAL of the
damage sustained by private respondent’s cargo, constituted
substantial compliance with the requirement in the contract for the
filing of a formal claim.
Same; Same; Warsaw Convention; Public International Law; The
Warsaw Convention is as much a part of Philippine law as the Civil
Code, Code of Commerce and other municipal special laws, and the
provisions therein contained, specifically on the limitation of carrier’s
liability, are operative in the Philippines but only in appropriate
situations. — All told, therefore, respondent appellate court did not err
in ruling that the provision on limited liability is not applicable in this
case. We, however, note in passing that while the facts and
circumstances of this case do not call for the direct application of the
provisions of the Warsaw Convention, it should be stressed that,
indeed, recognition of the Warsaw Convention does not preclude the
operation of the Civil Code and other pertinent laws in the
determination of the extent of liability of the common carrier. The
Warsaw Convention, being a treaty to which the Philippines is a
signatory, is as much a part of Philippine law as the Civil Code, Code
of Commerce and other municipal special laws. The provisions therein
contained, specifically on the limitation of carrier’s liability, are
operative in the Philippines but only in appropriate situations.
Same; Same; Presumptions; A common carrier labors under the
statutory presumption of negligence in case of loss, destruction or
deterioration of goods. — Moreover, the trial court underscored the
fact that petitioner was not able to overcome the statutory
presumption of negligence in Article 1735 which, as a common carrier,
it was laboring under in case of loss, destruction or deterioration of
goods, through proper showing of the exercise of extraordinary
diligence. Neither did it prove that the damage to the microwave oven
was because of any of the excepting causes under Article 1734, all of
the same Code. Inasmuch as the subject item was received in
apparent good condition, no contrary notation or exception having
been made on the air waybill upon its acceptance for shipment, the
fact that it was delivered with a broken glass door raises the
presumption that PAL’s personnel were negligent in the carriage and
handling of the cargo.
Same; Same; Damages; The unprofessional indifference of a carrier’s
personnel despite full and actual knowledge of the damage to a
passenger’s cargo, just to be exculpated from liability on pure
technicality and bureaucratic subterfuge, smacks of willful misconduct
and insensitivity to passenger’s plight tantamount to bad faith and
renders unquestionable such carrier’s liability for damages.—
Furthermore, there was glaringly no attempt whatsoever on the part
of petitioner to explain the cause of the damage to the oven. The
unexplained cause of damage to private respondent’s cargo
constitutes gross carelessness or negligence which by itself justifies
the present award of damages. The equally unexplained and
inordinate delay in acting on the claim upon referral thereof to the
claims officer, Atty. Paco, and the noncommittal responses to private
respondent’s entreaties for settlement of her claim for damages belies
petitioner’s pretension that there was no bad faith on its part. This
unprofessional indifference of PAL’s personnel despite full and actual
knowledge of the damage to private respondent’s cargo, just to be
exculpated from liability on pure technicality and bureaucratic
subterfuge, smacks of willful misconduct and insensitivity to a
passenger’s plight tantamount to bad faith and renders
unquestionable petitioner’s liability for damages. In sum, there is no
reason to disturb the findings of the trial court in this case, especially
with its full affirmance by respondent Court of Appeals.
Same; Same; Same; Courts; Pesos and Principles; It will never be
known exactly how many man-hours went into the preparation,
litigation and adjudication of a simple dispute over an oven, which the
parties will no doubt insist they contested as a matter of principle,
though one thing is certain—as long as the first letter in “principle” is
somehow outplaced by the peso sign, the courts will always have to
resolve similar controversies although mutual goodwill could have
dispensed with judicial recourse.—On this note, the case at bar goes
into the annals of our jurisprudence after six years and recedes into
the memories of our legal experience as just another inexplicable
inevitability. We will never know exactly how many man-hours went
into the preparation, litigation and adjudication of this simple dispute
over an oven, which the parties will no doubt insist they contested as
a matter of principle. One thing, however, is certain. As long as the
first letter in “principle” is somehow outplaced by the peso sign, the
courts will always have to resolve similar controversies although
mutual goodwill could have dispensed with judicial recourse.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Emmanuel G. Vinco for private respondent.
REGALADO, J.:
This is definitely not a case of first impression. The incident which
eventuated in the present controversy is a drama of common
contentious occurrence between passengers and carriers whenever
loss is sustained by the former. Withal, the exposition of the factual
ambience and the legal precepts in this adjudication may hopefully
channel the assertiveness of passengers and the intransigence of
carriers into the realization that at times a bad extrajudicial
compromise could be better than a good judicial victory.
Assailed in this petition for review is the decision of respondent Court
of Appeals in CA-G.R. CV No. 427441 which affirmed the decision of
the lower court finding petitioner Philippine Air Lines, Inc. (PAL) liable
as follows:
“ACCORDINGLY, judgment is hereby rendered ordering defendant
Philippine Air Lines, Inc., to pay plaintiff Gilda C. Mejia:
(1) P30,000.00 by way of actual damages of the microwave oven;
(2) P10,000.00 by way of moral damages;
(3) P20,000.00 by way of exemplary damages;
(4) P10,000.00 as attorney’s fee;
all in addition to the costs of the suit.
Defendant’s counterclaim is hereby dismissed for lack of merit.”
The facts as found by respondent Court of Appeals are as follows:
“On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant,
Philippine Airlines, one (1) unit microwave oven, with a gross weight
of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines.
Upon arrival, however, of said article in Manila, Philip-pines, plaintiff
discovered that its front glass door was broken and the damage
rendered it unserviceable. Demands both oral and written were made
by plaintiff against the defendant for the reimbursement of the value
of the damaged microwave oven, and transportation charges paid by
plaintiff to defendant company. But these demands fell on deaf ears.
“On September 25, 1990, plaintiff Gilda C. Mejia filed the instant action
for damages against defendant in the lower court.
“In its answer, defendant Airlines alleged inter alia, by way of special
and affirmative defenses, that the court has no jurisdiction over the
case; that plaintiff has no valid cause of action against defendant since
it acted only in good faith and in compliance with the requirements of
the law, regulations, conventions and contractual commitments; and
that defendant had always exercised the required diligence in the
selection, hiring and supervision of its employees.”
What had theretofore transpired at the trial in the court a quo is
narrated as follows:
“Plaintiff Gilda Mejia testified that sometime on January 27, 1990, she
took defendant’s plane from San Francisco, U.S.A. for Manila,
Philippines (Exh. ‘F’). Amongst her baggages (sic) was a slightly used
microwave oven with the brand name ‘Sharp’ under PAL Air Waybill
No. 0-79-1013008-3 (Exh. ‘A’). When shipped, defendant’s office at
San Francisco inspected it. It was in good condition with its front glass
intact. She did not declare its value upon the advice of defendant’s
personnel at San Francisco.
“When she arrived in Manila, she gave her sister Concepcion C. Diño
authority to claim her baggag(e) (Exh. ‘G’) and took a connecting flight
for Bacolod City.
“When Concepcion C. Diño claimed the baggag(e) (Exh. ‘B’) with
defendant, then with the Bureau of Customs, the front glass of the
microwave oven was already broken and cannot be repaired because
of the danger of radiation. They demanded from defendant thru Atty.
Paco P30,000.00 for the damages although a brand new one costs
P40,000.00, but defendant refused to pay.
“Hence, plaintiff engaged the services of counsel. Despite demand
(Exh. ‘E’) by counsel, defendant still refused to pay.
“The damaged oven is still with defendant. Plaintiff is engaged in (the)
catering and restaurant business. Hence, the necessity of the oven.
Plaintiff suffered sleepless nights when defendant refused to pay her
(for) the broken oven and claims P10,000.00 moral damages,
P20,000.00 exemplary damages, P10,000.00 attorney’s fees plus
P300.00 per court appearance and P15,000.00 monthly loss of income
in her business beginning February, 1990.
“Defendant Philippine Airlines thru its employees Rodolfo Pandes and
Vicente Villaruz posited that plaintiff’s claim was not investigated until
after the filing of the formal claim on August 13, 1990 (Exh. ‘6’ also
Exh. ‘E’). During the investigations, plaintiff failed to submit positive
proof of the value of the cargo. Hence her claim was denied.
“Also plaintiff’s claim was filed out of time under paragraph 12, a(1)
of the Air Waybill (Exh. ‘A,’ also Exh. ‘1’) which provides: ‘(a) the
person entitled to delivery must make a complaint to the carrier in
writing in case: (1) of visible damage to the goods, immediately after
discovery of the damage and at the latest within 14 days from the
receipt of the goods.”
As stated at the outset, respondent Court of Appeals similarly ruled in
favor of private respondent by affirming in full the trial court’s
judgment in Civil Case No. 6210, with costs against petitioner.
Consequently, petitioner now impugns respondent appellate court’s
ruling insofar as it agrees with (1) the conclusions of the trial court
that since the air waybill is a contract of adhesion, its provisions should
be strictly construed against herein petitioner; (2) the finding of the
trial court that herein petitioner’s liability is not limited by the
provisions of the air waybill; and (3) the award by the trial court to
private respondent of moral and exemplary damages, attorney’s fees
and litigation expenses.
The trial court relied on the ruling in the case of Fieldmen’s Insurance
Co., Inc. vs. Vda. De Songco, et al. in finding that the provisions of
the air waybill should be strictly construed against petitioner. More
particularly, the court below stated its findings thus:
“In this case, it is seriously doubted whether plaintiff had read the
printed conditions at the back of the Air Waybill (Exh. ‘1’), or even if
she had, if she was given a chance to negotiate on the conditions for
loading her microwave oven. Instead she was advised by defendant’s
employee at San Francisco, U.S.A., that there is no need to declare
the value of her oven since it is not brand new. Further, plaintiff
testified that she immediately submitted a formal claim for P30,000.00
with defendant. But their claim was referred from one employee to
another th(e)n told to come back the next day, and the next day, until
she was referred to a certain Atty. Paco. When they got tired and
frustrated of coming without a settlement of their claim in sight, they
consulted a lawyer who demanded from defendant on August 13,
1990 (Exh. ‘E,’ an[d] Exh. ‘6’).
“The conclusion that inescapably emerges from the above findings of
fact is to concede it with credence. x x x.”
Respondent appellate court approved said findings of the trial court in
this manner:
“We cannot agree with defendant-appellant’s above contention. Under
our jurisprudence, the Air Waybill is a contract of adhesion considering
that all the provisions thereof are prepared and drafted only by the
carrier (Sweet Lines v. Teves, 83 SCRA 361). The only participation
left of the other party is to affix his signature thereto (BPI Credit
Corporation vs. Court of Appeals, 204 SCRA 601; Saludo, Jr. vs. C.A.,
207 SCRA 498; Maersk vs. Court of Appeals, 222 SCRA 108, among
the recent cases). In the earlier case of Angeles v. Calasanz, 135 SCRA
323, the Supreme Court ruled that ‘the terms of a contract [of
adhesion] must be interpreted against the party who drafted the
same.’ x x x.”
Petitioner airlines argues that the legal principle enunciated in
Fieldmen’s Insurance does not apply to the present case because the
provisions of the contract involved here are neither ambiguous nor
obscure. The front portion of the air waybill contains a simple warning
that the shipment is subject to the conditions of the contract on the
dorsal portion thereof regarding the limited liability of the carrier
unless a higher valuation is declared, as well as the reglementary
period within which to submit a written claim to the carrier in case of
damage or loss to the cargo. Granting that the air waybill is a contract
of adhesion, it has been ruled by the Court that such contracts are not
entirely prohibited and are in fact binding regardless of whether or not
respondent herein read the provisions thereof. Having contracted the
services of petitioner carrier instead of other airlines, private
respondent in effect negotiated the terms of the contract and thus
became bound thereby.
Counsel for private respondent refutes these arguments by saying that
due to her eagerness to ship the microwave oven to Manila, private
respondent assented to the terms and conditions of the contract
without any opportunity to question or change its terms which are
practically on a “take-it-or-leave-it” basis, her only participation
therein being the affixation of her signature. Further, reliance on the
Fieldmen’s Insurance case is misplaced since it is not the ambiguity or
obscurity of the stipulation that renders necessary the strict
interpretation of a contract of adhesion against the drafter, but the
peculiarity of the transaction wherein one party, normally a
corporation, drafts all the provisions of the contract without any
participation whatsoever on the part of the other party other than
affixment of signature.
A review of jurisprudence on the matter reveals the consistent holding
of the Court that contracts of adhesion are not invalid per se and that
it has on numerous occasions upheld the binding effect thereof. As
explained in Ong Yiu vs. Court of Appeals, et al., supra:
“x x x. Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the
latter’s lack of knowledge or assent to the regulation. It is what is
known as a contract of ‘adhesion,’ in regards which it has been said
that contracts of adhesion wherein one party imposes a ready-made
form of contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives
his consent. x x x, a contract limiting liability upon an agreed valuation
does not offend against the policy of the law forbidding one from
contracting against his own negligence.”
As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:
“x x x, it should be borne in mind that a contract of adhesion may be
struck down as void and unenforceable, for being subversive of public
policy, only when the weaker party is imposed upon in dealing with
the dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing. x x x.”
but subject to the caveat that—
“x x x. Just because we have said that Condition No. 5 of the airway
bill is binding upon the parties to and fully operative in this transaction,
it does not mean, and let this serve as fair warning to respondent
carriers, that they can at all times whimsically seek refuge from liability
in the exculpatory sanctuary of said Condition No. 5 x x x.”
The peculiar nature of such contracts behooves the Court to closely
scrutinize the factual milieu to which the provisions are intended to
apply. Thus, just as consistently and unhesitatingly, but without
categorically invalidating such contracts, the Court has construed
obscurities and ambiguities in the restrictive provisions of contracts of
adhesion strictly albeit not unreasonably against the drafter thereof
when justified in light of the operative facts and surrounding
circumstances.
We find nothing objectionable about the lower court’s reliance upon
the Fieldmen’s Insurance case, the principles wherein squarely apply
to the present petition. The parallelism between the aforementioned
case and this one is readily apparent for, just as in the instant case, it
is the binding effect of the provisions in a contract of adhesion (an
insurance policy in Fieldmen’s Insurance) that is put to test.
A judicious reading of the case reveals that what was pivotal in the
judgment of liability against petitioner insurance company therein, and
necessarily interpreting the provisions of the insurance policy as
ineffective, was the finding that the representations made by the
agent of the insurance company rendered it impossible to comply with
the conditions of the contract in question, rather than the mere
ambiguity of its terms. The extended pronouncements regarding strict
construction of ambiguous provisions in an adhesion contract against
its drafter, which although made by the Court as an aside but has
perforce evolved into a judicial tenet over time, was actually an
incidental statement intended to emphasize the duty of the court to
protect the weaker, as against the more dominant, party to a contract,
as well as to prevent the iniquitous situation wherein the will of one
party is imposed upon the other in the course of negotiation.
Thus, there can be no further question as to the validity of the terms
of the air waybill, even if the same constitutes a contract of adhesion.
Whether or not the provisions thereof particularly on the limited
liability of the carrier are binding on private respondent in this instance
must be determined from the facts and circumstances involved vis-a-
vis the nature of the provisions sought to be enforced, taking care that
equity and fair play should characterize the transaction under review.
On petitioner’s insistence that its liability for the damage to private
respondent’s microwave oven, if any, should be limited by the
provisions of the air waybill, the lower court had this to say:
“By and large, defendant’s evidence is anchored principally on
plaintiff’s alleged failure to comply with paragraph 12, a(1) (Exh. ‘1-C-
2’) of the Air waybill (Exh. ‘A,’ also Exh. ‘1’), by filing a formal claim
immediately after discovery of the damage. Plaintiff filed her formal
claim only on August 13, 1990 (Exh. ‘6,’ also Exh. ‘E’). And, failed to
present positive proof on the value of the damaged microwave oven.
Hence, the denial of her claim.
“This Court has misgivings about these pretensions of defendant.
xxx
“Finally, the Court finds no merit to defendant’s contention that under
the Warsaw Convention, its liability if any, cannot exceed U.S. $20.00
based on weight as plaintiff did not declare the contents of her
baggage nor pay additional charges before the flight.”
The appellate court declared correct the non-application by the trial
court of the limited liability of therein defendant-appellant under the
“Conditions of the Contract” contained in the air waybill, based on the
ruling in Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al.,15
which substantially enunciates the rule that while the Warsaw
Convention has the force and effect of law in the Philippines, being a
treaty commitment by the government and as a signatory thereto, the
same does not operate as an exclusive enumeration of the instances
when a carrier shall be liable for breach of contract or as an absolute
limit of the extent of liability, nor does it preclude the operation of the
Civil Code or other pertinent laws.
Petitioner insists that both respondent court and the trial court erred
in finding that petitioner’s liability, if any, is not limited by the
provisions of the air waybill, for, as evidence of the contract of carriage
between petitioner and private respondent, it substantially states that
the shipper certifies to the correctness of the entries contained therein
and accepts that the carrier’s liability is limited to US$20 per kilogram
of goods lost, damaged or destroyed unless a value is declared and a
supplementary charge paid. Inasmuch as no such declaration was
made by private respondent, as she admitted during cross-
examination, the liability of petitioner, if any, should be limited to 28
kilograms multiplied by US$20, or $560. Moreover, the validity of
these conditions has been upheld in the leading case of Ong Yiu vs.
Court of Appeals, et al., supra, and subsequent cases, for being a mere
reiteration of the limitation of liability under the Warsaw Convention,
which treaty has the force and effect of law.
It is additionally averred that since private respondent was merely
advised, not ordered, that she need not declare a higher value for her
cargo, the final decision of refraining from making such a declaration
fell on private respondent and should not put the petitioner in estoppel
from invoking its limited liability.
In refutation, private respondent explains that the reason for the
absence of a declaration of a higher value was precisely because
petitioner’s personnel in San Francisco, U.S.A., advised her not to
declare the value of her cargo, which testimony has not at all been
rebutted by petitioner. This being so, petitioner is estopped from
faulting private respondent for her failure to declare the value of the
microwave oven.
The validity of provisions limiting the liability of carriers contained in
bills of lading have been consistently upheld for the following reason:
“x x x. The stipulation in the bill of lading limiting the common carrier’s
liability to the value of goods appearing in the bill, unless the shipper
or owner declares a greater value, is valid and binding. The limitation
of the carrier’s liability is sanctioned by the freedom of the contracting
parties to establish such stipulations, clauses, terms, or conditions as
they may deem convenient, provided they are not contrary to law,
morals, good customs and public policy. x x x.”
However, the Court has likewise cautioned against blind reliance on
adhesion contracts where the facts and circumstances warrant that
they should be disregarded.
In the case at bar, it will be noted that private respondent signified an
intention to declare the value of the microwave oven prior to
shipment, but was explicitly advised against doing so by PAL’s
personnel in San Francisco, U.S.A., as borne out by her testimony in
court:
xxx
“Q: Did you declare the value of the shipment?
A: No. I was advised not to.
Q: Who advised you?
A: At the PAL Air Cargo.”
It cannot be denied that the attention of PAL through its personnel in
San Francisco was sufficiently called to the fact that private
respondent’s cargo was highly susceptible to breakage as would
necessitate the declaration of its actual value. Petitioner had all the
opportunity to check the condition and manner of packing prior to
acceptance for shipment, as well as during the preparation of the air
waybill by PAL’s Acceptance Personnel based on information supplied
by the shipper, and to reject the cargo if the contents or the packing
did not meet the company’s required specifications. Certainly, PAL
could not have been otherwise prevailed upon to merely accept the
cargo.
While Vicente Villaruz, officer-in-charge of the PAL Import Section at
the time of incident, posited that there may have been inadequate and
improper packing of the cargo, which by itself could be a ground for
refusing carriage of the goods presented for shipment, he nonetheless
admitted on cross-examination that private respondent’s cargo was
accepted by PAL in its San Francisco office:
“ATTY. VINCO: So that, be that as it may, my particular concern is
that, it is the PAL personnel that accepts the baggage?
WITNESS: Yes, sir.
ATTY. VINCO: Also, if he comes from abroad like in this particular
case, it is the PAL personnel who accepts the baggage?
WITNESS: Yes, sir.
ATTY. VINCO: And the PAL personnel may or may not accept the
baggage?
WITNESS: Yes, sir.
ATTY. VINCO~: According to what is stated as in the acceptance of
the cargo, it is to the best interest of the airlines, that is, he want(s)
also that the airlines would be free from any lia bility. Could that be
one of the grounds for not admitting a baggage?
WITNESS: Safety is number one (1)
xxx
ATTY. VINCO: So, this baggage was accepted and admitted in San
Francisco?
WITNESS: Yes, sir.
ATTY. VINCO: And you could not show any document to the Court
that would suggest that this baggage was denied admittance by your
office at San Francisco?
WITNESS: No, I cannot show.
ATTY. VINCO: Now, can you show any document that would suggest
that there was insufficient pac(k)aging on this particular baggage from
abroad?
WITNESS: No, sir.”
In response to the trial court’s questions during the trial, he also stated
that while the passenger’s declaration regarding the general or fragile
character of the cargo is to a certain extent determinative of its
classification, PAL nevertheless has and exercises discretion as to the
manner of handling required by the nature of the cargo it accepts for
carriage. He further opined that the microwave oven was only a
general, not a fragile, cargo which did not require any special
handling.
There is no absolute obligation on the part of a carrier to accept a
cargo. Where a common carrier accepts a cargo for shipment for
valuable consideration, it takes the risk of delivering it in good
condition as when it was loaded. And if the fact of improper packing
is known to the carrier or its personnel, or apparent upon observation
but it accepts the goods notwithstanding such condition, it is not
relieved of liability for loss or injury resulting therefrom.
The acceptance in due course by PAL of private respondent’s cargo as
packed and its advice against the need for declaration of its actual
value operated as an assurance to private respondent that in fact
there was no need for such a declaration. Petitioner can hardly be
faulted for relying on the representations of PAL’s own personnel.
In other words, private respondent Mejia could and would have
complied with the conditions stated in the air waybill, i.e., declaration
of a higher value and payment of supplemental transportation
charges, entitling her to recovery of damages beyond the stipulated
limit of US$20 per kilogram of cargo in the event of loss or damage,
had she not been effectively prevented from doing so upon the advice
of PAL’s personnel for reasons best known to themselves.
As pointed out by private respondent, the aforestated facts were not
denied by PAL in any of its pleadings nor rebutted by way of evidence
presented in the course of the trial, and thus in effect it judicially
admitted that such an advice was given by its personnel in San
Francisco, U.S.A. Petitioner, therefore, is estopped from blaming
private respondent for not declaring the value of the cargo shipped
and which would have otherwise entitled her to recover a higher
amount of damages. The Court’s bidding in the Fieldmen’s Insurance
case once again rings true:
“x x x. As estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall an innocent party due to its
injurious reliance, the failure to apply it in this case would result in
gross travesty of justice.”
We likewise uphold the lower court’s finding that private respondent
complied with the requirement for the immediate filing of a formal
claim for damages as required in the air waybill or, at least, we find
that there was substantial compliance therewith.
Private respondent testified that she authorized her sister, Concepcion
Diño, to claim her cargo consisting of a microwave oven since the
former had to take a connecting flight to Bacolod City on the very
same afternoon of the day of her arrival.28 As instructed, Concepcion
Diño promptly proceeded to PAL’s Import Section the next day to claim
the oven. Upon discovering that the glass door was broken, she
immediately filed a claim by way of the baggage freight claim on which
was duly annotated the damage sustained by the oven. Her testimony
relates what took place thereafter:
“ATTY. VINCO: So, after that inspection, what did you do?
WITNESS: After that annotation placed by Mr. Villaruz, I went home
and I followed it up the next day with the Clerk of PAL cargo office.
ATTY. VINCO: What did the clerk tell you?
WITNESS: She told me that the claim was being processed and I made
several phone calls after that. I started my follow-ups February up to
June 1990.
ATTY. VINCO: And what results did those follow-ups produce?
WITNESS: All they said (was) that the document was being processed,
that they were waiting for Atty. Paco to report to the office and they
could refer the matter to Atty. Paco.
ATTY. VINCO: Who is this Atty. Paco?
WITNESS: He was the one in-charge of approving our claim.
ATTY. VINCO: Were you able to see Atty. Paco?
WITNESS: Yes, sir. I personally visited Atty. Paco together with my
auntie who was a former PAL employee.
xxx
ATTY. VINCO: So, what did you do, did you make a report or did you
tell Atty. Paco of your scouting around for a possible replacement?
WITNESS: I did call him back at his office. I made a telephone call.
ATTY. VINCO: And what answer did Atty. Paco make after you have
reported back to him?
WITNESS: They told me that they were going to process the claim
based on the price that I gave them but there was no definite result.
ATTY. VINCO: How many times did you go and see Atty. Paco
regarding the claim of your sister?
WITNESS: I made one personal visit and several follow-up calls. With
Atty. Paco, I made one phone call but I made several phone calls with
his secretary or the clerk at PAL cargo office and I was trying to locate
him but unfortunately, he was always out of his office.”
PAL claims processor, Rodolfo Pandes,** confirmed having received
the baggage freight claim on January 30, 1990 and the referral to and
extended pendency of the private respondent’s claim with the office
of Atty. Paco, to wit:
“ATTY. VINCO: And you did instruct the claimant to see the Claim
Officer of the company, right?
WITNESS: Yes, sir.
ATTY. VINCO: And the Claim Officer happened to be Atty. Paco?
WITNESS: Yes, sir.
ATTY. VINCO: And you know that the plaintiff thru her authorized
representative Concepcion Diño, who is her sister had many times
gone to Atty. Paco, in connection with this claim of her sister?
WITNESS: Yes, sir.
ATTY. VINCO: As a matter of fact even when the complaint was
already filed here in Court the claimant had continued to call about
the settlement of her claim with Atty. Paco, is that correct?
xxx
WITNESS: Yes, sir.
ATTY. VINCO: You know this fact because a personnel saw you in one
of the pre-trial here when this case was heard before the sala of Judge
Moscardon, is that correct?
WITNESS: Yes.
ATTY. VINCO: In other words, the plaintiff rather had never stop(ped)
in her desire for your company to settle this claim, right?
WITNESS: Yes, sir.”
Considering the abovementioned incidents and private respondent
Mejia’s own zealous efforts in following up the claim, it was clearly not
her fault that the letter of demand for damages could only be filed,
after months of exasperating follow-up of the claim, on August 13,
1990. If there was any failure at all to file the formal claim within the
prescriptive period contemplated in the air waybill, this was largely
because of PAL’s own doing, the consequences of which cannot, in all
fairness, be attributed to private respondent.
Even if the claim for damages was conditioned on the timely filing of
a formal claim, under Article 1186 of the Civil Code that condition was
deemed fulfilled, considering that the collective action of PAL’s
personnel in tossing around the claim and leaving it unresolved for an
indefinite period of time was tantamount to “voluntarily preventing its
fulfillment.” On grounds of equity, the filing of the baggage freight
claim, which sufficiently informed PAL of the damage sustained by
private respondent’s cargo, constituted substantial compliance with
the requirement in the contract for the filing of a formal claim.
All told, therefore, respondent appellate court did not err in ruling that
the provision on limited liability is not applicable in this case. We,
however, note in passing that while the facts and circumstances of
this case do not call for the direct application of the provisions of the
Warsaw Convention, it should be stressed that, indeed, recognition of
the Warsaw Convention does not preclude the operation of the Civil
Code and other pertinent laws in the determination of the extent of
liability of the common carrier.
The Warsaw Convention, being a treaty to which the Philippines is a
signatory, is as much a part of Philippine law as the Civil Code, Code
of Commerce and other municipal special laws. The provisions therein
contained, specifically on the limitation of carrier’s liability, are
operative in the Philippines but only in appropriate situations.
Petitioner ascribes ultimate error in the award of moral and exemplary
damages and attorney’s fees in favor of private respondent in that
other than the statement of the trial court that petitioner acted in bad
faith in denying private respondent’s claim, which was affirmed by the
Court of Appeals, there is no evidence on record that the same is true.
The denial of private respondent’s claim was supposedly in the honest
belief that the same had prescribed, there being no timely formal claim
filed; and despite having been given an opportunity to submit positive
proof of the value of the damaged microwave oven, no such proof was
submitted. Petitioner insists that its failure to deliver the oven in the
condition in which it was shipped could hardly be considered as
amounting to bad faith.
Private respondent counters that petitioner’s failure to deliver the
microwave oven in the condition in which it was received can be
described as gross negligence amounting to bad faith, on the further
consideration that it failed to prove that it exercised the extraordinary
diligence required by law, and that no explanation whatsoever was
given as to why the front glass of the oven was broken.
The trial court justified its award of actual, moral and exemplary
damages, and attorney’s fees in favor of private respondent in this
wise:
“Since the plaintiff’s baggage destination was the Philippines,
Philippine law governs the liability of the defendant for damages for
the microwave oven.
“The provisions of the New Civil Code on common carriers are
Article(s) 1733, 1735 and 1753 x x x.
xxx
“In this case, defendant failed to overcome, not only the presumption
but more importantly, plaintiff’s evidence that defendant’s negligence
was the proximate cause of the damages of the microwave oven.
Further, plaintiff has established that defendant acted in bad faith
when it denied the former’s claim on the ground that the formal claim
was filed beyond the period as provided in paragraph 12 (a-1) (Exh.
‘1-C-2’) of the Air Waybill (Exh. ‘1,’ also Exh. ‘A’), when actually,
Concepcion Diño, sister of plaintiff has immediately filed the formal
claim upon discovery of the damage.”
Respondent appellate court was in full agreement with the trial court’s
finding of bad faith on the part of petitioner as a basis for the award
of the aforestated damages, declaring that:
“As to the last assigned error, a perusal of the facts and law of the
case reveals that the lower court’s award of moral and exemplary
damages, attorney’s fees and costs of suit to plaintiff-appellee is in
accordance with current laws and jurisprudence on the matter.
Indeed, aside from the fact that defendant-appellant acted in bad faith
in breaching the contract and in denying plaintiff’s valid claim for
damages, plaintiff-appellee underwent profound distress, sleep-less
nights, and anxiety upon knowledge of her damaged microwave oven
in possession of defendant-appellant, entitling her to the award of
moral and exemplary damages (Cathay Pacific Airways, Ltd. vs. C.A.,
supra; Arts. 2219 & 2221, New Civil Code), and certainly plaintiff-
appellant’s unjust refusal to comply with her valid demand for
payment, thereby also entitling her to reasonable attorney’s fees [Art.
2208 (2) and (11), id.].”
It will be noted that petitioner never denied that the damage to the
microwave oven was sustained while the same was in its custody. The
possibility that said damage was due to causes beyond the control of
PAL has effectively been ruled out since the entire process in handling
of the cargo—from the unloading thereof from the plane, the towing
and transfer to the PAL warehouse, the transfer to the Customs
examination area, and its release thereafter to the shipper—was done
almost exclusively by, and within the intervention or, at the very least,
under the direct supervision of a responsible PAL personnel.
The very admissions of PAL, through Vicente Villaruz of its Import
Section, as follows:
ATTY. VINCO: So that, you now claim, Mr. Witness, that from the time
the cargo was unloaded from the plane until the time it reaches the
Customs counter where it was inspected, all the way, it was the PAL
personnel who did all these things?
WITNESS: Yes, however, there is also what we call the Customs
storekeeper and the Customs guard along with the cargo.
ATTY. VINCO: You made mention about a locator?
WITNESS: Yes, sir.
ATTY. VINCO: This locator, is he an employee of the PAL or the
Customs?
WITNESS: He is a PAL employee.”
lead to the inevitable conclusion that whatever damage may have
been sustained by the cargo is due to causes attributable to PAL’s
personnel or, at all events, under their responsibility.
Moreover, the trial court underscored the fact that petitioner was not
able to overcome the statutory presumption of negligence in Article
1735 which, as a common carrier, it was laboring under in case of
loss, destruction or deterioration of goods, through proper showing of
the exercise of extraordinary diligence. Neither did it prove that the
damage to the microwave oven was because of any of the excepting
causes under Article 1734, all of the same Code. Inasmuch as the
subject item was received in apparent good condition, no contrary
notation or exception having been made on the air waybill upon its
acceptance for shipment, the fact that it was delivered with a broken
glass door raises the presumption that PAL’s personnel were negligent
in the carriage and handling of the cargo.
Furthermore, there was glaringly no attempt whatsoever on the part
of petitioner to explain the cause of the damage to the oven. The
unexplained cause of damage to private respondent’s cargo
constitutes gross carelessness or negligence which by itself justifies
the present award of damages. The equally unexplained and
inordinate delay in acting on the claim upon referral thereof to the
claims officer, Atty. Paco, and the noncommittal responses to private
respondent’s entreaties for settlement of her claim for damages belies
petitioner’s pretension that there was no bad faith on its part. This
unprofessional indifference of PAL’s personnel despite full and actual
knowledge of the damage to private respondent’s cargo, just to be
exculpated from liability on pure technicality and bureaucratic
subterfuge, smacks of willful misconduct and insensitivity to a
passenger’s plight tantamount to bad faith and renders
unquestionable petitioner’s liability for damages. In sum, there is no
reason to disturb the findings of the trial court in this case, especially
with its full affirmance by respondent Court of Appeals.
On this note, the case at bar goes into the annals of our jurisprudence
after six years and recedes into the memories of our legal experience
as just another inexplicable inevitability. We will never know exactly
how many man-hours went into the preparation, litigation and
adjudication of this simple dispute over an oven, which the parties will
no doubt insist they contested as a matter of principle. One thing,
however, is certain. As long as the first letter in “principle” is somehow
outplaced by the peso sign, the courts will always have to resolve
similar controversies although mutual goodwill could have dispensed
with judicial recourse.
IN VIEW OF ALL OF THE FOREGOING, the assailed judgment of
respondent Court of Appeals is AFFIRMED in toto.
SO ORDERED.
Romero, Puno and Mendoza, JJ., concur.
Judgment affirmed in toto.
Notes. — The contract of air carriage generates a relation attended
with a public duty and any discourteous conduct on the part of the
carrier’s employees toward a passenger gives the latter an action for
damages against the carrier. (Korean Airlines Co., Ltd. vs. Court of
Appeals, 234 SCRA 717 [1994])
Where a common carrier fails to exercise due diligence in the
supervision of its employees, it could be held liable for damages for
the resulting harm to others. (Sulpicio Lines, Inc. vs. Court of Appeals,
246 SCRA 299 [1995])
——o0o——
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC.,
petitioner, vs. COURT OF APPEALS and PIONEER
INSURANCE AND SURETY CORPORATION, respondents
G.R. No. 166250. July 26, 2010
Remedial Law; Appeals; Factual questions may not be raised in a
petition for review on certiorari. — Well established is the rule that
factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court.
Commercial Law; Carriage of Goods by Sea Act; Words and Phrases;
Meaning of “Freight Forwarder.” — Petitioner is a freight forwarder.
The term “freight forwarder” refers to a firm holding itself out to the
general public (other than as a pipeline, rail, motor, or water carrier)
to provide transportation of property for compensation and, in the
ordinary course of its business, (1) to assemble and consolidate, or to
provide for assembling and consolidating, shipments, and to perform
or provide for break-bulk and distribution operations of the shipments;
(2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part
of the transportation a carrier subject to the federal law pertaining to
common carriers.
Same; Same; Limitation of a Freight Forwarder’s Liability. — A freight
forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however,
where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable
as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the
transport, even though the forwarder does not carry the merchandise
itself.
Same; Same; Bill of Lading; Meaning of a Bill of Lading; A bill of lading
operates both as receipts and as a contract. — A bill of lading is a
written acknowledgement of the receipt of goods and an agreement
to transport and to deliver them at a specified place to a person named
or on his or her order. It operates both as a receipt and as a contract.
It is a receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date
and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks, condition, quality, and value. As a
contract, it names the contracting parties, which include the
consignee; fixes the route, destination, and freight rate or charges;
and stipulates the rights and obligations assumed by the parties.
Same; Same; Common Carriers; Negligence; Common carriers, as a
general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed; Mere
proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. — UTI is liable as
a common carrier. Common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such diligence. Mere
proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, loss, or destruction
of the goods happened, the transporter shall be held responsible.
Same; Same; Same; The Civil Code does not limit the liability of the
common carrier to a fixed amount per package; The Carriage of Goods
by Sea Act (COGSA) supplements the Civil Code by establishing a
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading. — It is to be noted
that the Civil Code does not limit the liability of the common carrier to
a fixed amount per package. In all matters not regulated by the Civil
Code, the rights and obligations of common carriers are governed by
the Code of Commerce and special laws. Thus, the COGSA
supplements the Civil Code by establishing a provision limiting the
carrier’s liability in the absence of a shipper’s declaration of a higher
value in the bill of lading.
Same; Same; Same; Insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of
the value of the cargo. — In the present case, the shipper did not
declare a higher valuation of the goods to be shipped. Contrary to the
CA’s conclusion, the insertion of the words “L/C No. LC No. 1-187-
008394/NY 69867 covering shipment of raw materials for
pharmaceutical Mfg. x x x” cannot be the basis of petitioner’s liability.
Furthermore, the insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of
the value of the cargo.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Jerome T. Pampolina for petitioner.
Baltazar Y. Repol for private respondent.
NACHURA, J.:
For review is the Court of Appeals (CA) Decision dated April 29, 2004
and Resolution dated November 26, 2004. The assailed Decision
affirmed the Regional Trial Court (RTC) decision3 dated February 22,
2001; while the assailed Resolution denied petitioner Unsworth
Transport International (Philippines), Inc., American President Lines,
Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s)
motion for reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing Corporation
delivered to UTI a shipment of 27 drums of various raw materials for
pharmaceutical manufacturing, consisting of:
“1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x
banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine
oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs:
Vitamin B Complex Extract.” UTI issued Bill of Lading No.
C320/C15991-2, covering the aforesaid shipment. The subject
shipment was insured with private respondent Pioneer Insurance and
Surety Corporation in favor of Unilab against all risks in the amount of
P1,779,664.77 under and by virtue of Marine Risk Note Number MC
RM UL 0627 926 and Open Cargo Policy No. HO-022-RIU.
On the same day that the bill of lading was issued, the shipment was
loaded in a sealed 1x40 container van, with no. APLU-982012, boarded
on APL’s vessel M/V “Pres. Jackson,” Voyage 42, and transshipped to
APL’s M/V “Pres. Taft” for delivery to petitioner in favor of the
consignee United Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila.
On October 6, 1992, petitioner received the said ship-ment in its
warehouse after it stamped the Permit to Deliver Imported Goods
procured by the Champs Customs Brokerage. Three days thereafter,
or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation
(OCMSC) conducted a stripping survey of the shipment located in
petitioner’s warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and
properly sealed
19-steel drums STC Vitamin B Complex Extract, all in good order
condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side,
with approx. spilling of 1%
On October 15, 1992, the arrastre Jardine Davies Transport Services,
Inc. (Jardine) issued Gate Pass No. 761412 which stated that “22
drums Raw Materials for Pharmaceutical Mfg.” were loaded on a truck
with Plate No. PCK-434 facilitated by Champs for delivery to Unilab’s
warehouse. The materials were noted to be complete and in good
order in the gate pass. On the same day, the shipment arrived in
Unilab’s warehouse and was immediately surveyed by an independent
surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The
Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery
On October 23 and 28, 1992, the same independent surveyor
conducted final inspection surveys which yielded the same results.
Consequently, Unilab’s quality control representative rejected one
paper bag containing dried yeast and one steel drum containing
Vitamin B Complex as unfit for the intended purpose.
On November 7, 1992, Unilab filed a formal claim for the damage
against private respondent and UTI. On November 20, 1992, UTI
denied liability on the basis of the gate pass issued by Jardine that the
goods were in complete and good condition; while private respondent
paid the claimed amount on March 23, 1993. By virtue of the Loss and
Subrogation Receipt issued by Unilab in favor of private respondent,
the latter filed a complaint for Damages against APL, UTI and
petitioner with the RTC of Makati. The case was docketed as Civil Case
No. 93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits
ensued. On February 22, 2001, the RTC decided in favor of private
respondent and against APL, UTI and petitioner, the dispositive
portion of which reads:
“WHEREFORE, judgment is hereby rendered in favor of plaintif
PIONEER INSURANCE & SURETY CORPORATION and against the
defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO
TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and
severally, the former the following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY
ONE and 27/100 (Php76,231.27) with interest at the legal rate of 6%
per annum to be computed starting from September 30, 1993 until
fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.”
On appeal, the CA affirmed the RTC decision on April 29, 2004. The
CA rejected UTI’s defense that it was merely a forwarder, declaring
instead that it was a common carrier. The appellate court added that
by issuing the Bill of Lading, UTI acknowledged receipt of the goods
and agreed to transport and deliver them at a specific place to a
person named or his order. The court further concluded that upon the
delivery of the subject shipment to petitioner’s warehouse, its liability
became similar to that of a depositary. As such, it ought to have
exercised ordinary diligence in the care of the goods. And as found by
the RTC, the CA agreed that petitioner failed to exercise the required
diligence. The CA also rejected petitioner’s claim that its liability should
be limited to $500 per package pursuant to the Carriage of Goods by
Sea Act (COGSA) considering that the value of the shipment was
declared pursuant to the letter of credit and the pro forma invoice. As
to APL, the court considered it as a common carrier notwithstanding
the non-issuance of a bill of lading inasmuch as a bill of lading is not
indispensable for the execution of a contract of carriage.
Unsatisfied, petitioner comes to us in this petition for review on
certiorari, raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN UPHOLDING THE DECISION OF THE
REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING
THE SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE
AND 27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST AT 6%
PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED
ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY
ESTABLISHED THE ALLEGED DAMAGE TO ITS CARGO.
Petitioner admits that it is a forwarder but disagrees with the CA’s
conclusion that it is a common carrier. It also questions the appellate
court’s findings that it failed to establish that it exercised extraordinary
or ordinary diligence in the vigilance over the subject shipment. As to
the damages allegedly suffered by private respondent, petitioner
counters that they were not sufficiently proven. Lastly, it insists that
its liability, in any event, should be limited to $500 pursuant to the
package limitation rule. Indeed, petitioner wants us to review the
factual findings of the RTC and the CA and to evaluate anew the
evidence presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised
in a petition for review on certiorari as clearly stated in Section 1, Rule
45 of the Rules of Court, viz.:
“Section 1. Filing of petition with Supreme Court.—A party desiring
to appeal by certiorari from a judgment or final order or resolution of
the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth.”
Admittedly, petitioner is a freight forwarder. The term “freight
forwarder” refers to a firm holding itself out to the general public
(other than as a pipeline, rail, motor, or water carrier) to provide
transportation of property for compensation and, in the ordinary
course of its business, (1) to assemble and consolidate, or to provide
for assembling and consolidating, shipments, and to perform or
provide for break-bulk and distribution operations of the shipments;
(2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part
of the transportation a carrier subject to the federal law pertaining to
common carriers.
A freight forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however,
where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable
as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the
transport, even though the forwarder does not carry the merchandise
itself.
It is undisputed that UTI issued a bill of lading in favor of Unilab.
Pursuant thereto, petitioner undertook to transport, ship, and deliver
the 27 drums of raw materials for pharmaceutical manufacturing to
the consignee.
A bill of lading is a written acknowledgement of the receipt of goods
and an agreement to transport and to deliver them at a specified place
to a person named or on his or her order. It operates both as a receipt
and as a contract. It is a receipt for the goods shipped and a contract
to transport and deliver the same as therein stipulated. As a receipt,
it recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks, condition, quality,
and value. As a contract, it names the contracting parties, which
include the consignee; fixes the route, destination, and freight rate or
charges; and stipulates the rights and obligations assumed by the
parties.
Undoubtedly, UTI is liable as a common carrier. Common carriers, as
a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they
observed such diligence. Mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the
transporter shall be held responsible.
Though it is not our function to evaluate anew the evidence presented,
we refer to the records of the case to show that, as correctly found by
the RTC and the CA, petitioner failed to rebut the prima facie
presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received
by UTI in apparent good order and condition in New York, United
States of America. Second, the OCMSC Survey Report stated that one
steel drum STC Vitamin B Complex Extract was discovered to be with
a cut/hole on the side, with approximate spilling of 1%. Third, though
Gate Pass No. 7614, issued by Jardine, noted that the subject
shipment was in good order and condition, it was specifically stated
that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical
manufacturing. Last, J.G. Bernas’ Survey Report stated that “1-s/drum
was punctured and retaped on the bottom side and the content was
lacking, and there was a short delivery of 5-drums.”
All these conclusively prove the fact of shipment in good order and
condition, and the consequent damage to one steel drum of Vitamin
B Complex Extract while in the possession of petitioner which failed to
explain the reason for the damage. Further, petitioner failed to prove
that it observed the extraordinary diligence and precaution which the
law requires a common carrier to exercise and to follow in order to
avoid damage to or destruction of the goods entrusted to it for safe
carriage and delivery.
However, we affirm the applicability of the Package Limitation Rule
under the COGSA, contrary to the RTC and the CA’s findings.
It is to be noted that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package.
In all matters not regulated by the Civil Code, the rights and
obligations of common carriers are governed by the Code of
Commerce and special laws. Thus, the COGSA supplements the Civil
Code by establishing a provision limiting the carrier’s liability in the
absence of a shipper’s declaration of a higher value in the bill of lading.
Section 4(5) of the COGSA provides:
“(5) Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package of
lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.”
In the present case, the shipper did not declare a higher valuation of
the goods to be shipped. Contrary to the CA’s conclusion, the insertion
of the words “L/C No. LC No. 1-187-008394/NY 69867 covering
shipment of raw materials for pharmaceutical Mfg. x x x” cannot be
the basis of petitioner’s liability. Furthermore, the insertion of an
invoice number does not in itself sufficiently and convincingly show
that petitioner had knowledge of the value of the cargo.
In light of the foregoing, petitioner’s liability should be limited to $500
per steel drum. In this case, as there was only one drum lost, private
respondent is entitled to receive only $500 as damages for the loss.
In addition to said amount, as aptly held by the trial court, an interest
rate of 6% per annum should also be imposed, plus 25% of the total
sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated April 29, 2004 and
Resolution dated November 26, 2004 are AFFIRMED with
MODIFICATION by reducing the principal amount due private
respondent Pioneer Insurance and Surety Corporation from
P76,231.27 to $500, with interest of 6% per annum from date of
demand, and 25% of the amount due as attorney’s fees.
The other aspects of the assailed Decision and Resolution STAND.
SO ORDERED.
Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur.
Petition partially granted, judgment and resolution affirmed with
modification.
Note.—Stipulation in the bill of lading limiting respondent’s liability for
the loss of the subject cargoes is allowed under Article 1749 of the
Civil Code, and Sec. 4, paragraph (5) of the Carriage of Goods by Sea
Act (COGSA). (Philippine Charter Insurance Corporation vs. Neptune
Orient Lines/Over-seas Agency Services, Inc., 554 SCRA 335 [2008])
——o0o——
LORENZO SHIPPING CORP., petitioner, vs. CHUBB and
SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE
CARRIERS, INC., respondents
G.R. No. 147724. June 8, 2004
Civil Law; Contracts; Subrogation; Subrogation contemplates full
substitution such that it places the party subrogated in the shoes of
the creditor, and he may use all means which the creditor could
employ to enforce payment. — Subrogation is the substitution of one
person in the place of another with reference to a lawful claim or right,
so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. The
principle covers the situation under which an insurer that has paid a
loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may
use all means which the creditor could employ to enforce payment.
Same; Same; Same; A subrogee cannot succeed to a right not
possessed by the subrogor. — The rights to which the subrogee
succeeds are the same as, but not greater than, those of the person
for whom he is substituted—he cannot acquire any claim, security, or
remedy the subrogor did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A subrogee in effect
steps into the shoes of the insured and can recover only if insured
likewise could have recovered.
Same; Same; Same; Remedial Law; Actions; Capacity to sue is a right
personal to its holder; It is conferred by law and not by the parties. —
In the instant case, the rights inherited by the insurer, respondent
Chubb and Sons, pertain only to the payment it made to the insured
Sumitomo as stipulated in the insurance contract between them, and
which amount it now seeks to recover from petitioner Lorenzo
Shipping which caused the loss sustained by the insured Sumitomo.
The capacity to sue of respondent Chubb and Sons could not
perchance belong to the group of rights, remedies or securities
pertaining to the payment respondent insurer made for the loss which
was sustained by the insured Sumitomo and covered by the contract
of insurance. Capacity to sue is a right personal to its holder. It is
conferred by law and not by the parties. Lack of legal capacity to sue
means that the plaintiff is not in the exercise of his civil rights, or does
not have the necessary qualification to appear in the case, or does not
have the character or representation he claims. It refers to a plaintiff’s
general disability to sue, such as on account of minority, insanity,
incompetence, lack of juridical personality, or any other
disqualifications of a party. Respondent Chubb and Sons who was
plaintiff in the trial court does not possess any of these disabilities.
Same; Same; Same; Same; Same; Party-in-Interest; Where an
insurance company as subrogee pays the insured of the entire loss it
suffered, insurer-subrogee is the only real party in interest and must
sue in its own name to enforce its right of subrogation against the
third party which caused the loss.—Rule 3, Section 2 of the 1997 Rules
of Civil Procedure defines a real party in interest as one who is entitled
to the avails of any judgment rendered in a suit, or who stands to be
benefited or injured by it. Where an insurance company as subrogee
pays the insured of the entire loss it suffered, the insurer-subrogee is
the only real party in interest and must sue in its own name to enforce
its right of subrogation against the third party which caused the loss.
This is because the insurer in such case having fully compensated its
insured, which payment covers the loss in full, is subrogated to the
insured’s claims arising from such loss. The subrogated insurer
becomes the owner of the claim and, thus entitled to the entire fruits
of the action. It then, thus possesses the right to enforce the claim
and the significant interest in the litigation. In the case at bar, it is
clear that respondent insurer was suing on its own behalf in order to
enforce its right of subrogation.
Corporation Law; Remedial Law; Capacity to Sue; Foreign
corporations which are doing business in the Philippines without a
license deprive from bringing or maintaining actions before or
intervening in Philippine courts; A foreign corporation needs no license
to sue before Philippine courts on an isolated transaction.—The law
on corporations is clear in depriving foreign corporations which are
doing business in the Philippines without a license from bringing or
maintaining actions before, or intervening in Philippine courts. The law
does not prohibit foreign corporations from performing single acts of
business. A foreign corporation needs no license to sue before
Philippine courts on an isolated transaction.
Same; Same; Same; Court has not construed the term “isolated
transaction” to literally mean “one” or a mere single act. — We reject
the claim of petitioner Lorenzo Shipping that respondent Chubb and
Sons is not suing under an isolated transaction because the steel
pipes, subject of this case, are covered by two (2) bills of lading;
hence, two transactions. The stubborn fact remains that these two (2)
bills of lading spawned from the single marine insurance policy that
respondent Chubb and Sons issued in favor of the consignee
Sumitomo, covering the damaged steel pipes. The execution of the
policy is a single act, an isolated transaction. This Court has not
construed the term “isolated transaction” to literally mean “one” or a
mere single act.
Same; Same; Same; Transactions which are occasional, incidental and
casual—not of a character to indicate a purpose to engage in
business—do not constitute the doing or engaging in business as
contemplated by law. — In the case of Gonzales vs. Raquiza, et al.,
three contracts, hence three transactions were challenged as void on
the ground that the three American corporations which are parties to
the contracts are not licensed to do business in the Philippines. This
Court held that “one single or isolated business transaction does not
constitute doing business within the meaning of the law. Transactions
which are occasional, incidental, and casual—not of a character to
indicate a purpose to engage in business—do not constitute the doing
or engaging in business as contemplated by law. Where the three
transactions indicate no intent by the foreign corporation to engage in
a continuity of transactions, they do not constitute doing business in
the Philippines.”
Commercial Law; Carriage of Goods by Sea Act; Bill of Lading; A bill
of lading, aside from being a contract and a receipt, is also a symbol
of the goods covered by it; A bill of lading which has no notation of
any defect or damages in the goods is called a “clean bill of lading”;
It constitutes prima facie evidence of the receipt by the carrier of the
goods as therein described.—The steel pipes, subject of this case,
were in good condition when they were loaded at the port of origin
(Manila) on board petitioner Lorenzo Shipping’s M/V Lorcon IV en
route to Davao City. Petitioner Lorenzo Shipping issued clean bills of
lading covering the subject shipment. A bill of lading, aside from being
a contract and a receipt, is also a symbol of the goods covered by it.
A bill of lading which has no notation of any defect or damage in the
goods is called a “clean bill of lading.” A clean bill of lading constitutes
prima facie evidence of the receipt by the carrier of the goods as
therein described.
Same; Same; Same; Mere proof of delivery of goods in good order to
a carrier and the subsequent arrival in damaged condition at the place
of destination raises a prima facie case against the carrier. — The case
law teaches us that mere proof of delivery of goods in good order to
a carrier and the subsequent arrival in damaged condition at the place
of destination raises a prima facie case against the carrier. In the case
at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel
pipes in good order and condition, evidenced by the clean bills of
lading it issued. When the cargo was unloaded from petitioner Lorenzo
Shipping’s vessel at the Sasa Wharf in Davao City, the steel pipes were
rusted all over.
Same; Same; Same; The twenty-four-hour period prescribed by Art.
366 of the Code of Commerce within which claims must be presented
does not begin to run until the consignee has received such possession
of the merchandise that he may exercise over it the ordinary control
pertinent to ownership.—The twenty-four-hour period prescribed by
Art. 366 of the Code of Commerce within which claims must be
presented does not begin to run until the consignee has received such
possession of the merchandise that he may exercise over it the
ordinary control pertinent to ownership. In other words, there must
be delivery of the cargo by the carrier to the consignee at the place of
destination. In the case at bar, consignee Sumitomo has not received
possession of the cargo, and has not physically inspected the same at
the time the shipment was discharged from M/V Lorcon IV in Davao
City.
PETITION for review on certiorari of the decision and resolution of the
Courts of Appeals.
The facts are stated in the opinion of the Court.
Roberto A. Abad for petitioner.
Castillo, Laman, Tan, Pantaleon and San Jose for respondent
Chubbs & Sons, Inc.
PUNO, J.:
On appeal is the Court of Appeals’ August 14, 2000 Decision in CA-
G.R. CV No. 61334 and March 28, 2001 Resolution affirming the March
19, 1998 Decision of the Regional Trial Court of Manila which found
petitioner liable to pay respondent Chubb and Sons, Inc. attorney’s
fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short),
a domestic corporation engaged in coastwise shipping, was the carrier
of 581 bundles of black steel pipes, the subject shipment, from Manila
to Davao City. From Davao City, respondent Gearbulk, Ltd., a foreign
corporation licensed as a common carrier under the laws of Norway
and doing business in the Philippines through its agent, respondent
Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short),
a domestic corporation, carried the goods on board its vessel M/V San
Mateo Victory to the United States, for the account of Sumitomo
Corporation. The latter, the consignee, is a foreign corporation
organized under the laws of the United States of America. It insured
the shipment with respondent Chubb and Sons, Inc., a foreign
corporation organized and licensed to engage in insurance business
under the laws of the United States of America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo,
Manila, loaded 581 bundles of ERW black steel pipes worth
US$137,912.84 on board the vessel M/V Lorcon IV, owned by
petitioner Lorenzo Shipping, for shipment to Davao City. Petitioner
Lorenzo Shipping issued a clean bill of lading designated as Bill of
Lading No. T-35 for the account of the consignee, Sumitomo
Corporation of San Francisco, California, USA, which in turn, insured
the goods with respondent Chubb and Sons, Inc.
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on
December 2, 1987. Respondent Transmarine Carriers received the
subject shipment which was discharged on December 4, 1987,
evidenced by Delivery Cargo Receipt No. 115090. It discovered
seawater in the hatch of M/V Lorcon IV, and found the steel pipes
submerged in it. The consignee Sumitomo then hired the services of
R.J. Del Pan Surveyors to inspect the shipment prior to and
subsequent to discharge. Del Pan’s Survey Report dated December 4,
1987 showed that the subject shipment was no longer in good
condition, as in fact, the pipes were found with rust formation on top
and/or at the sides. Moreover, the surveyor noted that the cargo hold
of the M/V Lorcon IV was flooded with seawater, and the tank top was
“rusty, thinning, and with several holes at different places.” The rusty
condition of the cargo was noted on the mate’s receipts and the
checker of M/V Lorcon IV signed his conforme thereon.
After the survey, respondent Gearbulk loaded the shipment on board
its vessel M/V San Mateo Victory, for carriage to the United States. It
issued Bills of Lading Nos. DAV/OAK 1 to 7, covering 364 bundles of
steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading
Nos. DAV/SEA 1 to 6, covering 217 bundles of steel pipes to be
discharged at Vancouver, Washington, U.S.A. All bills of lading were
marked “ALL UNITS HEAVILY RUSTED.”
While the cargo was in transit from Davao City to the U.S.A., consignee
Sumitomo sent a letter of intent dated December 7, 1987, to petitioner
Lorenzo Shipping, which the latter received on December 9, 1987.
Sumitomo informed petitioner Lorenzo Shipping that it will be filing a
claim based on the damaged cargo once such damage had been
ascertained. The letter reads:
Please be advised that the merchandise herein below noted has been
landed in bad order ex-Manila voyage No. 87-19 under B/L No. T-3
which arrived at the port of Davao City on December 2, 1987.
The extent of the loss and/or damage has not yet been determined
but apparently all bundles are corroded. We reserve the right to claim
as soon as the amount of claim is determined and the necessary
supporting documents are available.
Please find herewith a copy of the survey report which we had
arranged for after unloading of our cargo from your vessel in Davao.
We trust that you shall make everything in order.
On January 17, 1988, M/V San Mateo Victory arrived at Oakland,
California, U.S.A., where it unloaded 364 bundles of the subject steel
pipes. It then sailed to Vancouver, Washington on January 23, 1988
where it unloaded the remaining 217 bundles. Toplis and Harding, Inc.
of San Franciso, California, surveyed the steel pipes, and also
discovered the latter heavily rusted. When the steel pipes were tested
with a silver nitrate solution, Toplis and Harding found that they had
come in contact with salt water. The survey report, dated January 28,
1988 states:
xxx
We entered the hold for a close examination of the pipe, which
revealed moderate to heavy amounts of patchy and streaked dark
red/orange rust on all lifts which were visible. Samples of the shipment
were tested with a solution of silver nitrate revealing both positive and
occasional negative chloride reactions, indicating pipe had come in
contact with salt water. In addition, all tension applied metal straps
were very heavily rusted, and also exhibited chloride reactions on
testing with silver nitrate.
xxx
It should be noted that subject bills of lading bore the following
remarks as to conditions of goods: “ALL UNITS HEAVILY RUSTED.”
Attached herein is a copy of a survey report issued by Del Pan
Surveyors of Davao City, Philippines dated, December 4, 1987 at
Davao City, Philippines, which describes conditions of the cargo as
sighted aboard the vessel “LORCON IV,” prior to and subsequent to
discharge at Davao City. Evidently, the aforementioned rust damages
were apparently sustained while the shipment was in the custody of
the vessel “LORCON IV,” prior to being laden on board the vessel “SAN
MATEO VICTORY” in Davao.
Due to its heavily rusted condition, the consignee Sumitomo rejected
the damaged steel pipes and declared them unfit for the purpose they
were intended. It then filed a marine insurance claim with respondent
Chubb and Sons, Inc. which the latter settled in the amount of
US$104,151.00.
On December 2, 1988, respondent Chubb and Sons, Inc. filed a
complaint16 for collection of a sum of money, docketed as Civil Case
No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and
Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not
doing business in the Philippines, and that it is suing under an isolated
transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed
their answer17 with counterclaim and cross-claim against petitioner
Lorenzo Shipping denying liability on the following grounds: (a)
respondent Chubb and Sons, Inc. has no capacity to sue before
Philippine courts; (b) the action should be dismissed on the ground of
forum non conveniens; (c) damage to the steel pipes was due to the
inherent nature of the goods or to the insufficiency of packing thereof;
(d) damage to the steel pipes was not due to their fault or negligence;
and, (e) the law of the country of destination, U.S.A., governs the
contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on
February 28, 1989, and amended it on May 24, 1989. It denied
liability, alleging, among others: (a) that rust easily forms on steel by
mere exposure to air, moisture and other marine elements; (b) that it
made a disclaimer in the bill of lading; (c) that the goods were
improperly packed; and, (d) prescription, laches, and extinguishment
of obligations and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and
Sons, Inc., finding that: (1) respondent Chubb and Sons, Inc. has the
right to institute this action; and, (2) petitioner Lorenzo Shipping was
negligent in the performance of its obligations as a carrier. The
dispositive portion of its Decision states:
“WHEREFORE, the judgment is hereby rendered ordering Defendant
Lorenzo Shipping Corporation to pay the plaintiff the sum of
US$104,151.00 or its equivalent in Philippine peso at the current rate
of exchange with interest thereon at the legal rate from the date of
the institution of this case until fully paid, the attorney’s fees in the
sum of P50,000.00, plus the costs of the suit, and dismissing the
plaintiff ’s complaint against defendants Gearbulk, Ltd. and Philippine
Transmarine Carriers, Inc., for lack of merit, and the two defendants’
counterclaim, there being no showing that the plaintiff had filed this
case against said defendants in bad faith, as well as the two
defendants’ cross-claim against Defendant Lorenzo Shipping
Corporation, for lack of factual basis.
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting
that: (a) respondent Chubb and Sons does not have capacity to sue
before Philippine courts; and, (b) petitioner Lorenzo Shipping was not
negligent in the performance of its obligations as carrier of the goods.
The appellate court denied the petition and affirmed the decision of
the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shipping’s
Motion for Reconsideration dated September 3, 2000, in a Resolution
promulgated on March 28, 2001.
Hence, this petition. Petitioner Lorenzo Shipping submits the following
issues for resolution:
(1) Whether or not the prohibition provided under Art. 133 of the
Corporation Code applies to respondent Chubb, it being a mere
subrogee or assignee of the rights of Sumitomo Corporation, likewise
a foreign corporation admittedly doing business in the Philippines
without a license;
(2) Whether or not Sumitomo, Chubb’s predecessor-in-interest, validly
made a claim for damages against Lorenzo Shipping within the period
prescribed by the Code of Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of
damages or defects in the shipment, which created a prima facie
presumption that the carrier received the shipment in good condition,
has been overcome by convincing evidence;
(4) Assuming that Lorenzo Shipping was guilty of some lapses in
transporting the steel pipes, whether or not Gearbulk and
Transmarine, as common carriers, are to share liability for their
separate negligence in handling the cargo.
In brief, we resolve the following issues:
(1) whether respondent Chubb and Sons has capacity to sue before
the Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the
subject cargo.
Petitioner argues that respondent Chubb and Sons is a foreign
corporation not licensed to do business in the Philippines, and is not
suing on an isolated transaction. It contends that because the
respondent Chubb and Sons is an insurance company, it was merely
subrogated to the rights of its insured, the consignee Sumitomo, after
paying the latter’s policy claim. Sumitomo, however, is a foreign
corporation doing business in the Philippines without a license and
does not have capacity to sue before Philippine courts. Since
Sumitomo does not have capacity to sue, petitioner then concludes
that, neither the subrogee-respondent Chubb and Sons could sue
before Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo
is a foreign corporation doing business in the Philippines without a
license. It is therefore estopped from litigating the issue on appeal
especially because it involves a question of fact which this Court
cannot resolve. Secondly, assuming arguendo that Sumitomo cannot
sue in the Philippines, it does not follow that respondent, as subrogee,
has also no capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of another
with reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The principle covers the situation
under which an insurer that has paid a loss under an insurance policy
is entitled to all the rights and remedies belonging to the insured
against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated
in the shoes of the creditor, and he may use all means which the
creditor could employ to enforce payment.
The rights to which the subrogee succeeds are the same as, but not
greater than, those of the person for whom he is substituted—he
cannot acquire any claim, security, or remedy the subrogor did not
have. In other words, a subrogee cannot succeed to a right not
possessed by the subrogor. A subrogee in effect steps into the shoes
of the insured and can recover only if insured likewise could have
recovered.
However, when the insurer succeeds to the rights of the insured, he
does so only in relation to the debt. The person substituted (the
insurer) will succeed to all the rights of the creditor (the insured),
having reference to the debt due the latter. In the instant case, the
rights inherited by the insurer, respondent Chubb and Sons, pertain
only to the payment it made to the insured Sumitomo as stipulated in
the insurance contract between them, and which amount it now seeks
to recover from petitioner Lorenzo Shipping which caused the loss
sustained by the insured Sumitomo. The capacity to sue of respondent
Chubb and Sons could not perchance belong to the group of rights,
remedies or securities pertaining to the payment respondent insurer
made for the loss which was sustained by the insured Sumitomo and
covered by the contract of insurance. Capacity to sue is a right
personal to its holder. It is conferred by law and not by the parties.
Lack of legal capacity to sue means that the plaintiff is not in the
exercise of his civil rights, or does not have the necessary qualification
to appear in the case, or does not have the character or representation
he claims. It refers to a plaintiff’s general disability to sue, such as on
account of minority, insanity, incompetence, lack of juridical
personality, or any other disqualifications of a party. Respondent
Chubb and Sons who was plaintiff in the trial court does not possess
any of these disabilities. On the contrary, respondent Chubb and Sons
has satisfactorily proven its capacity to sue, after having shown that it
is not doing business in the Philippines, but is suing only under an
isolated transaction, i.e., under the one (1) marine insurance policy
issued in favor of the consignee Sumitomo covering the damaged steel
pipes.
The law on corporations is clear in depriving foreign corporations
which are doing business in the Philippines without a license from
bringing or maintaining actions before, or intervening in Philippine
courts. Art. 133 of the Corporation Code states:
Doing business without a license. — No foreign corporation
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single
acts of business. A foreign corporation needs no license to sue before
Philippine courts on an isolated transaction. As held by this Court in
the case of Marshall-Wells Company vs. Elser & Company:
The object of the statute (Secs. 68 and 69, Corporation Law) was not
to prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the
local courts . . . the implication of the law (being) that it was never
the purpose of the legislature to exclude a foreign corporation which
happens to obtain an isolated order for business for the Philippines,
from seeking redress in the Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. vs.
Intermediate Appellate Court31 that:
. . . The private respondent may sue in the Philippine courts upon the
marine insurance policies issued by it abroad to cover international-
bound cargoes shipped by a Philippine carrier, even if it has no license
to do business in this country, for it is not the lack of the prescribed
license (to do business in the Philippines) but doing business without
such license, which bars a foreign corporation from access to our
courts.
We reject the claim of petitioner Lorenzo Shipping that respondent
Chubb and Sons is not suing under an isolated transaction because
the steel pipes, subject of this case, are covered by two (2) bills of
lading; hence, two transactions. The stubborn fact remains that these
two (2) bills of lading spawned from the single marine insurance policy
that respondent Chubb and Sons issued in favor of the consignee
Sumitomo, covering the damaged steel pipes. The execution of the
policy is a single act, an isolated transaction. This Court has not
construed the term “isolated transaction” to literally mean “one” or a
mere single act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held
that:
. . . What is determinative of “doing business” is not really the number
or the quantity of the transactions, but more importantly, the intention
of an entity to continue the body of its business in the country. The
number and quantity are merely evidence of such intention. The
phrase “isolated transaction” has a definite and fixed meaning, i.e. a
transaction or series of transactions set apart from the common
business of a foreign enterprise in the sense that there is no intention
to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is “doing
business” does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the
transactions. [Emphasis supplied.]
In the case of Gonzales vs. Raquiza, et al., three contracts, hence
three transactions were challenged as void on the ground that the
three American corporations which are parties to the contracts are not
licensed to do business in the Philippines. This Court held that “one
single or isolated business transaction does not constitute doing
business within the meaning of the law. Transactions which are
occasional, incidental, and casual—not of a character to indicate a
purpose to engage in business—do not constitute the doing or
engaging in business as contemplated by law. Where the three
transactions indicate no intent by the foreign corporation to engage in
a continuity of transactions, they do not constitute doing business in
the Philippines.”
Furthermore, respondent insurer Chubb and Sons, by virtue of the
right of subrogation provided for in the policy of insurance, is the real
party in interest in the action for damages before the court a quo
against the carrier Lorenzo Shipping to recover for the loss sustained
by its insured. Rule 3, Section 2 of the 1997 Rules of Civil Procedure
defines a real party in interest as one who is entitled to the avails of
any judgment rendered in a suit, or who stands to be benefited or
injured by it. Where an insurance company as subrogee pays the
insured of the entire loss it suffered, the insurersubrogee is the only
real party in interest and must sue in its own name to enforce its right
of subrogation against the third party which caused the loss. This is
because the insurer in such case having fully compensated its insured,
which payment covers the loss in full, is subrogated to the insured’s
claims arising from such loss. The subrogated insurer becomes the
owner of the claim and, thus entitled to the entire fruits of the action.
It then, thus possesses the right to enforce the claim and the
significant interest in the litigation. In the case at bar, it is clear that
respondent insurer was suing on its own behalf in order to enforce its
right of subrogation.
On the second issue, we affirm the findings of the lower courts that
petitioner Lorenzo Shipping was negligent in its care and custody of
the consignee’s goods.
The steel pipes, subject of this case, were in good condition when they
were loaded at the port of origin (Manila) on board petitioner Lorenzo
Shipping’s M/V Lorcon IV en route to Davao City. Petitioner Lorenzo
Shipping issued clean bills of lading covering the subject shipment. A
bill of lading, aside from being a contract and a receipt, is also a
symbol of the goods covered by it. A bill of lading which has no
notation of any defect or damage in the goods is called a “clean bill of
lading.” A clean bill of lading constitutes prima facie evidence of the
receipt by the carrier of the goods as therein described.
The case law teaches us that mere proof of delivery of goods in good
order to a carrier and the subsequent arrival in damaged condition at
the place of destination raises a prima facie case against the carrier.
In the case at bar, M/V Lorcon IV of petitioner Lorenzo Shipping
received the steel pipes in good order and condition, evidenced by the
clean bills of lading it issued. When the cargo was unloaded from
petitioner Lorenzo Shipping’s vessel at the Sasa Wharf in Davao City,
the steel pipes were rusted all over. M/V San Mateo Victory of
respondent Gearbulk, Ltd, which received the cargo, issued Bills of
Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the
entire shipment, all of which were marked “ALL UNITS HEAVILY
RUSTED.” R.J. Del Pan Surveyors found that the cargo hold of the M/V
Lorcon IV was flooded with seawater, and the tank top was rusty,
thinning and perforated, thereby exposing the cargo to sea water.
There can be no other conclusion than that the cargo was damaged
while on board the vessel of petitioner Lorenzo Shipping, and that the
damage was due to the latter’s negligence. In the case at bar, not
only did the legal presumption of negligence attach to petitioner
Lorenzo Shipping upon the occurrence of damage to the cargo. More
so, the negligence of petitioner was sufficiently established. Petitioner
Lorenzo Shipping failed to keep its vessel in seaworthy condition. R.J.
Del Pan Surveyors found the tank top of M/V Lorcon IV to be “rusty,
thinning, and with several holes at different places.” Witness Captain
Pablo Fernan, Operations Manager of respondent Transmarine
Carriers, likewise observed the presence of holes at the deck of M/V
Lorcon IV. The unpatched holes allowed seawater, reaching up to
three (3) inches deep, to enter the flooring of the hatch of the vessel
where the steel pipes were stowed, submerging the latter in sea
water. The contact with sea water caused the steel pipes to rust. The
silver nitrate test, which Toplis and Harding employed, further verified
this conclusion. Significantly, petitioner Lorenzo Shipping did not even
attempt to present any contrary evidence. Neither did it offer any
proof to establish any of the causes that would exempt it from liability
for such damage. It merely alleged that the: (1) packaging of the
goods was defective; and (2) claim for damages has prescribed.
To be sure, there is evidence that the goods were packed in a superior
condition. John M. Graff, marine surveyor of Toplis and Harding,
examined the condition of the cargo on board the vessel San Mateo
Victory. He testified that the shipment had superior packing “because
the ends were covered with plastic, woven plastic. Whereas typically
they would not go to that bother . . . Typically, they come in with no
plastic on the ends. They might just be banded, no plastic on the ends
. . .”
On the issue of prescription of respondent Chubb and Sons’ claim for
damages, we rule that it has not yet prescribed at the time it was
made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise,
the claim against the carrier for damage or average, which may be
found therein upon the opening of the packages, may be made,
provided that the indications of the damage or average which gives
rise to the claim cannot be ascertained from the outside part of such
package, in which case the claim shall be admitted only at the time of
the receipt.
After the periods mentioned have elapsed, or transportation charges
have been paid, no claim shall be admitted against the carrier with
regard to the condition in which the goods transported were delivered.
A somewhat similar provision is embodied in the Bill of Lading No. T-
3 which reads:
NOTE: No claim for damage or loss shall be honored twenty-four (24)
hours after delivery.
(Ref. Art. 366 C Com.)
The twenty-four-hour period prescribed by Art. 366 of the Code of
Commerce within which claims must be presented does not begin to
run until the consignee has received such possession of the
merchandise that he may exercise over it the ordinary control
pertinent to ownership. In other words, there must be delivery of the
cargo by the carrier to the consignee at the place of destination. In
the case at bar, consignee Sumitomo has not received possession of
the cargo, and has not physically inspected the same at the time the
shipment was discharged from M/V Lorcon IV in Davao City. Petitioner
Lorenzo Shipping failed to establish that an authorized agent of the
consignee Sumitomo received the cargo at Sasa Wharf in Davao City.
Respondent Transmarine Carriers as agent of respondent Gearbulk,
Ltd., which carried the goods from Davao City to the United States,
and the principal, respondent Gearbulk, Ltd. itself, are not the
authorized agents as contemplated by law. What is clear from the
evidence is that the consignee received and took possession of the
entire shipment only when the latter reached the United States’ shore.
Only then was delivery made and completed. And only then did the
24-hour prescriptive period start to run.
Finally, we find no merit to the contention of respondents Gearbulk
and Transmarine that American law governs the contract of carriage
because the U.S.A. is the country of destination. Petitioner Lorenzo
Shipping, through its M/V Lorcon IV, carried the goods from Manila to
Davao City. Thus, as against petitioner Lorenzo Shipping, the place of
destination is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and its
Resolution dated March 28, 2001 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note. — The guarantor who pays is subrogated by virtue thereof to
all the rights which the creditor has against the debtor, including any
maritime lien over a vessel owned by the debtor. (Philippine National
Bank vs. Court of Appeals, 337 SCRA 381 [2000])
——o0o——
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and
JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners,
vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent
G.R. No. 143133. June 5, 2002
Common Carriers; Well-settled is the rule that common carriers, from
the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence and vigilance with respect to the
safety of the goods and the passengers they transport.—Well-settled
is the rule that common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary
diligence and vigilance with respect to the safety of the goods and the
passengers they transport. Thus, common carriers are required to
render service with the greatest skill and foresight and “to use all
reason[a]ble means to ascertain the nature and characteristics of the
goods tendered for shipment, and to exercise due care in the handling
and stowage, including such methods as their nature requires.” The
extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them.
Same; Negligence; Presumption of Fault or Negligence; Owing to the
high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. — Owing
to this high degree of diligence required of them, common carriers, as
a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they
observed such diligence.
Same; Same; Same; Exceptions; The exceptions to the presumption
of fault or negligence is a closed list—if the cause of destruction, loss
or deterioration is other than the enumerated circumstances, then the
carrier is liable therefor.—However, the presumption of fault or
negligence will not arise if the loss is due to any of the following
causes: (1) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or owner of
the goods; (4) the character of the goods or defects in the packing or
the container; or (5) an order or act of competent public authority.
This is a closed list. If the cause of destruction, loss or deterioration is
other than the enumerated circumstances, then the carrier is liable
therefor.
Same; Same; Same; Mere proof of delivery of the goods in good order
to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. — Corollary to the foregoing, mere proof of delivery of the
goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as
to how the deterioration, the loss or the destruction of the goods
happened, the transporter shall be held responsible.
Same; Same; Same; Equipped with the proper knowledge of the
nature of steel sheets in coils and of the proper way of transporting
them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo.
— True, the words “metal envelopes rust stained and slightly dented”
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in
coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken. Having failed to discharge the burden of proving
that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils.
Same; Same; Same; The exemption provided in Article 1734(4) of the
Civil Code refers to cases when goods are lost or damaged while in
transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages
in which they are shipped, or the natural propensities of animals.—In
their attempt to escape liability, petitioners further contend that they
are exempted from liability under Article 1734(4) of the Civil Code.
They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate
cause of the damage. We are not convinced. From the evidence on
record, it cannot be reasonably concluded that the damage to the four
coils was due to the condition noted on the Bill of Lading. The
aforecited exception refers to cases when goods are lost or damaged
while in transit as a result of the natural decay of perishable goods or
the fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages
in which they are shipped, or the natural propensities of animals. None
of these is present in the instant case.
Same; Same; Same; Even if the fact of improper packing was known
to the carrier or its crew or was apparent upon ordinary observation,
it is not relieved of liability for loss or injury resulting therefrom, once
it accepts the goods notwithstanding such condition.—Further, even if
the fact of improper packing was known to the carrier or its crew or
was apparent upon ordinary observation, it is not relieved of liability
for loss or injury resulting therefrom, once it accepts the goods
notwithstanding such condition. Thus, petitioners have not
successfully proven the application of any of the aforecited exceptions
in the present case.
Same; Carriage of Goods by Sea Act (COGSA); The notice of claim
required under Section 3, paragraph 6 of the COGSA need not be given
if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. — Petitioners claim that
pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act (COGSA), respondent should have filed its Notice of Loss within
three days from delivery. They assert that the cargo was discharged
on July 31, 1990, but that respondent filed its Notice of Claim only on
September 18, 1990. We are not persuaded. First, the above-cited
provision of COGSA provides that the notice of claim need not be given
if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to
unloading the cargo, an Inspection Report as to the condition of the
goods was prepared and signed by representatives of both parties.
Same; Same; Prescription; A claim is not barred by prescription as
long as the one-year period has not lapsed. — As stated in the same
provision, a failure to file a notice of claim within three days will not
bar recovery if it is nonetheless filed within one year. This one-year
prescriptive period also applies to the shipper, the consignee, the
insurer of the goods or any legal holder of the bill of lading. In Loadstar
Shipping Co., Inc. v. Court of Appeals, we ruled that a claim is not
barred by prescription as long as the one-year period has not lapsed.
Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
“Inasmuch as the neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA)—which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit—may be applied suppletorily to the case at bar.”
Same; Same; Bills of Lading; Bill of lading serves two functions as
receipt for the goods shipped, and as a contract by which three
parties, namely, the shipper, the carrier, and the consignee, undertake
specific responsibilities and assume stipulated obligations. — A bill of
lading serves two functions. First, it is a receipt for the goods shipped.
Second, it is a contract by which three parties—namely, the shipper,
the carrier, and the consignee—undertake specific responsibilities and
assume stipulated obligations. In a nutshell, the acceptance of the bill
of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected
and binding contract.
Same; Same; Same; A stipulation in the bill of lading limiting to a
certain sum the common carrier’s liability for loss or destruction of a
cargo—unless the shipper or owner declares a greater value is
sanctioned by law. — Further, a stipulation in the bill of lading limiting
to a certain sum the common carrier’s liability for loss or destruction
of a cargo—unless the shipper or owner declares a greater value—is
sanctioned by law. There are, however, two conditions to be satisfied:
(1) the contract is reasonable and just under the circumstances, and
(2) it has been fairly and freely agreed upon by the parties. The
rationale for, this rule is to bind the shippers by their agreement to
the value (maximum valuation) of their goods.
Same; Same; Same; The COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading—the provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the
parties.—It is to be noted, however, that the Civil Code does not limit
the liability of the common carrier to a fixed amount per package. In
all matters not regulated by the Civil Code, the right and the
obligations of common carriers shall be governed by the Code of
Commerce and special laws. Thus, the COGSA, which is suppletory to
the provisions of the Civil Code, supplements the latter by establishing
a statutory provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading. The
provisions on limited liability are as much a part of the bill of lading as
though physically in it and as though placed there by agreement of
the parties.
Same; Same; Same; A notation in the Bill of Lading which indicates
the amount of the Letter of Credit obtained by the shipper for the
importation of the articles does not effect a declaration of the value of
the goods as required by the bill—that notation is made only for the
convenience of the shipper and the bank processing the Letter of
Credit. — In the case before us, there was no stipulation in the Bill of
Lading limiting the carrier’s liability. Neither did the shipper declare a
higher valuation of the goods to be shipped. This fact notwithstanding,
the insertion of the words “L/C No. 90/02447 cannot be the basis for
petitioners’ liability. First, a notation in the Bill of Lading which
indicated the amount of the Letter of Credit obtained by the shipper
for the importation of steel sheets did not effect a declaration of the
value of the goods as required by the bill. That notation was made
only for the convenience of the shipper and the bank processing the
Letter of Credit. Second, in Keng Hua Paper Products v. Court of
Appeals, we held that a bill of lading was separate from the Other
Letter of Credit arrangements.
Same; Same; Same; Words and Phrases; “Package,” Explained; When
what would ordinarily be considered packages are shipped in a
container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of these units and not the
container constitutes the “package” referred to in the liability limitation
provision of COGSA.— In the light of the foregoing, petitioners’ liability
should be computed based on US$500 per package and not on the
per metric ton price declared in the Letter of Credit. In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court, we explained the
meaning of package: “When what would ordinarily be considered
packages are shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the ‘package’ referred to
in the liability limitation provision of Carriage of Goods by Sea Act.”
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
 Del Rosario and Del Rosario for petitioners.
Astorga & Repol Law Offices for private respondent.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes prima facie
fault or negligence on the part of the carrier. If no adequate
explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable
therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the July 15, 1998 Decision and the May 2, 2000 Resolution
of the Court of Appeals (CA) in CA-GR CV No. 53571. The decretal
portion of the Decision reads as follows:
“WHEREFORE, in the light of the foregoing disquisition, the decision
appealed from is hereby REVERSED and SET ASIDE. Defendants-
appellees are ORDERED to jointly and severally pay plaintiffs-
appellants the following:
‘1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and
32/100 (P451,027.32) as actual damages, representing the value of
the damaged cargo, plus interest at the legal rate from the time of
filing of the complaint on July 25, 1991, until fully paid;
‘2) Attorney’s fees amounting to 20% of the claim; and
‘3) Costs of suit.’ ”
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of
Makati City (Branch 134), which had disposed as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered,
dismissing the complaint, as well as defendant’s counterclaim.”
The Facts
The factual antecedents of the case are summarized by the Court of
Appeals in this wise:
“On June 13, 1990, CMC Trading A.G. shipped on board the M/V
‘Anangel Sky’ at Hamburg, Germany 242 coils of various Prime Cold
Rolled Steel sheets for transportation to Manila consigned to the
Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel
Sky arrived at the port of Manila and, within the subsequent days,
discharged the subject cargo. Four (4) coils were found to be in bad
order B.O. Tally sheet No. 154974. Finding the four (4) coils in their
damaged state to be unfit for the intended purpose, the consignee
Philippine Steel Trading Corporation declared the same as total loss.
“Despite receipt of a formal demand, defendants-appellees refused to
submit to the consignee’s claim. Consequently, plaintiff-appellant paid
the consignee five hundred six thousand eighty six & 50/100 pesos
(P506,086.50), and was subrogated to the latter’s rights and causes
of action against defendants-appellees. Subsequently, plaintiff-
appellant instituted this complaint for recovery of the amount paid by
them, to the consignee as insured.
“Impugning the propriety of the suit against them, defendants-
appellees imputed that the damage and/or loss was due to pre-
shipment damage, to the inherent nature, vice or defect of the goods,
or to perils, danger and accidents of the sea, or to insufficiency of
packing thereof, or to the act or omission of the shipper of the goods
or their representatives. In addition thereto, defendants-appellees
argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other
pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to
prevent any damage/loss to said shipment.”
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to
prove its claims with the quantum of proof required by law.
It likewise debunked petitioners’ counterclaim, because respondent’s
suit was not manifestly frivolous or primarily intended to harass them.
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable
for the loss or the damage of the goods shipped, because they had
failed to overcome the presumption of negligence imposed on
common carriers.
The CA further held as inadequately proven petitioners’ claim that the
loss or the deterioration of the goods was due to pre-shipment
damage. It likewise opined that the notation “metal envelopes rust
stained and slightly dented” placed on the Bill of Lading had not been
the proximate cause of the damage to the four (4) coils.
As to the extent of petitioners’ liability, the CA held that the package
limitation under COGSA was not applicable, because the words “L/C
No. 90/02447” indicated that a higher valuation of the cargo had been
declared by the shipper. The CA, however, affirmed the award of
attorney’s fees.
Hence, this Petition.
Issues
In their Memorandum, petitioners raise the following issues for the
Court’s consideration:
I Well-settled is the rule that common carriers, from the nature of their
“Whether or not plaintiff by presenting only one witness who has
never seen the subject shipment and whose testimony is purely
hearsay is sufficient to pave the way for the applicability of Article
1735 of the Civil Code;
II
“Whether or not the consignee/plaintiff filed the required notice of loss
within the time required by law;
III
“Whether or not a notation in the bill of lading at the time of loading
is sufficient to show pre-shipment damage and to exempt herein
defendants from liability;
IV
“Whether or not the “PACKAGE LIMITATION” of liability under Section
4 (5) of COGSA is applicable to the case at bar.”
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence
of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court’s Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common
carriers should not be applied on the basis of the lone testimony
offered by private respondent. The contention is untenable.
business and for reasons of public policy, are bound to observe
extraordinary diligence and vigilance with respect to the safety of the
goods and the passengers they transport. Thus, common carriers are
required to render service with the greatest skill and foresight and “to
use all reason[a]ble means to ascertain the nature and characteristics
of the goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature
requires.” The extraordinary responsibility lasts from the time the
goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them.
This strict requirement is justified by the fact that, without a hand or
a voice in the preparation of such contract, the riding public enters
into a contract of transportation with common carriers. Even if it wants
to, it cannot submit its own stipulations for their approval. Hence, it
merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for
any loss or damage, therefore, they have the burden of proving that
they observed such diligence.
However, the presumption of fault or negligence will not arise if the
loss is due to any of the following causes: (1) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (2) an act
of the public enemy in war, whether international or civil; (3) an act
or omission of the shipper or owner of the goods; (4) the character of
the goods or defects in the packing or the container; or (5) an order
or act of competent public authority. This is a closed list. If the cause
of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.
Corollary to the foregoing, mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the
deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible.
That petitioners failed to rebut the prima facie presumption of
negligence is revealed in the case at bar by a review of the records
and more so by the evidence adduced by respondent.
First, as stated in the Bill of Lading, petitioners received the subject
shipment in good order and condition in Hamburg, Germany.
Second, prior to the unloading of the cargo, an Inspection Report
prepared and signed by representatives of both parties showed the
steel bands broken, the metal envelopes rust-stained and heavily
buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979 issued by Jardine Davies
Transport Services, Inc., stated that the four coils were in bad order
and condition. Normally, a request for a bad order survey is made in
case there is an apparent or a presumed loss or damage.
Fourth, the Certificate of Analysis stated that, based on the sample
submitted and tested, the steel sheets found in bad order were wet
with fresh water.
Fifth, petitioners—in a letter addressed to the Philippine Steel Coating
Corporation and dated October 12, 1990—admitted that they were
aware of the condition of the four coils found in bad order and
condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM
Santos Checkers Agency. Pertinent portions of his testimony are
reproduced hereunder:
“Q: Mr. Esmerio, you mentioned that you are a Head Checker. Will you
inform the Honorable Court with what company you are connected?
A: BM Santos Checkers Agency, sir.
Q: How is BM Santos Checkers Agency related or connected with
defendant Jardine Davies Transport Services?
A: It is the company who contracts the checkers, sir.
Q: You mentioned that you are a Head Checker, will you inform this
Honorable Court your duties and responsibilities?
A: I am the representative of BM Santos on board the vessel, sir, to
supervise the discharge of cargoes.
xxx xxx xxx
Q: On or about August 1, 1990, were you still connected or employed
with BM Santos as a Head Checker?
A: Yes, sir.
Q: And, on or about that date, do you recall having attended the
discharging and inspection of cold steel sheets in coil on board the
MV/AN ANGEL SKY?
A: Yes, sir, I was there.
xxx xxx xxx
Q: Based on your inspection since you were also present at that time,
will you inform this Honorable Court the condition or the appearance
of the bad order cargoes that were unloaded from the MV/ANANGEL
SKY?
ATTY. MACAMAY: Objection, Your Honor, I think the document itself
reflects the condition of the cold steel sheets and the best evidence is
the document itself, Your Honor that shows the condition of the steel
sheets.
COURT: Let the witness answer.
A: The scrap of the cargoes is broken already and the rope is loosened
and the cargoes are dent on the sides.”
All these conclusively prove the fact of shipment in good order and
condition and the consequent damage to the four coils while in the
possession of petitioner, who notably failed to explain why.
Further, petitioners failed to prove that they observed the
extraordinary diligence and precaution which the law requires a
common carrier to know and to follow to avoid damage to or
destruction of the goods entrusted to it for safe carriage and delivery.
True, the words “metal envelopes rust stained and slightly dented”
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in
coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken. Having failed to discharge the burden of proving
that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils.
In their attempt to escape liability, petitioners further contend that
they are exempted from liability under Article 1734(4) of the Civil
Code. They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate
cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that
the damage to the four coils was due to the condition noted on the
Bill of Lading. The aforecited exception refers to cases when goods
are lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances
liable therefor, the necessary and natural wear of goods in transport,
defects in packages in which they are shipped, or the natural
propensities of animals. None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier
or its crew or was apparent upon ordinary observation, it is not
relieved of liability for loss or injury resulting therefrom, once it
accepts the goods notwithstanding such condition. Thus, petitioners
have not successfully proven the application of any of the aforecited
exceptions in the present case.
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the
Carriage of Goods by Sea Act (COGSA), respondent should have filed
its Notice of Loss within three days from delivery. They assert that the
cargo was discharged on July 31, 1990, but that respondent filed its
Notice of Claim only on September 18, 1990.
We are not persuaded. First, the above-cited provision of COGSA
provides that the notice of claim need not be given if the state of the
goods, at the time of their receipt, has been the subject of a joint
inspection or survey. As stated earlier, prior to unloading the cargo,
an Inspection Report as to the condition of the goods was prepared
and signed by representatives of both parties.
Second, as stated in the same provision, a failure to file a notice of
claim within three days will not bar recovery if it is nonetheless filed
within one year. This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of
the bill of lading.
In Loadstar Shipping Co., Inc. v. Court of Appeals, we ruled that a
claim is not barred by prescription as long as the one-year period has
not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G.
Davide Jr.:
“Inasmuch as the neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA)—which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit—may be applied suppletorily to the case at bar.”
In the present case, the cargo was discharged on July 31, 1990, while
the Complaint was filed by respondent on July 25, 1991, within the
one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent’s claims, petitioners
contend that their liability should be limited to US$500 per package as
provided in the Bill of Lading and by Section 4(5) of COGSA.
On the other hand, respondent argues that Section 4(5) of COGSA is
inapplicable, because the value of the subject shipment was declared
by petitioners beforehand, as evidenced by the reference to and the
insertion of the Letter of Credit or “L/C No. 90/02447” in the said Bill
of Lading.
A bill of lading serves two functions. First, it is a receipt for the goods
shipped. Second, it is a contract by which three parties—namely, the
shipper, the carrier, and the consignee—undertake specific
responsibilities and assume stipulated obligations. In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that it
constituted a perfected and binding contract.
Further, a stipulation in the bill of lading limiting to a certain sum the
common carrier’s liability for loss or destruction of a cargo—unless the
shipper or owner declares a greater value —is sanctioned by law.
There are, however, two conditions to be satisfied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly
and freely agreed upon by the parties. The rationale for, this rule is to
bind the shippers by their agreement to the value (maximum
valuation) of their goods.
It is to be noted, however, that the Civil Code does not limit the liability
of the common carrier to a fixed amount per package. In all matters
not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and
special laws. Thus, the COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading. The provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the parties.
In the case before us, there was no stipulation in the Bill of Lading
limiting the carrier’s liability. Neither did the shipper declare a higher
valuation of the goods to be shipped. This fact notwithstanding, the
insertion of the words “L/C No. 90/02447 cannot be the basis for
petitioners’ liability.
First, a notation in the Bill of Lading which indicated the amount of the
Letter of Credit obtained by the shipper for the importation of steel
sheets did not effect a declaration of the value of the goods as
required by the bill. That notation was made only for the convenience
of the shipper and the bank processing the Letter of Credit.
Second, in Keng Hua Paper Products v. Court of Appeals, we held that
a bill of lading was separate from the Other Letter of Credit
arrangements. We ruled thus:
“(T)he contract of carriage, as stipulated in the bill of lading in the
present case, must be treated independently of the contract of sale
between the seller and the buyer, and the contract of issuance of a
letter of credit between the amount of goods described in the
commercial invoice in the contract of sale and the amount allowed in
the letter of credit will not affect the validity and enforceability of the
contract of carriage as embodied in the bill of lading. As the bank
cannot be expected to look beyond the documents presented to it by
the seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the bill of
lading and to verify their accuracy vis-à-vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading
cannot negate petitioner’s obligation to private respondent arising
from the contract of transportation.”
In the light of the foregoing, petitioners’ liability should be computed
based on US$500 per package and not on the per metric ton price
declared in the Letter of Credit. In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, we explained the meaning of package:
“When what would ordinarily be considered packages are shipped in
a container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of those units and not the
container constitutes the ‘package’ referred to in the liability limitation
provision of Carriage of Goods by Sea Act.”
Considering, therefore, the ruling in Eastern Shipping Lines and the
fact that the Bill of Lading clearly disclosed the contents of the
containers, the number of units, as well as the nature of the steel
sheets, the four damaged coils should be considered as the shipping
unit subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed Decision
MODIFIED. Petitioners’ liability is reduced to US$2,000 plus interest at
the legal rate of six percent from the time of the filing of the Complaint
on July 25, 1991 until the finality of this Decision, and 12 percent
thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez and Carpio, JJ., concur.
Puno, J. (Chairman), Abroad, on official leave.
Judgment modified.
Notes. — Presumption of negligence of common carriers; Mere proof
of delivery of goods in good order to a carrier and the subsequent
arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier. (Coastwise Lighterage
Corporation vs. Court of Appeals, 245 SCRA 796 [1995])
A common carrier is liable as such to a stevedore who was hired by a
shipper to help load cargo, even if such stevedore was not himself a
passenger. (Sulpicio Lines, Inc. vs. Court of Appeals, 246 SCRA 299
[1995])
——o0o——
MAGELLAN MANUFACTURING MARKETING CORPORATION,"
petitioner, vs. COURT OF APPEALS, ORIENT OVERSEAS
CONTAINER LINES and F.E. ZUELLIG, INC. respondents
G.R. No. 95529. August 22,1991
Civil Law; Carriage of Goods by Sea Act; Transhipment, meaning of.
— Transhipment, in maritime law, is defined as “the act of taking cargo
out of one ship and loading it in another,” or “the transfer of goods
from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been
reached,” or “the transfer for further transportation from one ship or
conveyance to another.”
Same; Same; Same; There is transhipment whether or not the same
person, firm or entity owns the vessels. — Clearly, either in its ordinary
or its strictly legal acceptation, there is transhipment whether or not
the same person, from or entity owns the vessels. In other words, the
fact of transhipment is not dependent upon the ownership of the
transporting ships or conveyances or in the change of carriers, as the
petitioner seems to suggest, but rather on the fact of actual physical
transfer of cargo from one vessel to another.
Same; Same; Same; Same; Transhipment of freight without legal
excuse however competent and safe the vessel into which the transfer
is made is a violation of the contract and an infringement of the right
of the shipper and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted. — Moreover, it is a well-known
commercial usage that transhipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is
made, is a violation of the contract and an infringement of the right of
the shipper, and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted. It is highly improbable to
suppose that private respondents, having been engaged in the
shipping business for so long, would be unaware of such a custom of
the trade as to have undertaken such transhipment without
petitioner’s consent and unnecessarily expose themselves to a
possible liability.
Same; Same; Bill of Lading; Nature of. — It is a long standing
jurisprudential rule that a bill of lading operates both as a receipt and
as a contract. It is a receipt for the goods shipped and a contract to
transport and deliver the same as therein stipulated. As a contract, it
names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and
obligations assumed by the parties. Being a contract, it is the law
between the parties who are bound by its terms and conditions
provided that these are not contrary to law, morals, good customs,
public order and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is presumed that
the stipulations of the bill were, in the absence of fraud, concealment
or improper conduct, known to the shipper, and he is generally bound
by his acceptance whether he reads the bill or not.
Same; Same; Same; The acceptance of the bill without dissent raises
the presumption that all the terms therein were brought to the
knowledge of the shipper and agreed to by him and in the absence of
fraud or mistake, he is estopped from thereafter denying that he
assented to such terms.—The holding in most jurisdictions has been
that a shipper who receives a bill of lading without objection after an
opportunity to inspect -it, and permits the carrier to act on it by
proceeding with the shipment is presumed to have accepted it as
correctly stating the contract and to have assented to its terms. In
other words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge
of the shipper and agreed to by him and, in the absence of fraud or
mistake, he is estopped from thereafter denying that be assented to
such terms. This rule applies with particular force where a shipper
accepts a bill of lading with full knowledge of its contents and
acceptance under such circumstances makes it a binding contract.
Same; Same; Same; On board bill of lading distinguished from a
received for shipment bill of lading. — An on-board bill of lading is one
in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment
bill of lading is one in which it is stated that the goods have been
received for shipment with or without specifying the vessel by which
the goods are to be shipped. Received for shipment bills of lading are
issued whenever conditions are not normal and there is insufficiency
of shipping space. An on-board bill of lading is issued when the goods
have been actually placed aboard the ship with every reasonable
expectation that the shipment is as good as on its way.
Same; Same; Same; Bills of lading constitute a class of contracts of
adhesion. — It will be recalled that petitioner entered into the contract
with Choju Co., Ltd. way back on May 20? 1980 or over a month before
the expiry date of the letter of credit on June 30, 1980, thus giving it
more than ample time to find a carrier that could comply with the
requirements of shipment under the letter of credit. It is conceded
that bills of lading constitute a class of contracts of adhesion.
However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals,
et al. and reiterated in Servando, et al. vs, Philippine Steam Navigation
Co., plane tickets as well as bills of lading are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. The respondent
court correctly observed in the present case that “when the appellant
received the bill of lading, it was tantamount to appellant’s adherence
to the terms and conditions as embodied therein.”
Same; Same; Demurrage; Meaning of. — Demurrage, in its strict
sense, is the compensation provided for in the contract of
affireightment for the detention of the vessel beyond the time agreed
on for loading and unloading. Essentially, demurrage is the claim for
damages for failure to accept delivery. In a broad sense, every
improper detention of a vessel may be considered a demurrage.
Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term
in its broader sense, damages in the nature of demurrage are
recoverable for a breach of the implied obligation to load or unload
the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping
contract.
Remedial Law; Civil Procedure; Parol Evidence Rule; Under the rule
the terms of a contract are rendered conclusive upon the parties and
evidence aliunde is not admissible to vary contradict a complete and
enforceable agreement embodied in a document—Under the parol
evidence rule, the terms of a contract are rendered conclusive upon
the parties, and evidence aliunde is not admissible to vary or
contradict a complete and enforceable agreement embodied in a
document, subject to well defined exceptions which do not obtain in
this case. The parol evidence rule is based on the consideration that
when the parties have reduced their agreement on a particular matter
into writing, all their previous and contemporaneous agreements on
the matter are merged ged therein. Accordingly, evidence of a prior
or contemporaneous verbal agreement is generally not admissible to
vary, contradict or defeat the operation of a valid instrument.
PETITION for review on certiorari of the judgment of the Court of
Appeals. Lapeña, Jr., J.
The facts are stated in the opinion of the Court.
Jose F. Manacop for petitioner.
Camacho & Associates for private respondents.
REGALADO, J.:
Petitioner, via this petition for review on certiorari, seeks the reversal
of the judgment of respondent Court of Appeals in CAG.R. CV No.
18781, affirming in part the decision of the trial court, the dispositive
portion of which reads:
“Premises considered, the decision appealed from is affirmed insofar
as it dismisses the complaint. On the counter-claim, however,
appellant is ordered to pay appellees the amount of P52,102.45 with
legal interest from date of extra-judicial demand. The award of
attorney’s fees is deleted."
The facts as found by respondent appellate court are as follows:
“On May 20, 1980, plaintiff-appellant Magellan Manufacturers
Marketing Corp. (MMMC) entered into a contract with Choju Co. of
Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of credit was
issued to plaintiff MMMC by the buyer. Through its president, James
Cu, MMMC then contracted F.E. Zuellig, a shipping agent, through its
solicitor, one Mr. King, to ship the anahaw fans through the other
appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying
that he needed an on-board bill of lading and that transhipment is not
allowed under the letter of credit (Exh. B-1). On June 30, 1980,
appellant MMMC paid F.E. Zuellig the freight charges and secured a
copy of the bill of lading which was presented to Allied Bank. The bank
then credited the amount of US$23,220.00 covered by the letter of
credit to appellant’s account. However, when appellant’s president
James Cu, went back to the bank later, he was informed that the
payment was refused by the buyer allegedly because there was no
on-board bill of lading, and there was a transhipment of goods. As a
result of the refusal of the buyer to accept, upon appellant’s request,
the anahaw fans were shipped back to Manila by appellees, for which
the latter demanded from appellant payment of P246,043.43.
Appellant abandoned the whole cargo and asked appellees for
damages.
“In their Partial Stipulation of Facts, the parties admitted that a
shipment of 1,047 cartons of 136,000 pieces of Anahaw Fans
contained in 1 x 40 and 1 x 20 containers was loaded at Manila on
board the MV ‘Pacific Despatcher’ freight prepaid, and duly covered by
Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL;
that the shipment was delivered at the port of discharge on July
19,1980, but was subsequently returned to Manila after the consignee
refused to accept/pay the same."
Elaborating on the above findings of fact of respondent court and
without being disputed by herein private respondents, petitioner
additionally avers that:
“When petitioner informed private respondents about what happened,
the latter issued a certificate stating that its bill of lading it issued is
an on-board bill of lading and that there was no actual transhipment
of the fans. According to private respondents when the goods are
transferred from one vessel to another which both belong to the same
owner which was what happened to the Anahaw fans, then there is
(no) transhipment. Petitioner sent this certification to Choju Co., Ltd.,
but the said company still refused to accept the goods which arrived
in Japan on July 19,1980.
“Private respondents billed petitioner in the amount of P16,342.21 for
such shipment and P34,928.71 for demurrage in Japan from July 26
up to August 31, 1980 or a total of P51,271.02. In a letter dated March
20, 1981, private respondents gave petitioner the option of paying the
sum of P51,271.02 or to abandon the Anahaw fans to enable private
respondents to sell them at public auction to cover the cost of
shipment and demurrages. Petitioner opted to abandon the goods.
However, in a letter dated June 22,1981 private respondents
demanded for payment of P298,150.93 from petitioner which
represents the freight charges from Japan to Manila, demurrage
incurred in Japan and Manila from October 22,1980 up to May
20,1981; and charges for stripping the container van of the Anahaw
fans on May 20, 1981.
“On July 20, 1981 petitioner filed the complaint in this case praying
that private respondents be ordered to pay whatever petitioner was
not able to earn from Choju Co., Ltd., amounting to P1 74,150.00 and
other damages like attorney’s fees since private respondents are to
blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In
answer thereto the private respondents alleged that the bill of lading
clearly shows that there will be a transhipment and that petitioner was
well aware that MV (Pacific) Despatcher was only up to Hongkong
where the subject cargo will be transferred to another vessel for
Japan. Private respondents also filed a counterclaim praying that
petitioner be ordered to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting to P298,150.93.
“The lower court decided the case in favor of private respondents. It
dismissed the complaint on the ground that petitioner bad given its
consent to the contents of the bill of lading where it is clearly indicated
that there will be transhipment. The lower court also said that
petitioner is liable to pay to private respondent the freight charges
from Japan to Manila and demurrages since it was the former which
ordered the reshipment of the cargo from Japan to Manila.
“On appeal to the respondent court, the finding of the lower (court)
that petitioner agreed to a transhipment of the goods was affirmed
but the finding that petitioner is liable for P298,150.93 was modified.
It was reduced to P52,102.45 which represents the freight charges
and demurrages incurred in Japan but not for the demurrages incurred
in Manila. According to the respondent (court) the petitioner can not
be held liable for the demurrages incurred in Manila because private
respondents did not timely inform petitioner that the goods were
already in Manila in addition to the fact that private respondent had
given petitioner the option of abandoning the goods in exchange for
the demurrages."
Petitioner, being dissatisfied with the decision of respondent court and
the motion for reconsideration thereof having been denied, invokes
the Court’s review powers for the resolution of the issues as to
whether or not respondent court erred (1) in affirming the decision of
the trial court which dismissed petitioner’s complaint; and (2) in
holding petitioner liable to private respondents in the amount of
P52,102.45. I. Petitioner obstinately faults private respondents for the
refusal of its buyer, Choju Co., Ltd., to take delivery of the exported
anahaw fans resulting in a loss of P174,150.00 representing the
purchase price of the said export items because of violation of the
terms and conditions of the letter of credit issued in favor of the former
which specified the requirement for an on board bill of lading and the
prohibition against transhipment of goods, inasmuch as the bill of
lading issued by the latter bore the notation “received for shipment”
and contained an entry indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On the matter of
transhipment, petitioner maintains that “x x x while the goods were
transferred in Hongkong from MV Pacific Despatcher, the feeder
vessel, to MV Oriental Researcher, a mother vessel, the same cannot
be considered transhipment because both vessels belong to the same
shipping company, the private respondent Orient Overseas Container
Lines, Inc." Petitioner emphatically goes on to say: “To be sure, there
was no actual transhipment of the Anahaw fans. The private
respondents have executed a certification to the effect that while the
Anahaw fans were transferred from one vessel to another in Hong
Kong, since the two vessels belong to one and the same company
then there was no transhipment."
Transhipment, in maritime law, is defined as “the act of taking cargo
out of one ship and loading it in another," or “the transfer of goods
from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been
reached," or “the transfer for further transportation from one ship or
conveyance to another." Clearly, either in its ordinary or its strictly
legal acceptation, there is transhipment whether or not the same
person, firm or entity owns the vessels. In other words, the fact of
transhipment is not dependent upon the ownership of the transporting
ships or conveyances or in the change of carriers, as the petitioner
seems to suggest, but rather on the fact of actual physical transfer of
cargo from one vessel to another.
That there was transhipment within this contemplation is the
inescapable conclusion, as there unmistakably appears on the face of
the bill of lading the entry “Hong Kong” in the blank space labeled
“Transhipment,"' which can only mean that transhipment actually took
place. This fact is further bolstered by the certification issued by
private respondent F.E. Zuellig, Inc. dated July 19. 1980, although it
carefully used the term ‘transfer” instead of transhipment.
Nonetheless, no amount of semantic juggling can mask the fact that
transhipment in truth occurred in this case.
Petitioner insists that "(c)onsidering that there was no actual
transhipment of the Anahaw fans, then there is no occasion under
which the petitioner can agree to the transhipment of the Anahaw fans
because there is nothing like that to agree to” and "(i)f there is no
actual transhipment but there appears to be a transhipment in the bill
of lading, then there can be no possible reason for it but a mistake on
the part of the private respondents."
Petitioner, in effect, is saying that since there was a mistake in
documentation on the part of private respondents, such a mistake
militates against the conclusiveness of the bill of lading insofar as it
reflects the terms of the contract between the parties, as an exception
to the parol evidence rule, and would therefore permit it to explain or
present evidence to vary or contradict the terms of the written
agreement, that is, the bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of lading operates
both as a receipt and as a contract. It is a receipt for the goods shipped
and a contract to transport and deliver the same as therein stipulated.
As a contract, it names the parties, which includes the consignee, fixes
the route, destination, and freight rates or charges, and stipulates the
rights and obligations assumed by the parties. Being a contract, it is
the law between the parties who are bound by its terms and conditions
provided that these are not contrary to law, morals, good customs,
public order and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is presumed that
the stipulations of the bill were, in the absence of fraud, concealment
or improper conduct, known to the shipper, and he is generally bound
by his acceptance whether he reads the bill or not.
The holding in most jurisdictions has been that a shipper who receives
a bill of lading without objection after an opportunity to inspect it, and
permits the carrier to act on it by proceeding with the shipment is
presumed to have accepted it as correctly stating the contract and to
have assented to its terms. In other words, the acceptance of the bill
without dissent raises the presumption that all the terms therein were
brought to the knowledge of the shipper and agreed to by him and, in
the absence of fraud or mistake, he is estopped from thereafter
denying that he assented to such terms. This rule applies with
particular force where a shipper accepts a bill of lading with full
knowledge of its contents and acceptance under such circumstances
makes it a binding contract.
In the light of the series of events that transpired in the case at bar,
there can be no logical conclusion other than that the petitioner had
full knowledge of, and actually consented to, the terms and conditions
of the bill of lading thereby making the same conclusive as to it, and
it cannot now be heard to deny having assented thereto. As borne out
by the records, James Cu himself, in his capacity as president of
MMMC, personally received and signed the bill of lading. On practical
considerations, there is no better way to signify consent than by
voluntarily signing the document which embodies the agreement. As
found by the Court of Appeals—
“Contrary to appellant’s allegation that it did not agree to the
transhipment, it could be gleaned from the record that the appellant
actually consented to the transhipment when it received the bill of
lading personally at appellee’s (F.E. Zuellig’s) office. There clearly
appears on the face of the bill of lading under column “PORT OF
TRANSHIPMENT" an entry “HONGKONG" (Exhibits ‘G-1'). Despite said
entries he still delivered his voucher (Exh. F) and the corresponding
check in payment of the freight (Exhibit D), implying that he consented
to the transhipment (Decision, p. 6, Rollo)."
Furthermore, and particularly on the matter of whether or not there
was transhipment, James Cu, in his testimony on cross-examination,
categorically stated that he knew for a fact that the shipment was to
be unloaded in Hong Kong from the MV Pacific Despatcher to be
transferred to a mother vessel, the MV Oriental Researcher in this
wise:
“Q: Mr. Cu, are you not aware of the fact that your shipment is to be
transferred or transhipped at the port of Hongkong?
A: I know. It’s not transport, they relay, not trans. … yes, that is why
we have an agreement if they should not put a transhipment in
Hongkong, that’s why they even stated in the certification.
xxx
Q: In layman’s language, would you agree with me that transhipment
is the transfer of a cargo from one vessel to theother?
A: As a layman, yes.
Q: So, you know for a fact that your shipment is going to be unloaded
in Hongkong from M.V. Dispatcher (sic) and then transfer (sic) to
another vessel which was the Oriental Dispatcher, (sic) you know that
for a, fact?
A: Yes, sir. (Italics supplied.)
Under the parol evidence rule, the terms of a contract are rendered
conclusive upon the parties, and evidence aliunde is not admissible to
vary or contradict a complete and enforceable agreement embodied
in a document, subject to well defined exceptions which do not obtain
in this case. The parol evidence rule is based on the consideration that
when the parties have reduced their agreement on a particular matter
into writing, all their previous and contemporaneous agreements on
the matter are merged therein. Accordingly, evidence of a prior or
contemporaneous verbal agreement is generally not admissible to
vary, contradict or defeat the operation of a valid instrument. The
mistake contemplated as an exception to the parol evidence rule is
one which is a mistake of fact mutual to the parties. Furthermore, the
rules on evidence, as amended, require that in order that parol
evidence may be admitted, said mistake must be put in issue by the
pleadings, such that if not raised inceptively in the complaint or in the
answer, as the case may be, a party cannot later on be permitted to
introduce parol evidence thereon.
Needless to say, the mistake adverted to by herein petitioner, and by
its own admission, was supposedly committed by private respondents
only and was raised by the former rather belatedly only in this instant
petition. Clearly then, and for failure to comply even only with the
procedural requirements thereon, we cannot admit evidence to prove
or explain the alleged mistake in documentation imputed to private
respondents by petitioner.
Petitioner further argues that assuming that there was transhipment,
it cannot be deemed to have agreed thereto even if it signed the bill
of lading containing such entry because it had made known to private
respondents from the start that transhipment was prohibited under
the letter of credit and that, therefore, it had no intention to allow
transhipment of the subject cargo. In support of its stand, petitioner
relies on the second paragraph of Article 1370 of the Civil Code which
states that "(i)f the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former,” as
well as the supposed ruling in Caltex Phil., Inc. vs. Intermediate
Appellate Court, et al. that “where the literal interpretation of a
contract is contrary to the evident intention of the parties, the latter
shall prevail.”
As between such stilted thesis of petitioner and the contents of the bill
of lading evidencing the intention of the parties, it is irremissible that
the latter must prevail. Petitioner conveniently overlooks the first
paragraph of the very article that he cites which provides that "(i)f the
terms of the contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of the stipulations shall
control.” In addition, Article 1371 of the same Code provides that "(i)n
order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered.”
The terms of the contract as embodied in the bill of lading are clear
and thus obviates the need for any interpretation. The intention of the
parties which is the carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not contradict
each other. The terms of the contract being conclusive upon the
parties and judging from the contemporaneous and subsequent
actuations of petitioner, to wit, personally receiving and signing the
bill of lading and paying the freight charges, there is no doubt that
petitioner must necessarily be charged with full knowledge and
unqualified acceptance of the terms of the bill of lading and that it
intended to be bound thereby.
Moreover, it is a well-known commercial usage that transhipment of
freight without legal excuse, however competent and safe the vessel
into which the transfer is made, is a violation of the contract and an
infringement of the right of the shipper, and subjects the carrier to
liability if the freight is lost even by a cause otherwise excepted. It is
highly improbable to suppose that private respondents, having been
engaged in the shipping business for so long, would be unaware of
such a custom of the trade as to have undertaken such transhipment
without petitioner’s consent and unnecessarily expose themselves to
a possible liability. Verily, they could only have undertaken
transhipment with the shipper’s permission, as evidenced by the
signature of James Cu.
Another ground for the refusal of acceptance of the cargo of anahaw
fans by Choju Co., Ltd. was that the bill of lading that was issued was
not an on board bill of lading, in clear violation of the terms of the
letter of credit issued in favor of petitioner. On cross-examination, it
was likewise established that petitioner, through its aforesaid
president, was aware of this fact, thus:
“Q: If the container van, the loaded container van, was transported
back to South Harbor on June 27, 1980, would you tell us, Mr. Cu,
when the Bill of Lading was received by you?
A: I received 011 June 30, 1980. I received at the same time so then
I gave the check.
xxx
Q: So that in exchange of the Bill of Lading you issued your check also
dated June 30, 1980?
A: Yes, sir.
Q: And June 27, 1980 was the date of the Bill of Lading, did you notice Q: And did you demand from F.E. Zuellig the substitution of that
that the Bill of Lading states: ‘Received for shipment’ only? received for shipment bill of lading with an on-board bill of lading?

A: Yes, sir. A: Of course, instead they issue me a certification.

Q: What did you say? Q: They give you a . . .?

A: I requested to issue me on board bill of lading, A: x x x a certification that it was loaded on board on June 30.

Q: When? xxx

A: In the same date of June 30. Q: Mr. Cu, are you aware of the conditions of the Letter of Credit to
the effect that there should be no transhipment and that it should also
Q: What did they say? get an on-board bill of lading?
A: They said, they cannot. A: Yes sir."
xxx Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co.,
Q: Do you know the difference between a “received for shipment bill Ltd., particularly required that there be an on-board bill of lading,
of lading” and “on board bill of lading”? obviously due to the guaranty afforded by such a bill of lading over
any other kind of bill of lading. The buyer could not have insisted on
A: Yes, sir. such a stipulation on a pure whim or caprice, but rather because of its
reliance on the safeguards to the cargo that having an on-board bill
Q: What’s the difference? of lading ensured. Herein petitioner cannot feign ignorance of the
A: Received for shipment, you can receive the cargo even you don’t distinction between an “on board” and a “received for shipment” bill
ship on board, that is placed in the warehouse; while on-board bill of of lading, as manifested by James Cu’s testimony. It is only to be
lading means that is loaded on the vessel, the goods. expected that those long engaged in the export industry should be
familiar with. business usages and customs.
xxx
In its petition, MMMC avers that “when petitioner learned of what
Q: In other words, it was not yet on board the vessel? happened, it saw private respondent F.E. Zuellig which, in turn, issued
a certification that as of June 30, 1980, the Anahaw fans were already
A: During that time, not yet. on board MV Pacific Despatcher (which means that the bill of lading is
xxx an on-board-bill of lading or ‘shipped’ bill of lading as distinguished
from a ‘received for shipment’ bill of lading as governed by Sec. 3, par.
Q: Do you know, Mr. Cu, that under the law, if your shipment is 7, Carriage of Goods by Sea Act) x x x." What the petitioner would
received on board a vessel you can demand an on-board bill of lading suggest is that said certification issued by F.E. Zuellig, Inc., dated July
not only a received for shipment bill of lading? 19, 1980, had the effect of converting the original “received for
shipment only” bill of lading into an “on board” bill of lading as required
A: Yes sir. by the buyer and was, therefore, by substantial compliance, not
violative of the contract.
An on-board bill of lading is one in which it is stated that the goods
have been received on board the vessel which is to carry the goods,
whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without
specifying the vessel by which the goods are to be shipped. Received
for shipment bills of lading are issued whenever conditions are not
normal and there is insufficiency of shipping space. An on-board bill
of lading is issued when the goods have been actually placed aboard
the ship with every reasonable expectation that the shipment is as
good as on its way. It is, therefore, understandable that a party to a
maritime contract would require an on-board bill of lading because of
its apparent guaranty of certainty of shipping as well as the
seaworthiness of the vessel which is to carry the goods.
It cannot plausibly be said that the aforestated certification of F.E.
Zuellig, Inc. can qualify the bill of lading, as originally issued, into an
on-board bill of lading as required by the terms of the letter of credit
issued in favor of petitioner. For one, the certification was issued only
on July 19,1980, way beyond the expiry date of June 30, 1980
specified in the letter of credit for the presentation of an on-board bill
of lading. Thus, even assuming that by a liberal treatment of the
certification it could have the effect of converting the received for
shipment bill of lading into an on board of bill of lading, as petitioner
would have us believe, such an effect may be achieved only as of the
date of its issuance, that is, on July 19,1980 and onwards.
The fact remains, though, that on the crucial date of June 30, 1980
no on board bill of lading was presented by petitioner in compliance
with the terms of the letter of credit and this default consequently
negates its entitlement to the proceeds thereof. Said certification, if
allowed to operate retroactively, would render illusory the guaranty
afforded by an on-board bill of lading, that is, reasonable certainty of
shipping the loaded cargo aboard the vessel specified, not to mention
that it would indubitably be stretching the concept of substantial
compliance too -far.
Neither can petitioner escape liability by adverting to the bill of lading
as a contract of adhesion, thus warranting a more liberal consideration
in its favor to the extent of interpreting ambiguities against private
respondents as allegedly being the parties who gave rise thereto. The
bill of lading is clear on its face. There is no occasion to speak of
ambiguities or obscurities whatsoever. All of its terms and conditions
are plainly worded and commonly understood by those in the
business.
It will be recalled that petitioner entered into the contract with Choju
Co., Ltd. way back on May 20,1980 or over a month before the expiry
date of the letter of credit on June 30, 1980, thus giving it more than
ample time to find a carrier that could comply with the requirements
of shipment under the letter of credit It is conceded that bills of lading
constitute a class of contracts of adhesion. However, as ruled in the
earlier case of Ong Yiu vs. Court of Appeals, et al. and reiterated in
Servando, et al. vs. Philippine Steam Navigation Co., plane tickets as
well as bills of lading are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. The respondent court correctly
observed in the present case that “when the appellant received the
bill of lading, it was tantamount to appellant’s adherence to the terms
and conditions as embodied therein."
In sum, petitioner had full knowledge that the bill issued to it
contained terms and conditions clearly violative of the requirements
of the letter of credit. Nonetheless, perhaps in its eagerness to
conclude the transaction with its Japanese buyer and in a race to beat
the expiry date of the letter of credit, petitioner took the risk of
accepting the bill of lading even if it did not conform with the indicated
specifications, possibly entertaining a glimmer of hope and imbued
with a touch of daring that such violations may be overlooked, if not
disregarded, so long as the cargo is delivered on time. Unfortunately,
the risk did not pull through as hoped for. Any violation of the terms
and conditions of the letter of credit as would defeat its right to collect
the proceeds thereof was, therefore, entirely of the petitioner’s making
for which it must bear the consequences. As finally averred by private
respondents, and with which we agree, “x x x the questions of whether
or not there was a violation of the terms and conditions of the letter
of credit, or whether or not such violation was the cause or motive for
the rejection by petitioner’s Japanese buyer should not affect private
respondents therein since they were not privies to the terms and
conditions of petitioner’s letter of credit and cannot therefore be held
liable for any violation thereof by any of the parties thereto."
II. Petitioner contends that respondent court erred in holding it liable
to private respondents for P52,1 02.45 despite its exercise of its option
to abandon the cargo. It will be recalled that the trial court originally
found petitioner liable for P298,1 50.93, which amount consists of
P51,271.02 for freight, demurrage and other charges during the time
that the goods were in Japan and for its reshipment to Manila, P831.43
for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22,1980 to June
18,1981.
On appeal, the Court of Appeals limited petitioner’s liability to
P52,102.45 when it ruled:
“As regards the amount of P51,271.02, which represents the freight
charges for the return shipment to Manila and the demurrage charges
in Japan, the same is supported by appellant’s own letter request (Exh.
2) for the return of the shipment to Manila at its (appellant’s) expense,
and hence, it should be held liable therefor. The amount of P831.43
was paid to the Manila International Port Terminal upon arrival of the
shipment in Manila for appellant’s account. It should properly be
charged to said appellant."
However, respondent court modified the trial court’s decision by
excluding the award for P246,043.43 for demurrage in Manila from
October 22,1980 to June 18,1981.
Demurrage, in its strict sense, is the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the
time agreed on for loading and unloading. Essentially, demurrage is
the claim for damages for failure to accept delivery. In a broad sense,
every improper detention of a vessel may be considered a demurrage.
Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term
in its broader sense, damages in the nature of demurrage are
recoverable for a breach of the implied obligation to load or unload
the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping
contract. Notice of arrival of vessels or conveyances, or of their
placement for purposes of unloading is often a condition precedent to
the right to collect demurrage charges.
Private respondents, admittedly, have adopted the common practice
of requiring prior notice of arrival of the goods shipped before the
shipper can be held liable for demurrage, as declared by Wilfredo
Hans, head of the accounting department of F.E. Zuellig, Inc., on
cross-examination as a witness for private respondents:
“Q: x x x you will agree with me that before one could be charged
with demurrage the shipper should be notified of the arrival of the
shipment?
A: Yes sir.
Q: Without such notification, there is no way by which the shipper
would know (of) such arrival?
A: Yes.
Q: And no charges of demurrage before the arrival of the cargo?
A: Yes sir. “
Accordingly, on this score, respondent court ruled:
“However, insofar as the demurrage charges of P246,043.43 from
October up to May 1980, arriv(al) in Manila, are concerned, We are of
the view that appellant should not be made to shoulder the same, as
it was not at fault nor was it responsible for said demurrage charges.
Appellee’s own witness (Mabazza) testified that while the goods
arrived in Manila in October 1980, appellant was notified of said arrival
only in March 1981. No explanation was given for the delay in notifying
appellant. We agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of the
goods first. Without such notification it could not be so charged
because there was no way by which it would know that the goods had
already arrived for it to take custody of them. Considering that it was
only in March 1981 (Exh. K) that appellant was notified of the arrival
of the goods, although the goods had actually arrived in October 1980
(tsn, Aug. 14,1986, pp. 10–14), appellant cannot be charged for
demurrage from October 1980 to March 1981. x x x"
While being satisfied with the exclusion of demurrage charges in
Manila for the period from October 22,1980 to June 18,1981,
petitioner nevertheless assails the Court of Appeals’ award of
P52,102.43 in favor of private respondents, consisting of P51,271.01
as freight and demurrage charges in Japan and P831.43 for charges
paid at the Manila International Port Terminal.
Petitioner asserts that by virtue of the exercise of its option to abandon
the goods so as to allow private respondents to sell the same at a
public auction and to apply the proceeds thereof as payment for the
shipping and demurrage charges, it was released from liability for the
sum of P52,102.43 since such amount represents the shipping and
demurrage charges from which it is considered to have been released
due to the abandonment of goods. It further argues that the shipping
and demurrage charges from which it was released by the exercise of
the option to abandon the goods in favor of private respondents could
not have referred to ‘the’ demurrage charges in Manila because
respondent court ruled that the same were not chargeable to
petitioner. Private respondents would rebut this contention by saying
in their memorandum that the abandonment of goods by petitioner
was too late and made in bad faith.
On this point, we agree with petitioner. Ordinarily, the shipper is liable
for freightage due to the fact that the shipment was made for its
benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services/ This is particularly
true in this case where the reshipment of the goods was made at the
instance of petitioner in its letter of August 29,1980.
However, in a letter dated March 20,1981, private respondents
belatedly informed petitioner of the arrival of its goods from Japan and
that if it wished to take delivery of the cargo it would have to pay
P51,271.02, but with the last paragraph thereof stating as follows:
“Please can you advise within 15 days of receipt of this letter whether
you intend to take delivery of this shipment, as alternatively we will
have to take legal proceedings in order to have the cargo auctioned
to recover the costs involved, as well as free the container which are
(sic) urgently required for export cargoes.”
Clearly, therefore, private respondents unequivocally offered
petitioner the option of paying the shipping and demurrage charges in
order to take delivery of the goods or of abandoning the same so that
private respondents could sell them at public auction and thereafter
apply the proceeds in payment of ‘the’ shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner
seasonably communicated its decision to abandon to the goods in
favor of private respondents with the specific instruction that any
excess of the proceeds over the legal costs and charges be turned
over to petitioner. Receipt of said letter was acknowledged by private
respondents, as revealed by the testimony of Edwin Mabazza, a claim
officer of F.E. Zuellig, Inc., on cross-examination.
Despite petitioner’s exercise of the option to abandon the cargo,
however, private respondents sent a demand letter on June 22, 1981
insisting that petitioner should pay the entire amount of P298,1 50.93
and, in another letter dated April 30, 1981, they stated that they will
not accept the abandonment of the goods and demanded that the
outstanding account be settled. The testimony of said Edwin Mabazza
definitely admits and bears this out.
Now, there is no dispute that private respondents expressly and on
their own volition granted petitioner an option with respect to the
satisfaction of freightage and demurrage charges. Having given such
option, especially since it was accepted by petitioner, private
respondents are estopped from reneging thereon. Petitioner, on its
part, was well within its right to exercise said option. Private
respondents, in giving the option, and petitioner, in exercising that
option, are concluded by their respective actions. To allow either of
them to unilaterally back out on the offer and on the exercise of the
option would be to countenance abuse of rights as an order of the
day, doing violence to the long-entrenched principle of mutuality of
contracts,
It will be remembered that in overland transportation, an
unreasonable delay in the delivery of transported goods is sufficient
ground for the abandonment of goods. By analogy, this can also apply
to maritime transportation. Further, with much more reason can
petitioner in the instant case properly abandon the goods, not only
because of the unreasonable delay in its delivery but because of the
option which was categorically granted to and exercised by it as a
means of settling its liability for the cost and expenses of reshipment.
And, said choice having been duly communicated, the same is binding
upon the parties on legal and equitable considerations of estoppel.
WHEREFORE, the judgment of respondent Court of Appeals is
AFFIRMED with the MODIFICATION that petitioner is likewise
absolved of -any liability and the award of P52,102.45 with legal
interest granted by respondent court on private respondents’
counterclaim is SET ASIDE, said counterclaim being hereby
DISMISSED, without pronouncement as to costs.
SO ORDERED.
Melencio-Herrera (Chairman), Paras and Padilla, JJ., concur.
Sarmiento, J., On leave.
Judgment affirmed with modification.
Note.—The phrase “charter party may be oral” means the terms in the
contract not having been reduced in writing, shall be those embodied
in the bill of lading. (Market Developers Inc. vs. Intermediate Appellate
Court, 177 SCRA 393.)
——oOo——
KENG HUA PAPER PRODUCTS CO., INC., petitioner, vs.
COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA,
BR. 21; and SEA-LAND SERVICE, INC., respondents
G.R. No. 116863. February 12, 1998
Commercial Law; Bills of Lading; Nature of a Bill of Lading. — A bill of
lading serves two functions. First, it is a receipt for the goods shipped.
Second, it is a contract by which three parties, namely, the shipper,
the carrier, and the consignee undertake specific responsibilities and
assume stipulated obligations. A “bill of lading delivered and accepted
constitutes the contract of carriage even though not signed,” because
the “(a)cceptance of a paper containing the terms of a proposed
contract generally constitutes an acceptance of the contract and of all
of its terms and conditions of which the acceptor has actual or
constructive notice.” In a nutshell, the acceptance of a bill of lading
by the shipper and the consignee, with full knowledge of its contents,
gives rise to the presumption that the same was a perfected and
binding contract.
Same; Same; Same; Both lower courts held that the bill of lading was
a valid and perfected contract between the shipper, the consignee,
and the carrier. — In the case at bar, both lower courts held that the
bill of lading was a valid and perfected contract between the shipper
(Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private
Respondent Sea-Land). Section 17 of the bill of lading provided that
the shipper and the consignee were liable for the payment of
demurrage charges for the failure to discharge the containerized
shipment beyond the grace period allowed by tariff rules. Applying
said stipulation, both lower courts found petitioner liable.
Same; Same; Same; Contrary to petitioner’s contention, the notice
and the letter support—not belie—the findings of the two lower courts
that the bill of lading was impliedly accepted by petitioner. —
Petitioner’s reliance on the Notice of Refused or On Hand Freight, as
proof of its nonacceptance of the bill of lading, is of no consequence.
Said notice was not written by petitioner; it was sent by private
respondent to petitioner in November 1982, or four months after
petitioner received the bill of lading. If the notice has any legal
significance at all, it is to highlight petitioner’s prolonged failure to
object to the bill of lading. Contrary to petitioner’s contention, the
notice and the letter support—not belie—the findings of the two lower
courts that the bill of lading was impliedly accepted by petitioner.
Same; Same; Same; Mere apprehension of violating customs, tariff
and central bank laws without a clear demonstration that taking
delivery of the shipment has become legally impossible, cannot defeat
the petitioner’s contractual obligation and liability under the bill of
lading. — Petitioner’s attempt to evade its obligation to receive the
shipment on the pretext that this may cause it to violate customs,
tariff and central bank laws must likewise fail. Mere apprehension of
violating said laws, without a clear demonstration that taking delivery
of the shipment has become legally impossible, cannot defeat the
petitioner’s contractual obligation and liability under the bill of lading.
Same; Letters of Credit; In a letter of credit, there are three distinct
and independent contracts. — In a letter of credit, there are three
distinct and independent contracts: (1) the contract of sale between
the buyer and the seller, (2) the contract of the buyer with the issuing
bank, and (3) the letter of credit proper in which the bank promises
to pay the seller pursuant to the terms and conditions stated therein.
“Few things are more clearly settled in law than that the three
contracts which make up the letter of credit arrangement are to be
maintained in a state of perpetual separation.” A transaction involving
the purchase of goods may also require, apart from a letter of credit,
a contract of transportation specially when the seller and the buyer
are not in the same locale or country, and the goods purchased have
to be transported to the latter.
Remedial Law; Appeals; Questions raised on appeal must be within
the issues framed by the parties and, consequently, issues not raised
in the trial court cannot be raised for the first time on appeal. — In
any event, the issue of whether petitioner accepted the bill of lading
was raised for the first time only in petitioner’s memorandum before
this Court. Clearly, we cannot now entertain an issue raised for the
very first time on appeal, in deference to the well-settled doctrine that
“(a)n issue raised for the first time on appeal and not raised timely in
the proceedings in the lower court is barred by estoppel. Questions
raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for
the first time on appeal.”
Same; Attorney’s Fees; The text of the decision should state the
reason for the award of attorney’s fees.—The Court notes that the
matter of attorney’s fees was taken up only in the dispositive portion
of the trial court’s decision. This falls short of the settled requirement
that the text of the decision should state the reason for the award of
attorney’s fees, for without such justification, its award would be a
“conclusion without a premise, its basis being improperly left to
speculation and conjecture.”
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Cabio, Rabanes Law Office and Romeo B. Perez for petitioners.
Sycip, Salazar, Hernandez & Gatmaitan for private respondent.
PANGANIBAN, J.:
What is the nature of a bill of lading? When does a bill of lading
become binding on a consignee? Will an alleged over-shipment justify
the consignee’s refusal to receive the goods described in the bill of
lading? When may interest be computed on unpaid demurrage
charges?
Statement of the Case
These are the main questions raised in this petition assailing the
Decision of the Court of Appeals promulgated on May 20, 1994 in C.A.-
G.R. CV No. 29953 affirming in toto the decision dated September 28,
1990 in Civil Case No. 85-33269 of the Regional Trial Court of Manila,
Branch 21. The dispositive portion of the said RTC decision reads:
“WHEREFORE, the Court finds by preponderance of evidence that
Plaintiff has proved its cause of action and right to relief. Accordingly,
judgment is hereby rendered in favor of the Plaintiff and against
Defendant, ordering the Defendant to pay plaintiff:
1. The sum of P67,340.00 as demurrage charges, with interest at the
legal rate from the date of the extrajudicial demand until fully paid;
2. A sum equivalent to ten (10%) percent of the total amount due as
Attorney’s fees and litigation expenses. Send copy to respective
counsel of the parties.
SO ORDERED.”
The Facts
The factual antecedents of this case as found by the Court of Appeals
are as follows:
“Plaintiff (herein private respondent), a shipping company, is a foreign
corporation licensed to do business in the Philippines. On June 29,
1982, plaintiff received at its Hong Kong terminal a sealed container,
Container No. SEAU 67523, containing seventy-six bales of “unsorted
waste paper” for shipment to defendant (herein petitioner), Keng Hua
Paper Products, Co. in Manila. A bill of lading (Exh. A) to cover the
shipment was issued by the plaintiff.
On July 9, 1982, the shipment was discharged at the Manila
International Container Port. Notices of arrival were transmitted to the
defendant but the latter failed to discharge the shipment from the
container during the “free time” period or grace period. The said
shipment remained inside the plaintiff’s container from the moment
the free time period expired on July 29, 1982 until the time when the
shipment was unloaded from the container on November 22, 1983, or
a total of four hundred eighty-one (481) days. During the 481-day
period, demurrage charges accrued. Within the same period, letters
demanding payment were sent by the plaintiff to the defendant who,
however, refused to settle its obligation which eventually amounted
to P67,340.00. Numerous demands were made on the defendant but
the obligation remained unpaid. Plaintiff thereafter commenced this
civil action for collection and damages.
In its answer, defendant, by way of special and affirmative defense,
alleged that it purchased fifty (50) tons of waste paper from the
shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter
of Credit No. 824858 (Exh. 7, p. 110, Original Record) issued by
Equitable Banking Corporation, with partial shipment permitted; that
under the letter of credit, the remaining balance of the shipment was
only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p.
111, Original Record); that the shipment plaintiff was asking
defendant to accept was twenty (20) metric tons which is ten (10)
metric tons more than the remaining balance; that if defendant were
to accept the shipment, it would be violating Central Bank rules and
regulations and custom and tariff laws; that plaintiff had no cause of
action against the defendant because the latter did not hire the former
to carry the merchandise; that the cause of action should be against
the shipper which contracted the plaintiff’s services and not against
defendant; and that the defendant duly notified the plaintiff about the
wrong shipment through a letter dated January 24, 1983 (Exh. D for
plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits).”
As previously mentioned, the RTC found petitioner liable for
demurrage, attorney’s fees and expenses of litigation. The petitioner
appealed to the Court of Appeals, arguing that the lower court erred
in (1) awarding the sum of P67,340 in favor of the private respondent,
(2) rejecting petitioner’s contention that there was overshipment, (3)
ruling that petitioner’s recourse was against the shipper, and (4)
computing legal interest from date of extrajudicial demand.
Respondent Court of Appeals denied the appeal and affirmed the
lower court’s decision in toto. In a subsequent resolution, it also
denied the petitioner’s motion for reconsideration.
Hence, this petition for review.
The Issues
In its memorandum, petitioner submits the following issues:
“I. Whether or not petitioner had accepted the bill of lading;
II. Whether or not the award of the sum of P67,340.00 to private
respondent was proper;
III. Whether or not petitioner was correct in not accepting the over
shipment;
IV. Whether or not the award of legal interest from the date of private
respondent’s extrajudicial demand was proper.”
In the main, the case revolves around the question of whether
petitioner was bound by the bill of lading. We shall, thus, discuss the
above four issues as they intertwine with this main question.
The Court’s Ruling
The petition is partly meritorious. We affirm petitioner’s liability for
demurrage, but modify the interest rate thereon.
Main Issue: Liability Under the Bill of Lading
A bill of lading serves two functions. First, it is a receipt for the goods
shipped. Second, it is a contract by which three parties, namely, the
shipper, the carrier, and the consignee undertake specific
responsibilities and assume stipulated obligations. A “bill of lading
delivered and accepted constitutes the contract of carriage even
though not signed,” because the “(a)cceptance of a paper containing
the terms of a proposed contract generally constitutes an acceptance
of the contract and of all of its terms and conditions of which the
acceptor has actual or constructive notice.” In a nutshell, the
acceptance of a bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that the
same was a perfected and binding contract.
In the case at bar, both lower courts held that the bill of lading was a
valid and perfected contract between the shipper (Ho Kee), the
consignee (Petitioner Keng Hua), and the carrier (Private Respondent
Sea-Land). Section 17 of the bill of lading provided that the shipper
and the consignee were liable for the payment of demurrage charges
for the failure to discharge the containerized shipment beyond the
grace period allowed by tariff rules. Applying said stipulation, both
lower courts found petitioner liable. The aforementioned section of the
bill of lading reads:
“17. COOPERAGE FINES. The shipper and consignee shall be liable
for, indemnify the carrier and ship and hold them harmless against,
and the carrier shall have a lien on the goods for, all expenses and
charges for mending cooperage, baling, repairing or reconditioning the
goods, or the van, trailers or containers, and all expenses incurred in
protecting, caring for or otherwise made for the benefit of the goods,
whether the goods be damaged or not, and for any payment, expense,
penalty fine, dues, duty, tax or impost, loss, damage, detention,
demurrage, or liability of whatsoever nature, sustained or incurred by
or levied upon the carrier or the ship in connection with the goods or
by reason of the goods being or having been on board, or because of
shipper’s failure to procure consular or other proper permits,
certificates or any papers that may be required at any port or place or
shipper’s failure to supply information or otherwise to comply with all
laws, regulations and requirements of law in connection with the
goods of from any other act or omission of the shipper or consignee.”
(Italics supplied.)
Petitioner contends, however, that it should not be bound by the bill
of lading because it never gave its consent thereto. Although petitioner
admits “physical acceptance” of the bill of lading, it argues that its
subsequent actions belie the finding that it accepted the terms and
conditions printed therein. Petitioner cites as support the “Notice of
Refused or On Hand Freight” it received on November 2, 1982 from
private respondent, which acknowledged that petitioner declined to
accept the shipment. Petitioner adds that it sent a copy of the said
notice to the shipper on December 29, 1982. Petitioner points to its
January 24, 1983 letter to the private respondent, stressing “that its
acceptance of the bill of lading would be tantamount to an act of
smuggling as the amount it had imported (with full documentary
support) was only (at that time) for 10,000 kilograms and not for
20,313 kilograms as stated in the bill of lading” and “could lay them
vulnerable to legal sanctions for violation of customs and tariff as well
as Central Bank laws.” Petitioner further argues that the demurrage
“was a consequence of the shipper’s mistake” of shipping more than
what was bought. The discrepancy in the amount of waste paper it
actually purchased, as reflected in the invoice vis-à-vis the excess
amount in the bill of lading, allegedly justifies its refusal to accept the
shipment.
Petitioner Bound by the Bill of Lading
We are not persuaded. Petitioner admits that it “received the bill of
lading immediately after the arrival of the shipment” on July 8, 1982.
Having been afforded an opportunity to examine the said document,
petitioner did not immediately object to or dissent from any term or
stipulation therein. It was only six months later, on January 24, 1983,
that petitioner sent a letter to private respondent saying that it could
not accept the shipment. Petitioner’s inaction for such a long period
conveys the clear inference that it accepted the terms and conditions
of the bill of lading. Moreover, said letter spoke only of petitioner’s
inability to use the delivery permit, i.e. to pick up the cargo, due to
the shipper’s failure to comply with the terms and conditions of the
letter of credit, for which reason the bill of lading and other shipping
documents were returned by the “banks” to the shipper. The letter
merely proved petitioner’s refusal to pick up the cargo, not its rejection
of the bill of lading.
Petitioner’s reliance on the Notice of Refused or On Hand Freight, as
proof of its nonacceptance of the bill of lading, is of no consequence.
Said notice was not written by petitioner; it was sent by private
respondent to petitioner in November 1982, or four months after
petitioner received the bill of lad-ing. If the notice has any legal
significance at all, it is to highlight petitioner’s prolonged failure to
object to the bill of lading. Contrary to petitioner’s contention, the
notice and the letter support—not belie—the findings of the two lower
courts that the bill of lading was impliedly accepted by petitioner.
As aptly stated by Respondent Court of Appeals:
“In the instant case, (herein petitioner) cannot and did not allege non-
receipt of its copy of the bill of lading from the shipper. Hence, the
terms and conditions as well as the various entries contained therein
were brought to its knowledge. (Herein petitioner) accepted the bill of
lading without interposing any objection as to its contents. This raises
the presumption that (herein petitioner) agreed to the entries and
stipulations imposed therein.
Moreover, it is puzzling that (herein petitioner) allowed months to
pass, six (6) months to be exact, before notifying (herein private
respondent) of the ‘wrong shipment.’ It was only on January 24, 1983
that (herein petitioner) sent (herein private respondent) such a letter
of notification (Exh. D for plaintiff, Exh. 4 for defendant; p. 5, Folder
of Exhibits). Thus, for the duration of those six months (herein private
respondent) never knew the reason for (herein petitioner’s) refusal to
discharge the shipment.
After accepting the bill of lading, receiving notices of arrival of the
shipment, failing to object thereto, (herein petitioner) cannot now
deny that it is bound by the terms in the bill of lading. If it did not
intend to be bound, (herein petitioner) would not have waited for six
months to lapse before finally bringing the matter to (herein private
respondent’s) attention. The most logical reaction in such a case
would be to immediately verify the matter with the other parties
involved. In this case, however, (herein petitioner) unreasonably
detained (herein private respondent’s) vessel to the latter’s prejudice.”
Petitioner’s attempt to evade its obligation to receive the shipment on
the pretext that this may cause it to violate customs, tariff and central
bank laws must likewise fail. Mere apprehension of violating said laws,
without a clear demonstration that taking delivery of the shipment has
become legally impossible, cannot defeat the petitioner’s contractual
obligation and liability under the bill of lading.
In any event, the issue of whether petitioner accepted the bill of lading
was raised for the first time only in petitioner’s memorandum before
this Court. Clearly, we cannot now entertain an issue raised for the
very first time on appeal, in deference to the well-settled doctrine that
“(a)n issue raised for the first time on appeal and not raised timely in
the proceedings in the lower court is barred by estoppel. Questions
raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for
the first time on appeal.”
In the case at bar, the prolonged failure of petitioner to receive and
discharge the cargo from the private respondent’s vessel constitutes
a violation of the terms of the bill of lading. It should thus be liable for
demurrage to the former.
In The Apollon, Justice Story made the following relevant comment on
the nature of demurrage:
“In truth, demurrage is merely an allowance or compensation for the
delay or detention of a vessel. It is often a matter of contract, but not
necessarily so. The very circumstance that in ordinary commercial
voyages, a particular sum is deemed by the parties a fair
compensation for delays, is the very reason why it is, and ought to be,
adopted as a measure of compensation, in cases ex delicto. What
fairer rule can be adopted than that which founds itself upon
mercantile usage as to indemnity, and fixes a recompense upon the
deliberate consideration of all the circumstances attending the usual
earnings and expenditures in common voyages? It appears to us that
an allowance, by way of demurrage, is the true measure of damages
in all cases of mere detention, for that allowance has reference to the
ship’s expenses, wear and tear, and common employment.”
Amount of Demurrage Charges
Petitioner argues that it is not obligated to pay any demurrage charges
because, prior to the filing of the complaint, private respondent made
no demand for the sum of P67,340. Moreover, private respondent’s
loss and prevention manager, Loi Gillera, demanded P50,260; but its
counsel, Sofronio Larcia, subsequently asked for a different amount of
P37,800.
Petitioner’s position is puerile. The amount of demurrage charges in
the sum of P67,340 is a factual conclusion of the trial court that was
affirmed by the Court of Appeals and, thus, binding on this Court.
Besides, such factual finding is supported by the extant evidence. The
apparent discrepancy was a result of the variance of the dates when
the two demands were made. Necessarily, the longer the cargo
remained unclaimed, the higher the demurrage. Thus, while in his
letter dated April 24, 1983, private respondent’s counsel demanded
payment of only P37,800, the additional demurrage incurred by
petitioner due to its continued refusal to receive delivery of the cargo
ballooned to P67,340 by November 22, 1983. The testimony of
Counsel Sofronio Larcia as regards said letter of April 24, 1983
elucidates, viz.:
“Q: Now, after you sent this letter, do you know what happened?
A: Defendant continued to refuse to take delivery of the shipment and
the shipment stayed at the port for a longer period.
Q: So, what happened to the shipment?
A: The shipment incurred additional demurrage charges which
amounted to P67,340.00 as of November 22, 1983 or more than a
year after—almost a year after the shipment arrived at the port.
Q: So, what did you do?
A: We requested our collection agency to pursue the collection of this
amount.”
Bill of Lading Separate from Other Letter of Credit Arrangements
In a letter of credit, there are three distinct and independent contracts:
(1) the contract of sale between the buyer and the seller, (2) the
contract of the buyer with the issuing bank, and (3) the letter of credit
proper in which the bank promises to pay the seller pursuant to the
terms and conditions stated therein. “Few things are more clearly
settled in law than that the three contracts which make up the letter
of credit arrangement are to be maintained in a state of perpetual
sepa-ration.” A transaction involving the purchase of goods may also
require, apart from a letter of credit, a contract of transportation
specially when the seller and the buyer are not in the same locale or
country, and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the
present case, must be treated independently of the contract of sale
between the seller and the buyer, and the contract for the issuance of
a letter of credit between the buyer and the issuing bank. Any
discrepancy between the amount of the goods described in the
commercial invoice in the contract of sale and the amount allowed in
the letter of credit will not affect the validity and enforceability of the
contract of carriage as embodied in the bill of lading. As the bank
cannot be expected to look beyond the documents presented to it by
the seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the bill of
lading and to verify their accuracy vis-à-vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading
cannot negate petitioner’s obligation to private respondent arising
from the contract of transportation. Furthermore, private respondent,
as carrier, had no knowledge of the contents of the container. The
contract of carriage was under the arrangement known as “Shipper’s
Load And Count,” and the shipper was solely responsible for the
loading of the container while the carrier was oblivious to the contents
of the shipment. Petitioner’s remedy in case of over shipment lies
against the seller/shipper, not against the carrier.
Payment of Interest
Petitioner posits that it “first knew” of the demurrage claim of P67,340
only when it received, by summons, private respondent’s complaint.
Hence, interest may not be allowed to run from the date of private
respondent’s extrajudicial demands on March 8, 1983 for P50,260 or
on April 24, 1983 for P37,800, considering that, in both cases, “there
was no demand for interest.” We agree.
Jurisprudence teaches us:
“2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.”
The case before us involves an obligation not arising from a loan or
forbearance of money; thus, pursuant to Article 2209 of the Civil Code,
the applicable interest rate is six percent per annum. Since the bill of
lading did not specify the amount of demurrage, and the sum claimed
by private respondent increased as the days went by, the total amount
demanded cannot be deemed to have been established with
reasonable certainty until the trial court rendered its judgment.
Indeed, “(u)nliquidated damages or claims, it is said, are those which
are not or cannot be known until definitely ascertained, assessed and
determined by the courts after presentation of proof.” Consequently,
the legal interest rate is six percent, to be computed from September
28, 1990, the date of the trial court’s decision. And in accordance with
Philippine National Bank and Eastern Shipping, the rate of twelve
percent per annum shall be charged on the total then outstanding,
from the time the judgment becomes final and executory until its
satisfaction.
Finally, the Court notes that the matter of attorney’s fees was taken
up only in the dispositive portion of the trial court’s decision. This falls
short of the settled requirement that the text of the decision should
state the reason for the award of attorney’s fees, for without such
justification, its award would be a “conclusion without a premise, its
basis being improperly left to speculation and conjecture.”
WHEREFORE, the assailed Decision is hereby AFFIRMED with the
MODIFICATION that the legal interest of six percent per annum shall
be computed from September 28, 1990 until its full payment before
finality of judgment. The rate of interest shall be adjusted to twelve
percent per annum, computed from the time said judgment became
final and execu-tory until full satisfaction. The award of attorney’s fees
is DELETED.
SO ORDERED.
Davide, Jr. (Chairman), Bellosillo, Vitug and Quisum-bing, JJ.,
concur.
Assailed decision affirmed with modification.
——o0o——
BENITO MACAM doing business under the name and style
BEN-MAC ENTERPRISES, petitioner, vs. COURT OF APPEALS,
CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES
SHIPPING, INC., respondents
G.R. No. 125524. August 25, 1999
Common Carriers; The extraordinary responsibility of the common
carriers lasts until actual or constructive delivery of the cargoes to the
consignee or to the person who has a right to receive them. — We
emphasize that the extraordinary responsibility of the common carriers
lasts until actual or constructive delivery of the cargoes to the
consignee or to the person who has a right to receive them. PAKISTAN
BANK was indicated in the bills of lading as consignee whereas GPC
was the notify party. However, in the export invoices GPC was clearly
named as buyer/importer. Petitioner also referred to GPC as such in
his demand letter to respondent WALLEM and in his complaint before
the trial court. This premise draws us to conclude that the delivery of
the cargoes to GPC as buyer/importer which, conformably with Art.
1736 had, other than the consignee, the right to receive them was
proper.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Salonga, Hernandez & Mendoza for petitioner.
Oben, Ventura, Defensor & Associates and Benjamin C. Santos &
Ofelia Calcetas-Santos Law Offices for private respondents.
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the
name and style Ben-Mac Enterprises, shipped on board the vessel Nen
Jiang, owned and operated by respondent China Ocean Shipping Co.,
through local agent respondent Wallem Philippines Shipping, Inc.
(hereinafter WALLEM), 3,500 boxes of watermelons valued at
US$5,950.00 covered by Bill of Lading No. HKG 99012 and exported
through Letter of Credit No. HK 1031/30 issued by National Bank of
Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of
fresh mangoes with a value of US$14,273.46 covered by Bill of Lading
No. HKG 99013 and exported through Letter of Credit No. HK 1032/30
also issued by PAKISTAN BANK. The Bills of Lading contained the
following pertinent provision: “One of the Bills of Lading must be
surrendered duly endorsed in exchange for the goods or delivery
order.” The shipment was bound for Hongkong with PAKISTAN BANK
as consignee and Great Prospect Company of Kowloon, Hongkong
(hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of
lading and commercial invoices were submitted to petitioner’s
depository bank, Consolidated Banking Corporation (hereinafter
SOLIDBANK), which paid petitioner in advance the total value of the
shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was delivered by respondent
WALLEM directly to GPC, not to PAKISTAN BANK, and without the
required bill of lading having been surrendered. Subsequently, GPC
failed to pay PAKISTAN BANK such that the latter, still in possession
of the original bills of lading, refused to pay petitioner through SOLID-
BANK. Since SOLIDBANK already pre-paid petitioner the value of the
shipment, it demanded payment from respondent WALLEM through
five (5) letters but was refused. Petitioner was thus allegedly
constrained to return the amount involved to SOLIDBANK, then
demanded payment from respondent WALLEM in writing but to no
avail.
On 25 September 1991 petitioner sought collection of the value of the
shipment of US$20,223.46 or its equivalent of P546,033.42 from
respondents before the Regional Trial Court of Manila, based on
delivery of the shipment to GPC without presentation of the bills of
lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC
without presentation of the bills of lading and bank guarantee per
request of petitioner himself because the shipment consisted of
perishable goods. The telex dated 5 April 1989 conveying such request
read—
AS PER SHPR’S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT
TO RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L and bank
guarantee since for prepaid ship fort charges already fully paid our
end x x x x
Respondents explained that it is a standard maritime practice, when
immediate delivery is of the essence, for the shipper to request or
instruct the carrier to deliver the goods to the buyer upon arrival at
the port of destination without requiring presentation of the bill of
lading as that usually takes time. As proof thereof, respondents
apprised the trial court that for the duration of their two-year business
relationship with petitioner concerning similar shipments to GPC
deliveries were effected without presentation of the bills of lading.
Respondents advanced next that the refusal of PAKISTAN BANK to
pay the letters of credit to SOLIDBANK was due to the latter’s failure
to submit a Certificate of Quantity and Quality. Respondents
counterclaimed for attorney’s fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly
and severally, the following amounts: (1) P546,033.42 plus legal
interest from 6 April 1989 until full payment; (2) P10,000.00 as
attorney’s fees; and, (3) the costs. The counter-claims were dismissed
for lack of merit. The trial court opined that respondents breached the
provision in the bill of
lading requiring that “one of the Bills of Lading must be surrendered
duly endorsed in exchange for the goods or delivery order,” when they
released the shipment to GPC without presentation of the bills of
lading and the bank guarantee that should have been issued by
PAKISTAN BANK in lieu of the bills of lading. The trial court added that
the shipment should not have been released to GPC at all since the
instruction contained in the telex was to arrange delivery to the
respective consignees and not to any party. The trial court observed
that the only role of GPC in the transaction as notify party was
precisely to be notified of the arrival of the cargoes in Hongkong so it
could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different
manner. According to it, as established by previous similar
transactions between the parties, shipped cargoes were sometimes
actually delivered not to the consignee but to notify party GPC without
need of the bills of lading or bank guarantee. Moreover, the bills of
lading were viewed by respondent court to have been properly
superseded by the telex instruction and to implement the instruction,
the delivery of the shipment must be to GPC, the real importer/buyer
of the goods as shown by the export invoices, and not to PAKISTAN
BANK since the latter could very well present the bills of lading in its
possession; likewise, if it were the PAKISTAN BANK to which the
cargoes were to be strictly delivered it would no longer be proper to
require a bank guarantee. Respondent court noted that besides, GPC
was listed as a consignee in the telex. It observed further that the
demand letter of petitioner to respondents never complained of
misdelivery of goods. Lastly, respondent court found that petitioner’s
claim of having reimbursed the amount involved to SOLID-BANK was
unsubstantiated. Thus, on 13 March 1996 respondent court set aside
the decision of the trial court and dismissed the complaint together
with the counterclaims. On 5 July 1996 reconsideration was denied.
Petitioner submits that the fact that the shipment was not delivered
to the consignee as stated in the bill of lading or to a party designated
or named by the consignee constitutes a misdelivery thereof.
Moreover, petitioner argues that from the text of the telex, assuming
there was such an instruction, the delivery of the shipment without
the required bill of lading or bank guarantee should be made only to
the designated consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that “the fact that
the shipment was not delivered to the consignee as stated in the Bill
of Lading or to a party designated or named by the consignee
constitutes a misdelivery thereof” is a deviation from his cause of
action before the trial court. It is clear from the allegation in his
complaint that it does not deal with misdelivery of the cargoes but of
delivery to GPC without the required bills of lading and bank
guarantee—
6. The goods arrived in Hongkong and were released by the defendant
Wallem directly to the buyer/notify party, Great Prospect Company
and not to the consignee, the National Bank of Pakistan, Hongkong,
without the required bills of lading and bank guarantee for the release
of the shipment issued by the consignee of the goods x x x x
Even going back to an event that transpired prior to the filing of the
present case or when petitioner wrote respondent WALLEM
demanding payment of the value of the cargoes, misdelivery of the
cargoes did not come into the picture—
We are writing you on behalf of our client, Ben-Mac Enterprises who
informed us that Bills of Lading No. 99012 and 99013 with a total value
of US$20,223.46 were released to Great Prospect, Hongkong without
the necessary bank guarantee. We were further informed that the
consignee of the goods, National Bank of Pakistan, Hongkong, did not
release or endorse the original bills of lading. As a result thereof,
neither the consignee, National Bank of Pakistan, Hongkong, nor the
importer, Great Prospect Company, Hongkong, paid our client for the
goods x x x
At any rate, we shall dwell on petitioner’s submission only as a prelude
to our discussion on the imputed liability of respondents concerning
the shipped goods. Article 1736 of the Civil Code provides—
Art. 1736. The extraordinary responsibility of the common carriers
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 a right to receive them, without
prejudice to the provisions of article 1738.
We emphasize that the extraordinary responsibility of the common
carriers lasts until actual or constructive delivery of the cargoes to the
consignee or to the person who has a right to receive them. PAKISTAN
BANK was indicated in the bills of lading as consignee whereas GPC
was the notify party. However, in the export invoices GPC was clearly
named as buyer/importer. Petitioner also referred to GPC as such in
his demand letter to respondent WALLEM and in his complaint before
the trial court. This premise draws us to conclude that the delivery of
the cargoes to GPC as buyer/importer which, conformably with Art.
1736 had, other than the consignee, the right to receive them was
proper.
The real issue is whether respondents are liable to petitioner for
releasing the goods to GPC without the bills of lading or bank
guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis
for delivering the cargoes to GPC without the bills of lading and bank
guarantee. The telex instructed delivery of various shipments to the
respective consignees without need of presenting the bill of lading and
bank guarantee per the respective shipper’s request since “for prepaid
ship fort charges already fully paid.” Petitioner was named therein as
shipper and GPC as consignee with respect to Bill of Lading Nos. HKG
99012 and HKG 99013. Petitioner disputes the existence of such
instruction and claims that this evidence is self-serving.
From the testimony of petitioner, we gather that he has been
transacting with GPC as buyer/importer for around two (2) or three
(3) years already. When mangoes and watermelons are in season, his
shipment to GPC using the facilities of respondents is twice or thrice a
week. The goods are released to GPC. It has been the practice of
petitioner to request the shipping lines to immediately release
perishable cargoes such as watermelons and fresh mangoes through
telephone calls by himself or his “people.” In transactions covered by
a letter of credit, bank guarantee is normally required by the shipping
lines prior to releasing the goods. But for buyers using telegraphic
transfers, petitioner dispenses with the bank guarantee because the
goods are already fully paid. In his several years of business
relationship with GPC and respondents, there was not a single instance
when the bill of lading was first presented before the release of the
cargoes. He admitted the existence of the telex of 3 July 1989
containing his request to deliver the shipment to the consignee
without presentation of the bill of lading14 but not the telex of 5 April
1989 because he could not remember having made such request.
Consider pertinent portions of petitioner’s testimony—
Q: Are you aware of any document which would indicate or show that
your request to the defendant Wallem for the immediate release of
your fresh fruits, perishable goods, to Great Prospect without the
presentation of the original Bill of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And
I requested the immediate release of the cargo because there was
immediate payment.
Q: And you are referring, therefore, to this copy Telex release that
you mentioned where your Company’s name appears Ben-Mac?
Atty. Hernandez: Just for the record, Your Honor, the witness is
showing a Bill of Lading referring to SKG (sic) 93023 and 93026 with
Great Prospect Company.
Atty. Ventura: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate
release of the goods when they are perishable. I thought Wallem
Shipping Lines is not neophyte in the business. As far as LC is
concerned, Bank guarantee is needed for the immediate release of the
goods x x x x
Q: Mr. Witness, you testified that it is the practice of the shipper of
the perishable goods to ask the shipping lines to release immediately
the shipment. Is that correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines
to release the perishable goods to the importer of goods without a Bill
of Lading or Bank guarantee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez: Can you tell us an instance when you will allow the
release of the perishable goods by the shipping lines to the importer
without the Bank guarantee and without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer
is?
A: Telegraphic transfer, it means advance payment that I am already
fully paid x x x x
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would
you know and can you recall that any of your shipment was released
to Great Prospect by Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous
shipments of your goods through Wallem, you requested Wallem to
release immediately your perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods x x
xx
Q: Now, Mr. Macam, if you request the Shipping Lines for the release
of your goods immediately even without the presentation of OBL, how
do you course it?
A: Usually, I call up the Shipping Lines, sir x x x x17
Q: You also testified you made this request through phone calls. Who
of you talked whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let
your people to call? (sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem
xxxx
Against petitioner’s claim of “not remembering” having made a
request for delivery of subject cargoes to GPC without presentation of
the bills of lading and bank guarantee as reflected in the telex of 5
April 1989 are damaging disclosures in his testimony. He declared that
it was his practice to ask the shipping lines to immediately release
shipment of perishable goods through telephone calls by himself or
his “people.” He no longer required presentation of a bill of lading nor
of a bank guarantee as a condition to releasing the goods in case he
was already fully paid. Thus, taking into account that subject shipment
consisted of perishable goods and SOLIDBANK prepaid the full amount
of the value thereof, it is not hard to believe the claim of respondent
WALLEM that petitioner indeed requested the release of the goods to
GPC without presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was “to deliver the shipment
to respective consignees.” And so petitioner argues that, assuming
there was such an instruction, the consignee referred to was
PAKISTAN BANK. We find the argument too simplistic. Respondent
court analyzed the telex in its entirety and correctly arrived at the
conclusion that the consignee referred to was not PAKISTAN BANK but
GPC—
There is no mistake that the originals of the two (2) subject Bills of
Lading are still in the possession of the Pakistani Bank. The appealed
decision affirms this fact. Conformably, to implement the said telex
instruction, the delivery of the shipment must be to GPC, the notify
party or real importer/buyer of the goods and not the Pakistani Bank
since the latter can very well present the original Bills of Lading in its
possession. Likewise, if it were the Pakistani Bank to whom the
cargoes were to be strictly delivered, it will no longer be proper to
require a bank guarantee as a substitute for the Bill of Lading. To
construe otherwise will render meaningless the telex instruction. After
all, the cargoes consist of perishable fresh fruits and immediate
delivery thereof to the buyer/importer is essentially a factor to reckon
with. Besides, GPC is listed as one among the several consignees in
the telex (Exhibit 5-B) and the instruction in the telex was to arrange
delivery of A/M shipment (not any party) to respective consignees
without presentation of OB/L and bank guarantee x x x x
Apart from the foregoing obstacles to the success of petitioner’s cause,
petitioner failed to substantiate his claim that he returned to
SOLIDBANK the full amount of the value of the cargoes. It is not far-
fetched to entertain the notion, as did respondent court, that he
merely accommodated SOLIDBANK in order to recover the cost of the
shipped cargoes from respondents. We note that it was SOLIDBANK
which initially demanded payment from respondents through five (5)
letters. SOLIDBANK must have realized the absence of privity of
contract between itself and respondents. That is why petitioner
conveniently took the cudgels for the bank.
In view of petitioner’s utter failure to establish the liability of
respondents over the cargoes, no reversible error was committed by
respondent court in ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent
Court of Appeals of 13 March 1996 dismissing the complaint of
petitioner Benito Macam and the counterclaims of respondents China
Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well
as its resolution of 5 July 1996 denying reconsideration, is AFFIRMED.
SO ORDERED.
Mendoza, Quisumbing and Buena, JJ., concur.
Petition denied; Assailed decision affirmed.
Notes. — While common carriers are required to observe extraordinary
diligence and are presumed at fault, no such presumption applies to
private carriers. (Planters Products, Inc. vs. Court of Appeals, 226
SCRA 476 [1993])
When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to
observe that requisite diligence, and there need not be an express
finding of negligence to hold it liable. (Eastern Shipping Lines, Inc. vs.
Court of Appeals, 234 SCRA 78 [1994])
Mere proof of delivery of goods in good order to a carrier and the
subsequent arrival of the same goods at the place of destination in
bad order makes for a prima facie case against the carrier. (Coastwise
Lighterage Corporation vs. Court of Appeals, 245 SCRA 796 [1995])
——o0o——
ASIAN TERMINALS, INC., petitioner, vs. PHILAM
INSURANCE CO., INC. (now Chartis Philippines Insurance,
Inc.), respondent
G.R. No. 181163. July 24, 2013
PHILAM INSURANCE CO., INC. (now Chartis Philippines
Insurance, Inc.), petitioner, vs. WESTWIND SHIPPING
CORPORATION and ASIAN TERMINALS, INC., respondents
G.R. No. 181262. July 24, 2013
 WESTWIND SHIPPING CORPORATION, petitioner, vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines
Insurance, Inc.) and ASIAN TERMINALS, INC., respondents
G.R. No. 181319. July 24, 2013
Remedial Law; Civil Procedure; “Question of Law” and “Question of
Fact,” Distinguished. — There is a question of law if the issue raised
is capable of being resolved without need of reviewing the probative
value of the evidence. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the
question posed is one of fact. If the query requires a re-evaluation of
the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, the issue
in that query is factual.
Same; Same; Supreme Court; The Supreme Court may resolve
questions of fact when the case falls under any of the exceptions.—
But while it is not our duty to review, examine and evaluate or weigh
all over again the probative value of the evidence presented, the Court
may nonetheless resolve questions of fact when the case falls under
any of the following exceptions: (1) when the findings are grounded
entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings
are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent;
and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.
Insurance Law; Right of Subrogation; The right of subrogation accrues
simply upon payment by the insurance company of the insurance
claim. — The Court holds that petitioner Philam has adequately
established the basis of its claim against petitioners ATI and
Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation
Receipt executed by the latter in favor of the former. The right of
subrogation accrues simply upon payment by the insurance company
of the insurance claim. Petitioner Philam’s action finds support in
Article 2207 of the Civil Code, which provides as follows: Art. 2207. If
the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
Remedial Law; Evidence; Public Documents; Private Documents; The
nature of documents as either public or private determines how the
documents may be presented as evidence in court. Public documents,
as enumerated under Section 19, Rule 132 of the Rules of Court, are
self-authenticating and require no further authentication in order to
be presented as evidence in court. In contrast, a private document is
any other writing, deed or instrument executed by a private person
without the intervention of a notary or other person legally authorized
by which some disposition or agreement is proved or set forth. — The
nature of documents as either public or private determines how the
documents may be presented as evidence in court. Public documents,
as enumerated under Section 19, Rule 132 of the Rules of Court, are
self-authenticating and require no further authentication in order to
be presented as evidence in court. In contrast, a private document is
any other writing, deed or instrument executed by a private person
without the intervention of a notary or other person legally authorized
by which some disposition or agreement is proved or set forth. Lacking
the official or sovereign character of a public document, or the
solemnities prescribed by law, a private document requires
authentication in the manner prescribed under Section 20, Rule 132
of the Rules: SEC. 20. Proof of private document. — Before any
private document offered as authentic is received in evidence, its due
execution and authenticity must be proved either: (a) By anyone who
saw the document executed or written; or (b) By evidence of the
genuineness of the signature or handwriting of the maker. Any other
private document need only be identified as that which it is claimed to
be. The requirement of authentication of a private document is
excused only in four instances, specifically: (a) when the document is
an ancient one within the context of Section 21, Rule 132 of the Rules;
(b) when the genuineness and authenticity of the actionable document
have not been specifically denied under oath by the adverse party; (c)
when the genuineness and authenticity of the document have been
admitted; or (d) when the document is not being offered as genuine.
Mercantile Law; Carriage of Goods by Sea Act (COGSA); The Carriage
of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US
Congress, was accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade
by virtue of Commonwealth Act (C.A.) No. 65.—The Carriage of Goods
by Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress,
was accepted to be made applicable to all contracts for the carriage
of goods by sea to and from Philippine ports in foreign trade by virtue
of Commonwealth Act (C.A.) No. 65. Section 1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred
and twenty-one of the Seventy-fourth Congress of the United States,
approved on April sixteenth, nineteen hundred and thirty-six, be
accepted, as it is hereby accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade: Provided, That nothing in the Act shall be construed
as repealing any existing provision of the Code of Commerce which is
now in force, or as limiting its application.
Same; Letter of Credit; Words and Phrases; A letter of credit is a
financial device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods
before he is paid, and a buyer, who wants to have control of his goods
before paying.—A letter of credit is a financial device developed by
merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a
seller, who refuses to part with his goods before he is paid, and a
buyer, who wants to have control of his goods before paying.
However, letters of credit are employed by the parties desiring to enter
into commercial transactions, not for the benefit of the issuing bank
but mainly for the benefit of the parties to the original transaction, in
these cases, Nichimen Corporation as the seller and Universal Motors
as the buyer. Hence, the latter, as the buyer of the Nissan CKD parts,
should be regarded as the person entitled to delivery of the goods.
Accordingly, for purposes of reckoning when notice of loss or damage
should be given to the carrier or its agent, the date of delivery to
Universal Motors is controlling.
Same; Common Carriers; Extraordinary Diligence; 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 transported by them. — 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 transported by
them. Subject to certain exceptions enumerated under Article 1734 of
the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who
has a right to receive them.
Same; Same; It is settled in maritime law jurisprudence that cargoes
while being unloaded generally remain under the custody of the
carrier. — It is settled in maritime law jurisprudence that cargoes while
being unloaded generally remain under the custody of the carrier. The
Damage Survey Report of the survey conducted by Phil. Navtech
Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-
42K/1 was damaged by ATI stevedores due to overtightening of a
cable sling hold during discharge from the vessel’s hatch to the pier.
Since the damage to the cargo was incurred during the discharge of
the shipment and while under the supervision of the carrier, the latter
is liable for the damage caused to the cargo.
Same; Arrastre Operators; The functions of an arrastre operator
involve the handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle. — The
functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee
or shipper and the ship’s tackle. 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. Handling cargo is mainly the arrastre operator’s principal
work so its drivers/operators or employees should observe the
standards and measures necessary to prevent losses and damage to
shipments under its custody. While it is true that an arrastre operator
and a carrier may not be held solidarily liable at all times, the facts of
these cases show that apart from ATI’s stevedores being directly in
charge of the physical unloading of the cargo, its foreman picked the
cable sling that was used to hoist the packages for transfer to the
dock. Moreover, the fact that 218 of the 219 packages were unloaded
with the same sling unharmed is telling of the inadequate care with
which ATI’s stevedore handled and discharged Case No. 03-245-
42K/1.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Cruz, Capule, Marcon & Nabaza Law Office for Asian Terminals, Inc.
Albert R. Palacios Law Office for Philam Insurance Co., Inc.
Balane, Tamase, Alampay Law Offices for Westwind Shipping Corp.
VILLARAMA, JR., J.:
Before us are three consolidated petitions for review on certiorari
assailing the Decision dated October 15, 2007 and the Resolution
dated January 11, 2008 of the Court of Appeals (CA) which affirmed
with modification the Decision of the Regional Trial Court (RTC) of
Makati City, Branch 148, in Civil Case No. 96-062. The RTC had
ordered Westwind Shipping Corporation (Westwind) and Asian
Terminals, Inc. (ATI) to pay, jointly and severally, Philam Insurance
Co., Inc. (Philam) the sum of P633,957.15, with interest at 12% per
annum from the date of judicial demand and P158,989.28 as
attorney’s fees.
The facts of the case follow:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors
Corporation (Universal Motors) 219 packages containing 120 units of
brand new Nissan Pickup Truck Double Cab 4x2 model, without
engine, tires and batteries, on board the vessel S/S “Calayan Iris” from
Japan to Manila. The shipment, which had a declared value of
US$81,368 or P29,400,000, was insured with Philam against all risks
under Marine Policy No. 708-8006717-4.
The carrying vessel arrived at the port of Manila on April 20, 1995,
and when the shipment was unloaded by the staff of ATI, it was found
that the package marked as 03-245-42K/1 was in bad order. The Turn
Over Survey of Bad Order Cargoes6 dated April 21, 1995 identified
two packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being
dented and broken. Thereafter, the cargoes were stored for temporary
safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla
Customs Brokerage, Inc., the authorized broker of Universal Motors,
and delivered to the latter’s warehouse in Mandaluyong City. Upon the
request of Universal Motors, a bad order survey was conducted on the
cargoes and it was found that one Frame Axle Sub without LWR was
deeply dented on the buffle plate while six Frame Assembly with
Bush were deformed and misaligned. Owing to the extent of the
damage to said cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages
in the amount of P643,963.84 against Westwind, ATI and R.F. Revilla
Customs Brokerage, Inc. When Universal Motors’ demands remained
unheeded, it sought reparation from and was compensated in the sum
of P633,957.15 by Philam.
Accordingly, Universal Motors issued a Subrogation Receipt dated
November 15, 1995 in favor of Philam. On January 18, 1996, Philam,
as subrogee of Universal Motors, filed a Complaint for damages
against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc.
before the RTC of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of
Philam and ordered Westwind and ATI to pay Philam, jointly and
severally, the sum of P633,957. with interest at the rate of 12% per
annum, P158,989.28 by way of attorney’s fees and expenses of
litigation.
The court a quo ruled that there was sufficient evidence to establish
the respective participation of Westwind and ATI in the discharge of
and consequent damage to the shipment. It found that the subject
cargoes were compressed while being hoisted using a cable that was
too short and taut. The trial court observed that while the staff of ATI
undertook the physical unloading of the cargoes from the carrying
vessel, Westwind’s duty officer exercised full supervision and control
throughout the process. It held Westwind vicariously liable for failing
to prove that it exercised extraordinary diligence in the supervision of
the ATI stevedores who unloaded the cargoes from the vessel.
However, the court absolved R.F. Revilla Customs Brokerage, Inc.
from liability in light of its finding that the cargoes had been damaged
before delivery to the consignee.
The trial court acknowledged the subrogation between Philam and
Universal Motors on the strength of the Subrogation Receipt dated
November 15, 1995. It likewise upheld Philam’s claim for the value of
the alleged damaged vehicle parts contained in Case Nos. 03-245-
42K/1 and 03-245-51K or specifically for “7 [pieces] of Frame Axle Sub
Without Lower and Frame Assembly with Bush.”
Westwind filed a Motion for Reconsideration which was, however,
denied in an Order dated October 26, 2000.
On appeal, the CA affirmed with modification the ruling of the RTC. In
a Decision dated October 15, 2007, the appellate court directed
Westwind and ATI to pay Philam, jointly and severally, the amount of
P190,684.48 with interest at the rate of 12% per annum until fully
paid, attorney’s fees of P47,671 and litigation expenses.
The CA stressed that Philam may not modify its allegations by claiming
in its Appellee’s Brief that the six pieces of Frame Assembly with Bush,
which were purportedly damaged, were also inside Case No. 03-245-
42K/1. The CA noted that in its Complaint, Philam alleged that “one
(1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 [was]
completely deformed and misaligned, and six (6) other pcs. of FRAME
ASSEMBLY WITH BUSH from Case No. 03-245-51K [were] likewise
completely deformed and misaligned.”
The appellate court accordingly affirmed Westwind and ATI’s joint and
solidary liability for the damage to only one (1) unit of Frame Axle Sub
without Lower inside Case No. 03-245-42K/1. It also noted that when
said cargo sustained damage, it was not yet in the custody of the
consignee or the person who had the right to receive it. The CA
pointed out that Westwind’s duty to observe extraordinary diligence
in the care of the cargoes subsisted during unloading thereof by ATI’s
personnel since the former exercised full control and supervision over
the discharging operation.
Similarly, the appellate court held ATI liable for the negligence of its
employees who carried out the offloading of cargoes from the ship to
the pier. As regards the extent of ATI’s liability, the CA ruled that ATI
cannot limit its liability to P5,000 per damaged package. It explained
that Section 7.01 of the Contract for Cargo Handling Services does not
apply in this case since ATI was not yet in custody and control of the
cargoes when the Frame Axle Sub without Lower suffered damage.
Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine
First Insurance Co., Inc., the appellate court also held that Philam’s
action for damages had not prescribed notwithstanding the absence
of a notice of claim.
All the parties moved for reconsideration, but their motions were
denied in a Resolution dated January 11, 2008. Thus, they each filed
a petition for review on certiorari which were consolidated together by
this Court considering that all three petitions assail the same CA
decision and resolution and involve the same parties.
Essentially, the issues posed by petitioner ATI in G.R. No. 181163,
petitioner Philam in G.R. No. 181262 and petitioner Westwind in G.R.
No. 181319 can be summed up into and resolved by addressing three
questions: (1) Has Philam’s action for damages prescribed? (2) Who
between Westwind and ATI should be held liable for the damaged
cargoes? and (3) What is the extent of their liability?
Petitioners’ Arguments
G.R. No. 181163
Petitioner ATI disowns liability for the damage to the Frame Axle Sub
without Lower inside Case No. 03-245-42K/1. It shifts the blame to
Westwind, whom it charges with negligence in the supervision of the
stevedores who unloaded the cargoes. ATI admits that the damage
could have been averted had Westwind observed extraordinary
diligence in handling the goods. Even so, ATI suspects that Case No.
03-245-42K/1 is “weak and defective” considering that it alone
sustained damage out of the 219 packages.
Notwithstanding, petitioner ATI submits that, at most, it can be held
liable to pay only P5,000 per package pursuant to its Contract for
Cargo Handling Services. ATI maintains that it was not properly
notified of the actual value of the cargoes prior to their discharge from
the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both Westwind and ATI
liable for the deformed and misaligned Frame Axle Sub without Lower
inside Case No. 03-245-42K/1. It, however, faults the appellate court
for disallowing its claim for the value of six Chassis Frame Assembly
which were likewise supposedly inside Case Nos. 03-245-51K and 03-
245-42K/1. As to the latter container, Philam anchors its claim on the
results of the Inspection/Survey Report of Chartered Adjusters, Inc.,
which the court received without objection from Westwind and ATI.
Petitioner believes that with the offer and consequent admission of
evidence to the effect that Case No. 03-245-42K/1 contains six pieces
of dented Chassis Frame Assembly, Philam’s claim thereon should be
treated, in all respects, as if it has been raised in the pleadings. Thus,
Philam insists on the reinstatement of the trial court’s award in its
favor for the payment of P633,957.15 plus legal interest, P158,989.28
as attorney’s fees and costs.
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the value of the
deformed Frame Axle Sub without Lower in Case No. 03-245-42K/1.
Westwind argues that the evidence shows that ATI was already in
actual custody of said case when the Frame Axle Sub without Lower
inside it was misaligned from being compressed by the tight cable
used to unload it. Accordingly, Westwind ceased to have responsibility
over the cargoes as provided in paragraph 4 of the Bill of Lading which
provides that the responsibility of the carrier shall cease when the
goods are taken into the custody of the arrastre.
Westwind contends that sole liability for the damage rests on ATI since
it was the latter’s stevedores who operated the ship’s gear to unload
the cargoes. Westwind reasons that ATI is an independent company,
over whose employees and operations it does not exercise control.
Moreover, it was ATI’s employees who selected and used the wrong
cable to lift the box containing the cargo which was damaged.
Westwind likewise believes that ATI is bound by its acceptance of the
goods in good order despite a finding that Case No. 03-245-42K/1 was
partly torn and crumpled on one side. Westwind also notes that the
discovery that a piece of Frame Axle Sub without Lower was
completely deformed and misaligned came only on May 12, 1995 or
22 days after the cargoes were turned over to ATI and after the same
had been hauled by R.F. Revilla Customs Brokerage, Inc.
Westwind further argues that the CA erred in holding it liable
considering that Philam’s cause of action has prescribed since the
latter filed a formal claim with it only on August 17, 1995 or four
months after the cargoes arrived on April 20, 1995. Westwind stresses
that according to the provisions of clause 20, paragraph 2 of the Bill
of Lading as well as Article 366 of the Code of Commerce, the
consignee had until April 20, 1995 within which to make a claim
considering the readily apparent nature of the damage, or until April
27, 1995 at the latest, if it is assumed that the damage is not readily
apparent.
Lastly, petitioner Westwind contests the imposition of 12% interest on
the award of damages to Philam reckoned from the time of
extrajudicial demand. Westwind asserts that, at most, it can only be
charged with 6% interest since the damages claimed by Philam does
not constitute a loan or forbearance of money.
The Court’s Ruling
The three consolidated petitions before us call for a determination of
who between ATI and Westwind is liable for the damage suffered by
the subject cargo and to what extent. However, the resolution of the
issues raised by the present petitions is predicated on the appreciation
of factual issues which is beyond the scope of a petition for review on
certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended. It is settled that in petitions for review on certiorari, only
questions of law may be put in issue. Questions of fact cannot be
entertained.
There is a question of law if the issue raised is capable of being
resolved without need of reviewing the probative value of the
evidence. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed
is one of fact. If the query requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of surrounding circumstances
and their relation to each other, the issue in that query is factual.
In the present petitions, the resolution of the question as to who
between Westwind and ATI should be liable for the damages to the
cargo and to what extent would have this Court pass upon the
evidence on record. But while it is not our duty to review, examine
and evaluate or weigh all over again the probative value of the
evidence presented, the Court may nonetheless resolve questions of
fact when the case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when in making
its findings the Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and
the appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner’s main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by
the evidence on record.
In the cases at bar, the fifth and seventh exceptions apply. While the
CA affirmed the joint liability of ATI and Westwind, it held them liable
only for the value of one unit of Frame Axle Sub without Lower inside
Case No. 03-245-42K/1. The appellate court disallowed the award of
damages for the six pieces of Frame Assembly with Bush, which
petitioner Philam alleged, for the first time in its Appellee’s Brief, to be
likewise inside Case No. 03-245-42K/1. Lastly, the CA reduced the
award of attorney’s fees to P47,671.
Foremost, the Court holds that petitioner Philam has adequately
established the basis of its claim against petitioners ATI and
Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation
Receipt executed by the latter in favor of the former. The right of
subrogation accrues simply upon payment by the insurance company
of the insurance claim. Petitioner Philam’s action finds support in
Article 2207 of the Civil Code, which provides as follows:
Art. 2207. If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract.
x x x.
In their respective comments to Philam’s Formal Offer of Evidence,
petitioners ATI and Westwind objected to the admission of Marine
Certificate No. 708-8006717-4 and the Subrogation Receipt as
documentary exhibits “B” and “P,” respectively. Petitioner Westwind
objects to the admission of both documents for being hearsay as they
were not authenticated by the persons who executed them. For the
same reason, petitioner ATI assails the admissibility of the
Subrogation Receipt. As regards Marine Certificate No. 708-8006717-
4, ATI makes issue of the fact that the same was issued only on April
27, 1995 or 12 days after the shipment was loaded on and transported
via S/S “Calayan Iris.”
The nature of documents as either public or private determines how
the documents may be presented as evidence in court. Public
documents, as enumerated under Section 19, Rule 132 of the Rules
of Court, are self-authenticating and require no further authentication
in order to be presented as evidence in court.
In contrast, a private document is any other writing, deed or
instrument executed by a private person without the intervention of a
notary or other person legally authorized by which some disposition
or agreement is proved or set forth. Lacking the official or sovereign
character of a public document, or the solemnities prescribed by law,
a private document requires authentication in the manner prescribed
under Section 20, Rule 132 of the Rules:
SEC. 20. Proof of private document.—Before any private document
offered as authentic is received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting
of the maker.
Any other private document need only be identified as that which it is
claimed to be.
The requirement of authentication of a private document is excused
only in four instances, specifically: (a) when the document is an
ancient one within the context of Section 21, Rule 132 of the Rules;
(b) when the genuineness and authenticity of the actionable document
have not been specifically denied under oath by the adverse party; (c)
when the genuineness and authenticity of the document have been
admitted; or (d) when the document is not being offered as genuine.
Indubitably, Marine Certificate No. 708-8006717-4 and the
Subrogation Receipt are private documents which Philam and the
consignee, respectively, issue in the pursuit of their business. Since
none of the exceptions to the requirement of authentication of a
private document obtains in these cases, said documents may not be
admitted in evidence for Philam without being properly authenticated.
Contrary to the contention of petitioners ATI and Westwind, however,
Philam presented its claims officer, Ricardo Ongchangco, Jr. to testify
on the execution of the Subrogation Receipt, as follows:
ATTY. PALACIOS: How were you able to get hold of this subrogation
receipt?
A: Because I personally delivered the claim check to consignee and
have them [receive] the said check.
Q: I see. Therefore, what you are saying is that you personally
delivered the claim check of Universal Motors Corporation to that
company and you have the subrogation receipt signed by them
personally?
A: Yes, sir.
Q: And it was signed in your presence?
A: Yes, sir.
Indeed, all that the Rules require to establish the authenticity of a
document is the testimony of a person who saw the document
executed or written. Thus, the trial court did not err in admitting the
Subrogation Receipt in evidence despite petitioners ATI and
Westwind’s objections that it was not authenticated by the person who
signed it.
However, the same cannot be said about Marine Certificate No. 708-
8006717-4 which Ongchangcho, Jr. merely identified in court. There
is nothing in Ongchangco, Jr.’s testimony which indicates that he saw
Philam’s authorized representative sign said document, thus:
ATTY. PALACIOS: Now, I am presenting to you a copy of this marine
certificate 708-8006717-4 issued by Philam Insurance Company, Inc.
to Universal Motors Corporation on April 15, 1995. Will you tell us what
relation does it have to that policy risk claim mentioned in that letter?
A: This is a photocopy of the said policy issued by the consignee
Universal Motors Corporation.
ATTY. PALACIOS: I see. [May] I request, if Your Honor please, that
this marine risk policy of the plaintiff as submitted by claimant
Universal Motors Corporation be marked as Exhibit B.
COURT: Mark it.
As regards the issuance of Marine Certificate No. 708-8006717-4 after
the fact of loss occurred, suffice it to say that said document simply
certifies the existence of an open insurance policy in favor of the
consignee. Hence, the reference to an “Open Policy Number 9595093”
in said certificate. The Court finds it completely absurd to suppose that
any insurance company, of sound business practice, would assume a
loss that has already been realized, when the profitability of its
business rests precisely on the non-happening of the risk insured
against.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4,
the Subrogation Receipt, on its own, is adequate proof that petitioner
Philam paid the consignee’s claim on the damaged goods. Petitioners
ATI and Westwind failed to offer any evidence to controvert the same.
In Malayan Insurance Co., Inc. v. Alberto, the Court explained the
effect of payment by the insurer of the insurance claim in this wise:
We have held that payment by the insurer to the insured operates as
an equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the
insurance claim. The doctrine of subrogation has its roots in equity. It
is designed to promote and accomplish justice; and is the mode that
equity adopts to compel the ultimate payment of a debt by one who,
in justice, equity, and good conscience, ought to pay.
Neither do we find support in petitioner Westwind’s contention that
Philam’s right of action has prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of
the 74th US Congress, was accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade by virtue of Commonwealth Act (C.A.) No. 65. Section
1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred
and twenty-one of the Seventy-fourth Congress of the United States,
approved on April sixteenth, nineteen hundred and thirty-six, be
accepted, as it is hereby accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade: Provided, That nothing in the Act shall be construed
as repealing any existing provision of the Code of Commerce which is
now in force, or as limiting its application.
The prescriptive period for filing an action for the loss or damage of
the goods under the COGSA is found in paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such
loss or damage be given in writing to the carrier or his agent at the
port of discharge before or at the time of the removal of the goods
into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the
delivery by the carrier of the goods as described in the bill of lading.
If the loss or damage is not apparent, the notice must be given within
three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for
the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has
at the time of their receipt been the subject of joint survey or
inspection.
In any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should
have been delivered: Provided, That if a notice of loss or damage,
either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of the goods or the date
when the goods should have been delivered.
In the Bill of Lading dated April 15, 1995, Rizal Commercial Banking
Corporation (RCBC) is indicated as the consignee while Universal
Motors is listed as the notify party. These designations are in line with
the subject shipment being covered by Letter of Credit No. I501054,
which RCBC issued upon the request of Universal Motors.
A letter of credit is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales of goods to
satisfy the seemingly irreconcilable interests of a seller, who refuses
to part with his goods before he is paid, and a buyer, who wants to
have control of his goods before paying. However, letters of credit are
employed by the parties desiring to enter into commercial
transactions, not for the benefit of the issuing bank but mainly for the
benefit of the parties to the original transaction, in these cases,
Nichimen Corporation as the seller and Universal Motors as the buyer.
Hence, the latter, as the buyer of the Nissan CKD parts, should be
regarded as the person entitled to delivery of the goods. Accordingly,
for purposes of reckoning when notice of loss or damage should be
given to the carrier or its agent, the date of delivery to Universal
Motors is controlling.
S/S “Calayan Iris” arrived at the port of Manila on April 20, 1995, and
the subject cargoes were discharged to the custody of ATI the next
day. The goods were then withdrawn from the CFS Warehouse on May
11, 1995 and the last of the packages delivered to Universal Motors
on May 17, 1995. Prior to this, the latter filed a Request for Bad Order
Survey46 on May 12, 1995 following a joint inspection where it was
discovered that six pieces of Chassis Frame Assembly from two
bundles were deformed and one Front Axle Sub without Lower from a
steel case was dented. Yet, it was not until August 4, 1995 that
Universal Motors filed a formal claim for damages against petitioner
Westwind.
Even so, we have held in Insurance Company of North America v.
Asian Terminals, Inc. that a request for, and the result of a bad order
examination, done within the reglementary period for furnishing notice
of loss or damage to the carrier or its agent, serves the purpose of a
claim. A claim is required to be filed within the reglementary period to
afford the carrier or depositary reasonable opportunity and facilities to
check the validity of the claims while facts are still fresh in the minds
of the persons who took part in the transaction and documents are
still available. Here, Universal Motors filed a request for bad order
survey on May 12, 1995, even before all the packages could be
unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that
failure to comply with the notice requirement shall not affect or
prejudice the right of the shipper to bring suit within one year after
delivery of the goods. Petitioner Philam, as subrogee of Universal
Motors, filed the Complaint for damages on January 18, 1996, just
eight months after all the packages were delivered to its possession
on May 17, 1995. Evidently, petitioner Philam’s action against
petitioners Westwind and ATI was seasonably filed.
This brings us to the question that must be resolved in these
consolidated petitions. Who between Westwind and ATI should be
liable for the damage to the cargo?
It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and
crumpled on one side while it was being unloaded from the carrying
vessel. The damage to said container was noted in the Bad Order
Cargo Receipt dated April 20, 1995 and Turn Over Survey of Bad Order
Cargoes dated April 21, 1995. The Turn Over Survey of Bad Order
Cargoes indicates that said steel case was not opened at the time of
survey and was accepted by the arrastre in good order. Meanwhile,
the Bad Order Cargo Receipt bore a notation “B.O. not yet t/over to
ATI.” On the basis of these documents, petitioner ATI claims that the
contents of Steel Case No. 03-245-42K/1 were damaged while in the
custody of petitioner Westwind.
We agree.
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
The court a quo, however, found both petitioners Westwind and ATI,
jointly and severally, liable for the damage to the cargo. It observed
that while the staff of ATI undertook the physical unloading of the
cargoes from the carrying vessel, Westwind’s duty officer exercised
full supervision and control over the entire process. The appellate
court affirmed the solidary liability of Westwind and ATI, but only for
the damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no reason to
deviate from the finding that petitioners Westwind and ATI are
concurrently accountable for the damage to the content of Steel Case
No. 03-245-42K/1.
Section 2 of the COGSA provides that under every contract of carriage
of goods by the sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care and discharge of such goods, shall
be subject to the responsibilities and liabilities and entitled to the
rights and immunities set forth in the Act. Section 3 (2) thereof then
states that among the carrier’s responsibilities are to properly load,
handle, stow, carry, keep, care for and discharge the goods carried.
At the trial, Westwind’s Operation Assistant, Menandro G. Ramirez,
testified on the presence of a ship officer to supervise the unloading
of the subject cargoes.
ATTY. LLAMAS: Having been present during the entire discharging
operation, do you remember who else were present at that time?
A: Our surveyor and our checker the foreman of ATI.
Q: Were there officials of the ship present also?
A: Yes, sir there was an officer of the vessel on duty at that time.
xxxx
Q: Who selected the cable sling to be used?
A: ATI Operation.
Q: Are you aware of how they made that selection?
A: Before the vessel arrived we issued a manifesto of the storage plan
informing the ATI of what type of cargo and equipment will be utilized
in discharging the cargo
xxxx
Q: You testified that it was the ATI foremen who select the cable sling
to be used in discharging, is that correct?
A: Yes sir, because they are the one who select the sling and they
know the kind of cargoes because they inspected it before the
discharge of said cargo.
Q: Are you aware that the ship captain is consulted in the selection of
the cable sling?
A: Because the ship captain knows for a fact the equipment being
utilized in the discharge of the cargoes because before the ship leave
the port of Japan the crew already utilized the proper equipment fitted
to the cargo. (Emphasis supplied.)
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. The
Damage Survey Report of the survey conducted by Phil. Navtech
Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-
42K/1 was damaged by ATI stevedores due to overtightening of a
cable sling hold during discharge from the vessel’s hatch to the pier.
Since the damage to the cargo was incurred during the discharge of
the shipment and while under the supervision of the carrier, the latter
is liable for the damage caused to the cargo.
This is not to say, however, that petitioner ATI is without liability for
the damaged cargo.
The functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee
or shipper and the ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
While it is true that an arrastre operator and a carrier may not be held
solidarily liable at all times, the facts of these cases show that apart
from ATI’s stevedores being directly in charge of the physical
unloading of the cargo, its foreman picked the cable sling that was
used to hoist the packages for transfer to the dock. Moreover, the fact
that 218 of the 219 packages were unloaded with the same sling
unharmed is telling of the inadequate care with which ATI’s stevedore
handled and discharged Case No. 03-245-42K/1.
With respect to petitioners ATI and Westwind’s liability, we agree with
the CA that the same should be confined to the value of the one piece
Frame Axle Sub without Lower.
In the Bad Order Inspection Report prepared by Universal Motors, the
latter referred to Case No. 03-245-42K/1 as the source of said Frame
Axle Sub without Lower which suffered a deep dent on its buffle plate.
Yet, it identified Case No. 03-245-51K as the container which bore the
six pieces Frame Assembly with Bush. Thus, in Philam’s Complaint, it
alleged that “the entire shipment showed one (1) pc. FRAME AXLE
SUB W/O LWR from Case No. 03-245-42K/1 [was] completely
deformed and misaligned, and six (6) other pcs. of FRAME ASSEMBLY
WITH BUSH from Case No. 03-245-51K [were] likewise completely
deformed and misaligned.” Philam later claimed in its Appellee’s Brief
that the six pieces of Frame Assembly with Bush were also inside the
damaged Case No. 03-245-42K/1.
However, there is nothing in the records to show conclusively that the
six Frame Assembly with Bush were likewise contained in and
damaged inside Case No. 03-245-42K/1. In the Inspection Survey
Report of Chartered Adjusters, Inc., it mentioned six pieces of chassis
frame assembly with deformed body mounting bracket. However, it
merely noted the same as coming from two bundles with no
identifying marks.
Lastly, we agree with petitioner Westwind that the CA erred in
imposing an interest rate of 12% on the award of damages. Under
Article 2209 of the Civil Code, 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. In the similar case of Belgian Overseas
Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc.,
the Court reduced the rate of interest on the damages awarded to the
carrier therein to 6% from the time of the filing of the complaint until
the finality of the decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision
dated October 15, 2007 and the Resolution dated January 11, 2008 of
the Court of Appeals in CA-G.R. CV No. 69284 in that the interest rate
on the award of P190,684.48 is reduced to 6% per annum from the
date of extrajudicial demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and G.R. No.
181319, respectively.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Peralta** and
Bersamin, JJ., concur.
Judgment and resolution affirmed with modification.
Notes. — Common carriers, like petitioner bus company, 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.
(R Transport Corporation vs. Pante, 599 SCRA 747 [2009])
Under Section 3(6) of the Carriage of Goods by Sea Act (COGSA),
notice of loss or damages must be filled within three days of delivery;
A failure to file a notice of claim within three days will not bar recovery
of a suit is nonetheless filed within one year from delivery of the goods
or from the date when the goods should have been delivered. (Wallem
Philippines Shipping, Inc. vs. S.R. Farms, Inc., 624 SCRA 329 [2010])
——o0o——
SAMAR MINING COMPANY, INC., plaintiff-appellee, vs.
NORDEUTSCHER LLOYD and CF. SHARP & COMPANY, INC.,
defendants-appellants
No. L-28673. October 23, 1984
Contracts; Common Carriers; Bill of Lading both a receipt and a
contract. — The issue at hand demands a close scrutiny of Bill of
Lading No. 18 and its various clauses and stipulations which should be
examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as
well, because of the nature of the bill of lading which operates both
as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. Being a contract,
it is the law between the parties thereto, who are bound by its terms
and conditions provided that these are not contrary to law, morals,
good customs, public order and public policy.
Same; Same; A stipulation in the bill of lading exempting the carrier
from liability for loss of goods not in its actual custody, i.e., after their
discharge from the ship, is valid. — We find merit in appellants’ stand.
The validity of stipulations in bills of lading exempting the carrier from
liability for loss or damage to the goods when the same are not in its
actual custody has been upheld by Us in PHOENIX ASSURANCE CO.,
LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case
matches the present controversy not only as to the material facts but
more importantly, as to the stipulations contained in the bill of lading
concerned. As if to underline their awesome likeness, the goods in
question in both cases were destined for Davao, but were discharged
from ship in Manila, in accordance with their respective bill of lading.
Same; Same; Liability of international common carriers governed
primarily by New Civil Code. — The liability of the common carrier for
the loss, destruction or deterioration of goods transported from a
foreign country to the Philippines is governed primarily by the New
Civil Code. In all matters not regulated by said Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws.
Same; Same; Art. 1738 of N.C.C. makes a carrier liable for loss of
goods even after ship discharge only if such goods were deposited in
a warehouse of the carrier. — There is no doubt that Art. 1738 finds
no applicability to the instant case. The said article contemplates a
situation where the goods had already reached their place of
destination and are stored in the warehouse of the carrier. The subject
goods were still awaiting transshipment to their port of destination,
and were stored in the warehouse of a third party when last seen
and/or heard of.
Same; Same; Art. 1736 of N.C.C. applies to case at bar. Said article
relieves a carrier of responsibility upon actual or constructive delivery
of goods to consignee. — However, Article 1736 is applicable to the
instant suit. Under said article, the carrier may be relieved of the
responsibility for loss or damage to the goods upon actual or
constructive delivery of the same by the carrier to the consignee, or
to the person who has a right to receive them. In sales, actual delivery
has been defined as the ceding of corporeal possession by the seller,
and the actual apprehension of corporeal possession by the buyer or
by some person authorized by him to receive the goods as his
representative for the purpose of custody or disposal. By the same
token, there is actual delivery in contracts for the transport of goods
when possession has been turned over to the consignee or to his duly
authorized agent and a reasonable time is given him to remove the
goods. The court a quo found that there was actual delivery to the
consignee through its duly authorized agent, the carrier.
Same; Same; Agency; Appellant’s liability as a common carrier was
effective only for the transport of goods from Germany to Manila, the
point of discharge. From Manila to Davao, upon transshipment of the
same goods the carrier is transformed into an agent of the consignee
and ceases to be liable as a carrier for loss or damage to goods
transshipped. — It becomes necessary at this point to dissect the
complex relationship that had developed between appellant and
appellee in the course of the transactions that gave birth to the
present suit. Two undertakings appeared embodied and/or provided
for in the Bill of Lading in question. The first is FOR THE TRANSPORT
OF GOODS from Bremen, Germany to Manila. The second, THE
TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with
appellant acting as agent of the consignee. At the hiatus between
these two undertakings of appellant which is the moment when the
subject goods are discharged in Manila, its personality changes from
that of carrier to that of agent of the consignee. Thus, the character
of appellant’s possession also changes, from possession in its own
name as carrier, into possession in the name of consignee as the
latter’s agent. Such being the case, there was, in effect, actual delivery
of the goods from appellant as carrier to the same appellant as agent
of the consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that may
befall the goods from that point onwards. This is the full import of
Article 1736, as applied to the case before Us.
Same; Same; Same; After a common carrier’s status has passed from
that of carrier to that of agent of consignee, loss of goods in its hands
for cause beyond its control and without its negligence being proved,
relieves carrier of civil liability for such loss or damage. — But even as
agent of the consignee, the appellant cannot be made answerable for
the value of the missing goods. It is true that the transshipment of the
goods, which was the object of the agency, was not fully performed.
However, appellant had commenced said performance, the
completion of which was aborted by circumstances beyond its control.
An agent who carries out the orders and instructions of the principal
without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of
the agency.
Same; Same; Same; Same. — The actions of appellant carrier and of
its representative in the Philippines being in full faith with the lawful
stipulations of Bill of Lading No. 18 and in conformity with the
provisions of the New Civil Code on common carriers, agency and
contracts, they incur no liability for the loss of the goods in question.
APPEAL by certiorari to review the decision of the Court of First
Instance of Manila.
The facts are stated in the opinion of the Court.
CUEVAS, J.:
This is an appeal taken directly to Us on certiorari from the decision
of the defunct Court of First Instance of Manila, finding defendants
carrier and agent, liable for the value of goods never delivered to
plaintiff consignee. The issue raised is a pure question of law, which
is, the liability of the defendants, now appellants, under the bill of
lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee,
SAMAR MINING COMPANY, INC., of one (1) crate Optima welded
wedge wire sieves through the M/S SCHWABENSTEIN, a vessel owned
by defendant-appellant NORDEUTSCHER LLOYD, (represented in the
Philippines by its agent, CF. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR
MINING COMPANY, INC.. Upon arrival of the aforesaid vessel at the
port of Manila, the aforementioned importation was unloaded and
delivered in good order and condition to the bonded warehouse of
AMCYL. The goods were however never delivered to, nor received by,
the consignee at the port of destination—Davao.
When the letters of complaint sent to defendants failed to elicit the
desired response, consignee herein appellee, filed a formal claim for
P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence,
the filing of the instant suit to enforce payment. Defendants-
appellants brought in AMCYL as third-party defendant.
The trial court rendered judgment in favor of plaintiff, ordering
defendants to pay the amount of P1,691.93 plus attorney’s fees and
costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against
third-party defendant AMCYL which had earlier been declared in
default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18
and its various clauses and stipulations which should be examined in
the light of pertinent legal provisions and settled jurisprudence. This
undertaking is not only proper but necessary as well because of the
nature of the bill of lading which operates both as a receipt for the
goods; and more importantly, as a contract to transport and deliver
the same as stipulated therein. Being a contract, it is the law between
the parties thereto, who are bound by its terms and conditions
provided that these are not contrary to law, morals, good customs,
public order and public policy.
Bill of Lading No. 18 sets forth in page 2 thereof6 that one (1) crate
of Optima welded wedge wire sieves was received by the carrier
NORDEUTSCHER LLOYD at the “port of loading” which is Bremen,
Germany, while the freight had been prepaid up to the port of
destination or the “port of discharge of goods”, in this case, Davao,
the carrier undertook to transport the goods in its vessel, M/S
SCHWABENSTEIN, only up to the “port of discharge from ship”—
Manila. Thereafter, the goods were to be transshipped by the carrier
to the port of destination or “port of discharge of goods”. The
stipulation is plainly indicated on the face of the bill which contains the
following phrase printed below the space provided for the “port of
discharge from ship”, thus:
“if goods are to be transshipped at port of discharge, show destination
under the column for ‘description of contents’”
As instructed above, the following words appeared typewritten under
the column for “description of contents”:
“PORT OF DISCHARGE OF GOODS: DAVAO FREIGHT PREPAID”
It is clear, then, that in discharging the goods from the ship at the
port of Manila, and delivering the same into the custody of AMCYL,
the bonded warehouse, appellants were acting in full accord with the
contractual stipulations contained in Bill of Lading No. 18. The delivery
of the goods to AMCYL was part of appellants’ duty to transship the
goods from Manila to their port of destination—Davao. The word
“transship” means:
“to transfer for further transportation from one ship or conveyance to
another.”
The extent of appellant carrier’s responsibility and/or liability in the
transshipment of the goods in question are spelled out and delineated
under Section 1, paragraph 3 of Bill of Lading No. 18, to wit:
“The carrier shall not be liable in any capacity whatsoever for any
delay, loss or damage occurring before the goods enter ship’s tackle
to be loaded or after the goods leave ship’s tackle to be discharged,
transshipped or forwarded x x x.” (Italics supplied)
and in Section 11 of the same Bill, which provides:
“Whenever the carrier or master may deem it advisable or in any case
where the goods are placed at carrier’s disposal at or consigned to a
point where the ship does not expect to load or discharge, the carrier
or master may, without notice, forward the whole or any part of the
goods before or after loading at the original port of shipment. x x x
This carrier, in making arrangements for any transshipping or
forwarding vessels or means of transportation not operated by this
carrier shall be considered solely the forwarding agent of the shipper
and without any other responsibility whatsoever even though the
freight for the whole transport has been collected by him. x x x
Pending or during forwarding or transshipping the carrier may store
the goods ashore or afloat solely as agent of the shipper and at risk
and expense of the goods and the carrier shall not be liable for
detention nor responsible for the acts, neglect, delay or failure to act
of anyone to whom the goods are entrusted or delivered for storage,
handling or any service incidental thereto” (Italics supplied)
Defendants-appellants now shirk liability for the loss of the subject
goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from
ship—Manila, and therefore, pursuant to the aforequoted stipulation
(Sec. 11) in the bill of lading, their responsibility for the cargo had
ceased.
We find merit in appellants’ stand. The validity of stipulations in bills
of lading exempting the carrier from liability for loss or damage to the
goods when the same are not in its actual custody has been upheld
by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES,
22 SCRA 674 (1968). Said case matches the present controversy not
only as to the material facts but more importantly, as to the
stipulations contained in the bill of lading concerned, as if to underline
their awesome likeness, the goods in question in both cases were
destined for Davao, but were discharged from ship in Manila, in
accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are
substantially the same as the subject stipulations before Us, provides:
“The carrier shall not be liable in any capacity whatsoever for any loss
or damage to the goods while the goods are not in its actual custody.
(Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or
in connection with all transshipping or forwarding of the goods or the
use of any means of transportation or forwarding of goods not used
or operated by the carrier, shall be considered solely the agent of the
shipper and consignee and without any other responsibility
whatsoever or for the cost thereof x x x (Par. 16).”
Finding the above stipulations not contrary to law, morals, good
customs, public order or public policy, We sustained their validity.
Applying said stipulations as the law between the parties in the
aforecited case, the Court concluded that:
“x x x The short form Bill of Lading ( ) states in no uncertain terms
that the port of discharge of the cargo is Manila, but that the same
was to be transshipped beyond the port of discharge to Davao City.
Pursuant to the terms of the long form Bill of Lading ( ), appellee’s
responsibility as a common carrier ceased the moment the goods were
unloaded in Manila; and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. x x x x.” (Italics
supplied)
Coming now to the case before Us, We hold, that by the authority of
the above pronouncements, and in conformity with the pertinent
provisions of the New Civil Code, Section 11 of Bill of Lading No. 18
and the third paragraph of Section 1 thereof are valid stipulations
between the parties insofar as they exempt the carrier from liability
for loss or damage to the goods while the same are not in the latter’s
actual custody.
The liability of the common carrier for the loss, destruction or
deterioration of goods transported from a foreign country to the
Philippines is governed primarily by the New Civil Code. In all matters
not regulated by said Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special
laws. A careful perusal of the provisions of the New Civil Code on
common carriers (Section 4, Title VIII, Book IV) directs our attention
to Article 1736 thereof, which reads:
“Article 1736. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.”
Article 1738 referred to in the foregoing provision runs thus:
“Article 1738. The extraordinary liability of the common carrier
continues to be operative even during the time the goods are stored
in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise
dispose of them.”
There is no doubt that Art. 1738 finds no applicability to the instant
case. The said article contemplates a situation where the goods had
already reached their place of destination and are stored in the
warehouse of the carrier. The subject goods were still awaiting
transshipment to their port of destination, and were stored in the
warehouse of a third party when last seen and/or heard of. However,
Article 1736 is applicable to the instant suit. Under said article, the
carrier may be relieved of the responsibility for loss or damage to the
goods upon actual or constructive delivery of the same by the carrier
to the consignee, or to the person who has a right to receive them. In
sales, actual delivery has been defined as the ceding of corporeal
possession by the seller, and the actual apprehension of corporeal
possession by the buyer or by some person authorized by him to
receive the goods as his representative for the purpose of custody or
disposal. By the same token, there is actual delivery in contracts for
the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods, The court a quo found that there was
actual delivery to the consignee through its duly authorized agent, the
carrier.
It becomes necessary at this point to dissect the complex relationship
that had developed between appellant and appellee in the course of
the transactions that gave birth to the present suit. Two undertakings
appeared embodied and/or provided for in the Bill of Lading in
question. The first is FOR THE TRANSPORT OF GOODS from Bremen,
Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME
GOODS from Manila to Davao, with appellant acting as agent of the
consignee. At the hiatus between these two undertakings of appellant
which is the moment when the subject goods are discharged in Manila,
its personality changes from that of carrier to that of agent of the
consignee. Thus, the character of appellant’s possession also changes,
from possession in its own name as carrier, into possession in the
name of consignee as the latter’s agent. Such being the case, there
was, in effect, actual delivery of the goods from appellant as carrier
to the same appellant as agent of the consignee. Upon such delivery,
the appellant, as erstwhile carrier, ceases to be responsible for any
loss or damage that may befall the goods from that point onwards.
This is the full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made
answerable for the value of the missing goods. It is true that the
transshipment of the goods, which was the object of the agency, was
not fully performed. However, appellant had commenced said
performance, the completion of which was aborted by circumstances
beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit
or fraud, cannot be held responsible for the failure of the principal to
accomplish the object of the agency, This can be gleaned from the
following provisions of the New Civil Code on the obligations of the
agent:
“Article 1884. The agent is bound by his acceptance to carry out the
agency, and is liable for the damages which, through his non-
performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a
conflict between his interests and those of the principal, he should
prefer his own.
Article 1892. The agent may appoint a substitute if the principal has
not prohibited him from doing so; but he shall be responsible for the
acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person
and the person appointed was notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for
negligence which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.”
The records fail to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the Philippines.
Neither is there any showing of notorious incompetence or insolvency
on the part of AMCYL which acted as appellant’s substitute in storing
the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the
Philippines being in full faith with the lawful stipulations of Bill of
Lading No. 18 and in conformity with the provisions of the New Civil
Code on common carriers, agency and contracts, they incur no liability
for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-
appellee’s complaint is hereby DISMISSED.
No costs.
SO ORDERED.
Makasiar (Chairman), Guerrero, Abad Santos and Escolin, JJ.,
concur.
Aquino, J., in the result as to defendants. AMCYL is liable.
Concepcion, Jr., J., no part.
Decision reversed. Complaint dismissed.
Notes. — Where the shipper delivered the cargo to the carrier and the
latter took possession thereof, by placing it on a lighter or barge
manned by its authorized employees, it is held that there existed a
complete contract of carriage the consummation of which had already
begun. (Compania Maritima vs. Insurance Co. of North America, 12
SCRA 213.)
Appellant having received the questioned cargoes in good order when
unloaded from the ship, the inference is obvious that the damage
happened while in its possession and should be liable therefore,
because by law, loss or damage while on possession of an obligor is
presumed due to its fault in the absence of contrary proof. (Atlantic
Mutual Insurance Co. vs. Macondray & Co., Inc., 2 SCRA 603.)
——o0o——
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC.,
petitioner, vs. COURT OF APPEALS and PIONEER
INSURANCE AND SURETY CORPORATION, respondents
G.R. No. 166250. July 26, 2010
Remedial Law; Appeals; Factual questions may not be raised in a
petition for review on certiorari. — Well established is the rule that
factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court.
Commercial Law; Carriage of Goods by Sea Act; Words and Phrases;
Meaning of “Freight Forwarder.” — Petitioner is a freight forwarder.
The term “freight forwarder” refers to a firm holding itself out to the
general public (other than as a pipeline, rail, motor, or water carrier)
to provide transportation of property for compensation and, in the
ordinary course of its business, (1) to assemble and consolidate, or to
provide for assembling and consolidating, shipments, and to perform
or provide for break-bulk and distribution operations of the shipments;
(2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part
of the transportation a carrier subject to the federal law pertaining to
common carriers.
Same; Same; Limitation of a Freight Forwarder’s Liability. — A freight
forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however,
where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable
as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the
transport, even though the forwarder does not carry the merchandise
itself.
Same; Same; Bill of Lading; Meaning of a Bill of Lading; A bill of lading
operates both as receipts and as a contract. — A bill of lading is a
written acknowledgement of the receipt of goods and an agreement
to transport and to deliver them at a specified place to a person named
or on his or her order. It operates both as a receipt and as a contract.
It is a receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date
and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks, condition, quality, and value. As a
contract, it names the contracting parties, which include the
consignee; fixes the route, destination, and freight rate or charges;
and stipulates the rights and obligations assumed by the parties.
Same; Same; Common Carriers; Negligence; Common carriers, as a
general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed; Mere
proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. — UTI is liable as
a common carrier. Common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such diligence. Mere
proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, loss, or destruction
of the goods happened, the transporter shall be held responsible.
Same; Same; Same; The Civil Code does not limit the liability of the
common carrier to a fixed amount per package; The Carriage of Goods
by Sea Act (COGSA) supplements the Civil Code by establishing a
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading. — It is to be noted
that the Civil Code does not limit the liability of the common carrier to
a fixed amount per package. In all matters not regulated by the Civil
Code, the rights and obligations of common carriers are governed by
the Code of Commerce and special laws. Thus, the COGSA
supplements the Civil Code by establishing a provision limiting the
carrier’s liability in the absence of a shipper’s declaration of a higher
value in the bill of lading.
Same; Same; Same; Insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of
the value of the cargo. — In the present case, the shipper did not
declare a higher valuation of the goods to be shipped. Contrary to the
CA’s conclusion, the insertion of the words “L/C No. LC No. 1-187-
008394/NY 69867 covering shipment of raw materials for
pharmaceutical Mfg. x x x” cannot be the basis of petitioner’s liability.
Furthermore, the insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of
the value of the cargo.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Jerome T. Pampolina for petitioner.
Baltazar Y. Repol for private respondent.
NACHURA, J.:
For review is the Court of Appeals (CA) Decision dated April 29, 2004
and Resolution dated November 26, 2004. The assailed Decision
affirmed the Regional Trial Court (RTC) decision3 dated February 22,
2001; while the assailed Resolution denied petitioner Unsworth
Transport International (Philippines), Inc., American President Lines,
Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s)
motion for reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing Corporation
delivered to UTI a shipment of 27 drums of various raw materials for
pharmaceutical manufacturing, consisting of:
“1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x
banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine
oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs:
Vitamin B Complex Extract.” UTI issued Bill of Lading No.
C320/C15991-2, covering the aforesaid shipment. The subject
shipment was insured with private respondent Pioneer Insurance and
Surety Corporation in favor of Unilab against all risks in the amount of
P1,779,664.77 under and by virtue of Marine Risk Note Number MC
RM UL 0627 926 and Open Cargo Policy No. HO-022-RIU.
On the same day that the bill of lading was issued, the shipment was
loaded in a sealed 1x40 container van, with no. APLU-982012, boarded
on APL’s vessel M/V “Pres. Jackson,” Voyage 42, and transshipped to
APL’s M/V “Pres. Taft” for delivery to petitioner in favor of the
consignee United Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila.
On October 6, 1992, petitioner received the said ship-ment in its
warehouse after it stamped the Permit to Deliver Imported Goods
procured by the Champs Customs Brokerage. Three days thereafter,
or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation
(OCMSC) conducted a stripping survey of the shipment located in
petitioner’s warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and
properly sealed
19-steel drums STC Vitamin B Complex Extract, all in good order
condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side,
with approx. spilling of 1%
On October 15, 1992, the arrastre Jardine Davies Transport Services,
Inc. (Jardine) issued Gate Pass No. 761412 which stated that “22
drums Raw Materials for Pharmaceutical Mfg.” were loaded on a truck
with Plate No. PCK-434 facilitated by Champs for delivery to Unilab’s
warehouse. The materials were noted to be complete and in good
order in the gate pass. On the same day, the shipment arrived in
Unilab’s warehouse and was immediately surveyed by an independent
surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The
Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery
On October 23 and 28, 1992, the same independent surveyor
conducted final inspection surveys which yielded the same results.
Consequently, Unilab’s quality control representative rejected one
paper bag containing dried yeast and one steel drum containing
Vitamin B Complex as unfit for the intended purpose.
On November 7, 1992, Unilab filed a formal claim for the damage
against private respondent and UTI. On November 20, 1992, UTI
denied liability on the basis of the gate pass issued by Jardine that the
goods were in complete and good condition; while private respondent
paid the claimed amount on March 23, 1993. By virtue of the Loss and
Subrogation Receipt issued by Unilab in favor of private respondent,
the latter filed a complaint for Damages against APL, UTI and
petitioner with the RTC of Makati. The case was docketed as Civil Case
No. 93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits
ensued. On February 22, 2001, the RTC decided in favor of private
respondent and against APL, UTI and petitioner, the dispositive
portion of which reads:
“WHEREFORE, judgment is hereby rendered in favor of plaintif
PIONEER INSURANCE & SURETY CORPORATION and against the
defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO
TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and
severally, the former the following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY
ONE and 27/100 (Php76,231.27) with interest at the legal rate of 6%
per annum to be computed starting from September 30, 1993 until
fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.”
On appeal, the CA affirmed the RTC decision on April 29, 2004. The
CA rejected UTI’s defense that it was merely a forwarder, declaring
instead that it was a common carrier. The appellate court added that
by issuing the Bill of Lading, UTI acknowledged receipt of the goods
and agreed to transport and deliver them at a specific place to a
person named or his order. The court further concluded that upon the
delivery of the subject shipment to petitioner’s warehouse, its liability
became similar to that of a depositary. As such, it ought to have
exercised ordinary diligence in the care of the goods. And as found by
the RTC, the CA agreed that petitioner failed to exercise the required
diligence. The CA also rejected petitioner’s claim that its liability should
be limited to $500 per package pursuant to the Carriage of Goods by
Sea Act (COGSA) considering that the value of the shipment was
declared pursuant to the letter of credit and the pro forma invoice. As
to APL, the court considered it as a common carrier notwithstanding
the non-issuance of a bill of lading inasmuch as a bill of lading is not
indispensable for the execution of a contract of carriage.
Unsatisfied, petitioner comes to us in this petition for review on
certiorari, raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN UPHOLDING THE DECISION OF THE
REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING
THE SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE
AND 27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST AT 6%
PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED
ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY
ESTABLISHED THE ALLEGED DAMAGE TO ITS CARGO.
Petitioner admits that it is a forwarder but disagrees with the CA’s
conclusion that it is a common carrier. It also questions the appellate
court’s findings that it failed to establish that it exercised extraordinary
or ordinary diligence in the vigilance over the subject shipment. As to
the damages allegedly suffered by private respondent, petitioner
counters that they were not sufficiently proven. Lastly, it insists that
its liability, in any event, should be limited to $500 pursuant to the
package limitation rule. Indeed, petitioner wants us to review the
factual findings of the RTC and the CA and to evaluate anew the
evidence presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised
in a petition for review on certiorari as clearly stated in Section 1, Rule
45 of the Rules of Court, viz.:
“Section 1. Filing of petition with Supreme Court.—A party desiring
to appeal by certiorari from a judgment or final order or resolution of
the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth.”
Admittedly, petitioner is a freight forwarder. The term “freight
forwarder” refers to a firm holding itself out to the general public
(other than as a pipeline, rail, motor, or water carrier) to provide
transportation of property for compensation and, in the ordinary
course of its business, (1) to assemble and consolidate, or to provide
for assembling and consolidating, shipments, and to perform or
provide for break-bulk and distribution operations of the shipments;
(2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part
of the transportation a carrier subject to the federal law pertaining to
common carriers.
A freight forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however,
where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable
as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the
transport, even though the forwarder does not carry the merchandise
itself.
It is undisputed that UTI issued a bill of lading in favor of Unilab.
Pursuant thereto, petitioner undertook to transport, ship, and deliver
the 27 drums of raw materials for pharmaceutical manufacturing to
the consignee.
A bill of lading is a written acknowledgement of the receipt of goods
and an agreement to transport and to deliver them at a specified place
to a person named or on his or her order. It operates both as a receipt
and as a contract. It is a receipt for the goods shipped and a contract
to transport and deliver the same as therein stipulated. As a receipt,
it recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks, condition, quality,
and value. As a contract, it names the contracting parties, which
include the consignee; fixes the route, destination, and freight rate or
charges; and stipulates the rights and obligations assumed by the
parties.
Undoubtedly, UTI is liable as a common carrier. Common carriers, as
a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they
observed such diligence. Mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the
transporter shall be held responsible.
Though it is not our function to evaluate anew the evidence presented,
we refer to the records of the case to show that, as correctly found by
the RTC and the CA, petitioner failed to rebut the prima facie
presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received
by UTI in apparent good order and condition in New York, United
States of America. Second, the OCMSC Survey Report stated that one
steel drum STC Vitamin B Complex Extract was discovered to be with
a cut/hole on the side, with approximate spilling of 1%. Third, though
Gate Pass No. 7614, issued by Jardine, noted that the subject
shipment was in good order and condition, it was specifically stated
that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical
manufacturing. Last, J.G. Bernas’ Survey Report stated that “1-s/drum
was punctured and retaped on the bottom side and the content was
lacking, and there was a short delivery of 5-drums.”
All these conclusively prove the fact of shipment in good order and
condition, and the consequent damage to one steel drum of Vitamin
B Complex Extract while in the possession of petitioner which failed to
explain the reason for the damage. Further, petitioner failed to prove
that it observed the extraordinary diligence and precaution which the
law requires a common carrier to exercise and to follow in order to
avoid damage to or destruction of the goods entrusted to it for safe
carriage and delivery.
However, we affirm the applicability of the Package Limitation Rule
under the COGSA, contrary to the RTC and the CA’s findings.
It is to be noted that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package.
In all matters not regulated by the Civil Code, the rights and
obligations of common carriers are governed by the Code of
Commerce and special laws. Thus, the COGSA supplements the Civil
Code by establishing a provision limiting the carrier’s liability in the
absence of a shipper’s declaration of a higher value in the bill of lading.
Section 4(5) of the COGSA provides:
“(5) Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package of
lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.”
In the present case, the shipper did not declare a higher valuation of
the goods to be shipped. Contrary to the CA’s conclusion, the insertion
of the words “L/C No. LC No. 1-187-008394/NY 69867 covering
shipment of raw materials for pharmaceutical Mfg. x x x” cannot be
the basis of petitioner’s liability. Furthermore, the insertion of an
invoice number does not in itself sufficiently and convincingly show
that petitioner had knowledge of the value of the cargo.
In light of the foregoing, petitioner’s liability should be limited to $500
per steel drum. In this case, as there was only one drum lost, private
respondent is entitled to receive only $500 as damages for the loss.
In addition to said amount, as aptly held by the trial court, an interest
rate of 6% per annum should also be imposed, plus 25% of the total
sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated April 29, 2004 and
Resolution dated November 26, 2004 are AFFIRMED with
MODIFICATION by reducing the principal amount due private
respondent Pioneer Insurance and Surety Corporation from
P76,231.27 to $500, with interest of 6% per annum from date of
demand, and 25% of the amount due as attorney’s fees.
The other aspects of the assailed Decision and Resolution STAND.
SO ORDERED.
Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur.
Petition partially granted, judgment and resolution affirmed with
modification.
Note.—Stipulation in the bill of lading limiting respondent’s liability for
the loss of the subject cargoes is allowed under Article 1749 of the
Civil Code, and Sec. 4, paragraph (5) of the Carriage of Goods by Sea
Act (COGSA). (Philippine Charter Insurance Corporation vs. Neptune
Orient Lines/Over-seas Agency Services, Inc., 554 SCRA 335 [2008])
——o0o——
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
G.R. No. 148496. March 19, 2002
Common Carriers; Customs Brokers; A customs broker is a common
carrier—the concept of “common carrier” under Article 1732 of the
Civil Code may be seen to coincide nearly with the notion of “public
service,” under the Public Service Act (Commonwealth Act No. 1416)
which at least partially supplements the law on common carriers set
forth in the Civil Code. — 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, 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.
Same; Same; There is greater reason for holding a person who is a
customs broker to be a common carrier because the transportation of
goods is an integral part of her business.—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.
Same; Same; Words and Phrases; “Extraordinary Diligence,”
Explained; 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 such
case.—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, 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.”
Same; Same; To prove the exercise of extraordinary diligence, a
customs broker must do more than merely show the possibility that
some other party could be responsible for the damage.—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.
Same; Same; If the improper packing or the defects in the container
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.—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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Montilla Law Office for petitioner.
Leano and Leano Law Office for respondent.
MENDOZA, J.:
This is a petition for review of the decision, dated May 31, 2001, of
the Court of Appeals, affirming the decision 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.
....
Generally speaking under Article 1735 of the Civil Code, if the goods
are proved to have been lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the
extraordinary diligence required by law. The burden of the plaintiff,
therefore, is to prove merely that the goods he transported have been
lost, destroyed or deteriorated. Thereafter, the burden is shifted to
the carrier to prove that he has exercised the extraordinary diligence
required by law. Thus, it has been held that the mere proof of delivery
of goods in good order to a carrier, and of their arrival at the place of
destination in bad order, makes out a prima facie case against the
carrier, so that if no explanation is given as to how the injury occurred,
the carrier must be held responsible. It is incumbent upon the carrier
to prove that the loss was due to accident or some other
circumstances inconsistent with its liability.” (cited in Commercial Laws
of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs broker, 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.
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.
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.
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. 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, the
Court dismissed a similar contention and held the party to be a
common carrier, thus—
The Civil Code defines “common carriers” in the following terms:
“Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.”
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity . . . Article 1732
also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the “general public,” i.e., the general
community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We
think that Article 1732 deliberately refrained from making such
distinctions.
So understood, the concept of “common carrier” under Article 1732
may be seen to coincide neatly with the notion of “public service,”
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, “public service” includes:
“x x x every person that now or hereafter may own, operate, manage,
or control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and
other similar public services. x x x”
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, 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.
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.
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.
....
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.
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 former without exception, that is, without
any report of damage or loss. Surely, if the container vans were
deformed, cracked, distorted or dented, the defendant-appellant
would report it immediately to the consignee or make an exception on
the delivery receipt or note the same in the Warehouse Entry Slip
(WES). None of these took place. To put it simply, the defendant-
appellant received the shipment in good order and condition and
delivered the same to the consignee damaged. We can only conclude
that the damages to the cargo occurred while it was in the possession
of the defendant-appellant. Whenever the thing is lost (or damaged)
in the possession of the debtor (or obligor), it shall be presumed that
the loss (or damage) was due to his fault, unless there is proof to the
contrary. No proof was proffered to rebut this legal presumption and
the presumption of negligence attached to a common carrier in case
of loss or damage to the goods.
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:
....
(4) The character of the goods or defects in the packing or in the
containers.
....
For this provision to apply, the rule is that if the improper packing or,
in this case, the defect/s in the container, is/are known to the carrier
or his employees or apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for
damage resulting therefrom. 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.
WHEREFORE, the decision of the Court of Appeals, dated May 31,
2001, is AFFIRMED.
SO ORDERED.
Bellosillo (Chairman), Quisumbing, Buena and De Leon, Jr., JJ.,
concur.
Judgment affirmed.
Notes. — The arrastre operator and the customs broker need not
themselves always and necessarily be liable solidarily with the carrier,
or vice-versa, nor that attendant facts in a given case may not vary
the rule. (Eastern Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA
78 [1994])
A customs broker is not required to go beyond the documents
presented to him in filing an entry on the basis of such documents.
(Remigio vs. Sandiganbayan, 374 SCRA 114, [2002])
——o0o——
ASIAN TERMINALS, INC., petitioner, vs. SIMON
ENTERPRISES, INC., respondent
G.R. No. 177116. February 27, 2013
Remedial Law; Civil Procedure; “Question of Law” and “Question of
Fact,” Distinguished. ― A question of law exists when the doubt or
controversy concerns the correct application of law or jurisprudence
to a certain set of facts; or when the issue does not call for an
examination of the probative value of the evidence presented, the
truth or falsehood of facts being admitted. A question of fact exists
when the doubt or difference arises as to the truth or falsehood of
facts or when the query invites calibration of the whole evidence
considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances as well as their
relation to each other and to the whole, and the probability of the
situation.
Same; Same; Appeals; Petition for Review on Certiorari; The well-
entrenched rule in our jurisdiction is that only questions of law may
be entertained by this Court in a petition for review on certiorari. ―
The well-entrenched rule in our jurisdiction is that only questions of
law may be entertained by this Court in a petition for review on
certiorari. This rule, however, is not ironclad and admits certain
exceptions, such as when (1) the conclusion is grounded on
speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd or impossible; (3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts; (5) the
findings of fact are conflicting; (6) there is no citation of specific
evidence on which the factual findings are based; (7) the findings of
absence of facts are contradicted by the presence of evidence on
record; (8) the findings of the Court of Appeals are contrary to those
of the trial court; (9) the Court of Appeals manifestly overlooked
certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion; (10) the findings of the Court of
Appeals are beyond the issues of the case; and (11) such findings are
contrary to the admissions of both parties.
Civil Law; Common Carriers; Extraordinary Diligence; Though it is true
that common carriers are presumed to have been at fault or to have
acted negligently if the goods transported by them are lost, destroyed,
or deteriorated, and that the common carrier must prove that it
exercised extraordinary diligence in order to overcome the
presumption, the plaintiff must still, before the burden is shifted to the
defendant, prove that the subject shipment suffered actual
shortage.―Though it is true that common carriers are presumed to
have been at fault or to have acted negligently if the goods
transported by them are lost, destroyed, or deteriorated, and that the
common carrier must prove that it exercised extraordinary diligence
in order to overcome the presumption, the plaintiff must still, before
the burden is shifted to the defendant, prove that the subject
shipment suffered actual shortage. This can only be done if the weight
of the shipment at the port of origin and its subsequent weight at the
port of arrival have been proven by a preponderance of evidence, and
it can be seen that the former weight is considerably greater than the
latter weight, taking into consideration the exceptions provided in
Article 1734 of the Civil Code.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Cruz, Capule, Marcon & Nabasa Law Offices for petitioner.
Linsangan, Linsangan & Linsangan Law Offices for respondent.
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, as amended, assailing the Decision
dated November 27, 2006 and Resolution dated
March 23, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 71210.
The facts are as follows:
On October 25, 1995, Contiquincybunge Export Company loaded
6,843.700 metric tons of U.S. Soybean Meal in Bulk on board the
vessel MN “Sea Dream” at the Port of Darrow, Louisiana, U.S.A., for
delivery to the Port of Manila to respondent Simon Enterprises, Inc.,
as consignee. When the vessel arrived at the South Harbor in Manila,
the shipment was discharged to the receiving barges of petitioner
Asian Terminals, Inc. (ATI), the arrastre operator. Respondent later
received the shipment but claimed having received only 6,825.144
metric tons of U.S. Soybean Meal, or short by 18.556 metric tons,
which is estimated to be worth US$7,100.16 or P186,743.20.
On November 25, 1995, Contiquincybunge Export Company made
another shipment to respondent and allegedly loaded on board the
vessel M/V “Tern” at the Port of Darrow, Louisiana, U.S.A. 3,300.000
metric tons of U.S. Soybean Meal in Bulk for delivery to respondent at
the Port of Manila. The carrier issued its clean Berth Term Grain Bill of
Lading.
On January 25, 1996, the carrier docked at the inner Anchorage, South
Harbor, Manila. The subject shipment was discharged to the receiving
barges of petitioner ATI and received by respondent which, however,
reported receiving only 3,100.137 metric tons instead of the
manifested 3,300.000 metric tons of shipment. Respondent filed
against petitioner ATI and the carrier a claim for the shortage of
199.863 metric tons, estimated to be worth US$79,848.86 or
P2,100,025.00, but its claim was denied.
Thus, on December 3, 1996, respondent filed with the Regional Trial
Court (RTC) of Manila an action for damages against the unknown
owner of the vessels M/V “Sea Dream” and M/V “Tern,” its local agent
Inter-Asia Marine Transport, Inc., and petitioner ATI alleging that it
suffered the losses through the fault or negligence of the said
defendants. Respondent sought to claim damages plus attorney’s fees
and costs of suit. Its claim against the unknown owner of the vessel
M/V “Sea Dream,” however, was later settled in a Release and
Quitclaim dated June 9, 1998, and only the claims against the
unknown owner of the M/V “Tern,” Inter-Asia Marine Transport, Inc.,
and petitioner ATI remained.
In their Answer, the unknown owner of the vessel M/V “Tern” and its
local agent Inter-Asia Marine Transport, Inc., prayed for the dismissal
of the complaint essentially alleging lack of cause of action and
prescription. They alleged as affirmative defenses the following: that
the complaint does not state a cause of action; that plaintiff and/or
defendants are not the real parties-in-interest; that the cause of action
had already prescribed or laches had set in; that the claim should have
been filed within three days from receipt of the cargo pursuant to the
provisions of the Code of Commerce; that the defendant could no
longer check the veracity of plaintiff’s claim considering that the claim
was filed eight months after the cargo was discharged from the vessel;
that plaintiff hired its own barges to receive the cargo and hence, any
damages or losses during the discharging operations were for
plaintiff’s account and responsibility; that the statement of facts bears
no remarks on any short-landed cargo; that the draft survey report
indicates that the cargo discharged was more than the figures
appearing in the bill of lading; that because the bill of lading states
that the goods are carried on a “shipper’s weight, quantity and quality
unknown” terms and on “all terms, conditions and exceptions as per
charter party dated October 15, 1995,” the vessel had no way of
knowing the actual weight, quantity, and quality of the bulk cargo
when loaded at the port of origin and the vessel had to rely on the
shipper for such information; that the subject shipment was
discharged in Manila in the same condition and quantity as when
loaded at the port of loading; that defendants’ responsibility ceased
upon discharge from the ship’s tackle; that the damage or loss was
due to the inherent vice or defect of the goods or to the insufficiency
of packing thereof or perils or dangers or accidents of the sea, pre-
shipment damage or to improper handling of the goods by plaintiff or
its representatives after discharge from the vessel, for which
defendants cannot be made liable; that damage/loss occurred while
the cargo was in the possession, custody or control of plaintiff or its
representative, or due to plaintiff’s own negligence and careless
actuations in the handling of the cargo; that the loss is less than
0.75% of the entire cargo and assuming arguendo that the shortage
exists, the figure is well within the accepted parameters when loading
this type of bulk cargo; that defendants exercised the required
diligence under the law in the performance of their duties; that the
vessel was seaworthy in all respects; that the vessel went straight
from the port of loading to Manila, without passing through any
intermediate ports so there was no chance for any loss of the cargo;
the plaintiff’s claim is excessive, grossly overstated, unreasonable and
a mere paper loss and is certainly unsubstantiated and without any
basis; the terms and conditions of the relevant bill of lading and the
charter party, as well as the provisions of the Carriage of Goods by
Sea Act and existing laws, absolve the defendants from any liability;
that the subject shipment was received in bulk and thus defendant
carrier has no knowledge of the condition, quality and quantity of the
cargo at the time of loading; that the complaint was not referred to
the arbitrators pursuant to the bill of lading; that liability, if any, should
not exceed the CIF value of the lost cargo, or the limits of liability set
forth in the bill of lading and the charter party. As counterclaim,
defendants prayed for the payment of attorney’s fees in the amount
of P220,000. By way of cross-claim, they ask for reimbursement from
their co-defendant, petitioner ATI, in the event that they are held
liable to plaintiff.
Petitioner ATI meanwhile alleged in its Answer that it exercised the
required diligence in handling the subject shipment. It moved for the
dismissal of the complaint, and alleged by way of special and
affirmative defense that plaintiff has no valid cause of action against
petitioner ATI; that the cargo was completely discharged from the
vessel M/V “Tern” to the receiving barges owned or hired by the
plaintiff; and that petitioner ATI exercised the required diligence in
handling the shipment. By way of counterclaim, petitioner ATI argued
that plaintiff should shoulder its expenses for attorney’s fees in the
amount of P20,000 as petitioner ATI was constrained to engage the
services of counsel to protect its interest.
On May 10, 2001, the RTC of Manila rendered a Decision holding
petitioner ATI and its co-defendants solidarily liable to respondent for
damages arising from the shortage. The RTC held:
WHEREFORE, premises considered, judgment is hereby rendered
ordering defendants M/V “Tern” Inter-Asia Marine Transport, Inc. and
Asian Terminal Inc. jointly and severally liable to pay plaintiff Simon
Enterprises the sum of P2,286,259.20 with legal interest from the date
the complaint was filed until fully satisfied, 10% of the amount due
plaintiff as and for attorney’s fees plus the costs of suit.
Defendants’ counterclaim and cross claim are hereby DISMISSED for
lack of merit.
SO ORDERED.
The trial court found that respondent has established that the
losses/shortages were incurred prior to its receipt of the goods. As
such, the burden shifted to the carrier to prove that it exercised
extraordinary diligence as required by law to prevent the loss,
destruction or deterioration. However, the trial court held that the
defendants failed to prove that they did so. The trial court gave
credence to the testimony of Eduardo Ragudo, a super cargo of
defendant Inter-Asia Marine Transport, Inc., who admitted that there
were spillages or overflow down to the spillage saver. The trial court
also noted that said witness also declared that respondent’s
representative was not allowed to sign the Master’s Certificate. Such
declaration, said the trial court, placed petitioner ATI in a bad light
and weakened its stand.
Not satisfied, the unknown owner of the vessel M/V “Tern,” Inter-Asia
Marine Transport, Inc. and petitioner ATI respectively filed appeals to
the CA. In their petition, the unknown owner of the vessel M/V “Tern”
and Inter-Asia Marine Transport, Inc. raised the question of whether
the trial court erred in finding that they did not exercise extraordinary
diligence in the handling of the goods.
On the other hand, petitioner ATI alleged that:
THE COURT-A-QUO COMMITTED SERIOUS AND REVERSIBLE ERROR
IN HOLDING DEFENDANT[-]APPELLANT ATI SOLIDARILY LIABLE
WITH CO-DEFENDANT APPELLANT INTER-ASIA MARINE
TRANSPORT, INC. CONTRARY TO THE EVIDENCE PRESENTED.
On November 27, 2006, the CA promulgated the assailed Decision,
the decretal portion of which reads:
WHEREFORE, the appealed Decision dated May 10, 2001 is affirmed,
except the award of attorney’s fees which is hereby deleted.
SO ORDERED.
In affirming the RTC Decision, the CA held that there is no justification
to disturb the factual findings of the trial court which are entitled to
respect on appeal as they were supported by substantial evidence. It
agreed with the findings of the trial court that the unknown owner of
the vessel M/V “Tern” and Inter-Asia Marine Transport, Inc. failed to
establish that they exercised extraordinary diligence in transporting
the goods or exercised due diligence to forestall or lessen the loss as
provided in Article 1742 of the Civil Code. The CA also ruled that
petitioner ATI, as the arrastre operator, should be held jointly and
severally liable with the carrier considering that petitioner ATI’s
stevedores were under the direct supervision of the unknown owner
of M/V “Tern” and that the spillages occurred when the cargoes were
being unloaded by petitioner ATI’s stevedores.
Petitioner ATI filed a motion for reconsideration, but the CA denied its
motion in a Resolution16 dated March 23, 2007. The unknown owner
of the vessel M/V “Tern” and Inter-Asia Marine Transport, Inc. for their
part, appealed to this Court via a petition for review on certiorari,
which was docketed as G.R. No. 177170. Its appeal, however, was
denied by this Court on July 16, 2007 for failure to sufficiently show
any reversible error committed by the CA in the challenged Decision
and Resolution as to warrant the exercise of this Court’s discretionary
appellate jurisdiction. The unknown owner of M/V “Tern” and Inter-
Asia Marine Transport, Inc. sought reconsideration of the denial but
their motion was denied by the Court in a Resolution dated October
17, 2007.
Meanwhile, on April 20, 2007, petitioner ATI filed the present petition
raising the sole issue of whether the appellate court erred in affirming
the decision of the trial court holding petitioner ATI solidarily liable
with its co-defendants for the shortage incurred in the shipment of the
goods to respondent.
Petitioner ATI argues that:
1. Respondent failed to prove that the subject shipment suffered
actual loss/shortage as there was no competent evidence to prove
that it actually weighed 3,300 metric tons at the port of origin.
2. Stipulations in the bill of lading that the cargo was carried on a
“shipper’s weight, quantity and quality unknown” is not contrary to
public policy. Thus, herein petitioner cannot be bound by the quantity
or weight of the cargo stated in the bill of lading.
3. Shortage/loss, if any, may have been due to the inherent nature
of the shipment and its insufficient packing considering that the
subject cargo was shipped in bulk and had a moisture content of
12.5%.
4. Respondent failed to substantiate its claim for damages as no
competent evidence was presented to prove the same.
5. Respondent has not presented any scintilla of evidence showing
any fault/negligence on the part of herein petitioner.
6. Petitioner ATI should be entitled to its counterclaim.
Respondent, on the other hand, quotes extensively the CA decision
and maintains its correctness.
We grant the petition.
The CA erred in affirming the decision of the trial court holding
petitioner ATI solidarily liable with its co-defendants for the shortage
incurred in the shipment of the goods to respondent.
We note that the matters raised by petitioner ATI involve questions of
fact which are generally not reviewable in a petition for review on
certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, as the Court is not a trier of facts. Section 1 thereof provides
that “[t]he petition x x x shall raise only questions of law, which must
be distinctly set forth.”
A question of law exists when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts; or
when the issue does not call for an examination of the probative value
of the evidence presented, the truth or falsehood of facts being
admitted. A question of fact exists when the doubt or difference arises
as to the truth or falsehood of facts or when the query invites
calibration of the whole evidence considering mainly the credibility of
the witnesses, the existence and relevancy of specific surrounding
circumstances as well as their relation to each other and to the whole,
and the probability of the situation.
The well-entrenched rule in our jurisdiction is that only questions of
law may be entertained by this Court in a petition for review on
certiorari. This rule, however, is not ironclad and admits certain
exceptions, such as when (1) the conclusion is grounded on
speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd or impossible; (3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts; (5) the
findings of fact are conflicting; (6) there is no citation of specific
evidence on which the factual findings are based; (7) the findings of
absence of facts are contradicted by the presence of evidence on
record; (8) the findings of the Court of Appeals are contrary to those
of the trial court; (9) the Court of Appeals manifestly overlooked
certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion; (10) the findings of the Court of
Appeals are beyond the issues of the case; and (11) such findings are
contrary to the admissions of both parties.
After a careful review of the records, we find justification to warrant
the application of the fourth exception. The CA misapprehended the
following facts.
First, petitioner ATI is correct in arguing that the respondent failed to
prove that the subject shipment suffered actual shortage, as there
was no competent evidence to prove that it actually weighed 3,300
metric tons at the port of origin.
Though it is true that common carriers are presumed to have been at
fault or to have acted negligently if the goods transported by them are
lost, destroyed, or deteriorated, and that the common carrier must
prove that it exercised extraordinary diligence in order to overcome
the presumption, the plaintiff must still, before the burden is shifted
to the defendant, prove that the subject shipment suffered actual
shortage. This can only be done if the weight of the shipment at the
port of origin and its subsequent weight at the port of arrival have
been proven by a preponderance of evidence, and it can be seen that
the former weight is considerably greater than the latter weight,
taking into consideration the exceptions provided in Article 1734 of the
Civil Code.
In this case, respondent failed to prove that the subject shipment
suffered shortage, for it was not able to establish that the subject
shipment was weighed at the port of origin at Darrow, Louisiana,
U.S.A. and that the actual weight of the said shipment was 3,300
metric tons.
The Berth Term Grain Bill of Lading23 (Exhibit “A”), the Proforma
Invoice (Exhibit “B”), and the Packing List (Exhibit “C”), being used by
respondent to prove that the subject shipment weighed 3,300 metric
tons, do not, in fact, help its cause.
The Berth Term Grain Bill of Lading states that the subject shipment
was carried with the qualification “Shipper’s weight, quantity and
quality unknown,” meaning that it was transported with the carrier
having been oblivious of the weight, quantity, and quality of the cargo.
This interpretation of the quoted qualification is supported by Wallem
Philippines Shipping, Inc. v. Prudential Guarantee & Assurance, Inc.,
a case involving an analogous stipulation in a bill of lading, wherein
the Supreme Court held that:
Indeed, as the bill of lading indicated that the contract of carriage was
under a “said to weigh” clause, the shipper is solely responsible for
the loading while the carrier is oblivious of the contents of the
shipment. (Emphasis supplied)
Similarly, International Container Terminal Services, Inc. v. Prudential
Guarantee & Assurance Co., Inc., explains the meaning of clauses
analogous to “Shipper’s weight, quantity and quality unknown” in this
manner:
This means that the shipper was solely responsible for the loading of
the container, while the carrier was oblivious to the contents of the
shipment x x x. The arrastre operator was, like any ordinary
depositary, duty-bound to take good care of the goods received from
the vessel and to turn the same over to the party entitled to their
possession, subject to such qualifications as may have validly been
imposed in the contract between the parties. The arrastre operator
was not required to verify the contents of the container received and
to compare them with those declared by the shipper because, as
earlier stated, the cargo was at the shipper’s load and count x x x.
(Italics in the original; emphasis supplied)
Also, Bankers & Manufacturers Assurance Corporation v. Court of
Appeals elucidates thus:
[T]he recital of the bill of lading for goods thus transported [i.e.,
transported in sealed containers or “containerized”] ordinarily would
declare “Said to Contain”, “Shipper’s Load and Count”, “Full Container
Load”, and the amount or quantity of goods in the container in a
particular package is only prima facie evidence of the amount or
quantity x x x.
A shipment under this arrangement is not inspected or inventoried by
the carrier whose duty is only to transport and deliver the containers
in the same condition as when the carrier received and accepted the
containers for transport x x x. (Emphasis supplied)
Hence, as can be culled from the above-mentioned cases, the weight
of the shipment as indicated in the bill of lading is not conclusive as
to the actual weight of the goods. Consequently, the respondent must
still prove the actual weight of the subject shipment at the time it was
loaded at the port of origin so that a conclusion may be made as to
whether there was indeed a shortage for which petitioner must be
liable. This, the respondent failed to do.
The Proforma Invoice militates against respondent’s claim that the
subject shipment weighed 3,300 metric tons. The pertinent portion of
the testimony of Mr. Jose Sarmiento, respondent’s Claims Manager, is
narrated below:
Atty. Rebano: You also identified a while ago, Mr. Witness Exhibit B,
the invoice. Why does it state as description of the cargo three
thousand metric tons and not three thousand three hundred?
A: Usually there is a contract between the supplier and our company
that embodied [sic] in the letter credit [sic] that they have the option
to ship the cargo plus or minus ten percent of the quantity.
xxxx
Q: So, it is possible for the shipper to ship less than ten percent in
[sic] the quantity stated in the invoice and it will still be a valid
shipment. Is it [sic] correct?
A: It [sic] is correct but we must be properly advised and the
commercial invoice should indicate how much they sent to us.
(Emphasis supplied)
The quoted part of Mr. Sarmiento’s testimony not only shows
uncertainty as to the actual weight of the shipment, it also shows that
assuming respondent did order 3,300 metric tons of U.S. Soybean
Meal from Contiquincybunge Export Company, and also assuming that
it only received 3,100.137 metric tons, such volume would still be a
valid shipment because it is well within the 10% allowable shortage.
Note that Mr. Sarmiento himself mentioned that the supplier has the
option to “ship the cargo plus or minus ten percent of the quantity.”
Notably also, the genuineness and the due execution of the Packing
List, the Berth Term Grain Bill of Lading, and the Proforma Invoice,
were not established.
Wallem Philippines Shipping, Inc., is instructive on this matter:
We find that the Court of Appeals erred in finding that a shortage had
taken place. Josephine Suarez, Prudential’s claims processor, merely
identified the papers submitted to her in connection with GMC’s claim
(Bill of Lading BEDI/1 (Exh. “B”), Commercial Invoice No. 1401 issued
by Toepfer International Asia Pte, Ltd. (Exh. “C”), SGS Certificate of
Quality (Exh. “F-1”), and SGS Certificate of Weight (Exh. “F-3”)). Ms.
Suarez had no personal knowledge of the contents of the said
documents and could only surmise as to the actual weight of the cargo
loaded on M/V Gao Yang x x x.
xxxx
Ms. Suarez’s testimony regarding the contents of the documents is
thus hearsay, based as it is on the knowledge of another person not
presented on the witness stand.
Nor has the genuineness and due execution of these documents been
established. In the absence of clear, convincing, and competent
evidence to prove that the shipment indeed weighed 4,415.35 metric
tons at the port of origin when it was loaded on the M/V Gao Yang, it
cannot be determined whether there was a shortage of the shipment
upon its arrival in Batangas. (Emphasis supplied)
As in the present case, Mr. Sarmiento merely identified the three
above-mentioned exhibits, but he had no personal knowledge of the
weight of the subject shipment when it was loaded onto the M/V
“Tern” at the port of origin. His testimony as regards the weight of the
subject shipment as described in Exhibits “A,” “B,” and “C” must then
be considered as hearsay, for it was based on the knowledge of a
person who was not presented during the trial in the RTC.
The presumption that the Berth Term Grain Bill of Lading serves as
prima facie evidence of the weight of the cargo has been rebutted,
there being doubt as to the weight of the cargo at the time it was
loaded at the port of origin. Further, the fact that the cargo was
shipped with the arrangement “Shipper’s weight, quantity and quality
unknown,” indeed means that the weight of the cargo could not be
determined using as basis the figures written on the Berth Term Grain
Bill of Lading. This is in line with Malayan Insurance Co., Inc. v. Jardine
Davies Transport Services, Inc., where we said:
The presumption that the bill of lading, which petitioner relies upon to
support its claim for restitution, constitutes prima facie evidence of the
goods therein described was correctly deemed by the appellate court
to have been rebutted in light of abundant evidence casting doubts on
its veracity.
That MV Hoegh undertook, under the bill of lading, to transport
6,599.23 MT of yellow crude sulphur on a “said to weigh” basis is not
disputed. Under such clause, the shipper is solely responsible for the
loading of the cargo while the carrier is oblivious of the contents of
the shipment. Nobody really knows the actual weight of the cargo
inasmuch as what is written on the bill of lading, as well as on the
manifest, is based solely on the shipper’s declaration.
The bill of lading carried an added clause—the shipment’s weight,
measure, quantity, quality, condition, contents and value unknown.
Evidently, the weight of the cargo could not be gauged from the bill
of lading. (Italics in the original; emphasis supplied)
The respondent having failed to present evidence to prove the actual
weight of the subject shipment when it was loaded onto the M/V
“Tern,” its cause of action must then fail because it cannot prove the
shortage that it was alleging. Indeed, if the claimant cannot
definitively establish the weight of the subject shipment at the point
of origin, the fact of shortage or loss cannot be ascertained. The
claimant then has no basis for claiming damages resulting from an
alleged shortage. Again, Malayan Insurance Co., Inc., provides
jurisprudential basis:
In the absence of clear, convincing and competent evidence to prove
that the cargo indeed weighed, albeit the Bill of Lading qualified it by
the phrase “said to weigh,” 6,599.23 MT at the port of origin when it
was loaded onto the MV Hoegh, the fact of loss or shortage in the
cargo upon its arrival in Manila cannot be definitively established. The
legal basis for attributing liability to either of the respondents is thus
sorely wanting. (Emphasis supplied)
Second, as correctly asserted by petitioner ATI, the shortage, if any,
may have been due to the inherent nature of the subject shipment or
its packaging since the subject cargo was shipped in bulk and had a
moisture content of 12.5%.
It should be noted that the shortage being claimed by the respondent
is minimal, and is an indication that it could be due to consolidation or
settlement of the subject shipment, as accurately observed by the
petitioner. A Kansas State University study on the handling and
storage of soybeans and soybean meal is instructive on this matter.
Pertinent portions of the study reads:
Soybean meal is difficult to handle because of poor flow ability and
bridging characteristics. Soybean meal tends to settle or consolidate
over time. This phenomenon occurs in most granular materials and
becomes more severe with increased moisture, time and small particle
size x x x.
xxxx
Moisture is perhaps the most important single factor affecting storage
of soybeans and soybean meal. Soybeans contain moisture ranging
from 12% to 15% (wet basis) at harvest time x x x.
xxxx
Soybeans and soybean meal are hygroscopic materials and will either
lose (desorb) or gain (adsorb) moisture from the surrounding air. The
moisture level reached by a product at a given constant temperature
and equilibrium relative humidity (ERH) is its equilibrium moisture
content (EMC) x x x. (Emphasis supplied)
As indicated in the Proforma Invoice mentioned above, the moisture
content of the subject shipment was 12.5%. Taking into consideration
the phenomena of desorption, the change in temperature surrounding
the Soybean Meal from the time it left wintertime Darrow, Louisiana,
U.S.A. and the time it arrived in Manila, and the fact that the voyage
of the subject cargo from the point of loading to the point of unloading
was 36 days, the shipment could have definitely lost weight,
corresponding to the amount of moisture it lost during transit.
The conclusion that the subject shipment lost weight in transit is
bolstered by the testimony of Mr. Fernando Perez, a Cargo Surveyor
of L.J. Del Pan. The services of Mr. Perez were requested by
respondent. Mr. Perez testified that it was possible for the subject
shipment to have lost weight during the 36-day voyage, as it was
wintertime when M/V “Tern” left the United States and the climate
was warmer when it reached the Philippines; hence the moisture level
of the Soybean Meal could have changed. Moreover, Mr. Perez himself
confirmed, by answering a question propounded by the RTC, that loss
of weight of the subject cargo cannot be avoided because of the shift
in temperature from the colder United States weather to the warmer
Philippine climate.
More importantly, the 199.863 metric-ton shortage that respondent
alleges is a minimal 6.05% of the weight of the entire Soy Bean Meal
shipment. Taking into consideration the previously mentioned option
of the shipper to ship 10% more or less than the contracted shipment,
and the fact that the alleged shortage is only 6.05% of the total
quantity of 3,300 metric tons, the alleged percentage loss clearly does
not exceed the allowable 10% allowance for loss, as correctly argued
by petitioner. The alleged loss, if any, not having exceeded the
allowable percentage of shortage, the respondent then has no cause
of action to claim for shortages.
Third, we agree with the petitioner ATI that respondent has not
proven any negligence on the part of the former.
As petitioner ATI pointed out, a reading of the Survey Report of Del
Pan Surveyors39 (Exhibits “D” to “D-4” of respondent) would not show
any untoward incident or negligence on the part of petitioner ATI
during the discharging operations.
Also, a reading of Exhibits “D”, “D-1”, and “D-2” would show that the
methods used in determining whether there was a shortage are not
accurate.
Respondent relied on the Survey Reports of Del Pan Surveyors to
prove that the subject shipment suffered loss. The conclusion that
there was a shortage arose from an evaluation of the weight of the
cargo using the barge displacement method. This is a type of draught
survey, which is a method of cargo weight determination by ship’s
displacement calculations. The basic principle upon which the draught
survey methodology is based is the Principle of Archimedes, i.e., a
vessel when floating in water, will displace a weight of water equal to
its own weight. It then follows that if a weight of cargo is loaded on
(or unloaded from) a vessel freely floating in water, then the vessel
will sink (or float) into the water until the total weight of water
displaced is equal to the original weight of the vessel, plus (or minus)
the cargo which has been loaded (or unloaded) and plus (or minus)
density variation of the water between the starting survey (first
measurement) and the finishing survey (second measurement). It can
be seen that this method does not entail the weighing of the cargo
itself, but as correctly stated by the petitioner, the weight of the
shipment is being measured by mere estimation of the water displaced
by the barges before and after the cargo is unloaded from the said
barges.
In addition, the fact that the measurements were done by Del Pan
Surveyors in prevailing slight to slightly rough sea condition supports
the conclusion that the resulting measurement may not be accurate.
A United Nations study on draught surveys in fact states that the
accuracy of draught surveys will be dependent upon several factors,
one of which is the weather and seas condition in the harbor.
Also, it can be seen in respondent’s own Exhibit “D-1” that the actual
weight of the cargo was established by weighing 20% of the cargo.
Though we recognize the practicality of establishing cargo weight
through random sampling, we note the discrepancy in the weights
used in the determination of the alleged shortage.
Exhibit “D-1” of respondent states that the average weight of each
bag is 52 kilos. A total of 63,391 bags were discharged from the
barges, and the tare weight was established at 0.0950 kilos.
Therefore, if one were to multiply 52 kilos per bag by 63,391 bags and
deduct the tare weight of 0.0950 kilos multiplied by 63,391 bags, the
result would be 3,290,309.65 kilos, or 3,290.310 metric tons. This
would mean that the shortage was only 9.69 metric tons, if we
suppose that respondent was able to establish that the shipment
actually weighed 3,300 metric tons at the port of loading.
However, the computation in Exhibit “D-2” would show that Del Pan
Surveyors inexplicably used 49 kilos as the weight per bag, instead of
52 kilos, therefore resulting in the total net weight of 3,100,137 kilos
or 3,100.137 metric tons. This was the figure used as basis for
respondent’s conclusion that there is a shortage of 199.863 metric
tons.
These discrepancies only lend credence to petitioner ATI’s assertion
that the weighing methods respondent used as bases are unreliable
and should not be completely relied upon.
Considering that respondent was not able to establish conclusively
that the subject shipment weighed 3,300 metric tons at the port of
loading, and that it cannot therefore be concluded that there was a
shortage for which petitioner should be responsible; bearing in mind
that the subject shipment most likely lost weight in transit due to the
inherent nature of Soya Bean Meal; assuming that the shipment lost
weight in transit due to desorption, the shortage of 199.863 metric
tons that respondent alleges is a minimal 6.05% of the weight of the
entire shipment, which is within the allowable 10% allowance for loss;
and noting that the respondent was not able to show negligence on
the part of the petitioner and that the weighing methods which
respondent relied upon to establish the shortage it alleges is
inaccurate, respondent cannot fairly claim damages against petitioner
for the subject shipment’s alleged shortage.
WHEREFORE, the petition for review on certiorari is GRANTED. The
Decision dated November 27, 2006 and Resolution dated March 23,
2007 of the Court of Appeals in CA-G.R. CV No. 71210 are REVERSED
AND SET ASIDE insofar as petitioner Asian Terminals, Inc. is
concerned. Needless to add, the complaint against petitioner docketed
as RTC Manila Civil Case No. 96-81101 is ordered DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Sereno (C.J., Chairperson), Leonardo-De Castro, Bersamin and
Abad,** JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes. ― When the Court speaks of extraordinary diligence, it is that
extreme measure of care and caution which persons of unusual
prudence and circumspection observe for securing and preserving
their own property or rights—this exacting standard imposed on
common carriers in a contract of carriage of goods is intended to tilt
the scales in favor of the shipper who is at the mercy of the common
carrier once the goods have been lodged for shipment. (Loadmasters
Customs Services, Inc. vs. Glodel Brokerage Corp., 639 SCRA 69
[2011])
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.
(Pereña vs. Zarate, 679 SCRA 208 [2012])
――o0o――
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT
OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
respondents
G.R. No. 97412. July 12, 1994
Common Carriers; Obligations; Presumption of Fault; When the goods
shipped either are lost or arrive in damaged condition, a presumption
arises against the carrier of its failure to observe that requisite
diligence, and there need not be an express finding of negligence to
hold it liable.—The common carrier’s duty to observe the requisite
diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until
the lapse of a reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs.
Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines,
52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express
finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine
National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port
Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not observed but
these cases, enumerated in Article 1734 of the Civil Code, are
exclusive, not one of which can be applied to this case.
Same; Same; Arrastre Operator; Carrier and arrastre operator liable
in solidum for the proper delivery of the goods to the consignee. —
The question of charging both the carrier and the arrastre operator
with the obligation of properly delivering the goods to the consignee
has, too, been passed upon by the Court. In Fireman’s Fund Insurance
Co. vs. Metro Port Service, Inc. (182 SCRA 455), we have explained,
in holding the carrier and the arrastre operator liable in solidum, thus:
“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman (Lua Kian
v. Manila Railroad Co., et al., 19 SCRA 5 [1967]. The relationship
between the consignee and the common carrier is similar to that of
the consignee and the arrastre operator (Northern Motors, Inc. v.
Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and
to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver the
goods in good condition to the consignee.”
Same; Same; Same; The Supreme Court is not implying, however,
that the arrastre operator and the customs broker are themselves
always and necessarily liable solidarily with the carrier, or vice-versa,
nor that attendant facts in a given case may not vary the rule.—We
do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and
necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant
petition has been brought solely by Eastern Shipping Lines which,
being the carrier and not having been able to rebut the presumption
of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we
take note, is that “there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants”
(the herein petitioner among them). Accordingly, the liability imposed
on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with
it.
Damages; Interest Rates; Rules of thumb for future guidance in the
award of damages and interest rates. — The ostensible discord is not
difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested
with discretion, depending on the equities of each case, on the award
of interest. Nonetheless, it may not be unwise, by way of clarification
and reconciliation, to suggest the following rules of thumb for future
guidance.
Same; Same; Same; When an obligation is breached, the contravenor
can be held liable for damages. — When an obligation, regardless of
its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on “Damages” of the Civil Code govern in
determining the measure of recoverable damages.
Same; Same; Same; Interests in the Concept of Actual and
Compensatory Damages; In a loan or forbearance of money, the
interest due should be that stipulated in writing, and in the absence
thereof, the rate shall be 12% per annum.—With regard particularly
to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows: 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.
Same; Same; Same; Same; In case of other obligations, the interest
on the amount of damages may be imposed at the discretion of the
court at the rate of 6% per annum. — 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.
Same; Same; Same; Same; When the judgment of the court awarding
a sum of money becomes final and executory, the rate of legal interest
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.—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.
PETITION for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Alojado & Garcia and Jimenea, Dala & Zaragoza for petitioner.
Zapa Law Office for private respondent.
VITUG,J.:
The issues, albeit not completely novel, are: (a) whether or not a claim
for damage sustained on a shipment of goods can be a solidary, or
joint and several, liability of the common carrier, the arrastre operator
and the customs broker; (b) whether the payment of legal interest on
an award for loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed from is
rendered; and (c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on
the antecedent and undisputed facts that have led to the controversy
are hereunder reproduced:
“This is an action against defendants shipping company, arrastre
operator and broker-forwarder for damages sustained by a shipment
while in defendants’ custody, filed by the insurer-subrogee who paid
the consignee the value of such losses/damages.
“On December 4, 1981, two fiber drums of riboflavin were shipped
from Yokohama, Japan for delivery vessel ‘SS EASTERN COMET’
owned by defendant Eastern Shipping Lines, Inc. under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff’s Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
“Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The
latter excepted to one drum, said to be in bad order, which damage
was unknown to plaintiff.
“On January 7, 1982 defendant Allied Brokerage Corporation received
the shipment from defendant Metro Port Service, Inc., one drum
opened and without seal (per ‘Request for Bad Order Survey.’ (Exh.
D).
“On January 8 and 14, 1982, defendant Allied Brokerage Corporation
made deliveries of the shipment to the consignee’s warehouse. The
latter excepted to one drum which contained spillages, while the rest
of the contents was adulterated/fake (per ‘Bad Order Waybill’ No.
10649, Exh. E).
“Plaintiff contended that due to the losses/damage sustained by said
drum, the consignee suffered losses totaling P19,032.95, due to the
fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K,
L).
“As a consequence of the losses sustained, plaintiff was compelled to
pay the consignee P19,032.95 under the aforestated marine insurance
policy, so that it became subrogated to all the rights of action of said
consignee against defendants (per ‘Form of Subrogation,’ ‘Release’
and Philbanking check, Exhs. M, N, and O).” (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both
courts. Here, the appellate court said:
“Defendants filed their respective answers, traversing the material
allegations of the complaint contending that: As for defendant Eastern
Shipping it alleged that the shipment was discharged in good order
from the vessel unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred after the
shipment was turned over to the latter, is no longer its liability (p. 17,
Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad
order (p. 11, Record); Allied Brokerage alleged that plaintiff has no
cause of action against it, not having negligent or at fault for the
shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care
and diligence in the handling/delivery of the cargo to consignee in the
same condition shipment was received by it.
“From the evidence the court found the following:
“‘The issues are:
‘1.Whether or not the shipment sustained losses/damages;
‘2.Whether or not these losses/damages were sustained while in the
custody of defendants (in whose respective custody, if determinable);
‘3.Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiff’s pre-Trial Brief, Records, p. 34; Allied’s
pre-Trial Brief, adopting plaintiff’s Records, p. 38).’
‘As to the first issue, there can be no doubt that the shipment
sustained losses/damages. The two, drums were shipped in good
order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12, 1981 the
shipment was delivered to defendant Metro Port Service, Inc., it
excepted to one drum in bad order.
‘Correspondingly, as to the second issue, it follows that the
losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage). This
becomes evident when the Marine Cargo Survey Report (Exh. G), with
its ‘Additional Survey Notes,’ are considered. In the latter notes, it is
stated that when the shipment was ‘landed on vessel’ to dock of Pier
# 15, South Harbor, Manila on December 12, 1981,’ it was observed
that ‘one (1) fiber drum (was) in damaged condition, covered by the
vessel’s Agent’s Bad Order Tally Sheet No. 86427.’ The report further
states that when defendant Allied Brokerage withdrew the shipment
from defendant arrastre operator’s custody on January 7, 1982, one
drum was found opened without seal, cello bag partly torn but
contents intact. Net unrecovered spillage was 15 kgs. The report went
on to state that when the drums reached the consignee, one drum
was found with adul-terated/faked contents. It is obvious, therefore,
that these losses/ damages occurred before the shipment reached the
consignee while under the successive custodies of defendants. Under
Art. 1737 of the New Civil Code, the common carrier’s duty to observe
extraordinary diligence in the vigilance of goods remains in full force
and effect even if the goods are temporarily unloaded and stored in
transit in the warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738, NCC). Defendant
Eastern Shipping’s own exhibit, the ‘Turn-Over Survey of Bad Order
Cargoes’ (Exhs. 3-Eastern) states that on December 12, 1981 one
drum was found ‘open.’
“and thus held:
‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12%
per annum from October 1, 1982, the date of filing of this complaints,
until fully paid (the liability of defendant Eastern Shipping, Inc. shall
not exceed US$500 per case or the CIF value of the loss, whichever is
lesser, while the liability of defendant Metro Port Service, Inc. shall be
to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section
6.01 of the Management Contract);
2. P3,000.00 as attorney’s fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-
claimant Allied Brokerage Corporation.
SO ORDERED.’ (p. 207, Record).
“Dissatisfied, defendant’s recourse to US.
“The appeal is devoid of merit.
“After a careful scrutiny of the evidence on record. We find that the
conclusion drawn therefrom is correct. As there is sufficient evidence
that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee,
as subrogee for the amount it paid to the consignee.” (pp. 87-89,
Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier,
attributes error and grave abuse of discretion on the part of the
appellate court when—
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF
THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT
PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE
TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT’S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised
by petitioner carrier are not all that novel. Indeed, we do have a fairly
good number of previous decisions this Court can merely tack to.
The common carrier’s duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to
or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person entitled to receive
them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the
goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to
hold it liable (Art. 1735, Civil Code; Philippine National Railways vs.
Court of Appeals, 139 SCRA 87; Metro Port Service, Inc. vs. Court of
Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases,
enumerated in Article 1734 of the Civil Code, are exclusive, not one of
which can be applied to this case.
The question of charging both the carrier and the arrastre operator
with the obligation of properly delivering the goods to the consignee
has, too, been passed upon by the Court. In Fireman’s Fund
Insurance, Co. vs. Metro Port Service, Inc. (182 SCRA 455), we have
explained, in holding the carrier and the arrastre operator liable in
solidum, thus:
“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman (Lua Kian
v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between
the consignee and the common carrier is similar to that of the
consignee and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to deliver
them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER
are therefore charged with the obligation to deliver the goods in good
condition to the consignee.”
We do not, of course, imply by the above pronouncement that the
arrastre operator and the customs broker are themselves always and
necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant
petition has been brought solely by Eastern Shipping Lines which,
being the carrier and not having been able to rebut the presumption
of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we
take note, is that “there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants”
(the herein petitioner among them). Accordingly, the liability imposed
on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with
it.
It is over the issue of legal interest adjudged by the appellate court
that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this
Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port Service,
decided on 15 May 1969, involved a suit for recovery of money arising
out of short deliveries and pilferage of goods. In this case, appellee
Malayan Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however,
was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof,
the amount of P1,447.51 was agreed upon. The trial court rendered
judgment ordering the appellants (defendants) Manila Port Service
and Manila Railroad Company to pay appellee Malayan Insurance the
sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof.
The appellants then assailed, inter alia, the award of legal interest. In
sustaining the appellants, this Court ruled:
“Interest upon an obligation which calls for the payment of money,
absent a stipulation, is the legal rate. Such interest normally is
allowable from the date of demand, judicial or extrajudicial. The trial
court opted for judicial demand as the starting point.
“But then upon the provisions of Article 2213 of the Civil Code, interest
‘cannot be recovered upon unliquidated claims or damages, except
when the demand can be established with reasonable certainty.’ And
as was held by this Court in Rivera vs. Perez, L-6998, February 29,
1956, if the suit were for damages, ‘unliquidated and not known until
definitely ascertained, assessed and determined by the courts after
proof (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman, 38 Phil. 302),’ then, interest ‘should be from the
date of the decision.’” (Italics supplied)
The case of Reformina vs. Tomol, rendered on 11 October 1985, was
for “Recovery of Damages for Injury to Person and Loss of Property.”
After trial, the lower court decreed: Enrique Fernando, Francisco
Capistrano, Claudio Teehankee and Antonio Barredo. Chief Justice
Roberto Concepcion and Justice Fred Ruiz Castro were on official
leave.
“WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and third-party defendants and against the defendants and third party
plaintiffs as follows:
“Ordering defendants and third-party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
“(a).....
“x x x xxx
“(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with
its accessories, fishing gear and equipment minus P80,000.00 which
is the value of the insurance recovered and the amount of P10,000.00
a month as the estimated monthly loss suffered by them as a result
of the fire of May 6, 1969 up to the time they are actually paid or
already the total sum of P370,000.00 as of June 4, 1972 with legal
interest from the filing of the complaint until paid and to pay attorney’s
fees of P5,000.00 with costs against defendants and third party
plaintiffs.” (Italics supplied.)
On appeal to the Court of Appeals, the latter modified the amount of
damages awarded but sustained the trial court in adjudging legal
interest from the filing of the complaint until fully paid. When the
appellate court’s decision became final, the case was remanded to the
lower court for execution, and this was when the trial court issued its
assailed resolution which applied the 6% interest per annum
prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari, the petitioners contended that Central Bank Circular No.
416, providing thus—
“By virtue of the authority granted to it under Section 1 of Act 2655,
as amended, Monetary Board in its Resolution No. 1622 dated July 29,
1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of
interest, shall be twelve (12%) percent per annum. This Circular shall
take effect immediately.” (Italics found in the text)—
should have, instead, been applied. This Court ruled:
“The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any
other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does
not fall within the coverage of the said law for it is not within the ambit
of the authority granted to the Central Bank.
“x x x xxx xxx
“Coming to the case at bar, the decision herein sought to be executed
is one rendered in an Action for Damages for injury to persons and
loss of property and does not involve any loan, much less forbear-
ances of any money, goods or credits. As correctly argued by the
private respondents, the law applicable to the said case is Article 2209
of the New Civil Code which reads—
‘Art.2209.—If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation, the legal
interest which is six percent per annum.’”
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v.
Cruz, promulgated on 28 July 1986. The case was for damages
occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 withlegal interest thereon from
the filing of the complaint until fully paid. Relying on the Reformina v.
Tomol case, this Court modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e.,
from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, the trial court, in an action
for the recovery of damages arising from the collapse of a building,
ordered, inter alia, the “defendant United Construction Co., Inc. (one
of the petitioners) x x x to pay the plaintiff, x x x, the sum of
P989,335.68 with interest at the legal rate from November 29, 1968,
the date of the filing of the complaint until full payment x x x.” Save
from the modification of the amount granted by the lower court, the
Court of Appeals sustained the trial court’s decision. When taken to
this Court for review, the case, on 03 October 1986, was decided,
thus:
“WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case,
we deem it reasonable to render a decision imposing, as We do hereby
impose, upon the defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra,
p. 10) indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the
exception of attorney’s fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney’s fees,
the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon aforementioned amounts from finality
until paid. Solidary costs against the defendant and third-party defen-
dants (except Roman Ozaeta).” (Italics supplied)
A motion for reconsideration was filed by United Construction,
contending that “the interest of twelve (12%) percent per annum
imposed on the total amount of the monetary award was in
contravention of law.” The Court ruled out the applicability of the
Reformina and Philippine Rabbit Bus Lines cases and, in its resolution
of 15 April 1988, it explained:
“There should be no dispute that the imposition of 12% interest
pursuant to Central Bank Circular No. 416 x x x is applicable only in
the following: (1) loans; (2) forbearance of any money, goods or
credit; and (3) rate allowed in judgments (judgments spoken of refer
to judgments involving loans or forbearance of any money, goods or
credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161
[1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that
in the instant case, there is neither a loan or a forbearance, but then
no interest is actually imposed provided the sums referred to in the
judgment are paid upon the finality of the judgment. It is delay in the
payment of such final judgment, that will cause the imposition of the
interest. “It will be noted that in the cases already adverted to, the
rate of interest is imposed on the total sum, from the filing of the
complaint until paid; in other words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case.” (Italics
supplied)
The subsequent case of American Express International, Inc., vs.
Intermediate Appellate Court was a petition for review on certiorari
from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary
damages awarded by the trial court, to P240,000.00 and P100,000.00,
respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as
moral damages and P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus costs of suit.
In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award,
however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court thus set aside the decision
of the appellate court and rendered a new one, “ordering the
petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with six (6%)
percent interest thereon computed from the finality of this decision
until paid.” (Italics supplied)
Reformina came into force again in the 21 February 1989 case of
Florendo v. Ruiz which arose from a breach of employment contract.
For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing
any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:
“WHEREFORE, except as modified hereinabove the decision of the CFI
of Negros Oriental dated October 31, 1972 is affirmed in all respects,
with the modification that defendants-appellants, except defendant-
appellant Merton Munn, are ordered to pay, jointly and severally, the
amounts stated in the dispositive portion of the decision, including the
sum of P1,400.00 in concept of compensatory damages, with interest
at the legal rate from the date of the filing of the complaint until fully
paid.” (Italics supplied)
The petition for review to this Court was denied. The records were
thereupon transmitted to the trial court, and an entry of judgment was
made. The writ of execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per annum from
the date of the filing of the complaint. Ascribing grave abuse of
discretion on the part of the trial judge, a petition forcertiorari assailed
the said order. This Court said:
“x x x, it is to be noted that the Court of Appeals ordered the payment
of interest ‘at the legal rate’ from the time of the filing of the complaint.
x x x. Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at
bar.” (Italics supplied)
The Court reiterated that the 6% interest per annum on the damages
should be computed from the time the complaint was filed until the
amount is fully paid.
Quite recently, the Court had another occasion to rule on the
matter.National Power Corporation vs. Angas, decided on 08 May
1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial
court ordered the petitioner to pay the private respondents certain
sums of money as just compensation for their lands so expropriated
“with legal interest thereon x x x until fully paid.” Again, in applying
the 6% legal interest per annum under the Civil Code, the Court
declared:
“x x x, (T)he transaction involved is clearly not a loan or forbearance
of money, goods or credits but expropriation of certain parcels of land
for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in
the nature of indemnity for damages. The legal interest required to be
paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for
the delay in the payment thereof. Therefore, since the kind of interest
involved in the joint judgment of the lower court sought to be enforced
in this case is interest by way of damages, and not by way of earnings
from loans, etc. Art. 2209 of the Civil Code shall apply.”
Concededly, there have been seeming variances in the above
holdings. The cases can perhaps be classified into two groups
according to the similarity of the issues involved and the
corresponding rulings rendered by the court. The “first group” would
consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit
Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power
Corporation v. Angas (1992). In the “second group” would be Malayan
Insurance Company v. Manila Port Service (1969), Nakpil and Sons v.
Court of Appeals (1988), and American Express International v.
Intermediate Appellate Court (1988).
In the “first group,” the basic issue focuses on the application of either
the 6% (under the Civil Code) or 12% (under the Central Bank
Circular) interest per annum. It is easily discernible in these cases that
there has been a consistent holding that the Central Bank Circular
imposing the 12% interest per annum applies only to loans or
forbearance of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and
that the 6% interest under the Civil Code governs when the
transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common
time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged
amount is fully paid.
The “second group,” did not alter the pronounced rule on the
application of the 6% or 12% interest per annum, depending on
whether or not the amount involved is a loan or forbearance, on the
one hand, or one of indemnity for damage, on the other hand. Unlike,
however, the “first group” which remained consistent in holding that
the running of the legal interest should be from the time of the filing
of the complaint until fully paid, the “second group” varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from
the date of the decision of the court a quo, explaining that “if the suit
were for damages, ‘unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,’ then,
interest ‘should be from the date of the decision.’” American Express
International v. IAC, introduced a different time frame for reckoning
the 6% interest by ordering it to be “computed from the finality of
(the) decision until paid.” The Nakpil and Sons case ruled that 12%
interest per annum should be imposed from the finality of the decision
until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual
circumstances may have called for different applications, guided by
the rule that the courts are vested with discretion, depending on the
equities of each case, on the award of interest. Nonetheless, it may
not be unwise, by way of clarification and reconciliation, to suggest
the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
“Damages” of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim
 period being deemed to be by then an equivalent to a forbearance
of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision
is AFFIRMED with the MODIFICATION that the legal interest to be paid
is SIX PERCENT (6%) on the amount due computed from the decision,
dated 03 February 1988, of the court a quo. A TWELVE PERCENT
(12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on
such amount upon finality of this decision until the payment thereof.
SO ORDERED.
Narvasa (C.J.), Cruz, Feliciano, Padilla, Bidin, Regalado, Davide,
Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.
Mendoza, J., Took no part in deliberations.
Petition partly granted.
Notes. — Where the obligation arose from a contract or purchase and
sale and not from a contract of loan or mutuum, the applicable rate is
6% per annum as provided in Article 2209 of the Civil Code and not
the rate of 12% per annum as provided in Circular No. 416 (Pilipinas
Bank vs. Court of Appeals, 225 SCRA 268 [1993]).
While common carriers are required to observe extraordinary diligence
and are presumed at fault, no such presumption applies to private
carriers (Planters Products, Inc. vs. Court of Appeals, 226 SCRA 476
[1993]).
——o0o——
FGU INSURANCE CORPORATION, petitioner, vs. G.P.
SARMIENTO TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents
G.R. No. 141910. August 6, 2002
Transportation; Common Carriers; A trucking company which is an
exclusive contractor and hauler of another company, rendering or
offering its services to no other individual or entity, cannot be
considered a common carrier. — 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, 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.”
Same; Contracts; Breach of Contracts; In culpa contractual, the mere
proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief; 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 or of the attendance of
fortuitous event, to excuse him from his ensuing 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. 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 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.
Same; Same; Same; Quasi-Delicts; Torts; The driver, not being a party
to the contract of carriage, may not be held liable under the
agreement—action against him can only be based on culpa aquiliana,
which, unlike culpa contractual, would require the claimant for
damages to prove negligence or fault on his part. — 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.
Same; Same; Same; Same; Same; Res Ipsa Loquitur; Requisites;
Words and Phrases; Res ipsa loquitur 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, and relieves the plaintiff of
the burden of producing specific proof of negligence. — 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. 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.
Same; Same; Same; Same; Same; Same; While 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—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 immediately attaches by a failure of the covenant or
its tenor.—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.
Actions; Pleadings and Practice; Demurrer to Evidence; 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. — 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. 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.
PETITION for certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Dollete, Blanco, Ejercito and Associates for petitioner.
Marbibi & Associates Law Office for private respondents.
VITUG, J.:
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 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, 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, x x x.’
“In the instant case, plaintiff did not present any single evidence that
would prove that defendant is a common carrier.
“x x x 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.”
The subsequent motion for reconsideration having been denied,
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,
discoursed, among other things, that—
“x x x 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.
“x x x 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.
“x x x 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.
“x x x xxx xxx
“x x x 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.’ x x x.
“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.”
Petitioner’s motion for reconsideration was likewise denied; hence, the
instant petition, 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, 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.”
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. 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 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. 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.
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. 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.
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. 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.
Davide, Jr. (C.J., Chairman), Kapunan, Ynares-Santiago and
Austria-Martinez, JJ., concur.
Judgment affirmed in part and reversed in part.
Notes. — While common carriers are required to observe extraordinary
diligence and are presumed at fault, no such presumption applies to
private carriers. (Planters Products, Inc. vs. Court of Appeals, 226
SCRA 476 [1993])
In quasi-delict, the negligence or fault should be clearly established
because it is the basis of the action, whereas in breach of contract,
the action can be prosecuted merely by proving the existence of the
contract and the fact that the obligor, in this case the common carrier,
failed to transport his passenger safely to his destination. (Calalas vs.
Court of Appeals, 332 SCRA 356 [2000])
The standard of extraordinary diligence is peculiar to common carriers.
(Reyes vs. Sisters of Mercy Hospital, 341 SCRA 760 [2000])
——o0o——
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and
JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners,
vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent
G.R. No. 143133. June 5, 2002
Common Carriers; Well-settled is the rule that common carriers, from
the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence and vigilance with respect to the
safety of the goods and the passengers they transport.—Well-settled
is the rule that common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary
diligence and vigilance with respect to the safety of the goods and the
passengers they transport. Thus, common carriers are required to
render service with the greatest skill and foresight and “to use all
reason[a]ble means to ascertain the nature and characteristics of the
goods tendered for shipment, and to exercise due care in the handling
and stowage, including such methods as their nature requires.” The
extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them.
Same; Negligence; Presumption of Fault or Negligence; Owing to the
high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. — Owing
to this high degree of diligence required of them, common carriers, as
a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they
observed such diligence.
Same; Same; Same; Exceptions; The exceptions to the presumption
of fault or negligence is a closed list—if the cause of destruction, loss
or deterioration is other than the enumerated circumstances, then the
carrier is liable therefor. — However, the presumption of fault or
negligence will not arise if the loss is due to any of the following
causes: (1) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or owner of
the goods; (4) the character of the goods or defects in the packing or
the container; or (5) an order or act of competent public authority.
This is a closed list. If the cause of destruction, loss or deterioration is
other than the enumerated circumstances, then the carrier is liable
therefor.
Same; Same; Same; Mere proof of delivery of the goods in good order
to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. — Corollary to the foregoing, mere proof of delivery of the
goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as
to how the deterioration, the loss or the destruction of the goods
happened, the transporter shall be held responsible.
Same; Same; Same; Equipped with the proper knowledge of the
nature of steel sheets in coils and of the proper way of transporting
them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo.
— True, the words “metal envelopes rust stained and slightly dented”
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in
coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken. Having failed to discharge the burden of proving
that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils.
Same; Same; Same; The exemption provided in Article 1734(4) of the
Civil Code refers to cases when goods are lost or damaged while in
transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages
in which they are shipped, or the natural propensities of animals.—In
their attempt to escape liability, petitioners further contend that they
are exempted from liability under Article 1734(4) of the Civil Code.
They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate
cause of the damage. We are not convinced. From the evidence on
record, it cannot be reasonably concluded that the damage to the four
coils was due to the condition noted on the Bill of Lading. The
aforecited exception refers to cases when goods are lost or damaged
while in transit as a result of the natural decay of perishable goods or
the fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages
in which they are shipped, or the natural propensities of animals. None
of these is present in the instant case.
Same; Same; Same; Even if the fact of improper packing was known
to the carrier or its crew or was apparent upon ordinary observation,
it is not relieved of liability for loss or injury resulting therefrom, once
it accepts the goods notwithstanding such condition.—Further, even if
the fact of improper packing was known to the carrier or its crew or
was apparent upon ordinary observation, it is not relieved of liability
for loss or injury resulting therefrom, once it accepts the goods
notwithstanding such condition. Thus, petitioners have not
successfully proven the application of any of the aforecited exceptions
in the present case.
Same; Carriage of Goods by Sea Act (COGSA); The notice of claim
required under Section 3, paragraph 6 of the COGSA need not be given
if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. — Petitioners claim that
pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act (COGSA), respondent should have filed its Notice of Loss within
three days from delivery. They assert that the cargo was discharged
on July 31, 1990, but that respondent filed its Notice of Claim only on
September 18, 1990. We are not persuaded. First, the above-cited
provision of COGSA provides that the notice of claim need not be given
if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to
unloading the cargo, an Inspection Report as to the condition of the
goods was prepared and signed by representatives of both parties.
Same; Same; Prescription; A claim is not barred by prescription as
long as the one-year period has not lapsed. — As stated in the same
provision, a failure to file a notice of claim within three days will not
bar recovery if it is nonetheless filed within one year. This one-year
prescriptive period also applies to the shipper, the consignee, the
insurer of the goods or any legal holder of the bill of lading. In Loadstar
Shipping Co., Inc. v. Court of Appeals, we ruled that a claim is not
barred by prescription as long as the one-year period has not lapsed.
Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
“Inasmuch as the neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA)—which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit—may be applied suppletorily to the case at bar.”
Same; Same; Bills of Lading; Bill of lading serves two functions as
receipt for the goods shipped, and as a contract by which three
parties, namely, the shipper, the carrier, and the consignee, undertake
specific responsibilities and assume stipulated obligations. — A bill of
lading serves two functions. First, it is a receipt for the goods shipped.
Second, it is a contract by which three parties—namely, the shipper,
the carrier, and the consignee—undertake specific responsibilities and
assume stipulated obligations. In a nutshell, the acceptance of the bill
of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected
and binding contract.
Same; Same; Same; A stipulation in the bill of lading limiting to a
certain sum the common carrier’s liability for loss or destruction of a
cargo—unless the shipper or owner declares a greater value is
sanctioned by law. — Further, a stipulation in the bill of lading limiting
to a certain sum the common carrier’s liability for loss or destruction
of a cargo—unless the shipper or owner declares a greater value—is
sanctioned by law. There are, however, two conditions to be satisfied:
(1) the contract is reasonable and just under the circumstances, and
(2) it has been fairly and freely agreed upon by the parties. The
rationale for, this rule is to bind the shippers by their agreement to
the value (maximum valuation) of their goods.
Same; Same; Same; The COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading—the provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the
parties.—It is to be noted, however, that the Civil Code does not limit
the liability of the common carrier to a fixed amount per package. In
all matters not regulated by the Civil Code, the right and the
obligations of common carriers shall be governed by the Code of
Commerce and special laws. Thus, the COGSA, which is suppletory to
the provisions of the Civil Code, supplements the latter by establishing
a statutory provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading. The
provisions on limited liability are as much a part of the bill of lading as
though physically in it and as though placed there by agreement of
the parties.
Same; Same; Same; A notation in the Bill of Lading which indicates
the amount of the Letter of Credit obtained by the shipper for the
importation of the articles does not effect a declaration of the value of
the goods as required by the bill—that notation is made only for the
convenience of the shipper and the bank processing the Letter of
Credit. — In the case before us, there was no stipulation in the Bill of
Lading limiting the carrier’s liability. Neither did the shipper declare a
higher valuation of the goods to be shipped. This fact notwithstanding,
the insertion of the words “L/C No. 90/02447 cannot be the basis for
petitioners’ liability. First, a notation in the Bill of Lading which
indicated the amount of the Letter of Credit obtained by the shipper
for the importation of steel sheets did not effect a declaration of the
value of the goods as required by the bill. That notation was made
only for the convenience of the shipper and the bank processing the
Letter of Credit. Second, in Keng Hua Paper Products v. Court of
Appeals, we held that a bill of lading was separate from the Other
Letter of Credit arrangements.
Same; Same; Same; Words and Phrases; “Package,” Explained; When
what would ordinarily be considered packages are shipped in a
container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of these units and not the
container constitutes the “package” referred to in the liability limitation
provision of COGSA.— In the light of the foregoing, petitioners’ liability
should be computed based on US$500 per package and not on the
per metric ton price declared in the Letter of Credit. In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court, we explained the
meaning of package: “When what would ordinarily be considered
packages are shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the ‘package’ referred to
in the liability limitation provision of Carriage of Goods by Sea Act.”
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Del Rosario and Del Rosario for petitioners.
Astorga & Repol Law Offices for private respondent.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes prima facie
fault or negligence on the part of the carrier. If no adequate
explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable
therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the July 15, 1998 Decision and the May 2, 2000 Resolution
of the Court of Appeals3 (CA) in CA-GR CV No. 53571. The decretal
portion of the Decision reads as follows:
“WHEREFORE, in the light of the foregoing disquisition, the decision
appealed from is hereby REVERSED and SET ASIDE. Defendants-
appellees are ORDERED to jointly and severally pay plaintiffs-
appellants the following:
‘1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and
32/100 (P451,027.32) as actual damages, representing the value of
the damaged cargo, plus interest at the legal rate from the time of
filing of the complaint on July 25, 1991, until fully paid;
‘2) Attorney’s fees amounting to 20% of the claim; and
‘3) Costs of suit.’ ”
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of
Makati City (Branch 134), which had disposed as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered,
dismissing the complaint, as well as defendant’s counterclaim.”
The Facts
The factual antecedents of the case are summarized by the Court of
Appeals in this wise:
“On June 13, 1990, CMC Trading A.G. shipped on board the M/V
‘Anangel Sky’ at Hamburg, Germany 242 coils of various Prime Cold
Rolled Steel sheets for transportation to Manila consigned to the
Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel
Sky arrived at the port of Manila and, within the subsequent days,
discharged the subject cargo. Four (4) coils were found to be in bad
order B.O. Tally sheet No. 154974. Finding the four (4) coils in their
damaged state to be unfit for the intended purpose, the consignee
Philippine Steel Trading Corporation declared the same as total loss.
“Despite receipt of a formal demand, defendants-appellees refused to
submit to the consignee’s claim. Consequently, plaintiff-appellant paid
the consignee five hundred six thousand eighty-six & 50/100 pesos
(P506,086.50), and was subrogated to the latter’s rights and causes
of action against defendants-appellees. Subsequently, plaintiff-
appellant instituted this complaint for recovery of the amount paid by
them, to the consignee as insured.
“Impugning the propriety of the suit against them, defendants-
appellees imputed that the damage and/or loss was due to pre-
shipment damage, to the inherent nature, vice or defect of the goods,
or to perils, danger and accidents of the sea, or to insufficiency of
packing thereof, or to the act or omission of the shipper of the goods
or their representatives. In addition thereto, defendants-appellees
argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other
pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to
prevent any damage/loss to said shipment.”
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to
prove its claims with the quantum of proof required by law.
It likewise debunked petitioners’ counterclaim, because respondent’s
suit was not manifestly frivolous or primarily intended to harass them.
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable
for the loss or the damage of the goods shipped, because they had
failed to overcome the presumption of negligence imposed on
common carriers.
The CA further held as inadequately proven petitioners’ claim that the
loss or the deterioration of the goods was due to pre-shipment
damage. It likewise opined that the notation “metal envelopes rust
stained and slightly dented” placed on the Bill of Lading had not been
the proximate cause of the damage to the four (4) coils.
As to the extent of petitioners’ liability, the CA held that the package
limitation under COGSA was not applicable, because the words “L/C
No. 90/02447” indicated that a higher valuation of the cargo had been
declared by the shipper. The CA, however, affirmed the award of
attorney’s fees.
Hence, this Petition. Proof of Negligence

Issues Petitioners contend that the presumption of fault imposed on common

In their Memorandum, petitioners raise the following issues for the
Court’s consideration:
I business and for reasons of public policy, are bound to observe
“Whether or not plaintiff by presenting only one witness who has
never seen the subject shipment and whose testimony is purely
hearsay is sufficient to pave the way for the applicability of Article
1735 of the Civil Code;
II
“Whether or not the consignee/plaintiff filed the required notice of loss
within the time required by law;
III
“Whether or not a notation in the bill of lading at the time of loading
is sufficient to show pre-shipment damage and to exempt herein
defendants from liability;
IV
“Whether or not the “PACKAGE LIMITATION” of liability under Section
4 (5) of COGSA is applicable to the case at bar.”
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence
of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court’s Ruling
The Petition is partly meritorious.
First Issue:
carriers should not be applied on the basis of the lone testimony
offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their
extraordinary diligence and vigilance with respect to the safety of the
goods and the passengers they transport. Thus, common carriers are
required to render service with the greatest skill and foresight and “to
use all reason[a]ble means to ascertain the nature and characteristics
of the goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature
requires.” The extraordinary responsibility lasts from the time the
goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them.
This strict requirement is justified by the fact that, without a hand or
a voice in the preparation of such contract, the riding public enters
into a contract of transportation with common carriers. Even if it wants
to, it cannot submit its own stipulations for their approval. Hence, it
merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for
any loss or damage, therefore, they have the burden of proving that
they observed such diligence.
However, the presumption of fault or negligence will not arise if the
loss is due to any of the following causes: (1) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (2) an act
of the public enemy in war, whether international or civil; (3) an act
or omission of the shipper or owner of the goods; (4) the character of
the goods or defects in the packing or the container; or (5) an order
or act of competent public authority. This is a closed list. If the cause
of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.
Corollary to the foregoing, mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the
deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible.
That petitioners failed to rebut the prima facie presumption of
negligence is revealed in the case at bar by a review of the records
and more so by the evidence adduced by respondent.
First, as stated in the Bill of Lading, petitioners received the subject
shipment in good order and condition in Hamburg, Germany.
Second, prior to the unloading of the cargo, an Inspection Report
prepared and signed by representatives of both parties showed the
steel bands broken, the metal envelopes rust-stained and heavily
buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979 issued by Jardine Davies
Transport Services, Inc., stated that the four coils were in bad order
and condition. Normally, a request for a bad order survey is made in
case there is an apparent or a presumed loss or damage.
Fourth, the Certificate of Analysis stated that, based on the sample
submitted and tested, the steel sheets found in bad order were wet
with fresh water.
Fifth, petitioners—in a letter addressed to the Philippine Steel Coating
Corporation and dated October 12, 1990—admitted that they were
aware of the condition of the four coils found in bad order and
condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM
Santos Checkers Agency. Pertinent portions of his testimony are
reproduced hereunder:
“Q: Mr. Esmerio, you mentioned that you are a Head Checker. Will you
inform the Honorable Court with what company you are connected?
A: BM Santos Checkers Agency, sir.
Q: How is BM Santos Checkers Agency related or connected with
defendant Jardine Davies Transport Services?
A: It is the company who contracts the checkers, sir.
Q: You mentioned that you are a Head Checker, will you inform this
Honorable Court your duties and responsibilities?
A: I am the representative of BM Santos on board the vessel, sir, to
supervise the discharge of cargoes.
xxx xxx xxx
Q: On or about August 1, 1990, were you still connected or employed
with BM Santos as a Head Checker?
A: Yes, sir.
Q: And, on or about that date, do you recall having attended the
discharging and inspection of cold steel sheets in coil on board the
MV/AN ANGEL SKY?
A: Yes, sir, I was there.
xxx xxx xxx
Q: Based on your inspection since you were also present at that time,
will you inform this Honorable Court the condition or the appearance
of the bad order cargoes that were unloaded from the MV/ANANGEL
SKY?
ATTY. MACAMAY: Objection, Your Honor, I think the document itself
reflects the condition of the cold steel sheets and the best evidence is
the document itself, Your Honor that shows the condition of the steel
sheets.
COURT: Let the witness answer.
A: The scrap of the cargoes is broken already and the rope is loosen
and the cargoes are dent on the sides.”
All these conclusively prove the fact of shipment in good order and
condition and the consequent damage to the four coils while in the
possession of petitioner, who notably failed to explain why.
Further, petitioners failed to prove that they observed the
extraordinary diligence and precaution which the law requires a
common carrier to know and to follow to avoid damage to or
destruction of the goods entrusted to it for safe carriage and delivery.
True, the words “metal envelopes rust stained and slightly dented”
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in
coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken. Having failed to discharge the burden of proving
that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils.
In their attempt to escape liability, petitioners further contend that
they are exempted from liability under Article 1734(4) of the Civil
Code. They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate
cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that
the damage to the four coils was due to the condition noted on the
Bill of Lading. The aforecited exception refers to cases when goods
are lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances
liable therefor, the necessary and natural wear of goods in transport,
defects in packages in which they are shipped, or the natural
propensities of animals. None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier
or its crew or was apparent upon ordinary observation, it is not
relieved of liability for loss or injury resulting therefrom, once it
accepts the goods notwithstanding such condition. Thus, petitioners
have not successfully proven the application of any of the aforecited
exceptions in the present case.
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the
Carriage of Goods by Sea Act (COGSA), respondent should have filed
its Notice of Loss within three days from delivery. They assert that the
cargo was discharged on July 31, 1990, but that respondent filed its
Notice of Claim only on September 18, 1990.
We are not persuaded. First, the above-cited provision of COGSA
provides that the notice of claim need not be given if the state of the
goods, at the time of their receipt, has been the subject of a joint
inspection or survey. As stated earlier, prior to unloading the cargo,
an Inspection Report as to the condition of the goods was prepared
and signed by representatives of both parties.
Second, as stated in the same provision, a failure to file a notice of
claim within three days will not bar recovery if it is nonetheless filed
within one year. This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of
the bill of lading.
In Loadstar Shipping Co., Inc. v. Court of Appeals, we ruled that a
claim is not barred by prescription as long as the one-year period has
not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G.
Davide Jr.:
“Inasmuch as the neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA)—which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit—may be applied suppletorily to the case at bar.”
In the present case, the cargo was discharged on July 31, 1990, while
the Complaint was filed by respondent on July 25, 1991, within the
one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent’s claims, petitioners
contend that their liability should be limited to US$500 per package as
provided in the Bill of Lading and by Section 4(5) of COGSA.
On the other hand, respondent argues that Section 4(5) of COGSA is
inapplicable, because the value of the subject shipment was declared
by petitioners beforehand, as evidenced by the reference to and the
insertion of the Letter of Credit or “L/C No. 90/02447” in the said Bill
of Lading.
A bill of lading serves two functions. First, it is a receipt for the goods
shipped. Second, it is a contract by which three parties—namely, the
shipper, the carrier, and the consignee—undertake specific
responsibilities and assume stipulated obligations. In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that it
constituted a perfected and binding contract.
Further, a stipulation in the bill of lading limiting to a certain sum the
common carrier’s liability for loss or destruction of a cargo—unless the
shipper or owner declares a greater value—is sanctioned by law. There
are, however, two conditions to be satisfied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly
and freely agreed upon by the parties. The rationale for, this rule is to
bind the shippers by their agreement to the value (maximum
valuation) of their goods.
It is to be noted, however, that the Civil Code does not limit the liability
of the common carrier to a fixed amount per package. In all matters
not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and
special laws. Thus, the COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading. The provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the parties.
In the case before us, there was no stipulation in the Bill of Lading
limiting the carrier’s liability. Neither did the shipper declare a higher
valuation of the goods to be shipped. This fact notwithstanding, the
insertion of the words “L/C No. 90/02447 cannot be the basis for
petitioners’ liability.
First, a notation in the Bill of Lading which indicated the amount of the
Letter of Credit obtained by the shipper for the importation of steel
sheets did not effect a declaration of the value of the goods as
required by the bill. That notation was made only for the convenience
of the shipper and the bank processing the Letter of Credit.
Second, in Keng Hua Paper Products v. Court of Appeals, we held that
a bill of lading was separate from the Other Letter of Credit
arrangements. We ruled thus:
“(T)he contract of carriage, as stipulated in the bill of lading in the
present case, must be treated independently of the contract of sale
between the seller and the buyer, and the contract of issuance of a
letter of credit between the amount of goods described in the
commercial invoice in the contract of sale and the amount allowed in
the letter of credit will not affect the validity and enforceability of the
contract of carriage as embodied in the bill of lading. As the bank
cannot be expected to look beyond the documents presented to it by
the seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the bill of
lading and to verify their accuracy vis-à-vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading
cannot negate petitioner’s obligation to private respondent arising
from the contract of transportation.”
In the light of the foregoing, petitioners’ liability should be computed
based on US$500 per package and not on the per metric ton price
declared in the Letter of Credit. In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, we explained the meaning of package:
“When what would ordinarily be considered packages are shipped in
a container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of those units and not the
container constitutes the ‘package’ referred to in the liability limitation
provision of Carriage of Goods by Sea Act.”
Considering, therefore, the ruling in Eastern Shipping Lines and the
fact that the Bill of Lading clearly disclosed the contents of the
containers, the number of units, as well as the nature of the steel
sheets, the four damaged coils should be considered as the shipping
unit subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed Decision
MODIFIED. Petitioners’ liability is reduced to US$2,000 plus interest at
the legal rate of six percent from the time of the filing of the Complaint
on July 25, 1991 until the finality of this Decision, and 12 percent
thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez and Carpio, JJ., concur.
Puno, J. (Chairman), Abroad, on official leave.
Judgment modified.
Notes. — Presumption of negligence of common carriers; Mere proof
of delivery of goods in good order to a carrier and the subsequent
arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier. (Coastwise Lighterage
Corporation vs. Court of Appeals, 245 SCRA 796 [1995])
A common carrier is liable as such to a stevedore who was hired by a
shipper to help load cargo, even if such stevedore was not himself a
passenger. (Sulpicio Lines, Inc. vs. Court of Appeals, 246 SCRA 299
[1995])
——o0o——
LEA MER INDUSTRIES, INC., petitioner, vs. MALAYAN
INSURANCE CO., INC., respondent.
Appeals; As a general rule, questions of fact may not be raised in a
petition for review. — The resolution of the present case hinges on
whether the loss of the cargo was due to a fortuitous event. This issue
involves primarily a question of fact, notwithstanding petitioner’s claim
that it pertains only to a question of law. As a general rule, questions
of fact may not be raised in a petition for review. The present case
serves as an exception to this rule, because the factual findings of the
appellate and the trial courts vary. This Court meticulously reviewed
the records, but found no reason to reverse the CA.
Common Carriers; Words and Phrases; 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—
when this service is offered to the public for compensation. —
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—when this service is offered to
the public for compensation. Petitioner is clearly a common carrier,
because it offers to the public its business of transporting goods
through its vessels.
Same; Same; A demise or bareboat charter indicates a business
undertaking that is private in character, and therefore, the rights and
obligations of the parties are governed principally by their stipulations,
not by the law on common carriers; In a contract of affreightment
(time or voyage charter party), the rules for common carriers
govern.—The Court corrects the trial court’s finding that petitioner
became a private carrier when Vulcan chartered it. Charter parties are
classified as contracts of demise (or bareboat) and affreightment,
which are distinguished as follows: “Under the demise or bareboat
charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes, in effect, the owner pro hac
vice, subject to liability to others for damages caused by negligence.
To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to
the charterer; anything short of such a complete transfer is a contract
of affreightment (time or voyage charter party) or not a charter party
at all.” The distinction is significant, because a demise or bareboat
charter indicates a business undertaking that is private in character.
Consequently, the rights and obligations of the parties to a contract of
private carriage are governed principally by their stipulations, not by
the law on common carriers. The Contract in the present case was one
of affreightment, as shown by the fact that it was petitioner’s crew
that manned the tugboat M/V Ayalit and controlled the barge Judy VII.
Necessarily, petitioner was a common carrier, and the pertinent law
governs the present factual circumstances.
Same; Same; Extraordinary Diligence; Negligence; Extraordinary
diligence requires rendering service with the greatest skill and
foresight to avoid damage and destruction to the goods entrusted for
carriage and delivery; Common carriers are presumed to have been at
fault or to have acted negligently for loss or damage to the goods that
they have transported; Exceptions.—Common carriers are bound to
observe extraordinary diligence in their vigilance over the goods and
the safety of the passengers they transport, as required by the nature
of their business and for reasons of public policy. Extraordinary
diligence requires rendering service with the greatest skill and
foresight to avoid damage and destruction to the goods entrusted for
carriage and delivery. Common carriers are presumed to have been at
fault or to have acted negligently for loss or damage to the goods that
they have transported. This presumption can be rebutted only by
proof that they observed extraordinary diligence, or that the loss or
damage was occasioned by any of the following causes: “(1) Flood,
storm, earthquake, lightning, or other natural disaster or calamity;
“(2) Act of the public enemy in war, whether international or civil; “(3)
Act or omission of the shipper or owner of the goods; “(4) The
character of the goods or defects in the packing or in the containers;
“(5) Order or act of competent public authority.”
Same; Same; Same; Same; To excuse the common carrier fully of any
liability, the fortuitous event must have been the proximate and only
cause of the loss.—Article 1174 of the Civil Code provides that “no
person shall be responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable.” Thus, if the loss
or damage was due to such an event, a common carrier is exempted
from liability. Jurisprudence defines the elements of a “fortuitous
event” as follows: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event
that constituted the caso fortuito must have been impossible to
foresee or, if foreseeable, impossible to avoid; (c) the occurrence must
have been such as to render it impossible for the debtors to fulfill their
obligation in a normal manner; and (d) the obligor must have been
free from any participation in the aggravation of the resulting injury
to the creditor. To excuse the common carrier fully of any liability, the
fortuitous event must have been the proximate and only cause of the
loss. Moreover, it should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the
fortuitous event.
Evidence; Hearsay Rule; Survey Reports; Where the person who
prepared a Survey Report did not testify during the trial, the Report is
hearsay and therefore inadmissible in evidence for the purpose of
proving the truth of its contents. — Petitioner claims that the Survey
Report prepared by Jesus Cortez, the cargo surveyor, should not have
been admitted in evidence. The Court partly agrees. Because he did
not testify during the trial, then the Report that he had prepared was
hearsay and therefore inadmissible for the purpose of proving the
truth of its contents.
Same; Same; Same; Independently Relevant Statement Rule; A report
made by a person is admissible if it is intended to prove the tenor, not
the truth of the statements—independent of the truth or the falsity of
the statement given in the report, the fact that it has been made is
relevant.—That witnesses must be examined and presented during
the trial, and that their testimonies must be confined to personal
knowledge is required by the rules on evidence, from which we quote:
“Section 36. Testimony generally confined to personal knowledge;
Hearsay excluded.—A witness can testify only to those facts which he
knows of his personal knowledge; that is, which are derived from his
own perception, except as otherwise provided in these rules.” On this
basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit,
which respondent had offered as evidence. Well-settled is the rule
that, unless the affiant is presented as a witness, an affidavit is
considered hearsay. An exception to the foregoing rule is that on
“independently relevant statements.” A report made by a person is
admissible if it is intended to prove the tenor, not the truth, of the
statements. Independent of the truth or the falsity of the statement
given in the report, the fact that it has been made is relevant. Here,
the hearsay rule does not apply.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Romualdo M. Jubay for petitioner.
Frederick C. Angel for private respondent.
PANGANIBAN, J.:
Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods entrusted to them, as required by the nature
of their business and for reasons of public policy. Consequently, the
law presumes that common carriers are at fault or negligent for any
loss or damage to the goods that they transport. In the present case,
the evidence submitted by petitioner to overcome this presumption
was sorely insufficient.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the October 9, 2002 Decision and the December 29, 2003
Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 66028. The
challenged Decision disposed as follows:
“WHEREFORE, the appeal is GRANTED. The December 7, 1999
decision of the Regional Trial Court of Manila, Branch 42 in Civil Case
No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is
ordered to pay the [herein respondent] the value of the lost cargo in
the amount of P565,000.00. Costs against the [herein petitioner].”
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer
Industries, Inc., for the shipment of 900 metric tons of silica sand
valued at P565,000. Consigned to Vulcan Industrial and Mining
Corporation, the cargo was to be transported from Palawan to Manila.
On October 25, 1991, the silica sand was placed on board Judy VII, a
barge leased by Lea Mer. During the voyage, the vessel sank, resulting
in the loss of the cargo.
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the
lost cargo. To recover the amount paid and in the exercise of its right
of subrogation, Malayan demanded reimbursement from Lea Mer,
which refused to comply. Consequently, Malayan instituted a
Complaint with the Regional Trial Court (RTC) of Manila on September
4, 1992, for the collection of P565,000 representing the amount that
respondent had paid Vulcan.
On October 7, 1999, the trial court dismissed the Complaint, upon
finding that the cause of the loss was a fortuitous event. The RTC
noted that the vessel had sunk because of the bad weather condition
brought about by Typhoon Trining. The court ruled that petitioner had
no advance knowledge of the incoming typhoon, and that the vessel
had been cleared by the Philippine Coast Guard to travel from Palawan
to Manila.
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not
seaworthy when it sailed for Manila. Thus, the loss of the cargo was
occasioned by petitioner’s fault, not by a fortuitous event.
Hence, this recourse.
The Issues
Petitioner states the issues in this wise:
“A. Whether or not the survey report of the cargo surveyor, Jesus
Cortez, who had not been presented as a witness of the said report
during the trial of this case before the lower court can be admitted in
evidence to prove the alleged facts cited in the said report.
“B. Whether or not the respondent, Court of Appeals, had validly or
legally reversed the finding of fact of the Regional Trial Court which
clearly and unequivocally held that the loss of the cargo subject of this
case was caused by fortuitous event for which herein petitioner could
not be held liable.
“C. Whether or not the respondent, Court of Appeals, had committed
serious error and grave abuse of discretion in disregarding the
testimony of the witness from the MARINA, Engr. Jacinto Lazo y
Villegal, to the effect that the vessel ‘Judy VII’ was seaworthy at the
time of incident and further in disregarding the testimony of the PAG-
ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that
typhoon ‘Trining’ did not hit Metro Manila or Palawan.”
In the main, the issues are as follows: (1) whether petitioner is liable
for the loss of the cargo, and (2) whether the survey report of Jesus
Cortez is admissible in evidence.
The Court’s Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the
cargo was due to a fortuitous event. This issue involves primarily a
question of fact, notwithstanding petitioner’s claim that it pertains only
to a question of law. As a general rule, questions of fact may not be
raised in a petition for review. The present case serves as an exception
to this rule, because the factual findings of the appellate and the trial
courts vary. This Court meticulously reviewed the records, but found
no reason to reverse the CA.
Rule on Common Carriers
Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or
goods, or both—by land, water, or air—when this service is offered to
the public for compensation. Petitioner is clearly a common carrier,
because it offers to the public its business of transporting goods
through its vessels.
Thus, the Court corrects the trial court’s finding that petitioner became
a private carrier when Vulcan chartered it. Charter parties are
classified as contracts of demise (or bare-boat) and affreightment,
which are distinguished as follows:
“Under the demise or bareboat charter of the vessel, the charterer will
generally be considered as owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for
damages caused by negligence. To create a demise, the owner of a
vessel must completely and exclusively relinquish possession,
command and navigation thereof to the charterer; anything short of
such a complete transfer is a contract of affreightment (time or voyage
charter party) or not a charter party at all.”
The distinction is significant, because a demise or bareboat charter
indicates a business undertaking that is private in character.
Consequently, the rights and obligations of the parties to a contract of
private carriage are governed principally by their stipulations, not by
the law on common carriers.
The Contract in the present case was one of affreightment, as shown
by the fact that it was petitioner’s crew that manned the tugboat M/V
Ayalit and controlled the barge Judy VII. Necessarily, petitioner was a
common carrier, and the pertinent law governs the present factual
circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods and the safety of the passengers they
transport, as required by the nature of their business and for reasons
of public policy. Extraordinary diligence requires rendering service with
the greatest skill and foresight to avoid damage and destruction to the
goods entrusted for carriage and delivery.
Common carriers are presumed to have been at fault or to have acted
negligently for loss or damage to the goods that they have
transported. This presumption can be rebutted only by proof that they
observed extraordinary diligence, or that the loss or damage was
occasioned by any of the following causes:
“(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
“(2) Act of the public enemy in war, whether international or civil;
“(3) Act or omission of the shipper or owner of the goods;
“(4) The character of the goods or defects in the packing or in the
containers;
“(5) Order or act of competent public authority.”
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that “no person shall be
responsible for a fortuitous event which could not be foreseen, or
which, though foreseen, was inevitable.” Thus, if the loss or damage
was due to such an event, a common carrier is exempted from liability.
Jurisprudence defines the elements of a “fortuitous event” as follows:
(a) the cause of the unforeseen and unexpected occurrence, or the
failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable,
impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the creditor.
To excuse the common carrier fully of any liability, the fortuitous event
must have been the proximate and only cause of the loss. Moreover,
it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event.
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present
case. As the common carrier, petitioner bore the burden of proving
that it had exercised extraordinary diligence to avoid the loss, or that
the loss had been occasioned by a fortuitous event—an exempting
circumstance.
It was precisely this circumstance that petitioner cited to escape
liability. Lea Mer claimed that the loss of the cargo was due to the bad
weather condition brought about by Typhoon Trining. Evidence was
presented to show that petitioner had not been informed of the
incoming typhoon, and that the Philippine Coast Guard had given it
clearance to begin the voyage. On October 25, 1991, the date on
which the voyage commenced and the barge sank, Typhoon Trining
was allegedly far from Palawan, where the storm warning was only
“Signal No. 1.”
The evidence presented by petitioner in support of its defense of
fortuitous event was sorely insufficient. As required by the pertinent
law, it was not enough for the common carrier to show that there was
an unforeseen or unexpected occurrence. It had to show that it was
free from any fault—a fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to
minimize or prevent the loss before, during or after the alleged
fortuitous event. Its witness, Joey A. Draper, testified that he could no
longer remember whether anything had been done to minimize loss
when water started entering the barge.36 This fact was confirmed
during his cross-examination, as shown by the following brief
exchange:
“Atty. Baldovino, Jr.: Other than be[a]ching the barge Judy VII, were
there other precautionary measure[s] exercised by you and the crew
of Judy VII so as to prevent the los[s] or sinking of barge Judy VII?
xxx xxx xxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the
officers and crew of tugboat Ayalit and barge Judy VII x x x to prevent
the sinking of barge Judy VII?
xxx xxx xxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on
how to save the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time
ago.”
Second, the alleged fortuitous event was not the sole and proximate
cause of the loss. There is a preponderance of evidence that the barge
was not seaworthy when it sailed for Manila. Respondent was able to
prove that, in the hull of the barge, there were holes that might have
caused or aggravated the sinking. Because the presumption of
negligence or fault applied to petitioner, it was incumbent upon it to
show that there were no holes; or, if there were, that they did not
aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its
witness, Domingo A. Luna, testified that the barge was in “tip-top” or
excellent condition, but that he had not personally inspected it when
it left Palawan.
The submission of the Philippine Coast Guard’s Certificate of
Inspection of Judy VII, dated July 31, 1991, did not conclusively prove
that the barge was seaworthy. The regularity of the issuance of the
Certificate is disputably presumed. It could be contradicted by
competent evidence, which respondent offered. Moreover, this
evidence did not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report prepared by Jesus Cortez, the
cargo surveyor, should not have been admitted in evidence. The Court
partly agrees. Because he did not testify during the trial, then the
Report that he had prepared was hearsay and therefore inadmissible
for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortez’s Survey Report was used in the
testimonies of respondent’s witnesses—Charlie M. Soriano; and
Federico S. Manlapig, a cargo marine surveyor and the vice-president
of Toplis and Harding Company. Sorian o testified that the Survey
Report had been used in preparing the final Adjustment Report
conducted by their company. The final Report showed that the barge
was not seaworthy because of the existence of the holes. Manlapig
testified that he had prepared that Report after taking into account
the findings of the surveyor, as well as the pictures and the sketches
of the place where the sinking occurred. Evidently, the existence of
the holes was proved by the testimonies of the witnesses, not merely
by Cortez’ Survey Report.
Rule on Independently Relevant Statement
That witnesses must be examined and presented during the trial, and
that their testimonies must be confined to personal knowledge is
required by the rules on evidence, from which we quote:
“Section 36. Testimony generally confined to personal knowledge;
hearsay excluded.—A witness can testify only to those facts which he
knows of his personal knowledge; that is, which are derived from his
own perception, except as otherwise provided in these rules.”
On this basis, the trial court correctly refused to admit Jesus Cortez’s
Affidavit, which respondent had offered as evidence. Well-settled is
the rule that, unless the affiant is presented as a witness, an affidavit
is considered hearsay.
An exception to the foregoing rule is that on “independently relevant
statements.” A report made by a person is admissible if it is intended
to prove the tenor, not the truth, of the statements. Independent of
the truth or the falsity of the statement given in the report, the fact
that it has been made is relevant. Here, the hearsay rule does not
apply.
In the instant case, the challenged Survey Report prepared by Cortez
was admitted only as part of the testimonies of respondent’s
witnesses. The referral to Cortez’s Report was in relation to Manlapig’s
final Adjustment Report. Evidently, it was the existence of the Survey
Report that was testified to. The admissibility of that Report as part of
the testimonies of the witnesses was correctly ruled upon by the trial
court.
At any rate, even without the Survey Report, petitioner has already
failed to overcome the presumption of fault that applies to common
carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and
Resolution are AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ.,
concur.
Petition denied, assailed decision and resolution affirmed.
Notes. — Statements or admissions allegedly made by a person not
presented as witness admissible only as independently relevant
statements but not as proof of the truth of facts revealed in said
statements or admissions. (Alfonso vs. Juanson, 228 SCRA 239
[1993])
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 the control by the public for the common good, to the
extent of the interest he has thus created. (Kilusang Mayo Uno Labor
Center vs. Garcia, Jr., 239 SCRA 386 [1994])
——o0o——
SCHMITZ TRANSPORT & BROKERAGE CORPORATION,
petitioner, vs. TRANSPORT VENTURE, INC., INDUSTRIAL
INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING
AND DODWELL now INCHCAPE SHIPPING SERVICES,
respondents
G.R. No. 150255. April 22, 2005
Obligations and Contracts; Negligence; Fortuitous Events; The
principle embodied in the act of God doctrine strictly requires that the
act must be occasioned solely by the violence of nature—human
intervention is to be excluded from creating or entering into the cause
of the mischief.—In order, to be considered a fortuitous event,
however, (1) the cause of the unforeseen and unexpected occurrence,
or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the
event which constitute the caso fortuito, or if it can be foreseen it must
be impossible to avoid; (3) the occurrence must be such as to render
it impossible for the debtor to fulfill his obligation in any manner; and
(4) the obligor must be free from any participation in the aggravation
of the injury resulting to the creditor. [T]he principle embodied in the
act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded
from creating or entering into the cause of the mischief. When the
effect is found to be in part the result of the participation of man,
whether due to his active intervention or neglect or failure to act, the
whole occurrence is then humanized and removed from the rules
applicable to the acts of God.
Common Carriers; Customs Brokers; It is settled that under a given
set of facts, a customs broker may be regarded as a common carrier.
— It is settled that under a given set of facts, a customs broker may
be regarded as a common carrier. Thus, this Court, in A.F. Sanchez
Brokerage, Inc. v. The Honorable Court of Appeals, held: The
appellate court did not err in finding petitioner, a customs broker, to
be also a common carrier, as defined under Article 1732 of the Civil
Code, to wit, Art. 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. x x x Article 1732
does not distinguish between one whose principal business activity is
the carrying of goods and one who does such carrying only as an
ancillary activity. The contention, therefore, of petitioner that it is not
a common carrier but a custom broker whose principal function is to
prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that
petitioner undertakes to deliver the goods for pecuniary consideration.
And in Calvo v. UCPB General Insurance Co., Inc., this Court held that
as the transportation of goods is an integral part of a customs broker,
the customs broker is also a common carrier. For to declare otherwise
“would be to deprive those with whom [it] contracts the protection
which the law affords them notwithstanding the fact that the
obligation to carry goods for [its] customers, is part and parcel of
petitioner’s business.”
Same; Private Carriers; While a private carrier is under no duty to
observe extraordinary diligence, it is still required to observe ordinary
diligence. — In the case of TVI, while it acted as a private carrier for
which it was under no duty to observe extraordinary diligence, it was
still required to observe ordinary diligence to ensure the proper and
careful handling, care and discharge of the carried goods.
Same; Same; A man of ordinary prudence would not leave a heavily
loaded barge floating for a considerable number of hours, at a
precarious time, and in the open sea, knowing that the barge does not
have any power of its own and is totally defenseless from the ravages
of the sea. — TVI’s failure to promptly provide a tugboat did not only
increase the risk that might have been reasonably anticipated during
the shipside operation, but was the proximate cause of the loss. A
man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time,
and in the open sea, knowing that the barge does not have any power
of its own and is totally defenseless from the ravages of the sea. That
it was nighttime and, therefore, the members of the crew of a tugboat
would be charging overtime pay did not excuse TVI from calling for
one such tugboat.
Same; Obligations and Contracts; Torts; Quasi-Delicts; When an act
which constitutes a breach of contract would have itself constituted
the source of a quasi-delictual liability had no contract existed between
the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply. — This Court holds then
that petitioner and TVI are solidarily liable for the loss of the cargoes.
The following pronouncement of the Supreme Court is instructive: The
foundation of LRTA’s liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of that
contract by reason of its failure to exercise the high diligence required
of the common carrier. In the discharge of its commitment to ensure
the safety of passengers, a carrier may choose to hire its own
employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common
carrier is not relieved of its responsibilities under the contract of
carriage. Should Prudent be made likewise liable? If at all, that liability
could only be for tort under the provisions of Article 2176 and related
provisions, in conjunction with Article 2180 of the Civil Code. x x x
[O]ne might ask further, how then must the liability of the common
carrier, on one hand, and an independent contractor, on the other
hand, be described? It would be solidary. A contractual obligation can
be breached by tort and when the same act or omission causes the
injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 2194 of the Civil Code can well apply. In fine, a
liability for tort may arise even under a contract, where tort is that
which breaches the contract. Stated differently, when an act which
constitutes a breach of contract would have itself constituted the
source of a quasi-delictual liability had no contract existed between
the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.
Same; Same; Words and Phrases; Parties to a contract of carriage
may agree upon a definition of delivery that extends the services
rendered by the carrier. — Parties to a contract of carriage may,
however, agree upon a definition of delivery that extends the services
rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering
the shipment provides that delivery be made “to the port of discharge
or so near thereto as she may safely get, always afloat.” The delivery
of the goods to the consignee was not from “pier to pier” but from the
shipside of “M/V Alexander Saveliev” and into barges, for which reason
the consignee contracted the services of petitioner. Since Black Sea
had constructively delivered the cargoes to Little Giant, through
petitioner, it had discharged its duty.
Damages; Attorney’s Fees; To award attorney’s fees to a party just
because the judgment is rendered in its favor would be tantamount to
imposing a premium on one’s right to litigate or seek judicial redress
of legitimate grievances—no sufficient showing of bad faith is reflected
in a party’s persistence in a case based on an erroneous conviction of
the righteousness of his cause.—Respecting the award of attorney’s
fees in an amount over P1,000,000.00 to Industrial Insurance, for lack
of factual and legal basis, this Court sets it aside. While Industrial
Insurance was compelled to litigate its rights, such fact by itself does
not justify the award of attorney’s fees under Article 2208 of the Civil
Code. For no sufficient showing of bad faith would be reflected in a
party’s persistence in a case other than an erroneous conviction of the
righteousness of his cause. To award attorney’s fees to a party just
because the judgment is rendered in its favor would be tantamount to
imposing a premium on one’s right to litigate or seek judicial redress
of legitimate grievances.
Same; Insurance; Adjustment fees do not constitute actual damages.
— On the award of adjustment fees: The adjustment fees and expense
of divers were incurred by Industrial Insurance in its voluntary but
unsuccessful efforts to locate and retrieve the lost cargo. They do not
constitute actual damages.
Same; Interests; When the demand cannot be reasonably established
at the time the demand is made, the interest shall begin to run not
from the time the claim is made judicially or extrajudicially but from
the date the judgment of the lower court is made.—As for the court a
quo’s award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals that when the demand cannot be reasonably
established at the time the demand is made, the interest shall begin
to run not from the time the claim is made judicially or extrajudicially
but from the date the judgment of the court is made (at which the
time the quantification of damages may be deemed to have been
reasonably ascertained).
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Pena, Del Rosario, Mendoza, Tiamson and Pulido for petitioner.
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision of the Court of
Appeals, as well as its Resolution dated September 28, 2001 denying
the motion for reconsideration, which affirmed that of Branch 21 of
the Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132
holding petitioner Schmitz Transport Brokerage Corporation (Schmitz
Transport), together with Black Sea Shipping Corporation (Black Sea),
represented by its ship agent Inchcape Shipping Inc. (Inchcape), and
Transport Venture Inc. (TVI), solidarily liable for the loss of 37 hot
rolled steel sheets in coil that were washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the
port of Ilyichevsk, Russia on board M/V “Alexander Saveliev” (a vessel
of Russian registry and owned by Black Sea) 545 hot rolled steel
sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in
favor of the consignee, Little Giant Steel Pipe Corporation (Little
Giant), were insured against all risks with Industrial Insurance
Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-
3747-TIS.
The vessel arrived at the port of Manila on October 24, 1991 and the
Philippine Ports Authority (PPA) assigned it a place of berth at the
outside breakwater at the Manila South Harbor.
Schmitz Transport, whose services the consignee engaged to secure
the requisite clearances, to receive the cargoes from the shipside, and
to deliver them to its (the consignee’s) warehouse at Cainta, Rizal, in
turn engaged the services of TVI to send a barge and tugboat at
shipside.
On October 26, 1991, around 4:30 p.m., TVI’s tugboat “Lailani” towed
the barge “Erika V” to shipside.
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning
the barge alongside the vessel, left and returned to the port terminal.
At 9:00 p.m., arrastre operator Ocean Terminal Services Inc.
commenced to unload 37 of the 545 coils from the vessel unto the
barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition
had become inclement due to an approaching storm, the unloading
unto the barge of the 37 coils was accomplished. No tugboat pulled
the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves, the
crew of the barge abandoned it and transferred to the vessel. The
barge pitched and rolled with the waves and eventually capsized,
washing the 37 coils into the sea. At 7:00 a.m., a tugboat finally
arrived to pull the already empty and damaged barge back to the pier.
Earnest efforts on the part of both the consignee Little Giant and
Industrial Insurance to recover the lost cargoes proved futile.
Little Giant thus filed a formal claim against Industrial Insurance which
paid it the amount of P5,246,113.11. Little Giant thereupon executed
a subrogation receipt in favor of Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport,
TVI, and Black Sea through its representative Inchcape (the
defendants) before the RTC of Manila, for the recovery of the amount
it paid to Little Giant plus adjustment fees, attorney’s fees, and
litigation expenses.
Industrial Insurance faulted the defendants for undertaking the
unloading of the cargoes while typhoon signal No. 1 was raised in
Metro Manila.
By Decision of November 24, 1997, Branch 21 of the RTC held all the
defendants negligent for unloading the cargoes outside of the
breakwater notwithstanding the storm signal. The dispositive portion
of the decision reads:
“WHEREFORE, premises considered, the Court renders judgment in
favor of the plaintiff, ordering the defendants to pay plaintiff jointly
and severally the sum of P5,246,113.11 with interest from the date
the complaint was filed until fully satisfied, as well as the sum of
P5,000.00 representing the adjustment fee plus the sum of 20% of
the amount recoverable from the defendants as attorney’s fees plus
the costs of suit. The counterclaims and cross claims of defendants
are hereby DISMISSED for lack of [m]erit.
To the trial court’s decision, the defendants Schmitz Transport and
TVI filed a joint motion for reconsideration assailing the finding that
they are common carriers and the award of excessive attorney’s fees
of more than P1,000,000. And they argued that they were not
motivated by gross or evident bad faith and that the incident was
caused by a fortuitous event.
By resolution of February 4, 1998, the trial court denied the motion
for reconsideration.
All the defendants appealed to the Court of Appeals which, by decision
of June 27, 2001, affirmed in toto the decision of the trial court, it
finding that all the defendants were common carriers—Black Sea and
TVI for engaging in the transport of goods and cargoes over the seas
as a regular business and not as an isolated transaction, and Schmitz
Transport for entering into a contract with Little Giant to transport the
cargoes from ship to port for a fee.
In holding all the defendants solidarily liable, the appellate court ruled
that “each one was essential such that without each other’s
contributory negligence the incident would not have happened and so
much so that the person principally liable cannot be distinguished with
sufficient accuracy.”
In discrediting the defense of fortuitous event, the appellate court held
that “although defendants obviously had nothing to do with the force
of nature, they however had control of where to anchor the vessel,
where discharge will take place and even when the discharging will
commence.”
The defendants’ respective motions for reconsideration having been
denied by Resolution of September 28, 2001, Schmitz Transport
(hereinafter referred to as petitioner) filed the present petition against
TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it
was acting for its principal, consignee Little Giant, hence, the
transportation contract was by and between Little Giant and TVI.
By Resolution of January 23, 2002, herein respondents Industrial
Insurance, Black Sea, and TVI were required to file their respective
Comments.
By its Comment, Black Sea argued that the cargoes were received by
the consignee through petitioner in good order, hence, it cannot be
faulted, it having had no control and supervision thereover.
For its part, TVI maintained that it acted as a passive party as it merely
received the cargoes and transferred them unto the barge upon the
instruction of petitioner.
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event,
independent of any act of negligence on the part of petitioner Black
Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach
to Black Sea, petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves
any party from any and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it
is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which
though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause
of the unforeseen and unexpected occurrence, or the failure of the
debtor to comply with his obligation, must be independent of human
will; (2) it must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for
the debtor to fulfill his obligation in any manner; and (4) the obligor
must be free from any participation in the aggravation of the injury
resulting to the creditor.
[T]he principle embodied in the act of God doctrine strictly requires
that the act must be occasioned solely by the violence of nature.
Human intervention is to be excluded from creating or entering into
the cause of the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his active
intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.
The appellate court, in affirming the finding of the trial court that
human intervention in the form of contributory negligence by all the
defendants resulted to the loss of the cargoes, held that unloading
outside the breakwater, instead of inside the breakwater, while a
storm signal was up constitutes negligence. It thus concluded that the
proximate cause of the loss was Black Sea’s negligence in deciding to
unload the cargoes at an unsafe place and while a typhoon was
approaching.
From a review of the records of the case, there is no indication that
there was greater risk in loading the cargoes outside the breakwater.
As the defendants proffered, the weather on October 26, 1991
remained normal with moderate sea condition such that port
operations continued and proceeded normally.
The weather data report, furnished and verified by the Chief of the
Climate Data Section of PAG-ASA and marked as a common exhibit of
the parties, states that while typhoon signal No. 1 was hoisted over
Metro Manila on October 23-31, 1991, the sea condition at the port of
Manila at 5:00 p.m. -11:00 p.m. of October 26, 1991 was moderate.
It cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the
breakwater.
That no tugboat towed back the barge to the pier after the cargoes
were completely loaded by 12:30 in the morning is, however, a
material fact which the appellate court failed to properly consider and
appreciate—the proximate cause of the loss of the cargoes. Had the
barge been towed back promptly to the pier, the deteriorating sea
conditions notwithstanding, the loss could have been avoided. But the
barge was left floating in open sea until big waves set in at 5:30 a.m.,
causing it to sink along with the cargoes. The loss thus falls outside
the “act of God doctrine.”
The proximate cause of the loss having been determined, who among
the parties is/are responsible therefor?
Contrary to petitioner’s insistence, this Court, as did the appellate
court, finds that petitioner is a common carrier. For it undertook to
transport the cargoes from the shipside of “M/V Alexander Saveliev”
to the consignee’s warehouse at Cainta, Rizal. As the appellate court
put it, “as long as a person or corporation holds [itself] to the public
for the purpose of transporting goods as [a] business, [it] is already
considered a common carrier regardless if [it] owns the vehicle to be
used or has to hire one.” That petitioner is a common carrier, the
testimony of its own Vice-President and General Manager Noel Aro
that part of the services it offers to its clients as a brokerage firm
includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as
Executive Vice-President and General Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and
transport business of the company. I also handle the various division
heads of the company for operation matters, and all other related
functions that the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you
mentioned, will you please tell the Honorable Court if you came to
know the company by the name Little Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that
company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company.
What work or duty did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau
of Customs. We [are] also in charge of the delivery of the goods to
their warehouses. We also handled the clearances of their shipment
at the Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant
Steel Pipe Corporation with regards to this shipment? What work did
you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter
and then the delivery of [the] cargo[es] from lighter to BASECO then
to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr.
Witness, you are supposed to perform, what equipment do (sic) you
require or did you use in order to effect this unloading, transfer and
delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this
unloading [from] vessel to lighter, and on this we hired or we sub-
contracted with [T]ransport Ventures, Inc. which [was] in-charged
(sic) of the barges. Also, in BASECO compound we are leasing cranes
to have the cargo unloaded from the barge to trucks, [and] then we
used trucks to deliver [the cargoes] to the consignee’s warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the
consignee’s warehouse?
A: We utilized of (sic) our own trucks and we have some other
contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court
why is it you have to contract for the barges of Transport Ventures
Incorporated in this particular operation?
A: Firstly, we don’t own any barges. That is why we hired the services
of another firm whom we know [al]ready for quite sometime, which is
Transport Ventures, Inc. (Emphasis supplied)
It is settled that under a given set of facts, a customs broker may be
regarded as a common carrier. Thus, this Court, in A.F. Sanchez
Brokerage, Inc. v. The Honorable Court of Appeals held:
The appellate court did not err in finding petitioner, a customs broker,
to be also a common carrier, as defined under Article 1732 of the Civil
Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public. x x x
Article 1732 does not distinguish between one whose principal
business activity is the carrying of goods and one who does such
carrying only as an ancillary activity. The contention, therefore, of
petitioner that it is not a common carrier but a custom broker whose
principal function is to prepare the correct customs declaration and
proper shipping documents as required by law is bereft of merit. It
suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
And in Calvo v. UCPB General Insurance Co., Inc., this Court held that
as the transportation of goods is an integral part of a customs broker,
the customs broker is also a common carrier. For to declare otherwise
“would be to deprive those with whom [it] contracts the protection
which the law affords them notwithstanding the fact that the
obligation to carry goods for [its] customers, is part and parcel of
petitioner’s business.”
As for petitioner’s argument that being the agent of Little Giant, any
negligence it committed was deemed the negligence of its principal, it
does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the
release of the cargoes. In effecting the transportation of the cargoes
from the shipside and into Little Giant’s warehouse, however,
petitioner was discharging its own personal obligation under a contact
of carriage.
Petitioner, which did not have any barge or tugboat, engaged the
services of TVI as handler48 to provide the barge and the tugboat. In
their Service Contract, while Little Giant was named as the consignee,
petitioner did not disclose that it was acting on commission and was
chartering the vessel for Little Giant. Little Giant did not thus
automatically become a party to the Service Contract and was not,
therefore, bound by the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly
sue TVI based thereon but it can maintain a cause of action for
negligence.
In the case of TVI, while it acted as a private carrier for which it was
under no duty to observe extraordinary diligence, it was still required
to observe ordinary diligence to ensure the proper and careful
handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father
of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent
person would have used in the same situation exercised by TVI?
This Court holds not.
TVI’s failure to promptly provide a tugboat did not only increase the
risk that might have been reasonably anticipated during the shipside
operation, but was the proximate cause of the loss. A man of ordinary
prudence would not leave a heavily loaded barge floating for a
considerable number of hours, at such a precarious time, and in the
open sea, knowing that the barge does not have any power of its own
and is totally defenseless from the ravages of the sea. That it was
nighttime and, therefore, the members of the crew of a tug-boat
would be charging overtime pay did not excuse TVI from calling for
one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following
Article 1739 of the Civil Code, prove that it exercised due diligence to
prevent or minimize the loss, before, during and after the occurrence
of the storm in order that it may be exempted from liability for the
loss of the goods.
While petitioner sent checkers and a supervisor on board the vessel
to counter-check the operations of TVI, it failed to take all available
and reasonable precautions to avoid the loss. After noting that TVI
failed to arrange for the prompt towage of the barge despite the
deteriorating sea conditions, it should have summoned the same or
another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable for
the loss of the cargoes. The following pronouncement of the Supreme
Court is instructive:
The foundation of LRTA’s liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of that
contract by reason of its failure to exercise the high diligence required
of the common carrier. In the discharge of its commitment to ensure
the safety of passengers, a carrier may choose to hire its own
employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common
carrier is not relieved of its responsibilities under the contract of
carriage.
Should Prudent be made likewise liable? If at all, that liability could
only be for tort under the provisions of Article 2176 and related
provisions, in conjunction with Article 2180 of the Civil Code. x x x
[O]ne might ask further, how then must the liability of the common
carrier, on one hand, and an independent contractor, on the other
hand, be described? It would be solidary. A contractual obligation can
be breached by tort and when the same act or omission causes the
injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 2194 of the Civil Code can well apply. In fine, a
liability for tort may arise even under a contract, where tort is that
which breaches the contract. Stated differently, when an act which
constitutes a breach of contract would have itself constituted the
source of a quasi-delictual liability had no contract existed between
the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.
As for Black Sea, its duty as a common carrier extended only from the
time the goods were surrendered or unconditionally placed in its
possession and received for transportation until they were delivered
actually or constructively to consignee Little Giant.
Parties to a contract of carriage may, however, agree upon a definition
of delivery that extends the services rendered by the carrier. In the
case at bar, Bill of Lading No. 2 covering the shipment provides that
delivery be made “to the port of discharge or so near thereto as she
may safely get, always afloat.” The delivery of the goods to the
consignee was not from “pier to pier” but from the shipside of “M/V
Alexander Saveliev” and into barges, for which reason the consignee
contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner,
it had discharged its duty.
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorney’s fees in an amount over
P1,000,000.00 to Industrial Insurance, for lack of factual and legal
basis, this Court sets it aside. While Industrial Insurance was
compelled to litigate its rights, such fact by itself does not justify the
award of attorney’s fees under Article 2208 of the Civil Code. For no
sufficient showing of bad faith would be reflected in a party’s
persistence in a case other than an erroneous conviction of the
righteousness of his cause. To award attorney’s fees to a party just
because the judgment is rendered in its favor would be tantamount to
imposing a premium on one’s right to litigate or seek judicial redress
of legitimate grievances.
On the award of adjustment fees: The adjustment fees and expense
of divers were incurred by Industrial Insurance in its voluntary but
unsuccessful efforts to locate and retrieve the lost cargo. They do not
constitute actual damages.
As for the court a quo’s award of interest on the amount claimed, the
same calls for modification following the ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals that when the demand cannot be
reasonably established at the time the demand is made, the interest
shall begin to run not from the time the claim is made judicially or
extrajudicially but from the date the judgment of the court is made (at
which the time the quantification of damages may be deemed to have
been reasonably ascertained).
WHEREFORE, judgment is hereby rendered ordering petitioner
Schmitz Transport & Brokerage Corporation, and Transport Venture
Incorporation jointly and severally liable for the amount of
P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT
per annum of the amount due should be computed from the
promulgation on November 24, 1997 of the decision of the trial court.
Costs against petitioner.
SO ORDERED.
Panganiban (Chairman), Sandoval-Gutierrez, Corona and Garcia,
JJ., concur.
Judgment modified.
Notes. — Where 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, attorney’s fees shall not be
recovered as cost. (Servicewide Specialists, Incorporated vs. Court of
Appeals, 256 SCRA 649 [1996])
To deserve compensation for his legal services based on quantum
meruit, a lawyer must prove by substantial evidence that he is entitled
to a reasonable fee for his efforts in pursuing his client’s case with the
Court taking into account certain factors in fixing the amount of his
fees. (Emiliano Court Townhouses Homeowners Association vs.
Dioneda, 399 SCRA 296 [2003])
——o0o——
EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs.
UCPB GENERAL INSURANCE COMPANY, INC., respondent
G.R. No. 146018. June 25, 2003
Civil Law; Damages; Force Majeure; Broadly speaking, force majeure
generally applies to a natural accident, such as that caused by a
lightning, an earthquake, a tempest or a public enemy. — Having
originated from an unchecked crack in the fuel oil service tank, the
fire could not have been caused by force majeure. Broadly speaking,
force majeure generally applies to a natural accident, such as that
caused by a lightning, an earthquake, a tempest or a public enemy.
Hence, fire is not considered a natural disaster or calamity.
Same; Same; Negligence; Common Carriers; A common carrier is
presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods if transported. — The law
provides that a common carrier is presumed to have been negligent if
it fails to prove that it exercised extraordinary vigilance over the goods
it transported. Ensuring the seaworthiness of the vessel is the first
step in exercising the required vigilance. Petitioner did not present
sufficient evidence showing what measures or acts it had undertaken
to ensure the seaworthiness of the vessel.
Same; Same; Same; Same; A stipulation that limits liability is valid as
long as it is not against public policy. — A stipulation that limits liability
is valid as long as it is not against public policy. In Everett Steamship
Corporation v. Court of Appeals the Court stated: “A stipulation in the
bill of lading limiting the common carrier’s liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner
declares a greater value, is sanctioned by law, particularly Articles
1749 and 1750 of the Civil Code.
Same; Same; Same; Same; Petitioner should not be held liable for
more than what was declared by the shippers/consignees as the value
of the goods in the bills of lading. — In Aboitiz Shipping Corporation
v. Court of Appeals, the description of the nature and the value of the
goods shipped were declared and reflected in the bill of lading, like in
the present case. The Court therein considered this declaration as the
basis of the carrier’s liability and ordered payment based on such
amount. Following this ruling, petitioner should not be held liable for
more than what was declared by the shippers/consignees as the value
of the goods in the bills of lading.
PETITION for review on certiorari of the Court of Appeals.
The facts are stated in the opinion of the Court.
Gutierrez, Sundiam, Villanueva & Doronila for petitioner.
Linsangan, Linsangan, Linsangan Law Offices for respondent.
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by
stipulation in the bill of lading, be limited to the value declared by the
shipper. On the other hand, the liability of the insurer is determined
by the actual value covered by the insurance policy and the insurance
premiums paid therefor, and not necessarily by the value declared in
the bill of lading.
The Case
Before the Court is a Petition for Review under Rule 45 of the Rules of
Court, seeking to set aside the August 31, 2000 Decision and the
November 17, 2000 Resolution of the Court of Appeals (CA) in CA-GR
SP No. 62751. The dispositive part of the Decision reads:
“IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The
Decision appealed from is REVERSED. [Petitioner] is hereby
condemned to pay to [respondent] the total amount of P148,500.00,
with interest thereon, at the rate of 6% per annum, from date of this
Decision of the Court. [Respondent’s] claim for attorney’s fees [is]
DISMISSED. [Petitioner’s] counterclaims are DISMISSED.”
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s
Decision, which was later reversed by the CA, states:
“WHEREFORE, premises considered, the case is hereby DISMISSED
for lack of merit.
“No cost.”
The Facts
The facts of the case are summarized by the appellate court in this
wise:
“Sometime on December 11, 1991, Nestor Angelia delivered to the
Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong Shipping Lines),
[petitioner] for brevity, cargo consisting of one (1) carton of Christmas
decor and two (2) sacks of plastic toys, to be transported on board
the M/V Tandag on its Voyage No. T-189 scheduled to depart from
Cebu City, on December 12, 1991, for Tandag, Surigao del Sur.
[Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the
cargo. Nestor Angelia was both the shipper and consignee of the cargo
valued, on the face thereof, in the amount of P6,500.00. Zosimo
Mercado likewise delivered cargo to [petitioner], consisting of two (2)
cartons of plastic toys and Christmas decor, one (1) roll of floor mat
and one (1) bundle of various or assorted goods for transportation
thereof from Cebu City to Tandag, Surigao del Sur, on board the said
vessel, and said voyage. [Petitioner] issued Bill of Lading No. 59
covering the cargo which, on the face thereof, was valued in the
amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.
“On December 12, 1991, Feliciana Legaspi insured the cargo, covered
by Bill of Lading No. 59, with the UCPB General Insurance Co., Inc.,
[respondent] for brevity, for the amount of P100,000.00 “against all-
risks’ under Open Policy No. 002/91/254 for which she was issued, by
[respondent], Marine Risk Note No. 18409 on said date. She also
insured the cargo covered by Bill of Lading No. 58, with [respondent],
for the amount of P50,000.00, under Open Policy No. 002/91/254 on
the basis of which [respondent] issued Marine Risk Note No. 18410 on
said date.
“When the vessel left port, it had thirty-four (34) passengers and
assorted cargo on board, including the goods of Legaspi. After the
vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the
engine room, and, despite earnest efforts of the officers and crew of
the vessel, the fire engulfed and destroyed the entire vessel resulting
in the loss of the vessel and the cargoes therein. The Captain filed the
required Marine Protest.
“Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent],
for the value of the cargo insured under Marine Risk Note No. 18409
and covered by Bill of Lading No. 59. She submitted, in support of her
claim, a Receipt, dated December 11, 1991, purportedly signed by
Zosimo Mercado, and Order Slips purportedly signed by him for the
goods he received from Feliciana Legaspi valued in the amount of
P110,056.00. [Respondent] approved the claim of Feliciana Legaspi
and drew and issued UCPB Check No. 612939, dated March 9, 1992,
in the net amount of P99,000.00, in settlement of her claim after which
she executed a Subrogation Receipt/Deed, for said amount, in favor
of [respondent]. She also filed a claim for the value of the cargo
covered by Bill of Lading No. 58. She submitted to [respondent] a
Receipt, dated December 11, 1991 and Order Slips, purportedly signed
by Nestor Angelia for the goods he received from Feliciana Legaspi
valued at P60,338.00. [Respondent] approved her claim and remitted
to Feliciana Legaspi the net amount of P49,500.00, after which she
signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].
“On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi,
filed a complaint anchored on torts against [petitioner], with the
Regional Trial Court of Makati City, for the collection of the total
principal amount of P148,500.00, which it paid to Feliciana Legaspi for
the loss of the cargo, praying that judgment be rendered in its favor
and against the [petitioner] as follows:
‘WHEREFORE, it is respectfully prayed of this Honorable Court that
after due hearing, judgment be rendered ordering [petitioner] to pay
[respondent] the following.
1. Actual damages in the amount of P148,500.00 plus interest thereon
at the legal rate from the time of filing of this complaint until fully paid;
2. Attorney’s fees in the amount of P10,000.00; and
3. Cost of suit.
‘[Respondent] further prays for such other reliefs and remedies as this
Honorable Court may deem just and equitable under the premises.’
“[Respondent] alleged, inter alia, in its complaint, that the cargo
subject of its complaint was delivered to, and received by, [petitioner]
for transportation to Tandag, Surigao del Sur under Bill of Ladings,’
Annexes ‘A’ and ‘B’ of the complaint; that the loss of the cargo was
due to the negligence of the [petitioner]; and that Feliciana Legaspi
had executed Subrogation Receipts/Deeds in favor of [respondent]
after paying to her the value of the cargo on account of the Marine
Risk Notes it issued in her favor covering the cargo.
“In its Answer to the complaint, [petitioner] alleged that: (a)
[petitioner] was cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel; (b) the complaint stated no
cause of action against [petitioner]; and (c) the shippers/consignee
had already been paid the value of the goods as stated in the Bill of
Lading and, hence, [petitioner] cannot be held liable for the loss of
the cargo beyond the value thereof declared in the Bill of Lading.
“After [respondent] rested its case, [petitioner] prayed for and was
allowed, by the Court a quo, to take the depositions of Chester
Cokaliong, the Vice-President and Chief Operating Officer of
[petitioner], and a resident of Cebu City, and of Noel Tanyu, an officer
of the Equitable Banking Corporation, in Cebu City, and a resident of
Cebu City, to be given before the Presiding Judge of Branch 106 of
the Regional Trial Court of Cebu City. Chester Cokaliong and Noel
Tanyu did testify, by way of deposition, before the Court and declared
inter alia, that: [petitioner] is a family corporation like the Chester
Marketing, Inc.; Nestor Angelia had been doing business with
[petitioner] and Chester Marketing, Inc., for years, and incurred an
account with Chester Marketing, Inc. for his purchases from said
corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59 for
the cargo described therein with Zosimo Mercado and Nestor Angelia
as shippers/consignees, respectively; the engine room of the M/V
Tandag caught fire after it passed the Mandaue/Mactan Bridge
resulting in the total loss of the vessel and its cargo; an investigation
was conducted by the Board of Marine Inquiry of the Philippine Coast
Guard which rendered a Report, dated February 13, 1992 absolving
[petitioner] of any responsibility on account of the fire, which Report
of the Board was approved by the District Commander of the
Philippine Coast Guard; a few days after the sinking of the vessel, a
representative of the Legaspi Marketing filed claims for the values of
the goods under Bills of Lading Nos. 58 and 59 in behalf of the
shippers/consignees, Nestor Angelia and Zosimo Mercado; [petitioner]
was able to ascertain, from the shippers/consignees and the
representative of the Legaspi Marketing that the cargo covered by Bill
of Lading No. 59 was owned by Legaspi Marketing and consigned to
Zosimo Mercado while that covered by Bill of Lading No. 58 was
purchased by Nestor Angelia from the Legaspi Marketing; that
[petitioner] approved the claim of Legaspi Marketing for the value of
the cargo under Bill of Lading No. 59 and remitted to Legaspi
Marketing the said amount under Equitable Banking Corporation
Check No. 20230486 dated August 12, 1992, in the amount of
P14,000.00 for which the representative of the Legaspi Marketing
signed Voucher No. 4379, dated August 12, 1992, for the said amount
of P14,000.00 in full payment of claims under Bill of Lading No. 59;
that [petitioner] approved the claim of Nestor Angelia in the amount
of P6,500.00 but that since the latter owed Chester Marketing, Inc.,
for some purchases, [petitioner] merely set off the amount due to
Nestor Angelia under Bill of Lading No. 58 against his account with
Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of
the check after it was received by Legaspi Marketing, hence, the
production of the microfilm copy by Noel Tanyu of the Equitable
Banking Corporation; [petitioner] never knew, before settling with
Legaspi Marketing and Nestor Angelia that the cargo under both Bills
of Lading were insured with [respondent], or that Feliciana Legaspi
filed claims for the value of the cargo with [respondent] and that the
latter approved the claims of Feliciana Legaspi and paid the total
amount of P148,500.00 to her; [petitioner] came to know, for the first
time, of the payments by [respondent] of the claims of Feliciana
Legaspi when it was served with the summons and complaint, on
October 8, 1992; after settling his claim, Nestor Angelia x x x executed
the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated
July 2, 1993 in favor of [respondent]; hence, [petitioner] was absolved
of any liability for the loss of the cargo covered by Bills of Lading Nos.
58 and 59; and even if it was, its liability should not exceed the value
of the cargo as stated in the Bills of Lading.
“[Petitioner] did not anymore present any other witnesses on its
evidence-in-chief, x x x” (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed “to prove that the fire which
consumed the vessel and its cargo was caused by something other
than its negligence in the upkeep, maintenance and operation of the
vessel.”
Petitioner had paid P14,000 to Legaspi Marketing for the cargo
covered by Bill of Lading No. 59. The CA, however, held that the
payment did not extinguish petitioner’s obligation to respondent,
because there was no evidence that Feliciana Legaspi (the insured)
was the owner/proprietor of Legaspi Marketing. The CA also pointed
out the impropriety of treating the claim under Bill of Lading No. 58—
covering cargo valued therein at P6,500—as a setoff against Nestor
Angelia’s account with Chester Enterprises, Inc.
Finally, it ruled that respondent “is not bound by the valuation of the
cargo under the Bills of Lading, x x x nor is the value of the cargo
under said Bills of Lading conclusive on the [respondent].
This is so because, in the first place, the goods were insured with the
[respondent] for the total amount of P150,000.00, which amount may
be considered as the face value of the goods.”11
Hence this Petition.12
Issues
Petitioner raises for our consideration the following alleged errors of
the CA:
I
“The Honorable Court of Appeals erred, granting arguendo that
petitioner is liable, in holding that petitioner’s liability should be based
on the ‘actual insured value’ of the goods and not from actual valuation
declared by the shipper/consignee in the bill of lading.
II
“The Court of Appeals erred in not affirming the findings of the
Philippine Coast Guard, as sustained by the trial court a quo, holding
that the cause of loss of the aforesaid cargoes under Bill of Lading
Nos. 58 and 59 was due to force majeure and due diligence was
[exercised] by petitioner prior to, during and immediately after the fire
on [petitioner’s] vessel.
III
“The Court of Appeals erred in not holding that respondent UCPB
General Insurance has no cause of action against the petitioner.”
In sum, the issues are: (1) Is petitioner liable for the loss of the goods?
(2) If it is liable, what is the extent of its liability?
This Court’s Ruling
The Petition is partly meritorious.
First Issue: Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of
this case, was force majeure. It adds that its exercise of due diligence
was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine
Coast Guard show that the M/V Tandag sank due to a fire, which
resulted from a crack in the auxiliary engine fuel oil service tank. Fuel
spurted out of the crack and dripped to the heating exhaust manifold,
causing the ship to burst into flames. The crack was located on the
side of the fuel oil tank, which had a mere two-inch gap from the
engine room walling, thus precluding constant inspection and care by
the crew.
Having originated from an unchecked crack in the fuel oil service tank,
the fire could not have been caused by force majeure. Broadly
speaking, force majeure generally applies to a natural accident, such
as that caused by a lightning, an earthquake, a tempest or a public
enemy. Hence, fire is not considered a natural disaster or calamity. In
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, we
explained:
“x x x. This must be so as it arises almost invariably from some act of
man or by human means. It does not fall within the category of an act
of God unless caused by lighting or by other natural disaster or
calamity. It may even be caused by the actual fault or privity of the
carrier.
“Article 1680 of the Civil Code, which considers fire as an extraordinary
fortuitous event refers to leases or rural lands where a reduction of
the rent is allowed when more than one-half of the fruits have been
lost due to such event, considering that the law adopts a protective
policy towards agriculture.
“As the peril of fire is not comprehended within the exceptions in
Article 1734, supra, Article 1735 of the Civil Code provides that in all
cases other than those mentioned in Article 1734, the common carrier
shall be presumed to have been at fault or to have acted negligently,
unless it proves that it has observed the extraordinary diligence
required by law.”
Where loss of cargo results from the failure of the officers of a vessel
to inspect their ship frequently so as to discover the existence of
cracked parts, that loss cannot be attributed to force majeure, but to
the negligence of those officials.
The law provides that a common carrier is presumed to have been
negligent if it fails to prove that it exercised extraordinary vigilance
over the goods it transported. Ensuring the seaworthiness of the
vessel is the first step in exercising the required vigilance. Petitioner
did not present sufficient evidence showing what measures or acts it
had undertaken to ensure the seaworthiness of the vessel. It failed to
show when the last inspection and care of the auxiliary engine fuel oil
service tank was made, what the normal practice was for its
maintenance, or some other evidence to establish that it had exercised
extraordinary diligence. It merely stated that constant inspection and
care were not possible, and that the last time the vessel was dry-
docked was in November 1990. Necessarily, in accordance with Article
1735 of the Civil Code, we hold petitioner responsible for the loss of
the goods covered by Bills of Lading Nos. 58 and 59.
Second Issue: Extent of Liability
Respondent contends that petitioner’s liability should be based on the
actual insured value of the goods, subject of this case. On the other
hand, petitioner claims that its liability should be limited to the value
declared by the shipper/consignee in the Bill of Lading.
The records show that the Bills of Lading covering the lost goods
contain the stipulation that in case of claim for loss or for damage to
the shipped merchandise or property, “[t]he liability of the common
carrier x x x shall not exceed the value of the goods as appearing in
the bill of lading.” The attempt by respondent to make light of this
stipulation is unconvincing. As it had the consignees’ copies of the Bills
of Lading, it could have easily produced those copies, instead of
relying on mere allegations and suppositions. However, it presented
mere photocopies thereof to disprove petitioner’s evidence showing
the existence of the above stipulation.
A stipulation that limits liability is valid as long as it is not against public
policy. In Everett Steamship Corporation v. Court of Appeals, the Court
stated:
“A stipulation in the bill of lading limiting the common carrier’s liability
for loss or destruction of a cargo to a certain sum, unless the shipper
or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to
the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been freely and fairly agreed upon.’
“Such limited-liability clause has also been consistently upheld by this
Court in a number of cases. Thus, in Sea-Land Service, Inc. vs.
Intermediate Appellate Court, we ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods
by Sea Act did not exist, the validity and binding effect of the liability
limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater
value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of
the law itself, and this the private respondent does not pretend to do.
But over and above that consideration, the just and reasonable
character of such stipulation is implicit in it giving the shipper or owner
the option of avoiding accrual of liability limitation by the simple and
surely far from onerous expedient of declaring the nature and value
of the shipment in the bill of lading.’
“Pursuant to the afore-quoted provisions of law, it is required that the
stipulation limiting the common carrier’s liability for loss must be
‘reasonable and just under the circumstances, and has been freely and
fairly agreed upon.
“The bill of lading subject of the present controversy specifically
provides, among others:
‘18. All claims for which the carrier may be liable shall be adjusted and
settled on the basis of the shipper’s net invoice cost plus freight and
insurance premiums, if paid, and in no event shall the carrier be liable
for any loss of possible profits or any consequential loss.
‘The carrier shall not be liable for any loss of or any damage to or in
any connection with, goods in an amount exceeding One Hundred
Thousand Yen in Japanese Currency (¥100,000.00) or its equivalent
in any other currency per package or customary freight unit
(whichever is least) unless the value of the goods higher than this
amount is declared in writing by the shipper before receipt of the
goods by the carrier and inserted in the Bill of Lading and extra freight
is paid as required.’
“The above stipulations are, to our mind, reasonable and just. In the
bill of lading, the carrier made it clear that its liability would only be
up to One Hundred Thousand (¥100,000.00) Yen. However, the
shipper, Maruman Trading, had the option to declare a higher
valuation if the value of its cargo was higher than the limited liability
of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the
stipulations.” (Italics supplied)
In the present case, the stipulation limiting petitioner’s liability is not
contrary to public policy. In fact, its just and reasonable character is
evident. The shippers/consignees may recover the full value of the
goods by the simple expedient of declaring the true value of the
shipment in the Bill of Lading. Other than the payment of a higher
freight, there was nothing to stop them from placing the actual value
of the goods therein. In fact, they committed fraud against the
common carrier by deliberately undervaluing the goods in their Bill of
Lading, thus depriving the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading
is to protect the common carrier. Such stipulation obliges the
shipper/consignee to notify the common carrier of the amount that
the latter may be liable for in case of loss of the goods. The common
carrier can then take appropriate measures—getting insurance, if
needed, to cover or protect itself. This precaution on the part of the
carrier is reasonable and prudent. Hence, a shipper/consignee that
undervalues the real worth of the goods it seeks to transport does not
only violate a valid contractual stipulation, but commits a fraudulent
act when it seeks to make the common carrier liable for more than
the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by
undervaluing the goods in their respective Bills of Lading. Hence,
petitioner was exposed to a risk that was deliberately hidden from it,
and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged
actual value of the goods) the insurance company was paid the correct
higher premium by Feliciana Legaspi; while petitioner was paid a fee
lower than what it was entitled to for transporting the goods that had
been deliberately undervalued by the shippers in the Bill of Lading.
Between the two of them, the insurer should bear the loss in excess
of the value declared in the Bills of Lading. This is the just and
equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals, the description of
the nature and the value of the goods shipped were declared and
reflected in the bill of lading, like in the present case. The Court therein
considered this declaration as the basis of the carrier’s liability and
ordered payment based on such amount. Following this ruling,
petitioner should not be held liable for more than what was declared
by the shippers/consignees as the value of the goods in the bills of
lading.
We find no cogent reason to disturb the CA’s finding that Feliciana
Legaspi was the owner of the goods covered by Bills of Lading Nos.
58 and 59. Undoubtedly, the goods were merely consigned to Nestor
Angelia and Zosimo Mercado, respectively; thus, Feliciana Legaspi or
her subrogee (respondent) was entitled to the goods or, in case of
loss, to compensation therefor. There is no evidence showing that
petitioner paid her for the loss of those goods. It does not even claim
to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for
the lost goods under Bill of Lading No. 59, for which the latter
subsequently paid P14,000. But nothing in the records convincingly
shows that the former was the owner of the goods. Respondent was,
however, able to prove that it was Feliciana Legaspi who owned those
goods, and who was thus entitled to payment for their loss. Hence,
the claim for the goods under Bill of Lading No. 59 cannot be deemed
to have been extinguished, because payment was made to a person
who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of
Lading No. 58 and valued at P6,500, the parties have not convinced
us to disturb the findings of the CA that compensation could not validly
take place. Thus, we uphold the appellate court’s ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The
assailed Decision is MODIFIED in the sense that petitioner is ORDERED
to pay respondent the sums of P14,000 and P6,500, which represent
the value of the goods stated in Bills of Lading Nos. 59 and 58,
respectively.
No costs.
SO ORDERED.
Puno (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales,
JJ., concur.
Petition partially granted, assailed judgment modified.
Note.—A stipulation reducing the one year period for filing the action
for recovery is null and void and must be struck down. (Loadstar
Shipping Co., Inc. vs. Court of Appeals, 315 SCRA 339 [1999])
——o0o——
AGUSTINO B. ONG YIU, petitioner vs. HONORABLE COURT
OF APPEALS and PHILIPPINE AIR LINES, INC., respondents
No. L-40597. June 29, 1979
Civil Law; Transportation; Breach of contract of transportation; Bad
faith, Concept of; No bad faith committed when airline company
exerted due diligence with its duty in locating a passenger’s lost
luggage; Case at bar. — From the facts of the case, we agree with
respondent Court that PAL had not acted in bad faith. Bad faith means
a breach of a known duty through some motive of interest or ill will.
It was the duty of PAL to look for petitioner’s luggage which had been
miscarried. PAL exerted due diligence in complying with such duty.
Same; Same; Same; Same; Moral Damages; No award of moral
damages when bad faith is absent. — In the absence of a wrongful
act or omission or of fraud or bad faith, petitioner is not entitled to
moral damages.
Same; Same; Same; Same; Exemplary Damages; Exemplary damages
not awarded when defendant had not acted fraudulently or
oppressively. — Petitioner is neither entitled to exemplary damages.
In contracts, as provided for in Article 2232 of the Civil Code,
exemplary damages can be granted if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner,
which has not been proven in this case.
Same; Same; Same; Contracts of adhesion; Philippine Air Lines’
limited carriage liability of P100.00 for loss or delay of its passengers’
baggage held valid and binding absent higher value declared for
luggage and actual value of goods lost. — While it may be true that
petitioner had not signed the plane ticket (Exh. “12”), he is
nevertheless bound by the provisions thereof. “Such provisions have
been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter’s lack of
knowledge or assent to the regulation”. It is what is known as a
contract of “adhesion”, in regards which it has been said that contracts
of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited.
The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent. And as held in Randolph
v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein
vs. Trans World Airlines, Inc., 349 S.W. 2d 483, “a contract limiting
liability upon an agreed valuation does not offend against the policy
of the law forbidding one from contracting against his own
negligence.” Considering, therefore, that petitioner had failed to
declare a higher value for his baggage, he cannot be permitted a
recovery in excess of P100.00. Besides, passengers are advised not to
place valuable items inside their baggage but “to avail of our V-cargo
service” (Exh. “1”). It is likewise to be noted that there is nothing in
the evidence to show the actual value of the goods allegedly lost by
petitioner.
MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, petitioner, a practicing lawyer
and businessman, seeks a reversal of the Decision of the Court of
Appeals in CA-G.R. No. 45005-R, which reduced his claim for damages
for breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of
respondent Philippine Air Lines, Inc. (PAL), on board Flight No. 463-
R, from Mactan, Cebu, bound for Butuan City. He was scheduled to
attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in
the Court of First Instance, Branch II, thereat, set for hearing on
August 28-31, 1967. As a passenger, he checked in one piece of
luggage, a blue “maleta” for which he was issued Claim Check No.
2106-R (Exh. “A”). The plane left Mactan Airport, Cebu, at about 1:00
o’clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00
o’clock P.M., of the same day. Upon arrival, petitioner claimed his
luggage but it could not be found. According to petitioner, it was only
after reacting indignantly to the loss that the matter was attended to
by the porter clerk, Maximo Gomez, which, however, the latter denies.
At about 3:00 o’clock P.M., PAL Butuan, sent a message to PAL, Cebu,
inquiring about the missing luggage, which message was, in turn,
relayed in full to the Mactan Airport teletype operator at 3:45 P.M.
(Exh. “2”) that same afternoon. It must have been transmitted to
Manila immediately, for at 3:59 that same afternoon, PAL Manila wired
PAL Cebu advising that the luggage had been overcarried to Manila
aboard Flight No. 156 and that it would be forwarded to Cebu on Flight
No. 345 of the same day. Instructions were also given that the luggage
be immediately forwarded to Butuan City on the first available flight
(Exh. “3”). At 5:00 P.M. of the same afternoon, PAL Cebu sent a
message to PAL Butuan that the luggage would be forwarded on Flight
No. 963 the following day, August 27, 1967. However, this message
was not received by PAL Butuan as all the personnel had already left
since there were no more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing luggage
because it contained vital documents needed for trial the next day. At
10:00 o’clock that evening, petitioner wired PAL Cebu demanding the
delivery of his baggage before noon the next day, otherwise, he would
hold PAL liable for damages, and stating that PAL’s gross negligence
had caused him undue inconvenience, worry, anxiety and extreme
embarrassment (Exh. “B”). This telegram was received by the Cebu
PAL supervisor but the latter felt no need to wire petitioner that his
luggage had already been forwarded on the assumption that by the
time the message reached Butuan City, the luggage would have
arrived.
Early in the morning of the next day, August 27, 1967, petitioner went
to the Bancasi Airport to inquire about his luggage. He did not wait,
however, for the morning flight which arrived at 10:00 o’clock that
morning. This flight carried the missing luggage. The porter clerk,
Maximo Gomez, paged petitioner, but the latter had already left. A
certain Emilio Dagorro, a driver of a “colorum” car, who also used to
drive for petitioner, volunteered to take the luggage to petitioner. As
Maximo Gomez knew Dagorro to be the same driver used by petitioner
whenever the latter was in Butuan City, Gomez took the luggage and
placed it on the counter. Dagorro examined the lock, pressed it, and
it opened. After calling the attention of Maximo Gomez, the “maleta”
was opened, Gomez took a look at its contents, but did not touch
them. Dagorro then delivered the “maleta” to petitioner, with the
information that the lock was open. Upon inspection, petitioner found
that a folder containing certain exhibits, transcripts and private
documents in Civil Case No. 1005 and Sp. Procs. No. 1126 were
missing, aside from two gift items for his parents-in-law. Petitioner
refused to accept the luggage. Dagorro returned it to the porter clerk,
Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil
Case No. 1005 due to loss of his documents, which was granted by
the Court (Exhs. “C” and “C-1”). Petitioner returned to Cebu City on
August 28, 1967. In a letter dated August 29, 1967 addressed to PAL,
Cebu, petitioner called attention to his telegram (Exh. “D”), demanded
that his luggage be produced intact, and that he be compensated in
the sum of P250,000.00 for actual and moral damages within five days
from receipt of the letter, otherwise, he would be left with no
alternative but to file suit (Exh. “D”).
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL
Cebu, went to petitioner’s office to deliver the “maleta”. In the
presence of Mr. Jose Yap and Atty. Manuel Maranga, the contents
were listed and receipted for by petitioner (Exh. “E”).
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu
inquiring about the results of the investigation which Messrs. de Leon,
Navarsi and Agustin had promised to conduct to pinpoint responsibility
for the unauthorized opening of the “maleta” (Exh. “F”).
The following day, September 6, 1967, PAL sent its reply hereinunder
quoted verbatim:
“Dear Atty. Ong Yiu:
“This is with reference to your September 5, 1967, letter to Mr. Ricardo
G. Paloma, Acting Manager, Southern Philippines.
“First of all, may we apologize for the delay in informing you of the
result of our investigation since we visited you in your office last
August 31, 1967. Since there are stations other than Cebu which are
involved in your case, we have to communicate and await replies from
them. We regret to inform you that to date we have not found the
supposedly lost folder of papers nor have we been able to pinpoint
the personnel who allegedly pilferred your baggage.
“You must realize that no inventory was taken of the cargo upon
loading them on any plane. Consequently, we have no way of knowing
the real contents of your baggage when same was loaded.
“We realized the inconvenience you encountered of this incident but
we trust that you will give us another opportunity to be of better
service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu”
(Exhibit G, Folder of Exhibits)”
On September 13, 1967, petitioner filed a Complaint against PAL for
damages for breach of contract of transportation with the Court of
First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188,
which PAL traversed. After due trial, the lower Court found PAL to
have acted in bad faith and with malice and declared petitioner entitled
to moral damages in the sum of P80,000.00, exemplary damages of
P30,000.00, attorney’s fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals—petitioner in so far as
he was awarded only the sum of P80,000.00 as moral damages; and
defendant because of the unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty
only of simple negligence, reversed the judgment of the trial Court
granting petitioner moral and exemplary damages, but ordered PAL to
pay plaintiff the sum of P100.00, the baggage liability assumed by it
under the condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975,
with petitioner making the following Assignments of Error:
“I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
RESPONDENT PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT
BAD FAITH IN THE BREACH OF ITS CONTRACT OF TRANSPORTATION
WITH PETITIONER.
“II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE
EVIDENCE AND THE LAW WHEN IT REVERSED THE DECISION OF
THE LOWER COURT AWARDING TO PETITIONER MORAL DAMAGES
IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES OF
P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY’S FEES, AND
ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM
OF P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS OF
ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF THE
PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of
petitioner’s luggage. The question is the correctness of respondent
Court’s conclusion that there was no gross negligence on the part of
PAL and that it had not acted fraudulently or in bad faith as to entitle
petitioner to an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL
had not acted in bad faith. Bad faith means a breach of a known duty
through some motive of interest or ill will. It was the duty of PAL to
look for petitioner’s luggage which had been miscarried. PAL exerted
due diligence in complying with such duty.
As aptly stated by the appellate Court:
“We do not find any evidence of bad faith in this. On the contrary, We
find that the defendant had exerted diligent effort to locate plaintiff’s
baggage. The trial court saw evidence of bad faith because PAL sent
the telegraphic message to Mactan only at 3:00 o’clock that same
afternoon, despite plaintiff’s indignation for the non-arrival of his
baggage. The message was sent within less than one hour after
plaintiff’s luggage could not be located. Efforts had to be exerted to
locate plaintiff’s maleta. Then the Bancasi airport had to attend to
other incoming passengers and to the outgoing passengers. Certainly,
no evidence of bad faith can be inferred from these facts. Cebu office
immediately wired Manila inquiring about the missing baggage of the
plaintiff. At 3:59 P.M., Manila station agent at the domestic airport
wired Cebu that the baggage was overcarried to Manila. And this
message was received in Cebu one minute thereafter, or at 4:00 P.M.
The baggage was in fact sent back to Cebu City that same afternoon.
His Honor stated that the fact that the message was sent at 3:59 P.M.
from Manila and completely relayed to Mactan at 4:00 P.M., or within
one minute, made the message appear spurious. This is a forced
reasoning. A radio message of about 50 words can be completely
transmitted in even less than one minute, depending upon
atmospheric conditions. Even if the message was sent from Manila or
other distant places, the message can be received within a minute,
that is a scientific fact which cannot be questioned.”
Neither was the failure of PAL Cebu to reply to petitioner’s rush
telegram indicative of bad faith. The telegram (Exh. B) was dispatched
by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of
the following day. At that time the luggage was already to be
forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag
would arrive at Butuan earlier than a reply telegram. Had petitioner
waited or caused someone to wait at the Bancasi airport for the arrival
of the morning flight, he would have been able to retrieve his luggage
sooner.
In the absence of a wrongful act or omission or of fraud or bad faith,
petitioner is not entitled to moral damages.
“Art. 2217. Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Though incapable
of pecuniary computation, moral damages may be recovered if they
are the proximate result of the defendant’s wrongful act of omission.”
“Art. 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad
faith.”
Petitioner is neither entitled to exemplary damages. In contracts, as
provided for in Article 2232 of the Civil Code, exemplary damages can
be granted if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, which has not been proven in this
case.
Petitioner further contends that respondent Court committed grave
error when it limited PAL’s carriage liability to the amount of P100.00
as stipulated at the back of the ticket. In this connection, respondent
Court opined:
“As a general proposition, the plaintiff’s maleta having been pilfered
while in the custody of the defendant, it is presumed that the
defendant had been negligent. The liability, however, of PAL for the
loss, in accordance with the stipulation written on the back of the
ticket, Exhibit 12, is limited to P100.00 per baggage plaintiff not having
declared a greater value, and not having called the attention of the
defendant on its true value and paid the tariff therefor. The validity of
this stipulation is not questioned by the plaintiff. They are printed in
reasonably and fairly big letters, and are easily readable. Moreover,
plaintiff had been a frequent passenger of PAL from Cebu to Butuan
City and back, and he, being a lawyer and businessman, must be fully
aware of these conditions.”
We agree with the foregoing finding. The pertinent Condition of
Carriage printed at the back of the plane ticket reads:
“8. BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or
damaged baggage of the passenger is LIMITED TO P100.00 for each
ticket unless a passenger declares a higher valuation in excess of
P100.00, but not in excess, however, of a total valuation of P 1,000.00
and additional charges are paid pursuant to Carrier’s tariffs.”
There is no dispute that petitioner did not declare any higher value for
his luggage, much less did he pay any additional transportation
charge.
But petitioner argues that there is nothing in the evidence to show
that he had actually entered into a contract with PAL limiting the
latter’s liability for loss or delay of the baggage of its passengers, and
that Article 1750 of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket
(Exh. “12”), he is nevertheless bound by the provisions thereof. “Such
provisions have been held to be a part of the contract of carriage, and
valid and binding upon the passenger regardless of the latter’s lack of
knowledge or assent to the regulation”. It is what is known as a
contract of “adhesion”, in regards which it has been said that contracts
of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent. And as
held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d
878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, “a
contract limiting liability upon an agreed valuation does not offend
against the policy of the law forbidding one from contracting against
his own negligence.”
Considering, therefore, that petitioner had failed to declare a higher
value for his baggage, he cannot be permitted a recovery in excess of
P100.00. Besides, passengers are advised not to place valuable items
inside their baggage but “to avail of our V-cargo service” (Exh. “1”).
It is likewise to be noted that there is nothing in the evidence to show
the actual value of the goods allegedly lost by petitioner.
There is another matter involved, raised as an error by PAL—the fact
that on October 24, 1974 or two months after the promulgation of the
Decision of the appellate Court, petitioner’s widow filed a Motion for
Substitution claiming that petitioner died on January 6, 1974 and that
she only came to know of the adverse Decision on October 23, 1974
when petitioner’s law partner informed her that he received copy of
the Decision on August 28, 1974. Attached to her Motion was an
Affidavit of petitioner’s law partner reciting facts constitutive of
excusable negligence. The appellate Court noting that all pleadings
had been signed by petitioner himself allowed the widow “to take such
steps as she or counsel may deem necessary.” She then filed a Motion
for Reconsideration over the opposition of PAL which alleged that the
Court of Appeals Decision, promulgated on August 22, 1974, had
already become final and executory since no appeal had been
interposed therefrom within the reglementary period.
Under the circumstances, considering the demise of petitioner himself,
who acted as his own counsel, it is best that technicality yields to the
interests of substantial justice. Besides, in the last analysis, no serious
prejudice has been caused respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from
the evidence on record are not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied,
and the judgment sought to be reviewed hereby affirmed in toto.
No costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De
Castro, JJ., concur.
Petition denied and judgment affirmed.
Notes. — The rude and rough reception plaintiff received from the
hands of Sitton or Cpt. Tentner when the latter met him at the ramp,
the menacing attitude of Tentner or Sitton and the supercilious
manner in which he had asked plaintiff to open his bags and when
told that a fourth bag was missing, etc., justify an award of moral
damages. (Zulueta vs. Pan American World Airways, 43 SCRA 397).
If “gross negligence” warrants the award of exemplary damages, with
more reason is its imposition justified when the act performed is
deliberate, malicious and tainted with bad faith. (Danilo vs. Phil. Air
Lines, 49 SCRA 497).
The transferee of a common carrier is liable to the registered owner
of the vehicles for damages caused the passengers. (Perez vs.
Gutierrez, 53 SCRA 149).
An unreasonable obstinacy and desistence to pay legitimate insurance
claim entitle’s the insured’s heirs to moral damages even if such
obstinacy and desistance were not made in bad faith. (Evangelista vs.
GSIS, 66 SCRA 71).
Stipulation in the bill of lading limiting carrier’s liability to the value of
goods appearing therein, unless shipper declares a greater value, is
valid and binding. (St Paul Fire & Marine Insurance Co. vs. Macondray
& Co., 70 SCRA 122).
Where defendant in an action for breach of contract of carriage shows
by affidavit, in a motion for summary judgment, that cause of death
of its passenger was due to fortuitous event, the plaintiff has burden
of proof to show by opposing affidavits and other papers that the
cause of the said accidental death was attributable to the common
carriers. (Estrada vs. Consolacion, 71 SCRA 523).
Common carriers are liable for the missing goods for failure to comply
with its duty. (American Insurance Co., Inc. vs. Macondray & Co., Inc.,
39 SCRA 494).
Breach by common carrier to contract of carriage justifies award of
damages to passenger. (Zulueta vs. Pan American World Airways,
Inc., 43 SCRA 397; Davila vs. Philippine Air Lines, 49 SCRA 497).
Registered owner of common carrier is liable for damages resulting
from breach of contract of carriage. (Perez vs. Gutierrez, 53 SCRA
149).
——o0o——
EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT
OF APPEALS and HERNANDEZ TRADING CO., INC.,
respondents
G.R. No. 122494. October 8, 1998
Common Carriers; Contracts; Bills of Lading; A stipulation in the bill of
lading limiting the common carrier’s liability for loss or destruction of
a cargo to a certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law.—A stipulation in the bill of lading
limiting the common carrier’s liability for loss or destruction of a cargo
to a certain sum, unless the shipper or owner declares a greater value,
is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Code.
Same; Same; Same; Contracts of Adhesion; Contracts of adhesion are
not invalid per se.—The trial court’s ratiocination that private
respondent could not have “fairly and freely” agreed to the limited
liability clause in the bill of lading because the said conditions were
printed in small letters does not make the bill of lading invalid. We
ruled in PAL, Inc. vs. Court of Appeals that the “juris-prudence on the
matter reveals the consistent holding of the court that contracts of
adhesion are not invalid per se and that it has on numerous occasions
upheld the binding effect thereof.” Also, in Philippine American
General Insurance Co., Inc. vs. Sweet Lines, Inc. this Court, speaking
through the learned Justice Florenz D. Regalado, held: “x x x Ong Yiu
vs. Court of Appeals, et al., instructs us that ‘contracts of adhesion
wherein one party imposes a ready-made form of contract on the
other x x x are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres he
gives his consent.’ In the present case, not even an allegation of
ignorance of a party excuses non-compliance with the contractual
stipulations since the responsibility for ensuring full comprehension of
the provisions of a contract of carriage devolves not on the carrier but
on the owner, shipper, or consignee as the case may be.” (Emphasis
supplied)
Same; Same; Same; Same; Greater vigilance is required of the courts
when dealing with contracts of adhesion in that the said contracts
must be carefully scrutinized “in order to shield the unwary (or weaker
party) from deceptive schemes contained in ready-made contracts.”—
Greater vigilance, however, is required of the courts when dealing with
contracts of adhesion in that the said contracts must be carefully
scrutinized “in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants,” such as the
bill of lading in question. The stringent requirement which the courts
are enjoined to observe is in recognition of Article 24 of the Civil Code
which mandates that “(i)n all contractual, property or other relations,
when one of the parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender age or
other handicap, the courts must be vigilant for his protection.”
Same; Same; Same; Even if the consignee is not a signatory to the
contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. — The next issue to be
resolved is whether or not private respondent, as consignee, who is
not a signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court
(supra), we held that even if the consignee was not a signatory to the
contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. Speaking through Mr.
Chief Justice Narvasa, we ruled: “To begin with, there is no question
of the right, in principle, of a consignee in a bill of lading to recover
from the carrier or shipper for loss of, or damage to goods being
transported under said bill, although that document may have been—
as in practice it oftentimes is—drawn up only by the consignor and the
carrier without the intervention of the consignee. x x x.
Same; Same; Same; When the consignee formally claims
reimbursement for the missing goods from the common carrier and
subsequently files a case against the latter based on the very same
bill of lading, it accepts the provisions of the contract and thereby
makes itself a party thereto.—When private respondent formally
claimed reimbursement for the missing goods from petitioner and
subsequently filed a case against the latter based on the very same
bill of lading, it (private respondent) accepted the provisions of the
contract and thereby made itself a party thereto, or at least has come
to court to enforce it. Thus, private respondent cannot now reject or
disregard the carrier’s limited liability stipulation in the bill of lading.
In other words, private respondent is bound by the whole stipulations
in the bill of lading and must respect the same.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Soo, Gutierrez, Leogardo & Lee for petitioner.
Atilano Huaben B. Lim for private respondent.
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for
review, seeks the reversal of the decision of the Court of Appeals,
dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the
decision of the Regional Trial Court of Kalookan City, Branch 126, in
Civil Case No. C-15532, finding petitioner liable to private respondent
Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked
as MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its
supplier, Maruman Trading Company, Ltd. (Maruman Trading), a
foreign corporation based in Inazawa, Aichi, Japan. The crates were
shipped from Nagoya, Japan to Manila on board “ADELFAEVERETTE,”
a vessel owned by petitioner’s principal, Everett Orient Lines. The said
crates were covered by Bill of Lading No. NGO53MN.
Upon arrival of the port of Manila, it was discovered that the crate
marked MARCO C/No. 14 was missing. This was confirmed and
admitted by petitioner in its letter of January 13, 1992 addressed to
private respondent, which thereafter made a formal claim upon
petitioner for the value of the lost cargo amounting to One Million Five
Hundred Fifty-Two Thousand Five Hundred (¥1,552,500.00) Yen, the
amount shown in an Invoice No. MTM-941, dated November 14, 1991.
However, petitioner offered to pay only One Hundred Thousand
(¥100,000.00) Yen, the maximum amount stipulated under Clause 18
of the covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit
for collection docketed as Civil Case No. C-15532, against petitioner
before the Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no
testimonial evidence to offer and agreed instead to file their respective
memoranda.
On July 16, 1993, the trial court rendered judgment in favor of private
respondent, ordering petitioner to pay: (a) ¥1,552,500.00; (b)
¥20,000.00 or its peso equivalent representing the actual value of the
lost cargo and the material and packaging cost; (c) 10% of the total
amount as an award for and as contingent attorney’s fees; and (d) to
pay the cost of the suit. The trial court ruled:
“Considering defendant’s categorical admission of loss and its failure
to overcome the presumption of negligence and fault, the Court
conclusively finds defendant liable to the plaintiff. The next point of
inquiry the Court wants to resolve is the extent of the liability of the
defendant. As stated earlier, plaintiff contends that defendant should
be held liable for the whole value for the loss of the goods in the
amount of ¥1,552,500.00 because the terms appearing at the back of
the bill of lading was so written in fine prints and that the same was
not signed by plaintiff or shipper thus, they are not bound by the
clause stated in paragraph 18 of the bill of lading. On the other hand,
defendant merely admitted that it lost the shipment but shall be liable
only up to the amount of ¥100,000.00.
“The Court subscribes to the provisions of Article 1750 of the New Civil
Code—
Art. 1750. ‘A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction or deterioration of the goods
is valid, if it is reasonable and just under the circumstances, and has
been fairly and freely agreed upon.’
“It is required, however, that the contract must be reasonable and just
under the circumstances and has been fairly and freely agreed upon.
The requirements provided in Art. 1750 of the New Civil Code must be
complied with before a common carrier can claim a limitation of its
pecuniary liability in case of loss, destruction of deterioration of the
goods it has undertaken to transport.
“In the case at bar, the Court is of the view that the requirements of
said article have not been met. The fact that those conditions are
printed at the back of the bill of lading in letters so small that they are
hard to read would not warrant the presumption that the plaintiff or
its supplier was aware of these conditions such that he had “fairly and
freely agreed” to these conditions. It cannot be said that the plaintiff
had actually entered into a contract with the defendant, embodying
the conditions as printed at the back of the bill of lading that was
issued by the defendant to plaintiff.”
On appeal, the Court of Appeals deleted the award of attorney’s fees
but affirmed the trial court’s findings with the additional observation
that private respondent cannot be bound by the terms and conditions
of the bill of lading because it was not privy to the contract of carriage.
It said:
“As to the amount of liability, no evidence appears on record to show
that the appellee (Hernandez Trading Co.) consented to the terms of
the Bill of Lading. The shipper named in the Bill of Lading is Maruman
Trading Co., Ltd. whom the appellant (Everett Steamship Corp.)
contracted with for the transportation of the lost goods.
“Even assuming arguendo that the shipper Maruman Trading Co., Ltd.
accepted the terms of the bill of lading when it delivered the cargo to
the appellant, still it does not necessarily follow that appellee
Hernandez Trading Company as consignee is bound thereby
considering that the latter was never privy to the shipping contract.
xxx xxx xxx
“Never having entered into a contract with the appellant, appellee
should therefore not be bound by any of the terms and conditions in
the bill of lading.
“Hence, it follows that the appellee may recover the full value of the
shipment lost, the basis of which is not the breach of contract as
appellee was never a privy to the any contract with the appellant, but
is based on Article 1735 of the New Civil Code, there being no evidence
to prove satisfactorily that the appellant has overcome the
presumption of negligence provided for in the law.”
Petitioner now comes to us arguing that the Court of Appeals erred
(1) in ruling that the consent of the consignee to the terms and
conditions of the bill of lading is necessary to make such stipulations
binding upon it; (2) in holding that the carrier’s limited package liability
as stipulated in the bill of lading does not apply in the instant case;
and (3) in allowing private respondent to fully recover the full alleged
value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the
bill of lading.
A stipulation in the bill of lading limiting the common carrier’s liability
for loss or destruction of a cargo to a certain sum, unless the shipper
or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which provide:
“ART. 1749. A stipulation that the common carrier’s liability is limited
to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.”
“ART. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been freely and fairly agreed upon.”
Such limited-liability clause has also been consistently upheld by this
Court in a number of cases. Thus, in Sea-Land
“It seems clear that even if said section 4 (5) of the Carriage of Goods
by Sea Act did not exist, the validity and binding effect of the liability
limitation clause in the bill of lading here are nevertheless fully
sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater
value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of
the law itself, and this the private respondent does not pretend to do.
But over and above that consideration, the just and reasonable
character of such stipulation is implicit in it giving the shipper or owner
the option of avoiding accrual of liability limitation by the simple and
surely far from onerous expedient of declaring the nature and value
of the shipment in the bill of lading.”
Pursuant to the afore-quoted provisions of law, it is required that the
stipulation limiting the common carrier’s liability for loss must be
“reasonable and just under the circumstances, and has been freely
and fairly agreed upon.”
The bill of lading subject of the present controversy specifically
provides, among others:
“18. All claims for which the carrier may be liable shall be adjusted
and settled on the basis of the shipper’s net invoice cost plus freight
and insurance premiums, if paid, and in no event shall the carrier be
liable for any loss of possible profits or any consequential loss.
“The carrier shall not be liable for any loss of or any damage to or in
any connection with, goods in an amount exceeding One Hundred
Thousand Yen in Japanese Currency (¥100,000.00) or its equivalent
in any other currency per package or customary freight unit
(whichever is least) unless the value of the goods higher than this
amount is declared in writing by the shipper before receipt of the
goods by the carrier and inserted in the Bill of Lading and extra freight
is paid as required.” (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the
bill of lading, the carrier made it clear that its liability would only be
up to One Hundred Thousand (¥100,000.00) Yen. However, the
shipper, Maruman Trading, had the option to declare a higher
valuation if the value of its cargo was higher than the limited liability
of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial court’s ratiocination that private respondent could not have
‘‘fairly and freely’’ agreed to the limited liability clause in the bill of
lading because the said conditions were printed in small letters does
not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals that the “jurisprudence on
the matter reveals the consistent holding of the court that contracts
of adhesion are not invalid per se and that it has on numerous
occasions upheld the binding effect thereof.” Also, in Philippine
American General Insurance Co., Inc. vs. Sweet Lines, Inc. this Court,
speaking through the learned Justice Florenz D. Regalado, held:
“x x x Ong Yiu vs. Court of Appeals, et al., instructs us that ‘contracts
of adhesion wherein one party imposes a ready-made form of contract
on the other x x x are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he
adheres he gives his consent.’ In the present case, not even an
allegation of ignorance of a party excuses non-compliance with the
contractual stipulations since the responsibility for ensuring full
comprehension of the provisions of a contract of carriage devolves not
on the carrier but on the owner, shipper, or consignee as the case
may be.” (Emphasis supplied)
It was further explained in Ong Yiu vs. Court of Appeals that
stipulations in contracts of adhesion are valid and binding.
“While it may be true that petitioner had not signed the plane ticket x
x, he is nevertheless bound by the provisions thereof. ‘Such provisions
have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter’s lack of
knowledge or assent to the regulation.’ It is what is known as a
contract of ‘adhesion,’ in regards which it has been said that contracts
of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent. x x x, a
contract limiting liability upon an agreed valuation does not offend
against the policy of the law forbidding one from contracting against
his own negligence.” (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with
contracts of adhesion in that the said contracts must be carefully
scrutinized “in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants,” such as the
bill of lading in question. The stringent requirement which the courts
are enjoined to observe is in recognition of Article 24 of the Civil Code
which mandates that “(i)n all contractual, property or other relations,
when one of the parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender age or
other handicap, the courts must be vigilant for his protection.”
The shipper, Maruman Trading, we assume, has been extensively
engaged in the trading business. It cannot be said to be ignorant of
the business transactions it entered into involving the shipment of its
goods to its customers. The shipper could not have known, or should
know the stipulations in the bill of lading and there it should have
declared a higher valuation of the goods shipped. Moreover, Maruman
Trading has not been heard to complain that it has been deceived or
rushed into agreeing to ship the cargo in petitioner’s vessel. In fact, it
was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as
consignee, who is not a signatory to the bill of lading is bound by the
stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court
(supra), we held that even if the consignee was not a signatory to the
contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. Speaking through Mr.
Chief Justice Narvasa, we ruled:
“To begin with, there is no question of the right, in principle, of a
consignee in a bill of lading to recover from the carrier or shipper for
loss of, or damage to goods being transported under said bill, although
that document may have been—as in practice it oftentimes is—drawn
up only by the consignor and the carrier without the intervention of
the consignee. x x x.
‘x x x the right of a party in the same situation as respondent here, to
recover for loss of a shipment consigned to him under a bill of lading
drawn up only by and between the shipper and the carrier, springs
from either a relation of agency that may exist between him and the
shipper or consignor, or his status as stranger in whose favor some
stipulation is made in said contract, and who becomes a party thereto
when he demands fulfillment of that stipulation, in this case the
delivery of the goods or cargo shipped. In neither capacity can he
assert personally, in bar to any provision of the bill of lading, the
alleged circumstance that fair and free agreement to such provision
was vitiated by its being in such fine print as to be hardly readable.
Parenthetically, it may be observed that in one comparatively recent
case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64
SCRA 15) where this Court found that a similar package limitation
clause was “printed in the smallest type on the back of the bill of
lading,” it nonetheless ruled that the consignee was bound thereby on
the strength of authority holding that such provisions on liability
limitation are as much a part of a bill of lading as though physically in
it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity
and enforceability of freely-agreed-upon stipulations in a contract of
carriage or bill of lading limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and inserts it into
said contract or bill. This proposition, moreover, rests upon an almost
uniform weight of authority.” (Italics supplied)
When private respondent formally claimed reimbursement for the
missing goods from petitioner and subsequently filed a case against
the latter based on the very same bill of lading, it (private respondent)
accepted the provisions of the contract and thereby made itself a party
thereto, or at least has come to court to enforce it. Thus, private
respondent cannot now reject or disregard the carrier’s limited liability
stipulation in the bill of lading. In other words, private respondent is
bound by the whole stipulations in the bill of lading and must respect
the same.
Private respondent, however, insists that the carrier should be liable
for the full value of the lost cargo in the amount of ¥1,552,500.00,
considering that the shipper, Maruman Trading, had “fully declared
the shipment x x x, the contents of each crate, the dimensions, weight
and value of the contents,” as shown in the commercial Invoice No.
MTM-941.
This claim was denied by petitioner, contending that it did not know
of the contents, quantity and value of “the shipment which consisted
of three pre-packed crates described in Bill of Lading No. NGO-53MN
merely as ‘3 CASES SPARE PARTS.’ ”
The bill of lading in question confirms petitioner’s contention. To
defeat the carrier’s limited liability, the aforecited Clause 18 of the bill
of lading requires that the shipper should have declared in writing a
higher valuation of its goods before receipt thereof by the carrier and
insert the said declaration in the bill of lading, with the extra freight
paid. These requirements in the bill of lading were never complied
with by the shipper, hence, the liability of the carrier under the limited
liability clause stands. The commercial Invoice No. MTM-941 does not
in itself sufficiently and convincingly show that petitioner has
knowledge of the value of the cargo as contended by private
respondent. No other evidence was proffered by private respondent
to support its contention. Thus, we are convinced that petitioner
should be liable for the full value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to
One Hundred Thousand (¥100,000.00) Yen, pursuant to Clause 18 of
the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14,
1995 in C.A.-G.R. CV No. 42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.
Regalado (Actg. C.J.), Melo, Puno and Mendoza, JJ., concur.
Judgment reversed and set aside.
Notes. — Parties to sales contracts and/or bills of lading are bound by
arbitration clauses thereat. (Puromines, Inc. vs. Court of Appeals, 220
SCRA 281 [1993])
The validity of provisions limiting the liability of carriers contained in
bills of lading have been consistently upheld, though the Supreme
Court has likewise cautioned against blind reliance on adhesion
contracts where the facts and circumstances warrant that they should
be disregarded. (Philippine Airlines, Inc. vs. Court of Appeals, 255
SCRA 48 [1996])
A contract of adhesion is one in which one of the contracting parties
imposes a ready-made form of contract which the other party may
accept or reject, but cannot modify. (Polotan, Sr. vs. Court of Appeals,
296 SCRA 247 [1998])
——o0o——
AMERICAN HOME ASSURANCE, COMPANY, petitioner, vs.
THE COURT OF APPEALS and NATIONAL MARINE
CORPORATION and/or NATIONAL MARINE CORPORATION
(Manila), respondents
G.R. No. 94149. May 5, 1992
Remedial Law; Appeal; An order of dismissal whether right or wrong
is a final order, hence a proper subject of appeal not certiorari. —
Evidently, the Court of Appeals did not err in dismissing the petition
for certiorari for as ruled by this Court, an order of dismissal whether
right or wrong is a final order, hence, a proper subject of appeal, not
certiorari.
Commercial Law; Civil Law; Common Carriers; The law of the country
to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration.—
This issue has been resolved by this Court in National Development
Co. v. C.A. (164 SCRA 593 [1988]; citing Eastern Shipping Lines, Inc.
v. I.A.C., 150 SCRA 469, 470 [1987] where it was held that “the law
of the country to which the goods are to be transported governs the
liability of the common carrier in case of their loss, destruction or
deterioration.” (Article 1753, Civil Code). Thus, for cargoes
transported to the Philippines as in the case at bar, the liability of the
carrier is governed primarily by the Civil Code and in all matters not
regulated by said Code, the rights and obligations of common carrier
shall be governed by the Code of Commerce and by special laws.
Same; Same; Same; Common carriers bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of
passengers transported by them according to all circumstances of
each case. — Corollary thereto, the Court held further that under
Article 1733 of the Civil Code, common carriers from the nature of
their business and for reasons of public policy are bound to observe
extraordinary diligence in the vigilance over the goods and for the
safety of passengers transported by them according to all
circumstances of each case. Thus, under Article 1735 of the same
Code, in all cases other than those mentioned in Article 1734 thereof,
the common carrier shall be presumed to have been at fault or to have
acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.
Same; Same; Same; Common Carriers cannot limit their liability for
injury or loss of goods where such injury or loss was caused by its
own negligence. — But more importantly, the Court ruled that
common carriers cannot limit their liability for injury or loss of goods
where such injury or loss was caused by its own negligence. Otherwise
stated, the law on averages under the Code of Commerce cannot be
applied in determining liability where there is negligence.
PETITION for review on certiorari of the decision of the Court of
Appeals. Mendoza, J.
The facts are stated in the opinion of the Court.
PARAS, J.:
This is a petition for review on certiorari which seeks to annul and set
aside the (a) decision dated May 30, 1990 of the Court of Appeals in
C.A. G.R. SP. No. 20043 entitled “American Home Assurance Company
v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila,
Branch 41 and National Marine Corporation and/or National Marine
Corporation (Manila)”, dismissing petitioner’s petition for certiorari,
and (b) resolution dated June 29, 1990 of the Court of Appeals
denying petitioner’s motion for reconsideration.
The undisputed facts of the case are as follows:
Both petitioner American Home Assurance Co. and the respondent
National Marine Corporation are foreign corporations licensed to do
business in the Philippines, the former through its branch. The
American Home Assurance Company (Philippines), Inc. and the latter
through its branch. The National Marine Corporation (Manila) (Rollo,
p. 20, Annex L, p. 1).
That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped
5,000 bales (1,000 ADMT) of bleached kraft pulp from Haulien, Taiwan
on board “SS Kaunlaran”, which is owned and operated by herein
respondent National Marine Corporation with Registration No. PID-
224. The said shipment was consigned to Mayleen Paper, Inc. of
Manila, which insured the shipment with herein petitioner American
Home Assurance Co. as evidenced by Bill of Lading No. HLMN-01.
On June 22, 1988, the shipment arrived in Manila and was discharged
into the custody of the Marina Port Services, Inc., for eventual delivery
to the consignee-assured. However, upon delivery of the shipment to
Mayleen Paper, Inc., it was found that 122 bales had either been
damaged or lost. The loss was calculated to be 4,360 kilograms with
an estimated value of P61,263.41.
Mayleen Paper, Inc. then duly demanded indemnification from
respondent National Marine Corporation for the aforesaid
damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded (Petition, p. 4).
As the shipment was insured with petitioner in the amount of
US$837,500.00, Mayleen Paper, Inc. sought recovery from the former.
Upon demand and submission of proper documentation, American
Home Assurance paid Mayleen Paper, Inc. the adjusted amount of
P31,506.75 for the damages/losses suffered by the shipment, hence,
the former was subrogated to the rights and interests of Mayleen
Paper, Inc.
On June 6, 1989, the petitioner, as subrogee, then brought suit
against respondent for the recovery of the amount of P31,506.75 and
25% of the total amount due as attorney’s fees, by filing a complaint
for recovery of sum of money (Petition, p. 4).
Respondent, National Marine Corporation, filed a motion to dismiss
dated August 7, 1989 stating that American Home Assurance
Company had no cause of action based on Article 848 of the Code of
Commerce which provides “that claims for averages shall not be
admitted if they do not exceed 5% of the interest which the claimant
may have in the vessel or in the cargo if it be gross average and 1%
of the goods damaged if particular average, deducting in both cases
the expenses of appraisal, unless there is an agreement to the
contrary.” It contended that based on the allegations of the complaint,
the loss sustained in the case was P35,506.75 which is only .18% of
P17,420,000.00, the total value of the cargo.
On the other hand, petitioner countered that Article 848 does not
apply as it refers to averages and that a particular average
presupposes that the loss or damage is due to an inherent defect of
the goods, an accident of the sea, or a force majeure or the negligence
of the crew of the carrier, while claims for damages due to the
negligence of the common carrier are governed by the Civil Code
provisions on Common Carriers.
In its order dated November 23, 1989, the Regional Trial Court
sustained private respondent’s contention. In part it stated:
“Before the Court for resolution is a motion for reconsideration filed
by defendant through counsel dated October 6, 1989.
“The record shows that last August 8, 1989, defendant through
counsel filed a motion to dismiss plaintiff’s complaint. “Resolving the
said motion last September 18, 1989, the court ruled to defer
resolution thereof until after trial on the merits. In the motion now
under consideration, defendant prays for the reconsideration of the
order of September 18, 1989 and in lieu thereof, another order be
entered dismissing plaintiff’s complaint.
“There appears to be good reasons for the court to take a second look
at the issue s raised by the defendant.
“xxx xxx xxx
“It is not disputed by the defendant that the loss suffered by the
shipment is only .18% or less than 1% of the interest of the consignee
on the cargo. Invoking the provision of Article 848 of the Code of
Commerce which reads:
‘Claims for average shall not be admitted if they do not exceed five
percent of the interest which the claimant may have in the vessel or
cargo if it is gross average, and one percent of the goods damaged if
particular average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary.’ (Italics supplied)
defendant claims that plaintiff is barred from suing for
recovery.“Decisive in this case is whether the loss suffered by the
cargo inquestion is a ‘particular average.’
‘Particular average, is a loss happening to the ship, freight, or cargo
which is not be (sic) shared by contributing among all those interested,
but must be borne by the owner of the subject to which it occurs.
(Black’s Law Dictionary, Revised Fourth Edition, p. 172, citing Bargett
v. Insurance Co. 3 Bosw. [N.Y.] 395).’
as distinguished from general average which
‘is a contribution by the several interests engaged in the maritime
venture to make good the loss of one of them for the voluntary
sacrifice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary expenses
necessarily incurred for the common benefit and safety of all (Ibid.,
citing California Canneries Co. v. Canton Ins. Office 25 Cal. App. 303,
143 p. 549-553).
“From the foregoing definition, it is clear that the damage on the cargo
in question, is in the nature of the ‘particular average.’ Since the loss
is less than 1% to the value of the cargo and there appears to be no
allegations as to any agreement defendants and the consignee of the
goods to the contrary, by express provision of the law, plaintiff is
barred from suing for recovery.
“WHEREOF, plaintiff’s complaint is hereby dismissed for lack of cause
of action.” (Rollo, p. 27; Annex A, pp. 3-4).
The petitioner then filed a motion for reconsideration of the order of
dismissal but same was denied by the court in its order dated January
26, 1990 (supra).
Instead of filing an appeal from the order of the court a quo dismissing
the complaint for recovery of a sum of money, American Home
Assurance Company filed a petition for certiorari with the Court of
Appeals to set aside the two orders of respondent judge in said court
(Rollo, p. 25).
But the Court of Appeals in its decision dated May 30, 1990, dismissed
the petition as constituting plain errors of law and not grave abuse of
discretion correctible by certiorari (a Special Civil Action). If at all,
respondent court ruled that there are errors of judgment subject to
correction by certiorari as a mode of appeal but the appeal is to the
Supreme Court under Section 17 of the Judiciary Act of 1948 as
amended by Republic Act No. 5440. Otherwise stated, respondent
Court opined that the proper remedy is a petition for review on
certiorari with the Supreme Court on pure questions of law (Rollo, p.
30).
Hence, this petition.
In a resolution dated December 10, 1990, this Court gave due course
to the petition and required both parties to file their respective
memoranda (Rollo, p. 58).
The procedural issue in this case is whether or not certiorari was the
proper remedy in the case before the Court of Appeals.
The Court of Appeals ruled that appeal is the proper remedy, for aside
from the fact that the two orders dismissing the complaint for lack of
cause of action are final orders within the meaning of Rule 41, Section
2 of the Rules of Court, subject petition raised questions which if at
all, constitute plain errors of law or of judgment not constituting grave
abuse of discretion correctible by certiorari.
Evidently, the Court of Appeals did not err in dismissing the petition
for certiorari for as ruled by this Court, an order of dismissal whether
right or wrong is a final order, hence, a proper subject of appeal, not
certiorari (Marahay v. Melicor, 181 SCRA 811 [1990]). However, where
the fact remains that respondent Court of Appeals obviously in the
broader interests of justice, nevertheless proceeded to decide the
petition for certiorari and ruled on specific points raised therein in a
manner akin to what would have been done on assignments of error
in a regular appeal, the petition therein was therefore disposed of on
the merits and not on a dismissal due to erroneous choice of remedies
or technicalities (Cruz v. I.A.C., 169 SCRA 14 [1989]). Hence, a review
of the decision of the Court of Appeals on the merits against the
petitioner in this case is in order.
On the main controversy, the pivotal issue to be resolved is the
application of the law on averages (Articles 806, 809 and 848 of the
Code of Commerce).
Petitioner avers that respondent court failed to consider that
respondent National Marine Corporation being a common carrier, in
conducting its business is regulated by the Civil Code primarily and
suppletorily by the Code of Commerce; and that respondent court
refused to consider the Bill of Lading as the law governing the parties.
Private respondent countered that in all matters not covered by the
Civil Code, the rights and obligations of the parties shall be governed
by the Code of Commerce and by special laws as provided for in Article
1766 of the Civil Code; that Articles 806, 809 and 848 of the Code of
Commerce should be applied suppletorily as they provide for the
extent of the common carriers’ liability.
This issue has been resolved by this Court in National Development
Co. v. C.A. (164 SCRA 593 [1988]; citing Eastern Shipping Lines, Inc.
v. I.A.C., 150 SCRA 469, 470 [1987] where it was held that “the law
of the country to which the goods are to be transported governs the
liability of the common carrier in case of their loss, destruction or
deterioration.” (Article 1753, Civil Code). Thus, for cargoes
transported to the Philippines as in the case at bar, the liability of the
carrier is governed primarily by the Civil Code and in all matters not
regulated by said Code, the rights and obligations of common carrier
shall be governed by the Code of Commerce and by special laws
(Article 1766, Civil Code).
Corollary thereto, the Court held further that under Article 1733 of the
Civil Code, common carriers from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of passengers
transported by them according to all circumstances of each case.
Thus, under Article 1735 of the same Code, in all cases other than
those mentioned in Article 1734 thereof, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it
proves that it has observed the extraordinary diligence required by law
(Ibid., p. 595).
But more importantly, the Court ruled that common carriers cannot
limit their liability for injury or loss of goods where such injury or loss
was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in
determining liability where there is negligence. (Ibid., p. 606).
Under the foregoing principle and in line with the Civil Code’s
mandatory requirement of extraordinary diligence on common carriers
in the care of goods placed in their stead, it is but reasonable to
conclude that the issue of negligence must first be addressed before
the proper provisions of the Code of Commerce on the extent of
liability may be applied.
The records show that upon delivery of the shipment in question of
Mayleen’s warehouse in Manila, 122 bales were found to be
damaged/lost with straps cut or loose, calculated by the so-called
“percentage method” at 4,360 kilograms and amounting to
P61,263.41 (Rollo, p. 68). Instead of presenting proof of the exercise
of extraordinary diligence as required by law, National Marine
Corporation (NMC) filed its Motion to Dismiss dated August 7, 1989,
hypothetically admitting the truth of the facts alleged in the complaint
to the effect that the loss or damage to the 122 bales was due to the
negligence or fault of NMC (Rollo, p. 179). As ruled by this Court, the
filing of a motion to dismiss on the ground of lack of cause of action
carries with it the admission of the material facts pleaded in the
complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443
[1990]). Such being the case, it is evident that the Code of Commerce
provisions on averages cannot apply.
On the other hand, Article 1734 of the Civil Code provides that
common carriers are responsible for loss, destruction or deterioration
of the goods, unless due to any of the causes enumerated therein. It
is obvious that the case at bar does not fall under any of the
exceptions. Thus, American Home Assurance Company is entitled to
reimbursement of what it paid to Mayleen Paper, Inc. as insurer.
Accordingly, it is evident that the findings of respondent Court of
Appeals, affirming the findings and conclusions of the court a quo are
not supported by law and jurisprudence.
PREMISES CONSIDERED, (1) the decisions of both the Court of
Appeals and the Regional Trial Court of Manila, Branch 41, appealed
from are REVERSED; and (2) private respondent National Marine
Corporation is hereby ordered to reimburse the subrogee, petitioner
American Home Assurance Company, the amount of P31,506.75.
SO ORDERED.
Melencio-Herrera (Chairman), Padilla, Regalado and Nocon, JJ.,
concur.
Decisions reversed.
Note. — It is the duty of a common carrier to overcome, the
presumption of negligence (Gacal vs. Philippine Airlines Inc., 183 SCRA
189.)
——o0o——
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC.,
petitioner, vs. COURT OF APPEALS AND SEVEN BROTHERS
SHIPPING CORPORATION, respondents
G.R. No. 102316. June 30, 1997
Civil Law; Obligations and Contracts; Commercial Law; Charter Law;
As a private carrier, Article 1745 and other Civil Code provisions on
common carriers may not be applied unless expressly stipulated by
the parties in their charter party. — The Court is not persuaded. As
adverted to earlier, it is undisputed that private respondent had acted
as a private carrier in transporting petitioner’s lauan logs. Thus, Article
1745 and other Civil Code provisions on common carriers which were
cited by petitioner may not be applied unless expressly stipulated by
the parties in their charter party.
Commercial Law; Charter Law; 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 common
carrier, private carriage does not involve the general public. — In a
contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting
the shipowner from liability for loss of or damage to the cargo caused
even by the negligence of the ship captain. Pursuant to Article 1306
of the Civil Code, such stipulation is valid because it is freely entered
into by the parties and the same is not contrary to law, morals, good
customs, public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We stress that in
a contract of private carriage, the parties may freely stipulate their
duties and obligations which perforce would be binding on them.
Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the
Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove
the protection given by law in contracts involving common carriers.
Same; Same; As a private carrier, a stipulation exempting the owner
from liability for the negligence of its agent is not against public policy,
and is deemed valid.—The issue posed in this case and the arguments
raised by petitioner are not novel; they were resolved long ago by this
Court in Home Insurance Co. vs. American Steamship Agencies, Inc.
In that case, the trial court similarly nullified a stipulation identical to
that involved in the present case for being contrary to public policy
based on Article 1744 of the Civil Code and Article 587 of the Code of
Commerce. Consequently, the trial court held the shipowner liable for
damages resulting from the partial loss of the cargo. This Court
reversed the trial court and laid down, through Mr. Justice Jose P.
Bengzon, the following well-settled observation and doctrine: “The
provisions of our Civil Code on common carriers were taken from
Anglo-American law. Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a special person
only, becomes a private carrier. As a private carrier, a stipulation
exempting the owner from liability for the negligence of its agent is
not against public policy, and is deemed valid. Such doctrine We find
reasonable. The Civil Code provisions on common carriers should not
be applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent would be void only
if the strict public policy governing common carriers is applied. Such
policy has no force where the public at large is not involved, as in this
case of a ship totally chartered for the use of a single party.” (Italics
supplied.)
Same; Same; A charterer, in exchange for convenience and economy,
may opt to set aside the protection of the law on common carriers.
When the charterer decides to exercise this option, he takes a normal
business risk. — Indeed, where the reason for the rule ceases, the
rule itself does not apply. The general public enters into a contract of
transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract;
even if the public wants to, it cannot submit its own stipulations for
the approval of the common carrier. Thus, the law on common carriers
extends its protective mantle against one-sided stipulations inserted
in tickets, invoices or other documents over which the riding public
has no understanding or, worse, no choice. Compared to the general
public, a charterer in a contract of private carriage is not similarly
situated. It can—and in fact it usually does—enter into a free and
voluntary agreement. In practice, the parties in a contract of private
carriage can stipulate the carrier’s obligations and liabilities over the
shipment which, in turn, determine the price or consideration of the
charter. Thus, a charterer, in exchange for convenience and economy,
may opt to set aside the protection of the law on common carriers.
When the charterer decides to exercise this option, he takes a normal
business risk.
Same; Same; In the case of a private carrier, a stipulation exempting
the owner from liability even for the negligence of its agent is valid.
— The naked assertion of petitioner that the American rule enunciated
in Home Insurance is not the rule in the Philippines deserves scant
consideration. The Court there categorically held that said rule was
“reasonable” and proceeded to apply it in the resolution of that case.
Petitioner miserably failed to show such circumstances or arguments
which would necessitate a departure from a well-settled rule.
Consequently, our ruling in said case remains a binding judicial
precedent based on the doctrine of stare decisis and Article 8 of the
Civil Code which provides that “(j)udicial decisions applying or
interpreting the laws or the Constitution shall form part of the legal
system of the Philippines.” In fine, the respondent appellate court
aptly stated that “[in the case of] a private carrier, a stipulation
exempting the owner from liability even for the negligence of its agent
is valid.”
Same; Same; As a general rule, patrimonial rights may be waived as
opposed to rights to personality and family rights which may not be
made the subject of waiver. — Article 6 of the Civil Code provides that
“(r)ights may be waived, unless the waiver is contrary to law, public
order, public policy, morals, or good customs, or prejudicial to a
person with a right recognized by law.” As a general rule, patrimonial
rights may be waived as opposed to rights to personality and family
rights which may not be made the subject of waiver. Being patently
and undoubtedly patrimonial, petitioner’s right conferred under said
articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible for any damage to
the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. Furthermore, as discussed
above, the contract of private carriage binds petitioner and private
respondent alone; it is not imbued with public policy considerations
for the general public or third persons are not affected thereby.
Same; Same; Damages; An aggrieved party may still recover the
deficiency from the person causing the loss in the event the amount
paid by the insurance company does not fully cover the loss.—In its
memorandum, Seven Brothers argues that petitioner has no cause of
action against it because this Court has earlier affirmed the liability of
South Sea for the loss suffered by petitioner. Private respondent
submits that petitioner is not legally entitled to collect twice for a single
loss. In view of the above disquisition upholding the validity of the
questioned charter party stipulation and holding that petitioner may
not recover from private respondent, the present issue is moot and
academic. It suffices to state that the Resolution of this Court dated
June 2, 1995 affirming the liability of South Sea does not, by itself,
necessarily preclude the petitioner from proceeding against private
respondent. An aggrieved party may still recover the deficiency from
the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the
Civil Code provides: “ART. 2207. If the plaintiff’s property has been
insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or
injury.”
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Alejandro P. Ruiz, Jr. for petitioner.
Lorenzo G. Parungao for private respondent.
PANGANIBAN, J.:
Is a stipulation in a charter party that the “(o)wners shall not be
responsible for loss, split, short-landing, breakages and any kind of
damages to the cargo” valid? This is the main question raised in this
petition for review assailing the Decision of Respondent Court of
Appeals in CA-G.R. No. CV-20156 promulgated on October 15, 1991.
The Court of Appeals modified the judgment of the Regional Trial
Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion
of which reads:
“WHEREFORE, Judgment is hereby rendered ordering South Sea
Surety and Insurance Co., Inc. to pay plaintiff the sum of TWO
MILLION PESOS (P2,000,000.00) representing the value of the policy
on the lost logs with legal interest thereon from the date of demand
on February 2, 1984 until the amount is fully paid or in the alternative,
defendant Seven Brothers Shipping Corporation to pay plaintiff the
amount of TWO MILLION PESOS (P2,000,000.00) representing the
value of lost logs plus legal interest from the date of demand on April
24, 1984 until full payment thereof; the reasonable attorney’s fees in
the amount equivalent to five (5) percent of the amount of the claim
and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping
Corporation the sum of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00) representing the balance of the stipulated freight
charges.
Defendant South Sea Surety and Insurance Company’s counterclaim
is hereby dismissed.”
In its assailed Decision, Respondent Court of Appeals held:
“WHEREFORE, the appealed judgment is hereby AFFIRMED except in
so far (sic) as the liability of the Seven Brothers Shipping Corporation
to the plaintiff is concerned which is hereby REVERSED and SET
ASIDE.”
The Facts
The factual antecedents of this case as narrated in the Court of
Appeals Decision are as follows:
“It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood
and Industrial Supply, Inc.) entered into an agreement with the
defendant Seven Brothers (Shipping Corporation) whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the
former’s lauan round logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or
damage with defendant South Sea Surety and Insurance Co., Inc. for
P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy
No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the
premium on the insurance policy to Mr. Victorio Chua. In the
meantime, the said vessel M/V Seven Ambassador sank on 25 January
1984 resulting in the loss of the plaintiff’s insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. ‘E’) to cover payment
of the premium and documentary stamps due on the policy was
tendered due to the insurer but was not accepted. Instead, the South
Sea Surety and Insurance Co., Inc. cancelled the insurance policy it
issued as of the date of the inception for non-payment of the premium
due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea
Surety and Insurance Co., Inc. the payment of the proceeds of the
policy but the latter denied liability under the policy. Plaintiff likewise
filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the
claim.
After due hearing and trial, the court a quo rendered judgment in favor
of plaintiff and against defendants. Both defendants shipping
corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute
(sic) to the court a quo the following assignment of errors, to wit:
‘A. The lower court erred in holding that the proximate cause of the
sinking of the vessel Seven Ambassadors, was not due to fortuitous
event but to the negligence of the captain in stowing and securing the
logs on board, causing the iron chains to snap and the logs to roll to
the portside.
B. The lower court erred in declaring that the non-liability clause of
the Seven Brothers Shipping Corporation from logs (sic) of the cargo
stipulated in the charter party is void for being contrary to public policy
invoking Article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven
Brothers Shipping Corporation liable in the alternative and
ordering/directing it to pay plaintiff-appellee the amount of two million
(P2,000,000.00) pesos representing the value of the logs plus legal
interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven
Brothers Shipping Corporation to pay appellee reasonable attorney’s
fees in the amount equivalent to 5% of the amount of the claim and
the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven
Brothers Corporation its counter-claim for attorney’s fees.
F. The lower court erred in not dismissing the complaint against Seven
Brothers Shipping Corporation.’
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns
the following errors:
‘A. The trial court erred in holding that Victorio Chua was an agent of
defendant-appellant South Sea Surety and Insurance Company, Inc.
and likewise erred in not holding that he was the representative of the
insurance broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received
compensation/commission on the premiums paid on the policies
issued by the defendant-appellant South Sea Surety and Insurance
Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance
Code.
D. The trial court erred in disregarding the ‘receipt of payment clause’
attached to and forming part of the Marine Cargo Insurance Policy No.
84/24229.
E. The trial court in disregarding the statement of account or bill
stating the amount of premium and documentary stamps to be paid
on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the indorsement of cancellation
of the policy due to non-payment of premium and documentary
stamps.
G. The trial court erred in ordering defendant-appellant South Sea
Surety and Insurance Company, Inc. to pay plaintiff-appellee
P2,000,000.00 representing value of the policy with legal interest from
2 February 1984 until the amount is fully paid.
H. The trial court erred in not awarding to the defendant-appellant the
attorney’s fees alleged and proven in its counterclaim.’
The primary issue to be resolved before us is whether defendants
shipping corporation and the surety company are liable to the plaintiff
for the latter’s lost logs.”
The Court of Appeals affirmed in part the RTC judgment by sustaining
the liability of South Sea Surety and Insurance Company (“South
Sea”), but modified it by holding that Seven Brothers Shipping
Corporation (“Seven Brothers”) was not liable for the lost cargo. In
modifying the RTC judgment, the respondent appellate court
ratiocinated thus:
“It appears that there is a stipulation in the charter party that the ship
owner would be exempted from liability in case of loss. The court a
quo erred in applying the provisions of the Civil Code on common
carriers to establish the liability of the shipping corporation. The
provisions on common carriers should not be applied where the carrier
is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry
a special cargo or chartered to a special person only, becomes a
private carrier.
As a private carrier, a stipulation exempting the owner from liability
even for the negligence of its agent is valid (Home Insurance
Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the
loss of the logs.”
South Sea and herein Petitioner Valenzuela Hardwood and Industrial
Supply, Inc. (“Valenzuela”) filed separate petitions for review before
this Court. In a Resolution dated June 2, 1995, this Court denied the
petition of South Sea. There the Court found no reason to reverse the
factual findings of the trial court and the Court of Appeals that Chua
was indeed an authorized agent of South Sea when he received
Valenzuela’s premium payment for the marine cargo insurance policy
which was thus binding on the insurer.
The Court is now called upon to resolve the petition for review filed
by Valenzuela assailing the CA Decision which exempted Seven
Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela’s arguments revolve around a single issue:
“whether or not respondent Court (of Appeals) committed a reversible
error in upholding the validity of the stipulation in the charter party
executed between the petitioner and the private respondent
exempting the latter from liability for the loss of petitioner’s logs
arising from the negligence of its (Seven Brothers’) captain.”
The Court’s Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent
stipulated that the “(o)wners shall not be responsible for loss, split,
shortlanding, breakages and any kind of damages to the cargo.” The
validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the
parties that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the “snapping of
the iron chains and the subsequent rolling of the logs to the portside
due to the negligence of the captain in stowing and securing the logs
on board the vessel and not due to fortuitous event.” Likewise,
undisputed is the status of Private Respondent Seven Brothers as a
private carrier when it contracted to transport the cargo of Petitioner
Valenzuela. Even the latter admits this in its petition.
The trial court deemed the charter party stipulation void for being
contrary to public policy, citing Article 1745 of the Civil Code which
provides:
“Art. 1745. Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction,
or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the
custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less
than that of a good father of a family, or of a man of ordinary prudence
in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) That the common 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;
(7) That the common carrier is not responsible for the loss,
destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment used
in the contract of carriage.”
Petitioner Valenzuela adds that the stipulation is void for being
contrary to Articles 586 and 587 of the Code of Commerce and Articles
1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1,
Article 1409 of the Civil Code, petitioner further contends that said
stipulation “gives no duty or obligation to the private respondent to
observe the diligence of a good father of a family in the custody and
transportation of the cargo.”
The Court is not persuaded. As adverted to earlier, it is undisputed
that private respondent had acted as a private carrier in transporting
petitioner’s lauan logs. Thus, Article 1745 and other Civil Code
provisions on common carriers which were cited by petitioner may not
be applied unless expressly stipulated by the parties in their charter
party.
In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting
the shipowner from liability for loss of or damage to the cargo caused
even by the negligence of the ship captain. Pursuant to Article 1306
of the Civil Code, such stipulation is valid because it is freely entered
into by the parties and the same is not contrary to law, morals, good
customs, public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We stress that in
a contract of private carriage, the parties may freely stipulate their
duties and obligations which perforce would be binding on them.
Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the
Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove
the protection given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner
are not novel; they were resolved long ago by this Court in Home
Insurance Co. vs. American Steamship Agencies, Inc. In that case, the
trial court similarly nullified a stipulation identical to that involved in
the present case for being contrary to public policy based on Article
1744 of the Civil Code and Article 587 of the Code of Commerce.
Consequently, the trial court held the shipowner liable for damages
resulting from the partial loss of the cargo. This Court reversed the
trial court and laid down, through Mr. Justice Jose P. Bengzon, the
following well-settled observation and doctrine:
“The provisions of our Civil Code on common carriers were taken from
Anglo-American law. Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a special person
only, becomes a private carrier. As a private carrier, a stipulation
exempting the owner from liability for the negligence of its agent is
not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on
common carriers should not be applied where the carrier is not acting
as such but as a private carrier. The stipulation in the charter party
absolving the owner from liability for loss due to the negligence of its
agent would be void only if the strict public policy governing common
carriers is applied. Such policy has no force where the public at large
is not involved, as in this case of a ship totally chartered for the use
of a single party.” (Italics supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not
apply. The general public enters into a contract of transportation with
common carriers without a hand or a voice in the preparation thereof.
The riding public merely adheres to the contract; even if the public
wants to, it cannot submit its own stipulations for the approval of the
common carrier. Thus, the law on common carriers extends its
protective mantle against one-sided stipulations inserted in tickets,
invoices or other documents over which the riding public has no
understanding or, worse, no choice. Compared to the general public,
a charterer in a contract of private carriage is not similarly situated. It
can—and in fact it usually does—enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage
can stipulate the carrier’s obligations and liabilities over the shipment
which, in turn, determine the price or consideration of the charter.
Thus, a charterer, in exchange for convenience and economy, may
opt to set aside the protection of the law on common carriers. When
the charterer decides to exercise this option, he takes a normal
business risk.
Petitioner contends that the rule in Home Insurance is not applicable
to the present case because it “covers only a stipulation exempting a
private carrier from liability for the negligence of his agent, but it does
not apply to a stipulation exempting a private carrier like private
respondent from the negligence of his employee or servant which is
the situation in this case.” This contention of petitioner is bereft of
merit, for it raises a distinction without any substantive difference. The
case of Home Insurance specifically dealt with “the liability of the
shipowner for acts or negligence of its captain and crew” and a charter
party stipulation which “exempts the owner of the vessel from any loss
or damage or delay arising from any other source, even from the
neglect or fault of the captain or crew or some other person employed
by the owner on board, for whose acts the owner would ordinarily be
liable except for said paragraph.” Undoubtedly, Home Insurance is
applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated
in Home Insurance is not the rule in the Philippines deserves scant
consideration. The Court there categorically held that said rule was
“reasonable” and proceeded to apply it in the resolution of that case.
Petitioner miserably failed to show such circumstances or arguments
which would necessitate a departure from a well-settled rule.
Consequently, our ruling in said case remains a binding judicial
precedent based on the doctrine of stare decisis and Article 8 of the
Civil Code which provides that “(j)udicial decisions applying or
interpreting the laws or the Constitution shall form part of the legal
system of the Philippines.”
In fine, the respondent appellate court aptly stated that “[in the case
of] a private carrier, a stipulation exempting the owner from liability
even for the negligence of its agent is valid.”
Other Arguments
On the basis of the foregoing alone, the present petition may already
be denied; the Court, however, will discuss the other arguments of
petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is
contrary to Articles 586 and 587 of the Code of Commerce which
confer on petitioner the right to recover damages from the shipowner
and ship agent for the acts or conduct of the captain. We are not
persuaded. Whatever rights petitioner may have under the
aforementioned statutory provisions were waived when it entered into
the charter party. Article 6 of the Civil Code provides that “(r)ights
may be waived, unless the waiver is contrary to law, public order,
public policy, morals, or good customs, or prejudicial to a person with
a right recognized by law.” As a general rule, patrimonial rights may
be waived as opposed to rights to personality and family rights which
may not be made the subject of waiver. Being patently and
undoubtedly patrimonial, petitioner’s right conferred under said
articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible for any damage to
the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. Furthermore, as discussed
above, the contract of private carriage binds petitioner and private
respondent alone; it is not imbued with public policy considerations
for the general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this
controversy is void for being contrary to Articles 1170 and 1173 of the
Civil Code which read:
“Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
provisions of Articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall
be required.”
The Court notes that the foregoing articles are applicable only to the
obligor or the one with an obligation to perform. In the instant case,
Private Respondent Seven Brothers is not an obligor in respect of the
cargo, for this obligation to bear the loss was shifted to petitioner by
virtue of the charter party. This shifting of responsibility, as earlier
observed, is not void.
The provisions cited by petitioner are, therefore, inapplicable to the
present case.
Moreover, the factual milieu of this case does not justify the
application of the second paragraph of Article 1173 of the Civil Code
which prescribes the standard of diligence to be observed in the event
the law or the contract is silent. In the instant case, Article 362 of the
Code of Commerce28 provides the standard of ordinary diligence for
the carriage of goods by a carrier. The standard of diligence under this
statutory provision may, however, be modified in a contract of private
carriage as the petitioner and private respondent had done in their
charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. which, in turn,
quoted Juan Ysmael & Co. vs. Gabino Barreto & Co. and argues that
the public policy considerations stated there vis-à-vis contractual
stipulations limiting the carrier’s liability be applied “with equal force”
to this case. It also cites Manila Railroad Co. vs. Compañia
Transatlantica and contends that stipulations exempting a party from
liability for damages due to negligence “should not be countenanced”
and should be “strictly construed” against the party claiming its
benefit. We disagree.
The cases of Shewaram and Ysmael both involve a common carrier;
thus, they necessarily justify the application of such policy
considerations and concomitantly stricter rules. As already discussed
above, the public policy considerations behind the rigorous treatment
of common carriers are absent in the case of private carriers. Hence,
the stringent laws applicable to common carriers are not applied to
private carriers. The case of Manila Railroad is also inapplicable
because the action for damages there does not involve a contract for
transportation. Furthermore, the defendant therein made a “promise
to use due care in the lifting operations” and, consequently, it was
“bound by its undertaking”; besides, the exemption was intended to
cover accidents due to hidden defects in the apparatus or other
unforseeable occurrences” not caused by its “personal negligence.”
This promise was thus construed to make sense together with the
stipulation against liability for damages. In the present case, we stress
that the private respondent made no such promise. The agreement of
the parties to exempt the shipowner from responsibility for any
damage to the cargo and place responsibility over the same to
petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez
Costelo, Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., N.
T. Hashim and Co. vs. Rocha and Co., Ohta Development Co. vs.
Steamship “Pompey” and Limpangco Sons vs. Yangco Steamship Co.
in support of its contention that the shipowner be held liable for
damages. These however are not on all fours with the present case
because they do not involve a similar factual milieu or an identical
stipulation in the charter party expressly exempting the shipowner
from responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no
cause of action against it because this Court has earlier affirmed the
liability of South Sea for the loss suffered by petitioner. Private
respondent submits that petitioner is not legally entitled to collect
twice for a single loss. In view of the above disquisition upholding the
validity of the questioned charter party stipulation and holding that
petitioner may not recover from private respondent, the present issue
is moot and academic. It suffices to state that the Resolution of this
Court dated June 2, 1995 affirming the liability of South Sea does not,
by itself, necessarily preclude the petitioner from proceeding against
private respondent. An aggrieved party may still recover the deficiency
from the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the
Civil Code provides:
“ART. 2207. If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.”
WHEREFORE, premises considered, the petition is hereby DENIED for
its utter failure to show any reversible error on the part of Respondent
Court. The assailed Decision is AFFIRMED.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur.
Petition denied, judgment affirmed.
Note. — Contracts which are the private laws of the contracting
parties, should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as to
the intention of the contracting parties. (Salvatierra vs. Court of
Appeals, 261 SCRA 45 [1995])
——o0o——
MAGELLAN MANUFACTURING MARKETING CORPORATION,"
petitioner, vs. COURT OF APPEALS, ORIENT OVERSEAS
CONTAINER LINES and F.E. ZUELLIG, INC. respondents
G.R. No. 95529. August 22,1991
Civil Law; Carriage of Goods by Sea Act; Transhipment, meaning of.
— Transhipment, in maritime law, is defined as “the act of taking cargo
out of one ship and loading it in another,” or “the transfer of goods
from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been
reached,” or “the transfer for further transportation from one ship or
conveyance to another.”
Same; Same; Same; There is transhipment whether or not the same
person, firm or entity owns the vessels. — Clearly, either in its ordinary
or its strictly legal acceptation, there is transhipment whether or not
the same person, from or entity owns the vessels. In other words, the
fact of transhipment is not dependent upon the ownership of the
transporting ships or conveyances or in the change of carriers, as the
petitioner seems to suggest, but rather on the fact of actual physical
transfer of cargo from one vessel to another.
Same; Same; Same; Same; Transhipment of freight without legal
excuse however competent and safe the vessel into which the transfer
is made is a violation of the contract and an infringement of the right
of the shipper and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted.—Moreover, it is a well-known
commercial usage that transhipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is
made, is a violation of the contract and an infringement of the right of
the shipper, and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted. It is highly improbable to
suppose that private respondents, having been engaged in the
shipping business for so long, would be unaware of such a custom of
the trade as to have undertaken such transhipment without
petitioner’s consent and unnecessarily expose themselves to a
possible liability.
Same; Same; Bill of Lading; Nature of. — It is a long standing
jurisprudential rule that a bill of lading operates both as a receipt and
as a contract. It is a receipt for the goods shipped and a contract to
transport and deliver the same as therein stipulated. As a contract, it
names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and
obligations assumed by the parties. Being a contract, it is the law
between the parties who are bound by its terms and conditions
provided that these are not contrary to law, morals, good customs,
public order and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is presumed that
the stipulations of the bill were, in the absence of fraud, concealment
or improper conduct, known to the shipper, and he is generally bound
by his acceptance whether he reads the bill or not.
Same; Same; Same; The acceptance of the bill without dissent raises
the presumption that all the terms therein were brought to the
knowledge of the shipper and agreed to by him and in the absence of
fraud or mistake, he is estopped from thereafter denying that he
assented to such terms.—The holding in most jurisdictions has been
that a shipper who receives a bill of lading without objection after an
opportunity to inspect -it, and permits the carrier to act on it by
proceeding with the shipment is presumed to have accepted it as
correctly stating the contract and to have assented to its terms. In
other words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge
of the shipper and agreed to by him and, in the absence of fraud or
mistake, he is estopped from thereafter denying that be assented to
such terms. This rule applies with particular force where a shipper
accepts a bill of lading with full knowledge of its contents and
acceptance under such circumstances makes it a binding contract.
Same; Same; Same; On board bill of lading distinguished from a
received for shipment bill of lading. — An on-board bill of lading is one
in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment
bill of lading is one in which it is stated that the goods have been
received for shipment with or without specifying the vessel by which
the goods are to be shipped. Received far shipment bills of lading are
issued whenever conditions are not normal and there is insufficiency
of shipping space. An on-board bill of lading is issued when the goods
have been actually placed aboard the ship with every reasonable
expectation that the shipment is as good as on its way.
Same; Same; Same; Bills of lading constitute a class of contracts of
adhesion. — It will be recalled that petitioner entered into the contract
with Choju Co., Ltd. way back on May 20? 1980 or over a month before
the expiry date of the letter of credit on June 30, 1980, thus giving it
more than ample time to find a carrier that could comply with the
requirements of shipment under the letter of credit. It is conceded
that bills of lading constitute a class of contracts of adhesion.
However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals,
et al. and reiterated in Servando, et al. vs, Philippine Steam Navigation
Co., plane tickets as well as bills of lading are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. The respondent
court correctly observed in the present case that “when the appellant
received the bill of lading, it was tantamount to appellant’s adherence
to the terms and conditions as embodied therein.”
Same; Same; Demurrage; Meaning of. — Demurrage, in its strict
sense, is the compensation provided for in the contract of
affreightment for the detention of the v essel beyond the time agreed
on for loading and unloading. Essentially, demurrage is the claim for
damages for failure to accept delivery. In a broad sense, every
improper detention of a vessel may be considered a demurrage.
Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term
in its broader sense, damages in the nature of demurrage are
recoverable for a breach of the implied obligation to load or unload
the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping
contract.
Remedial Law; Civil Procedure; Parol Evidence Rule; Under the rule
the terms of a contract are rendered conclusive upon the parties and
evidence aliunde is not admissible to vary contradict a complete and
enforceable agreement embodied in a document—Under the parol
evidence rule, the terms of a contract are rendered conclusive upon
the parties, and evidence aliunde is not admissible to vary or
contradict a complete and enforceable agreement embodied in a
document, subject to well defined exceptions which do not obtain in
this case. The parol evidence rule is based on the consideration that
when the parties have reduced their agreement on a particular matter
into writing, all their previous and contemporaneous agreements on
the matter are merged therein. Accordingly, evidence of a prior or
contemporaneous verbal agreement is generally not admissible to
vary, contradict or defeat the operation of a valid instrument.
PETITION for review on certiorari of the judgment of the Court of
Appeals. Lapeña, Jr., J.
The facts are stated in the opinion of the Court.
Jose F. Manacop for petitioner.
Camacho & Associates for private respondents.
REGALADO, J.:
Petitioner, via this petition for review on certiorari, seeks the reversal
of the judgment of respondent Court of Appeals in CAG.R. CV No.
18781, affirming in part the decision of the trial court, the dispositive
portion of which reads:
“Premises considered, the decision appealed from is affirmed insofar
as it dismisses the complaint. On the counter-claim, however,
appellant is ordered to pay appellees the amount of P52,102.45 with
legal interest from date of extra-judicial demand. The award of
attorney’s fees is deleted."
The facts as found by respondent appellate court are as follows:
“On May 20, 1980, plaintiff-appellant Magellan Manufacturers
Marketing Corp. (MMMC) entered into a contract with Choju Co. of
Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of credit was
issued to plaintiff MMMC by the buyer. Through its president, James
Cu, MMMC then contracted F.E. Zuellig, a shipping agent, through its
solicitor, one Mr. King, to ship the anahaw fans through the other
appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying
that he needed an on-board bill of lading and that transhipment is not
allowed under the letter of credit (Exh. B-1). On June 30, 1980,
appellant MMMC paid F.E. Zuellig the freight charges and secured a
copy of the bill of lading which was presented to Allied Bank. The bank
then credited the amount of US$23,220.00 covered by the letter of
credit to appellant’s account. However, when appellant’s president
James Cu, went back to the bank later, he was informed that the
payment was refused by the buyer allegedly because there was no
on-board bill of lading, and there was a transhipment of goods. As a
result of the refusal of the buyer to accept, upon appellant’s request,
the anahaw fans were shipped back to Manila by appellees, for which
the latter demanded from appellant payment of P246,043.43.
Appellant abandoned the whole cargo and asked appellees for
damages.
“In their Partial Stipulation of Facts, the parties admitted that a
shipment of 1,047 cartons of 136,000 pieces of Anahaw Fans
contained in 1 x 40 and 1 x 20 containers was loaded at Manila on
board the MV ‘Pacific Despatcher’ freight prepaid, and duly covered by
Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL;
that the shipment was delivered at the port of discharge on July
19,1980, but was subsequently returned to Manila after the consignee
refused to accept/pay the same."
Elaborating on the above findings of fact of respondent court and
without being disputed by herein private respondents, petitioner
additionally avers that:
“When petitioner informed private respondents about what happened,
the latter issued a certificate stating that its bill of lading it issued is
an on-board bill of lading and that there was no actual transhipment
of the fans. According to private respondents when the goods are
transferred from one vessel to another which both belong to the same
owner which was what happened to the Anahaw fans, then there is
(no) transhipment. Petitioner sent this certification to Choju Co., Ltd.,
but the said company still refused to accept the goods which arrived
in Japan on July 19,1980.
“Private respondents billed petitioner in the amount of P16,342.21 for
such shipment and P34,928.71 for demurrage in Japan from July 26
up to August 31, 1980 or a total of P51,271.02. In a letter dated March
20, 1981, private respondents gave petitioner the option of paying the
sum of P51,271.02 or to abandon the Anahaw fans to enable private
respondents to sell them at public auction to cover the cost of
shipment and demurrages. Petitioner opted to abandon the goods.
However, in a letter dated June 22,1981 private respondents
demanded for payment of P298,150.93 from petitioner which
represents the freight charges from Japan to Manila, demurrage
incurred in Japan and Manila from October 22,1980 up to May
20,1981; and charges for stripping the container van of the Anahaw
fans on May 20, 1981.
“On July 20, 1981 petitioner filed the complaint in this case praying
that private respondents be ordered to pay whatever petitioner was
not able to earn from Choju Co., Ltd., amounting to P1 74,150.00 and
other damages like attorney’s fees since private respondents are to
blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In
answer thereto the private respondents alleged that the bill of lading
clearly shows that there will be a transhipment and that petitioner was
well aware that MV (Pacific) Despatcher was only up to Hongkong
where the subject cargo will be transferred to another vessel for
Japan. Private respondents also filed a counterclaim praying that
petitioner be ordered to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting to P298,150.93.
“The lower court decided the case in favor of private respondents. It
dismissed the complaint on the ground that petitioner bad given its
consent to the contents of the bill of lading where it is clearly indicated
that there will be transhipment. The lower court also said that
petitioner is liable to pay to private respondent the freight charges
from Japan to Manila and demurrages since it was the former which
ordered the reshipment of the cargo from Japan to Manila.
“On appeal to the respondent court, the finding of the lower (court)
that petitioner agreed to a transhipment of the goods was affirmed
but the finding that petitioner is liable for P298,150.93 was modified.
It was reduced to P52,102.45 which represents the freight charges
and demurrages incurred in Japan but not for the demurrages incurred
in Manila. According to the respondent (court) the petitioner can not
be held liable for the demurrages incurred in Manila because private
respondents did not timely inform petitioner that the goods were
already in Manila in addition to the fact that private respondent had
given petitioner the option of abandoning the goods in exchange for
the demurrages."
Petitioner, being dissatisfied with the decision of respondent court and
the motion for reconsideration thereof having been denied, invokes
the Court’s review powers for the resolution of the issues as to
whether or not respondent court erred (1) in affirming the decision of
the trial court which dismissed petitioner’s complaint; and (2) in
holding petitioner liable to private respondents in the amount of
P52,102.45. Petitioner obstinately faults private respondents for the
refusal of its buyer, Choju Co., Ltd., to take delivery of the exported
anahaw fans resulting in a loss of P174,150.00 representing the
purchase price of the said export items because of violation of the
terms and conditions of the letter of credit issued in favor of the former
which specified the requirement for an on board bill of lading and the
prohibition against transhipment of goods, inasmuch as the bill of
lading issued by the latter bore the notation “received for shipment”
and contained an entry indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On the matter of
transhipment, petitioner maintains that “x x x while the goods were
transferred in Hongkong from MV Pacific Despatcher, the feeder
vessel, to MV Oriental Researcher, a mother vessel, the same cannot
be considered transhipment because both vessels belong to the same
shipping company, the private respondent Orient Overseas Container
Lines, Inc." Petitioner emphatically goes on to say: “To be sure, there
was no actual transhipment of the Anahaw fans. The private
respondents have executed a certification to the effect that while the
Anahaw fans were transferred from one vessel to another in Hong
Kong, since the two vessels belong to one and the same company
then there was no transhipment."
Transhipment, in maritime law, is defined as “the act of taking cargo
out of one ship and loading it in another," or “the transfer of goods
from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been
reached," or “the transfer for further transportation from one ship or
conveyance to another." Clearly, either in its ordinary or its strictly
legal acceptation, there is transhipment whether or not the same
person, firm or entity owns the vessels. In other words, the fact of
transhipment is not dependent upon the ownership of the transporting
ships or conveyances or in the change of carriers, as the petitioner
seems to suggest, but rather on the fact of actual physical transfer of
cargo from one vessel to another.
That there was transhipment within this contemplation is the
inescapable conclusion, as there unmistakably appears on the face of
the bill of lading the entry “Hong Kong” in the blank space labeled
“Transhipment,"' which can only mean that transhipment actually took
place. This fact is further bolstered by the certification issued by
private respondent F.E. Zuellig, Inc. dated July 19. 1980, although it
carefully used the term ‘transfer” instead of transhipment.
Nonetheless, no amount of semantic juggling can mask the fact that
transhipment in truth occurred in this case.
Petitioner insists that "(c)onsidering that there was no actual
transhipment of the Anahaw fans, then there is no occasion under
which the petitioner can agree to the transhipment of the Anahaw fans
because there is nothing like that to agree to” and "(i)f there is no
actual transhipment but there appears to be a transhipment in the bill
of lading, then there can be no possible reason for it but a mistake on
the part of the private respondents."
Petitioner, in effect, is saying that since there was a mistake in
documentation on the part of private respondents, such a mistake
militates against the conclusiveness of the bill of lading insofar as it
reflects the terms of the contract between the parties, as an exception
to the parol evidence rule, and would therefore permit it to explain or
present evidence to vary or contradict the terms of the written
agreement, that is, the bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of lading operates
both as a receipt and as a contract. It is a receipt for the goods shipped
and a contract to transport and deliver the same as therein stipulated.
As a contract, it names the parties, which includes the consignee, fixes
the route, destination, and freight rates or charges, and stipulates the
rights and obligations assumed by the parties. Being a contract, it is
the law between the parties who are bound by its terms and conditions
provided that these are not contrary to law, morals, good customs,
public order and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is presumed that
the stipulations of the bill were, in the absence of fraud, concealment
or improper conduct, known to the shipper, and he is generally bound
by his acceptance whether he reads the bill or not.
The holding in most jurisdictions has been that a shipper who receives
a bill of lading without objection after an opportunity to inspect it, and
permits the carrier to act on it by proceeding with the shipment is
presumed to have accepted it as correctly stating the contract and to
have assented to its terms. In other words, the acceptance of the bill
without dissent raises the presumption that all the terms therein were
brought to the knowledge of the shipper and agreed to by him and, in
the absence of fraud or mistake, he is estopped from thereafter
denying that he assented to such terms. This rule applies with
particular force where a shipper accepts a bill of lading with full
knowledge of its contents and acceptance under such circumstances
makes it a binding contract.
In the light of the series of events that transpired in the case at bar,
there can be no logical conclusion other than that the petitioner had
full knowledge of, and actually consented to, the terms and conditions
of the bill of lading thereby making the same conclusive as to it, and
it cannot now be heard to deny having assented thereto. As borne out
by the records, James Cu himself, in his capacity as president of
MMMC, personally received and signed the bill of lading. On practical
considerations, there is no better way to signify consent than by
voluntarily signing the document which embodies the agreement. As
found by the Court of Appeals—
“Contrary to appellant’s allegation that it did not agree to the
transhipment, it could be gleaned from the record that the appellant
actually consented to the transhipment when it received the bill of
lading personally at appellee’s (F.E. Zuellig’s) office. There clearly
appears on the face of the bill of lading under column “PORT OF
TRANSHIPMENT" an entry “HONGKONG" (Exhibits ‘G-1'). Despite said
entries he still delivered his voucher (Exh. F) and the corresponding
check in payment of the freight (Exhibit D), implying that he consented
to the transhipment (Decision, p. 6, Rollo)."
Furthermore and particularly on the matter of whether or not there
was transhipment, James Cu, in his testimony on crossexamination,
categorically stated that he knew for a fact that the shipment was to
be unloaded in Hong Kong from the MV Pacific Despatcher to be
transferred to a mother vessel, the MV Oriental Researcher in this
wise:
“Q: Mr. Cu, are you not aware of the fact that your shipment is to be
transferred or transhipped at the port of Hongkong?
A: I know. It’s not transport, they relay, not trans. … yes, that is why
we have an agreement if they should not put a transhipment in
Hongkong, that’s why they even stated in the certification.
xxx
Q: In layman’s language, would you agree with me that transhipment
is the transfer of a cargo from one vessel to the other?
A: As a layman, yes.
Q: So, you know for a fact that your shipment is going to be unloaded
in Hongkong from M.V. Dispatcher (sic) and then transfer (sic) to
another vessel which was the Oriental Dispatcher, (sic) you know that
for a, fact?
A: Yes, sir. (Italics supplied.)
Under the parol evidence rule, the terms of a contract are rendered
conclusive upon the parties, and evidence aliunde is not admissible to
vary or contradict a complete and enforceable agreement embodied
in a document, subject to well defined exceptions which do not obtain
in this case. The parol evidence rule is based on the consideration that
when the parties have reduced their agreement on a particular matter
into writing, all their previous and contemporaneous agreements on
the matter are merged therein. Accordingly, evidence of a prior or
contemporaneous verbal agreement is generally not admissible to
vary, contradict or defeat the operation of a valid instrument. The
mistake contemplated as an exception to the parol evidence rule is
one which is a mistake of fact mutual to the parties. Furthermore, the
rules on evidence, as amended, require that in order that parol
evidence may be admitted, said mistake must be put in issue by the
pleadings, such that if not raised inceptively in the complaint or in the
answer, as the case may be, a party can not later on be permitted to
introduce parol evidence thereon.
Needless to say, the mistake adverted to by herein petitioner, and by
its own admission, was supposedly committed by private respondents
only and was raised by the former rather belatedly only in this instant
petition. Clearly then, and for failure to comply even only with the
procedural requirements thereon, we cannot admit evidence to prove
or explain the alleged mistake in documentation imputed to private
respondents by petitioner.
Petitioner further argues that assuming that there was transhipment,
it cannot be deemed to have agreed thereto even if it signed the bill
of lading containing such entry because it had made known to private
respondents from the start that transhipment was prohibited under
the letter of credit and that, therefore, it had no intention to allow
transhipment of the subject cargo. In support of its stand, petitioner
relies on the second paragraph of Article 1370 of the Civil Code which
states that "(i)f the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former,” as
well as the supposed ruling in Caltex Phil., Inc. vs. Intermediate
Appellate Court, et al. that “where the literal interpretation of a
contract is contrary to the evident intention of the parties, the latter
shall prevail.”
As between such stilted thesis of petitioner and the contents of the bill
of lading evidencing the intention of the parties, it is irremissible that
the latter must prevail. Petitioner conveniently overlooks the first
paragraph of the very article that he cites which provides that "(i)f the
terms of the contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of the stipulations shall
control.” In addition, Article 1371 of the same Code provides that "(i)n
order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered.”
The terms of the contract as embodied in the bill of lading are clear
and thus obviates the need for any interpretation. The intention of the
parties which is the carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not contradict
each other. The terms of the contract being conclusive upon the
parties and judging from the contemporaneous and subsequent
actuations of petitioner, to wit, personally receiving and signing the
bill of lading and paying the freight charges, there is no doubt that
petitioner must necessarily be charged with full knowledge and
unqualified acceptance of the terms of the bill of lading and that it
intended to be bound thereby.
Moreover, it is a well-known commercial usage that transhipment of
freight without legal excuse, however competent and safe the vessel
into which the transfer is made, is a violation of the contract and an
infringement of the right of the shipper, and subjects the carrier to
liability if the freight is lost even by a cause otherwise excepted. It is
highly improbable to suppose that private respondents, having been
engaged in the shipping business for so long, would be unaware of
such a custom of the trade as to have undertaken such transhipment
without petitioner’s consent and unnecessarily expose themselves to
a possible liability. Verily, they could only have undertaken
transhipment with the shipper’s permission, as evidenced by the
signature of James Cu.
Another ground for the refusal of acceptance of the cargo of anahaw
fans by Choju Co., Ltd. was that the bill of lading that was issued was
not an on-board bill of lading, in clear violation of the terms of the
letter of credit issued in favor of petitioner. On cross-examination, it
was likewise established that petitioner, through its aforesaid
president, was aware of this fact, thus:
“Q: If the container van, the loaded container van, was transported
back to South Harbor on June 27, 1980, would you tell us, Mr. Cu,
when the Bill of Lading was received by you?
A: I received 011 June 30, 1980. I received at the same time so then
I gave the check.
xxx
Q: So that in exchange of the Bill of Lading you issued your check also
dated June 30, 1980?
A: Yes, sir.
Q: And June 27, 1980 was the date of the Bill of Lading, did you notice
that the Bill of Lading states: ‘Received for shipment’ only?
A: Yes, sir.
Q: What did you say?
A: I requested to issue me on board bill of lading,
Q: When?
A: In the same date of June 30.
Q: What did they say?
A: They said, they cannot.
xxx
Q: Do you know the difference between a “received for shipment bill
of lading” and “on board bill of lading”?
A: Yes, sir.
Q: What’s the difference?
A: Received for shipment, you can receive the cargo even you don’t
ship on board, that is placed in the warehouse; while on-board bill of
lading means that is loaded on the vessel, the goods.
xxx
Q: In other words, it was not yet on board the vessel?
A: During that time, not yet.
xxx
Q: Do you know, Mr. Cu, that under the law, if your shipment is
received on board a vessel you can demand an on-board bill of lading
not only a received for shipment bill of lading?
A: Yes sir.
Q: And did you demand from F.E. Zuellig the substitution of that
received for shipment bill of lading with an on-board bill of lading?
A: Of course, instead they issue me a certification.
Q: They give you a . . .?
A: x x x a certification that it was loaded on board on June 30.
xxx
Q: Mr. Cu, are you aware of the conditions of the Letter of Credit to
the effect that there should be no transhipment and that it should also
get an on-board bill of lading?
A: Yes sir."
Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co.,
Ltd., particularly required that there be an on-board bill of lading,
obviously due to the guaranty afforded by such a bill of lading over
any other kind of bill of lading. The buyer could not have insisted on
such a stipulation on a pure whim or caprice, but rather because of its
reliance on the safeguards to the cargo that having an on-board bill
of lading ensured. Herein petitioner cannot feign ignorance of the
distinction between an “on board” and a “received for shipment” bill
of lading, as manifested by James Cu’s testimony. It is only to be
expected that those long engaged in the export industry should be
familiar with. business usages and customs.
In its petition, MMMC avers that “when petitioner learned of what
happened, it saw private respondent F.E. Zuellig which, in turn, issued
a certification that as of June 30, 1980, the Anahaw fans were already
on board MV Pacific Despatcher (which means that the bill of lading is
an on-board-bill of lading or ‘shipped’ bill of lading as distinguished
from a ‘received for shipment’ bill of lading as governed by Sec. 3, par.
7, Carriage of Goods by Sea Act) x x x." What the petitioner would
suggest is that said certification issued by F.E. Zuellig, Inc., dated July
19, 1980, had the effect of converting the original “received for
shipment only” bill of lading into an “on board” bill of lading as required
by the buyer and was, therefore, by substantial compliance, not
violative of the contract.
An on-board bill of lading is one in which it is stated that the goods
have been received on board the vessel which is to carry the goods,
whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without
specifying the vessel by which the goods are to be shipped. Received
for shipment bills of lading are issued whenever conditions are not
normal and there is insufficiency of shipping space. An on-board bill
of lading is issued when the goods have been actually placed aboard
the ship with every reasonable expectation that the shipment is as
good as on its way. It is, therefore, understandable that a
party to a maritime contract would require an on-board bill of lading
because of its apparent guaranty of certainty of shipping as well as
the seaworthiness of the vessel which is to carry the goods.
It cannot plausibly be said that the aforestated certification of F.E.
Zuellig, Inc. can qualify the bill of lading, as originally issued, into an
on-board bill of lading as required by the terms of the letter of credit
issued in favor of petitioner. For one, the certification was issued only
on July 19,1980, way beyond the expiry date of June 30, 1980
specified in the letter of credit for the presentation of an on-board bill
of lading. Thus, even assuming that by a liberal treatment of the
certification it could have the effect of converting the received for
shipment bill of lading into an on board of bill of lading, as petitioner
would have us believe, such an effect may be achieved only as of the
date of its issuance, that is, on July 19, 1980 and onwards.
The fact remains, though, that on the crucial date of June 30, 1980
no on-board bill of lading was presented by petitioner in compliance
with the terms of the letter of credit and this default consequently
negates its entitlement to the proceeds thereof. Said certification, if
allowed to operate retroactively, would render illusory the guaranty
afforded by an on-board bill of lading, that is, reasonable certainty of
shipping the loaded cargo aboard the vessel specified, not to mention
that it would indubitably be stretching the concept of substantial
compliance too far.
Neither can petitioner escape liability by adverting to the bill of lading
as a contract of adhesion, thus warranting a more liberal consideration
in its favor to the extent of interpreting ambiguities against private
respondents as allegedly being the parties who gave rise thereto. The
bill of lading is clear on its face. There is no occasion to speak of
ambiguities or obscurities whatsoever. All of its terms and conditions
are plainly worded and commonly understood by those in the
business.
It will be recalled that petitioner entered into the contract with Choju
Co., Ltd. way back on May 20,1980 or over a month before the expiry
date of the letter of credit on June 30, 1980, thus giving it more than
ample time to find a carrier that could comply with the requirements
of shipment under the letter of credit It is conceded that bills of lading
constitute a class of contracts of adhesion. However, as ruled in the
earlier case of Ong Yiu vs. Court of Appeals, et al. and reiterated in
Servando, et al. vs. Philippine Steam Navigation Co., plane tickets as
well as bills of lading are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. The respondent court correctly
observed in the present case that “when the appellant received the
bill of lading, it was tantamount to appellant’s adherence to the terms
and conditions as embodied therein."
In sum, petitioner had full knowledge that the bill issued to it
contained terms and conditions clearly violative of the requirements
of the letter of credit. Nonetheless, perhaps in its eagerness to
conclude the transaction with its Japanese buyer and in a race to beat
the expiry date of the letter of credit, petitioner took the risk of
accepting the bill of lading even if it did not conform with the indicated
specifications, possibly entertaining a glimmer of hope and imbued
with a touch of daring that such violations may be overlooked, if not
disregarded, so long as the cargo is delivered on time. Unfortunately,
the risk did not pull through as hoped for. Any violation of the terms
and conditions of the letter of credit as would defeat its right to collect
the proceeds thereof was, therefore, entirely of the petitioner’s making
for which it must bear the consequences. As finally averred by private
respondents, and with which we agree, “x x x the questions of whether
or not there was a violation of the terms and conditions of the letter
of credit, or whether or not such violation was the cause or motive for
the rejection by petitioner’s Japanese buyer should not affect private
respondents therein since they were not privies to the terms and
conditions of petitioner’s letter of credit and cannot therefore be held
liable for any violation thereof by any of the parties thereto."
II. Petitioner contends that respondent court erred in holding it liable
to private respondents for P52,1 02.45 despite its exercise of its option
to abandon the cargo. It will be recalled that the trial court originally
found petitioner liable for P298,1 50.93, which amount consists of
P51,271.02 for freight, demurrage and other charges during the time
that the goods were in Japan and for its reshipment to Manila, P831.43
for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22,1980 to June
18,1981.
On appeal, the Court of Appeals limited petitioner’s liability to
P52,102.45 when it ruled:
“As regards the amount of P51,271.02, which represents the freight
charges for the return shipment to Manila and the demurrage charges
in Japan, the same is supported by appellant’s own letter request (Exh.
2) for the return of the shipment to Manila at its (appellant’s) expense,
and hence, it should be held liable therefor. The amount of P831.43
was paid to the Manila International Port Terminal upon arrival of the
shipment in Manila for appellant’s account. It should properly be
charged to said appellant."
However, respondent court modified the trial court’s decision by
excluding the award for P246,043.43 for demurrage in Manila from
October 22,1980 to June 18,1981.
Demurrage, in its strict sense, is the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the
time agreed on for loading and unloading. Essentially, demurrage is
the claim for damages for failure to accept delivery. In a broad sense,
every improper detention of a vessel may be considered a demurrage.
Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term
in its broader sense, damages in the nature of demurrage are
recoverable for a breach of the implied obligation to load or unload
the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping
contract. Notice of arrival of vessels or conveyances, or of their
placement for purposes of unloading is often a condition precedent to
the right to collect demurrage charges.
Private respondents, admittedly, have adopted the common practice
of requiring prior notice of arrival of the goods shipped before the
shipper can be held liable for demurrage, as declared by Wilfredo
Hans, head of the accounting department of F.E. Zuellig, Inc., on
cross-examination as a witness for private respondents:
“Q: x x x you will agree with me that before one could be charged
with demurrage the shipper should be notified of the arrival of the
shipment?
A: Yes sir.
Q: Without such notification, there is no way by which the shipper
would know (of) such arrival?
A: Yes.
Q: And no charges of demurrage before the arrival of the cargo?
A: Yes sir. “
Accordingly, on this score, respondent court ruled:
“However, insofar as the demurrage charges of P246,043.43 from
October up to May 1980, arriv(al) in Manila, are concerned, We are of
the view that appellant should not be made to shoulder the same, as
it was not at fault nor was it responsible for said demurrage charges.
Appellee’s own witness (Mabazza) testified that while the goods
arrived in Manila in October 1980, appellant was notified of said arrival
only in March 1981. No explanation was given for the delay in notifying
appellant. We agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of the
goods first. Without such notification it could not be so charged
because there was no way by which it would know that the goods had
already arrived for it to take custody of them. Considering that it was
only in March 1981 (Exh. K) that appellant was notified of the arrival
of the goods, although the goods had actually arrived in October 1980
(tsn, Aug. 14,1986, pp. 10–14), appellant cannot be charged for
demurrage from October 1980 to March 1981. x x x"
While being satisfied with the exclusion of demurrage charges in
Manila for the period from October 22,1980 to June 18,1981,
petitioner nevertheless assails the Court of Appeals’ award of
P52,102.43 in favor of private respondents, consisting of P51,271.01
as freight and demurrage charges in Japan and P831.43 for charges
paid at the Manila International Port Terminal.
Petitioner asserts that by virtue of the exercise of its option to abandon
the goods so as to allow private respondents to sell the same at a
public auction and to apply the proceeds thereof as payment for the
shipping and demurrage charges, it was released from liability for the
sum of P52,102.43 since such amount represents the shipping and
demurrage charges from which it is considered to have been released
due to the abandonment of goods. It further argues that the shipping
and demurrage charges from which it was released by the exercise of
the option to abandon the goods in favor of private respondents could
not have referred to ‘the’ demurrage charges in Manila because
respondent court ruled that the same were not chargeable to
petitioner. Private respondents would rebut this contention by saying
in their memorandum that the abandonment of goods by petitioner
was too late and made in bad faith.
On this point, we agree with petitioner. Ordinarily, the shipper is liable
for freightage due to the fact that the shipment was made for its
benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services/ This is particularly
true in this case where the reshipment of the goods was made at the
instance of petitioner in its letter of August 29,1980.
However, in a letter dated March 20,1981, private respondents
belatedly informed petitioner of the arrival of its goods from Japan and
that if it wished to take delivery of the cargo it would have to pay
P51,271.02, but with the last paragraph thereof stating as follows:
“Please can you advise within 15 days of receipt of this letter whether
you intend to take delivery of this shipment, as alternatively we will
have to take legal proceedings in order to have the cargo auctioned
to recover the costs involved, as well as free the container which are
(sic) urgently required for export cargoes.”
Clearly, therefore, private respondents unequivocally offered
petitioner the option of paying the shipping and demurrage charges in
order to take delivery of the goods or of abandoning the same so that
private respondents could sell them at public auction and thereafter
apply the proceeds in payment of ‘the’ shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner
seasonably communicated its decision to abandon to the goods in
favor of private respondents with the specific instruction that any
excess of the proceeds over the legal costs and charges be turned
over to petitioner. Receipt of said letter was acknowledged by private
respondents, as revealed by the testimony of Edwin Mabazza, a claim
officer of F.E. Zuellig, Inc., on crossexamination.
Despite petitioner’s exercise of the option to abandon the cargo,
however, private respondents sent a demand letter on June 22, 1981
insisting that petitioner should pay the entire amount of P298,1 50.93
and, in another letter dated April 30, 1981, they stated that they will
not accept the abandonment of the goods and demanded that the
outstanding account be settled. The testimony of said Edwin Mabazza
definitely admits and bears this out.
Now, there is no dispute that private respondents expressly and on
their own volition granted petitioner an option with respect to the
satisfaction of freightage and demurrage charges. Having given such
option, especially since it was accepted by petitioner, private
respondents are estopped from reneging thereon. Petitioner, on its
part, was well within its right to exercise said option. Private
respondents, in giving the option, and petitioner, in exercising that
option, are concluded by their respective actions. To allow either of
them to unilaterally back out on the offer and on the exercise of the
option would be to countenance abuse of rights as an order of the
day, doing violence to the long-entrenched principle of mutuality of
contracts,
It will be remembered that in overland transportation, an
unreasonable delay in the delivery of transported goods is sufficient
ground for the abandonment of goods. By analogy, this can also apply
to maritime transportation. Further, with much more reason can
petitioner in the instant case properly abandon the goods, not only
because of the unreasonable delay in its delivery but because of the
option which was categorically granted to and exercised by it as a
means of settling its liability for the cost and expenses of reshipment.
And, said choice having been duly communicated, the same is binding
upon the parties on legal and equitable considerations of estoppel.
WHEREFORE, the judgment of respondent Court of Appeals is
AFFIRMED with the MODIFICATION that petitioner is likewise
absolved of -any liability and the award of P52,102.45 with legal
interest granted by respondent court on private respondents’
counterclaim is SET ASIDE, said counterclaim being hereby
DISMISSED, without pronouncement as to costs.
SO ORDERED.
Melencio-Herrera (Chairman), Paras and Padilla, JJ., concur.
Sarmiento, J., On leave.
Judgment affirmed with modification.
Note.—The phrase “charter party may be oral” means the terms in the
contract not having been reduced in writing, shall be those embodied
in the bill of lading. (Market Developers Inc. vs. Intermediate Appellate
Court, 177 SCRA 393.)
——oOo——
UCPB GENERAL INSURANCE CO., INC., petitioner, vs.
ABOITIZ SHIPPING CORP., EAGLE EXPRESS LINES, DAMCO
INTERMODAL SERVICES, INC., and PIMENTEL CUSTOMS
BROKERAGE CO., respondents
G.R. No. 168433. February 10, 2009
Mercantile Law; Carriage of Goods by Sea Act; The law clearly requires
that the claim for damage on carriage must be made within 24 hours
from receipt of the merchandise if, as in this case, damage cannot be
ascertained merely from the outside packaging of the cargo. — The
law clearly requires that the claim for damage or average must be
made within 24 hours from receipt of the merchandise if, as in this
case, damage cannot be ascertained merely from the outside
packaging of the cargo.
Same; Same; The requirement to give notice of loss or damage to the
goods is not an empty formalism. — The requirement to give notice
of loss or damage to the goods is not an empty formalism. The
fundamental reason or purpose of such a stipulation is not to relieve
the carrier from just liability, but reasonably to inform it that the
shipment has been damaged and that it is charged with liability
therefor, and to give it an opportunity to examine the nature and
extent of the injury. This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is still
fresh and easily investigated so as to safeguard itself from false and
fraudulent claims.
Same; Same; The 24-hour claim requirement construed as a condition
precedent to the accrual of a right of action against a carrier for loss
of, or damage to, the goods. — We have construed the 24-hour claim
requirement as a condition precedent to the accrual of a right of action
against a carrier for loss of, or damage to, the goods. The shipper or
consignee must allege and prove the fulfillment of the condition.
Otherwise, no right of action against the carrier can accrue in favor of
the former.
Same; Same; Carriage of Goods by Sea Act (COGSA) prescribes a
period of three (3) days within which notice of claims must be given if
the loss or damage is not apparent.—Sec. 3(6) of the COGSA provides
a similar claim mechanism as the Code of Commerce but prescribes a
period of three (3) days within which notice of claim must be given if
the loss or damage is not apparent.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Jose J. Ferrer, Jr. for petitioner.
Del Rosario & Del Rosario for respondent Eagle Express Lines, Inc.
Libra Law for respondent Aboitiz Shipping Corporation.
Arreza & Associates for respondent Pimentel Customs Brokerage Co.
TINGA, J.:
UCPB General Insurance Co., Inc. (UCPB) assails the Decision1 of the
Court of Appeals dated October 29, 2004, which reversed the
Decision2 dated November 29, 1999 of the Regional Trial Court of
Makati City, Branch 146, and its Resolution3 dated June 14, 2005,
which denied UCPB’s motion for reconsideration.
The undisputed facts, culled from the assailed Decision, are as follows:
“On June 18, 1991, three (3) units of waste water treatment plant
with accessories were purchased by San Miguel Corporation (SMC for
brevity) from Super Max Engineering Enterprises, Co., Ltd. of Taipei,
Taiwan. The goods came from Charleston, U.S.A. and arrived at the
port of Manila on board MV “SCANDUTCH STAR.” The same were then
transported to Cebu on board MV “ABOITIZ SUPERCON II.” After its
arrival at the port of Cebu and clearance from the Bureau of Customs,
the goods were delivered to and received by SMC at its plant site on
August 2, 1991. It was then discovered that one electrical motor of
DBS Drive Unit Model DE-30-7 was damaged.
Pursuant to an insurance agreement, plaintiff-appellee paid SMC the
amount of P1,703,381.40 representing the value of the damaged unit.
In turn, SMC executed a Subrogation Form dated March 31, 1992 in
favor of plaintiff-appellee.
Consequently, plaintiff-appellee filed a Complaint on July 21, 1992 as
subrogee of SMC seeking to recover from defendants the amount it
had paid SMC.
On September 20, 1994, plaintiff-appellee moved to admit its
Amended Complaint whereby it impleaded East Asiatic Co. Ltd. (EAST
for brevity) as among the defendants for being the “general agent” of
DAMCO. In its Order dated September 23, 1994, the lower court
admitted the said amended complaint.
Upon plaintiff-appellee’s motion, defendant DAMCO was declared in
default by the lower court in its Order dated January 6, 1995.
In the meantime, on January 25, 1995, defendant EAST filed a Motion
for Preliminary Hearing on its affirmative defenses seeking the
dismissal of the complaint against it on the ground of prescription,
which motion was however denied by the court a quo in its Order
dated September 1, 1995. Such denial was elevated by defendant
EAST to this Court through a Petition for Certiorari on October 30,
1995 in CA G.R. SP No. 38840. Eventually, this Court issued its
Decision dated February 14, 1996 setting aside the lower court’s
assailed order of denial and further ordering the dismissal of the
complaint against defendant EAST. Plaintiff-appellee moved for
reconsideration thereof but the same was denied by this Court in its
Resolution dated November 8, 1996. As per Entry of Judgment, this
Court’s decision ordering the dismissal of the complaint against
defendant EAST became final and executory on December 5, 1996.
Accordingly, the court a quo noted the dismissal of the complaint
against defendant EAST in its Order dated December 5, 1997. Thus,
trial ensued with respect to the remaining defendants.
On November 29, 1999, the lower court rendered its assailed Decision,
the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered declaring DAMCO Intermodal Systems, Inc., Eagle
Express Lines, Inc. and defendant Aboitiz Shipping solidarily liable to
plaintiff-subrogee for the damaged shipment and orders them to pay
plaintiff jointly and severally the sum of P1,703,381.40.
No costs.
SO ORDERED.”
Not convinced, defendants-appellants EAGLE and ABOITIZ now come
to this Court through their respective appeals x x x”
The appellate court, as previously mentioned, reversed the decision of
the trial court and ruled that UCPB’s right of action against
respondents did not accrue because UCPB failed to file a formal notice
of claim within 24 hours from (SMC’s) receipt of the damaged
merchandise as required under Art. 366 of the Code of Commerce.
According to the Court of Appeals, the filing of a claim within the time
limitation in Art. 366 is a condition precedent to the accrual of a right
of action against the carrier for the damages caused to the
merchandise.
In its Memorandum dated February 8, 2007, UCPB asserts that the
claim requirement under Art. 366 of the Code of Commerce does not
apply to this case because the damage to the merchandise had already
been known to the carrier. Interestingly, UCPB makes this revelation:
“x x x damage to the cargo was found upon discharge from the foreign
carrier onto the International Container Terminal Services, Inc.
(ICTSI) in the presence of the carrier’s representative who signed the
Request for Bad Order Survey and the Turn Over of Bad Order
Cargoes. On transshipment, the cargo was already damaged when
loaded on board the inter-island carrier.” This knowledge, UCPB
argues, dispenses with the need to give the carrier a formal notice of
claim. Incidentally, the carrier’s representative mentioned by UCPB as
present at the time the merchandise was unloaded was in fact a
representative of respondent Eagle Express Lines (Eagle Express).
UCPB claims that under the Carriage of Goods by Sea Act (COGSA),
notice of loss need not be given if the condition of the cargo has been
the subject of joint inspection such as, in this case, the inspection in
the presence of the Eagle Express representative at the time the cargo
was opened at the ICTSI.
UCPB further claims that the issue of the applicability of Art. 366 of
the Code of Commerce was never raised before the trial court and
should, therefore, not have been considered by the Court of Appeals.
Eagle Express, in its Memorandum dated February 7, 2007, asserts
that it cannot be held liable for the damage to the merchandise as it
acted merely as a freight forwarder’s agent in the transaction. It
allegedly facilitated the transshipment of the cargo from Manila to
Cebu but represented the interest of the cargo owner, and not the
carrier’s. The only reason why the name of the Eagle Express
representative appeared on the Permit to Deliver Imported Goods was
that the form did not have a space for the freight forwarder’s agent,
but only for the agent of the shipping line. Moreover, UCPB had
previously judicially admitted that upon verification from the Bureau
of Customs, it was East Asiatic Co., Ltd. (East Asiatic), regarding whom
the original complaint was dismissed on the ground of prescription,
which was the real agent of DAMCO Intermodal Services, Inc.
(DAMCO), the ship owner.
Eagle Express argues that the applicability of Art. 366 of the Code of
Commerce was properly raised as an issue before the trial court as it
mentioned this issue as a defense in its Answer to UCPB’s Amended
Complaint. Hence, UCPB’s contention that the question was raised for
the first time on appeal is incorrect.
Aboitiz Shipping Corporation (Aboitiz), on the other hand, points out,
in its Memorandum10 dated March 29, 2007, that it obviously cannot
be held liable for the damage to the cargo which, by UCPB’s admission,
was incurred not during transshipment to Cebu on board one of
Aboitiz’s vessels, but was already existent at the time of unloading in
Manila. Aboitiz also argues that Art. 366 of the Code of Commerce is
applicable and serves as a condition precedent to the accrual of
UCPB’s cause of action against it.
The Memorandum dated June 3, 2008, filed by Pimentel Customs
Brokerage Co. (Pimentel Customs), is also a reiteration of the
applicability of Art. 366 of the Code of Commerce.
It should be stated at the outset that the issue of whether a claim
should have been made by SMC, or UCPB as SMC’s subrogee, within
the 24-hour period prescribed by Art. 366 of the Code of Commerce
was squarely raised before the trial court.
In its Answer to Amended Complaint dated May 10, 1993, Eagle
Express averred, thus:
“The amended complaint states no cause of action under the
provisions of the Code of Commerce and the terms of the bill of lading;
consignee made no claim against herein defendant within twenty-four
(24) hours following the receipt of the alleged cargo regarding the
condition in which said cargo was delivered; however, assuming
arguendo that the damage or loss, if any, could not be ascertained
from the outside part of the shipment, consignee never made any
claim against herein defendant at the time of receipt of said cargo;
herein defendant learned of the alleged claim only upon receipt of the
complaint.”
Likewise, in its Answer dated September 21, 1992, Aboitiz raised the
defense that UCPB did not file a claim with it and that the complaint
states no cause of action.
UCPB obviously made a gross misrepresentation to the Court when it
claimed that the issue regarding the applicability of the Code of
Commerce, particularly the 24-hour formal claim rule, was not raised
as an issue before the trial court. The appellate court, therefore,
correctly looked into the validity of the arguments raised by Eagle
Express, Aboitiz and Pimentel Customs on this point after the trial
court had so ill-advisedly centered its decision merely on the matter
of extraordinary diligence.
Interestingly enough, UCPB itself has revealed that when the shipment
was discharged and opened at the ICTSI in Manila in the presence of
an Eagle Express representative, the cargo had already been found
damaged. In fact, a request for bad order survey was then made and
a turnover survey of bad order cargoes was issued, pursuant to the
procedure in the discharge of bad order cargo. The shipment was then
repacked and transshipped from Manila to Cebu on board MV Aboitiz
Supercon II. When the cargo was finally received by SMC at its
Mandaue City warehouse, it was found in bad order, thereby
confirming the damage already uncovered in Manila.
In charging Aboitiz with liability for the damaged cargo, the trial court
condoned UCPB’s wrongful suit against Aboitiz to whom the damage
could not have been attributable since there was no evidence
presented that the cargo was further damaged during its
transshipment to Cebu. Even by the exercise of extraordinary
diligence, Aboitiz could not have undone the damage to the cargo that
had already been there when the same was shipped on board its
vessel.
That said, it is nonetheless necessary to ascertain whether any of the
remaining parties may still be held liable by UCPB. The provisions of
the Code of Commerce, which apply to overland, river and maritime
transportation, come into play.
Art. 366 of the Code of Commerce states:
“Art. 366. Within twenty-four hours following the receipt of the
merchandise, the claim against the carrier for damage or average
which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which
gives rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the
time of receipt.
After the periods mentioned have elapsed, or the transportation
charges have been paid, no claim shall be admitted against the carrier
with regard to the condition in which the goods transported were
delivered.”
The law clearly requires that the claim for damage or average must
be made within 24 hours from receipt of the merchandise if, as in this
case, damage cannot be ascertained merely from the outside
packaging of the cargo.
In Philippine Charter Insurance Corporation v. Chemoil Lighterage
Corporation, petitioner, as subrogee of Plastic Group Phil., Inc. (PGP),
filed suit against respondent therein for the damage found on a
shipment of chemicals loaded on board respondent’s barge.
Respondent claimed that no timely notice in accordance with Art. 366
of the Code of Commerce was made by petitioner because an
employee of PGP merely made a phone call to respondent’s Vice
President, informing the latter of the contamination of the cargo. The
Court ruled that the notice of claim was not timely made or relayed to
respondent in accordance with Art. 366 of the Code of Commerce.
The requirement to give notice of loss or damage to the goods is not
an empty formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but reasonably
to inform it that the shipment has been damaged and that it is charged
with liability therefor, and to give it an opportunity to examine the
nature and extent of the injury. This protects the carrier by affording
it an opportunity to make an investigation of a claim while the matter
is still fresh and easily investigated so as to safeguard itself from false
and fraudulent claims.
We have construed the 24-hour claim requirement as a condition
precedent to the accrual of a right of action against a carrier for loss
of, or damage to, the goods. The shipper or consignee must allege
and prove the fulfillment of the condition. Otherwise, no right of action
against the carrier can accrue in favor of the former.
The shipment in this case was received by SMC on August 2, 1991.
However, as found by the Court of Appeals, the claims were dated
October 30, 1991, more than three (3) months from receipt of the
shipment and, at that, even after the extent of the loss had already
been determined by SMC’s surveyor. The claim was, therefore, clearly
filed beyond the 24-hour time frame prescribed by Art. 366 of the
Code of Commerce.
But what of the damage already discovered in the presence of Eagle
Express’s representative at the time the shipment was discharged in
Manila? The Request for Bad Order Survey and Turn Over Survey of
Bad Order Cargoes, respectively dated June 17, 1999 and June 28,
1991, evince the fact that the damage to the cargo was already made
known to Eagle Express and, possibly, SMC, as of those dates.
Sec. 3(6) of the COGSA provides a similar claim mechanism as the
Code of Commerce but prescribes a period of three (3) days within
which notice of claim must be given if the loss or damage is not
apparent. It states:
“Sec. 3(6). Unless notice of loss or damage and the general nature
of such loss or damage be given in writing to the carrier or his agent
at the port of discharge or at the time of the removal of the goods
into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the
delivery by the carrier of the goods as descibed in the bill of lading. If
the loss or damage is not apparent, the notice must be given within
three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt of
the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has
at the time of their receipt been the subject of joint survey or
inspection.”
UCPB seizes upon the last paragraph which dispenses with the written
notice if the state of the goods has been the subject of a joint survey
which, in this case, was the opening of the shipment in the presence
of an Eagle Express representative. It should be noted at this point
that the applicability of the above-quoted provision of the COGSA was
not raised as an issue by UCPB before the trial court and was only
cited by UCPB in its Memorandum in this case. UCPB, however, is
ambivalent as to which party Eagle Express represented in the
transaction. By its own manifestation, East Asiatic, and not Eagle
Express, acted as the agent through which summons and court notices
may be served on DAMCO. It would be unjust to hold that Eagle
Express’s knowledge of the damage to the cargo is such that it served
to preclude or dispense with the 24-hour notice to the carrier required
by Art. 366 of the Code of Commerce. Neither did the inspection of
the cargo in which Eagle Express’s representative had participated
lead to the waiver of the written notice under the Sec. 3(6) of the
COGSA. Eagle Express, after all, had acted as the agent of the freight
consolidator, not that of the carrier to whom the notice should have
been made.
At any rate, the notion that the request for bad order survey and turn
over survey of bad cargoes signed by Eagle Express’s representative
is construable as compliant with the notice requirement under Art. 366
of the Code of Commerce was foreclosed by the dismissal of the
complaint against DAMCO’s representative, East Asiatic.
As regards respondent Pimentel Customs, it is sufficient to
acknowledge that it had no participation in the physical handling,
loading and delivery of the damaged cargo and should, therefore, be
absolved of liability.
Finally, UCPB’s misrepresentation that the applicability of the Code of
Commerce was not raised as an issue before the trial court warrants
the assessment of double costs of suit against it.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 68168, dated October 29, 2004 and its
Resolution dated June 14, 2005 are AFFIRMED. Double costs against
petitioner.
SO ORDERED.
Quisumbing (Chairperson), Carpio-Morales, Velasco, Jr. and Brion, JJ.,
concur. UCPB General Insurance Co. Inc. vs. Aboitiz Shipping Corp.,
578 SCRA 251, G.R. No. 168433 February 10, 2009
——oOo——
 PHILIPPINE AIRLINES, INC., petitioner, vs. THE COURT OF
APPEALS and CHUA MIN, respondents
G.R. No. 44936. September 25, 1992
Civil Procedure; Parties; Private respondent has personality to seek
redress for loss of films regardless of its ownership. — Before
discussing the intrinsic worth of petitioner’s discourse, We shall
address the issue of private respondent’s personality to seek redress
for the loss of the films. We believe, and so hold, that Chua Min is no
stranger to the cause of action instituted at the court of origin in spite
of the message conveyed by him when he sat on the witness stand
which seems to lead to the opposite conclusion xxx since what is
important, per his narration, is that he assumes the loss while these
films are in his custody and that he is accountable either to Loong Kee
Pen Company or to the De Mil Theatrical Corporation should he fail to
produce the films upon demand. On the hypothetical scenario, had
the judgment of the trial court been adverse, in the sense that the
complaint was ordered dismissed, the pecuniary burden for the loss
will certainly fall on private respondent’s shoulders, which obligation,
it is needless to stress, will constitute a material and substantial injury
to him.
Transportation Laws; Common Carriers; Liability for loss of baggage;
Warsaw Convention. — Now, as to whether petitioner may utilize the
provision under Article 22(2) of the Warsaw Convention which limits
the liability of a common carrier for loss of baggage, We have to
consider other salient features thereof such as Article 4, paragraph 1
that reads: “For the transportation of baggage, other than small
personal objects of which the passenger takes charge himself, the
carrier must deliver a baggage check.” and the explicit wordings of
Article 4, paragraph 4 of the same Convention that: “The absence,
irregularity, or loss of the baggage checks shall not affect the
existence or the validity of the contract of transportation which shall
nonetheless be subject to the rules of this Convention. Nevertheless,
if the carrier accepts baggage without a baggage check having been
delivered, or if the baggage check does not contain the particulars set
out at (d), (f), and (h) above, the carrier shall not be entitled to avail
himself of those provisions of the Convention which exclude or limit
his liability.” because these axioms will spell the difference between
success and failure of the petition at bar. It may be recalled that
petitioner made a categorical distinction between a passenger ticket
and a baggage check when petitioner responded to the complaint for
a sum of money (paragraphs 7 and 8, Answer; pp. 6-8, Record on
Appeal; p. 2, supra). In its motion for reconsideration before the court
a quo, petitioner had a sudden change of heart by asserting that the
passenger ticket and the baggage check are one and the same thing
(p. 81, Record on appeal). On a later occasion, it stressed that the
‘baggage tags’ were erroneously labeled as ‘baggage checks’ under
paragraph 7 of its Answer to the Complaint (p. 3, Reply Brief for the
Petitioner; p. 97, Rollo). But the question of semantics on whether the
passenger ticket, the baggage check, and the tag refer to the same
object is undoubtedly without legal significance and will not obliterate
the fact that the baggage check was not presented by petitioner in
the trial court inasmuch as it merely relied on, and adopted private
respondent’s exhibits, none of which was offered for the purpose of
proving the missing link, so to speak (pp. 57-58, Record on Appeal).
To rectify these lapses, petitioner argued that it is not in a position to
introduce the baggage check in evidence since private respondent as
passenger, is the one who retains possession thereof. Yet, such
pretense does not sit well with what is expected of petitioner as an air
carrier under Article 4(2), Section II of the Warsaw Convention that:
“The baggage check shall be made out in duplicate, one part for the
passenger and the other part of the carrier.” Consequently, petitioner
can not capitalize on the limited liability clause under Article 22 (2) of
the Warsaw Convention because of the unequivocal condition set forth
under the second sentence of Article 4, paragraph 4 that: “. . . if the
carrier accepts baggage without a baggage check having been
delivered, or if the baggage check does not contain the particulars set
out at (d), (f), and (h) above, the carrier shall not be entitled to avail
himself of those provisions of the Convention which exclude or limit
his liability.”
PETITION for review on certiorari of the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
 Siguion Reyna, Montecillo and Ongsiako for petitioner.
Plaridel C. Jose for private respondent.
MELO, J.:
On December 10, 1974, the Honorable Francisco de la Rosa, at that
time Presiding Judge of Branch 7 of the then Court of in Pasay City,
adjudged the accountability of herein petitioner as defendant in a suit
for a sum of money in this manner:
“WHEREFORE, judgment is hereby rendered in favor of Plaintiff:
(a) Ordering Defendant to pay Plaintiff the amount in Philippine Pesos
equivalent to U.S. $4,000.00 at the rate of exchange obtaining in
March, 1972, with legal interest from the filing of this suit until fully
paid;
(b) Ordering Defendant to pay the costs; and
(c) Dismissing Defendants’ Compulsory Counterclaim.” (p. 70, Record
on Appeal)
The foregoing conclusion was formulated by the court of origin on the
basis of the following facts:
On April 4, 1972, private respondent boarded herein petitioner’s Flight
PR 301 from Hongkong to Manila and checked in four (4) pieces of
baggage. When the plane landed in Manila, private respondent was
not able to locate the two pieces of baggage containing
cinematographic films despite diligent search therefor. Private
respondent made the claim for such loss to petitioner which admitted
the loss and offered to compensate private respondent (Annex “3”,
Answer; page 17, Record on Appeal; page 64, Rollo).
Instead of accepting the offer, private respondent opted to file the
case below to principally recover the value of the lost items which he
estimated to be worth P20,000.00 (paragraph 7, Complaint; page 3,
Record on Appeal). Herein petitioner responded by asserting that:
“(4) Plaintiff has no cause of action against defendant.
(5) On 4 April 1972, plaintiff was a passenger, economy class on
defendant’s Flight No. PR 301/4 April 1972, from Hongkong to Manila,
under Passenger Ticket No. 2974-231418. As such passenger, plaintiff
checked-in four (4) pieces of baggage, with a total weight of only
twenty (20) kilos, inclusive of their contents, such that it would be
physically impossible for the two alleged lost pieces, to have in
themselves an aggregate weight of twenty-five (25) kilos.
(6) As such passenger the contractual relationship between plaintiff
and defendant is wholly governed by the terms, conditions and
stipulations which are clearly printed on plaintiff’s Passenger Ticket
No. 2974-231418. Among the stipulations embodied in said ticket is a
provision granting plaintiff a free baggage allowance of twenty (20)
kilos. A copy of this provision, as embodied in plaintiff’s ticket is
attached hereto as Annex “1” and made part hereof.
(7) In accordance with and in pursuant of this free baggage allowance
(Annex “1”) plaintiff checked-in his four (4) pieces of baggage on
Flight No. PR301/4 April 1972, for which he was issued corresponding
baggage-checks, among them, baggage checks Nos. PR 24-89-61 and
PR 24-89-76, covering plaintiff’s two alleged lost pieces of baggage.
(8) Under Passenger Ticket No. 2974-231-418, which is the contract
of carriage between plaintiff and defendant, it is an express condition
of the contract that the same shall be ‘subject to the rules and
limitations relating to liability established by the Warsaw Convention.’
A xerox copy of page 2 of plaintiff’s Passenger Ticket No. 2974-231418
which contains the aforesaid condition is hereto attached as Annex “2”
and made part hereof.
(9) Under applicable rules and regulations of the Warsaw Convention
on International Carriage by Air (as amended by The Hague Protocol
of 1955), which is the convention referred to in Annex “2” hereof,
defendant’s liability for plaintiff’s two (2) alleged lost pieces of
baggage is limited to a maximum of US$16.50 per kilogram.
(10) The total weight of plaintiff’s four (4) pieces of checked-in
baggage, inclusive of their contents, was only twenty (20) kilograms,
such that each baggage would have an average weight of five (5)
kilograms, and the two alleged lost pieces, an average total weight of
only ten (10) kilograms. Accordingly, defendant’s maximum liability to
plaintiff is US$165.00, or its equivalent in Philippine currency.” (pp. 6-
8, Record on Appeal)
After issues were joined, then plaintiff, now private respondent Chua
Min testified and presented four documents (p. 57, Record on Appeal)
while petitioner did not call any witness and merely adopted three
exhibits of herein private respondent (p. 58, Record on Appeal).
Petitioner attempted to challenge private respondent’s personality to
file the suit on the ground that the film rolls belonged to the Hongkong
firm of “Loong Kee Pen Co., Film Exchange Dept.”, apart from the
vacillating testimony spewed by Chua Min on the witness stand which
supposedly suggests that he has no right to seek restitution for the
lost films, including the damages resulting therefrom. On the merits
of private respondent’s plea for relief, petitioner tried to call the
attention of the trial judge to the herein below quoted provisions of
the Warsaw Convention which limit the liability of petitioner as an air
carrier to 250 francs per kilogram, thus:
“Article 3 (1). For the transportation of passengers, the carrier must
deliver a passenger ticket which shall contain the following particulars:
(a) x x x
(b) x x x
(c) x x x
(d) x x x
(e) A statement that the transportation is subject to the rules relating
to liability established by this convention.”
“Article 22 (2). In the transportation of checked baggage and of
goods, the liability of the carrier shall be limited to a sum of 250 francs
per kilogram, unless the consignor has made, at the time when the
package was handed over to the carrier, a special declaration of the
value at delivery and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is greater
than the actual value to the consignor at delivery.”
In resolving the issue of private respondent’s legal standing to sue,
the trial court expressed the view that he can be considered as if he
were the owner on account of his responsibility for any eventuality
that may occur to the film rolls. Verily, private respondent was
considered to be a consignee of the lost goods since he accompanied
the films aboard petitioner’s plane who is presumed to have accepted
the contract of carriage between the consignor and petitioner when
he later demanded the delivery to him of the movie films (p. 63,
Record on Appeal).
Anent the aspect of liability, the trial court opined that since petitioner
did not introduce a single piece of document and merely adopted
private respondent’s exhibits, it may not invoke the limitation of its
liability with respect to ‘checked baggage’ under the provisions of the
Warsaw Convention. The apathy of petitioner seems to have extended
its impact on the outcome of the case when the trial court ruled that
the films were worth $4,000.00 based on private respondent’s Exhibit
“A” which, as aforesaid, was nonchalantly adopted by petitioner as its
Exhibit “1” (p. 69, Record on Appeal). Realizing the vacuum insofar as
the evidence is concerned,
petitioner tried to fill the hiatus by starting with the proposition in its
motion for reconsideration that the ticket under which private
respondent was a passenger on petitioner’s plane was a passenger
ticket and baggage check at the same time. This tactic was resorted
to in order to establish the conclusion that petitioner could not have
produced the same since the ticket is usually retained by the
passenger. Petitioner continued to asseverate that Article 4 paragraph
4 of the Warsaw Convention which reads:
“(4) The absence, irregularity, or loss of the baggage checks shall not
affect the existence or the validity of the contract of transportation
which shall nonetheless be subject to the rules of this convention.
Nevertheless, if the carrier accepts baggage without a baggage check
having been delivered, or if the baggage check does not contain the
particulars set out at (d), (f), and (h) above, the carrier shall not be
entitled to avail himself of those provisions of the convention which
exclude or limit his liability.” (p. 66, Record on Appeal; p. 23, Motion
for Reconsideration, p. 65, Rollo)
upon which provision the trial court allegedly relied in rejecting
petitioner’s contention, is in fact applicable judging from what is
explicitly stated under the first sentence of the proviso. These ideas,
however, did not persuade the trial judge to reconsider his findings of
accountability on the part of petitioner (p. 111, Record on Appeal).
The appeal interposed therefrom to the Court of Appeals was likewise
rebuffed on September 17, 1976 by the Fifth Division (Fernandez
(ponente), Serrano, Batacan, JJ.) which sustained the observations
and dispositions reached by the trial court on the same grounds,
except that the sum of $4,000.00 was directed to be paid by petitioner
in Philippine Currency, at the exchange rate obtaining on the date the
amount is actually paid to herein private respondent (pp. 43-44,
Rollo). Petitioner’s subsequent recourse to secure re-evaluation of the
judgment did not merit the nod of approval of the respondent Court
of Appeals (p. 56, Rollo).
Thereupon, petitioner elevated to Us the matter of its liability under
the contract of carriage via the instant petition for
I understand then that those films which were supposedly lost were not
WHETHER OR NOT PETITIONER CAN AVAIL OF THE LIMITATIONS
ON LIABILITY UNDER THE WARSAW CONVENTION.
II
WHETHER OR NOT RESPONDENT IS THE REAL PARTY-IN-INTEREST
TO ASSERT THE CLAIM FOR COMPENSATION IN THIS CASE.”
Before discussing the intrinsic worth of petitioner’s discourse, We shall
address the issue of private respondent’s personality to seek redress
for the loss of the films. We believe, and so hold, that Chua Min is no
stranger to the cause of action instituted at the court of origin in spite
of the message conveyed by him when he sat on the witness stand
which seems to lead to the opposite conclusion thus:
“ATTY. LAURETA:
Q: Mr. Chua Min, may I invite your attention to Exhibit A, particularly
the entry which reads: ‘To De Mil Theatrical Corporation.’ This is the
corporation which bought supp osedly the motion picture films listed
in this invoice?
WITNESS:
A: It was not bought by the company, sir. It was only ent rusted by
Loong Kee Pen to be distributed here in the Philippines.
ATTY. LAURETA:
Q: So that the films listed here (Exhibit ‘A’ for plaintiff) is owned by
Loong Kee Pen Company of Hongkong?
WITNESS:
A: Yes sir, and it was only entrusted to De Mil Theatrical Corporation.
Q: This De Mil Theatrical Corporation, is this an existing corporation?
A: Yes, sir.
Q: Now, these films listed herein which numbers 5 in all are still owned
by the supplier, Loong Kee Pen Company of Hongkong. Do I
paid for by De Mil Theatrical Corporation?
A: It was not paid, sir. It was authorized to be the distributor but we
take responsibility of all losses, of everything.
Q: Now, when your made reference to ‘we’, you refer actually to the
De Mil Theatrical Corporation?
A: Yes, sir.
Q: Do I understand, therefore, that you, De Mil Theatrical Corporation,
has already paid for the films in cartoons No. 3, 4 and 5, as specified
in the invoice?
A: It’s not yet paid, sir. (pp. 73-75, Record on Appeal)
since what is important, per his narration, is that he assumes the loss
while these films are in his custody and that he is accountable either
to Loong Kee Pen Company or to the De Mil Theatrical Corporation
should he fail to produce the films upon demand. On the hypothetical
scenario, had the judgment of the trial court been adverse, in the
sense that the complaint was ordered dismissed, the pecuniary burden
for the loss will certainly fall on private respondent’s shoulders, which
obligation, it is needless to stress, will constitute a material and
substantial injury to him. Withal, another pivotal factor to consider is
the letter from petitioner on August 28, 1972 addressed to herein
private respondent that says:
“We are in receipt of your claim for loss of baggage in connection with
your travel to Manila from Hongkong on our flight. We sincerely regret
that this loss occurred and that despite a careful search we have been
unsuccessful in recovering your property. We feel we should settle
your claim without further delay.
We wish we could compensate you for the total amount of your loss.
However, existing rules and regulations established pursuant to the
Warsaw Convention on International Carriage by Air (as amended by
the Hague Protocol) limit our liability for losses of this nature to the
sum of US$16.50 for every kilogram of checked-in baggage. The
weight of your 4 pieces of baggage inclusive of its contents as stated
in the Property Irregularity Report (PIR) and your ticket shows a total
weight of 20 kilos. Based thereon, the average weight of 2 pieces of
your lost baggage would come out to 10 kilos. Therefore, our
maximum liability for the 2 pieces should be for a total amount of
US$165.00 (10 kilos x US$16.50).
Upon receipt of your advise, we shall have payment remitted in your
favor.” (pp. 17-18, Record on Appeal) which seems to be at least a
failure to object to, if not an admission of the personality of private
respondent to initiate the suit below. The assurance made by
petitioner that it will compensate private respondent’s loss is a
sufficient admission that indeed, private respondent has the right to
avail himself of the suit for the sum of money.
It follows, therefore, that whatever testimony may have been
extracted through cross-examination from Chua Min, is of no legal
bearing to what was expressly conceded previously by petitioner.
Otherwise, We will in effect take the cudgels for petitioner and in the
process, permit it to extricate itself from the fatal aftermath of an
admission as a tenet under substantive law. Of course, the plea of
avoidance raised by petitioner along this line is akin to lack of cause
of action which may be utilized even for the first time on appeal
(Section 1(q), Rule 16; Section 2, Rule 9, Revised Rules of Court), but
the adjective norm permitting such a belated defense under Section
2, Rule 9 of the Revised Rules of Court does not totally rule out the
application of other legal doctrines under substantive law, like
estoppel, to the elastic undertones of petitioner.
Now, as to whether petitioner may utilize the provision under Article
22(2) of the Warsaw Convention which limits the liability of a common
carrier for loss of baggage, We have to consider other salient features
thereof such as Article 4, paragraph 1 that reads:
“For the transportation of baggage, other than small personal objects
of which the passenger takes charge himself, the carrier must deliver
a baggage check.”
and the explicit wordings of Article 4, paragraph 4 of the same
Convention that:
“The absence, irregularity, or loss of the baggage checks shall not
affect the existence or the validity of the contract of transportation
which shall nonetheless be subject to the rules of this Convention.
Nevertheless, if the carrier accepts baggage without a baggage check
having been delivered, or if the baggage check does not contain the
particulars set out at (d), (f), and (h) above, the carrier shall not be
entitled to avail himself of those provisions of the Convention which
exclude or limit his liability.” because these axioms will spell the
difference between successand failure of the petition at bar.
It may be recalled that petitioner made a categorical distinction
between a passenger ticket and a baggage check when petitioner
responded to the complaint for a sum of money (paragraphs 7 and 8,
Answer; pp. 6-8, Record on Appeal; p. 2, supra). In its motion for
reconsideration before the court a quo, petitioner had a sudden
change of heart by asserting that the passenger ticket and the
baggage check are one and the same thing (p. 81, Record on appeal).
On a later occasion, it stressed that the ‘baggage tags’ were
erroneously labeled as ‘baggage checks’ under paragraph 7 of its
Answer to the Complaint (p. 3, Reply Brief for the Petitioner; p. 97,
Rollo). But the question of semantics on whether the passenger ticket,
the baggage check, and the tag refer to the same object is
undoubtedly without legal significance and will not obliterate the fact
that the baggage check was not presented by petitioner in the trial
court inasmuch as it merely relied on, and adopted private
respondent’s exhibits, none of which was offered for the purpose of
proving the missing link, so to speak (pp. 57-58, Record on Appeal).
To rectify these lapses, petitioner argued that it is not in a position to
introduce the baggage check in evidence since private respondent as
passenger, is the one who retains possession thereof. Yet, such
pretense does not sit well with what is expected of petitioner as an air
carrier under Article 4(2), Section II of the Warsaw Convention that:
“The baggage check shall be made out in duplicate, one part for the
passenger and the other part for the carrier.”
Consequently, petitioner can not capitalize on the limited liability
clause under Article 22 (2) of the Warsaw Convention because of the
unequivocal condition set forth under the second sentence of Article
4, paragraph 4 that:
“. . . if the carrier accepts baggage without a baggage check having
been delivered, or if the baggage check does not contain the
particulars set out at (d), (f), and (h) above, the carrier shall not be
entitled to avail himself of those provisions of the Convention which
exclude or limit his liability.”
Petitioner contends that it is covered by the first and not by the second
sentence of Article 4, paragraph 4 (page 8, supra). But the argument
as proferred, requires Us to read something which is not so stated
between the lines for the first sentence speaks only of the “existence”
or the “validity” of the contract of transportation while the query on
“liability” is particularly and directly resolved by the second sentence.
To be sure, and even assuming in gratia argumenti that an
inconsistency exists, the first sentence must be construed as the
general proposition governing the existence or validity of the contract
of transportation which must yield to the particular rule under the
second sentence regarding liability. Furthermore, even if We consider
the two sentences as particular in nature, the rule has been laid down
that the clause which comes later shall be given effect upon the
presumption that it expresses the dominant purpose of the instrument
(Graham Paper Co. vs. National Newspapers Asso. (Mo. App.) 193
S.W. 1003; Barnett vs. Merchants’ L. Ins. Co., 87 Okl. 42).
WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit.
SO ORDERED.
Bidin, Davide, Jr., and Romero, JJ., concur.
Gutierrez, Jr., J., (Chairman), On leave.
Petition dismissed.
Note. — The Warsaw Convention does not operate as an absolute limit
of the extent of an airline’s liability; it does not regulate or exclude
liability for other breaches of contract by the carrier, or misconduct of
its employees, or for some particular or exceptional type of damage
(Alitalia vs. Intermediate Appellate Court, 192 SCRA 9).
——o0o——
LORENZO SHIPPING CORP., petitioner, vs. CHUBB and
SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE
CARRIERS, INC., respondents
G.R. No. 147724. June 8, 2004
Civil Law; Contracts; Subrogation; Subrogation contemplates full
substitution such that it places the party subrogated in the shoes of
the creditor, and he may use all means which the creditor could
employ to enforce payment. — Subrogation is the substitution of one
person in the place of another with reference to a lawful claim or right,
so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. The
principle covers the situation under which an insurer that has paid a
loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may
use all means which the creditor could employ to enforce payment.
Same; Same; Same; A subrogee cannot succeed to a right not
possessed by the subrogor. — The rights to which the subrogee
succeeds are the same as, but not greater than, those of the person
for whom he is substituted—he cannot acquire any claim, security, or
remedy the subrogor did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A subrogee in effect
steps into the shoes of the insured and can recover only if insured
likewise could have recovered.
Same; Same; Same; Remedial Law; Actions; Capacity to sue is a right
personal to its holder; It is conferred by law and not by the parties. —
In the instant case, the rights inherited by the insurer, respondent
Chubb and Sons, pertain only to the payment it made to the insured
Sumitomo as stipulated in the insurance contract between them, and
which amount it now seeks to recover from petitioner Lorenzo
Shipping which caused the loss sustained by the insured Sumitomo.
The capacity to sue of respondent Chubb and Sons could not
perchance belong to the group of rights, remedies or securities
pertaining to the payment respondent insurer made for the loss which
was sustained by the insured Sumitomo and covered by the contract
of insurance. Capacity to sue is a right personal to its holder. It is
conferred by law and not by the parties. Lack of legal capacity to sue
means that the plaintiff is not in the exercise of his civil rights, or does
not have the necessary qualification to appear in the case, or does not
have the character or representation he claims. It refers to a plaintiff’s
general disability to sue, such as on account of minority, insanity,
incompetence, lack of juridical personality, or any other
disqualifications of a party. Respondent Chubb and Sons who was
plaintiff in the trial court does not possess any of these disabilities.
Same; Same; Same; Same; Same; Party-in-Interest; Where an
insurance company as subrogee pays the insured of the entire loss it
suffered, insurer-subrogee is the only real party in interest and must
sue in its own name to enforce its right of subrogation against the
third party which caused the loss.—Rule 3, Section 2 of the 1997 Rules
of Civil Procedure defines a real party in interest as one who is entitled
to the avails of any judgment rendered in a suit, or who stands to be
benefited or injured by it. Where an insurance company as subrogee
pays the insured of the entire loss it suffered, the insurer-subrogee is
the only real party in interest and must sue in its own name to enforce
its right of subrogation against the third party which caused the loss.
This is because the insurer in such case having fully compensated its
insured, which payment covers the loss in full, is subrogated to the
insured’s claims arising from such loss. The subrogated insurer
becomes the owner of the claim and, thus entitled to the entire fruits
of the action. It then, thus possesses the right to enforce the claim
and the significant interest in the litigation. In the case at bar, it is
clear that respondent insurer was suing on its own behalf in order to
enforce its right of subrogation.
Corporation Law; Remedial Law; Capacity to Sue; Foreign
corporations which are doing business in the Philippines without a
license deprive from bringing or maintaining actions before or
intervening in Philippine courts; A foreign corporation needs no license
to sue before Philippine courts on an isolated transaction.—The law
on corporations is clear in depriving foreign corporations which are
doing business in the Philippines without a license from bringing or
maintaining actions before, or intervening in Philippine courts. The law
does not prohibit foreign corporations from performing single acts of
business. A foreign corporation needs no license to sue before
Philippine courts on an isolated transaction.
Same; Same; Same; Court has not construed the term “isolated
transaction” to literally mean “one” or a mere single act. — We reject
the claim of petitioner Lorenzo Shipping that respondent Chubb and
Sons is not suing under an isolated transaction because the steel
pipes, subject of this case, are covered by two (2) bills of lading;
hence, two transactions. The stubborn fact remains that these two (2)
bills of lading spawned from the single marine insurance policy that
respondent Chubb and Sons issued in favor of the consignee
Sumitomo, covering the damaged steel pipes. The execution of the
policy is a single act, an isolated transaction. This Court has not
construed the term “isolated transaction” to literally mean “one” or a
mere single act.
Same; Same; Same; Transactions which are occasional, incidental and
casual—not of a character to indicate a purpose to engage in
business—do not constitute the doing or engaging in business as
contemplated by law. — In the case of Gonzales vs. Raquiza, et al.,
three contracts, hence three transactions were challenged as void on
the ground that the three American corporations which are parties to
the contracts are not licensed to do business in the Philippines. This
Court held that “one single or isolated business transaction does not
constitute doing business within the meaning of the law. Transactions
which are occasional, incidental, and casual—not of a character to
indicate a purpose to engage in business—do not constitute the doing
or engaging in business as contemplated by law. Where the three
transactions indicate no intent by the foreign corporation to engage in
a continuity of transactions, they do not constitute doing business in
the Philippines.”
Commercial Law; Carriage of Goods by Sea Act; Bill of Lading; A bill
of lading, aside from being a contract and a receipt, is also a symbol
of the goods covered by it; A bill of lading which has no notation of
any defect or damages in the goods is called a “clean bill of lading”;
It constitutes prima facie evidence of the receipt by the carrier of the
goods as therein described.—The steel pipes, subject of this case,
were in good condition when they were loaded at the port of origin
(Manila) on board petitioner Lorenzo Shipping’s M/V Lorcon IV en
route to Davao City. Petitioner Lorenzo Shipping issued clean bills of
lading covering the subject shipment. A bill of lading, aside from being
a contract and a receipt, is also a symbol of the goods covered by it.
A bill of lading which has no notation of any defect or damage in the
goods is called a “clean bill of lading.” A clean bill of lading constitutes
prima facie evidence of the receipt by the carrier of the goods as
therein described.
Same; Same; Same; Mere proof of delivery of goods in good order to
a carrier and the subsequent arrival in damaged condition at the place
of destination raises a prima facie case against the carrier. — The case
law teaches us that mere proof of delivery of goods in good order to
a carrier and the subsequent arrival in damaged condition at the place
of destination raises a prima facie case against the carrier. In the case
at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel
pipes in good order and condition, evidenced by the clean bills of
lading it issued. When the cargo was unloaded from petitioner Lorenzo
Shipping’s vessel at the Sasa Wharf in Davao City, the steel pipes were
rusted all over.
Same; Same; Same; The twenty-four-hour period prescribed by Art.
366 of the Code of Commerce within which claims must be presented
does not begin to run until the consignee has received such possession
of the merchandise that he may exercise over it the ordinary control
pertinent to ownership.—The twenty-four-hour period prescribed by
Art. 366 of the Code of Commerce within which claims must be
presented does not begin to run until the consignee has received such
possession of the merchandise that he may exercise over it the
ordinary control pertinent to ownership. In other words, there must
be delivery of the cargo by the carrier to the consignee at the place of
destination. In the case at bar, consignee Sumitomo has not received
possession of the cargo, and has not physically inspected the same at
the time the shipment was discharged from M/V Lorcon IV in Davao
City.
PETITION for review on certiorari of the decision and resolution of the
Courts of Appeals.
The facts are stated in the opinion of the Court.
Roberto A. Abad for petitioner.
Castillo, Laman, Tan, Pantaleon and San Jose for respondent
Chubbs & Sons, Inc.
PUNO, J.:
On appeal is the Court of Appeals’ August 14, 2000 Decision in CA-
G.R. CV No. 61334 and March 28, 2001 Resolution affirming the March
19, 1998 Decision of the Regional Trial Court of Manila which found
petitioner liable to pay respondent Chubb and Sons, Inc. attorney’s
fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short),
a domestic corporation engaged in coastwise shipping, was the carrier
of 581 bundles of black steel pipes, the subject shipment, from Manila
to Davao City. From Davao City, respondent Gearbulk, Ltd., a foreign
corporation licensed as a common carrier under the laws of Norway
and doing business in the Philippines through its agent, respondent
Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short),
a domestic corporation, carried the goods on board its vessel M/V San
Mateo Victory to the United States, for the account of Sumitomo
Corporation. The latter, the consignee, is a foreign corporation
organized under the laws of the United States of America. It insured
the shipment with respondent Chubb and Sons, Inc., a foreign
corporation organized and licensed to engage in insurance business
under the laws of the United States of America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo,
Manila, loaded 581 bundles of ERW black steel pipes worth
US$137,912.84 on board the vessel M/V Lorcon IV, owned by
petitioner Lorenzo Shipping, for shipment to Davao City. Petitioner
Lorenzo Shipping issued a clean bill of lading designated as Bill of
Lading No. T-35 for the account of the consignee, Sumitomo
Corporation of San Francisco, California, USA, which in turn, insured
the goods with respondent Chubb and Sons, Inc.
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on
December 2, 1987. Respondent Transmarine Carriers received the
subject shipment which was discharged on December 4, 1987,
evidenced by Delivery Cargo Receipt No. 115090. It discovered
seawater in the hatch of M/V Lorcon IV, and found the steel pipes
submerged in it. The consignee Sumitomo then hired the services of
R.J. Del Pan Surveyors to inspect the shipment prior to and
subsequent to discharge. Del Pan’s Survey Report dated December 4,
1987 showed that the subject shipment was no longer in good
condition, as in fact, the pipes were found with rust formation on top
and/or at the sides. Moreover, the surveyor noted that the cargo hold
of the M/V Lorcon IV was flooded with seawater, and the tank top was
“rusty, thinning, and with several holes at different places.” The rusty
condition of the cargo was noted on the mate’s receipts and the
checker of M/V Lorcon IV signed his conforme thereon.
After the survey, respondent Gearbulk loaded the shipment on board
its vessel M/V San Mateo Victory, for carriage to the United States. It
issued Bills of Lading Nos. DAV/OAK 1 to 7, covering 364 bundles of
steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading
Nos. DAV/SEA 1 to 6, covering 217 bundles of steel pipes to be
discharged at Vancouver, Washington, U.S.A. All bills of lading were
marked “ALL UNITS HEAVILY RUSTED.”
While the cargo was in transit from Davao City to the U.S.A., consignee
Sumitomo sent a letter of intent dated December 7, 1987, to petitioner
Lorenzo Shipping, which the latter received on December 9, 1987.
Sumitomo informed petitioner Lorenzo Shipping that it will be filing a
claim based on the damaged cargo once such damage had been
ascertained. The letter reads:
Please be advised that the merchandise herein below noted has been
landed in bad order ex-Manila voyage No. 87-19 under B/L No. T-3
which arrived at the port of Davao City on December 2, 1987.
The extent of the loss and/or damage has not yet been determined
but apparently all bundles are corroded. We reserve the right to claim
as soon as the amount of claim is determined and the necessary
supporting documents are available.
Please find herewith a copy of the survey report which we had
arranged for after unloading of our cargo from your vessel in Davao.
We trust that you shall make everything in order.
On January 17, 1988, M/V San Mateo Victory arrived at Oakland,
California, U.S.A., where it unloaded 364 bundles of the subject steel
pipes. It then sailed to Vancouver, Washington on January 23, 1988
where it unloaded the remaining 217 bundles. Toplis and Harding, Inc.
of San Franciso, California, surveyed the steel pipes, and also
discovered the latter heavily rusted. When the steel pipes were tested
with a silver nitrate solution, Toplis and Harding found that they had
come in contact with salt water. The survey report, dated January 28,
1988 states:
xxx
We entered the hold for a close examination of the pipe, which
revealed moderate to heavy amounts of patchy and streaked dark
red/orange rust on all lifts which were visible. Samples of the shipment
were tested with a solution of silver nitrate revealing both positive and
occasional negative chloride reactions, indicating pipe had come in
contact with salt water. In addition, all tension applied metal straps
were very heavily rusted, and also exhibited chloride reactions on
testing with silver nitrate.
xxx
It should be noted that subject bills of lading bore the following
remarks as to conditions of goods: “ALL UNITS HEAVILY RUSTED.”
Attached herein is a copy of a survey report issued by Del Pan
Surveyors of Davao City, Philippines dated, December 4, 1987 at
Davao City, Philippines, which describes conditions of the cargo as
sighted aboard the vessel “LORCON IV,” prior to and subsequent to
discharge at Davao City. Evidently, the aforementioned rust damages
were apparently sustained while the shipment was in the custody of
the vessel “LORCON IV,” prior to being laden on board the vessel “SAN
MATEO VICTORY” in Davao.
Due to its heavily rusted condition, the consignee Sumitomo rejected
the damaged steel pipes and declared them unfit for the purpose they
were intended. It then filed a marine insurance claim with respondent
Chubb and Sons, Inc. which the latter settled in the amount of
US$104,151.00.
On December 2, 1988, respondent Chubb and Sons, Inc. filed a
complaint16 for collection of a sum of money, docketed as Civil Case
No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and
Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not
doing business in the Philippines, and that it is suing under an isolated
transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed
their answer17 with counterclaim and cross-claim against petitioner
Lorenzo Shipping denying liability on the following grounds: (a)
respondent Chubb and Sons, Inc. has no capacity to sue before
Philippine courts; (b) the action should be dismissed on the ground of
forum non conveniens; (c) damage to the steel pipes was due to the
inherent nature of the goods or to the insufficiency of packing thereof;
(d) damage to the steel pipes was not due to their fault or negligence;
and, (e) the law of the country of destination, U.S.A., governs the
contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on
February 28, 1989, and amended it on May 24, 1989. It denied
liability, alleging, among others: (a) that rust easily forms on steel by
mere exposure to air, moisture and other marine elements; (b) that it
made a disclaimer in the bill of lading; (c) that the goods were
improperly packed; and, (d) prescription, laches, and extinguishment
of obligations and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and
Sons, Inc., finding that: (1) respondent Chubb and Sons, Inc. has the
right to institute this action; and, (2) petitioner Lorenzo Shipping was
negligent in the performance of its obligations as a carrier. The
dispositive portion of its Decision states:
“WHEREFORE, the judgment is hereby rendered ordering Defendant
Lorenzo Shipping Corporation to pay the plaintiff the sum of
US$104,151.00 or its equivalent in Philippine peso at the current rate
of exchange with interest thereon at the legal rate from the date of
the institution of this case until fully paid, the attorney’s fees in the
sum of P50,000.00, plus the costs of the suit, and dismissing the
plaintiff ’s complaint against defendants Gearbulk, Ltd. and Philippine
Transmarine Carriers, Inc., for lack of merit, and the two defendants’
counterclaim, there being no showing that the plaintiff had filed this
case against said defendants in bad faith, as well as the two
defendants’ cross-claim against Defendant Lorenzo Shipping
Corporation, for lack of factual basis.
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting
that: (a) respondent Chubb and Sons does not have capacity to sue
before Philippine courts; and, (b) petitioner Lorenzo Shipping was not
negligent in the performance of its obligations as carrier of the goods.
The appellate court denied the petition and affirmed the decision of
the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shipping’s
Motion for Reconsideration dated September 3, 2000, in a Resolution
promulgated on March 28, 2001.
Hence, this petition. Petitioner Lorenzo Shipping submits the following
issues for resolution:
(1) Whether or not the prohibition provided under Art. 133 of the
Corporation Code applies to respondent Chubb, it being a mere
subrogee or assignee of the rights of Sumitomo Corporation, likewise
a foreign corporation admittedly doing business in the Philippines
without a license;
(2) Whether or not Sumitomo, Chubb’s predecessor-in-interest, validly
made a claim for damages against Lorenzo Shipping within the period
prescribed by the Code of Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of
damages or defects in the shipment, which created a prima facie
presumption that the carrier received the shipment in good condition,
has been overcome by convincing evidence;
(4) Assuming that Lorenzo Shipping was guilty of some lapses in
transporting the steel pipes, whether or not Gearbulk and
Transmarine, as common carriers, are to share liability for their
separate negligence in handling the cargo.
In brief, we resolve the following issues:
(1) whether respondent Chubb and Sons has capacity to sue before
the Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the
subject cargo.
Petitioner argues that respondent Chubb and Sons is a foreign
corporation not licensed to do business in the Philippines, and is not
suing on an isolated transaction. It contends that because the
respondent Chubb and Sons is an insurance company, it was merely
subrogated to the rights of its insured, the consignee Sumitomo, after
paying the latter’s policy claim. Sumitomo, however, is a foreign
corporation doing business in the Philippines without a license and
does not have capacity to sue before Philippine courts. Since
Sumitomo does not have capacity to sue, petitioner then concludes
that, neither the subrogee-respondent Chubb and Sons could sue
before Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo
is a foreign corporation doing business in the Philippines without a
license. It is therefore estopped from litigating the issue on appeal
especially because it involves a question of fact which this Court
cannot resolve. Secondly, assuming arguendo that Sumitomo cannot
sue in the Philippines, it does not follow that respondent, as subrogee,
has also no capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of another
with reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The principle covers the situation
under which an insurer that has paid a loss under an insurance policy
is entitled to all the rights and remedies belonging to the insured
against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated
in the shoes of the creditor, and he may use all means which the
creditor could employ to enforce payment.
The rights to which the subrogee succeeds are the same as, but not
greater than, those of the person for whom he is substituted—he
cannot acquire any claim, security, or remedy the subrogor did not
have. In other words, a subrogee cannot succeed to a right not
possessed by the subrogor. A subrogee in effect steps into the shoes
of the insured and can recover only if insured likewise could have
recovered.
However, when the insurer succeeds to the rights of the insured, he
does so only in relation to the debt. The person substituted (the
insurer) will succeed to all the rights of the creditor (the insured),
having reference to the debt due the latter. In the instant case, the
rights inherited by the insurer, respondent Chubb and Sons, pertain
only to the payment it made to the insured Sumitomo as stipulated in
the insurance contract between them, and which amount it now seeks
to recover from petitioner Lorenzo Shipping which caused the loss
sustained by the insured Sumitomo. The capacity to sue of respondent
Chubb and Sons could not perchance belong to the group of rights,
remedies or securities pertaining to the payment respondent insurer
made for the loss which was sustained by the insured Sumitomo and
covered by the contract of insurance. Capacity to sue is a right
personal to its holder. It is conferred by law and not by the parties.
Lack of legal capacity to sue means that the plaintiff is not in the
exercise of his civil rights, or does not have the necessary qualification
to appear in the case, or does not have the character or representation
he claims. It refers to a plaintiff’s general disability to sue, such as on
account of minority, insanity, incompetence, lack of juridical
personality, or any other disqualifications of a party. Respondent
Chubb and Sons who was plaintiff in the trial court does not possess
any of these disabilities. On the contrary, respondent Chubb and Sons
has satisfactorily proven its capacity to sue, after having shown that it
is not doing business in the Philippines, but is suing only under an
isolated transaction, i.e., under the one (1) marine insurance policy
issued in favor of the consignee Sumitomo covering the damaged steel
pipes.
The law on corporations is clear in depriving foreign corporations
which are doing business in the Philippines without a license from
bringing or maintaining actions before, or intervening in Philippine
courts. Art. 133 of the Corporation Code states:
Doing business without a license. — No foreign corporation
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single
acts of business. A foreign corporation needs no license to sue before
Philippine courts on an isolated transaction. As held by this Court in
the case of Marshall-Wells Company vs. Elser & Company:
The object of the statute (Secs. 68 and 69, Corporation Law) was not
to prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the
local courts . . . the implication of the law (being) that it was never
the purpose of the legislature to exclude a foreign corporation which
happens to obtain an isolated order for business for the Philippines,
from seeking redress in the Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. vs.
Intermediate Appellate Court31 that:
. . . The private respondent may sue in the Philippine courts upon the
marine insurance policies issued by it abroad to cover international-
bound cargoes shipped by a Philippine carrier, even if it has no license
to do business in this country, for it is not the lack of the prescribed
license (to do business in the Philippines) but doing business without
such license, which bars a foreign corporation from access to our
courts.
We reject the claim of petitioner Lorenzo Shipping that respondent
Chubb and Sons is not suing under an isolated transaction because
the steel pipes, subject of this case, are covered by two (2) bills of
lading; hence, two transactions. The stubborn fact remains that these
two (2) bills of lading spawned from the single marine insurance policy
that respondent Chubb and Sons issued in favor of the consignee
Sumitomo, covering the damaged steel pipes. The execution of the
policy is a single act, an isolated transaction. This Court has not
construed the term “isolated transaction” to literally mean “one” or a
mere single act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held
that:
. . . What is determinative of “doing business” is not really the number
or the quantity of the transactions, but more importantly, the intention
of an entity to continue the body of its business in the country. The
number and quantity are merely evidence of such intention. The
phrase “isolated transaction” has a definite and fixed meaning, i.e. a
transaction or series of transactions set apart from the common
business of a foreign enterprise in the sense that there is no intention
to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is “doing
business” does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the
transactions. [Emphasis supplied.]
In the case of Gonzales vs. Raquiza, et al., three contracts, hence
three transactions were challenged as void on the ground that the
three American corporations which are parties to the contracts are not
licensed to do business in the Philippines. This Court held that “one
single or isolated business transaction does not constitute doing
business within the meaning of the law. Transactions which are
occasional, incidental, and casual—not of a character to indicate a
purpose to engage in business—do not constitute the doing or
engaging in business as contemplated by law. Where the three
transactions indicate no intent by the foreign corporation to engage in
a continuity of transactions, they do not constitute doing business in
the Philippines.”
Furthermore, respondent insurer Chubb and Sons, by virtue of the
right of subrogation provided for in the policy of insurance, is the real
party in interest in the action for damages before the court a quo
against the carrier Lorenzo Shipping to recover for the loss sustained
by its insured. Rule 3, Section 2 of the 1997 Rules of Civil Procedure
defines a real party in interest as one who is entitled to the avails of
any judgment rendered in a suit, or who stands to be benefited or
injured by it. Where an insurance company as subrogee pays the
insured of the entire loss it suffered, the insurersubrogee is the only
real party in interest and must sue in its own name to enforce its right
of subrogation against the third party which caused the loss. This is
because the insurer in such case having fully compensated its insured,
which payment covers the loss in full, is subrogated to the insured’s
claims arising from such loss. The subrogated insurer becomes the
owner of the claim and, thus entitled to the entire fruits of the action.
It then, thus possesses the right to enforce the claim and the
significant interest in the litigation. In the case at bar, it is clear that
respondent insurer was suing on its own behalf in order to enforce its
right of subrogation.
On the second issue, we affirm the findings of the lower courts that
petitioner Lorenzo Shipping was negligent in its care and custody of
the consignee’s goods.
The steel pipes, subject of this case, were in good condition when they
were loaded at the port of origin (Manila) on board petitioner Lorenzo
Shipping’s M/V Lorcon IV en route to Davao City. Petitioner Lorenzo
Shipping issued clean bills of lading covering the subject shipment. A
bill of lading, aside from being a contract and a receipt, is also a
symbol of the goods covered by it. A bill of lading which has no
notation of any defect or damage in the goods is called a “clean bill of
lading.” A clean bill of lading constitutes prima facie evidence of the
receipt by the carrier of the goods as therein described.
The case law teaches us that mere proof of delivery of goods in good
order to a carrier and the subsequent arrival in damaged condition at
the place of destination raises a prima facie case against the carrier.
In the case at bar, M/V Lorcon IV of petitioner Lorenzo Shipping
received the steel pipes in good order and condition, evidenced by the
clean bills of lading it issued. When the cargo was unloaded from
petitioner Lorenzo Shipping’s vessel at the Sasa Wharf in Davao City,
the steel pipes were rusted all over. M/V San Mateo Victory of
respondent Gearbulk, Ltd, which received the cargo, issued Bills of
Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the
entire shipment, all of which were marked “ALL UNITS HEAVILY
RUSTED.” R.J. Del Pan Surveyors found that the cargo hold of the M/V
Lorcon IV was flooded with seawater, and the tank top was rusty,
thinning and perforated, thereby exposing the cargo to sea water.
There can be no other conclusion than that the cargo was damaged
while on board the vessel of petitioner Lorenzo Shipping, and that the
damage was due to the latter’s negligence. In the case at bar, not
only did the legal presumption of negligence attach to petitioner
Lorenzo Shipping upon the occurrence of damage to the cargo. More
so, the negligence of petitioner was sufficiently established. Petitioner
Lorenzo Shipping failed to keep its vessel in seaworthy condition. R.J.
Del Pan Surveyors found the tank top of M/V Lorcon IV to be “rusty,
thinning, and with several holes at different places.” Witness Captain
Pablo Fernan, Operations Manager of respondent Transmarine
Carriers, likewise observed the presence of holes at the deck of M/V
Lorcon IV. The unpatched holes allowed seawater, reaching up to
three (3) inches deep, to enter the flooring of the hatch of the vessel
where the steel pipes were stowed, submerging the latter in sea
water. The contact with sea water caused the steel pipes to rust. The
silver nitrate test, which Toplis and Harding employed, further verified
this conclusion. Significantly, petitioner Lorenzo Shipping did not even
attempt to present any contrary evidence. Neither did it offer any
proof to establish any of the causes that would exempt it from liability
for such damage. It merely alleged that the: (1) packaging of the
goods was defective; and (2) claim for damages has prescribed.
To be sure, there is evidence that the goods were packed in a superior
condition. John M. Graff, marine surveyor of Toplis and Harding,
examined the condition of the cargo on board the vessel San Mateo
Victory. He testified that the shipment had superior packing “because
the ends were covered with plastic, woven plastic. Whereas typically
they would not go to that bother . . . Typically, they come in with no
plastic on the ends. They might just be banded, no plastic on the ends
. . .”
On the issue of prescription of respondent Chubb and Sons’ claim for
damages, we rule that it has not yet prescribed at the time it was
made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise,
the claim against the carrier for damage or average, which may be
found therein upon the opening of the packages, may be made,
provided that the indications of the damage or average which gives
rise to the claim cannot be ascertained from the outside part of such
package, in which case the claim shall be admitted only at the time of
the receipt.
After the periods mentioned have elapsed, or transportation charges
have been paid, no claim shall be admitted against the carrier with
regard to the condition in which the goods transported were delivered.
A somewhat similar provision is embodied in the Bill of Lading No. T-
3 which reads:
NOTE: No claim for damage or loss shall be honored twenty-four (24)
hours after delivery.
(Ref. Art. 366 C Com.)
The twenty-four-hour period prescribed by Art. 366 of the Code of
Commerce within which claims must be presented does not begin to
run until the consignee has received such possession of the
merchandise that he may exercise over it the ordinary control
pertinent to ownership. In other words, there must be delivery of the
cargo by the carrier to the consignee at the place of destination. In
the case at bar, consignee Sumitomo has not received possession of
the cargo, and has not physically inspected the same at the time the
shipment was discharged from M/V Lorcon IV in Davao City. Petitioner
Lorenzo Shipping failed to establish that an authorized agent of the
consignee Sumitomo received the cargo at Sasa Wharf in Davao City.
Respondent Transmarine Carriers as agent of respondent Gearbulk,
Ltd., which carried the goods from Davao City to the United States,
and the principal, respondent Gearbulk, Ltd. itself, are not the
authorized agents as contemplated by law. What is clear from the
evidence is that the consignee received and took possession of the
entire shipment only when the latter reached the United States’ shore.
Only then was delivery made and completed. And only then did the
24-hour prescriptive period start to run.
Finally, we find no merit to the contention of respondents Gearbulk
and Transmarine that American law governs the contract of carriage
because the U.S.A. is the country of destination. Petitioner Lorenzo
Shipping, through its M/V Lorcon IV, carried the goods from Manila to
Davao City. Thus, as against petitioner Lorenzo Shipping, the place of
destination is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and its
Resolution dated March 28, 2001 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note. — The guarantor who pays is subrogated by virtue thereof to
all the rights which the creditor has against the debtor, including any
maritime lien over a vessel owned by the debtor. (Philippine National
Bank vs. Court of Appeals, 337 SCRA 381 [2000])
——o0o——
DOLE PHILIPPINES, INC., plaintiff-appellant, vs. MARITIME
COMPANY OF THE PHILIPPINES, defendant-appellee
No. L-61352. February 27,1987
Mercantile Law; Carriage of Goods by Sea Act; Prescription; Written
extrajudicial demand by the creditor does not toll the running of the
one-year prescriptive period under the Act. — These arguments might
merit weightier consideration were it not for the fact that the question
has already received a definitive answer, adverse to the position taken
by Dole, in The Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs.
American President Lines, Inc. There, in a parallel factual situation,
where suit to recover for damage to cargo shipped by vessel from
Tokyo to Manila was filed more than two years after the consignee's
receipt of the cargo, this Court rejected the contention that an
extrajudicial demand tolled the prescriptive period provided for in the
Carriage of Goods by Sea Act.
Same; Same; Same; Same; Period to file an action even under a new
period having already lapsed without filing the action, the right of
action had prescribed. — Moreover, no different result would obtain
even if the Court were to accept the proposition that a written
extrajudicial demand does toll prescription under the Carriage of
Goods by Sea Act. The demand in this instance would be the claim for
damage filed by Dole with Maritime on May 4, 1972. The effect of that
demand would have been to renew the one-year prescriptive period
from the date of its making. Stated otherwise, under Dole's theory,
when its claim was received by Maritime, the one-year prescriptive
period was interrupted—"tolled" would be the more precise term—and
began to run anew from May 4, 1972, affording Dole another period
of one (1) year counted from that date within which to institute action
on its claim for damage. Unfortunately, Dole let the new period lapse
without filing action. It instituted Civil Case No. 91043 only on June
11, 1973, more than one month after that period had expired and its
right of action had prescribed.
Same; Same; Same; Same; Same; Tolling of the prescriptive period
cannot be equated with indefinite suspension; Case at bar. — Dole's
contention that the prescriptive period "*** remained tolled as of May
4, 1972 *** (and that) in legal contemplation *** (the) case (Civil
Case No. 96353) was filed on January 6,1975 *** well within the one-
year prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea
Act," equates tolling with indefinite suspension. It is clearly fallacious
and merits no consideration.
APPEAL from the order of the Court of First Instance of Manila, Br. 16.
The facts are stated in the opinion of the Court.
Domingo E. de Lara & Associates for plaintiff-appellant.
Bito, Misa and Lozada Law Office for defendant-appellee.
NARVASA, J.:
This appeal, which was certif ied to the Court by the Court of Appeals
as involving only questions of law, relates to a claim for loss and/or
damage to a shipment of machine parts sought to be enforced by the
consignee, appellant Dole Philippines, Inc. (hereinafter called Dole)
against the carrier, Maritime Company of the Philippines (hereinafter
called Maritime), under the provisions of the Carriage of Goods by Sea
Act.
The basic facts are succinctly stated in the order of the Trial Court
dated March 16, 1977, the relevant portion of which reads:
"* * *
Before the plaintiff started presenting evidence at today's trial, at the
instance of the Court the lawyers entered into the following stipulation
of facts:
1. The cargo subject of the instant case was discharged in Dadiangas
unto the custody of the consignee on December 18,1971;
2. The corresponding claim for the damages sustained by the cargo
was filed by the plaintiff with the defendant vessel on May 4, 1972;
3. On June 11,1973 the plaintiff filed a complaint in the Court of First
Instance of Manila, docketed therein as Civil Case No. 91043,
embodying three (3) causes of action involving three (3) separate and
different shipments. The third cause of action therein involved the
cargo now subject of this present litigation;
4. On December 11, 1974, Judge Serafin Cuevas issued an Order in
Civil Case No. 91043 dismissing the first two causes of action in the
aforesaid case with prejudice and without pronouncement as to costs
because the parties had settled or compromised the claims involved
therein. The third cause of action which covered the cargo subject of
this case now was likewise dismissed but without prejudice as it was
not covered by the settlement. The dismissal of that complaint
containing the three causes of action was upon a joint motion to
dismiss filed by the parties;
5. Because of the dismissal of the (complaint in Civil Case No. 91043
with respect to the third cause of action without prejudice, plaintiff
instituted this present complaint on January 6,1975.
***"
To the complaint in the subsequent action Maritime filed an answer
pleading inter alia the affirmative defense of prescription under the
provisions of the Carriage of Goods by Sea Act, and following pre-trial,
moved for a preliminary hearing on said defense. The Trial Court
granted the motion, scheduling the preliminary hearing on April 27,
1977. The record before the Court does not show whether or not that
hearing was held, but under date of May 6,1977, Maritime filed a
formal motion to dismiss invoking once more the ground of
prescription. The motion was opposed by Dole and the Trial Court,
after due consideration, resolved the matter in favor of Maritime and
dismissed the complaint. Dole sought a reconsideration, which was
denied, and thereafter took the present appeal from the order of
dismissal.
The pivotal issue is whether or not Article 1155 of the Civil Code
providing that the prescription of actions is interrupted by the making
of an extrajudicial written demand by the creditor is applicable to
actions brought under the Carriage of Goods by Sea Act which, in its
Section 3, paragraph 6, provides that:
"*** the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered; Provided, That, if a notice of loss or damage, either
apparent or conceded, is not given as provided for in this section, that
fact shall not affect or prejudice the right of the shipper to bring suit
within one year after the delivery of the goods or the date when the
goods should have been delivered.
***"
Dole concedes that its action is subject to the one-year period of
limitation prescribed in the above-cited provision.
The substance of its argument is that since the provisions of the Civil
Code are, by express mandate of said Code, suppletory of deficiencies
in the Code of Commerce and special laws in matters governed by the
latter, and there being "*** a patent deficiency *** with respect to
the tolling of the prescriptive period ***" provided for in the Carriage
of Goods by Sea Act, prescription under said Act is subject to the
provisions of Article 1155 of the Civil Code on tolling; and because
Dole's claim for loss or damage made on May 4, 1972 amounted to a
written extrajudicial demand which would toll or interrupt prescription
under Article 1155, it operated to toll prescription also in actions under
the Carriage of Goods by Sea Act. To much the same effect is the
further argument based on Article 1176 of the Civil Code which
provides that the rights and obligations of common carriers shall be
governed by the Code of Commerce and by special laws in all matters
not regulated by the Civil Code.
These arguments might merit weightier consideration were it not for
the fact that the question has already received a definitive answer,
adverse to the position taken by Dole, in The Yek Tong Lin Fire &
Marine Insurance Co., Ltd. vs. American President Lines, Inc. There,
in a parallel factual situation, where suit to recover for damage to
cargo shipped by vessel from Tokyo to Manila was filed more than two
years after the consignee's receipt of the cargo, this Court rejected
the contention that an extrajudicial demand tolled the prescriptive
period provided for in the Carriage of Goods by Sea Act, viz:
"In the second assignment of error plaintiff-appellant argues that it
was error for the court a quo not to have considered the action of
plaintiff-appellant suspended by the extrajudicial demand which took
place, according to defendant's own motion to dismiss, on August 22,
1952. We notice that while plaintiff avoids stating any date when the
goods arrived in Manila, it relies upon the allegation made in the
motion to dismiss that a protest was filed on August 22, 1952—which
goes to show that plaintiff-appellant's counsel has not been laying the
facts squarely- before the court for the consideration of the merits of
the case. We have already decided that in a case governed by the
Carriage of Goods by Sea Act, the general provisions of the Code of
Civil Procedure on prescription should not be made to apply, (Chua
Kuy vs. Everett Steamship Corp., G.R. No, L5554, May 27, 1953.)
Similarly, we now hold that in such a case the general provisions of
the new Civil Code (Art 1155) cannot be made to apply, as such
application would have the effect of extending the one-year period of
prescription fixed in the law. It is desirable that matters affecting
transportation of goods by sea be decided in as short a time as
possible; the application of the provisions of Article 1155 of the new
Civil Code would unnecessarily extend the period and permit delays in
the settlement of questions affecting transportation, contrary to the
clear intent and purpose of the law. ***"
Moreover, no different result would obtain even if the Court were to
accept the proposition that a written extrajudicial demand does toll
prescription under the Carriage of Goods by Sea Act. The demand in
this instance would be the claim for damage filed by Dole with
Maritime on May 4,1972. The effect of that demand would have been
to renew the one-year prescriptive period from the date of its making,
Stated otherwise, under Dole's theory, when its claim was received by
Maritime, the one-year prescriptive period was interrupted—"tolled"
would be the more precise term—and began to run anew from May 4,
1972, affording Dole another period of one (1) year counted from that
date within which to institute action on its claim for damage.
Unfortunately, Dole let the new period lapse without filing action. It
instituted Civil Case No. 91043 only on June 11, 1973, more than one
month after that period has expired and its right of action had
prescribed.
Dole's contention that the prescriptive period "*** remained tolled as
of May 4, 1972 *** (and that) in legal contemplation *** (the) case
(Civil Case No. 96353) was filed on January 6, 1975 *** well within
the one-year prescriptive period in Sec. 3(6) of the Carriage of Goods
by Sea Act," equates tolling with indefinite suspension. It is clearly
fallacious and merits no consideration.
WHEREFORE, the order of dismissal appealed from is affirmed, with
costs against the appellant, Dole Philippines, Inc.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and
Sarmiento, JJ., concur.
Order affirmed.
Notes. — Appellant having received the questioned cargoes in good
order when unloaded from the ship, the inference is obvious that the
damage happened in its possession and should be liable therefor,
because by law, loss or damage while in possession of an obligor is
presumed due to its fault in the absence of contrary proof. (Atlantic
Mutual Insurance Co. vs. Macondray & Co., Inc., 2 SCRA 603.)
If an action is dismissed for lack of jurisdiction after the one-year
period of prescription within which an action may be brought pursuant
to Commonwealth Act No. 65, in relation to the Carriage of Goods by
Sea Act, the period for filing a new action is renewed for another year
under section 49 of Act No. 190. (F.H. Stevens & Co., Inc. v.
Norddeuscher Lloyd, 6 SCRA 180.)
The one-year prescriptive period under Section 3(6) of paragraph 4 of
the Carriage of Goods by Sea Act is not applicable in cases of
misdelivery or conversion. (Ang vs. American Steamship Agencies,
Inc., 19 SCRA 123.)
The prescriptive period for suits predicated not upon lost or damage
but on alleged misdelivery or conversion of goods is that found in the
New Civil Code, that is, either ten years for breach of a written contract
or four years for quasi-delict. (Id.)
——o0o——
DOMINGO ANG, plaintiff-appellant, vs. AMERICAN
STEAMSHIP AGENCIES, INC., defendant-appellee
No. L-25047. March 18, 1967
DOMINGO ANG, plaintiff-appellant, vs. AMERICAN
STEAMSHIP AGENCIES, INC., defendant-appellee
No. L-25050. March 18, 1967
Carriage of Goods by Sea Act; Prescription; In case of misdelivery.
Civil Code applies. — For suits not predicated upon loss or damage
but on alleged misdelivery or conversion of the goods, the applicable
rule on prescription is that found in the New Civil Code, i.e., either ten
years for breach of a written contract or four years for quasi-delict
(Arts. 1144, 1146, Civil Code), and not the rule on prescription in the
Carriage of Goods by Sea Act.
APPEAL from two orders of dismissal rendered by the Court of First
Instance of Manila. Santos, G. and Morfe, JJ.
The facts are stated in the opinion of the Court.
Juan T. David for plaintiff-appellant.
Ross, Selph & Carrascoso for defendant-appellee.
BENGZON, J.P., J.:
These are two cases separately appealed to the Court of Appeals and
certified to Us by said Court. Since both appeals involve the same
parties and issue, they are decided together herein.
Yau Yue Commercial Bank, Ltd. of Hongkong, also referred to
hereafter as Yau Yue, agreed to sell one boat (50 feet, 30 tons)
containing used U.S. Military Surplus to one Davao Merchandising
Corp. for the sum of $8,820.27 (US), and 42 cases (62 sets and 494
pieces) of Hiranos Automatic Cop Change f or Cotton Loom f or Calico
to one Herminio Teves for the sum of $18,246.65 (US), respectively.
Said agreements were both subject to the following terms and
arrangements: (a) the purchase price should be covered by a bank
draft for the corresponding amount which should be paid by the
purchaser in exchange for the delivery of the corresponding bill of
lading to be deposited with a local bank, the Hongkong & Shanghai
Bank of Manila; (b) upon arrival of the articles in Manila the purchaser
would be notif ied and would have to pay the amount called for in the
corresponding demand draft, after which the bill of lading would be
delivered to said purchaser; and (c) the purchaser would present said
bill of lading to the carrier’s agent, American Steamship Agencies, Inc.,
which would then issue the corresponding “Permit To Deliver Imported
Articles” to be presented to the Bureau of Customs to obtain the
release of the articles.
Pursuant thereto, on February 17, 1961, Hirahira & Co., Ltd, shipped
the 42 cases (62 sets and 494 pieces) of Hiranos Automatic Cop
Change for Cotton Loom for Calico at Nagoya, aboard the “S.S.
CELEBES MARU", for Manila, with the Kansai Steamship Co., Ltd. of
Osaka, Japan, as carrier, of which the American Steamship Agencies,
Inc. is the agent in the Philippines, under a shipping agreement, Bill
of Lading No. NM-1, dated February 17, 1961, consigned “to order of
the shipper”, with Herminio G. Teves as the party to be notified of the
arrival of said articles.
Similarly, on June 3, 1961, the United States Contracting Officer, on
behalf of Nippon Trading Shokai for Nishiman Kaihatsu Co., Ltd.
shipped the boat containing U.S. Military Surplus at Yokohama, Japan,
aboard the “KYOJU MARU", with Sankyo Kiun Kabushiki Kaisha of
Japan as carrier, of which the American Steamship Agencies, Inc. is
the agent in the Philippines, under a shipping agreement, Bill of Lading
No. YM-3, dated June 3, 1961, consigned “to the order of Yau Yue
Commercial Bank, Ltd. of Hongkong”, with Davao Merchandising
Corporation as the party to be notified of the arrival of said boat.
The bills of lading were indorsed to the order of Yau Yue and delivered
to it by the respective shippers. Upon receipt thereof, Yan Yue drew
demand drafts together with the bills of lading against Teves and
Davao Merchandising Corp., through the Hongkong & Shanghai Bank.
The shipment for Teves arrived in Manila on March 2, 1961; that of
Davao Merchandising Corp., arrived on June 10, 1961. Accordingly,
Hongkong & Shanghai Bank notified Teves and the Davao
Merchandising Corporation, the “notify parties” under the bills of
lading, of the arrival of the goods and requested payment of the
demand drafts representing the purchase prices of the articles. The
Davao Merchandising Corp. and Teves, however, did not pay the
respective drafts, prompting the bank in both cases to make the
corresponding protests. The bank likewise returned the bills of lading
and demand drafts to Yau Yue which indorsed both bills of lading to
Domingo Ang.
Teves and Davao Merchandising Corporation, however, were able to
obtain bank guaranties in favor of the American Steamship Agencies,
Inc,, as carriers’ agent, to the effect that they would surrender the
original and negotiable bills of lading duly indorsed by Yau Yue. And
on the strength of said guaranties, Davao Merchandising Corp. and
Teves each succeeded in securing a “Permit To Deliver Imported
Articles” from the carriers’ agent, which they presented to the Bureau
of Customs. In turn the latter released to them the articles covered by
the bills of lading.
After being informed by the American Steamship Agencies that the
articles covered by the respective bills of lading were already delivered
by them to the Davao Merchandising Corp. and to Teves, Domingo
Ang filed claims with the carriers’ agent for the cost of said articles,
interests and damages. The American Steamship Agencies, Inc.,
however, refused payment.
Domingo Ang thereafter filed separate complaints in the Court of First
Instance of Manila against the American Steamship Agencies, Inc., for
having allegedly wrongfully delivered and/or converted the goods
covered by the bills of lading belonging to plaintiff Ang, to the damage
and prejudice of the latter. The suit as to the Teves shipment was filed
on October 30, 1963; that referring to the Davao Merchandising Corp’s
shipment was filed on November 14, 1963.
Subsequently, defendant filed motions to dismiss upon the ground
that plaintiff’s causes of action have prescribed under the Carriage of
Goods by Sea Act (Commonwealth Act No. 65), more particularly
section 3(6), paragraph 4, which provides:
“In any event, the carrier and the ship shall be discharged from all
liability in respect to loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should
have been delivered.”
It argued that the cargoes should have been delivered to the person
entitled to the delivery thereof, i.e., plaintiff, on March 2, 1961 (Teves
shipment) and June 10, 1961 (Davao Merchandising Corp. shipment),
the respective dates of the vessels’ arrival in Manila, and that even
allowing a reasonable time (even one month) after such arrivals within
which to make delivery, still, the actions commenced on October 30,
1963 and November 14, 1963, respectively, were filed beyond the
prescribed period of one year.
By order dated February 21, 1964, copy of which was received by
plaintiff on February 28, 1964, the lower court presided over by the
Hon, Judge Guillermo S. Santos, dismissed the action (in re the 42
cases [62 sets and 494 pieces] of Hiranos Automatic Cop Change for
Cotton Loom for Calico) on the ground of prescription. His motion for
reconsideration dated March 20, 1964 having been denied by the
lower court in its order dated June 5, 1964, plaintiff appealed to the
Court of Appeals. This is now L-25050 and refers to the Teves
shipment.
Upon the other hand, by order dated January 6, 1964, the lower court
presided over by the Hon. Jesus P. Morfe (in re the boat [50 feet, 30
tons] containing used U.S. Military Surplus) denied the motion to
dismiss on the ground that there being no allegation in the complaint
as to the date of arrival of the cargo or the date of which it should
have been delivered, the defendant was relying on facts which are not
yet in evidence such as presuming that the cargo had arrived on the
specific date and that the same had been delivered on another specific
date.
Upon a motion for reconsideration f iled by the defendant on January
13, 1964 and after the parties submitted their memoranda of
authorities and counter-authorities, respectively, the lower court by an
order dated February 20, 1964, reconsidered its prior order of January
6, 1964 and dismissed plaintiff’s action also on the ground of
prescription. From this order, defendant appealed to the Court of
Appeals. This is now L-25047 and refers to the Davao Merchandising
Corp. shipment.
At issue is a question purely of law, namely: Did plaintiff-appellant’s
causes of action prescribe under Section 3(6), paragraph 4 of the
Carriage of Goods by Sea Act?
The point has already been resolved by this Court in a case involving
the same parties and parallel facts to those herein involved. In
Domingo Ang vs. American Steamship Agencies, Inc., L-22491,
January 27, 1967, We held that the one-year prescriptive period under
Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act does
not apply to cases of misdelivery or conversion. For convenience, We
quote the ruling therein:
“The provision of law involved in this case speaks of ‘loss or damage’.
That there was no damage caused to the goods which were delivered
intact to Herminio G. Teves who did not file any notice of damage, is
admitted by both parties in this case. What is to be resolved—in order
to determine the applicability of the prescriptive period of one year to
the case at bar—is whether or not there was ‘Ioss’ of the goods subject
matter of the complaint.
“Nowhere is ‘loss’ defined in the Carriage of Goos by Sea Act.
Therefore, recourse must be had to the Civil Code which provides in
Article 18 thereof that, ‘ln matters which are governed by the Code of
Commerce and special laws, their deficiency shall be supplied by the
provisions of this Code/
“Article 1189 of the Civil Code defines the word ‘loss’ in Cases where
conditions have been imposed with the intention of suspending the
efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship
Agencies, Inc. and the Yau Yue (which later on endorsed the bill of
lading covering the shipment to plaintiff herein Domingo Ang), is one
involving an obligation to give or to deliver the goods ‘to the order of
shipper’ that is, upon the presentation and surrender of the bill of
lading. This being so, said article can be applied to the present
controversy, more specifically paragraph 2 thereof which provides
that, ‘x x x it is understood that a thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence
is unknown or it cannot be recovered.’
“As defined in the Civil Code and as applied to Section 3(6), paragraph
4 of the Carriage of Goods by Sea Act, ‘loss’ contemplates merely a
situation where no delivery at all was made by the shipper of the
goods because the same had perished, gone out of commerce, or
disappeared in such a way that their existence is unknown or they
cannot be recovered. It does not include a situation where there was
indeed delivery—but delivery to the wrong person, or a misdelivery,
as alleged in the complaint in this case.
x x x x x
“The point that matters here is that the situation is either delivery or
misdelivery, but not nondelivery. Thus, the goods were either rightly
delivered or misdelivered, but they were not lost. There being no loss
or damage to the goods, the aforequoted provision of the Carriage of
Goods by Sea Act stating that ‘ln any event, the carrier and the ship
shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered/ does not apply. The
reason is not dif f icult to see. Said one-year period of limitation is
designed to meet the exigencies of maritime hazards. In a case where
the goods shipped were neither lost nor damaged in transit but were,
on the contrary, delivered in port to someone who claimed to be
entitled thereto, the situation is different, and the special need for the
short period of limitation in cases of loss or damage caused by
maritime perils does not obtain.
“It follows that for suits predicated not upon loss or damage but on
alleged misdelivery (or conversion) of the goods, the applicable rule
on prescription is that found in the Civil Code, namely, either ten years
for breach of a written contract or four years for quasi-delict (Arts.
1144[1], 1146, Civil Code). x x x”
The goods covered by the two shipments subject matter of these
appealed cases were also delivered to the notified parties, Davao
Merchandising Corporation and Herminio Teves, despite the latter’s
inability to present the proper bills of lading and without the
knowledge and consent of plaintiff-appellant Domingo Ang to whom
were endorsed said bills of lading. There is therefore likewise
misdelivery not nondelivery. Finally, the recipients of said goods did
not file any complaint with defendant regarding any damage to the
same. No loss nor damage is therefore involved in these cases. And
thus the prescriptive period under Section 3(6), paragraph 4 of the
Carriage of Goods by Sea Act does not apply. The applicable
prescriptive period is that found in the Civil Code, namely, either ten
years for breach of a written contract or four years for quasi-delict
(Arts. 1144 [1] and 1146). Since the complaints in these appealed
cases were -filed two years and five months (as to Davao
Merchandising Corp. shipment) and 2 years and 8 months (as to Teves
shipment), from the arrival of the two shipments, it is clear that the
causes of action have not yet prescribed.
Wherefore, the orders appealed from dismissing plaintiffs’ complaints
in these two cases on the ground of prescription are hereby reversed
and set aside; let said cases be remanded to the respective court a
quo for further proceedings, So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar,
Sanchez and Castro, JJ., concur.
Orders of dismissal set aside and cases remanded to lower court for
further proceedings. Ang vs. American Steamship Agencies, Inc., 19
SCRA 631, No. L-25047, No. L-25050 March 18, 1967
——o0o——
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and
JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners,
vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent
G.R. No. 143133. June 5, 2002
Common Carriers; Well-settled is the rule that common carriers, from
the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence and vigilance with respect to the
safety of the goods and the passengers they transport.—Well-settled
is the rule that common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary
diligence and vigilance with respect to the safety of the goods and the
passengers they transport. Thus, common carriers are required to
render service with the greatest skill and foresight and “to use all
reason[a]ble means to ascertain the nature and characteristics of the
goods tendered for shipment, and to exercise due care in the handling
and stowage, including such methods as their nature requires.” The
extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them.
Same; Negligence; Presumption of Fault or Negligence; Owing to the
high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. — Owing
to this high degree of diligence required of them, common carriers, as
a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they
observed such diligence.
Same; Same; Same; Exceptions; The exceptions to the presumption
of fault or negligence is a closed list—if the cause of destruction, loss
or deterioration is other than the enumerated circumstances, then the
carrier is liable therefor.—However, the presumption of fault or
negligence will not arise if the loss is due to any of the following
causes: (1) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or owner of
the goods; (4) the character of the goods or defects in the packing or
the container; or (5) an order or act of competent public authority.
This is a closed list. If the cause of destruction, loss or deterioration is
other than the enumerated circumstances, then the carrier is liable
therefor.
Same; Same; Same; Mere proof of delivery of the goods in good order
to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. — Corollary to the foregoing, mere proof of delivery of the
goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as
to how the deterioration, the loss or the destruction of the goods
happened, the transporter shall be held responsible.
Same; Same; Same; Equipped with the proper knowledge of the
nature of steel sheets in coils and of the proper way of transporting
them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo.
— True, the words “metal envelopes rust stained and slightly dented”
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in
coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken. Having failed to discharge the burden of proving
that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils.
Same; Same; Same; The exemption provided in Article 1734(4) of the
Civil Code refers to cases when goods are lost or damaged while in
transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages
in which they are shipped, or the natural propensities of animals.—In
their attempt to escape liability, petitioners further contend that they
are exempted from liability under Article 1734(4) of the Civil Code.
They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate
cause of the damage. We are not convinced. From the evidence on
record, it cannot be reasonably concluded that the damage to the four
coils was due to the condition noted on the Bill of Lading. The
aforecited exception refers to cases when goods are lost or damaged
while in transit as a result of the natural decay of perishable goods or
the fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages
in which they are shipped, or the natural propensities of animals. None
of these is present in the instant case.
Same; Same; Same; Even if the fact of improper packing was known
to the carrier or its crew or was apparent upon ordinary observation,
it is not relieved of liability for loss or injury resulting therefrom, once
it accepts the goods notwithstanding such condition.—Further, even if
the fact of improper packing was known to the carrier or its crew or
was apparent upon ordinary observation, it is not relieved of liability
for loss or injury resulting therefrom, once it accepts the goods
notwithstanding such condition. Thus, petitioners have not
successfully proven the application of any of the aforecited exceptions
in the present case.
Same; Carriage of Goods by Sea Act (COGSA); The notice of claim
required under Section 3, paragraph 6 of the COGSA need not be given
if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. — Petitioners claim that
pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act (COGSA), respondent should have filed its Notice of Loss within
three days from delivery. They assert that the cargo was discharged
on July 31, 1990, but that respondent filed its Notice of Claim only on
September 18, 1990. We are not persuaded. First, the above-cited
provision of COGSA provides that the notice of claim need not be given
if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to
unloading the cargo, an Inspection Report as to the condition of the
goods was prepared and signed by representatives of both parties.
Same; Same; Prescription; A claim is not barred by prescription as
long as the one-year period has not lapsed. — As stated in the same
provision, a failure to file a notice of claim within three days will not
bar recovery if it is nonetheless filed within one year. This one-year
prescriptive period also applies to the shipper, the consignee, the
insurer of the goods or any legal holder of the bill of lading. In Loadstar
Shipping Co., Inc. v. Court of Appeals, we ruled that a claim is not
barred by prescription as long as the one-year period has not lapsed.
Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
“Inasmuch as the neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA)—which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit—may be applied suppletorily to the case at bar.”
Same; Same; Bills of Lading; Bill of lading serves two functions as
receipt for the goods shipped, and as a contract by which three
parties, namely, the shipper, the carrier, and the consignee, undertake
specific responsibilities and assume stipulated obligations. — A bill of
lading serves two functions. First, it is a receipt for the goods shipped.
Second, it is a contract by which three parties—namely, the shipper,
the carrier, and the consignee—undertake specific responsibilities and
assume stipulated obligations. In a nutshell, the acceptance of the bill
of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected
and binding contract.
Same; Same; Same; A stipulation in the bill of lading limiting to a
certain sum the common carrier’s liability for loss or destruction of a
cargo—unless the shipper or owner declares a greater value is
sanctioned by law. — Further, a stipulation in the bill of lading limiting
to a certain sum the common carrier’s liability for loss or destruction
of a cargo—unless the shipper or owner declares a greater value—is
sanctioned by law. There are, however, two conditions to be satisfied:
(1) the contract is reasonable and just under the circumstances, and
(2) it has been fairly and freely agreed upon by the parties. The
rationale for, this rule is to bind the shippers by their agreement to
the value (maximum valuation) of their goods.
Same; Same; Same; The COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading—the provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the
parties.—It is to be noted, however, that the Civil Code does not limit
the liability of the common carrier to a fixed amount per package. In
all matters not regulated by the Civil Code, the right and the
obligations of common carriers shall be governed by the Code of
Commerce and special laws. Thus, the COGSA, which is suppletory to
the provisions of the Civil Code, supplements the latter by establishing
a statutory provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading. The
provisions on limited liability are as much a part of the bill of lading as
though physically in it and as though placed there by agreement of
the parties.
Same; Same; Same; A notation in the Bill of Lading which indicates
the amount of the Letter of Credit obtained by the shipper for the
importation of the articles does not effect a declaration of the value of
the goods as required by the bill—that notation is made only for the
convenience of the shipper and the bank processing the Letter of
Credit. — In the case before us, there was no stipulation in the Bill of
Lading limiting the carrier’s liability. Neither did the shipper declare a
higher valuation of the goods to be shipped. This fact notwithstanding,
the insertion of the words “L/C No. 90/02447 cannot be the basis for
petitioners’ liability. First, a notation in the Bill of Lading which
indicated the amount of the Letter of Credit obtained by the shipper
for the importation of steel sheets did not effect a declaration of the
value of the goods as required by the bill. That notation was made
only for the convenience of the shipper and the bank processing the
Letter of Credit. Second, in Keng Hua Paper Products v. Court of
Appeals, we held that a bill of lading was separate from the Other
Letter of Credit arrangements.
Same; Same; Same; Words and Phrases; “Package,” Explained; When
what would ordinarily be considered packages are shipped in a
container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of these units and not the
container constitutes the “package” referred to in the liability limitation
provision of COGSA.— In the light of the foregoing, petitioners’ liability
should be computed based on US$500 per package and not on the
per metric ton price declared in the Letter of Credit. In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court, we explained the
meaning of package: “When what would ordinarily be considered
packages are shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the ‘package’ referred to
in the liability limitation provision of Carriage of Goods by Sea Act.”
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Del Rosario and Del Rosario for petitioners.
Astorga & Repol Law Offices for private respondent.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes prima facie
fault or negligence on the part of the carrier. If no adequate
explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable
therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the July 15, 1998 Decision and the May 2, 2000 Resolution
of the Court of Appeals (CA) in CA-GR CV No. 53571. The decretal
portion of the Decision reads as follows:
“WHEREFORE, in the light of the foregoing disquisition, the decision
appealed from is hereby REVERSED and SET ASIDE. Defendants-
appellees are ORDERED to jointly and severally pay plaintiffs-
appellants the following:
‘1) FOUR Hundred Fifty-One Thousand Twenty-Seven Pesos and
32/100 (P451,027.32) as actual damages, representing the value of
the damaged cargo, plus interest at the legal rate from the time of
filing of the complaint on July 25, 1991, until fully paid;
‘2) Attorney’s fees amounting to 20% of the claim; and
‘3) Costs of suit.’”
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of
Makati City (Branch 134), which had disposed as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered,
dismissing the complaint, as well as defendant’s counterclaim.”
The Facts
The factual antecedents of the case are summarized by the Court of
Appeals in this wise:
“On June 13, 1990, CMC Trading A.G. shipped on board the M/V
‘Anangel Sky’ at Hamburg, Germany 242 coils of various Prime Cold
Rolled Steel sheets for transportation to Manila consigned to the
Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel
Sky arrived at the port of Manila and, within the subsequent days,
discharged the subject cargo. Four (4) coils were found to be in bad
order B.O. Tally sheet No. 154974. Finding the four (4) coils in their
damaged state to be unfit for the intended purpose, the consignee
Philippine Steel Trading Corporation declared the same as total loss.
“Despite receipt of a formal demand, defendants-appellees refused to
submit to the consignee’s claim. Consequently, plaintiff-appellant paid
the consignee five hundred six thousand eighty-six & 50/100 pesos
(P506,086.50), and was subrogated to the latter’s rights and causes
of action against defendants-appellees. Subsequently, plaintiff-
appellant instituted this complaint for recovery of the amount paid by
them, to the consignee as insured.
“Impugning the propriety of the suit against them, defendants-
appellees imputed that the damage and/or loss was due to pre-
shipment damage, to the inherent nature, vice or defect of the goods,
or to perils, danger and accidents of the sea, or to insufficiency of
packing thereof, or to the act or omission of the shipper of the goods
or their representatives. In addition thereto, defendants-appellees
argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other
pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to
prevent any damage/loss to said shipment.”
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to
prove its claims with the quantum of proof required by law.
It likewise debunked petitioners’ counterclaim, because respondent’s
suit was not manifestly frivolous or primarily intended to harass them.
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable
for the loss or the damage of the goods shipped, because they had
failed to overcome the presumption of negligence imposed on
common carriers.
The CA further held as inadequately proven petitioners’ claim that the
loss or the deterioration of the goods was due to pre-shipment
damage. It likewise opined that the notation “metal envelopes rust
stained and slightly dented” placed on the Bill of Lading had not been
the proximate cause of the damage to the four (4) coils.
As to the extent of petitioners’ liability, the CA held that the package
limitation under COGSA was not applicable, because the words “L/C
No. 90/02447” indicated that a higher valuation of the cargo had been
declared by the shipper. The CA, however, affirmed the award of
attorney’s fees.
Hence, this Petition.
Issues
In their Memorandum, petitioners raise the following issues for the
Court’s consideration:
I
“Whether or not plaintiff by presenting only one witness who has
never seen the subject shipment and whose testimony is purely
hearsay is sufficient to pave the way for the applicability of Article
1735 of the Civil Code;
II
“Whether or not the consignee/plaintiff filed the required notice of loss
within the time required by law;
III
“Whether or not a notation in the bill of lading at the time of loading
is sufficient to show pre-shipment damage and to exempt herein
defendants from liability;
IV
“Whether or not the “PACKAGE LIMITATION” of liability under Section
4 (5) of COGSA is applicable to the case at bar.”
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence
of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court’s Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common
carriers should not be applied on the basis of the lone testimony
offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligence and vigilance with respect to the safety of the
goods and the passengers they transport. Thus, common carriers are
required to render service with the greatest skill and foresight and “to
use all reason[a]ble means to ascertain the nature and characteristics
of the goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature
requires.” The extraordinary responsibility lasts from the time the
goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them.
This strict requirement is justified by the fact that, without a hand or
a voice in the preparation of such contract, the riding public enters
into a contract of transportation with common carriers. Even if it wants
to, it cannot submit its own stipulations for their approval. Hence, it
merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for
any loss or damage, therefore, they have the burden of proving that
they observed such diligence.
However, the presumption of fault or negligence will not arise if the
loss is due to any of the following causes: (1) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (2) an act
of the public enemy in war, whether international or civil; (3) an act
or omission of the shipper or owner of the goods; (4) the character of
the goods or defects in the packing or the container; or (5) an order
or act of competent public authority. This is a closed list. If the cause
of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.
Corollary to the foregoing, mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the
deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible.
That petitioners failed to rebut the prima facie presumption of
negligence is revealed in the case at bar by a review of the records
and more so by the evidence adduced by respondent.
First, as stated in the Bill of Lading, petitioners received the subject
shipment in good order and condition in Hamburg, Germany.
Second, prior to the unloading of the cargo, an Inspection Report
prepared and signed by representatives of both parties showed the
steel bands broken, the metal envelopes rust-stained and heavily
buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979 issued by Jardine Davies
Transport Services, Inc., stated that the four coils were in bad order
and condition. Normally, a request for a bad order survey is made in
case there is an apparent or a presumed loss or damage.
Fourth, the Certificate of Analysis stated that, based on the sample
submitted and tested, the steel sheets found in bad order were wet
with fresh water.
Fifth, petitioners—in a letter addressed to the Philippine Steel Coating
Corporation and dated October 12, 1990—admitted that they were
aware of the condition of the four coils found in bad order and
condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM
Santos Checkers Agency. Pertinent portions of his testimony are
reproduced hereunder:
“Q: Mr. Esmerio, you mentioned that you are a Head Checker. Will you
inform the Honorable Court with what company you are connected?
A: BM Santos Checkers Agency, sir.
Q: How is BM Santos Checkers Agency related or connected with
defendant Jardine Davies Transport Services?
A: It is the company who contracts the checkers, sir.
Q: You mentioned that you are a Head Checker, will you inform this
Honorable Court your duties and responsibilities?
A: I am the representative of BM Santos on board the vessel, sir, to
supervise the discharge of cargoes.
xxx xxx xxx
Q: On or about August 1, 1990, were you still connected or employed
with BM Santos as a Head Checker?
A: Yes, sir.
Q: And, on or about that date, do you recall having attended the
discharging and inspection of cold steel sheets in coil on board the
MV/AN ANGEL SKY?
A: Yes, sir, I was there.
xxx xxx xxx
Q: Based on your inspection since you were also present at that time,
will you inform this Honorable Court the condition or the appearance
of the bad order cargoes that were unloaded from the MV/ANANGEL
SKY?
ATTY. MACAMAY: Objection, Your Honor, I think the document itself
reflects the condition of the cold steel sheets and the best evidence is
the document itself, Your Honor that shows the condition of the steel
sheets.
COURT: Let the witness answer.
A: The scrap of the cargoes is broken already and the rope is loosened
and the cargoes are dent on the sides.”
All these conclusively prove the fact of shipment in good order and
condition and the consequent damage to the four coils while in the
possession of petitioner, who notably failed to explain why.
Further, petitioners failed to prove that they observed the
extraordinary diligence and precaution which the law requires a
common carrier to know and to follow to avoid damage to or
destruction of the goods entrusted to it for safe carriage and delivery.
True, the words “metal envelopes rust stained and slightly dented”
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in
coils and of the proper way of transporting them, the master of the
vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken. Having failed to discharge the burden of proving
that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils.
In their attempt to escape liability, petitioners further contend that
they are exempted from liability under Article 1734(4) of the Civil
Code. They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate
cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that
the damage to the four coils was due to the condition noted on the
Bill of Lading. The aforecited exception refers to cases when goods
are lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances
liable therefor, the necessary and natural wear of goods in transport,
defects in packages in which they are shipped, or the natural
propensities of animals. None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier
or its crew or was apparent upon ordinary observation, it is not
relieved of liability for loss or injury resulting therefrom, once it
accepts the goods notwithstanding such condition. Thus, petitioners
have not successfully proven the application of any of the aforecited
exceptions in the present case.
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the
Carriage of Goods by Sea Act (COGSA), respondent should have filed
its Notice of Loss within three days from delivery. They assert that the
cargo was discharged on July 31, 1990, but that respondent filed its
Notice of Claim only on September 18, 1990.
We are not persuaded. First, the above-cited provision of COGSA
provides that the notice of claim need not be given if the state of the
goods, at the time of their receipt, has been the subject of a joint
inspection or survey. As stated earlier, prior to unloading the cargo,
an Inspection Report as to the condition of the goods was prepared
and signed by representatives of both parties.
Second, as stated in the same provision, a failure to file a notice of
claim within three days will not bar recovery if it is nonetheless filed
within one year. This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of
the bill of lading.
In Loadstar Shipping Co., Inc. v. Court of Appeals, we ruled that a
claim is not barred by prescription as long as the one-year period has
not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G.
Davide Jr.:
“Inasmuch as the neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA)—which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit—may be applied suppletorily to the case at bar.”
In the present case, the cargo was discharged on July 31, 1990, while
the Complaint was filed by respondent on July 25, 1991, within the
one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent’s claims, petitioners
contend that their liability should be limited to US$500 per package as
provided in the Bill of Lading and by Section 4(5) of COGSA.
On the other hand, respondent argues that Section 4(5) of COGSA is
inapplicable, because the value of the subject shipment was declared
by petitioners beforehand, as evidenced by the reference to and the
insertion of the Letter of Credit or “L/C No. 90/02447” in the said Bill
of Lading.
A bill of lading serves two functions. First, it is a receipt for the goods
shipped. Second, it is a contract by which three parties—namely, the
shipper, the carrier, and the consignee—undertake specific
responsibilities and assume stipulated obligations. In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that it
constituted a perfected and binding contract.
Further, a stipulation in the bill of lading limiting to a certain sum the
common carrier’s liability for loss or destruction of a cargo—unless the
shipper or owner declares a greater value —is sanctioned by law.
There are, however, two conditions to be satisfied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly
and freely agreed upon by the parties. The rationale for, this rule is to
bind the shippers by their agreement to the value (maximum
valuation) of their goods.
It is to be noted, however, that the Civil Code does not limit the liability
of the common carrier to a fixed amount per package. In all matters
not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and
special laws. Thus, the COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading. The provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the parties.
In the case before us, there was no stipulation in the Bill of Lading
limiting the carrier’s liability. Neither did the shipper declare a higher
valuation of the goods to be shipped. This fact notwithstanding, the
insertion of the words “L/C No. 90/02447 cannot be the basis for
petitioners’ liability.
First, a notation in the Bill of Lading which indicated the amount of the
Letter of Credit obtained by the shipper for the importation of steel
sheets did not effect a declaration of the value of the goods as
required by the bill. That notation was made only for the convenience
of the shipper and the bank processing the Letter of Credit.
Second, in Keng Hua Paper Products v. Court of Appeals, we held that
a bill of lading was separate from the Other Letter of Credit
arrangements. We ruled thus:
“(T)he contract of carriage, as stipulated in the bill of lading in the
present case, must be treated independently of the contract of sale
between the seller and the buyer, and the contract of issuance of a
letter of credit between the amount of goods described in the
commercial invoice in the contract of sale and the amount allowed in
the letter of credit will not affect the validity and enforceability of the
contract of carriage as embodied in the bill of lading. As the bank
cannot be expected to look beyond the documents presented to it by
the seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the bill of
lading and to verify their accuracy vis-à-vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading
cannot negate petitioner’s obligation to private respondent arising
from the contract of transportation.”
In the light of the foregoing, petitioners’ liability should be computed
based on US$500 per package and not on the per metric ton price
declared in the Letter of Credit. In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, we explained the meaning of package:
“When what would ordinarily be considered packages are shipped in
a container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of those units and not the
container constitutes the ‘package’ referred to in the liability limitation
provision of Carriage of Goods by Sea Act.”
Considering, therefore, the ruling in Eastern Shipping Lines and the
fact that the Bill of Lading clearly disclosed the contents of the
containers, the number of units, as well as the nature of the steel
sheets, the four damaged coils should be considered as the shipping
unit subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed Decision
MODIFIED. Petitioners’ liability is reduced to US$2,000 plus interest at
the legal rate of six percent from the time of the filing of the Complaint
on July 25, 1991 until the finality of this Decision, and 12 percent
thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.
 Sandoval-Gutierrez and Carpio, JJ., concur.
Puno, J. (Chairman), Abroad, on official leave.
Judgment modified.
Notes. — Presumption of negligence of common carriers; Mere proof
of delivery of goods in good order to a carrier and the subsequent
arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier. (Coastwise Lighterage
Corporation vs. Court of Appeals, 245 SCRA 796 [1995])
A common carrier is liable as such to a stevedore who was hired by a
shipper to help load cargo, even if such stevedore was not himself a
passenger. (Sulpicio Lines, Inc. vs. Court of Appeals, 246 SCRA 299
[1995])
——o0o——
MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE
CO., INC. and the CHARTER INSURANCE CORPORATION,
respondents
G.R. No. 124050. June 19, 1997
Insurance; Carriage of Goods by Sea Act; Prescription; Under Section
3(6) of the Carriage of Goods by Sea Act, only the carrier’s liability is
extinguished if no suit is brought within one year. — Section 3(6) of
the Carriage of Goods by Sea Act states that the carrier and the ship
shall be discharged from all liability for loss or damage to the goods if
no suit is filed within one year after delivery of the goods or the date
when they should have been delivered. Under this provision, only the
carrier’s liability is extinguished if no suit is brought within one year.
But the liability of the insurer is not extinguished because the insurer’s
liability is based not on the contract of carriage but on the contract of
insurance. A close reading of the law reveals that the Carriage of
Goods by Sea Act governs the relationship between the carrier on the
one hand and the shipper, the consignee and/or the insurer on the
other hand. It defines the obligations of the carrier under the contract
of carriage. It does not, however, affect the relationship between the
shipper and the insurer. The latter case is governed by the Insurance
Code.
Same; Same; Same; Ruling in Filipino Merchants should apply only to
suits against the carrier filed either by the shipper, the consignee or
the insurer. — The ruling in Filipino Merchants should apply only to
suits against the carrier filed either by the shipper, the consignee or
the insurer. When the court said in Filipino Merchants that Section 3(6)
of the Carriage of Goods by Sea Act applies to the insurer, it meant
that the insurer, like the shipper, may no longer file a claim against
the carrier beyond the one-year period provided in the law. But it does
not mean that the shipper may no longer file a claim against the
insurer because the basis of the insurer’s liability is the insurance
contract.
Same; Same; An “all risks” insurance policy covers all kinds of loss
other than those due to willful and fraudulent act of the insured. —
An insurance contract is a contract whereby one party, for a
consideration known as the premium, agrees to indemnify another for
loss or damage which he may suffer from a specified peril. An “all
risks” insurance policy covers all kinds of loss other than those due to
willful and fraudulent act of the insured. Thus, when private
respondents issued the “all risks” policies to petitioner Mayer, they
bound themselves to indemnify the latter in case of loss or damage to
the goods insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Arturo S. Santos for petitioner.
Conrado R. Mangahas & Associates for Charter Insurance Corp.
Laurel Law Offices for South Sea Surety & Insurance Co., Inc.
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14, 1995
and its Resolution dated February 22, 1996 in CA-G.R. CV No. 45805
entitled Mayer Steel Pipe Corporation and Hongkong Government
Supplies Department v. South Sea Surety Insurance Co., Inc. and The
Charter Insurance Corporation.
In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation
(Mayer) to manufacture and supply various steel pipes and fittings.
From August to October, 1983, Mayer shipped the pipes and fittings
to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015,
MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022.
Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and
Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014,
1015 and 1025 with a total amount of US$212,772.09 were insured
with respondent South Sea, while those covered by Invoice Nos. 1020,
1017 and 1022 with a total amount of US$149,470.00 were insured
with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial
Inspection (International) Inc. as third-party inspector to examine
whether the pipes and fittings are manufactured in accordance with
the specifications in the contract. Industrial Inspection certified all the
pipes and fittings to be in good order condition before they were
loaded in the vessel. Nonetheless, when the goods reached Hongkong,
it was discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity
under the insurance contract. Respondent Charter paid petitioner
Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of
repair of the damaged pipes. Private respondents refused to pay
because the insurance surveyor’s report allegedly showed that the
damage is a factory defect.
On April 17, 1986, petitioners filed an action against private
respondents to recover the sum of HK$299,345.30. For their defense,
private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is
due to factory defects which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage
to the goods is not due to manufacturing defects. It also noted that
the insurance contracts executed by petitioner Mayer and private
respondents are “all risks” policies which insure against all causes of
conceivable loss or damage. The only exceptions are those excluded
in the policy, or those sustained due to fraud or intentional misconduct
on the part of the insured. The dispositive portion of the decision
states:
WHEREFORE, judgment is hereby rendered ordering the defendants
jointly and severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30, with
legal rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney’s fees; and
3. costs of suit.
SO ORDERED.
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the
damage is not due to factory defect and that it was covered by the
“all risks” insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and
dismissed the complaint on the ground of prescription. It held that the
action is barred under Section 3(6) of the Carriage of Goods by Sea
Act since it was filed only on April 17, 1986, more than two years from
the time the goods were unloaded from the vessel. Section 3(6) of the
Carriage of Goods by Sea Act provides that “the carrier and the ship
shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered.” Respondent court ruled
that this provision applies not only to the carrier but also to the insurer,
citing Filipino Merchants Insurance Co., Inc. v. Alejandro.
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners’
cause of action had already prescribed on the mistaken application of
the Carriage of Goods by Sea Act and the doctrine of Filipino
Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing
the complaint.
The petition is impressed with merit. Respondent court erred in
applying Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to
the goods if no suit is filed within one year after delivery of the goods
or the date when they should have been delivered. Under this
provision, only the carrier’s liability is extinguished if no suit is brought
within one year. But the liability of the insurer is not extinguished
because the insurer’s liability is based not on the contract of carriage
but on the contract of insurance. A close reading of the law reveals
that the Carriage of Goods by Sea Act governs the relationship
between the carrier on the one hand and the shipper, the consignee
and/or the insurer on the other hand. It defines the obligations of the
carrier under the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case is
governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and
the other cases cited therein does not support respondent court’s view
that the insurer’s liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the
shipper filed a complaint against the insurer for recovery of a sum of
money as indemnity for the loss and damage sustained by the insured
goods. The insurer, in turn, filed a third-party complaint against the
carrier for reimbursement of the amount it paid to the shipper. The
insurer filed the third-party complaint on January 9, 1978, more than
one year after delivery of the goods on December 17, 1977. The court
held that the insurer was already barred from filing a claim against the
carrier because under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after delivery of the
goods or the date when the goods should have been delivered. The
court said that “the coverage of the Act includes the insurer of the
goods.”
The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at
bar, it was the shipper which filed a claim against the insurer. The
basis of the shipper’s claim is the “all risks” insurance policies issued
by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When
the court said in Filipino Merchants that Section 3(6) of the Carriage
of Goods by Sea Act applies to the insurer, it meant that the insurer,
like the shipper, may no longer file a claim against the carrier beyond
the one-year period provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer because the
basis of the insurer’s liability is the insurance contract. An insurance
contract is a contract whereby one party, for a consideration known
as the premium, agrees to indemnify another for loss or damage which
he may suffer from a specified peril. An “all risks” insurance policy
covers all kinds of loss other than those due to willful and fraudulent
act of the insured. Thus, when private respondents issued the “all
risks” policies to petitioner Mayer, they bound themselves to indemnify
the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of
the New Civil Code.
IN VIEW WHEREOF, the petition is GRANTED. The Decision of
respondent Court of Appeals dated December 14, 1995 and its
Resolution dated February 22, 1996 are hereby SET ASIDE and the
Decision of the Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
 Regalado (Chairman), Romero, Mendoza and Torres, Jr., JJ.,
concur.
Petition granted.
Note. — It is settled that the terms of the policy constitute the
measure of the insurer’s liability. (Fortune Insurance and Surety Co.,
Inc. vs. Court of Appeals, 244 SCRA 308 [1995])
——o0o——
PHILIPPINES FIRST INSURANCE CO., INC., petitioner, vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER
AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S
“OFFSHORE MASTER” AND “SHANGHAI FAREAST SHIP
BUSINESS COMPANY,” respondents
G.R. No. 165647. March 26, 2009
Common Carriers; The extraordinary responsibility of the common
carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them. —
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
Same; Code of Commerce; Carriage of Goods by Sea Act (COGSA);
For marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over
to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agreed otherwise; Section 2 of the Carriage of
Goods by Sea Act (COGSA) provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. — For marine vessels,
Article 619 of the Code of Commerce provides that the ship captain is
liable for the cargo from the time it is turned over to him at the dock
or afloat alongside the vessel at the port of loading, until he delivers
it on the shore or on the discharging wharf at the port of unloading,
unless agreed otherwise. In Standard Oil Co. of New York v. Lopez
Castelo, 42 Phil. 256 (1921), the Court interpreted the ship captain’s
liability as ultimately that of the shipowner by regarding the captain
as the representative of the ship owner. Lastly, Section 2 of the COGSA
provides that under every contract of carriage of goods by sea, the
carrier in relation to the loading, handling, stowage, carriage, custody,
care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities
set forth in the Act. Section 3 (2) thereof then states that among the
carriers’ responsibilities are to properly and carefully load, handle,
stow, carry, keep, care for, and discharge the goods carried.
Same; Arrastre Operators; Handling cargo is mainly the arrastre
operator’s principal work so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and
damage to shipments under its custody. — The functions of an
arrastre operator involve the handling of cargo deposited on the wharf
or between the establishment of the consignee or shipper and the
ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
Same; Same; Both the ARRASTRE and the CARRIER are charged with
and obligated to deliver the goods in good condition to the consignee,
though the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.—
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc., 182 SCRA
455 (1990), the Court explained the relationship and responsibility of
an arrastre operator to a consignee of a cargo, to quote: The legal
relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman. The relationship between
the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and
to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the
goods in good condition to the consignee. (Emphasis supplied)
(Citations omitted) The liability of the arrastre operator was reiterated
in Eastern Shipping Lines, Inc. v. Court of Appeals with the clarification
that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
Same; Maritime Law; It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of
the carrier. — The records are replete with evidence which show that
the damage to the bags happened before and after their discharge
and it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem. It is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case, the damage or
losses were incurred during the discharge of the shipment while under
the supervision of the carrier. Consequently, the carrier is liable for
the damage or losses caused to the shipment. As the cost of the actual
damage to the subject shipment has long been settled, the trial court’s
finding of actual damages in the amount of P397,879.69 has to be
sustained.
Same; Same; Witnesses; The trial court’s evaluation as to the
credibility of witnesses is viewed as correct and entitled to the highest
respect because it is more competent to so conclude, having had the
opportunity to observe the witnesses’ demeanor and deportment on
the stand, and the manner in which they gave their testimonies.—On
the credibility of Mr. Talens which is the fourth issue, the general rule
in assessing credibility of witnesses is well-settled: x x x the trial
court’s evaluation as to the credibility of witnesses is viewed as correct
and entitled to the highest respect because it is more competent to so
conclude, having had the opportunity to observe the witnesses’
demeanor and deportment on the stand, and the manner in which
they gave their testimonies. The trial judge therefore can better
determine if such witnesses were telling the truth, being in the ideal
position to weigh conflicting testimonies. Therefore, unless the trial
judge plainly overlooked certain facts of substance and value which,
if considered, might affect the result of the case, his assessment on
credibility must be respected.
Same; Evidence; Demand Letters; A party’s failure to respond to a
demand letter does not constitute an implied admission of liability. —
Contrary to petitioner’s stance on the third issue, Wallem’s failure to
respond to its demand letter does not constitute an implied admission
of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes,
thus: A man cannot make evidence for himself by writing a letter
containing the statements that he wishes to prove. He does not make
the letter evidence by sending it to the party against whom he wishes
to prove the facts [stated therein]. He no more can impose a duty to
answer a charge than he can impose a duty to pay by sending goods.
Therefore, a failure to answer such adverse assertions in the absence
of further circumstances making an answer requisite or natural has no
effect as an admission.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Astorga & Repol Law Offices for petitioner.
Velicaria Egenias for respondents.
TINGA, J.:
Before us is a Rule 45 petition which seeks the reversal of the Decision
and Resolution of the Court of Appeals in CA-G.R. No. 61885. The
Court of Appeals reversed the Decision of the Regional Trial Court
(RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.
The facts of the case follow.
On or about 2 October 1995, Anhui Chemicals Import & Export
Corporation loaded on board M/S Offshore Master a shipment
consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and
delivery at the port of Manila for consignee, L.G. Atkimson Import-
Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill of
Lading reflects the gross weight of the total cargo at 500,200
kilograms. The Owner and/or Charterer of M/V Offshore Master is
unknown while the shipper of the shipment is Shanghai Fareast Ship
Business Company. Both are foreign firms doing business in the
Philippines, thru its local ship agent, respondent Wallem Philippines
Shipping, Inc. (Wallem).
On or about 16 October 1995, the shipment arrived at the port of
Manila on board the vessel M/S Offshore Master from which it was
subsequently discharged. It was disclosed during the discharge of the
shipment from the carrier that 2,426 poly bags (bags) were in bad
order and condition, having sustained various degrees of spillages and
losses. This is evidenced by the Turn Over Survey of Bad Order
Cargoes (turn-over survey) of the arrastre operator, Asian Terminals,
Inc. (arrastre operator). The bad state of the bags is also evinced by
the arrastre operator’s Request for Bad Order Survey.
Asia Star Freight Services, Inc. undertook the delivery of the subject
shipment from the pier to the consignee’s warehouse in Quezon City,
while the final inspection was conducted jointly by the consignee’s
representative and the cargo surveyor. During the unloading, it was
found and noted that the bags had been discharged in damaged and
bad order condition. Upon inspection, it was discovered that 63,065.00
kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting
in losses due to depreciation and downgrading.
On 29 April 1996, the consignee filed a formal claim with Wallem for
the value of the damaged shipment, to no avail. Since the shipment
was insured with petitioner Philippines First Insurance Co., Inc.
against all risks in the amount of P2,470,213.50, the consignee filed a
formal claim with petitioner for the damage and losses sustained by
the shipment. After evaluating the invoices, the turn-over survey, the
bad order certificate and other documents, petitioner found the claim
to be in order and compensable under the marine insurance policy.
Consequently, petitioner paid the consignee the sum of P397,879.69
and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand
letter to Wallem for the recovery of the amount paid by petitioner to
the consignee. However, despite receipt of the letter, Wallem did not
settle nor even send a response to petitioner’s claim.
Consequently, petitioner instituted an action before the RTC for
damages against respondents for the recovery of P397,879.69
representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint
until fully paid and attorney’s fees equivalent to 25% of the principal
claim plus costs of suit.
In a decision dated 3 November 1998, the RTC ordered respondents
to pay petitioner P397,879.69 with 6% interest plus attorney’s fees
and costs of the suit. It attributed the damage and losses sustained
by the shipment to the arrastre operator’s mishandling in the
discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court
of Appeals, the RTC held the shipping company and the arrastre
operator solidarily liable since both the arrastre operator and the
carrier are charged with and obligated to deliver the goods in good
order condition to the consignee. It also ruled that the ship functioned
as a common carrier and was obliged to observe the degree of care
required of a common carrier in handling cargoes. Further, it held that
a notice of loss or damage in writing is not required in this case
because said goods already underwent a joint inspection or survey at
the time of receipt thereof by the consignee, which dispensed with the
notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision.
According to the appellate court, there is no solidary liability between
the carrier and the arrastre operator because it was clearly established
by the court a quo that the damage and losses of the shipment were
attributed to the mishandling by the arrastre operator in the discharge
of the shipment. The appellate court ruled that the instant case falls
under an exception recognized in Eastern Shipping Lines. Hence, the
arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as
a common carrier, the carrier’s duties extend to the obligation to safely
discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the
damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial
demand by petitioner for the cost of the lost/damaged shipment is an
implied admission of the former’s liability for said goods;
4. Whether or not the courts below erred in giving credence to the
testimony of Mr. Talens.
It is beyond question that respondent’s vessel is a common carrier.
Thus, the standards for determining the existence or absence of the
respondent’s liability will be gauged on the degree of diligence
required of a common carrier. Moreover, as the shipment was an
exercise of international trade, the provisions of the Carriage of Goods
by Sea Act (COGSA), together with the Civil Code and the Code of
Commerce, shall apply.
The first and second issues raised in the petition will be resolved
concurrently since they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by
the insured consignee. The damage to the shipment was documented
by the turn-over survey and Request for Bad Order Survey. The turn-
over survey, in particular, expressly stipulates that 2,426 bags of the
shipment were received by the arrastre operator in damaged
condition. With these documents, petitioner insists that the shipment
incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre
operator.
The trial court, however, found through the testimony of Mr. Maximino
Velasquez Talens, a cargo surveyor of Oceanica Cargo Marine
Surveyors Corporation, that the losses and damage to the cargo were
caused by the mishandling of the arrastre operator. Specifically, that
the torn cargo bags resulted from the use of steel hooks/spikes in
piling the cargo bags to the pallet board and in pushing the bags by
the stevedores of the arrastre operator to the tug boats then to the
ports. The appellate court affirmed the finding of mishandling in the
discharge of cargo and it served as its basis for exculpating
respondents from liability, rationalizing that with the fault of the
arrastre operator in the unloading of the cargo established it should
bear sole liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for
the damage incurred at that point of transport. To address this issue,
the pertinent laws and jurisprudence are examined.
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
For marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over
to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agreed otherwise. In Standard Oil Co. of New
York v. Lopez Castelo, the Court interpreted the ship captain’s liability
as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. Section 3 (2) thereof
then states that among the carriers’ responsibilities are to properly
and carefully load, handle, stow, carry, keep, care for, and discharge
the goods carried.
The above doctrines are in fact expressly incorporated in the bill of
lading between the shipper Shanghai Fareast Business Co., and the
consignee, to wit:
“4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier
shall commence from the time when the goods are loaded on board
the vessel and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before
loading and after discharging from the vessel, howsoever such loss or
damage arises.”
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc. the Court
explained the relationship and responsibility of an arrastre operator to
a consignee of a cargo, to quote:
“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator. Since it is the duty
of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE
and the CARRIER are therefore charged with and obligated to deliver
the goods in good condition to the consignee.” (Emphasis supplied)
(Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping
Lines, Inc. v. Court of Appeals with the clarification that the arrastre
operator and the carrier are not always and necessarily solidarily liable
as the facts of a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that
an arrastre operator and a carrier may not be held solidarily liable at
all times. But the precise question is which entity had custody of the
shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the
carriers’ responsibilities are to properly and carefully load, care for and
discharge the goods carried. The bill of lading covering the subject
shipment likewise stipulates that the carrier’s liability for loss or
damage to the goods ceases after its discharge from the vessel. Article
619 of the Code of Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery at the port of
unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V.
Farland, it was ruled that like the duty of seaworthiness, the duty of
care of the cargo is non-delegable, and the carrier is accordingly
responsible for the acts of the master, the crew, the stevedore, and
his other agents. It has also been held that it is ordinarily the duty of
the master of a vessel to unload the cargo and place it in readiness
for delivery to the consignee, and there is an implied obligation that
this shall be accomplished with sound machinery, competent hands,
and in such manner that no unnecessary injury shall be done thereto.
And the fact that a consignee is required to furnish persons to assist
in unloading a shipment may not relieve the carrier of its duty as to
such unloading.
The exercise of the carrier’s custody and responsibility over the subject
shipment during the unloading actually transpired in the instant case
during the unloading of the shipment as testified by Mr. Talens, the
cargo surveyor, to quote:
Atty. Repol:
Do you agree with me that Wallem Philippines is a shipping
[company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir.
xxx
Q Mr. Witness, during the discharging operation of this cargo, where
was the master of the vessel?
A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was
being unloaded from the vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging
of the cargo from the vessel?
A Ang head checker po ang siyang nagpapatakbo ng trabaho sa loob
ng barko, sir.
xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in
the Bad Order Inspection, to wit:
“The bad order torn bags, was due to stevedores[‘] utilizing steel
hooks/spikes in piling the cargo to [the] pallet board at the vessel’s
cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic].” (Emphasis supplied)
The records are replete with evidence which show that the damage to
the bags happened before and after their discharge and it was caused
by the stevedores of the arrastre operator who were then under the
supervision of Wallem.
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. In the
instant case, the damage or losses were incurred during the discharge
of the shipment while under the supervision of the carrier.
Consequently, the carrier is liable for the damage or losses caused to
the shipment. As the cost of the actual damage to the subject
shipment has long been settled, the trial court’s finding of actual
damages in the amount of P397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general
rule in assessing credibility of witnesses is well-settled:
“x x x the trial court’s evaluation as to the credibility of witnesses is
viewed as correct and entitled to the highest respect because it is
more competent to so conclude, having had the opportunity to
observe the witnesses’ demeanor and deportment on the stand, and
the manner in which they gave their testimonies. The trial judge
therefore can better determine if such witnesses were telling the truth,
being in the ideal position to weigh conflicting testimonies. Therefore,
unless the trial judge plainly overlooked certain facts of substance and
value which, if considered, might affect the result of the case, his
assessment on credibility must be respected.”
Contrary to petitioner’s stance on the third issue, Wallem’s failure to
respond to its demand letter does not constitute an implied admission
of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes,
thus:
“A man cannot make evidence for himself by writing a letter containing
the statements that he wishes to prove. He does not make the letter
evidence by sending it to the party against whom he wishes to prove
the facts [stated therein]. He no more can impose a duty to answer a
charge than he can impose a duty to pay by sending goods. Therefore,
a failure to answer such adverse assertions in the absence of further
circumstances making an answer requisite or natural has no effect as
an admission.”
With respect to the attorney’s fees, it is evident that petitioner was
compelled to litigate this matter to protect its interest. The RTC’s
award of P20,000.00 as attorney’s fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 22 June 2004 and its Resolution dated 11 October 2004
are REVERSED and SET ASIDE. Wallem is ordered to pay petitioner
the sum of P397,879.69, with interest thereon at 6% per annum from
the filing of the complaint on 7 October 1996 until the judgment
becomes final and executory. Thereafter, an interest rate of 12% per
annum shall be imposed.48 Respondents are also ordered to pay
petitioner the amount of P20,000.00 for and as attorney’s fees,
together with the costs of the suit.
SO ORDERED.
Austria-Martinez, Corona, Velasco, Jr. and Brion, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes. — The Carriage of Goods by Sea Act (COGSA), which is
suppletory to the provisions of the Civil Code, supplements the latter
by establishing a statutory provision limiting the carrier’s liability in the
absence of a shipper’s Philippines First Insurance, Co., Inc. vs. Wallem
Phils. Shipping, Inc., 582 SCRA 457, G.R. No. 165647 March 26, 2009
——o0o——
ASIAN TERMINALS, INC., petitioner, vs. PHILAM
INSURANCE CO., INC. (now Chartis Philippines Insurance,
Inc.), respondent
G.R. No. 181163. July 24, 2013
PHILAM INSURANCE CO., INC. (now Chartis Philippines
Insurance, Inc.), petitioner, vs. WESTWIND SHIPPING
CORPORATION and ASIAN TERMINALS, INC., respondents
G.R. No. 181262. July 24, 2013
WESTWIND SHIPPING CORPORATION, petitioner, vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines
Insurance, Inc.) and ASIAN TERMINALS, INC., respondents
G.R. No. 181319. July 24, 2013
Remedial Law; Civil Procedure; “Question of Law” and “Question of
Fact,” Distinguished. — There is a question of law if the issue raised
is capable of being resolved without need of reviewing the probative
value of the evidence. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the
question posed is one of fact. If the query requires a re-evaluation of
the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, the issue
in that query is factual.
Same; Same; Supreme Court; The Supreme Court may resolve
questions of fact when the case falls under any of the exceptions.—
But while it is not our duty to review, examine and evaluate or weigh
all over again the probative value of the evidence presented, the Court
may nonetheless resolve questions of fact when the case falls under
any of the following exceptions: (1) when the findings are grounded
entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings
are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent;
and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.
Insurance Law; Right of Subrogation; The right of subrogation accrues
simply upon payment by the insurance company of the insurance
claim. — The Court holds that petitioner Philam has adequately
established the basis of its claim against petitioners ATI and
Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation
Receipt executed by the latter in favor of the former. The right of
subrogation accrues simply upon payment by the insurance company
of the insurance claim. Petitioner Philam’s action finds support in
Article 2207 of the Civil Code, which provides as follows: Art. 2207. If
the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
Remedial Law; Evidence; Public Documents; Private Documents; The
nature of documents as either public or private determines how the
documents may be presented as evidence in court. Public documents,
as enumerated under Section 19, Rule 132 of the Rules of Court, are
self-authenticating and require no further authentication in order to
be presented as evidence in court. In contrast, a private document is
any other writing, deed or instrument executed by a private person
without the intervention of a notary or other person legally authorized
by which some disposition or agreement is proved or set forth. — The
nature of documents as either public or private determines how the
documents may be presented as evidence in court. Public documents,
as enumerated under Section 19, Rule 132 of the Rules of Court, are
self-authenticating and require no further authentication in order to
be presented as evidence in court. In contrast, a private document is
any other writing, deed or instrument executed by a private person
without the intervention of a notary or other person legally authorized
by which some disposition or agreement is proved or set forth. Lacking
the official or sovereign character of a public document, or the
solemnities prescribed by law, a private document requires
authentication in the manner prescribed under Section 20, Rule 132
of the Rules: SEC. 20. Proof of private document. — Before any
private document offered as authentic is received in evidence, its due
execution and authenticity must be proved either: (a) By anyone who
saw the document executed or written; or (b) By evidence of the
genuineness of the signature or handwriting of the maker. Any other
private document need only be identified as that which it is claimed to
be. The requirement of authentication of a private document is
excused only in four instances, specifically: (a) when the document is
an ancient one within the context of Section 21, Rule 132 of the Rules;
(b) when the genuineness and authenticity of the actionable document
have not been specifically denied under oath by the adverse party; (c)
when the genuineness and authenticity of the document have been
admitted; or (d) when the document is not being offered as genuine.
Mercantile Law; Carriage of Goods by Sea Act (COGSA); The Carriage
of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US
Congress, was accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade
by virtue of Commonwealth Act (C.A.) No. 65.—The Carriage of Goods
by Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress,
was accepted to be made applicable to all contracts for the carriage
of goods by sea to and from Philippine ports in foreign trade by virtue
of Commonwealth Act (C.A.) No. 65. Section 1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred
and twenty-one of the Seventy-fourth Congress of the United States,
approved on April sixteenth, nineteen hundred and thirty-six, be
accepted, as it is hereby accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade: Provided, That nothing in the Act shall be construed
as repealing any existing provision of the Code of Commerce which is
now in force, or as limiting its application.
Same; Letter of Credit; Words and Phrases; A letter of credit is a
financial device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods
before he is paid, and a buyer, who wants to have control of his goods
before paying.—A letter of credit is a financial device developed by
merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a
seller, who refuses to part with his goods before he is paid, and a
buyer, who wants to have control of his goods before paying.
However, letters of credit are employed by the parties desiring to enter
into commercial transactions, not for the benefit of the issuing bank
but mainly for the benefit of the parties to the original transaction, in
these cases, Nichimen Corporation as the seller and Universal Motors
as the buyer. Hence, the latter, as the buyer of the Nissan CKD parts,
should be regarded as the person entitled to delivery of the goods.
Accordingly, for purposes of reckoning when notice of loss or damage
should be given to the carrier or its agent, the date of delivery to
Universal Motors is controlling.
Same; Common Carriers; Extraordinary Diligence; 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 transported by them. — 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 transported by
them. Subject to certain exceptions enumerated under Article 1734 of
the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who
has a right to receive them.
Same; Same; It is settled in maritime law jurisprudence that cargoes
while being unloaded generally remain under the custody of the
carrier. — It is settled in maritime law jurisprudence that cargoes while
being unloaded generally remain under the custody of the carrier. The
Damage Survey Report of the survey conducted by Phil. Navtech
Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-
42K/1 was damaged by ATI stevedores due to overtightening of a
cable sling hold during discharge from the vessel’s hatch to the pier.
Since the damage to the cargo was incurred during the discharge of
the shipment and while under the supervision of the carrier, the latter
is liable for the damage caused to the cargo.
Same; Arrastre Operators; The functions of an arrastre operator
involve the handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle.—The
functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee
or shipper and the ship’s tackle. 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. Handling cargo is mainly the arrastre operator’s principal
work so its drivers/operators or employees should observe the
standards and measures necessary to prevent losses and damage to
shipments under its custody. While it is true that an arrastre operator
and a carrier may not be held solidarily liable at all times, the facts of
these cases show that apart from ATI’s stevedores being directly in
charge of the physical unloading of the cargo, its foreman picked the
cable sling that was used to hoist the packages for transfer to the
dock. Moreover, the fact that 218 of the 219 packages were unloaded
with the same sling unharmed is telling of the inadequate care with
which ATI’s stevedore handled and discharged Case No. 03-245-
42K/1.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Cruz, Capule, Marcon & Nabaza Law Office for Asian Terminals, Inc.
Albert R. Palacios Law Office for Philam Insurance Co., Inc.
Balane, Tamase, Alampay Law Offices for Westwind Shipping Corp.
VILLARAMA, JR., J.:
Before us are three consolidated petitions for review on certiorari
assailing the Decision dated October 15, 2007 and the Resolution
dated January 11, 2008 of the Court of Appeals (CA) which affirmed
with modification the Decision of the Regional Trial Court (RTC) of
Makati City, Branch 148, in Civil Case No. 96-062. The RTC had
ordered Westwind Shipping Corporation (Westwind) and Asian
Terminals, Inc. (ATI) to pay, jointly and severally, Philam Insurance
Co., Inc. (Philam) the sum of P633,957.15, with interest at 12% per
annum from the date of judicial demand and P158,989.28 as
attorney’s fees.
The facts of the case follow:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors
Corporation (Universal Motors) 219 packages containing 120 units of
brand new Nissan Pickup Truck Double Cab 4x2 model, without
engine, tires and batteries, on board the vessel S/S “Calayan Iris” from
Japan to Manila. The shipment, which had a declared value of
US$81,368 or P29,400,000, was insured with Philam against all risks
under Marine Policy No. 708-8006717-4.
The carrying vessel arrived at the port of Manila on April 20, 1995,
and when the shipment was unloaded by the staff of ATI, it was found
that the package marked as 03-245-42K/1 was in bad order. The Turn
Over Survey of Bad Order Cargoes6 dated April 21, 1995 identified
two packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being
dented and broken. Thereafter, the cargoes were stored for temporary
safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla
Customs Brokerage, Inc., the authorized broker of Universal Motors,
and delivered to the latter’s warehouse in Mandaluyong City. Upon the
request of Universal Motors, a bad order survey was conducted on the
cargoes and it was found that one Frame Axle Sub without LWR was
deeply dented on the buffle plate while six Frame Assembly with
Bush were deformed and misaligned. Owing to the extent of the
damage to said cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages
in the amount of P643,963.84 against Westwind, ATI and R.F. Revilla
Customs Brokerage, Inc. When Universal Motors’ demands remained
unheeded, it sought reparation from and was compensated in the sum
of P633,957.15 by Philam.
Accordingly, Universal Motors issued a Subrogation Receipt dated
November 15, 1995 in favor of Philam.On January 18, 1996, Philam,
as subrogee of Universal Motors, filed a Complaint for damages
against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc.
before the RTC of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of
Philam and ordered Westwind and ATI to pay Philam, jointly and
severally, the sum of P633,957.15 with interest at the rate of 12% per
annum, P158,989.28 by way of attorney’s fees and expenses of
litigation.
The court a quo ruled that there was sufficient evidence to establish
the respective participation of Westwind and ATI in the discharge of
and consequent damage to the shipment. It found that the subject
cargoes were compressed while being hoisted using a cable that was
too short and taut. The trial court observed that while the staff of ATI
undertook the physical unloading of the cargoes from the carrying
vessel, Westwind’s duty officer exercised full supervision and control
throughout the process. It held Westwind vicariously liable for failing
to prove that it exercised extraordinary diligence in the supervision of
the ATI stevedores who unloaded the cargoes from the vessel.
However, the court absolved R.F. Revilla Customs Brokerage, Inc.
from liability in light of its finding that the cargoes had been damaged
before delivery to the consignee.
The trial court acknowledged the subrogation between Philam and
Universal Motors on the strength of the Subrogation Receipt dated
November 15, 1995. It likewise upheld Philam’s claim for the value of
the alleged damaged vehicle parts contained in Case Nos. 03-245-
42K/1 and 03-245-51K or specifically for “7 [pieces] of Frame Axle Sub
Without Lower and Frame Assembly with Bush.”
Westwind filed a Motion for Reconsideration which was, however,
denied in an Order dated October 26, 2000.
On appeal, the CA affirmed with modification the ruling of the RTC. In
a Decision dated October 15, 2007, the appellate court directed
Westwind and ATI to pay Philam, jointly and severally, the amount of
P190,684.48 with interest at the rate of 12% per annum until fully
paid, attorney’s fees of P47,671 and litigation expenses.
The CA stressed that Philam may not modify its allegations by claiming
in its Appellee’s Brief that the six pieces of Frame Assembly with Bush,
which were purportedly damaged, were also inside Case No. 03-245-
42K/1. The CA noted that in its Complaint, Philam alleged that “one
(1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 [was]
completely deformed and misaligned, and six (6) other pcs. of FRAME
ASSEMBLY WITH BUSH from Case No. 03-245-51K [were] likewise
completely deformed and misaligned.”
The appellate court accordingly affirmed Westwind and ATI’s joint and
solidary liability for the damage to only one (1) unit of Frame Axle Sub
without Lower inside Case No. 03-245-42K/1. It also noted that when
said cargo sustained damage, it was not yet in the custody of the
consignee or the person who had the right to receive it. The CA
pointed out that Westwind’s duty to observe extraordinary diligence
in the care of the cargoes subsisted during unloading thereof by ATI’s
personnel since the former exercised full control and supervision over
the discharging operation.
Similarly, the appellate court held ATI liable for the negligence of its
employees who carried out the offloading of cargoes from the ship to
the pier. As regards the extent of ATI’s liability, the CA ruled that ATI
cannot limit its liability to P5,000 per damaged package. It explained
that Section 7.01 of the Contract for Cargo Handling Services does not
apply in this case since ATI was not yet in custody and control of the
cargoes when the Frame Axle Sub without Lower suffered damage.
Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine
First Insurance Co., Inc., the appellate court also held that Philam’s
action for damages had not prescribed notwithstanding the absence
of a notice of claim.
All the parties moved for reconsideration, but their motions were
denied in a Resolution dated January 11, 2008. Thus, they each filed
a petition for review on certiorari which were consolidated together by
this Court considering that all three petitions assail the same CA
decision and resolution and involve the same parties.
Essentially, the issues posed by petitioner ATI in G.R. No. 181163,
petitioner Philam in G.R. No. 181262 and petitioner Westwind in G.R.
No. 181319 can be summed up into and resolved by addressing three
questions: (1) Has Philam’s action for damages prescribed? (2) Who
between Westwind and ATI should be held liable for the damaged
cargoes? and (3) What is the extent of their liability?
Petitioners’ Arguments
G.R. No. 181163
Petitioner ATI disowns liability for the damage to the Frame Axle Sub
without Lower inside Case No. 03-245-42K/1. It shifts the blame to
Westwind, whom it charges with negligence in the supervision of the
stevedores who unloaded the cargoes. ATI admits that the damage
could have been averted had Westwind observed extraordinary
diligence in handling the goods. Even so, ATI suspects that Case No.
03-245-42K/1 is “weak and defective” considering that it alone
sustained damage out of the 219 packages.
Notwithstanding, petitioner ATI submits that, at most, it can be held
liable to pay only P5,000 per package pursuant to its Contract for
Cargo Handling Services. ATI maintains that it was not properly
notified of the actual value of the cargoes prior to their discharge from
the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both Westwind and ATI
liable for the deformed and misaligned Frame Axle Sub without Lower
inside Case No. 03-245-42K/1. It, however, faults the appellate court
for disallowing its claim for the value of six Chassis Frame Assembly
which were likewise supposedly inside Case Nos. 03-245-51K and 03-
245-42K/1. As to the latter container, Philam anchors its claim on the
results of the Inspection/Survey Report of Chartered Adjusters, Inc.,
which the court received without objection from Westwind and ATI.
Petitioner believes that with the offer and consequent admission of
evidence to the effect that Case No. 03-245-42K/1 contains six pieces
of dented Chassis Frame Assembly, Philam’s claim thereon should be
treated, in all respects, as if it has been raised in the pleadings. Thus,
Philam insists on the reinstatement of the trial court’s award in its
favor for the payment of P633,957.15 plus legal interest, P158,989.28
as attorney’s fees and costs.
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the value of the
deformed Frame Axle Sub without Lower in Case No. 03-245-42K/1.
Westwind argues that the evidence shows that ATI was already in
actual custody of said case when the Frame Axle Sub without Lower
inside it was misaligned from being compressed by the tight cable
used to unload it. Accordingly, Westwind ceased to have responsibility
over the cargoes as provided in paragraph 4 of the Bill of Lading which
provides that the responsibility of the carrier shall cease when the
goods are taken into the custody of the arrastre.
Westwind contends that sole liability for the damage rests on ATI since
it was the latter’s stevedores who operated the ship’s gear to unload
the cargoes. Westwind reasons that ATI is an independent company,
over whose employees and operations it does not exercise control.
Moreover, it was ATI’s employees who selected and used the wrong
cable to lift the box containing the cargo which was damaged.
Westwind likewise believes that ATI is bound by its acceptance of the
goods in good order despite a finding that Case No. 03-245-42K/1 was
partly torn and crumpled on one side. Westwind also notes that the
discovery that a piece of Frame Axle Sub without Lower was
completely deformed and misaligned came only on May 12, 1995 or
22 days after the cargoes were turned over to ATI and after the same
had been hauled by R.F. Revilla Customs Brokerage, Inc.
Westwind further argues that the CA erred in holding it liable
considering that Philam’s cause of action has prescribed since the
latter filed a formal claim with it only on August 17, 1995 or four
months after the cargoes arrived on April 20, 1995. Westwind stresses
that according to the provisions of clause 20, paragraph 2 of the Bill
of Lading as well as Article 366 of the Code of Commerce, the
consignee had until April 20, 1995 within which to make a claim
considering the readily apparent nature of the damage, or until April
27, 1995 at the latest, if it is assumed that the damage is not readily
apparent.
Lastly, petitioner Westwind contests the imposition of 12% interest on
the award of damages to Philam reckoned from the time of
extrajudicial demand. Westwind asserts that, at most, it can only be
charged with 6% interest since the damages claimed by Philam does
not constitute a loan or forbearance of money.
The Court’s Ruling
The three consolidated petitions before us call for a determination of
who between ATI and Westwind is liable for the damage suffered by
the subject cargo and to what extent. However, the resolution of the
issues raised by the present petitions is predicated on the appreciation
of factual issues which is beyond the scope of a petition for review on
certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended. It is settled that in petitions for review on certiorari, only
questions of law may be put in issue. Questions of fact cannot be
entertained.
There is a question of law if the issue raised is capable of being
resolved without need of reviewing the probative value of the
evidence. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed
is one of fact. If the query requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of surrounding circumstances
and their relation to each other, the issue in that query is factual.
In the present petitions, the resolution of the question as to who
between Westwind and ATI should be liable for the damages to the
cargo and to what extent would have this Court pass upon the
evidence on record. But while it is not our duty to review, examine
and evaluate or weigh all over again the probative value of the
evidence presented, the Court may nonetheless resolve questions of
fact when the case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when in making
its findings the Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and
the appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner’s main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by
the evidence on record.
In the cases at bar, the fifth and seventh exceptions apply. While the
CA affirmed the joint liability of ATI and Westwind, it held them liable
only for the value of one unit of Frame Axle Sub without Lower inside
Case No. 03-245-42K/1. The appellate court disallowed the award of
damages for the six pieces of Frame Assembly with Bush, which
petitioner Philam alleged, for the first time in its Appellee’s Brief, to be
likewise inside Case No. 03-245-42K/1. Lastly, the CA reduced the
award of attorney’s fees to P47,671.
Foremost, the Court holds that petitioner Philam has adequately
established the basis of its claim against petitioners ATI and
Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation
Receipt executed by the latter in favor of the former. The right of
subrogation accrues simply upon payment by the insurance company
of the insurance claim. Petitioner Philam’s action finds support in
Article 2207 of the Civil Code, which provides as follows:
Art. 2207. If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract.
x x x.
In their respective comments to Philam’s Formal Offer of Evidence,
petitioners ATI and Westwind objected to the admission of Marine
Certificate No. 708-8006717-4 and the Subrogation Receipt as
documentary exhibits “B” and “P,” respectively. Petitioner Westwind
objects to the admission of both documents for being hearsay as they
were not authenticated by the persons who executed them. For the
same reason, petitioner ATI assails the admissibility of the
Subrogation Receipt. As regards Marine Certificate No. 708-8006717-
4, ATI makes issue of the fact that the same was issued only on April
27, 1995 or 12 days after the shipment was loaded on and transported
via S/S “Calayan Iris.”
The nature of documents as either public or private determines how
the documents may be presented as evidence in court. Public
documents, as enumerated under Section 19, Rule 132 of the Rules
of Court, are self-authenticating and require no further authentication
in order to be presented as evidence in court.
In contrast, a private document is any other writing, deed or
instrument executed by a private person without the intervention of a
notary or other person legally authorized by which some disposition
or agreement is proved or set forth. Lacking the official or sovereign
character of a public document, or the solemnities prescribed by law,
a private document requires authentication in the manner prescribed
under Section 20, Rule 132 of the Rules:
SEC. 20. Proof of private document. — Before any private document
offered as authentic is received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting
of the maker.
Any other private document need only be identified as that which it is
claimed to be.
The requirement of authentication of a private document is excused
only in four instances, specifically: (a) when the document is an
ancient one within the context of Section 21, Rule 132 of the Rules;
(b) when the genuineness and authenticity of the actionable document
have not been specifically denied under oath by the adverse party; (c)
when the genuineness and authenticity of the document have been
admitted; or (d) when the document is not being offered as genuine.
Indubitably, Marine Certificate No. 708-8006717-4 and the
Subrogation Receipt are private documents which Philam and the
consignee, respectively, issue in the pursuit of their business. Since
none of the exceptions to the requirement of authentication of a
private document obtains in these cases, said documents may not be
admitted in evidence for Philam without being properly authenticated.
Contrary to the contention of petitioners ATI and Westwind, however,
Philam presented its claims officer, Ricardo Ongchangco, Jr. to testify
on the execution of the Subrogation Receipt, as follows:
ATTY. PALACIOS
Q How were you able to get hold of this subrogation receipt?
A Because I personally delivered the claim check to consignee and
have them [receive] the said check.
Q I see. Therefore, what you are saying is that you personally
delivered the claim check of Universal Motors Corporation to that
company and you have the subrogation receipt signed by them
personally?
A Yes, sir.
Q And it was signed in your presence?
A Yes, sir.
Indeed, all that the Rules require to establish the authenticity of a
document is the testimony of a person who saw the document
executed or written. Thus, the trial court did not err in admitting the
Subrogation Receipt in evidence despite petitioners ATI and
Westwind’s objections that it was not authenticated by the person who
signed it.
However, the same cannot be said about Marine Certificate No. 708-
8006717-4 which Ongchangcho, Jr. merely identified in court. There
is nothing in Ongchangco, Jr.’s testimony which indicates that he saw
Philam’s authorized representative sign said document, thus:
ATTY. PALACIOS
Q Now, I am presenting to you a copy of this marine certificate 708-
8006717-4 issued by Philam Insurance Company, Inc. to Universal
Motors Corporation on April 15, 1995. Will you tell us what relation
does it have to that policy risk claim mentioned in that letter?
A This is a photocopy of the said policy issued by the consignee
Universal Motors Corporation.
ATTY. PALACIOS
I see. [May] I request, if Your Honor please, that this marine risk
policy of the plaintiff as submitted by claimant Universal Motors
Corporation be marked as Exhibit B.
COURT
Mark it.
As regards the issuance of Marine Certificate No. 708-8006717-4 after
the fact of loss occurred, suffice it to say that said document simply
certifies the existence of an open insurance policy in favor of the
consignee. Hence, the reference to an “Open Policy Number 9595093”
in said certificate. The Court finds it completely absurd to suppose that
any insurance company, of sound business practice, would assume a
loss that has already been realized, when the profitability of its
business rests precisely on the non-happening of the risk insured
against.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4,
the Subrogation Receipt, on its own, is adequate proof that petitioner
Philam paid the consignee’s claim on the damaged goods. Petitioners
ATI and Westwind failed to offer any evidence to controvert the same.
In Malayan Insurance Co., Inc. v. Alberto, the Court explained the
effect of payment by the insurer of the insurance claim in this wise:
We have held that payment by the insurer to the insured operates as
an equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the
insurance claim. The doctrine of subrogation has its roots in equity. It
is designed to promote and accomplish justice; and is the mode that
equity adopts to compel the ultimate payment of a debt by one who,
in justice, equity, and good conscience, ought to pay.
Neither do we find support in petitioner Westwind’s contention that
Philam’s right of action has prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of
the 74th US Congress, was accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade by virtue of Commonwealth Act (C.A.) No. 65. Section
1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred
and twenty-one of the Seventy-fourth Congress of the United States,
approved on April sixteenth, nineteen hundred and thirty-six, be
accepted, as it is hereby accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade: Provided, That nothing in the Act shall be construed
as repealing any existing provision of the Code of Commerce which is
now in force, or as limiting its application.
The prescriptive period for filing an action for the loss or damage of
the goods under the COGSA is found in paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such
loss or damage be given in writing to the carrier or his agent at the
port of discharge before or at the time of the removal of the goods
into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the
delivery by the carrier of the goods as described in the bill of lading.
If the loss or damage is not apparent, the notice must be given within
three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for
the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has
at the time of their receipt been the subject of joint survey or
inspection.
In any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should
have been delivered: Provided, That if a notice of loss or damage,
either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of the goods or the date
when the goods should have been delivered.
In the Bill of Lading dated April 15, 1995, Rizal Commercial Banking
Corporation (RCBC) is indicated as the consignee while Universal
Motors is listed as the notify party. These designations are in line with
the subject shipment being covered by Letter of Credit No. I501054,
which RCBC issued upon the request of Universal Motors.
A letter of credit is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales of goods to
satisfy the seemingly irreconcilable interests of a seller, who refuses
to part with his goods before he is paid, and a buyer, who wants to
have control of his goods before paying. However, letters of credit are
employed by the parties desiring to enter into commercial
transactions, not for the benefit of the issuing bank but mainly for the
benefit of the parties to the original transaction, in these cases,
Nichimen Corporation as the seller and Universal Motors as the buyer.
Hence, the latter, as the buyer of the Nissan CKD parts, should be
regarded as the person entitled to delivery of the goods. Accordingly,
for purposes of reckoning when notice of loss or damage should be
given to the carrier or its agent, the date of delivery to Universal
Motors is controlling.
S/S “Calayan Iris” arrived at the port of Manila on April 20, 1995, and
the subject cargoes were discharged to the custody of ATI the next
day. The goods were then withdrawn from the CFS Warehouse on May
11, 1995 and the last of the packages delivered to Universal Motors
on May 17, 1995. Prior to this, the latter filed a Request for Bad Order
Survey on May 12, 1995 following a joint inspection where it was
discovered that six pieces of Chassis Frame Assembly from two
bundles were deformed and one Front Axle Sub without Lower from a
steel case was dented. Yet, it was not until August 4, 1995 that
Universal Motors filed a formal claim for damages against petitioner
Westwind.
Even so, we have held in Insurance Company of North America v.
Asian Terminals, Inc. that a request for, and the result of a bad order
examination, done within the reglementary period for furnishing notice
of loss or damage to the carrier or its agent, serves the purpose of a
claim. A claim is required to be filed within the reglementary period to
afford the carrier or depositary reasonable opportunity and facilities to
check the validity of the claims while facts are still fresh in the minds
of the persons who took part in the transaction and documents are
still available. Here, Universal Motors filed a request for bad order
survey on May 12, 1995, even before all the packages could be
unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that
failure to comply with the notice requirement shall not affect or
prejudice the right of the shipper to bring suit within one year after
delivery of the goods. Petitioner Philam, as subrogee of Universal
Motors, filed the Complaint for damages on January 18, 1996, just
eight months after all the packages were delivered to its possession
on May 17, 1995. Evidently, petitioner Philam’s action against
petitioners Westwind and ATI was seasonably filed.
This brings us to the question that must be resolved in these
consolidated petitions. Who between Westwind and ATI should be
liable for the damage to the cargo?
It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and
crumpled on one side while it was being unloaded from the carrying
vessel. The damage to said container was noted in the Bad Order
Cargo Receipt dated April 20, 1995 and Turn Over Survey of Bad Order
Cargoes dated April 21, 1995. The Turn Over Survey of Bad Order
Cargoes indicates that said steel case was not opened at the time of
survey and was accepted by the arrastre in good order. Meanwhile,
the Bad Order Cargo Receipt bore a notation “B.O. not yet t/over to
ATI.” On the basis of these documents, petitioner ATI claims that the
contents of Steel Case No. 03-245-42K/1 were damaged while in the
custody of petitioner Westwind.
We agree.
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
The court a quo, however, found both petitioners Westwind and ATI,
jointly and severally, liable for the damage to the cargo. It observed
that while the staff of ATI undertook the physical unloading of the
cargoes from the carrying vessel, Westwind’s duty officer exercised
full supervision and control over the entire process. The appellate
court affirmed the solidary liability of Westwind and ATI, but only for
the damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no reason to
deviate from the finding that petitioners Westwind and ATI are
concurrently accountable for the damage to the content of Steel Case
No. 03-245-42K/1.
Section 2 of the COGSA provides that under every contract of carriage
of goods by the sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care and discharge of such goods, shall
be subject to the responsibilities and liabilities and entitled to the
rights and immunities set forth in the Act. Section 3 (2) thereof then
states that among the carrier’s responsibilities are to properly load,
handle, stow, carry, keep, care for and discharge the goods carried.
At the trial, Westwind’s Operation Assistant, Menandro G. Ramirez,
testified on the presence of a ship officer to supervise the unloading
of the subject cargoes.
ATTY. LLAMAS
Q Having been present during the entire discharging operation, do
you remember who else were present at that time?
A Our surveyor and our checker the foreman of ATI.
Q Were there officials of the ship present also?
A Yes, sir there was an officer of the vessel on duty at that time.
xxxx
Q Who selected the cable sling to be used?
A ATI Operation.
Q Are you aware of how they made that selection?
A Before the vessel arrived we issued a manifesto of the storage plan
informing the ATI of what type of cargo and equipment will be utilized
in discharging the cargo.
xxxx
Q You testified that it was the ATI foremen who select the cable sling
to be used in discharging, is that correct?
A Yes sir, because they are the one who select the sling and they
know the kind of cargoes because they inspected it before the
discharge of said cargo.
Q Are you aware that the ship captain is consulted in the selection
of the cable sling?
A Because the ship captain knows for a fact the equipment being
utilized in the discharge of the cargoes because before the ship leave
the port of Japan the crew already utilized the proper equipment fitted
to the cargo. (Emphasis supplied.)
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. The
Damage Survey Report58 of the survey conducted by Phil. Navtech
Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-
42K/1 was damaged by ATI stevedores due to overtightening of a
cable sling hold during discharge from the vessel’s hatch to the pier.
Since the damage to the cargo was incurred during the discharge of
the shipment and while under the supervision of the carrier, the latter
is liable for the damage caused to the cargo.
This is not to say, however, that petitioner ATI is without liability for
the damaged cargo.
The functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee
or shipper and the ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
While it is true that an arrastre operator and a carrier may not be held
solidarily liable at all times, the facts of these cases show that apart
from ATI’s stevedores being directly in charge of the physical
unloading of the cargo, its foreman picked the cable sling that was
used to hoist the packages for transfer to the dock. Moreover, the fact
that 218 of the 219 packages were unloaded with the same sling
unharmed is telling of the inadequate care with which ATI’s stevedore
handled and discharged Case No. 03-245-42K/1.
With respect to petitioners ATI and Westwind’s liability, we agree with
the CA that the same should be confined to the value of the one-piece
Frame Axle Sub without Lower.
In the Bad Order Inspection Report prepared by Universal Motors, the
latter referred to Case No. 03-245-42K/1 as the source of said Frame
Axle Sub without Lower which suffered a deep dent on its buffle plate.
Yet, it identified Case No. 03-245-51K as the container which bore the
six pieces Frame Assembly with Bush. Thus, in Philam’s Complaint, it
alleged that “the entire shipment showed one (1) pc. FRAME AXLE
SUB W/O LWR from Case No. 03-245-42K/1 [was] completely
deformed and misaligned, and six (6) other pcs. of FRAME ASSEMBLY
WITH BUSH from Case No. 03-245-51K [were] likewise completely
deformed and misaligned.” Philam later claimed in its Appellee’s Brief
that the six pieces of Frame Assembly with Bush were also inside the
damaged Case No. 03-245-42K/1.
However, there is nothing in the records to show conclusively that the
six Frame Assembly with Bush were likewise contained in and
damaged inside Case No. 03-245-42K/1. In the Inspection Survey
Report of Chartered Adjusters, Inc., it mentioned six pieces of chassis
frame assembly with deformed body mounting bracket. However, it
merely noted the same as coming from two bundles with no
identifying marks.
Lastly, we agree with petitioner Westwind that the CA erred in
imposing an interest rate of 12% on the award of damages. Under
Article 2209 of the Civil Code, 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. In the similar case of Belgian Overseas
Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc.,
the Court reduced the rate of interest on the damages awarded to the
carrier therein to 6% from the time of the filing of the complaint until
the finality of the decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision
dated October 15, 2007 and the Resolution dated January 11, 2008 of
the Court of Appeals in CA-G.R. CV No. 69284 in that the interest rate
on the award of P190,684.48 is reduced to 6% per annum from the
date of extrajudicial demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and G.R. No.
181319, respectively.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Peralta and Bersamin,
JJ., concur.
Judgment and resolution affirmed with modification.
Notes. — Common carriers, like petitioner bus company, 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.
(R Transport Corporation vs. Pante, 599 SCRA 747 [2009])
Under Section 3(6) of the Carriage of Goods by Sea Act (COGSA),
notice of loss or damages must be filled within three days of delivery;
A failure to file a notice of claim within three days will not bar recovery
of a suit is nonetheless filed within one year from delivery of the goods
or from the date when the goods should have been delivered. (Wallem
Philippines Shipping, Inc. vs. S.R. Farms, Inc., 624 SCRA 329 [2010])
——o0o——
FIREMEN’S FUND INSURANCE COMPANY, plaintiff -appellee,
vs. CIA.GENERAL DE TABACOS DE FILIPINAS, ET AL.,
defendants, MANILA PORT SERVICE and/or MANILA
RAILROAD COMPANY, defendants-appellants
NO. L-29338. August 15, 1970
Obligations and contracts; Management contract limiting liability of
contractor-consignee not signing annotation thereof on delivery
permit not bound thereby. — In the case at bar, the delivery permit,
marked as Exhibit “E,” does not incorporate or make any reference to
“Section 15” of the Management Contract. No gate pass or other
evidence has been introduced to show that the consignee had made
use of any document incorporating said provision or making any
reference thereto. Not being a party to said contract and not having
availed of the provisions thereof, the insurer is not bound by the
limitation therein contained.
APPEAL from a decision of the Court of First Instance of Manila.
Alikpala, J.
The facts are stated in the opinion of the Court.
William H. Quasha & Associates for plaintiff-appellee
Ross, Selph & Associates for defendants.
 Corporate Legal Counsel D. F. Macaranas and Trial Attorney
Antonio G. Holgado for defendants-appellants.
CONCEPCION, C.J.:
In their appeal from the supplemental decision of the Court of First
Instance of Manila in this case, defendants Manila Port Service and
Manila Railroad Co. pray that the sum of P1,898.66 they were
sentenced therein to pay to plaintiff-appellee, the Firemen’s Fund
Insurance Co. with interest and costs, be reduced to P500.
The facts are not disputed. Out of 15 cartons, shipped, at the port of
New York, on board the vessel “Susan Maersk,” and insured against
damage or loss with the Firemen’s Fund Insurance Co.—hereinafter
referred to as the Insurer—only 14 carbons—part of the contents of
one of which (case No. 218) was missing—were delivered by the
Manila Railroad Co., through its subsidiary, the Manila Port Service, as
arrastre operator for the Port of Manila, to the consignee, the General
Electric Co., (PI), Inc. Hence, the latter seasonably filed its claim for
the un-delivered carton—case No. 6652—valued at P1,898.66, and for
the missing contents of one of the delivered cartoms—case No. 218—
against the Manila Railroad Co. and the Manila Port Service, as well as
against the Compania General de Tabacos de Filipinas, the vessel’s
agent in the Philippines, hereinafter referred to as the Carrier.
As subrogee of the consignee, upon payment thereto of said sum of
P1,898.66, for the missing carton, the Insurer commenced, in the
Court of First Instance of Manila, the present action against the
Carrier, the Manila Railroad Co. and the Manila Port Service, to recover
the value of the missing goods, with interests and costs. After due
hearing, said court rendered judgment finding that the entire
shipment of 15 cartons had been unloaded from the MS “Susan
Maersk” unto the custody of the Manila Port Service, which however,
failed to deliver to the consignee the carton in question—case No.
6652—but dismissing the complaint against the Manila Port Service
and the Manila Railroad Co., upon the ground that, since the amount
of plaintiff’s claim is less than P5,000, the cause of action against said
defendants is not within the original jurisdiction of the Court of First
Instance. Upon the theory that, insofar as the Carrier is concerned,
the action was, however, one in admiralty, this defendant was
sentenced to pay the Insurer the sum of P38.25, for the missing
contents of case No. 218, with interest thereon. On appeal, taken by
the Insurer, the Supreme Court reversed said decision, insofar as it
dismissed the action of the former against the Manila Port Service and
the Manila Railroad Co., and directed the lower court to proceed
further with the case, with costs against such defendants.
Upon subsequent retrial, the lower court rendered a supplemental
decision for the plaintiff, and against the Manila Port Service and the
Manila Railroad Co., in the aforementioned sum of P1,898.66, with
interest and costs. Hence, this appeal by said defendants, who
maintain that the judgment against them should be reduced to the
sum of P500, pursuant to section 15 of the Management Contract,
Exhibit “10-MPS,” the pertinent part of which reads:
“x x x and the CONTRACTOR shall be solely responsible as an
independent contractor for, and promptly pay to the steamship
company, consignee, consignor, or other interested party or parties
the invoice value of each package but which in no case shall be more
than five hundred pesos (P500.00) for each package unless the value
is otherwise specified or manifested, x x x.”
In support of their contention, appellants quote from Domestic
Insurance Company of the Philippines v. Manila Port Service:
“The question thus presented is not new, the same having been
squarely decided by us in Jose Bernabe, Inc. vs. Delgado Brothers,
Inc., G.R. No. L-14360, February 29, 1960; Atlantic Mutual Insurance
Co. vs. Manila Port Service, et al.. G.R. No. L-16271, October 31. 1961;
The Insurance Company of North America vs. Manila Port Service, et
al., G.R. No. L-17331. November 29, 1961, our ruling in said cases
being substantially to the effect that, the consignee having taken
delivery by virtue of a delivery permit to which was incorporated the
provision of the management contract limiting the liability of the
arrastre service operator for each package not delivered to P500.00,
said consignee is bound by such provision, unless he can prove that
the value of the missing cargo is otherwise specified or manifested—
which is not the case in the present action.”
It should be noted, however, that this ruling and the cases cited herein
are based upon the premise that the consignee had “taken delivery by
virtue of a delivery permit to which was incorporated the provision of
the management contract limiting the liability of the arrastre service
operator for each package not delivered to P500.00.” In the case at
bar, the delivery permit, marked as Exhibit “E,” does not incorporate
or make any reference to the aforementioned provision of the
Management Contract. No gate pass or other evidence has been
introduced to show that the consignee had made use of any document
incorporating said provision or making any reference thereto. Not
being a party to said contract and not having availed of the provisions
thereof, the Insurer is not bound by the limitation therein contained.
WHEREFORE, the decision appealed from should be. as it is hereby
affirmed, with costs against defendants-appellants, the Manila Port
Service and the Manila Railroad Company. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando,
Teehankee, Barredo and Villamor, JJ., concur. Makasiar, J., did not
take part.
Decision affirmed. Firemen’s Fund Insurance Co. vs. Cia. General de
Tabacos de Filipinas, 34 SCRA 392, NO. L-29338 August 15, 1970
——o0o——
METRO PORT SERVICE, INC. (FORMERLY E. RAZON, INC.),
petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and
THE HOME INSURANCE COMPANY, respondents
G.R. No. 66253. August 31, 1992
Commercial Law; Common Carriers; Contracts; Strict and reasonable
construction of provision limiting liability of public utility necessary to
protect public interest. — The Court must stress that petitioner Metro
Port Service, Inc. is a public utility, discharging functions which are
heavily invested with a public interest. This provision limiting the
liability of said petitioner through the imposition of a requirement that
a “formal claim” must be made within thirty (30) days from filing of
entry must be carefully scrutinized and reasonably construed so as to
protect the legitimate interest of the public which the public utility
must serve. It is the Court’s duty to tone down this harsh and
unreasonable provision and give it a reasonable interpretation.
Same; Contracts; Demand; Substantial compliance of requisites for
“formal” demands sufficient for valid claim.—The filing by the
consignee of this “provisional claim” on March 24, 1972—4 days after
the filing of the entry—is substantial compliance with the demand for
a “formal claim” because as of that date the arrastre operator was
given the reasonable opportunity to check the validity of the claim
while the facts were still fresh in the minds of the persons who took
part in the transaction and while the pertinent documents were still
available. It did not matter that the provisional claim was for the whole
amount of the invoice as a provisional claim—without the value of the
goods stated therein—is sufficient as long as the name of the carrying
vessel, its date of arrival and the corresponding bill of lading are
attached. Consignee’s “provisional claim”—aside from the entire value
of the invoice—had all three other requirements.
PETITION for review on certiorari of the decision of the then
Intermediate Appellate Court.
The facts are stated in the opinion of the Court.
De Leon Law Office for petitioner.
Zapa Law Office for private respondent.
NOCON, J.:
This is a petition for review on certiorari seeking the review of the
decision dated October 25, 1983 of the respondent Intermediate
Appellate Court and which affirmed the decision of the lower court
adjudging petitioner liable, to pay private respondent the sum of
P16,381.97 with interest at the legal rate, the sum of P1,000.00 as
attorney’s fees and its proportionate share of the costs, as well as said
court’s Resolution dated January 12, 1984 which denied petitioner’s
motion for reconsideration.
The facts of the case are simple enough.
As insurer-subrogee, private respondent instituted Civil Case No.
90186 before the Court of First Instance of Manila, entitled “The Home
Insurance Co. versus Marchessini Lines, Citadel Lines, Inc., and/or E.
Razon, Inc. and/or Ajax Customs Brokerage.”
The action was to recover from the defendants the amount that
private respondent paid American Wire and Cable Co., Inc.
(consignee) under its policy for losses and damages to an insured
shipment, the transportation of which was handled by defendants, one
after the other.
The shipment, which was transported from New York to Manila on
board the S/S “BURYBATES”, consisted of synthetic resins, insulating
materials, machinery and copper wire, contained in several packages.
It arrived in Manila on March 18, 1972 and was discharged dockside
unto the care and custody of petitioner, the arrastre operator in the
Port of Manila.
At the time of the discharge of the shipment from the carrying vessel,
it was noted that said cargo had already sustained shortages and that
some packages were in bad order and damaged condition. So when
the shipment was turned over to the petitioner, turn-over surveys
were jointly prepared and accomplished by checkers of both the vessel
and the arrastre operator.
From March 29 to June 1, 1972, deliveries of the shipment were made
by petitioner to the consignee’s broker, the defendant Ajax Customs
Brokerage. At this stage of the cargo handling, the shipment had
already sustained a shortage of 11 pallets and 28 of the packages
delivered to the broker were already in bad order and damaged
condition.
The shortage of 11 pallets was covered by a certificate of delivery
issued by petitioner and the 28 bad order packages were covered by
bad order certificates also issued by petitioner.
In the meantime, on March 24, 1972, the consignee presented to
petitioner a “provisional” claim for the full value of the shipment.
On September 16, 1972, the consignee submitted to petitioner a
“formal” claim for the actual value of the loss sustained by the
shipment.
In the course of the proceedings before the trial court, defendants
Marchessini Lines and Citadel Lines settled the claim for the loss
attributed to the vessel. The case, therefore proceeded only against
remaining defendants E. Razon, Inc. (now petitioner) and Ajax
Brokerage Corp. who were adjudged liable to plaintiff, now private
respondent.
On appeal to the Intermediate Appellate Court, the decision appealed
from was affirmed.
Petitioner E. Razon, Inc. manifested before the Court a quo on
November 8, 1975 that its liability, if any, should be P16,381.97___per
private respondent’s computations___instead of P19,931.15 as per its
own computations.
This was taken into consideration in the Court a quo’s decision, thus:
“With the view thus taken the next in point of inquiry is the extent of
E. Razon’s liability in the premises. On this score, it is noteworthy that
said defendant does not seriously dispute that the cargo sustained
spillages and short-delivery while it was in its custody. In fact, by its
own computation—and, on the basis of the invoice value which it
correctly claims to be the reckoning point for its liability—it would fix
its liability, if found to be so liable, at P19,930.15.
This, significantly, is even much more than the mere P16,381.97 that
plaintiff is claiming from it. Evidently, therefore, the liability of
defendant E. Razon, Inc. for shortages and spillages imputable to it
should be pegged at the latter amount.”
At any rate, petitioner disclaims any liability due to the fact that private
respondent did not file a “formal claim” within 30 days from the filing
of entry on March 20, 1972 as the “formal” claim was filed on
September 16, 1972. Petitioner disregarded the filing of a “provisional”
claim on March 24, 1972 on the ground that it is not the claim
demanded by the Revised Management Contract, which E. Razon, Inc.
as Arrastre Contractor, entered into with the Bureau of Customs on
the 27th day of January, 1967.
Private respondent, on the other hand, claims that despite the change
introduced in the matter of filing claims, i.e., “formal” claims have to
be filed, the purpose is still the same—to afford the arrastre operator
the opportunity to check the validity of the claims.
We find the petition unmeritorious.
The only legal issue to be resolved by this Court is whether under the
Revised Management Contract, the words “formal claim” exclude any
“provisional claim”.
The Revised Management Contract was the contract applicable as the
shipment arrived on March 18, 1967.
Its paragraph XX states:
“x x x [B]ut said CONTRACTOR shall not be responsible for the
condition of 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 remain on the piers or wharves 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
the bill of lading, invoice, certified packing list, bank certificate
showing the rate of exchange at the time of purchase or opening of
letter of credit, and the computation arrived at covering the loss,
damage, or non-delivery of such goods shall have been filed with the
CONTRACTOR within thirty (30) days from the date of filing of entry;
PROVIDED FURTHER, that if the loss, injury or damage is discovered
within the last fifteen (15) days of said period of thirty (30) days, then
the formal claim shall be filed within fifteen (15) days from the date
of discovery of the loss, injury or damage.”8 (Italics supplied for
emphasis)
In the case at bar, the shipment in question arrived in Manila on March
18, 1972. The import entry was filed March 20, 1972. The deliveries
of this shipment started March 29, 1972 and ended on June 1, 1972.
Since the delivery of the last package was made on June 1, 1972—73
days after the filing of the import entry—then a literal compliance
under paragraph XX of the Revised Management Contract would mean
that American Wire and Cable Co. (consignee insured by private
respondent) had only until April 20, 1972 to file a “formal claim” for
damaged goods. But said “formal claim” would cover only goods
delivered as of April 20, 1972—the cost of goods delivered after said
date (Exhs. 69-72, pp. 125-128, Folder of Exhibits) in a damaged
condition or lost—would be for the consignee’s own account.
The Court must stress that petitioner Metro Port Service, Inc. is a
public utility, discharging functions which are heavily invested with a
public interest. This provision limiting the liability of said petitioner
through the imposition of a requirement that a “formal claim” must be
made within thirty (30) days from filing of entry must be carefully
scrutinized and reasonably construed so as to protect the legitimate
interest of the public which the public utility must serve. It is the
Court’s duty to tone down this harsh and unreasonable provision and
give it a reasonable interpretation.
The filing by the consignee of this “provisional claim” on March 24,
1972—4 days after the filing of the entry—is substantial compliance
with the demand for a “formal claim” because as of that date the
arrastre operator was given the reasonable opportunity to check the
validity of the claim while the facts were still fresh in the minds of the
persons who took part in the transaction and while the pertinent
documents were still available. It did not matter that the provisional
claim was for the whole amount of the invoice as a provisional claim—
without the value of the goods stated therein—is sufficient as long as
the name of the carrying vessel, its date of arrival and the
corresponding bill of lading are attached. Consignee’s “provisional
claim”—aside from the entire value of the invoice—had all three other
requirements.
WHEREFORE, the petition is hereby DISMISSED. The questioned
Decision and Resolution of the appellate court are affirmed in toto.
Costs against the petitioner.
SO ORDERED.
Narvasa (C.J., Chairman), Padilla and Regalado, JJ., concur.
 Melo, J., No part.
Petition dismissed; decision and resolution affirmed in toto.
Note. — Contracts are respected as the law between the contracting
parties (Pe vs. Intermediate Appellate Court, 95 SCRA 137).
——o0o——
PHILIPPINES FIRST INSURANCE CO., INC., petitioner, vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER
AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S
“OFFSHORE MASTER” AND “SHANGHAI FAREAST SHIP
BUSINESS COMPANY,” respondents
G.R. No. 165647. March 26, 2009
Common Carriers; The extraordinary responsibility of the common
carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them. —
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
Same; Code of Commerce; Carriage of Goods by Sea Act (COGSA);
For marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over
to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agreed otherwise; Section 2 of the Carriage of
Goods by Sea Act (COGSA) provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. — For marine vessels,
Article 619 of the Code of Commerce provides that the ship captain is
liable for the cargo from the time it is turned over to him at the dock
or afloat alongside the vessel at the port of loading, until he delivers
it on the shore or on the discharging wharf at the port of unloading,
unless agreed otherwise. In Standard Oil Co. of New York v. Lopez
Castelo, 42 Phil. 256 (1921), the Court interpreted the ship captain’s
liability as ultimately that of the shipowner by regarding the captain
as the representative of the ship owner. Lastly, Section 2 of the COGSA
provides that under every contract of carriage of goods by sea, the
carrier in relation to the loading, handling, stowage, carriage, custody,
care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities
set forth in the Act. Section 3 (2) thereof then states that among the
carriers’ responsibilities are to properly and carefully load, handle,
stow, carry, keep, care for, and discharge the goods carried.
Same; Arrastre Operators; Handling cargo is mainly the arrastre
operator’s principal work so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and
damage to shipments under its custody. — The functions of an
arrastre operator involve the handling of cargo deposited on the wharf
or between the establishment of the consignee or shipper and the
ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
Same; Same; Both the ARRASTRE and the CARRIER are charged with
and obligated to deliver the goods in good condition to the consignee,
though the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.—
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc., 182 SCRA
455 (1990), the Court explained the relationship and responsibility of
an arrastre operator to a consignee of a cargo, to quote: The legal
relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman. The relationship between
the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and
to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the
goods in good condition to the consignee. (Emphasis supplied)
(Citations omitted) The liability of the arrastre operator was reiterated
in Eastern Shipping Lines, Inc. v. Court of Appeals with the clarification
that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
Same; Maritime Law; It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of
the carrier. — The records are replete with evidence which show that
the damage to the bags happened before and after their discharge
and it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem. It is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case, the damage or
losses were incurred during the discharge of the shipment while under
the supervision of the carrier. Consequently, the carrier is liable for
the damage or losses caused to the shipment. As the cost of the actual
damage to the subject shipment has long been settled, the trial court’s
finding of actual damages in the amount of P397,879.69 has to be
sustained.
Same; Same; Witnesses; The trial court’s evaluation as to the
credibility of witnesses is viewed as correct and entitled to the highest
respect because it is more competent to so conclude, having had the
opportunity to observe the witnesses’ demeanor and deportment on
the stand, and the manner in which they gave their testimonies.—On
the credibility of Mr. Talens which is the fourth issue, the general rule
in assessing credibility of witnesses is well-settled: x x x the trial
court’s evaluation as to the credibility of witnesses is viewed as correct
and entitled to the highest respect because it is more competent to so
conclude, having had the opportunity to observe the witnesses’
demeanor and deportment on the stand, and the manner in which
they gave their testimonies. The trial judge therefore can better
determine if such witnesses were telling the truth, being in the ideal
position to weigh conflicting testimonies. Therefore, unless the trial
judge plainly overlooked certain facts of substance and value which,
if considered, might affect the result of the case, his assessment on
credibility must be respected.
Same; Evidence; Demand Letters; A party’s failure to respond to a
demand letter does not constitute an implied admission of liability. —
Contrary to petitioner’s stance on the third issue, Wallem’s failure to
respond to its demand letter does not constitute an implied admission
of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes,
thus: A man cannot make evidence for himself by writing a letter
containing the statements that he wishes to prove. He does not make
the letter evidence by sending it to the party against whom he wishes
to prove the facts [stated therein]. He no more can impose a duty to
answer a charge than he can impose a duty to pay by sending goods.
Therefore, a failure to answer such adverse assertions in the absence
of further circumstances making an answer requisite or natural has no
effect as an admission.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Astorga & Repol Law Offices for petitioner.
Velicaria Egenias for respondents.
TINGA, J.:
Before us is a Rule 45 petition which seeks the reversal of the Decision
and Resolution of the Court of Appeals in CA-G.R. No. 61885. The
Court of Appeals reversed the Decision of the Regional Trial Court
(RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.
The facts of the case follow.
On or about 2 October 1995, Anhui Chemicals Import & Export
Corporation loaded on board M/S Offshore Master a shipment
consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and
delivery at the port of Manila for consignee, L.G. Atkimson Import-
Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill of
Lading reflects the gross weight of the total cargo at 500,200
kilograms. The Owner and/or Charterer of M/V Offshore Master is
unknown while the shipper of the shipment is Shanghai Fareast Ship
Business Company. Both are foreign firms doing business in the
Philippines, thru its local ship agent, respondent Wallem Philippines
Shipping, Inc. (Wallem).
On or about 16 October 1995, the shipment arrived at the port of
Manila on board the vessel M/S Offshore Master from which it was
subsequently discharged. It was disclosed during the discharge of the
shipment from the carrier that 2,426 poly bags (bags) were in bad
order and condition, having sustained various degrees of spillages and
losses. This is evidenced by the Turn Over Survey of Bad Order
Cargoes (turn-over survey) of the arrastre operator, Asian Terminals,
Inc. (arrastre operator). The bad state of the bags is also evinced by
the arrastre operator’s Request for Bad Order Survey.
Asia Star Freight Services, Inc. undertook the delivery of the subject
shipment from the pier to the consignee’s warehouse in Quezon City,
while the final inspection was conducted jointly by the consignee’s
representative and the cargo surveyor. During the unloading, it was
found and noted that the bags had been discharged in damaged and
bad order condition. Upon inspection, it was discovered that 63,065.00
kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting
in losses due to depreciation and downgrading.
On 29 April 1996, the consignee filed a formal claim with Wallem for
the value of the damaged shipment, to no avail. Since the shipment
was insured with petitioner Philippines First Insurance Co., Inc.
against all risks in the amount of P2,470,213.50, the consignee filed a
formal claim with petitioner for the damage and losses sustained by
the shipment. After evaluating the invoices, the turn-over survey, the
bad order certificate and other documents, petitioner found the claim
to be in order and compensable under the marine insurance policy.
Consequently, petitioner paid the consignee the sum of P397,879.69
and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand
letter to Wallem for the recovery of the amount paid by petitioner to
the consignee. However, despite receipt of the letter, Wallem did not
settle nor even send a response to petitioner’s claim.
Consequently, petitioner instituted an action before the RTC for
damages against respondents for the recovery of P397,879.69
representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint
until fully paid and attorney’s fees equivalent to 25% of the principal
claim plus costs of suit.
In a decision dated 3 November 1998, the RTC ordered respondents
to pay petitioner P397,879.69 with 6% interest plus attorney’s fees
and costs of the suit. It attributed the damage and losses sustained
by the shipment to the arrastre operator’s mishandling in the
discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court
of Appeals, the RTC held the shipping company and the arrastre
operator solidarily liable since both the arrastre operator and the
carrier are charged with and obligated to deliver the goods in good
order condition to the consignee. It also ruled that the ship functioned
as a common carrier and was obliged to observe the degree of care
required of a common carrier in handling cargoes. Further, it held that
a notice of loss or damage in writing is not required in this case
because said goods already underwent a joint inspection or survey at
the time of receipt thereof by the consignee, which dispensed with the
notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision.
According to the appellate court, there is no solidary liability between
the carrier and the arrastre operator because it was clearly established
by the court a quo that the damage and losses of the shipment were
attributed to the mishandling by the arrastre operator in the discharge
of the shipment. The appellate court ruled that the instant case falls
under an exception recognized in Eastern Shipping Lines. Hence, the
arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as
a common carrier, the carrier’s duties extend to the obligation to safely
discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the
damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial
demand by petitioner for the cost of the lost/damaged shipment is an
implied admission of the former’s liability for said goods;
4. Whether or not the courts below erred in giving credence to the
testimony of Mr. Talens.
It is beyond question that respondent’s vessel is a common carrier.
Thus, the standards for determining the existence or absence of the
respondent’s liability will be gauged on the degree of diligence
required of a common carrier. Moreover, as the shipment was an
exercise of international trade, the provisions of the Carriage of Goods
by Sea Act (COGSA), together with the Civil Code and the Code of
Commerce, shall apply.
The first and second issues raised in the petition will be resolved
concurrently since they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by
the insured consignee. The damage to the shipment was documented
by the turn-over survey and Request for Bad Order Survey. The turn-
over survey, in particular, expressly stipulates that 2,426 bags of the
shipment were received by the arrastre operator in damaged
condition. With these documents, petitioner insists that the shipment
incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre
operator.
The trial court, however, found through the testimony of Mr. Maximino
Velasquez Talens, a cargo surveyor of Oceanica Cargo Marine
Surveyors Corporation, that the losses and damage to the cargo were
caused by the mishandling of the arrastre operator. Specifically, that
the torn cargo bags resulted from the use of steel hooks/spikes in
piling the cargo bags to the pallet board and in pushing the bags by
the stevedores of the arrastre operator to the tug boats then to the
ports. The appellate court affirmed the finding of mishandling in the
discharge of cargo and it served as its basis for exculpating
respondents from liability, rationalizing that with the fault of the
arrastre operator in the unloading of the cargo established it should
bear sole liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for
the damage incurred at that point of transport. To address this issue,
the pertinent laws and jurisprudence are examined.
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
For marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over
to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agreed otherwise. In Standard Oil Co. of New
York v. Lopez Castelo, the Court interpreted the ship captain’s liability
as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. Section 3 (2) thereof
then states that among the carriers’ responsibilities are to properly
and carefully load, handle, stow, carry, keep, care for, and discharge
the goods carried.
The above doctrines are in fact expressly incorporated in the bill of
lading between the shipper Shanghai Fareast Business Co., and the
consignee, to wit:
“4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier
shall commence from the time when the goods are loaded on board
the vessel and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before
loading and after discharging from the vessel, howsoever such loss or
damage arises.”
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc. the Court
explained the relationship and responsibility of an arrastre operator to
a consignee of a cargo, to quote:
“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator. Since it is the duty
of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE
and the CARRIER are therefore charged with and obligated to deliver
the goods in good condition to the consignee.” (Emphasis supplied)
(Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping
Lines, Inc. v. Court of Appeals with the clarification that the arrastre
operator and the carrier are not always and necessarily solidarily liable
as the facts of a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that
an arrastre operator and a carrier may not be held solidarily liable at
all times. But the precise question is which entity had custody of the
shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the
carriers’ responsibilities are to properly and carefully load, care for and
discharge the goods carried. The bill of lading covering the subject
shipment likewise stipulates that the carrier’s liability for loss or
damage to the goods ceases after its discharge from the vessel. Article
619 of the Code of Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery at the port of
unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V.
Farland, it was ruled that like the duty of seaworthiness, the duty of
care of the cargo is non-delegable, and the carrier is accordingly
responsible for the acts of the master, the crew, the stevedore, and
his other agents. It has also been held that it is ordinarily the duty of
the master of a vessel to unload the cargo and place it in readiness
for delivery to the consignee, and there is an implied obligation that
this shall be accomplished with sound machinery, competent hands,
and in such manner that no unnecessary injury shall be done thereto.
And the fact that a consignee is required to furnish persons to assist
in unloading a shipment may not relieve the carrier of its duty as to
such unloading.
The exercise of the carrier’s custody and responsibility over the subject
shipment during the unloading actually transpired in the instant case
during the unloading of the shipment as testified by Mr. Talens, the
cargo surveyor, to quote:
Atty. Repol:
Do you agree with me that Wallem Philippines is a shipping
[company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir.
xxx
Q Mr. Witness, during the discharging operation of this cargo, where
was the master of the vessel?
A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was
being unloaded from the vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging
of the cargo from the vessel?
A Ang head checker po ang siyang nagpapatakbo ng trabaho sa loob
ng barko, sir.
xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in
the Bad Order Inspection, to wit:
“The bad order torn bags, was due to stevedores[‘] utilizing steel
hooks/spikes in piling the cargo to [the] pallet board at the vessel’s
cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic].” (Emphasis supplied)
The records are replete with evidence which show that the damage to
the bags happened before and after their discharge and it was caused
by the stevedores of the arrastre operator who were then under the
supervision of Wallem.
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. In the
instant case, the damage or losses were incurred during the discharge
of the shipment while under the supervision of the carrier.
Consequently, the carrier is liable for the damage or losses caused to
the shipment. As the cost of the actual damage to the subject
shipment has long been settled, the trial court’s finding of actual
damages in the amount of P397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general
rule in assessing credibility of witnesses is well-settled:
“x x x the trial court’s evaluation as to the credibility of witnesses is
viewed as correct and entitled to the highest respect because it is
more competent to so conclude, having had the opportunity to
observe the witnesses’ demeanor and deportment on the stand, and
the manner in which they gave their testimonies. The trial judge
therefore can better determine if such witnesses were telling the truth,
being in the ideal position to weigh conflicting testimonies. Therefore,
unless the trial judge plainly overlooked certain facts of substance and
value which, if considered, might affect the result of the case, his
assessment on credibility must be respected.”
Contrary to petitioner’s stance on the third issue, Wallem’s failure to
respond to its demand letter does not constitute an implied admission
of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes,
thus:
“A man cannot make evidence for himself by writing a letter containing
the statements that he wishes to prove. He does not make the letter
evidence by sending it to the party against whom he wishes to prove
the facts [stated therein]. He no more can impose a duty to answer a
charge than he can impose a duty to pay by sending goods. Therefore,
a failure to answer such adverse assertions in the absence of further
circumstances making an answer requisite or natural has no effect as
an admission.”
With respect to the attorney’s fees, it is evident that petitioner was
compelled to litigate this matter to protect its interest. The RTC’s
award of P20,000.00 as attorney’s fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 22 June 2004 and its Resolution dated 11 October 2004
are REVERSED and SET ASIDE. Wallem is ordered to pay petitioner
the sum of P397,879.69, with interest thereon at 6% per annum from
the filing of the complaint on 7 October 1996 until the judgment
becomes final and executory. Thereafter, an interest rate of 12% per
annum shall be imposed.48 Respondents are also ordered to pay
petitioner the amount of P20,000.00 for and as attorney’s fees,
together with the costs of the suit.
SO ORDERED.
Austria-Martinez, Corona, Velasco, Jr. and Brion, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes. — The Carriage of Goods by Sea Act (COGSA), which is
suppletory to the provisions of the Civil Code, supplements the latter
by establishing a statutory provision limiting the carrier’s liability in the
absence of a shipper’s Philippines First Insurance, Co., Inc. vs. Wallem
Phils. Shipping, Inc., 582 SCRA 457, G.R. No. 165647 March 26, 2009
——o0o——
ASIAN TERMINALS, INC., petitioner, vs. MALAYAN
INSURANCE CO., INC., respondent
G.R. No. 171406. April 4, 2011
Remedial Law; Pre-trial; The determination of issues during the pre-
trial conference bars the consideration of other questions, whether
during trial or on appeal; Parties must disclose during pre-trial all
issues they intend to raise during the trial, except those involving
privileged or impeaching matters. — This was never raised as an issue
before the RTC. In fact, it is not among the issues agreed upon by the
parties to be resolved during the pre-trial. As we have said, “the
determination of issues during the pre-trial conference bars the
consideration of other questions, whether during trial or on appeal.”
Thus, “[t]he parties must disclose during pre-trial all issues they intend
to raise during the trial, except those involving privileged or
impeaching matters. x x x The basis of the rule is simple. Petitioners
are bound by the delimitation of the issues during the pre-trial because
they themselves agreed to the same.”
Same; Appeals; Factual findings of the Court of Appeals (CA) affirming
those of the Regional Trial Court (RTC) are conclusive and binding,
exceptions. — Only questions of law are allowed in petitions for review
on certiorari under Rule 45 of the Rules of Court. Thus, it is not our
duty “to review, examine, and evaluate or weigh all over again the
probative value of the evidence presented,” especially where the
findings of both the trial court and the appellate court coincide on the
matter. As we have often said, factual findings of the CA affirming
those of the RTC are conclusive and binding, except in the following
cases: “(1) when the inference made is manifestly mistaken, absurd
or impossible; (2) when there is grave abuse of discretion; (3) when
the findings are grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the [CA] is based on
misapprehension of facts; (5) when the [CA], in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (6) when the findings of
fact are conclusions without citation of specific evidence on which they
are based; (7) when the [CA] manifestly overlooked certain relevant
facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; and (8) when the findings of fact
of the [CA] are premised on the absence of evidence and are
contradicted by the evidence on record.”
Mercantile Law; Carriage of Goods by Sea Act (COGSA); Insurance
Law; Evidence; The presentation in evidence of the marine insurance
policy is not indispensable before the insurer may recover from the
common carrier the insured value of the lost cargo in the exercise of
its subrogatory right. — Besides, non-presentation of the insurance
contract or policy is not necessarily fatal. In Delsan Transport Lines,
Inc. v. Court of Appeals, 369 SCRA 24 (2001), we ruled that: Anent
the second issue, it is our view and so hold that the presentation in
evidence of the marine insurance policy is not indispensable in this
case before the insurer may recover from the common carrier the
insured value of the lost cargo in the exercise of its subrogatory right.
The subrogation receipt, by itself, is sufficient to establish not only the
relationship of herein private respondent as insurer and Caltex, as the
assured shipper of the lost cargo of industrial fuel oil, but also the
amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the
insurance claim.
Same; Same; Same; The Management Contract entered into by
petitioner and the Philippine Ports Authority (PPA) is clearly not among
the matters which the courts can take judicial notice of. — The
Management Contract entered into by petitioner and the PPA is clearly
not among the matters which the courts can take judicial notice of. It
cannot be considered an official act of the executive department. The
PPA, which was created by virtue of Presidential Decree No. 857, as
amended, is a government-owned and controlled corporation in
charge of administering the ports in the country. Obviously, the PPA
was only performing a proprietary function when it entered into a
Management Contract with petitioner. As such, judicial notice cannot
be applied.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Cruz, Capule, Marcon & Nabaza Law Offices for petitioner.
Tumangan, Payumo & Partners for respondent.
DEL CASTILLO, J.:
Once the insurer pays the insured, equity demands reimbursement as
no one should benefit at the expense of another.
This Petition for Review on Certiorari under Rule 45 of the Rules of
Court assails the July 14, 2005 Decision and the February 14, 2006
Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 61798.
Factual Antecedents
On November 14, 1995, Shandong Weifang Soda Ash Plant shipped
on board the vessel MV “Jinlian I” 60,000 plastic bags of soda ash
dense (each bag weighing 50 kilograms) from China to Manila. The
shipment, with an invoice value of US$456,000.00, was insured with
respondent Malayan Insurance Company, Inc. under Marine Risk Note
No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin
Navigation Company with Philippine Banking Corporation as the
consignee and Chemphil Albright and Wilson Corporation as the notify
party.
On November 21, 1995, upon arrival of the vessel at Pier 9, South
Harbor, Manila, the stevedores of petitioner Asian Terminals, Inc., a
duly registered domestic corporation engaged in providing arrastre
and stevedoring services, unloaded the 60,000 bags of soda ash dense
from the vessel and brought them to the open storage area of
petitioner for temporary storage and safekeeping, pending clearance
from the Bureau of Customs and delivery to the consignee. When the
unloading of the bags was completed on November 28, 1995, 2,702
bags were found to be in bad order condition.
On November 29, 1995, the stevedores of petitioner began loading
the bags in the trucks of MEC Customs Brokerage for transport and
delivery to the consignee. On December 28, 1995, after all the bags
were unloaded in the warehouses of the consignee, a total of 2,881
bags were in bad order condition due to spillage, caking, and
hardening of the contents.
On April 19, 1996, respondent, as insurer, paid the value of the
lost/damaged cargoes to the consignee in the amount of P643,600.25.
Ruling of the Regional Trial Court
On November 20, 1996, respondent, as subrogee of the consignee,
filed before the Regional Trial Court (RTC) of Manila, Branch 35, a
Complaint for damages against petitioner, the shipper Inchcape
Shipping Services, and the cargo broker MEC Customs Brokerage.
After the filing of the Answers, trial ensued.
On June 26, 1998, the RTC rendered a Decision finding petitioner
liable for the damage/loss sustained by the shipment but absolving
the other defendants. The RTC found that the proximate cause of the
damage/loss was the negligence of petitioner’s stevedores who
handled the unloading of the cargoes from the vessel. The RTC
emphasized that despite the admonitions of Marine Cargo Surveyors
Edgar Liceralde and Redentor Antonio not to use steel hooks in
retrieving and picking-up the bags, petitioner’s stevedores continued
to use such tools, which pierced the bags and caused the spillage. The
RTC, thus, ruled that petitioner, as employer, is liable for the acts and
omissions of its stevedores under Articles 2176 and 2180 paragraph
(4) of the Civil Code. Hence, the dispositive portion of the Decision
reads:
“WHEREFORE, judgment is rendered ordering defendant Asian
Terminal, Inc. to pay plaintiff Malayan Insurance Company, Inc. the
sum of P643,600.25 plus interest thereon at legal rate computed from
November 20, 1996, the date the Complaint was filed, until the
principal obligation is fully paid, and the costs.
The complaint of the plaintiff against defendants Inchcape Shipping
Services and MEC Customs Brokerage, and the counterclaims of said
defendants against the plaintiff are dismissed.
SO ORDERED.”
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA but the appeal was denied.
In its July 14, 2005 Decision, the CA agreed with the RTC that the
damage/loss was caused by the negligence of petitioner’s stevedores
in handling and storing the subject shipment. The CA likewise rejected
petitioner’s assertion that it received the subject shipment in bad order
condition as this was belied by Marine Cargo Surveyors Redentor
Antonio and Edgar Liceralde, who both testified that the actual
counting of bad order bags was done only after all the bags were
unloaded from the vessel and that the Turn Over Survey of Bad Order
Cargoes (TOSBOC) upon which petitioner anchors its defense was
prepared only on November 28, 1995 or after the unloading of the
bags was completed. Thus, the CA disposed of the appeal as follows:
“WHEREFORE, premises considered, the appeal is DENIED. The
assailed Decision dated June 26, 1998 of the Regional Trial Court of
Manila, Branch 35, in Civil Case No. 96-80945 is hereby AFFIRMED in
all respects.
SO ORDERED.”
Petitioner moved for reconsideration but the CA denied the same in a
Resolution dated February 14, 2006 for lack of merit.
Issues
Hence, the present recourse, petitioner contending that:
1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF
GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE OF ACTION
AGAINST HEREIN PETITIONER SINCE, AS THE ALLEGED SUBROGEE,
IT NEVER PRESENTED ANY VALID, EXISTING, ENFORCEABLE
INSURANCE POLICY OR ANY COPY THEREOF IN COURT.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC WERE
ADOPTED AS COMMON EXHIBITS BY BOTH PETITIONER AND
RESPONDENT.
3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS
DOCUMENTATIONS WOULD POINT TO THE VESSEL’S LIABILITY AS
THERE IS, IN THIS INSTANT CASE, AN OVERWHELMING
DOCUMENTARY EVIDENCE TO PROVE THAT THE DAMAGE IN
QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS IN THE
CUSTODY OF THE VESSEL.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE] FACT THAT
THE TURN OVER SURVEY OF BAD ORDER CARGOES (TOSBOC) WAS
PREPARED ONLY AFTER THE COMPLETION OF THE DISCHARGING
OPERATIONS OR ON NOVEMBER 28, 1995. THUS, CONCLUDING
THAT DAMAGE TO THE CARGOES WAS DUE TO THE IMPROPER
HANDLING THEREOF BY ATI STEVEDORES.
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING
JUDICIAL NOTICE OF THE CONTRACT FOR CARGO HANDLING
SERVICES BETWEEN PPA AND ATI AND APPLYING THE PERTINENT
PROVISIONS THEREOF AS REGARDS ATI’S LIABILITY.
In sum, the issues are: (1) whether the non-presentation of the
insurance contract or policy is fatal to respondent’s cause of action;
(2) whether the proximate cause of the damage/loss to the shipment
was the negligence of petitioner’s stevedores; and (3) whether the
court can take judicial notice of the Management Contract between
petitioner and the Philippine Ports Authority (PPA) in determining
petitioner’s liability.
Petitioner’s Arguments
Petitioner contends that respondent has no cause of action because it
failed to present the insurance contract or policy covering the subject
shipment. Petitioner argues that the Subrogation Receipt presented
by respondent is not sufficient to prove that the subject shipment was
insured and that respondent was validly subrogated to the rights of
the consignee. Thus, petitioner submits that without proof of a valid
subrogation, respondent is not entitled to any reimbursement.
Petitioner likewise puts in issue the finding of the RTC, which was
affirmed by the CA, that the proximate cause of the damage/loss to
the shipment was the negligence of petitioner’s stevedores. Petitioner
avers that such finding is contrary to the documentary evidence, i.e.,
the TOSBOC, the Request for Bad Order Survey (RESBOC) and the
Report of Survey. According to petitioner, these documents prove that
it received the subject shipment in bad order condition and that no
additional damage was sustained by the subject shipment under its
custody. Petitioner asserts that although the TOSBOC was prepared
only after all the bags were unloaded by petitioner’s stevedores, this
does not mean that the damage/loss was caused by its stevedores.
Petitioner also claims that the amount of damages should not be more
than P5,000.00, pursuant to its Management Contract for cargo
handling services with the PPA. Petitioner contends that the CA should
have taken judicial notice of the said contract since it is an official act
of an executive department subject to judicial cognizance.
Respondent’s Arguments
Respondent, on the other hand, argues that the non-presentation of
the insurance contract or policy was not raised in the trial court. Thus,
it cannot be raised for the first time on appeal. Respondent likewise
contends that under prevailing jurisprudence, presentation of the
insu--rance policy is not indispensable. Moreover, with or without the
in-surance contract or policy, respondent claims that it should be
allowed to recover under Article 1236 of the Civil Code. Respondent
further avers that “the right of subrogation has its roots in equity—it
is designed to promote and to accomplish justice and is the mode
which equity adopts to compel the ultimate payment of a debt by one
who in justice, equity and good conscience ought to pay.”
Respondent likewise maintains that the RTC and the CA correctly
found that the damage/loss sustained by the subject shipment was
caused by the negligent acts of petitioner’s stevedores. Such factual
findings of the RTC, affirmed by the CA, are conclusive and should no
longer be disturbed. In fact, under Section 1 of Rule 45 of the Rules
of Court, only questions of law may be raised in a petition for review
on certiorari.
As to the Management Contract for cargo handling services,
respondent contends that this is outside the operation of judicial
notice. And even if it is not, petitioner’s liability cannot be limited by it
since it is a contract of adhesion.
Our Ruling
The petition is bereft of merit.
Non-presentation of the insurance contract or policy is not fatal in the
instant case
Petitioner claims that respondent’s non-presentation of the insurance
contract or policy between the respondent and the consignee is fatal
to its cause of action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact,
it is not among the issues agreed upon by the parties to be resolved
during the pre-trial. As we have said, “the determination of issues
during the pre-trial conference bars the consideration of other
questions, whether during trial or on appeal.” Thus, “[t]he parties
must disclose during pre-trial all issues they intend to raise during the
trial, except those involving privileged or impeaching matters. x x x
The basis of the rule is simple. Petitioners are bound by the
delimitation of the issues during the pre-trial because they themselves
agreed to the same.”
Neither was this issue raised on appeal. Basic is the rule that “issues
or grounds not raised below cannot be resolved on review by the
Supreme Court, for to allow the parties to raise new issues is
antithetical to the sporting idea of fair play, justice and due process.”
Besides, non-presentation of the insurance contract or policy is not
necessarily fatal. In Delsan Transport Lines, Inc. v. Court of Appeals,
we ruled that:
“Anent the second issue, it is our view and so hold that the
presentation in evidence of the marine insurance policy is not
indispensable in this case before the insurer may recover from the
common carrier the insured value of the lost cargo in the exercise of
its subrogatory right. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of herein private respondent as
insurer and Caltex, as the assured shipper of the lost cargo of
industrial fuel oil, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
The presentation of the insurance policy was necessary in the case of
Home Insurance Corporation v. CA (a case cited by petitioner)
because the shipment therein (hydraulic engines) passed through
several stages with different parties involved in each stage. First, from
the shipper to the port of departure; second, from the port of
departure to the M/S Oriental Statesman; third, from the M/S Oriental
Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific
Conveyor to the port of arrival; fifth, from the port of arrival to the
arrastre operator; sixth, from the arrastre operator to the hauler,
Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly,
from the hauler to the consignee. We emphasized in that case that in
the absence of proof of stipulations to the contrary, the hauler can be
liable only for any damage that occurred from the time it received the
cargo until it finally delivered it to the consignee. Ordinarily, it cannot
be held responsible for the handling of the cargo before it actually
received it. The insurance contract, which was not presented in
evidence in that case would have indicated the scope of the insurer’s
liability, if any, since no evidence was adduced indicating at what
stage in the handling process the damage to the cargo was sustained.”
(Emphasis supplied.)
In International Container Terminal Services, Inc. v. FGU Insurance
Corporation, we used the same line of reasoning in upholding the
Decision of the CA finding the arrastre contractor liable for the lost
shipment despite the failure of the insurance company to offer in
evidence the insurance contract or policy. We explained:
“Indeed, jurisprudence has it that the marine insurance policy needs
to be presented in evidence before the trial court or even belatedly
before the appellate court. In Malayan Insurance Co., Inc. v. Regis
Brokerage Corp., the Court stated that the presentation of the marine
insurance policy was necessary, as the issues raised therein arose
from the very existence of an insurance contract between Malayan
Insurance and its consignee, ABB Koppel, even prior to the loss of the
shipment. In Wallem Philippines Shipping, Inc. v. Prudential
Guarantee and Assurance, Inc., the Court ruled that the insurance
contract must be presented in evidence in order to determine the
extent of the coverage. This was also the ruling of the Court in Home
Insurance Corporation v. Court of Appeals.
However, as in every general rule, there are admitted exceptions. In
Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that
the presentation of the insurance policy was not fatal because the loss
of the cargo undoubtedly occurred while on board the petitioner’s
vessel, unlike in Home Insurance in which the cargo passed through
several stages with different parties and it could not be determined
when the damage to the cargo occurred, such that the insurer should
be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present
case occurred while in petitioner’s custody. Moreover, there is no issue
as regards the provisions of Marine Open Policy No. MOP-12763, such
that the presentation of the contract itself is necessary for perusal, not
to mention that its existence was already admitted by petitioner in
open court. And even though it was not offered in evidence, it still can
be considered by the court as long as they have been properly
identified by testimony duly recorded and they have themselves been
incorporated in the records of the case.”
Similarly, in this case, the presentation of the insurance contract or
policy was not necessary. Although petitioner objected to the
admission of the Subrogation Receipt in its Comment to respondent’s
formal offer of evidence on the ground that respondent failed to
present the insurance contract or policy, a perusal of petitioner’s
Answer and Pre-Trial Brief shows that petitioner never questioned
respondent’s right to subrogation, nor did it dispute the coverage of
the insurance contract or policy. Since there was no issue regarding
the validity of the insurance contract or policy, or any provision
thereof, respondent had no reason to present the insurance contract
or policy as evidence during the trial.
Factual findings of the CA, affirming the RTC, are conclusive and
binding Petitioner’s attempt to absolve itself from liability must
likewise fail.
Only questions of law are allowed in petitions for review on certiorari
under Rule 45 of the Rules of Court. Thus, it is not our duty “to review,
examine, and evaluate or weigh all over again the probative value of
the evidence presented,” especially where the findings of both the trial
court and the appellate court coincide on the matter. As we have often
said, factual findings of the CA affirming those of the RTC are
conclusive and binding, except in the following cases: “(1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when
there is grave abuse of discretion; (3) when the findings are grounded
entirely on speculations, surmises or conjectures; (4) when the
judgment of the [CA] is based on misapprehension of facts; (5) when
the [CA], in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and
appellee; (6) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (7) when the [CA]
manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different
conclusion; and (8) when the findings of fact of the [CA] are premised
on the absence of evidence and are contradicted by the evidence on
record.” None of these are availing in the present case.
Both the RTC and the CA found the negligence of petitioner’s
stevedores to be the proximate cause of the damage/loss to the
shipment. In disregarding the contention of petitioner that such
finding is contrary to the documentary evidence, the CA had this to
say:
“ATI, however, contends that the finding of the trial court was contrary
to the documentary evidence of record, particularly, the Turn Over
Survey of Bad Order Cargoes dated November 28, 1995, which was
executed prior to the turn-over of the cargo by the carrier to the
arrastre operator ATI, and which showed that the shipment already
contained 2,702 damaged bags.
We are not persuaded.
Contrary to ATI’s assertion, witness Redentor Antonio, marine cargo
surveyor of Inchcape for the vessel Jinlian I which arrived on
November 21, 1995 and up to completion of discharging on November
28, 1995, testified that it was only after all the bags were unloaded
from the vessel that the actual counting of bad order bags was made,
thus:
xxxx
The above testimony of Redentor Antonio was corroborated by Edgar
Liceralde, marine cargo surveyor connected with SMS Average
Surveyors and Adjusters, Inc., the company requested by consignee
Chemphil Albright and Wilson Corporation to provide superintendence,
report the condition and determine the final outturn of quantity/weight
of the subject shipment. x x x
xxxx
Defendant-appellant ATI, for its part, presented its claim officer as
witness who testified that a survey was conducted by the shipping
company and ATI before the shipment was turned over to the
possession of ATI and that the Turn Over Survey of Bad Order Cargoes
was prepared by ATI’s Bad Order (BO) Inspector.
Considering that the shipment arrived on November 21, 1998 and the
unloading operation commenced on said date and was completed on
November 26, 1998, while the Turn Over Survey of Bad Order
Cargoes, reflecting a figure of 2,702 damaged bags, was prepared and
signed on November 28, 1998 by ATI’s BO Inspector and co-signed
by a representative of the shipping company, the trial court’s finding
that the damage to the cargoes was due to the improper handling
thereof by ATI’s stevedores cannot be said to be without substantial
support from the records.
We thus see no cogent reason to depart from the ruling of the trial
court that ATI should be made liable for the 2,702 bags of damaged
shipment. Needless to state, it is hornbook doctrine that the
assessment of witnesses and their testimonies is a matter best
undertaken by the trial court, which had the opportunity to observe
the demeanor, conduct or attitude of the witnesses. The findings of
the trial court on this point are accorded great respect and will not be
reversed on appeal, unless it overlooked substantial facts and
circumstances which, if considered, would materially affect the result
of the case.
We also find ATI liable for the additional 179 damaged bags
discovered upon delivery of the shipment at the consignee’s
warehouse in Pasig. The final Report of Survey executed by SMS
Average Surveyors & Adjusters, Inc., and independent surveyor hired
by the consignee, shows that the subject shipment incurred a total of
2881 damaged bags.
The Report states that the withdrawal and delivery of the shipment
took about ninety-five (95) trips from November 29, 1995 to
December 28, 1995 and it was upon completion of the delivery to
consignee’s warehouse where the final count of 2881 damaged bags
was made. The damage consisted of torn/bad order condition of the
bags due to spillages and caked/hardened portions.
We agree with the trial court that the damage to the shipment was
caused by the negligence of ATI’s stevedores and for which ATI is
liable under Articles 2180 and 2176 of the Civil Code. The proximate
cause of the damage (i.e., torn bags, spillage of contents and
caked/hardened portions of the contents) was the improper handling
of the cargoes by ATI’s stevedores, x x x
xxxx
ATI has not satisfactorily rebutted plaintiff-appellee’s evidence on the
negligence of ATI’s stevedores in the handling and safekeeping of the
cargoes. x x x
xxxx
We find no reason to disagree with the trial court’s conclusion. Indeed,
from the nature of the [damage] caused to the shipment, i.e., torn
bags, spillage of contents and hardened or caked portions of the
contents, it is not difficult to see that the damage caused was due to
the negligence of ATI’s stevedores who used steel hooks to retrieve
the bags from the higher portions of the piles thereby piercing the
bags and spilling their contents, and who piled the bags in the open
storage area of ATI with insufficient cover thereby exposing them to
the elements and [causing] the contents to cake or harden.”
Clearly, the finding of negligence on the part of petitioner’s stevedores
is supported by both testimonial and documentary evidence. Hence,
we see no reason to disturb the same.
Judicial notice does not apply
Finally, petitioner implores us to take judicial notice of Section 7.01,
Article VII of the Management Contract for cargo handling services it
entered with the PPA, which limits petitioner’s liability to P5,000.00
per package.
Unfortunately for the petitioner, it cannot avail of judicial notice.
Sections 1 and 2 of Rule 129 of the Rules of Court provide that:
“SECTION 1. Judicial notice, when mandatory.—A court shall take
judicial notice, without the introduction of evidence, of the existence
and territorial extent of states, their political history, forms of
government and symbols of nationality, the law of nations, the
admiralty and maritime courts of the world and their seals, the political
constitution and history of the Philippines, the official acts of the
legislative, executive and judicial departments of the Philippines, the
laws of nature, the measure of time, and the geographical divisions.
SEC. 2. Judicial notice, when discretionary. — A court may take
judicial notice of matters which are of public knowledge, or are
capable of unquestionable demonstration or ought to be known to
judges because of their judicial functions.”
The Management Contract entered into by petitioner and the PPA is
clearly not among the matters which the courts can take judicial notice
of. It cannot be considered an official act of the executive department.
The PPA, which was created by virtue of Presidential Decree No. 857,
as amended, is a government-owned and controlled corporation in
charge of administering the ports in the country. Obviously, the PPA
was only performing a proprietary function when it entered into a
Management Contract with petitioner. As such, judicial notice cannot
be applied.
WHEREFORE, the petition is hereby DENIED. The assailed July 14,
2005 Decision and the February 14, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED.
SO ORDERED.
Corona (C.J., Chairperson), Velasco, Jr., Leonardo-De Castro and
Perez, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note. — Stipulation in the bill of lading limiting respondent’s liability
for the loss of the subject cargoes is allowed under Article 1749 of the
Civil Code, and Sec. 4, paragraph (5) of the Carriage of Goods by Sea
Act (COGSA). (Philippine Charter Insurance Corporation vs. Neptune
Orient Lines/
Overseas Agency Services, Inc., 554 SCRA 335 [2008])
——o0o——
SUMMA INSURANCE CORPORATION, petitioner, vs. COURT
OF APPEALS and METRO PORT SERVICE, INC., respondents
G.R. No. 84680. February 5, 1996
Arrastre Service; Common Carriers; Warehousemen; The relationship
between the consignee and the arrastre operator is much akin to that
existing between the consignee or owner of shipped goods and the
common carrier, or that between a depositor and a warehouseman.
— Petitioner was subrogated to the rights of the consignee. The
relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that
existing between the consignee or owner of shipped goods and the
common carrier, or that between a depositor and a warehouseman.
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 as enunciated under Article 1733 of the
Civil Code and Section 3(b) of the Warehouse Receipts Law,
respectively. 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.
Same; Contracts; Stipulations Pour Autrui; In the performance of its
job, an arrastre operator is bound by the management contract it had
executed with the Bureau of Customs which is a sort of a stipulation
pour autrui which is also binding on the consignee (and the insurer,
as successor-in-interest of the consignee)—indeed, upon taking
delivery of the cargo, a consignee tacitly accepts the provisions of the
management contract, including those which are intended to limit the
liability of the arrastre operator.—In the performance of its job, an
arrastre operator is bound by the management contract it had
executed with the Bureau of Customs. However, a management
contract, which is a sort of a stipulation pour autrui within the meaning
of Article 1311 of the Civil Code, is also binding on a consignee
because it is incorporated in the gate pass and delivery receipt which
must be presented by the consignee before delivery can be effected
to it. The insurer, as successor-in-interest of the consignee, is likewise
bound by the management contract. Indeed, upon taking delivery of
the cargo, a consignee (and necessarily its successor-in-interest)
tacitly accepts the provisions of the management contract, including
those which are intended to limit the liability of one of the contracting
parties, the arrastre operator.
Same; Same; A consignee who does not avail of the services of the
arrastre operator is not bound by the management contract. —
However, a consignee who does not avail of the services of the
arrastre operator is not bound by the management contract. Such an
exception to the rule does not obtain here as the consignee did in fact
accept delivery of the cargo from the arrastre operator.
Same; Same; The advance notice of the actual invoice of the goods
entrusted to the arrastre operator is for the purpose of determining
its liability, that it may obtain compensation commensurate to the risk
it assumes, and not for the purpose of determining the degree of care
or diligence it must exercise as a depository or warehouseman.—In
the same case, the Court added that the advance notice of the actual
invoice of the goods entrusted to the arrastre operator is “for the
purpose of determining its liability, that it may obtain compensation
commensurable to the risk it assumes, (and) not for the purpose of
determining the degree of care or diligence it must exercise as a
depository or warehouseman” since the arrastre operator should not
discriminate between cargoes of substantial and small values, nor
exercise care and caution only for the handling of goods announced
to it beforehand to be of sizeable value, for that would be spurning
the public service nature of its business.
Evidence; Burden of Proof; In civil cases, the burden of proof is on the
party who would be defeated if no evidence is given on either side. —
In civil cases, the burden of proof is on the party who would be
defeated if no evidence is given on either side. Said party 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. Petitioner having asserted the affirmative of the issue in this
case, it should have presented evidence required to obtain a favorable
judgment.
Attorney’s Fees; The award of attorney’s fees is proper where the acts
and omissions of a party have compelled the other party to liti-gate or
incur expenses to protect its rights; Discretion, when well exercised,
should not be disturbed. — Anent the attorney’s fees, we find the
award to be proper considering that the acts and omissions of private
respondent have compelled petitioner to litigate or incur expenses to
protect its rights. However, as to the amount of the award, we find no
reason to re-examine the appellate court’s determination thereon in
view of the amount of the principal obligation. Otherwise, we would
be disregarding the doctrine that discretion, when well exercised,
should not be disturbed.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Dollete, Blanco, Ejercito and Associates for petitioner.
Cruz, Durian, Agabin, Atienza, Alday & Tuason for private
respondents.
PANGANIBAN, J.:
Is an arrastre operator legally liable for the loss of a shipment in its
custody? If so, what is the extent of its liability? These are the two
questions that this Court faced in this petition for review on certiorari
of the Decision of the Court of Appeals in CA-G.R. No. CV 04964
promulgated on April 27, 1988, which affirmed with modification the
decision of the Court of First Instance of Manila in Civil Case No. 82-
13988, ordering petitioner to pay private respondent a sum of money,
with legal interest, attorney’s fees and the costs of the suit.
The Facts
On November 22, 1981, the S/S “Galleon Sapphire,” a vessel owned
by the National Galleon Shipping Corporation (NGSC), arrived at Pier
3, South Harbor, Manila, carrying a shipment consigned to the order
of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara)
as “notify party.” The shipment, including a bundle of PC 8 U blades,
was covered by marine insurance under Certificate No. 82/012-FEZ
issued by petitioner and Bill of Lading No. SF/MLA 1014. The shipment
was discharged from the vessel to the custody of private respondent,
formerly known as E. Razon, Inc., the exclusive arrastre operator at
the South Harbor. Accordingly, three good-order cargo receipts were
issued by NGSC, duly signed by the ship’s checker and a
representative of private respondent.
On February 24, 1982, the forwarder, Sterling International Brokerage
Corporation, withdrew the shipment from the pier and loaded it on the
barge “Semirara 8104.” The barge arrived at its port of destination,
Semirara Island, on March 9, 1982. When Semirara inspected the
shipment at its warehouse, it discovered that the bundle of PC8U
blades was missing.
On March 15, 1982, private respondent issued a shortlanded
certificate stating that the bundle of PC8U blades was already missing
when it received the shipment from the NGSC vessel. Semirara then
filed with petitioner, private respondent and NGSC its claim for
P280,969.68, the alleged value of the lost bundle.
On September 29, 1982, petitioner paid Semirara the invoice value of
the lost shipment. Semirara thereafter executed a release of claim and
subrogation receipt. Consequently, petitioner filed its claims with
NGSC and private respondent but it was unsuccessful.
Petitioner then filed a complaint (Civil Case No. 82-13988) with the
Regional Trial Court, Branch XXIV, Manila, against NGSC and private
respondent for collection of a sum of money, damages and attorney’s
fees.
On August 2, 1984, the trial court rendered a decision absolving NGSC
from any liability but finding private respondent liable to petitioner.
The dispositive portion of the decision reads as follows:
“PREMISES CONSIDERED, judgment is hereby rendered ordering
defendant Metro Port Service, Inc. to pay plaintiff Summa Insurance
Corporation the sum of P280,969.68 with legal interest from
November 22, 1982, the date of the filing of the complaint, until full
payment, and attorney’s fees in the sum of P20,000.00, with costs of
suit.
“The complaint as against defendant National Galleon Shipping
Corporation and the counterclaim interposed by said defendant are
hereby dismissed.” (Rollo, p. 32).
In resolving the issue as to who had custody of the shipment when it
was lost, the trial court relied more on the good-order cargo receipts
issued by NGSC than on the short-landed certificate issued by private
respondent. The trial court held:
“As between the aforementioned two documentary exhibits, the Court
is more inclined to give credence to the cargo receipts. Said cargo
receipts were signed by a checker of defendant NGSC and a
representative of Metro Port. It is safe to presume that the cargo
receipts accurately describe the quantity and condition of the
shipment when it was discharged from the vessel. Metro Port’s
representative would not have signed the cargo receipts if only four
(4) packages were discharged from the vessel and given to the
possession and custody of the arrastre operator. Having been signed
by its representative, the Metro Port is bound by the contents of the
cargo receipts.
“On the other hand, the Metro Port’s shortlanded certificate could not
be given much weight considering that, as correctly argued by counsel
for defendant NGSC, it was issued by Metro Port alone and was not
countersigned by the representatives of the shipping company and the
consignee. Besides, the certificate was prepared by Atty. Servillano V.
Dolina, Second Deputy General Manager of Metro Port, and there is
no proof on record that he was present at the time the subject
shipment was unloaded from the vessel and received by the arrastre
operator. Moreover, the shortlanded certificate bears the date of
March 15, 1982, more than three months after the discharge of the
cargo from the carrying vessel.
“Neither could the Court give probative value to the marine report
(Exhibit “J,” also Exhibit “1”-Razon). The attending surveyor who
attended the unloading of the shipment did not take the witness stand
to testify on said report. Although Transnational Adjustment Co.’s
general manager, Mariano C. Remorin, was presented as a witness,
his testimony is not competent because he was not present at the time
of the discharge of the cargo.
“Under the foregoing considerations, the Court finds that the one (1)
bundle of PC8U blade in question was not lost while the cargo was in
the custody of the carrying vessel. Considering that the missing bundle
was discharged from the vessel unto the custody of defendant arrastre
operator and considering further that the consignee did not receive
this cargo from the arrastre operator, it is safe to conclude from these
facts that said missing cargo was lost while same was in the
possession and control of defendant Metro Port. Defendant Metro Port
has not introduced competent evidence to prove that the loss was not
due to its fault or negligence. Consequently, only the Metro Port must
answer for the value of the missing cargo. Defendant NGSC is
absolved of any liability for such loss.”
On appeal, the Court of Appeals modified the decision of the trial court
and reduced private respondent’s liability to P3,500.00 as follows:
“WHEREFORE, the judgment appealed from is MODIFIED in that
defendant Metro Port Service, Inc., is ordered to pay plaintiff Summa
Insurance Corporation:
(1) the sum of P3,500.00, with legal interest from November 22, 1982,
until fully paid; and
(2) the sum of P7,000.00, as and for attorney’s fees. “Costs against
defendant Metro Port Service, Inc.”
Petitioner moved for reconsideration of the said decision but the Court
of Appeals denied the same. Hence, the instant petition.
The Issues
The issues brought by the parties could be stated as follows:
(1) Is the private respondent legally liable for the loss of the shipment
in question?
(2) If so, what is the extent of its liability?
The First Issue: Liability for Loss of Shipment
Petitioner was subrogated to the rights of the consignee. The
relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that
existing between the consignee or owner of shipped goods and the
common carrier, or that between a depositor and a warehouseman.
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 as enunciated under Article 1733 of the
Civil Code and Section 3(b) of the Warehouse Receipts Law,
respectively. 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.
In this case, it has been established that the shipment was lost while
in the custody of private respondent. We find private respondent liable
for the loss. This is an issue of fact determined by the trial court and
respondent Court, which is not reviewable in a petition under Rule 45
of the Rules of Court.
The Second Issue: Extent of Liability
In the performance of its job, an arrastre operator is bound by the
management contract it had executed with the Bureau of Customs.
However, a management contract, which is a sort of a stipulation pour
autrui within the meaning of Article 1311 of the Civil Code, is also
binding on a consignee because it is incorporated in the gate pass and
delivery receipt which must be presented by the consignee before
delivery can be effected to it. The insurer, as successor-in-interest of
the consignee, is likewise bound by the management contract. Indeed,
upon taking delivery of the cargo, a consignee (and necessarily its
successor-in-interest) tacitly accepts the provisions of the
management contract, including those which are intended to limit the
liability of one of the contracting parties, the arrastre operator.
However, a consignee who does not avail of the services of the
arrastre operator is not bound by the management contract. Such an
exception to the rule does not obtain here as the consignee did in fact
accept delivery of the cargo from the arrastre operator.
Section 1, Article VI of the Management Contract between private
respondent and the Bureau of Customs provides:
“1. Responsibility and Liability for Losses and Damages—The
CONTRACTOR shall, at its own expense handle all merchandise in the
piers and other designated places and at its own expense perform all
work undertaken by it hereunder diligently and in a skillful
workmanlike and efficient manner; that the CONTRACTOR shall be
solely responsible as an independent CONTRACTOR, and hereby
agrees to accept liability and to promptly pay to the steamship
company, consignee, consignor or other interested party or parties for
the loss, damage, or non-delivery of cargoes to the extent of the actual
invoice value of each package which in no case shall be more than
Three Thousand Five Hundred Pesos (P3,500.00) for each package
unless the value of the importation is otherwise specified or
manifested or communicated in writing together with the invoice value
and supported by a certified packing list to the CONTRACTOR by the
interested party or parties before the discharge of the goods, as well
as all damage that may be suffered on account of loss, damage, or
destruction of any merchandise while in custody or under the control
of the CONTRACTOR in any pier, shed, warehouse, facility or other
designated place under the supervision of the BUREAU, x x x” (Italics
supplied).
Interpreting a similar provision in the management contract between
private respondent’s predecessor, E. Razon, Inc. and the Bureau of
Customs, the Court said in E. Razon, Inc. v. Court of Appeals:
“Indeed, the provision in the management contract regarding the
declaration of the actual invoice value ‘before the arrival of the goods’
must be understood to mean a declaration before the arrival of the
goods in the custody of the arrastre operator, whether it be done long
before the landing of the shipment at port, or immediately before turn-
over thereof to the arrastre operator’s custody. 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 that it may define its responsibility for loss or
damage to such cargo and to ascertain compensation commensurate
to such risk assumed x x x.”
In the same case, the Court added that the advance notice of the
actual invoice of the goods entrusted to the arrastre operator is “for
the purpose of determining its liability, that it may obtain
compensation commensurable to the risk it assumes, (and) not for the
purpose of determining the degree of care or diligence it must exercise
as a depository or warehouseman” since the arrastre operator should
not discriminate between cargoes of substantial and small values, nor
exercise care and caution only for the handling of goods announced
to it beforehand to be of sizeable value, for that would be spurning
the public service nature of its business.
On the same provision limiting the arrastre operator’s liability, the
Court held in Northern Motors, Inc. v. Prince Line:
“Appellant claims that the above quoted provision is null and void, as
it limits the liability of appellee for the loss, destruction or damage of
any merchandise, to P500.00 per package, contending that to sustain
the validity of the limitation would be to encourage acts of conversion
and unjust enrichment on the part of the arrastre operator. Appellant,
however, overlooks the fact that the limitation of appellee’s liability
under said provision, is not absolute or unqualified, for if the value of
the merchandise is specified or manifested by the consignee, and the
corresponding arrastre charges are paid on the basis of the declared
value, the limitation does not apply. Consequently, the questioned
provision is neither unfair nor arbitrary, as contended, because the
consignee has it in his hands to hold, if he so wishes, the arrastre
operator responsible for the full value of his merchandise by merely
specifying it in any of the various documents required of him, in
clearing the merchandise from the customs. For then, the appellee
arrastre operator, by reasons 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. In
this manner, there would be mutuality. 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.”
In this case, no evidence was offered by petitioner proving the amount
of arrastre fees paid to private respondent so as to put the latter on
notice of the value of the cargo. While petitioner alleged that prior to
the loss of the package, its value had been relayed to private
respondent through the documents the latter had processed,
petitioner does not categorically state that among the submitted
documents were the pro forma invoice value and the certified packing
list. Neither does petitioner pretend that these two documents were
prerequisites to the issuance of a permit to deliver or were
attachments thereto. Even the permit to deliver, upon which petitioner
anchors its arguments, may not be considered by the Court because
it was not identified and formally offered in evidence.
In civil cases, the burden of proof is on the party who would be
defeated if no evidence is given on either side. Said party 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. Petitioner having asserted the affirmative of the issue in this
case, it should have presented evidence required to obtain a favorable
judgment.
On the other hand, on top of its denial that it had received the invoice
value and the packing list before the discharge of the shipment,
private respondent was able to prove that it was apprised of the value
of the cargo only after its discharge from the vessel, ironically through
petitioner’s claim for the lost package to which were attached the
invoice and packing list. All told, petitioner failed to convince the Court
that the requirement of the management contract had been complied
with to entitle it to recover the actual invoice value of the lost
shipment.
Anent the attorney’s fees, we find the award to be proper considering
that the acts and omissions of private respondent have compelled
petitioner to litigate or incur expenses to protect its rights. However,
as to the amount of the award, we find no reason to re-examine the
appellate court’s determination thereon in view of the amount of the
principal obligation. Otherwise, we would be disregarding the doctrine
that discretion, when well exercised, should not be disturbed.
WHEREFORE, the petition for review on certiorari is DENIED and the
decision of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ.,
concur.
Petition denied, judgment affirmed.
Notes. — Arrastre involves the handling of cargo deposited on the
wharf or between the establishment of the consignee or shipper and
the ship’s tackle. (Hijo de F. Escaño, Inc. vs. National Labor Relations
Commission, 201 SCRA 63 [1991])
Carrier and arrastre operator are liable in solidum for the proper
delivery of the goods in good condition to the consignee. (Eastern
Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA 78 [1994])
——o0o——
PHILIPPINES FIRST INSURANCE CO., INC., petitioner, vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER
AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S
“OFFSHORE MASTER” AND “SHANGHAI FAREAST SHIP
BUSINESS COMPANY,” respondents
G.R. No. 165647. March 26, 2009
Common Carriers; The extraordinary responsibility of the common
carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them. —
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
Same; Code of Commerce; Carriage of Goods by Sea Act (COGSA);
For marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over
to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agreed otherwise; Section 2 of the Carriage of
Goods by Sea Act (COGSA) provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. — For marine vessels,
Article 619 of the Code of Commerce provides that the ship captain is
liable for the cargo from the time it is turned over to him at the dock
or afloat alongside the vessel at the port of loading, until he delivers
it on the shore or on the discharging wharf at the port of unloading,
unless agreed otherwise. In Standard Oil Co. of New York v. Lopez
Castelo, 42 Phil. 256 (1921), the Court interpreted the ship captain’s
liability as ultimately that of the shipowner by regarding the captain
as the representative of the ship owner. Lastly, Section 2 of the COGSA
provides that under every contract of carriage of goods by sea, the
carrier in relation to the loading, handling, stowage, carriage, custody,
care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities
set forth in the Act. Section 3 (2) thereof then states that among the
carriers’ responsibilities are to properly and carefully load, handle,
stow, carry, keep, care for, and discharge the goods carried.
Same; Arrastre Operators; Handling cargo is mainly the arrastre
operator’s principal work so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and
damage to shipments under its custody. — The functions of an
arrastre operator involve the handling of cargo deposited on the wharf
or between the establishment of the consignee or shipper and the
ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
Same; Same; Both the ARRASTRE and the CARRIER are charged with
and obligated to deliver the goods in good condition to the consignee,
though the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.—
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc., 182 SCRA
455 (1990), the Court explained the relationship and responsibility of
an arrastre operator to a consignee of a cargo, to quote: The legal
relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman. The relationship between
the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and
to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the
goods in good condition to the consignee. (Emphasis supplied)
(Citations omitted) The liability of the arrastre operator was reiterated
in Eastern Shipping Lines, Inc. v. Court of Appeals with the clarification
that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
Same; Maritime Law; It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of
the carrier. — The records are replete with evidence which show that
the damage to the bags happened before and after their discharge
and it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem. It is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case, the damage or
losses were incurred during the discharge of the shipment while under
the supervision of the carrier. Consequently, the carrier is liable for
the damage or losses caused to the shipment. As the cost of the actual
damage to the subject shipment has long been settled, the trial court’s
finding of actual damages in the amount of P397,879.69 has to be
sustained.
Same; Same; Witnesses; The trial court’s evaluation as to the
credibility of witnesses is viewed as correct and entitled to the highest
respect because it is more competent to so conclude, having had the
opportunity to observe the witnesses’ demeanor and deportment on
the stand, and the manner in which they gave their testimonies.—On
the credibility of Mr. Talens which is the fourth issue, the general rule
in assessing credibility of witnesses is well-settled: x x x the trial
court’s evaluation as to the credibility of witnesses is viewed as correct
and entitled to the highest respect because it is more competent to so
conclude, having had the opportunity to observe the witnesses’
demeanor and deportment on the stand, and the manner in which
they gave their testimonies. The trial judge therefore can better
determine if such witnesses were telling the truth, being in the ideal
position to weigh conflicting testimonies. Therefore, unless the trial
judge plainly overlooked certain facts of substance and value which,
if considered, might affect the result of the case, his assessment on
credibility must be respected.
Same; Evidence; Demand Letters; A party’s failure to respond to a
demand letter does not constitute an implied admission of liability. —
Contrary to petitioner’s stance on the third issue, Wallem’s failure to
respond to its demand letter does not constitute an implied admission
of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes,
thus: A man cannot make evidence for himself by writing a letter
containing the statements that he wishes to prove. He does not make
the letter evidence by sending it to the party against whom he wishes
to prove the facts [stated therein]. He no more can impose a duty to
answer a charge than he can impose a duty to pay by sending goods.
Therefore, a failure to answer such adverse assertions in the absence
of further circumstances making an answer requisite or natural has no
effect as an admission.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Astorga & Repol Law Offices for petitioner.
Velicaria Egenias for respondents.
TINGA, J.:
Before us is a Rule 45 petition which seeks the reversal of the Decision
and Resolution of the Court of Appeals in CA-G.R. No. 61885. The
Court of Appeals reversed the Decision of the Regional Trial Court
(RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.
The facts of the case follow.
On or about 2 October 1995, Anhui Chemicals Import & Export
Corporation loaded on board M/S Offshore Master a shipment
consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and
delivery at the port of Manila for consignee, L.G. Atkimson Import-
Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill of
Lading reflects the gross weight of the total cargo at 500,200
kilograms. The Owner and/or Charterer of M/V Offshore Master is
unknown while the shipper of the shipment is Shanghai Fareast Ship
Business Company. Both are foreign firms doing business in the
Philippines, thru its local ship agent, respondent Wallem Philippines
Shipping, Inc. (Wallem).
On or about 16 October 1995, the shipment arrived at the port of
Manila on board the vessel M/S Offshore Master from which it was
subsequently discharged. It was disclosed during the discharge of the
shipment from the carrier that 2,426 poly bags (bags) were in bad
order and condition, having sustained various degrees of spillages and
losses. This is evidenced by the Turn Over Survey of Bad Order
Cargoes (turn-over survey) of the arrastre operator, Asian Terminals,
Inc. (arrastre operator). The bad state of the bags is also evinced by
the arrastre operator’s Request for Bad Order Survey.
Asia Star Freight Services, Inc. undertook the delivery of the subject
shipment from the pier to the consignee’s warehouse in Quezon City,
while the final inspection was conducted jointly by the consignee’s
representative and the cargo surveyor. During the unloading, it was
found and noted that the bags had been discharged in damaged and
bad order condition. Upon inspection, it was discovered that 63,065.00
kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting
in losses due to depreciation and downgrading.
On 29 April 1996, the consignee filed a formal claim with Wallem for
the value of the damaged shipment, to no avail. Since the shipment
was insured with petitioner Philippines First Insurance Co., Inc.
against all risks in the amount of P2,470,213.50, the consignee filed a
formal claim with petitioner for the damage and losses sustained by
the shipment. After evaluating the invoices, the turn-over survey, the
bad order certificate and other documents, petitioner found the claim
to be in order and compensable under the marine insurance policy.
Consequently, petitioner paid the consignee the sum of P397,879.69
and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand
letter to Wallem for the recovery of the amount paid by petitioner to
the consignee. However, despite receipt of the letter, Wallem did not
settle nor even send a response to petitioner’s claim.
Consequently, petitioner instituted an action before the RTC for
damages against respondents for the recovery of P397,879.69
representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint
until fully paid and attorney’s fees equivalent to 25% of the principal
claim plus costs of suit.
In a decision dated 3 November 1998, the RTC ordered respondents
to pay petitioner P397,879.69 with 6% interest plus attorney’s fees
and costs of the suit. It attributed the damage and losses sustained
by the shipment to the arrastre operator’s mishandling in the
discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court
of Appeals, the RTC held the shipping company and the arrastre
operator solidarily liable since both the arrastre operator and the
carrier are charged with and obligated to deliver the goods in good
order condition to the consignee. It also ruled that the ship functioned
as a common carrier and was obliged to observe the degree of care
required of a common carrier in handling cargoes. Further, it held that
a notice of loss or damage in writing is not required in this case
because said goods already underwent a joint inspection or survey at
the time of receipt thereof by the consignee, which dispensed with the
notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision.
According to the appellate court, there is no solidary liability between
the carrier and the arrastre operator because it was clearly established
by the court a quo that the damage and losses of the shipment were
attributed to the mishandling by the arrastre operator in the discharge
of the shipment. The appellate court ruled that the instant case falls
under an exception recognized in Eastern Shipping Lines. Hence, the
arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as
a common carrier, the carrier’s duties extend to the obligation to safely
discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the
damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial
demand by petitioner for the cost of the lost/damaged shipment is an
implied admission of the former’s liability for said goods;
4. Whether or not the courts below erred in giving credence to the
testimony of Mr. Talens.
It is beyond question that respondent’s vessel is a common carrier.
Thus, the standards for determining the existence or absence of the
respondent’s liability will be gauged on the degree of diligence
required of a common carrier. Moreover, as the shipment was an
exercise of international trade, the provisions of the Carriage of Goods
by Sea Act (COGSA), together with the Civil Code and the Code of
Commerce, shall apply.
The first and second issues raised in the petition will be resolved
concurrently since they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by
the insured consignee. The damage to the shipment was documented
by the turn-over survey and Request for Bad Order Survey. The turn-
over survey, in particular, expressly stipulates that 2,426 bags of the
shipment were received by the arrastre operator in damaged
condition. With these documents, petitioner insists that the shipment
incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre
operator.
The trial court, however, found through the testimony of Mr. Maximino
Velasquez Talens, a cargo surveyor of Oceanica Cargo Marine
Surveyors Corporation, that the losses and damage to the cargo were
caused by the mishandling of the arrastre operator. Specifically, that
the torn cargo bags resulted from the use of steel hooks/spikes in
piling the cargo bags to the pallet board and in pushing the bags by
the stevedores of the arrastre operator to the tug boats then to the
ports. The appellate court affirmed the finding of mishandling in the
discharge of cargo and it served as its basis for exculpating
respondents from liability, rationalizing that with the fault of the
arrastre operator in the unloading of the cargo established it should
bear sole liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for
the damage incurred at that point of transport. To address this issue,
the pertinent laws and jurisprudence are examined.
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 transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of
the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.
For marine vessels, Article 619 of the Code of Commerce provides that
the ship captain is liable for the cargo from the time it is turned over
to him at the dock or afloat alongside the vessel at the port of loading,
until he delivers it on the shore or on the discharging wharf at the port
of unloading, unless agreed otherwise. In Standard Oil Co. of New
York v. Lopez Castelo, the Court interpreted the ship captain’s liability
as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. Section 3 (2) thereof
then states that among the carriers’ responsibilities are to properly
and carefully load, handle, stow, carry, keep, care for, and discharge
the goods carried.
The above doctrines are in fact expressly incorporated in the bill of
lading between the shipper Shanghai Fareast Business Co., and the
consignee, to wit:
“4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier
shall commence from the time when the goods are loaded on board
the vessel and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before
loading and after discharging from the vessel, howsoever such loss or
damage arises.”
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle. 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.
Handling cargo is mainly the arrastre operator’s principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc. the Court
explained the relationship and responsibility of an arrastre operator to
a consignee of a cargo, to quote:
“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator. Since it is the duty
of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE
and the CARRIER are therefore charged with and obligated to deliver
the goods in good condition to the consignee.” (Emphasis supplied)
(Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping
Lines, Inc. v. Court of Appeals with the clarification that the arrastre
operator and the carrier are not always and necessarily solidarily liable
as the facts of a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that
an arrastre operator and a carrier may not be held solidarily liable at
all times. But the precise question is which entity had custody of the
shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the
carriers’ responsibilities are to properly and carefully load, care for and
discharge the goods carried. The bill of lading covering the subject
shipment likewise stipulates that the carrier’s liability for loss or
damage to the goods ceases after its discharge from the vessel. Article
619 of the Code of Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery at the port of
unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V.
Farland, it was ruled that like the duty of seaworthiness, the duty of
care of the cargo is non-delegable, and the carrier is accordingly
responsible for the acts of the master, the crew, the stevedore, and
his other agents. It has also been held that it is ordinarily the duty of
the master of a vessel to unload the cargo and place it in readiness
for delivery to the consignee, and there is an implied obligation that
this shall be accomplished with sound machinery, competent hands,
and in such manner that no unnecessary injury shall be done thereto.
And the fact that a consignee is required to furnish persons to assist
in unloading a shipment may not relieve the carrier of its duty as to
such unloading.
The exercise of the carrier’s custody and responsibility over the subject
shipment during the unloading actually transpired in the instant case
during the unloading of the shipment as testified by Mr. Talens, the
cargo surveyor, to quote:
Atty. Repol:
Do you agree with me that Wallem Philippines is a shipping
[company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir.
xxx
Q Mr. Witness, during the discharging operation of this cargo, where
was the master of the vessel?
A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was
being unloaded from the vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging
of the cargo from the vessel?
A Ang head checker po ang siyang nagpapatakbo ng trabaho sa loob
ng barko, sir.
xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in
the Bad Order Inspection, to wit:
“The bad order torn bags, was due to stevedores[‘] utilizing steel
hooks/spikes in piling the cargo to [the] pallet board at the vessel’s
cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic].” (Emphasis supplied)
The records are replete with evidence which show that the damage to
the bags happened before and after their discharge and it was caused
by the stevedores of the arrastre operator who were then under the
supervision of Wallem.
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. In the
instant case, the damage or losses were incurred during the discharge
of the shipment while under the supervision of the carrier.
Consequently, the carrier is liable for the damage or losses caused to
the shipment. As the cost of the actual damage to the subject
shipment has long been settled, the trial court’s finding of actual
damages in the amount of P397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general
rule in assessing credibility of witnesses is well-settled:
“x x x the trial court’s evaluation as to the credibility of witnesses is
viewed as correct and entitled to the highest respect because it is
more competent to so conclude, having had the opportunity to
observe the witnesses’ demeanor and deportment on the stand, and
the manner in which they gave their testimonies. The trial judge
therefore can better determine if such witnesses were telling the truth,
being in the ideal position to weigh conflicting testimonies. Therefore,
unless the trial judge plainly overlooked certain facts of substance and
value which, if considered, might affect the result of the case, his
assessment on credibility must be respected.”
Contrary to petitioner’s stance on the third issue, Wallem’s failure to
respond to its demand letter does not constitute an implied admission
of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes,
thus:
“A man cannot make evidence for himself by writing a letter containing
the statements that he wishes to prove. He does not make the letter
evidence by sending it to the party against whom he wishes to prove
the facts [stated therein]. He no more can impose a duty to answer a
charge than he can impose a duty to pay by sending goods. Therefore,
a failure to answer such adverse assertions in the absence of further
circumstances making an answer requisite or natural has no effect as
an admission.”
With respect to the attorney’s fees, it is evident that petitioner was
compelled to litigate this matter to protect its interest. The RTC’s
award of P20,000.00 as attorney’s fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 22 June 2004 and its Resolution dated 11 October 2004
are REVERSED and SET ASIDE. Wallem is ordered to pay petitioner
the sum of P397,879.69, with interest thereon at 6% per annum from
the filing of the complaint on 7 October 1996 until the judgment
becomes final and executory. Thereafter, an interest rate of 12% per
annum shall be imposed.48 Respondents are also ordered to pay
petitioner the amount of P20,000.00 for and as attorney’s fees,
together with the costs of the suit.
SO ORDERED.
Austria-Martinez, Corona, Velasco, Jr. and Brion, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes. — The Carriage of Goods by Sea Act (COGSA), which is
suppletory to the provisions of the Civil Code, supplements the latter
by establishing a statutory provision limiting the carrier’s liability in the
absence of a shipper’s Philippines First Insurance, Co., Inc. vs. Wallem
Phils. Shipping, Inc., 582 SCRA 457, G.R. No. 165647 March 26, 2009
——o0o——
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC.,
petitioner, vs. PRUDENTIAL GUARANTEE & ASSURANCE CO.,
INC., respondent
G.R. No. 134514. December 8, 1999
Commercial Law; Carriage of Goods by Sea Act; Arrastre; The legal
relationship between an arrastre operator and a consignee is akin to
that between a warehouseman and a depositor. — The legal
relationship between an arrastre operator and a consignee is akin to
that between a warehouseman and a depositor. As to both the nature
of the functions and the place of their performance, an arrastre
operator’s services are clearly not maritime in character.
Same; Same; Same; In a claim for loss filed by a consignee, the
burden of proof to show compliance with the obligation to deliver the
goods to the appropriate party devolves upon the arrastre operator.
— In a claim for loss filed by a consignee, 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 rests within its knowledge, it must prove that the losses
were not due to its negligence or that of its employees.
Same; Same; Same; “Shipper’s Load and Count” means that the
shipper was solely responsible for the loading of the container, while
the carrier was oblivious to the contents of the shipment. — More
important, the consigned goods were shipped under “Shipper’s Load
and Count.” This means that the shipper was solely responsible for
the loading of the container, while the carrier was oblivious to the
contents of the shipment. Protection against pilferage of the shipment
was the consignee’s lookout. The arrastre operator was, like any
ordinary depositary, duty-bound to take good care of the goods
received from the vessel and to turn the same over to the party
entitled to their possession, subject to such qualifications as may have
validly been imposed in the contract between the parties. The arrastre
operator was not required to verify the contents of the container
received and to compare them with those declared by the shipper
because, as earlier stated, the cargo was at the shipper’s load and
count. The arrastre operator was expected to deliver to the consignee
only the container received from the carrier.
Same; Same; Same; The filing of the claim for loss within the 15-day
period is in the nature of a prescriptive period for bringing an action
and is a condition precedent to holding the arrastre operator liable. —
In order to hold the arrastre operator liable for lost or damaged goods,
the claimant should file with the operator a claim for the value of said
goods “within fifteen (15) days from the date of discharge of the last
package from the carrying vessel x x x.” The filing of the claim for loss
within the 15-day period is in the nature of a prescriptive period for
bringing an action and is a condition precedent to holding the arrastre
operator liable. This requirement is a defense made available to the
arrastre operator, who may use or waive it as a matter of personal
discretion.
Same; Same; Same; The 15-day period for filing claims should be
counted from the date the consignee learns of the loss, damage or
misdelivery of goods. — We should hasten to add that while a literal
reading of the liability clause makes the time limit run from the
moment the shipment is discharged from the carrying vessel, this
Court has chosen to interpret this condition liberally in an endeavor to
promote fairness, equity and justness. A long line of cases has held
that the 15-day period for filing claims should be counted from the
date the consignee learns of the loss, damage or misdelivery of goods.
Same; Same; Same; Its failure to do so relieved the arrastre operator
of any liability for the nondelivery of the goods. — In any event, within
15 days from the time the loss was discovered, the consignee could
have filed a provisional claim, which would have constituted
substantial compliance with the rule. Its failure to do so relieved the
arrastre operator of any liability for the nondelivery of the goods. More
specifically, the failure to file a provisional claim bars a subsequent
action in court. The rationale behind the time limit is that, without it,
a consignee could too easily concoct or fabricate claims and deprive
the arrastre operator of the best opportunity to probe immediately
their veracity.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Panaguiton & Pedrasa Law Offices for petitioner.
Fajardo Law Offices for private respondent.
PANGANIBAN, J.:
When cargo is placed on a vessel at the “shipper’s load and count,”
the arrastre operator is required only to deliver to the consignee the
container van received from the shipper, not to verify or to compare
the contents thereof with those declared by the shipper. A claim for
reimbursement for the loss, damage or misdelivery of goods must be
filed within 15 days from the date the consignee learns of such
problem(s).
The Case
For the resolution of the Court is a Petition for Review under Rule 45
of the Rules of Court assailing the March 10, 1998 Decision and the
June 23, 1998 Resolution both promulgated by the Court of Appeals
in CA-GR CV No. 52129 reversing the trial court’s dismissal of the
Complaint for the collection of a sum of money filed by Prudential
Guarantee & Insurance Co., Inc. (Prudential) against International
Container Terminal Services, Inc. (ICTSI).
The Facts
The challenged Decision sets forth the facts of this case as follows:
“On April 25, 1990, mother vessel ‘Tao He’ loaded and received on
board in San Francisco, California, a shipment of five (5) lots of canned
foodstuff complete and in good order and condition for transport to
Manila in favor of Duel Food Enterprises (“consignee” for brevity).
China Ocean Shipping Company issued the corresponding bill of lading
therefor.
“Consignee insured the shipment with Prudential Guarantee and
Assurance, Inc. against all risks for P1,921,827.00 under Marine
Insurance Policy No. 20RN-3011/90.
“On May 30, 1990, the shipment arrived at the Port of Manila and
discharged by [the] vessel MS ‘Wei He’ in favor of International
Container Terminal Services, Inc. for safekeeping.
“On June 1, 1990, A. D. Reyna Customs Brokerage (“defendant
brokerage” for brevity) withdrew the shipment and delivered the same
to [the] consignee. An inspection thereof revealed that 161 cartons
were missing valued at P85,984.40.
“Claim for indemnification of the loss having been denied by [ICTSI]
and [the] brokerage, consignee sought payment from [Prudential]
under the marine cargo policy. Consignee received a compromised
sum of P66,730.12 in settlement thereof. As subrogee, [Prudential]
instituted the instant complaint against said defendants [ICTSI and
brokerage].
“Traversing the complaint, [ICTSI] counters that it observed
extraordinary diligence over the subject shipment while under its
custody; that the loss is not attributable to its fault or its agent,
representative or employee; that consignee failed to file a formal claim
against it in accordance with PPA Administrative Order No. 10-81; and
that the complaint states no cause of action. By way of crossclaim, it
sought reimbursement from defendant brokerage in the event it is
adjudged to pay the loss.
“In its Order dated March 3, 1992, the court a quo upon [Prudential’s]
motion, declared defendant brokerage in default for failure to file [it’s]
answer within the reglementary period. Acting on [ICTSI’s] motion,
the court a quo, in its Order dated May 27, 1992, allowed the former
to present its evidence ex-parte against defendant brokerage relative
to the cross claim.
“On May 19, 1993, the court a quo rendered a decision dismissing the
complaint against defendant brokerage for lack of evidence.
“In its Order of July 12, 1993, the court a quo, upon motion of [ICTSI]
and [Prudential], vacated the decision dated May 19, 1993 and set the
case for hearing to give [ICTSI] an opportunity to cross examine
[Prudential’s] witnesses.”
On November 8, 1995, the trial court rendered a Decision dismissing
Prudential’s Complaint against ICTSI in this wise:
“Failure on the part of the consignee to comply with the terms and
conditions of the contract with [ICTSI], [Prudential] is not placed in a
better position than the consignee who cannot claim damages against
[ICTSI]. Hence, the complaint is hereby DISMISSED.”
Reconsideration was denied by the Regional Trial Court in its Order
dated December 27, 1995. Disposing of the appeal, the CA ruled:
“WHEREFORE, the decision appealed from is hereby REVERSED and
SET ASIDE and, in lieu thereof, judgment is hereby rendered ordering
[appellee] International [C]ontainer Terminal Services, Inc. (ICTSI) to
pay appellant the sum of P66,730.12 with legal interest from May 13,
1991, until fully paid, plus 10% of x x x said claim by way of attorney’s
fee.”
Reconsideration of the CA Decision was denied in the herein
challenged June 23, 1998 Resolution.
Ruling of the Court of Appeals
The appellate court found ICTSI negligent in its duty to exercise due
diligence over the shipment. It concluded that the shortage was due
to pilferage of the shipment while the sea vans were stored at the
container yard of ICTSI.
It also ruled that the filing of a claim depended on the issuance of a
certificate of loss by ICTSI based on the liability clause printed on the
back of the arrastre and wharfage receipt. Since ICTSI did not issue
such a certificate despite being informed of the shortage, the 15-day
period given to the consignee for filing a formal claim never began. By
subrogation, Prudential, as insurer of the consignee, was entitled to
hold the ICTSI liable for the shortage.
Assignment of Errors
Petitioner claims that the appellate court committed reversible errors
(1) in ruling that ICTSI failed to adduce convincing evidence to rebut
the finding of the independent adjuster and (2) in allowing the
Complaint despite the failure of the consignee to file a formal claim
within the period stated on the dorsal side of the arrastre and
wharfage receipt.
This Court’s Ruling
The Petition is meritorious.
First Issue: Proof of Negligence
The legal relationship between an arrastre operator and a consignee
is akin to that between a warehouseman and a depositor. As to both
the nature of the functions and the place of their performance, an
arrastre operator’s services are clearly not maritime in character.
In a claim for loss filed by a consignee, 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 rests within its knowledge, it must prove that the losses
were not due to its negligence or that of its employees.
To discharge this burden, petitioner presented five Arrastre and
Wharfage Bill/Receipts, which also doubled as container yard gate
passes, covering the whole shipment in question. The short-landed
shipment was covered by the gate pass marked “Exhibit 5.” The latter
bore the signature of a representative of the consignee,
acknowledging receipt of the shipment in good order and condition
(Exh. “5-e”). Thus, we see no reason to dispute the finding of the trial
court that “the evidence adduced by the parties will show that the
consignee received the container vans x x x in good condition (Exhs.
1-6).”
By its signature on the gate pass and by its failure to protest on time,
the consignee is deemed to have acknowledged receipt of the goods
in good order and condition. Lamberto Cortez, petitioner’s witness,
testified that he personally examined the shipment and identified the
gate pass which covered the delivery of the shipment and which was
countersigned by the consignee’s representative. He explained the
import of his examination as follows:
“A: Before I sign this gate pass, sir, the representative of the
consignee [gives] it to me then I write down the items, the goods to
be delivered so that it will be mounted in the truck of the consignee.
After mounting it, it will go to our office then I will check the number
of the container if it is properly padlocked, and if it is okay, I will place
there okay and I will sign it to be countersigned by the representative
of the consignee, sir.
Q: In other words, Mr. Witness, you said that this particular shipment
was padlocked?
A: Yes, sir.
xxx xxx xxx
Q: You also stated that the shipment was okay, will you point to that
particular portion of the gate pass?
A: After the physical check-up, I placed there okay, meaning it ha[d]
no damage, sir.”
The assailed Decision ruled that the petitioner was negligent, as
evidenced by the loss of the original seal and padlock of the container,
which were subsequently replaced with safety wire while the shipment
was still stored at the ICTSI compound.
The appellate court cites, as proof of petitioner’s negligence, the
Survey/Final Report of the independent adjuster, TanGatue
Adjustment Company, Inc. (Exh. “F”). The Report stated:
“The 3,439 cartons comprising [the] balance of the shipment were
found and accepted by consignee’s representative in good order.
“In our opinion, shortage sustained by the shipment was due to
pilferage whilst the sea vans containing the shipment were stored at
[the] [c]ontainer [y]ard of the [petitioner], [at] North Harbor, Manila
but we cannot categorically state as to when and who undertook [it]
due to the absence of documentary evidence.
“The customs safety wire as well as the padlock of Sea Van No. HTMU-
803515-6 where the short (missing) cartons discovered may have
been tampered [with]/opened and returned/re-closed with finesse
which [was] unfortunately not noticed during delivery and prior to
opening at consignee’s warehouse.
“All the sea vans were reportedly full of contents when examined by
the customs examiner for tax evaluation of contents.
“The [ship agents] and arrastre contractors[’] representative
reportedly refused the invitation of the consignee to witness the
stripping/withdrawal of the same from the sea vans at their warehouse
averring that the shipment per Bill of Lading was shipped under
[“]Shipper’s Load and Count” hence, loss/damage, if any, to the
shipment is not their liability.
“We thoroughly investigate[d] this particular case at International
Container Terminal Services, Inc., North Harbor, Manila[,] but up to
this time no person(s) and/or group(s) could be pinpointed liable [for]
the shortage of 161 cartons, hence, the delay [in the] issuance of this
report.”
The adjuster insists that the shipment was complete when the
customs examiner opened the sea vans for tax evaluation. However,
the latter’s report was not presented. Hence, there is no basis for
comparing the cartons subjected to customs examination and those
which were delivered to the consignee.
More important, the consigned goods were shipped under “Shipper’s
Load and Count.” This means that the shipper was solely responsible
for the loading of the container, while the carrier was oblivious to the
contents of the shipment. Protection against pilferage of the shipment
was the consignee’s lookout. The arrastre operator was, like any
ordinary depositary, duty-bound to take good care of the goods
received from the vessel and to turn the same over to the party
entitled to their possession, subject to such qualifications as may have
validly been imposed in the contract between the parties. The arrastre
operator was not required to verify the contents of the container
received and to compare them with those declared by the shipper
because, as earlier stated, the cargo was at the shipper’s load and
count. The arrastre operator was expected to deliver to the consignee
only the container received from the carrier.
Petitioner claims that the absence of a request for a bad order survey
belied the consignee’s assertion that the shipment was filched while
in ICTSI’s custody, and that such absence did not stop the 15-day
period from running. Normally, a request for a bad order survey is
made in case there is an apparent or presumed loss or damage. The
consignee made no such request despite being provided by the
petitioner a form therefor.
The lack of a bad order survey does not toll the prescriptive period for
filing a claim for loss, because the consignee can always file a
provisional claim within 15 days from the time it discovers the loss or
damage. Such a claim would place the arrastre operator on notice that
the shipment sustained damage or loss, even if the exact amount
thereof could not be specified at the moment. In this manner, the
arrastre operator can immediately verify its culpability and liability. A
provisional claim seasonably filed is sufficient compliance with the
liability clause.
From the foregoing discussion, it is clear that the appellate court erred
in concluding that the shortage was due to the negligence of the
arrastre operator.
Second Issue: Period to File a Claim for Loss
Petitioner contends that the appellate court misconstrued the liability
clause printed on the dorsal side of the Arrastre and Wharfage
Bill/Receipt. The contentious provision of this document reads:
“‘Liability Clause’
“‘The duly authorized representative of herein named CONSIGNEE,
and ICTSI hereby certify to the correctness of the description of the
containerized cargo covered by this CY GATEPASS, the issuance of
which constitutes delivery to and receipt by Consignee of the
containerized cargo as described in this CY GATEPASS, in good order
and condition, unless otherwise indicated. This CY GATEPASS is
subject to all terms and conditions defined in the Existing Management
Contract between the PPA & ICTSI[;] PPA Administrative Order No.
10-81, ICTSI shall, however, be liable to the extent of the local invoice
value of each package but not to exceed P3,500 Philippine currency
for imported cargoes and P1,000 for domestic cargoes (consistent with
Administrative Order 10-81 unless revised), unless the value thereof
is otherwise specified or manifested or communicated in writing
together with the invoice value and supported by a certified packing
list to ICTSI by any interested party/ies before the discharge of the
cargo and corresponding port charges ha[ve] been fully paid. This
provision shall only apply upon filing of a formal claim within 15 days
from the date of issuance of the Bad Order Certificate or certificate of
loss, damage or non-delivery by ICTSI.’ ”
Petitioner argues that the 15-day limitation for filing a claim against
the arrastre operator should run from the time of the delivery of the
goods to the consignee, and that the latter’s failure to file a claim
within said period is sufficient ground to deny the claim for loss.
On the other hand, the appellate court overruled the trial court,
because the filing of the claim was dependent upon the issuance of a
certificate of loss, damage or nondelivery. Since the petitioner did not
issue such certificate, the 15-day limit, the CA opined, did not begin
to run against the consignee. Private respondent argues that the clear
and unambiguous language of the liability clause does not support
petitioner’s construction.
We agree with the petitioner. In order to hold the arrastre operator
liable for lost or damaged goods, the claimant should file with the
operator a claim for the value of said goods “within fifteen (15) days
from the date of discharge of the last package from the carrying vessel
x x x.” The filing of the claim for loss within the 15-day period is in the
nature of a prescriptive period for bringing an action and is a condition
precedent to holding the arrastre operator liable. This requirement is
a defense made available to the arrastre operator, who may use or
waive it as a matter of personal discretion.
The said requirement is not an empty formality. It gives the arrastre
contractor a reasonable opportunity to check the validity of the claim,
while the facts are still fresh in the minds of the persons who took part
in the transaction, and while the pertinent documents are still
available. Such period is sufficient for the consignee to file a
provisional claim after the discharge of the goods from the vessel. For
this reason, we believe that the 15-day limit is reasonable.
We should hasten to add that while a literal reading of the liability
clause makes the time limit run from the moment the shipment is
discharged from the carrying vessel, this Court has chosen to interpret
this condition liberally in an endeavor to promote fairness, equity and
justness. A long line of cases has held that the 15-day period for filing
claims should be counted from the date the consignee learns of the
loss, damage or misdelivery of goods.
In the case at bar, the consignee had all the time to make a formal
claim from the day it discovered the shortage in the shipment, which
was June 4, 1990, as shown by the records. According to the
independent adjuster, the stripping or opening of the sea vans
containing the shipped canned goods was made at the consignee’s
place upon receipt of the shipment. After discovering the loss, the
consignee asked the adjuster to investigate the reason for the short-
landing of the shipment. By the time the claim for loss was filed on
October 2, 1990, four months had already elapsed from the date of
delivery, June 4, 1990.
Prudential did not explain the delay. It did not even allege or prove
that the discovery of the shortage was made by the consignee only
15-days before October 2, 1990. The latter had to wait for the
independent adjuster’s survey report dated September 7, 1990, before
filing the claim with the former. By that time, however, it was clearly
too late, as the 15-day period had expired.
In any event, within 15 days from the time the loss was discovered,
the consignee could have filed a provisional claim, which would have
constituted substantial compliance with the rule. Its failure to do so
relieved the arrastre operator of any liability for the nondelivery of the
goods. More specifically, the failure to file a provisional claim bars a
subsequent action in court. The rationale behind the time limit is that,
without it, a consignee could too easily concoct or fabricate claims and
deprive the arrastre operator of the best opportunity to probe
immediately their veracity.
WHEREFORE, the Petition is hereby GRANTED. The assailed Decision
and Resolution are SET ASIDE, and the trial court’s Decision is
REINSTATED. No pronouncement as to costs.
SO ORDERED.
Melo (Chairman), Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
Petition granted, judgment and resolution set aside. That of the court
a quo reinstated.
Note. — Mere proof of delivery of the goods in good order to a
common carrier, and of their arrival at the place of destination in bad
order, makes out prima facie case against the common carrier.
(Tabacalera Insurance Co. vs. North Front Shipping Services Inc., 272
SCRA 527 [1997])
——o0o——
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC.,
petitioner, vs. COURT OF APPEALS and PIONEER
INSURANCE AND SURETY CORPORATION, respondents
G.R. No. 166250. July 26, 2010
Remedial Law; Appeals; Factual questions may not be raised in a
petition for review on certiorari. — Well established is the rule that
factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court.
Commercial Law; Carriage of Goods by Sea Act; Words and Phrases;
Meaning of “Freight Forwarder.” — Petitioner is a freight forwarder.
The term “freight forwarder” refers to a firm holding itself out to the
general public (other than as a pipeline, rail, motor, or water carrier)
to provide transportation of property for compensation and, in the
ordinary course of its business, (1) to assemble and consolidate, or to
provide for assembling and consolidating, shipments, and to perform
or provide for break-bulk and distribution operations of the shipments;
(2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part
of the transportation a carrier subject to the federal law pertaining to
common carriers.
Same; Same; Limitation of a Freight Forwarder’s Liability. — A freight
forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however,
where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable
as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the
transport, even though the forwarder does not carry the merchandise
itself.
Same; Same; Bill of Lading; Meaning of a Bill of Lading; A bill of lading
operates both as receipts and as a contract. — A bill of lading is a
written acknowledgement of the receipt of goods and an agreement
to transport and to deliver them at a specified place to a person named
or on his or her order. It operates both as a receipt and as a contract.
It is a receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date
and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks, condition, quality, and value. As a
contract, it names the contracting parties, which include the
consignee; fixes the route, destination, and freight rate or charges;
and stipulates the rights and obligations assumed by the parties.
Same; Same; Common Carriers; Negligence; Common carriers, as a
general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed; Mere
proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. — UTI is liable as
a common carrier. Common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such diligence. Mere
proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, loss, or destruction
of the goods happened, the transporter shall be held responsible.
Same; Same; Same; The Civil Code does not limit the liability of the
common carrier to a fixed amount per package; The Carriage of Goods
by Sea Act (COGSA) supplements the Civil Code by establishing a
provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading. — It is to be noted
that the Civil Code does not limit the liability of the common carrier to
a fixed amount per package. In all matters not regulated by the Civil
Code, the rights and obligations of common carriers are governed by
the Code of Commerce and special laws. Thus, the COGSA
supplements the Civil Code by establishing a provision limiting the
carrier’s liability in the absence of a shipper’s declaration of a higher
value in the bill of lading.
Same; Same; Same; Insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of
the value of the cargo. — In the present case, the shipper did not
declare a higher valuation of the goods to be shipped. Contrary to the
CA’s conclusion, the insertion of the words “L/C No. LC No. 1-187-
008394/NY 69867 covering shipment of raw materials for
pharmaceutical Mfg. x x x” cannot be the basis of petitioner’s liability.
Furthermore, the insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of
the value of the cargo.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Jerome T. Pampolina for petitioner.
Baltazar Y. Repol for private respondent.
NACHURA, J.:
For review is the Court of Appeals (CA) Decision dated April 29, 2004
and Resolution dated November 26, 2004. The assailed Decision
affirmed the Regional Trial Court (RTC) decision3 dated February 22,
2001; while the assailed Resolution denied petitioner Unsworth
Transport International (Philippines), Inc., American President Lines,
Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s)
motion for reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing Corporation
delivered to UTI a shipment of 27 drums of various raw materials for
pharmaceutical manufacturing, consisting of:
“1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x
banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine
oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs:
Vitamin B Complex Extract.” UTI issued Bill of Lading No.
C320/C15991-2, covering the aforesaid shipment. The subject
shipment was insured with private respondent Pioneer Insurance and
Surety Corporation in favor of Unilab against all risks in the amount of
P1,779,664.77 under and by virtue of Marine Risk Note Number MC
RM UL 0627 926 and Open Cargo Policy No. HO-022-RIU.
On the same day that the bill of lading was issued, the shipment was
loaded in a sealed 1x40 container van, with no. APLU-982012, boarded
on APL’s vessel M/V “Pres. Jackson,” Voyage 42, and transshipped to
APL’s M/V “Pres. Taft” for delivery to petitioner in favor of the
consignee United Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila.
On October 6, 1992, petitioner received the said ship-ment in its
warehouse after it stamped the Permit to Deliver Imported Goods
procured by the Champs Customs Brokerage. Three days thereafter,
or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation
(OCMSC) conducted a stripping survey of the shipment located in
petitioner’s warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and
properly sealed
19-steel drums STC Vitamin B Complex Extract, all in good order
condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side,
with approx. spilling of 1%
On October 15, 1992, the arrastre Jardine Davies Transport Services,
Inc. (Jardine) issued Gate Pass No. 761412 which stated that “22
drums Raw Materials for Pharmaceutical Mfg.” were loaded on a truck
with Plate No. PCK-434 facilitated by Champs for delivery to Unilab’s
warehouse. The materials were noted to be complete and in good
order in the gate pass. On the same day, the shipment arrived in
Unilab’s warehouse and was immediately surveyed by an independent
surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The
Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery
On October 23 and 28, 1992, the same independent surveyor
conducted final inspection surveys which yielded the same results.
Consequently, Unilab’s quality control representative rejected one
paper bag containing dried yeast and one steel drum containing
Vitamin B Complex as unfit for the intended purpose.
On November 7, 1992, Unilab filed a formal claim for the damage
against private respondent and UTI. On November 20, 1992, UTI
denied liability on the basis of the gate pass issued by Jardine that the
goods were in complete and good condition; while private respondent
paid the claimed amount on March 23, 1993. By virtue of the Loss and
Subrogation Receipt issued by Unilab in favor of private respondent,
the latter filed a complaint for Damages against APL, UTI and
petitioner with the RTC of Makati. The case was docketed as Civil Case
No. 93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits
ensued. On February 22, 2001, the RTC decided in favor of private
respondent and against APL, UTI and petitioner, the dispositive
portion of which reads:
“WHEREFORE, judgment is hereby rendered in favor of plaintif
PIONEER INSURANCE & SURETY CORPORATION and against the
defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO
TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and
severally, the former the following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY
ONE and 27/100 (Php76,231.27) with interest at the legal rate of 6%
per annum to be computed starting from September 30, 1993 until
fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.”
On appeal, the CA affirmed the RTC decision on April 29, 2004. The
CA rejected UTI’s defense that it was merely a forwarder, declaring
instead that it was a common carrier. The appellate court added that
by issuing the Bill of Lading, UTI acknowledged receipt of the goods
and agreed to transport and deliver them at a specific place to a
person named or his order. The court further concluded that upon the
delivery of the subject shipment to petitioner’s warehouse, its liability
became similar to that of a depositary. As such, it ought to have
exercised ordinary diligence in the care of the goods. And as found by
the RTC, the CA agreed that petitioner failed to exercise the required
diligence. The CA also rejected petitioner’s claim that its liability should
be limited to $500 per package pursuant to the Carriage of Goods by
Sea Act (COGSA) considering that the value of the shipment was
declared pursuant to the letter of credit and the pro forma invoice. As
to APL, the court considered it as a common carrier notwithstanding
the non-issuance of a bill of lading inasmuch as a bill of lading is not
indispensable for the execution of a contract of carriage.
Unsatisfied, petitioner comes to us in this petition for review on
certiorari, raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN UPHOLDING THE DECISION OF THE
REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING
THE SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE
AND 27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST AT 6%
PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED
ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY
ESTABLISHED THE ALLEGED DAMAGE TO ITS CARGO.
Petitioner admits that it is a forwarder but disagrees with the CA’s
conclusion that it is a common carrier. It also questions the appellate
court’s findings that it failed to establish that it exercised extraordinary
or ordinary diligence in the vigilance over the subject shipment. As to
the damages allegedly suffered by private respondent, petitioner
counters that they were not sufficiently proven. Lastly, it insists that
its liability, in any event, should be limited to $500 pursuant to the
package limitation rule. Indeed, petitioner wants us to review the
factual findings of the RTC and the CA and to evaluate anew the
evidence presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised
in a petition for review on certiorari as clearly stated in Section 1, Rule
45 of the Rules of Court, viz.:
“Section 1. Filing of petition with Supreme Court.—A party desiring
to appeal by certiorari from a judgment or final order or resolution of
the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth.”
Admittedly, petitioner is a freight forwarder. The term “freight
forwarder” refers to a firm holding itself out to the general public
(other than as a pipeline, rail, motor, or water carrier) to provide
transportation of property for compensation and, in the ordinary
course of its business, (1) to assemble and consolidate, or to provide
for assembling and consolidating, shipments, and to perform or
provide for break-bulk and distribution operations of the shipments;
(2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part
of the transportation a carrier subject to the federal law pertaining to
common carriers.
A freight forwarder’s liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however,
where the forwarder contracts to deliver goods to their destination
instead of merely arranging for their transportation, it becomes liable
as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the
transport, even though the forwarder does not carry the merchandise
itself.
It is undisputed that UTI issued a bill of lading in favor of Unilab.
Pursuant thereto, petitioner undertook to transport, ship, and deliver
the 27 drums of raw materials for pharmaceutical manufacturing to
the consignee.
A bill of lading is a written acknowledgement of the receipt of goods
and an agreement to transport and to deliver them at a specified place
to a person named or on his or her order. It operates both as a receipt
and as a contract. It is a receipt for the goods shipped and a contract
to transport and deliver the same as therein stipulated. As a receipt,
it recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks, condition, quality,
and value. As a contract, it names the contracting parties, which
include the consignee; fixes the route, destination, and freight rate or
charges; and stipulates the rights and obligations assumed by the
parties.
Undoubtedly, UTI is liable as a common carrier. Common carriers, as
a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they
observed such diligence. Mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the
transporter shall be held responsible.
Though it is not our function to evaluate anew the evidence presented,
we refer to the records of the case to show that, as correctly found by
the RTC and the CA, petitioner failed to rebut the prima facie
presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received
by UTI in apparent good order and condition in New York, United
States of America. Second, the OCMSC Survey Report stated that one
steel drum STC Vitamin B Complex Extract was discovered to be with
a cut/hole on the side, with approximate spilling of 1%. Third, though
Gate Pass No. 7614, issued by Jardine, noted that the subject
shipment was in good order and condition, it was specifically stated
that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical
manufacturing. Last, J.G. Bernas’ Survey Report stated that “1-s/drum
was punctured and retaped on the bottom side and the content was
lacking, and there was a short delivery of 5-drums.”
All these conclusively prove the fact of shipment in good order and
condition, and the consequent damage to one steel drum of Vitamin
B Complex Extract while in the possession of petitioner which failed to
explain the reason for the damage. Further, petitioner failed to prove
that it observed the extraordinary diligence and precaution which the
law requires a common carrier to exercise and to follow in order to
avoid damage to or destruction of the goods entrusted to it for safe
carriage and delivery.
However, we affirm the applicability of the Package Limitation Rule
under the COGSA, contrary to the RTC and the CA’s findings.
 It is to be noted that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package.
In all matters not regulated by the Civil Code, the rights and
obligations of common carriers are governed by the Code of
Commerce and special laws. Thus, the COGSA supplements the Civil
Code by establishing a provision limiting the carrier’s liability in the
absence of a shipper’s declaration of a higher value in the bill of lading.
Section 4(5) of the COGSA provides:
“(5) Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package of
lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.”
In the present case, the shipper did not declare a higher valuation of
the goods to be shipped. Contrary to the CA’s conclusion, the insertion
of the words “L/C No. LC No. 1-187-008394/NY 69867 covering
shipment of raw materials for pharmaceutical Mfg. x x x” cannot be
the basis of petitioner’s liability. Furthermore, the insertion of an
invoice number does not in itself sufficiently and convincingly show
that petitioner had knowledge of the value of the cargo.
In light of the foregoing, petitioner’s liability should be limited to $500
per steel drum. In this case, as there was only one drum lost, private
respondent is entitled to receive only $500 as damages for the loss.
In addition to said amount, as aptly held by the trial court, an interest
rate of 6% per annum should also be imposed, plus 25% of the total
sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated April 29, 2004 and
Resolution dated November 26, 2004 are AFFIRMED with
MODIFICATION by reducing the principal amount due private
respondent Pioneer Insurance and Surety Corporation from
P76,231.27 to $500, with interest of 6% per annum from date of
demand, and 25% of the amount due as attorney’s fees.
The other aspects of the assailed Decision and Resolution STAND.
SO ORDERED.
Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur.
Petition partially granted, judgment and resolution affirmed with
modification.
Note.—Stipulation in the bill of lading limiting respondent’s liability for
the loss of the subject cargoes is allowed under Article 1749 of the
Civil Code, and Sec. 4, paragraph (5) of the Carriage of Goods by Sea
Act (COGSA). (Philippine Charter Insurance Corporation vs. Neptune
Orient Lines/Over-seas Agency Services, Inc., 554 SCRA 335 [2008])
——o0o——
BALIWAG TRANSIT, INC., petitioner, vs. COURT OF
APPEALS, SPOUSES ANTONIO GARCIA & LETICIA GARCIA, A
& J TRADING AND JULIO RECONTIQUE, respondents
G.R. No. 116110. May 15, 1996
Common Carriers; Presumptions; In a contract of carriage, it is
presumed that the common carrier was at fault or was negligent when
a passenger dies or is injured. — As a common carrier, Baliwag
breached its contract of carriage when it failed to deliver its
passengers, Leticia and Allan Garcia to their destination safe and
sound. A common carrier is bound to carry its passengers safely as far
as human care and foresight can provide, using the utmost diligence
of a very cautious person, with due regard for all the circumstances.
In a contract of carriage, it is presumed that the common carrier was
at fault or was negligent when a passenger dies or is injured. Unless
the presumption is rebutted, the court need not even 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 as prescribed in Articles 1733
and 1755 of the Civil Code.
Same; Early Warning Devices (EWD); A kerosene lamp or torch at the
edge of the road, near the rear portion of the truck to serve as an
early warning device substantially complies with Section 34(g) of the
Land Transportation and Traffic Code. — Col. dela Cruz and Romano
testified that they did not see any early warning device at the scene
of the accident. They were referring to the triangular reflectorized
plates in red and yellow issued by the Land Transportation Office.
However, the evidence shows that Recontique and Ecala placed a
kerosene lamp or torch at the edge of the road, near the rear portion
of the truck to serve as an early warning device. This substantially
complies with Section 34 (g) of the Land Transportation and Traffic
Code.
Same; Damages; Evidence; To prove actual damages, the best
evidence available to the injured party must be presented—the court
cannot rely on uncorroborated testimony whose truth is suspect but
must depend upon competent proof that damages have been actually
suffered. — The propriety of the amount awarded as hospitalization
and medical fees. The award of P25,000.00 is not supported by the
evidence on record. The Garcias presented receipts marked as Exhibits
“B-1” to “B-42” but their total amounted only to P5,017.74. To be sure,
Leticia testified as to the extra amount spent for her medical needs
but without more reliable evidence, her lone testimony cannot justify
the award of P25,000.00. To prove actual damages, the best evidence
available to the injured party must be presented. The court cannot
rely on uncorroborated testimony whose truth is suspect, but must
depend upon competent proof that damages have been actually
suffered. Thus, we reduce the actual damages for medical and
hospitalization expenses to P5,017.74.
Same; Same; In a breach of contract of carriage, moral damages are
recoverable if the carrier, through its agent, acted fraudulently or in
bad faith. — The award of moral damages is in accord with law. In a
breach of contract of carriage, moral damages are recoverable if the
carrier, through its agent, acted fraudulently or in bad faith. The
evidence shows the gross negligence of the driver of Baliwag bus
which amounted to bad faith.
PETITION for certiorari to review a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Leopoldo C. Sta. Maria for Baliwag Transit, Inc.
Arturo D. Vallar for Sps. Antonio and Leticia Garcia.
Alan A. Leynes for A & J Trading and Julio Recontique.
PUNO, J.:
This is a petition for certiorari to review the Decision of the Court of
Appeals in CA-G.R. CV-31246 awarding damages in favor of the
spouses Antonio and Leticia Garcia for breach of contract of carriage.
The records show that on July 31, 1980, Leticia Garcia, and her five-
year old son, Allan Garcia, boarded Baliwag Transit Bus No. 2036
bound for Cabanatuan City driven by Jaime Santiago. They took the
seat behind the driver.
At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus
passengers saw a cargo truck parked at the shoulder of the national
highway. Its left rear portion jutted to the outer lane, as the shoulder
of the road was too narrow to accommodate the whole truck. A
kerosene lamp appeared at the edge of the road obviously to serve as
a warning device. The truck driver, Julio Recontique, and his helper,
Arturo Escala, were then replacing a flat tire. The truck is owned by
respondent A & J Trading.
Bus driver Santiago was driving at an inordinately fast speed and failed
to notice the truck and the kerosene lamp at the edge of the road.
Santiago’s passengers urged him to slow down but he paid them no
heed. Santiago even carried animated conversations with his co-
employees while driving. When the danger of collision became
imminent, the bus passengers shouted “Babangga tayo!.” Santiago
stepped on the brake, but it was too late. His bus rammed into the
stalled cargo truck. It caused the instant death of Santiago and Escala,
and injury to several others. Leticia and Allan Garcia were among the
injured passengers.
Leticia suffered a fracture in her pelvis and right leg. They rushed her
to the provincial hospital in Cabanatuan City where she was given
emergency treatment. After three days, she was transferred to the
National Orthopedic Hospital where she was confined for more than a
month.3 She underwent an operation for partial hip prosthesis.
Allan, on the other hand, broke a leg. He was also given emergency
treatment at the provincial hospital.
Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J
Trading and Julio Recontique for damages in the Regional Trial Court
of Bulacan. Leticia sued as an injured passenger of Baliwag and as
mother of Allan. At the time of the complaint, Allan was a minor,
hence, the suit initiated by his parents in his favor.
Baliwag, A & J Trading and Recontique disclaimed responsibility for
the mishap. Baliwag alleged that the accident was caused solely by
the fault and negligence of A & J Trading and its driver, Recontique.
Baliwag charged that Recontique failed to place an early warning
device at the corner of the disabled cargo truck to warn oncoming
vehicles. On the other hand, A & J Trading and Recontique alleged
that the accident was the result of the negligence and reckless driving
of Santiago, bus driver of Baliwag.
After hearing, the trial court found all the defendants liable, thus:
xxx
“In view thereof, the Court holds that both defendants should be held
liable; the defendant Baliwag Transit, Inc. for having failed to deliver
the plaintiff and her son to their point of destination safely in violation
of plaintiff’s and defendant Baliwag Transit’s contractual relation.
The defendant A & J and Julio Recontique for failure to provide its
cargo truck with an early warning device in violation of the Motor
Vehicle Law.”
The trial court ordered Baliwag, A & J Trading and Recontique to pay
jointly and severally the Garcia spouses the following: (1) P25,000.00
hospitalization and medication fee, (2) P450,000.00 loss of earnings
in eight (8) years, (3) P2,000.00 for the hospitalization of their son
Allan Garcia, (4) P50,000.00 moral damages, and (5) P30,000.00
attorney’s fee.
On appeal, the Court of Appeals modified the trial court’s Decision by
absolving A & J Trading from liability and by reducing the award of
attorney’s fees to P10,000.00 and loss of earnings to P300,000.00,
respectively.
Baliwag filed the present petition for review raising the following
issues:
“1. Did the Court of Appeals err in absolving A & J Trading from liability
and holding Baliwag solely liable for the injuries suffered by Leticia
and Allan Garcia in the accident?
2. Is the amount of damages awarded by the Court of Appeals to the
Garcia spouses correct?”
We affirm the factual findings of the Court of Appeals.
I
As a common carrier, Baliwag breached its contract of carriage when
it failed to deliver its passengers, Leticia and Allan Garcia to their
destination safe and sound. A common carrier is bound to carry its
passengers safely as far as human care and foresight can provide,
using the utmost diligence of a very cautious person, with due regard
for all the circumstances. In a contract of carriage, it is presumed that
the common carrier was at fault or was negligent when a passenger
dies or is injured. Unless the presumption is rebutted, the court need
not even 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 as prescribed in Articles 1733 and 1755 of the Civil Code.
The records are bereft of any proof to show that Baliwag exercised
extraordinary diligence. On the contrary, the evidence demonstrates
its driver’s recklessness. Leticia Garcia testified that the bus was
running at a very high speed despite the drizzle and the darkness of
the highway. The passengers pleaded for its driver to slow down, but
their plea was ignored. Leticia also revealed that the driver was
smelling of liquor. She could smell him as she was seated right behind
the driver. Another passenger, Felix Cruz testified that immediately
before the collision, the bus driver was conversing with a co-employee.
All these prove the bus driver’s wanton disregard for the physical
safety of his passengers, which makes Baliwag as a common carrier
liable for damages under Article 1759 of the Civil Code:
“Art. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former’s
employees, although such employees may have acted beyond the
scope of their authority or in violation of the orders of the common
carriers.
This liability of the common carriers do not cease upon proof that they
exercised all the diligence of a good father of a family in the selection
or supervision of their employees.”
Baliwag cannot evade its liability by insisting that the accident was
caused solely by the negligence of A & J Trading and Julio Recontique.
It harps on their alleged non use of an early warning device as testified
to by Col. Demetrio dela Cruz, the station commander of Gapan,
Nueva Ecija who investigated the incident, and Francisco Romano, the
bus conductor.
The records do not bear out Baliwag’s contention. Col. dela Cruz and
Romano testified that they did not see any early warning device at the
scene of the accident. They were referring to the triangular
reflectorized plates in red and yellow issued by the Land
Transportation Office. However, the evidence shows that Recontique
and Ecala placed a kerosene lamp or torch at the edge of the road,
near the rear portion of the truck to serve as an early warning device.
This substantially complies with Section 34 (g) of the Land
Transportation and Traffic Code, to wit:
“(g) Lights and reflector when parked or disabled. — Appropriate
parking lights or flares visible one hundred meters away shall be
displayed at the corner of the vehicle whenever such vehicle is parked
on highways or in places that are not well-lighted or, is placed in such
manner as to endanger passing traffic. Furthermore, every motor
vehicle shall be provided at all times with built-in reflectors or other
similar warning devices either pasted, painted or attached at its front
and back which shall likewise be visible at night at least one hundred
meters away. No vehicle not provided with any of the requirements
mentioned in this subsection shall be registered. (emphasis supplied)”
Baliwag’s argument that the kerosene lamp or torch does not
substantially comply with the law is untenable. The aforequoted law
clearly allows the use not only of an early warning device of the
triangular reflectorized plates variety but also parking lights or flares
visible one hundred meters away. Indeed, Col. dela Cruz himself
admitted that a kerosene lamp is an acceptable substitute for the
reflectorized plates.18 No negligence, therefore, may be imputed to A
& J Trading and its driver, Recontique.
Anent this factual issue, the analysis of evidence made by the Court
of Appeals deserves our concurrence, viz:
xxx
“In the case at bar, both the injured passengers of the Baliwag
involved in the accident testified that they saw some sort of kerosene
or a torch on the rear portion of the truck before the accident. Baliwag
Transit’s conductor attempted to defeat such testimony by declaring
that he noticed no early warning device in front of the truck.
Among the testimonies offered by the witnesses who were present at
the scene of the accident, we rule to uphold the affirmative
testimonies given by the two injured passengers and give less
credence to the testimony of the bus conductor who solely testified
that no such early warning device exists.
The testimonies of injured passengers who may well be considered as
disinterested witness appear to be natural and more probable than
the testimony given by Francisco Romano who is undoubtedly
interested in the outcome of the case, being the conductor of the
defendant-appellant Baliwag Transit, Inc.
It must be borne in mind that the situation then prevailing at the time
of the accident was admittedly drizzly and all dark. This being so, it
would be improbable and perhaps impossible on the part of the truck
helper without the torch nor the kerosene to remove the flat tires of
the truck. Moreover, witness including the bus conductor himself
admitted that the passengers shouted, that they are going to bump
before the collision which consequently caused the bus driver to apply
the brake 3 to 4 meters away from the truck. Again, without the
kerosene nor the torch in front of the truck, it would be improbable
for the driver, more so the passengers to notice the truck to be
bumped by the bus considering the darkness of the place at the time
of the accident.
xxx
While it is true that the investigating officer testified that he found no
early warning device at the time of his investigation, We rule to give
less credence to such testimony insofar as he himself admitted on
cross examination that he did not notice the presence of any kerosene
lamp at the back of the truck because when he arrived at the scene
of the accident, there were already many people surrounding the place
(TSN, Aug. 22, 1989, p. 13). He further admitted that there exists a
probability that the lights of the truck may have been smashed by the
bus at the time of the accident considering the location of the truck
where its rear portion was connected with the front portion of the bus
(TSN, March 29, 1985, pp. 11-13). Investigator’s testimony therefore
did not confirm nor deny the existence of such warning device, making
his testimony of little probative value.”
II
We now review the amount of damages awarded to the Garcia
spouses.
First, the propriety of the amount awarded as hospitalization and
medical fees. The award of P25,000.00 is not supported by the
evidence on record. The Garcias presented receipts marked as Exhibits
“B-1” to “B-42” but their total amounted only to P5,017.74. To be sure,
Leticia testified as to the extra amount spent for her medical needs
but without more reliable evidence, her lone testimony cannot justify
the award of P25,000.00. To prove actual damages, the best evidence
available to the injured party must be presented. The court cannot
rely on uncorroborated testimony whose truth is suspect, but must
depend upon competent proof that damages have been actually
suffered. Thus, we reduce the actual damages for medical and
hospitalization expenses to P5,017.74.
Second, we find as reasonable the award of P300,000.00 representing
Leticia’s lost earnings. Before the accident, Leticia was engaged in
embroidery, earning P5,000.00 per month. Her injuries forced her to
stop working. Considering the nature and extent of her injuries and
the length of time it would take her to recover, we find it proper that
Baliwag should compensate her lost income for five (5) years.
Third, the award of moral damages is in accord with law. In a breach
of contract of carriage, moral damages are recoverable if the carrier,
through its agent, acted fraudulently or in bad faith. The evidence
shows the gross negligence of the driver of Baliwag bus which
amounted to bad faith. Without doubt, Leticia and Allan experienced
physical suffering, mental anguish and serious anxiety by reason of
the accident. Leticia underwent an operation to replace her broken hip
bone with a metal plate. She was confined at the National Orthopedic
Hospital for 45 days. The young Allan was also confined in the hospital
for his foot injury. Contrary to the contention of Baliwag, the decision
of the trial court as affirmed by the Court of Appeals awarded moral
damages to Antonio and Leticia Garcia not in their capacity as parents
of Allan. Leticia was given moral damages as an injured party. Allan
was also granted moral damages as an injured party but because of
his minority, the award in his favor has to be given to his father who
represented him in the suit.
Finally, we find the award of attorney’s fees justified. The complaint
for damages was instituted by the Garcia spouses on December 15,
1982, following the unjustified refusal of Baliwag to settle their claim.
The Decision was promulgated by the trial court only on January 29,
1991 or about nine years later. Numerous pleadings were filed before
the trial court, the appellate court and to this Court. Given the
complexity of the case and the amount of damages involved, the
award of attorney’s fee for P10,000.00 is just and reasonable.
IN VIEW WHEREOF, the Decision of the respondent Court of Appeals
in CA-G.R. CV-31246 is AFFIRMED with the MODIFICATION reducing
the actual damages for hospitalization and medical fees to P5,017.74.
No costs.
SO ORDERED.
 Regalado (Chairman), Romero, Mendoza and Torres, Jr., JJ.,
concur.
Judgment affirmed with modification.
Notes. — When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to
observe that requisite diligence, and there need not be an express
finding of negligence to hold it liable. (Eastern Shipping Lines, Inc. vs.
Court of Appeals, 234 SCRA 78 [1994])
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 the control by the public for the common good, to the
extent of the interest he has thus created. (Kilusang Mayo Uno Labor
Center vs. Garcia, Jr., 239 SCRA 386 [1994])
——o0o——
EASTERN ASSURANCE & SURETY CORPORATION (EASCO),
petitioner, vs. LAND TRANSPORTATION FRANCHISING and
REGULATORY BOARD (LTFRB), respondent
G.R. No. 149717. October 7, 2003
Constitutional Law; Police Power; The Constitution does not totally
prohibit the operation of monopolies; It mandates the State to
regulate them when public interest so requires. — While embracing
free enterprise as an economic creed, the Constitution does not totally
prohibit the operation of monopolies. However, it mandates the State
to regulate them when public interest so requires.
Same; Same; Courts cannot inquire into the wisdom or the expediency
of the acts of the executive or the legislative branches of government
unless there is a clear showing that those acts are constitutionally
infirm or have been committed with grave abuse of discretion
amounting to lack or excess of jurisdiction.—In alleging grave abuse
of discretion on the part of the LTFRB, petitioner describes at length
potential disasters to the insuring public that may result from the two-
group system authorized by the assailed Circulars. Petitioner calls into
question the wisdom of those Circulars by projecting scenarios which,
however, cannot be properly addressed and resolved in the present
case. Litigations are limited to resolving actual, not hypothetical,
controversies. Doubts on the capability of the assailed Circulars to
provide an adequate long-term solution to PUV operators’ insurance
problems are not legally sufficient to strike down those Circulars. In
our form of government, courts cannot inquire into the wisdom or the
expediency of the acts of the executive or the legislative branches of
government, unless there is a clear showing that those acts are
constitutionally infirm or have been committed with grave abuse of
discretion amounting to lack or excess of jurisdiction.
Remedial Law; Appeals; An issue that was neither raised in the
complaint or in the court below cannot be raised for the first time on
appeal as to do so would be offensive to the basic rules of fair play,
justice and due process. — Petitioner raises for the first time in its
Memorandum the issue of the alleged noncompliance with the
publication requirement, which must first be met before the assailed
Circulars can be deemed valid. This argument is improper at this
stage. Points of law, theories, issues and arguments not adequately
brought to the attention of the lower court need not be—and ordinarily
will not be—considered by a reviewing court, as they cannot be raised
for the first time on appeal. Indeed, it is settled jurisprudence that an
issuethat was neither raised in the complaint or in the court below
cannot be raised for the first time on appeal, as to do so would be
offensive to the basic rules of fair play, justice, and due process.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Gascon, Rellora & Associates for petitioner.
The Solicitor General for respondent.
PANGANIBAN, J.:
The operation of monopolies is not totally banned by the Constitution.
However, the State shall regulate them when public interest so
requires. In the present case, the two consortia of insurance
companies that have been authorized to issue passenger insurance
policies are adequately regulated by the Land Transportation
Franchising; and Regulatory Board (LTFRB) to protect the riding
public. While individual insurance companies may somehow be
adversely affected by this scheme, the paramount public interest
involved must be upheld. In any event, all legitimate insurance
companies are allowed to become members of the consortia. Thus,
there is no restraint of trade or unfair competition involved.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
seeking to set aside the August 20, 2001 Decision of the Court of
Appeals (CA) in CA-GR SP No. 63149. The dispositive portion of the
assailed Decision reads as follows:
“WHEREFORE, in view of the foregoing premises, the Petition is
hereby DISMISSED for lack of merit. No costs.”
The Facts
The factual antecedents of the case are summarized by the CA as
follows:
“[l]n its desire to improve public service and its assistance to the
victims of road accidents involving PUVs [public utility vehicles], the
[Land Transportation Franchising and Regulatory] Board conducted a
thorough investigation on the sufficiency of existing insurance policies
for PUVs. In the course of its investigation, the Board discovered that
insurance coverage of PUVs was only P50,000.00 for the entire vehicle
regardless of the number of passengers or persons killed or injured.
“The Board, then, undertook x x x nationwide consultations among
the transport operators and insurance companies and held meetings
with the officials of the Insurance Commission.
“Thereafter, the Board issued Memorandum Circular No. 99-011 fixing
the insurance coverage of PUVs on the basis of the number of persons
that may be killed or injured instead of the entire vehicle alone. The
coverage is denominated as Passenger Accident Insurance Coverage
(PAIC), which fixes the coverage of P50,000.00 per passenger.
“During the effectivity of Memorandum Circular No. 99-011, the Board
received several complaints from various transport organizations such
as the Federation of Jeepney Operators and Drivers Association of the
Philippines (FEJODAP), Pagkakaisa ng mga Samahan ng Tsuper at
Operator Nationwide (PISTON), and the Philippine Confederation of
Drivers Organization, Alliance of Concerned Transport Operators
(PCDO-ACTO). The thrust of their complaints are: (1) the proliferation
of fake insurance policies; (2) the predatory pricing among competing
insurance firms; (3) the proliferation of fixers in the premises of the
LTFRB endorsing certain insurance companies; and (4) the
‘moonlighting’ by personnel of the LTFRB who induced operators to
secure their policies from favored companies.
“To address these complaints, the Board held a series of meetings
with the officers of various transport groups composed of operators of
bus, jeepney and taxi as well as representatives of several insurance
companies and officials of the Insurance Commission.
“In a meeting held on 12 December 2000, where herein petitioner
Eastern Assurance & Surety Corporation (EASCO, for brevity) was
represented by a certain Dante Baronia, the transport groups
proposed the creation of [a] ‘two-group system’ and of [a] blacklisting
scheme.’
“In a letter dated 19 January 2001, the aforesaid proposal was then
referred by the Board to the Insurance Commission for confirmation,
to wit:
‘1. The Commission interposes no objection to, there being no legal
obstacle to the same, x x x the suggestion of various insurance groups
to allow only two (2) groups to participate in the Passenger Accident
Insurance Program (PAIP) of the LTFRB. It is understood that all
insurance companies accredited by the Commission may participate in
the program by joining any of the groups.
‘2. The Commission interposes no objection, there being no legal
obstacle to the same, to the suggestion of the various transport
groups to create an accreditation and de-listing criteria to be used in
the implementation of the PAIP, x x x and
‘3. The Commission also is of the position that the LTFRB may, on its
own set up, require and implement the two groups system and/or the
accreditation and de-listing criteria without need of prior approval
from the Commission.’ x x x
“On 30 January 2001, Insurance Commissioner Eduardo Malinis wrote
LTFRB Chairman Dante M. Lantin, the whole text of which, reads:
‘We hereby confirm the points enumerated in your letter of January
19, 2001 regarding the implementation of the Passenger Personal
Accident Insurance Program (PAIP) of the LTFRB, as the same aim to
achieve a simple and systematic implementation of said program.’
“Thus, on 1 February 2001, public respondent LTFRB issued the herein
assailed Memorandum Circular No. 2001-001 that reads, as follows:
‘MEMORANDUM CIRCULAR NO. 2001-001
‘SUBJECT: Amending Memorandum Circular No. 99-011 (Passenger
Accident Insurance Requirement of PUV Operators)
‘I. PREFATORY STATEMENT
‘In response to numerous complaints from passenger accident victims
involving public utility vehicles, the Board passed Memorandum
Circular No. 99-011 dated June 22, 1999 requiring all public utility
vehicles to secure a ‘no fault’ passenger accident insurance. This
circular was further refined with the passage of Memorandum Circular
No. 2000-010 dated March 27, 2000.
‘After a year of implementation, the Board now has received numerous
complaints coming from various transport groups and from its regional
offices. These complaints [range] from non-payment or late payment
of claims, fake certificates of cover, predatory pricing, nonpayment or
under payment of taxes, graft and corruption, and the non
implementation of the computerized data bank of all public utility
vehicles.
‘In addressing these concerns, the different transport groups proposed
the creation of a two (2) group system whereby all insurance
companies who would like to participate in the passenger accident
insurance program of the LTFRB must join any of the two groups, and
that the passenger insurance requirement of the PUV operators be
divided between these two groups on the basis of the number of their
respective LTO license plates. The transport group argue that through
this scheme the following objectives will be attained:
‘1. Fake certificates of cover will be minimized, if not eradicated, due
to better monitoring of operations as there would only be two kinds
of certificates that would be circulating.
‘2. Payment of the proper taxes can be assured.
‘3. Graft and corruption will be minimized, if not eliminated, since
discretion as to which insurance company to patronize will be
removed.
‘4. Payment of claims will be prompt due to better monitoring.
‘5. The proposed computerized data bank of all PUV[,] nationwide will
be attained without a single cost to government.’
It must be noted that the passenger accident insurance program of
the LTFRB was implemented after numerous dialogues with all the
transport organizations nationwide, and only after all issues raised
have been sufficiently addressed. More importantly, this program is
without any cost to the government. The added insurance expense is
shouldered by the PUV operators.
‘In pursuing this proposal further, the Board conducted meetings and
conferences with the transport operators and with the insurance
companies. It also met [with] the Insurance Commission where the
latter, in its letter dated January 30, 2001, confirmed that it has no
objection to the proposal of the various transport groups, there being
no legal impediment to the same.
‘II. AMENDMENTS
‘AMENDMENTS TO M.C. NO. 99-011
‘IN VIEW OF THE FOREGOING PREMISES, and upon the clamor of the
transport operators who are the ones paying the added insurance
cost, paragraph seven (7) of Memorandum Circular No. 99-011 is
hereby amended to read as follows:
‘In order to make sure that future claims of PUV operators and
passenger accident victims are paid within the required time, and in
order to minimize, if not eliminate, fake certificates of cover and graft
and corruption, as well as to ensure the payment of the proper taxes
much needed by the government, as well as to create a computerized
data bank without any cost to the government which is necessary for
transport planning[,] the Board will only accept, as proof of
compliance of this program, insurance polic[i]es/certificates of cover
duly approved by the Insurance Commission specifically for this
project, and issued by any of the two groups as authorized by the
Board.’
‘CREATION OF THE TWO GROUP SYSTEM
‘Accordingly, as there is already one group duly authorized by the
Board to participate in this program in the person of the Passenger
Accident Managers, Inc. (PAMI for brevity), THERE IS A NEED TO
FORM ANOTHER GROUP IN ORDER TO FULLY IMPLEMENT THE
PROGRAM. All other insurance companies who wish to continue
participating in the program, therefore, are hereby required to either
join PAMI or form a second group.
‘In order to maintain their good standing with the Board, each group
must maintain and present to the Board proof of compliance with the
following minimum requirements:
‘1. Membership of at least ten (10) insurance companies with valid
and subsisting license issued by the Insurance Commission;
‘2. Aggregate paid-up capitalization of P500 Million;
‘3. Compliance with the computerized dat[a] as required by the Board;
‘4. Payment of all claims within seven (7) calendar days from
submission of all documents;
‘5. Issuance of one (1) certificate of cover with the standard form and
contents duly approved by the Insurance Commission and the Board;
and
‘6. Submission and compliance with all other reports x x x and
requirements of the Board.’
‘ODD-EVEN SYSTEM
In order to address the issue of graft and corruption, there is a need
to remove discretion on the part of government officials. Accordingly,
the Board supports the proposal of the transport groups and hereby
adopts the following system:
‘All PUV’s covered by this program whose LTO license plate, as per
latest LTO Official Receipt, has an even middle number must have an
insurance policy/certificate cover coming from the first insurance
group (in its case PAMI), while those with an odd middle number must
have a policy/cover coming from the second group. This odd-even
system shall be interchanged on a year to year basis in order to ensure
equality and fairness in distribution. Accordingly, the Board will not
accept, as proof of compliance with this program, any insurance
policy/cover that does not comply with this odd-even scheme, except
in the following cases where the operator may choose the insurance
group of its choice provided it is one of the two authorized by the
Board, to wit:
‘1. Where the operator or franchise holder has 50 or more operating
units registered in its name;
‘2. Where the operator files a verified petition with the Board justifying
his preference over the other group. In this case, the Board may allow
a switch if it can be shown that there are more benefits to be attained
[from] the insurance group of his choice, and provided further that
these benefits are legal and do not result to any form of predatory
pricing, such as x x x unjustified commissions and discounts.’
‘Other than [for] these reasons[,] no switch may be allowed by any
officer of the LTFRB unless otherwise duly approved by the Board en
banc.
‘EFFECTIVITY OF THE TWO GROUP SYSTEM
‘The effectivity of the two group system will take place on March 1,
2001, unless otherwise extended by the Board en banc.
‘III. INTERIM GUIDELINES
‘In the meantime, in order to immediately address the concerns of the
transport groups, the following should be strictly complied with:
“1. No insurance company, its agents and employees shall resort to
predatory pricing[,] which means selling or offering to sell any product
at a price unreasonably below the industry average cost so as to
attract customers to the detriment of competitors.
‘2. The amount of commission/discount which a company will offer in
the market should be in writing and duly approved by the LTFRB, who,
in turn, will coordinate the same with the Insurance Commission. Any
violation of the declared commission/discount shall be subject to the
penalties provided for herein.
‘3. Only branch offices duly identified by the company, together with
the designated officer-in-charge, and submitted in writing to the
LTFRB shall issue, distribute, market or release the required policy/
certificate of cover.
‘4. Payment of all claims should be made within seven (7) calendar
days from submission of all the required x x x documents. Accordingly,
the company shall provide the LTFRB with the list of required
documents.’
‘Any insurance company found to have violated any of the above
prohibitions shall, after notice and hearing, be banned permanently
from participating in the program either directly or indirectly, including
its principal stockholders, key officers and successors-in-interest if
evidence warrants. The Board, may, in the interest of the public, issue
a cease and desist order enjoining a company from participating in the
program for not more than thirty (30) days pending full investigation.
‘All insurance companies who are “blacklisted” in any government
agency or instrumentality including court and other quasi-judicial
agencies are automatically disallowed to participate in this program.
Accordingly, no policy or certificate of cover shall be accepted from
these companies as proof of compliance with this program. The Board
shall issue from time to time the list of the “blacklisted” or suspended
companies.
‘All insurance policies[/]certificates of cover issued by their insurance
companies in their individual capacities prior to the effectivity of the
Two Group System” shall remain in full force and effect until its
expiration, and said companies shall be primarily liable for the
payment of claims subject of said policies/certificates of cover.
xxx xxx xxx
“For the dissemination and implementation of the aforequoted
Memorandum, the LTFRB made a one month nationwide information
campaign on the nature of ‘the two-group system’ and of ‘the
blacklisting scheme.’ And in a meeting with the different insurance
companies, including the representative of petitioner EASCO, the
Insurance Commission representative [read] before the participants
the insurance firms blacklisted by the Regional Trial Court of Quezon
City which includes petitioner EASCO. The purpose of this information
is to afford the blacklisted firms an opportunity to clear their records
and settle the claims against them.”
Claiming that Memorandum Circular No. 2001-001 and the
implementing Circulars had deprived it of its right to engage in the
passenger accident insurance business, Eastern Assurance & Surety
Corporation (EASCO) filed a Petition for Certiorari and Prohibition with
the CA questioning the validity of those issuances.
Ruling of the Court of Appeals
The CA ruled that Memorandum Circular No. 2001-001 had not been
issued ultra vires by the LTFRB and constituted a valid exercise of
police power. Hence, the appellate court ruled:
“x x x [T]he Board has the power to require as a condition for the
issuance of certificate of public convenience an insurance policy or
certificate provided by a member of one of the two accredited groups.
The clear purpose of the condition is to ensure the benefit of the riding
public and pedestrians who may become victims of accidents involving
PUVs. For this purpose, the Board may, as it did, coordinate with the
Insurance Commission, the governmental agency regulating the
insurance business, for the adoption of ‘the two-group and blacklisting
system’ to enhance the insurance coverage of passengers and persons
who become victims of accident for their benefit or of their heirs.
“Without doubt, the imposition of the requirements is germane to the
powers, functions and purpose of the Board as a regulatory body in
charge of administering public utilities. x x x.”
Moreover, the CA found that the Circular had not violated the
provisions of the Constitution on free enterprise, equal protection and
substantive due process. The appellate court explained “that PAIC II
and PAMI merely serve as service arms of their respective members.
In other words, these two (2) groups, strictly speaking, are not
engaged in insurance business. Moreover, the ‘two-group/ consortium’
scheme under the Memorandum Circular No. 2001-001 is open to all
insurance firms [that] want to join any of the two groups. It does not
vest any privilege or advantage to any single firm or group to carry
out the business of providing the insurance coverage under the
program. The fact that the program is open to all insurance firms
including petitioner negates its pretense of exclusivity. No firm is
discriminated against since the two consortia cannot refuse
membership in their respective groups to any interested firm [that]
wants and is qualified to join.”
Hence, this Petition.
The Issues
In its Memorandum, petitioner raises the following issues for our
consideration:
“a) the assailed LTFRB circulars with [their] implementing circulars
violat[e] the constitutional proscription against monopoly,
combination in restraint of trade and unfair competition[;] b) there is
a violation of [the] equal protection clause; c) LTFRB exceeded its
legal mandate because it exercised administrative control/jurisdiction
over insurance companies which properly and exclusively belongs to
the Insurance Commission[;] d) EASCO, petitioner, was
disenfranchise[d] of its legitimate insurance business; x x x e) the
Court of Appeals erred in ruling that the [P]etition for [C]ertiorari
which raises purely legal issues is not exempt from the rule on
exhaustion of administrative remedies, contrary to existing
jurisprudence on the matter[; f)] the Court of Appeals committed
grave abuse in completely disregarding vital facts borne by the records
and admissions by the parties; and x x x [g)] x x x noted the assailed
LTFRB memorandum circular did not comply with publication
requirements for its validity.”
The main issue in the case before us, as in the Court of Appeals, is
the validity of Memorandum Circular Nos. 2001-001 and 2001-010.
The Court’s Ruling
The Petition has no merit.
Main Issue: Validity of the LTFRB Memorandum Circulars
Petitioner contends that Memorandum Circular No. 2001-001 and the
subsequent implementing Circulars violate the constitutional
proscription against monopoly as well as unfair competition and
combination in restraint of trade. Petitioner further argues that these
were issued with grave abuse of discretion and without jurisdiction on
the part of the LTFRB.
Monopoly
The constitutional provision on monopolies is found in Article XII as
follows:
“Sec. 19. The State shall regulate or prohibit monopolies when the
public interest so requires. No combinations in restraint of trade or
unfair competition shall be allowed.”
While embracing free enterprise as an economic creed, the
Constitution does not totally prohibit the operation of monopolies.
However, it mandates the State to regulate them when public interest
so requires.
Intense competition has led insurance companies/agents offering
insurance policies for public utility vehicles to resort to ruinous tactics
to sell their services. Notorious agents of these companies have
engaged in predatory pricing—selling the compulsory insurance
coverage at an unbelievable discount of sixty to eighty percent (60 to
80%) off the market rate. The huge coverage and liability under the
“no-fault clause” of the passenger accident insurance are grossly
disproportionate to the small premiums actually being paid.
Moreover, different persons or operators were issued certificates of
cover (COC) or policies bearing the same number. Thus, claims under
these policies were not paid, or payments were unreasonably delayed,
resulting in prejudice to the riding public.
The present case shows a clear public necessity to regulate the
proliferation of such insurance companies. Because of the PUV
operators’ complaints, the LTFRB thus assessed the situation. It found
that in order to protect the interests of the riding public and to resolve
problems involving the passenger insurance coverage of PUVs, it had
to issue Memorandum Circular No. 2001-001 authorizing the two-
group system. Subsequently, it promulgated
Memorandum Circular No. 2001-010 accrediting PAMI and PAIC II as
the two groups allowed to participate in the program. Memorandum
Circular No. 2001-010 required that “[a]ll public utility vehicles whose
LTO license plate, as per latest LTO Official Receipt, with an EVEN
middle number (0, 2, 4, 6 and 8) shall be insured with UCPB insurance
(PAMI), while those with an ODD middle number (1, 3, 5, 7 and 9)
shall be insured with Great Domestic Insurance (PAIC 2) x x x.”
Undoubtedly, Memorandum Circular No. 2001-010 authorized and
regulated two separate monopolies. In Garcia v. Corona, the Court
stated:
‘The simplest form of monopoly exists when there is only one seller or
producer of a product or service for which there are no substitute. In
its more complex form, monopoly is defined as the joint acquisition or
maintenance by members of a conspiracy formed for that purpose, of
the power to control and dominate trade and commerce in a
commodity to such an extent that they are able, as a group, to exclude
actual or potential competitors from the field, accompanied with the
intention or purpose to exercise such power.”
It should be stressed that PUVs, as common carriers, are engaged in
a business affected with public interest. Under Article 1756 of the Civil
Code, in cases of death or injuries to passengers, common carriers are
presumed to be at fault and are required to compensate the victims,
unless they observed extraordinary diligence. To assure this
compensation, PUVs are required to obtain insurance policies.
Even with this insurance requirement, the riding public remains at risk
of inadequate cover, because many insurance companies are
individually incapable of meeting the compensation standards. Worse,
the pernicious competition and fraudulent practices described above
have resulted in failure to meet the compensation requirements of the
law.
Indeed, in authorizing and regulating the two insurance monopolies,
the LTFRB acted within its prerogatives in promoting public interest
and protecting the riding public. After all, the consortia are open to all
insurance companies, including petitioner. There is no discrimination
against any legitimate insurer. On the whole, the public is given
protection without unfair competition or undue restraint of trade. As
the Court of Appeals pointed out, the two consortia are not engaged
in the insurance business; they merely serve as “service arms” of their
respective members.
At bottom, the subject Memorandum Circulars were issued for the
stated purpose of promoting public interest; and of protecting the
riding public and PUV operators from being defrauded by fake,
undervalued or misrepresented insurance policies.
Grave Abuse of Discretion
In alleging grave abuse of discretion on the part of the LTFRB,
petitioner describes at length potential disasters to the insuring public
that may result from the two-group system authorized by the assailed
Circulars. Petitioner calls into question the wisdom of those Circulars
by projecting scenarios which, however, cannot be properly addressed
and resolved in the present case. Litigations are limited to resolving
actual, not hypothetical, controversies.
Doubts on the capability of the assailed Circulars to provide an
adequate long-term solution to PUV operators’ insurance problems are
not legally sufficient to strike down those Circulars. In our form of
government, courts cannot inquire into the wisdom or the expediency
of the acts of the executive or the legislative branches of government,
unless there is a clear showing that those acts are constitutionally
infirm or have been committed with grave abuse of discretion
amounting to lack or excess of jurisdiction.
“In Angara v. Electoral Commission, Justice Laurel made it clear that
‘the judiciary does not pass upon questions of wisdom, justice or
expediency of legislation.’ And fittingly so for in the exercise of judicial
power, we are allowed only ‘to settle actual controversies involving
rights which are legally demandable and enforceable, ‘and may not
annul an act of the political departments simply because we feel it is
unwise or impractical. It is true that, under the expanded concept of
the political question, we may now also ‘determine whether or not
there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the
Government.’”
By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment equivalent to lack of jurisdiction. Mere abuse of
discretion is not enough. It must be grave, as when it is exercised
arbitrarily or despotically by reason of passion or personal hostility;
and such abuse must be so patent and so gross as to amount to an
evasion of a positive duty or to a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law. The jurisprudential
elements of arbitrariness, despotism, passion and hostility have not
been shown to exist under the present circumstances.
Further, petitioner argues that the LTFRB’s haste in accrediting PAMI
and PAIC II is an indication of grave abuse of discretion. However,
since the two-group system was to take effect starting March 1, 2001,
accrediting the two groups on February 28, 2001 was not
unreasonable. In the absence of contrary evidence, we must uphold
the presumption of regularity in the performance of duties by public
officers.
Authority and Jurisdiction
Petitioner contends that in issuing the assailed Circulars, the LTFRB
effectively delimited, regulated and controlled the business of
passenger accident insurance. It argues that the Board acted without
jurisdiction and usurped the exclusive jurisdiction of the Insurance
Commission.
Executive Order No. 202, which created the LTFRB, conferred the
following powers on the Board:
“SEC. 5. Powers and Functions of the Land Transportation Franchising
and Regulatory Board. — The Board shall have the following powers
and functions:
xxx xxx xxx
“b. To issue, amend, revise, suspend or cancel Certificates of Public
Convenience or permits authorizing the operation of public land
transportation services provided by motorized vehicles, and to
prescribe the appropriate terms and conditions therefore;
xxx xxx xxx
“k. To formulate, promulgate, administer, implement and enforce
rules and regulations on land transportation public utilities, standards
of measurements and/or design, and rules and regulations requiring
operators of any public land transportation service to equip, install and
provide in their utilities and in their stations such devices, equipment
facilities and operating procedures and techniques as may promote
safety, protection, comfort and convenience to persons and property
in their charges as well as the safety of persons and property within
their areas of operations;
“l. To coordinate and cooperate with other government agencies and
entities concerned with any aspect involving public land transportation
services with the end in view of effecting continuing improvement of
such services; and
“m. To perform such other functions and duties as may be provided
by law, or as may be necessary, or proper or incidental to the purposes
and objectives of this Executive Order.” (Italics supplied)
Paragraph “b” gives the LTFRB the power to prescribe appropriate
terms and conditions for the issuance, amendment, revision, and
suspension or cancellation of certificates of public convenience (CPC)
or of permits authorizing the operation of public land transportation
services. Under this paragraph, the Board has the prerogative to
require, as a condition for the issuance of CPCs, that an applicant get
insurance coverage from a particular group of insurance companies.
Corollary to this power must necessarily be construed the authority of
the LTFRB to require insurance companies to group themselves for
the purpose of providing passenger accident insurance coverage.
Paragraph “m” directly authorizes it to perform such other functions
as may be necessary or incidental to the purposes and objectives of
EO 202.
By providing passenger accident insurance policies to operators of
PUVs, insurance companies and their businesses directly affect public
land transportation. By limiting its regulation of such companies to the
segment of their business that directly affects public land
transportation, the LTFRB has acted within its jurisdiction in issuing
the assailed Circulars.
Administrative bodies like the LTFRB have expertise in specific matters
within the purview of their respective jurisdictions. Thus, the law
concedes to them the power to promulgate rules and regulations to
implement the policies of a given statute—provided such rules and
regulations conform to the terms and standards prescribed by that
statute and purport to carry its general policies into effect.
It should also be pointed out that before issuing the Circulars, the
LTFRB made proper representation and coordination with the
Insurance Commission, which had no objection to the two-consortia
scheme.
EASCO’s Business
Since petitioner has failed to show any cogent reason to strike down
the assailed Circulars, their implementation cannot be restrained. They
may indeed adversely affect its business, but the protection of the
general welfare is of paramount importance. Petitioner’s individual
business interests must be subordinated to the benefit of the greater
number. Salus populi est suprema lex. Sic utere tuo ut alienum non
laedas.
Publication
Petitioner raises for the first time in its Memorandum the issue of the
alleged noncompliance with the publication requirement, which must
first be met before the assailed Circulars can be deemed valid. This
argument is improper at this stage. Points of law, theories, issues and
arguments not adequately brought to the attention of the lower court
need not be—and ordinarily will not be—considered by a reviewing
court, as they cannot be raised for the first time on appeal. Indeed, it
is settled jurisprudence that an issue that was neither raised in the
complaint or in the court below cannot be raised for the first time on
appeal, as to do so would be offensive to the basic rules of fair play,
justice, and due process.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno (Chairman), Sandoval-Gutierrez and Carpio-Morales, JJ.,
concur.
Corona, J., On leave.
Petition denied, judgment affirmed.
Note. — View that the Supreme Court is not called upon to rule on the
wisdom of the law or to repeal it or modify it if we find it impractical.
(Garcia vs. Corona, 321 SCRA 218 [1999])
——o0o——
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
PILIPINAS SHELL PETROLEUM CORPORATION, respondent
 G.R. No. 188497. April 25, 2012
Taxation; Excise Taxes; Excise taxes, as the term is used in the
National Internal Revenue Code (NIRC), refer to taxes applicable to
certain specified goods or articles manufactured or produced in the
Philippines for domestic sales or consumption or for any other
disposition and to things imported into the Philippines. — Excise taxes,
as the term is used in the NIRC, refer to taxes applicable to certain
specified goods or articles manufactured or produced in the Philippines
for domestic sales or consumption or for any other disposition and to
things imported into the Philippines. These taxes are imposed in
addition to the value-added tax (VAT).
Same; Same; The exemption from excise tax payment on petroleum
products under Sec. 135 (a) is conferred on international carriers who
purchased the same for their use or consumption outside the
Philippines. — The exemption from excise tax payment on petroleum
products under Sec. 135 (a) is conferred on international carriers who
purchased the same for their use or consumption outside the
Philippines. The only condition set by law is for these petroleum
products to be stored in a bonded storage tank and may be disposed
of only in accordance with the rules and regulations to be prescribed
by the Secretary of Finance, upon recommendation of the
Commissioner.
Same; Same; The Supreme Court explained that the percentage tax
on sales of merchandise imposed by the Tax Code is due from the
manufacturer and not from the buyer. — In Philippine Acetylene Co.,
Inc. v. Commissioner of Internal Revenue, 20 SCRA 1056 (1967), this
Court held that petitioner manufacturer who sold its oxygen and
acetylene gases to NPC, a tax-exempt entity, cannot claim exemption
from the payment of sales tax simply because its buyer NPC is exempt
from taxation. The Court explained that the percentage tax on sales
of merchandise imposed by the Tax Code is due from the
manufacturer and not from the buyer.
Same; Same; The excise tax imposed on petroleum products under
Sec. 148 is the direct liability of the manufacturer who cannot thus
invoke the excise tax exemption granted to its buyers who are
international carriers. — Considering that the excise taxes attaches to
petroleum products “as soon as they are in existence as such,” there
can be no outright exemption from the payment of excise tax on
petroleum products sold to international carriers. The sole basis then
of respondent’s claim for refund is the express grant of excise tax
exemption in favor of international carriers under Sec. 135 (a) for their
purchases of locally manufactured petroleum products. Pursuant to
our ruling in Philippine Acetylene, a tax exemption being enjoyed by
the buyer cannot be the basis of a claim for tax exemption by the
manufacturer or seller of the goods for any tax due to it as the
manufacturer or seller. The excise tax imposed on petroleum products
under Sec. 148 is the direct liability of the manufacturer who cannot
thus invoke the excise tax exemption granted to its buyers who are
international carriers.
Same; Same; Indirect Taxes; Indirect taxes are taxes wherein the
liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such as when
the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. — An excise tax is basically an indirect tax.
Indirect taxes are those that are demanded, in the first instance, from,
or are paid by, one person in the expectation and intention that he
can shift the burden to someone else. Stated elsewise, indirect taxes
are taxes wherein the liability for the payment of the tax falls on one
person but the burden thereof can be shifted or passed on to another
person, such as when the tax is imposed upon goods before reaching
the consumer who ultimately pays for it. When the seller passes on
the tax to his buyer, he, in effect, shifts the tax burden, not the liability
to pay it, to the purchaser as part of the price of goods sold or services
rendered.
Same; Same; Chicago Convention; The provisions of the 1944
Convention of International Civil Aviation or the “Chicago Convention,”
which form binding international law, requires the contracting parties
not to charge duty on aviation fuel already on board any aircraft that
has arrived in their territory from another contracting state; Though
initially aimed at establishing uniformity of taxation among parties to
the treaty to prevent double taxation, the tax exemption now generally
applies to fuel used in international travel by both domestic and
foreign carriers.—In the case of international air carriers, the tax
exemption granted under Sec. 135 (a) is based on “a long-standing
international consensus that fuel used for international air services
should be tax-exempt.” The provisions of the 1944 Convention of
International Civil Aviation or the “Chicago Convention,” which form
binding international law, requires the contracting parties not to
charge duty on aviation fuel already on board any aircraft that has
arrived in their territory from another contracting state. Between
individual countries, the exemption of airlines from national taxes and
customs duties on a range of aviation-related goods, including parts,
stores and fuel is a standard element of the network of bilateral “Air
Service Agreements.” Later, a Resolution issued by the International
Civil Aviation Organization (ICAO) expanded the provision as to
similarly exempt from taxes all kinds of fuel taken on board for
consumption by an aircraft from a contracting state in the territory of
another contracting State departing for the territory of any other
State. Though initially aimed at establishing uniformity of taxation
among parties to the treaty to prevent double taxation, the tax
exemption now generally applies to fuel used in international travel by
both domestic and foreign carriers.
Same; Same; The Court holds that Sec. 135 (a) should be construed
as prohibiting the shifting of the burden of the excise tax to the
international carriers who buys petroleum products from the local
manufacturers; The oil companies which sold such petroleum products
to international carriers are not entitled to a refund of excise taxes
previously paid on the goods.—Because an excise tax is a tax on the
manufacturer and not on the purchaser, and there being no express
grant under the NIRC of exemption from payment of excise tax to local
manufacturers of petroleum products sold to international carriers,
and absent any provision in the Code authorizing the refund or
crediting of such excise taxes paid, the Court holds that Sec. 135 (a)
should be construed as prohibiting the shifting of the burden of the
excise tax to the international carriers who buys petroleum products
from the local manufacturers. Said provision thus merely allows the
international carriers to purchase petroleum products without the
excise tax component as an added cost in the price fixed by the
manufacturers or distributors/sellers. Consequently, the oil companies
which sold such petroleum products to international carriers are not
entitled to a refund of excise taxes previously paid on the goods.
Same; Tax Refunds; Tax refunds are in the nature of tax exemptions
which result to loss of revenue for the government. Upon the person
claiming an exemption from tax payments rests the burden of
justifying the exemption by words too plain to be mistaken and too
categorical to be misinterpreted, it is never presumed nor be allowed
solely on the ground of equity. — Time and again, we have held that
tax refunds are in the nature of tax exemptions which result to loss of
revenue for the government. Upon the person claiming an exemption
from tax payments rests the burden of justifying the exemption by
words too plain to be mistaken and too categorical to be
misinterpreted, it is never presumed nor be allowed solely on the
ground of equity. These exemptions, therefore, must not rest on
vague, uncertain or indefinite inference, but should be granted only
by a clear and unequivocal provision of law on the basis of language
too plain to be mistaken. Such exemptions must be strictly construed
against the taxpayer, as taxes are the lifeblood of the government.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Baniqued and Baniqued for respondent.
VILLARAMA, JR., J.:
Petitioner Commissioner of Internal Revenue appeals the Decision
dated March 25, 2009 and Resolution dated June 24, 2009 of the Court
of Tax Appeals (CTA) En Banc in CTA EB No. 415. The CTA dismissed
the petition for review filed by petitioner assailing the CTA First
Division’s Decision dated April 25, 2008 and Resolution dated July 10,
2008 which ordered petitioner to refund the excise taxes paid by
respondent Pilipinas Shell Petroleum Corporation on petroleum
products it sold to international carriers.
The facts are not disputed.
Respondent is engaged in the business of processing, treating and
refining petroleum for the purpose of producing marketable products
and the subsequent sale thereof.
On July 18, 2002, respondent filed with the Large Taxpayers Audit &
Investigation Division II of the Bureau of Internal Revenue (BIR) a
formal claim for refund or tax credit in the total amount of
P28,064,925.15, representing excise taxes it allegedly paid on sales
and deliveries of gas and fuel oils to various international carriers
during the period October to December 2001. Subsequently, on
October 21, 2002, a similar claim for refund or tax credit was filed by
respondent with the BIR covering the period January to March 2002
in the amount of P41,614,827.99. Again, on July 3, 2003, respondent
filed another formal claim for refund or tax credit in the amount of
P30,652,890.55 covering deliveries from April to June 2002.
Since no action was taken by the petitioner on its claims, respondent
filed petitions for review before the CTA on September 19, 2003 and
December 23, 2003, docketed as CTA Case Nos. 6775 and 6839,
respectively.
In its decision on the consolidated cases, the CTA’s First Division ruled
that respondent is entitled to the refund of excise taxes in the reduced
amount of P95,014,283.00. The CTA First Division relied on a previous
ruling rendered by the CTA En Banc in the case of “Pilipinas Shell
Petroleum Corporation v. Commissioner of Internal Revenue” where
the CTA also granted respondent’s claim for refund on the basis of
excise tax exemption for petroleum products sold to international
carriers of foreign registry for their use or consumption outside the
Philippines. Petitioner’s motion for reconsideration was denied by the
CTA First Division.
Petitioner elevated the case to the CTA En Banc which upheld the
ruling of the First Division. The CTA pointed out the specific exemption
mentioned under Section 135 of the National Internal Revenue Code
of 1997 (NIRC) of petroleum products sold to international carriers
such as respondent’s clients. It said that this Court’s ruling in Maceda
v. Macaraig, Jr. is inapplicable because said case only put to rest the
issue of whether or not the National Power Corporation (NPC) is
subject to tax considering that NPC is a tax-exempt entity mentioned
in Sec. 135 (c) of the NIRC (1997), whereas the present case involves
the tax exemption of the sale of petroleum under Sec. 135 (a) of the
same Code. Further, the CTA said that the ruling in Philippine
Acetylene Co., Inc. v. Commissioner of Internal Revenue likewise finds
no application because the party asking for the refund in said case
was the seller-producer based on the exemption granted under the
law to the tax-exempt buyers, NPC and Voice of America (VOA),
whereas in this case it is the article or product which is exempt from
tax and not the international carrier.
Petitioner filed a motion for reconsideration which the CTA likewise
denied.
Hence, this petition anchored on the following grounds:
I
SECTION 148 OF THE NATIONAL INTERNAL REVENUE CODE
EXPRESSLY SUBJECTS THE PETROLEUM PRODUCTS TO AN EXCISE
TAX BEFORE THEY ARE REMOVED FROM THE PLACE OF
PRODUCTION.
II
THE ONLY SPECIFIC PROVISION OF THE LAW WHICH GRANTS TAX
CREDIT OR TAX REFUND OF THE EXCISE TAXES PAID REFERS TO
THOSE CASES WHERE GOODS LOCALLY PRODUCED OR
MANUFACTURED ARE ACTUALLY EXPORTED WHICH IS NOT SO IN
THIS CASE.
III
THE PRINCIPLES LAID DOWN IN MACEDA VS. MACARAIG, JR. AND
PHILIPPINE ACETYLENE CO. VS. CIR ARE APPLICABLE TO THIS CASE.
The Solicitor General argues that the obvious intent of the law is to
grant excise tax exemption to international carriers and exempt
entities as buyers of petroleum products and not to the manufacturers
or producers of said goods. Since the excise taxes are collected from
manufacturers or producers before removal of the domestic products
from the place of production, respondent paid the subject excise taxes
as manufacturer or producer of the petroleum products pursuant to
Sec. 148 of the NIRC. Thus, regardless of who the buyer/purchaser is,
the excise tax on petroleum products attached to the said goods
before their sale or delivery to international carriers, as in fact
respondent averred that it paid the excise tax on its petroleum
products when it “withdrew petroleum products from its place of
production for eventual sale and delivery to various international
carriers as well as to other customers.” Sec. 135 (a) and (c) granting
exemption from the payment of excise tax on petroleum products can
only be interpreted to mean that the respondent cannot pass on to
international carriers and exempt agencies the excise taxes it paid as
a manufacturer or producer.
As to whether respondent has the right to file a claim for refund or tax
credit for the excise taxes it paid for the petroleum products sold to
international carriers, the Solicitor General contends that Sec. 130 (D)
is explicit on the circumstances under which a taxpayer may claim for
a refund of excise taxes paid on manufactured products, which
express enumeration did not include those excise taxes paid on
petroleum products which were eventually sold to international
carriers (expressio unius est exclusio alterius). Further, the Solicitor
General asserts that contrary to the conclusion made by the CTA, the
principles laid down by this Court in Maceda v. Macaraig, Jr. and
Philippine Acetylene Co. v. Commissioner of Internal Revenue13 are
applicable to this case. Respondent must shoulder the excise taxes it
previously paid on petroleum products which it later sold to
international carriers because it cannot pass on the tax burden to the
said international carriers which have been granted exemption under
Sec. 135 (a) of the NIRC. Considering that respondent failed to prove
an express grant of a right to a tax refund, such claim cannot be
implied; hence, it must be denied.
On the other hand, respondent maintains that since petroleum
products sold to qualified international carriers are exempt from excise
tax, no taxes should be imposed on the article, to which goods the tax
attaches, whether in the hands of the said international carriers or the
petroleum manufacturer or producer. As these excise taxes have been
erroneously paid taxes, they can be recovered under Sec. 229 of the
NIRC. Respondent contends that contrary to petitioner’s assertion,
Sections 204 and 229 authorizes respondent to maintain a suit or
proceeding to recover such erroneously paid taxes on the petroleum
products sold to tax-exempt international carriers.
As to the jurisprudence cited by the petitioner, respondent argues that
they are not applicable to the case at bar. It points out that Maceda
v. Macaraig, Jr. is an adjudication on the issue of tax exemption of
NPC from direct and indirect taxes given the passage of various laws
relating thereto. What was put in issue in said case was NPC’s right to
claim for refund of indirect taxes. Here, respondent’s claim for refund
is not anchored on the exemption of the buyer from direct and indirect
taxes but on the tax exemption of the goods themselves under Sec.
135. Respondent further stressed that in Maceda v. Macaraig, Jr., this
Court recognized that if NPC purchases oil from oil companies, NPC is
entitled to claim reimbursement from the BIR for that part of the
purchase price that represents excise taxes paid by the oil company
to the BIR. Philippine Acetylene Co. v. CIR, on the other hand, involved
sales tax, which is a tax on the transaction, which this Court held as
due from the seller even if such tax cannot be passed on to the buyers
who are tax-exempt entities. In this case, the excise tax is a tax on
the goods themselves. While indeed it is the manufacturer who has
the duty to pay the said tax, by specific provision of law, Sec. 135, the
goods are stripped of such tax under the circumstances provided
therein. Philippine Acetylene Co., Inc. v. CIR was thus not anchored
on an exempting provision of law but merely on the argument that the
tax burden cannot be passed on to someone.
Respondent further contends that requiring it to shoulder the burden
of excise taxes on petroleum products sold to international carriers
would effectively defeat the principle of international comity upon
which the grant of tax exemption on aviation fuel used in international
flights was founded. If the excise taxes paid by respondent are not
allowed to be refunded or credited based on the exemption provided
in Sec. 135 (a), respondent avers that the manufacturers or oil
companies would then be constrained to shift the tax burden to
international carriers in the form of addition to the selling price.
Respondent cites as an analogous case Commissioner of International
Revenue v. Tours Specialists, Inc. which involved the inclusion of hotel
room charges remitted by partner foreign tour agents in respondent
TSI’s gross receipts for purposes of computing the 3% contractor’s
tax. TSI opposed the deficiency assessment invoking, among others,
Presidential Decree No. 31, which exempts foreign tourists from
paying hotel room tax. This Court upheld the CTA in ruling that while
CIR may claim that the 3% contractor’s tax is imposed upon a different
incidence, i.e., the gross receipts of the tourist agency which he
asserts includes the hotel room charges entrusted to it, the effect
would be to impose a tax, and though different, it nonetheless
imposes a tax actually on room charges. One way or the other, said
the CTA, it would not have the effect of promoting tourism in the
Philippines as that would increase the costs or expenses by the
addition of a hotel room tax in the overall expenses of said tourists.
The instant petition squarely raised the issue of whether respondent
as manufacturer or producer of petroleum products is exempt from
the payment of excise tax on such petroleum products it sold to
international carriers.
In the previous cases decided by this Court involving excise taxes on
petroleum products sold to international carriers, what was only
resolved is the question of who is the proper party to claim the refund
of excise taxes paid on petroleum products if such tax was either paid
by the international carriers themselves or incorporated into the selling
price of the petroleum products sold to them. We have ruled in the
said cases that the statutory taxpayer, the local manufacturer of the
petroleum products who is directly liable for the payment of excise tax
on the said goods, is the proper party to seek a tax refund. Thus, a
foreign airline company who purchased locally manufactured
petroleum products for use in its international flights, as well as a
foreign oil company who likewise bought petroleum products from
local manufacturers and later sold these to international carriers, have
no legal personality to file a claim for tax refund or credit of excise
taxes previously paid by the local manufacturers even if the latter
passed on to the said buyers the tax burden in the form of additional
amount in the price.
Excise taxes, as the term is used in the NIRC, refer to taxes applicable
to certain specified goods or articles manufactured or produced in the
Philippines for domestic sales or consumption or for any other
disposition and to things imported into the Philippines. These taxes
are imposed in addition to the value-added tax (VAT).
As to petroleum products, Sec. 148 provides that excise taxes attach
to the following refined and manufactured mineral oils and motor fuels
as soon as they are in existence as such:
(a) Lubricating oils and greases;
(b) Processed gas;
(c) Waxes and petrolatum;
(d) Denatured alcohol to be used for motive power;
(e) Naphtha, regular gasoline and other similar products of
distillation;
(f) Leaded premium gasoline;
(g) Aviation turbo jet fuel;
(h) Kerosene;
(i) Diesel fuel oil, and similar fuel oils having more or less the same
generating power;
(j) Liquefied petroleum gas;
(k) Asphalts; and
(l) Bunker fuel oil and similar fuel oils having more or less the same
generating capacity.
Beginning January 1, 1999, excise taxes levied on locally
manufactured petroleum products and indigenous petroleum are
required to be paid before their removal from the place of production.
However, Sec. 135 provides:
“SEC. 135. Petroleum Products Sold to International Carriers and
Exempt Entities or Agencies. — Petroleum products sold to the
following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use
or consumption outside the Philippines: Provided, That the petroleum
products sold to these international carriers shall be stored in a bonded
storage tank and may be disposed of only in accordance with the rules
and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions
and other international agreements for their use or consumption:
Provided, however, That the country of said foreign international
carrier or exempt entities or agencies exempts from similar taxes
petroleum products sold to Philippine carriers, entities or agencies;
and
(c) Entities which are by law exempt from direct and indirect taxes.”
Respondent claims it is entitled to a tax refund because those
petroleum products it sold to international carriers are not subject to
excise tax, hence the excise taxes it paid upon withdrawal of those
products were erroneously or illegally collected and should not have
been paid in the first place. Since the excise tax exemption attached
to the petroleum products themselves, the manufacturer or producer
is under no duty to pay the excise tax thereon.
We disagree.
Under Chapter II “Exemption or Conditional Tax-Free Removal of
Certain Goods” of Title VI, Sections 133, 137, 138, 139 and 140 cover
conditional tax-free removal of specified goods or articles, whereas
Sections 134 and 135 provide for tax exemptions. While the exemption
found in Sec. 134 makes reference to the nature and quality of the
goods manufactured (domestic denatured alcohol) without regard to
the tax status of the buyer of the said goods, Sec. 135 deals with the
tax treatment of a specified article (petroleum products) in relation to
its buyer or consumer. Respondent’s failure to make this important
distinction apparently led it to mistakenly assume that the tax
exemption under Sec. 135 (a) “attaches to the goods themselves”
such that the excise tax should not have been paid in the first place.
On July 26, 1996, petitioner Commissioner issued Revenue
Regulations 8-9618 (“Excise Taxation of Petroleum Products”) which
provides:
“SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum
Products, Non-Metallic Minerals and Indigenous Petroleum. —
I. Petroleum Products
xxxx
a) On locally manufactured petroleum products
The specific tax on petroleum products locally manufactured or
produced in the Philippines shall be paid by the manufacturer,
producer, owner or person having possession of the same, and such
tax shall be paid within fifteen (15) days from date of removal from
the place of production.” (Underscoring supplied.)
Thus, if an airline company purchased jet fuel from an unregistered
supplier who could not present proof of payment of specific tax, the
company is liable to pay the specific tax on the date of purchase. Since
the excise tax must be paid upon withdrawal from the place of
production, respondent cannot anchor its claim for refund on the
theory that the excise taxes due thereon should not have been
collected or paid in the first place.
Sec. 229 of the NIRC allows the recovery of taxes erroneously or
illegally collected. An “erroneous or illegal tax” is defined as one levied
without statutory authority, or upon property not subject to taxation
or by some officer having no authority to levy the tax, or one which is
some other similar respect is illegal.
Respondent’s locally manufactured petroleum products are clearly
subject to excise tax under Sec. 148. Hence, its claim for tax refund
may not be predicated on Sec. 229 of the NIRC allowing a refund of
erroneous or excess payment of tax. Respondent’s claim is premised
on what it determined as a tax exemption “attaching to the goods
themselves,” which must be based on a statute granting tax
exemption, or “the result of legislative grace.” Such a claim is to be
construed strictissimi juris against the taxpayer, meaning that the
claim cannot be made to rest on vague inference. Where the rule of
strict interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, the claimant must
show that he clearly falls under the exempting statute.
The exemption from excise tax payment on petroleum products under
Sec. 135 (a) is conferred on international carriers who purchased the
same for their use or consumption outside the Philippines. The only
condition set by law is for these petroleum products to be stored in a
bonded storage tank and may be disposed of only in accordance with
the rules and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner.
On January 22, 2008, or five years after the sale by respondent of the
subject petroleum products, then Secretary of Finance Margarito B.
Teves issued Revenue Regulations No. 3-2008 “Amending Certain
Provisions of Existing Revenue Regulations on the Granting of Outright
Excise Tax Exemption on Removal of Excisable Articles Intended for
Export or Sale/Delivery to International Carriers or to Tax-Exempt
Entities/Agencies and Prescribing the Provisions for Availing Claims for
Product Replenishment.” Said issuance recognized the “tax relief to
which the taxpayers are entitled” by availing of the following
remedies: (1) a claim for excise tax exemption pursuant to Sections
204 and 229 of the NIRC; or (2) a product replenishment.
“SEC. 2. IMPOSITION OF EXCISE TAX ON REMOVAL OF EXCISABLE
ARTICLES FOR EXPORT OR SALE/DELIVERY TO INTERNATIONAL
CARRIERS AND OTHER TAX-EXEMPT ENTITIES/AGENCIES.—Subject
to the subsequent filing of a claim for excise tax credit/refund or
product replenishment, all manufacturers of articles subject to excise
tax under Title VI of the NIRC of 1997, as amended, shall pay the
excise tax that is otherwise due on every removal thereof from the
place of production that is intended for exportation or sale/delivery to
international carriers or to tax-exempt entities/agencies: Provided,
That in case the said articles are likewise being sold in the domestic
market, the applicable excise tax rate shall be the same as the excise
tax rate imposed on the domestically sold articles.
In the absence of a similar article that is being sold in the domestic
market, the applicable excise tax shall be computed based on the
value appearing in the manufacturer’s sworn statement converted to
Philippine currency, as may be applicable.
x x x x” (Emphasis supplied.)
In this case, however, the Solicitor General has adopted a position
contrary to existing BIR regulations and rulings recognizing the right
of oil companies to seek a refund of excise taxes paid on petroleum
products they sold to international carriers. It is argued that there is
nothing in Sec. 135 (a) which explicitly grants exemption from the
payment of excise tax in favor of oil companies selling their petroleum
products to international carriers and that the only claim for refund of
excise taxes authorized by the NIRC is the payment of excise tax on
exported goods, as explicitly provided in Sec. 130 (D), Chapter I under
the same Title VI:
“(D) Credit for Excise Tax on Goods Actually Exported.—When goods
locally produced or manufactured are removed and actually exported
without returning to the Philippines, whether so exported in their
original state or as ingredients or parts of any manufactured goods or
products, any excise tax paid thereon shall be credited or refunded
upon submission of the proof of actual exportation and upon receipt
of the corresponding foreign exchange payment: Provided, That the
excise tax on mineral products, except coal and coke, imposed under
Section 151 shall not be creditable or refundable even if the mineral
products are actually exported.”
According to the Solicitor General, Sec. 135 (a) in relation to the other
provisions on excise tax and from the nature of indirect taxation, may
only be construed as prohibiting the manufacturers-sellers of
petroleum products from passing on the tax to international carriers
by incorporating previously paid excise taxes into the selling price. In
other words, respondent cannot shift the tax burden to international
carriers who are allowed to purchase its petroleum products without
having to pay the added cost of the excise tax.
We agree with the Solicitor General.
In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue
this Court held that petitioner manufacturer who sold its oxygen and
acetylene gases to NPC, a tax-exempt entity, cannot claim exemption
from the payment of sales tax simply because its buyer NPC is exempt
from taxation. The Court explained that the percentage tax on sales
of merchandise imposed by the Tax Code is due from the
manufacturer and not from the buyer.
Respondent attempts to distinguish this case from Philippine Acetylene
Co., Inc. on grounds that what was involved in the latter is a tax on
the transaction (sales) and not excise tax which is a tax on the goods
themselves, and that the exemption sought therein was anchored
merely on the tax-exempt status of the buyer and not a specific
provision of law exempting the goods sold from the excise tax. But as
already stated, the language of Sec. 135 indicates that the tax
exemption mentioned therein is conferred on specified buyers or
consumers of the excisable articles or goods (petroleum products).
Unlike Sec. 134 which explicitly exempted the article or goods itself
(domestic denatured alcohol) without due regard to the tax status of
the buyer or purchaser, Sec. 135 exempts from excise tax petroleum
products which were sold to international carriers and other tax-
exempt agencies and entities.
Considering that the excise taxes attaches to petroleum products “as
soon as they are in existence as such,” there can be no outright
exemption from the payment of excise tax on petroleum products sold
to international carriers. The sole basis then of respondent’s claim for
refund is the express grant of excise tax exemption in favor of
international carriers under Sec. 135 (a) for their purchases of locally
manufactured petroleum products. Pursuant to our ruling in Philippine
Acetylene, a tax exemption being enjoyed by the buyer cannot be the
basis of a claim for tax exemption by the manufacturer or seller of the
goods for any tax due to it as the manufacturer or seller. The excise
tax imposed on petroleum products under Sec. 148 is the direct
liability of the manufacturer who cannot thus invoke the excise tax
exemption granted to its buyers who are international carriers.
In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax
as an example of an indirect tax where the tax burden can be shifted
to the buyer:
“On the other hand, “indirect taxes are taxes primarily paid by persons
who can shift the burden upon someone else.” For example, the excise
and ad valorem taxes that the oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products from its
refinery can be shifted to its buyer, like the NPC, by adding them to
the “cash” and/or “selling price.”
An excise tax is basically an indirect tax. Indirect taxes are those that
are demanded, in the first instance, from, or are paid by, one person
in the expectation and intention that he can shift the burden to
someone else. Stated elsewise, indirect taxes are taxes wherein the
liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such as when
the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. When the seller passes on the tax to his buyer,
he, in effect, shifts the tax burden, not the liability to pay it, to the
purchaser as part of the price of goods sold or services rendered.
Further, in Maceda v. Macaraig, Jr., the Court ruled that because of
the tax exemptions privileges being enjoyed by NPC under existing
laws, the tax burden may not be shifted to it by the oil companies who
shall pay for fuel oil taxes on oil they supplied to NPC. Thus:
“In view of all the foregoing, the Court rules and declares that the oil
companies which supply bunker fuel oil to NPC have to pay the taxes
imposed upon said bunker fuel oil sold to NPC. By the very nature of
indirect taxation, the economic burden of such taxation is expected to
be passed on through the channels of commerce to the user or
consumer of the goods sold. Because, however, the NPC has been
exempted from both direct and indirect taxation, the NPC must be held
exempted from absorbing the economic burden of indirect taxation.
This means, on the one hand, that the oil companies which wish to
sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which they could shift to NPC if NPC did not
enjoy exemption from indirect taxes. This means also, on the other
hand, that the NPC may refuse to pay that part of the “normal”
purchase price of bunker fuel oil which represents all or part of the
taxes previously paid by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies—because to do so may be
more convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas—NPC is
entitled to be reimbursed by the BIR for that part of the buying price
of NPC which verifiably represents the tax already paid by the oil
company-vendor to the BIR.” (Emphasis supplied.)
In the case of international air carriers, the tax exemption granted
under Sec. 135 (a) is based on “a long-standing international
consensus that fuel used for international air services should be tax-
exempt.” The provisions of the 1944 Convention of International Civil
Aviation or the “Chicago Convention,” which form binding international
law, requires the contracting parties not to charge duty on aviation
fuel already on board any aircraft that has arrived in their territory
from another contracting state. Between individual countries, the
exemption of airlines from national taxes and customs duties on a
range of aviation-related goods, including parts, stores and fuel is a
standard element of the network of bilateral “Air Service Agreements.”
Later, a Resolution issued by the International Civil Aviation
Organization (ICAO) expanded the provision as to similarly exempt
from taxes all kinds of fuel taken on board for consumption by an
aircraft from a contracting state in the territory of another contracting
State departing for the territory of any other State. Though initially
aimed at establishing uniformity of taxation among parties to the
treaty to prevent double taxation, the tax exemption now generally
applies to fuel used in international travel by both domestic and
foreign carriers.
On April 21, 1978, then President Ferdinand E. Marcos issued
Presidential Decree (P.D.) No. 1359:
PRESIDENTIAL DECREE NO. 1359 AMENDING SECTION 134 OF THE
NATIONAL INTERNAL REVENUE CODE OF 1977.
WHEREAS, under the present law oil products sold to international
carriers are subject to the specific tax;
WHEREAS, some countries allow the sale of petroleum products to
Philippine Carriers without payment of taxes thereon;
WHEREAS, to foster goodwill and better relationship with foreign
countries, there is a need to grant similar tax exemption in favor of
foreign international carriers;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution,
do hereby order and decree the following:
Section 1. Section 134 of the National Internal Revenue Code of
1977 is hereby amended to read as follows:
“Sec. 134. Articles subject to specific tax. — Specific internal
revenue taxes apply to things manufactured or produced in the
Philippines for domestic sale or consumption and to things imported,
but not to anything produced or manufactured here which shall be
removed for exportation and is actually exported without returning to
the Philippines, whether so exported in its original state or as an
ingredient or part of any manufactured article or product.
“HOWEVER, PETROLEUM PRODUCTS SOLD TO AN INTERNATIONAL
CARRIER FOR ITS USE OR CONSUMPTION OUTSIDE OF THE
PHILIPPINES SHALL NOT BE SUBJECT TO SPECIFIC TAX, PROVIDED,
THAT THE COUNTRY OF SAID CARRIER EXEMPTS FROM TAX
PETROLEUM PRODUCTS SOLD TO PHILIPPINE CARRIERS.
“In case of importations the internal revenue tax shall be in addition
to the customs duties, if any.”
Section 2. This Decree shall take effect immediately.”
Contrary to respondent’s assertion that the above amendment to the
former provision of the 1977 Tax Code supports its position that it was
not liable for excise tax on the petroleum products sold to international
carriers, we find that no such inference can be drawn from the words
used in the amended provision or its introductory part. Founded on
the principles of international comity and reciprocity, P.D. No. 1359
granted exemption from payment of excise tax but only to foreign
international carriers who are allowed to purchase petroleum products
free of specific tax provided the country of said carrier also grants tax
exemption to Philippine carriers. Both the earlier amendment in the
1977 Tax Code and the present Sec. 135 of the 1997 NIRC did not
exempt the oil companies from the payment of excise tax on
petroleum products manufactured and sold by them to international
carriers.
Because an excise tax is a tax on the manufacturer and not on the
purchaser, and there being no express grant under the NIRC of
exemption from payment of excise tax to local manufacturers of
petroleum products sold to international carriers, and absent any
provision in the Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be construed as
prohibiting the shifting of the burden of the excise tax to the
international carriers who buys petroleum products from the local
manufacturers. Said provision thus merely allows the international
carriers to purchase petroleum products without the excise tax
component as an added cost in the price fixed by the manufacturers
or distributors/sellers. Consequently, the oil companies which sold
such petroleum products to international carriers are not entitled to a
refund of excise taxes previously paid on the goods.
Time and again, we have held that tax refunds are in the nature of
tax exemptions which result to loss of revenue for the government.
Upon the person claiming an exemption from tax payments rests the
burden of justifying the exemption by words too plain to be mistaken
and too categorical to be misinterpreted, it is never presumed nor be
allowed solely on the ground of equity. These exemptions, therefore,
must not rest on vague, uncertain or indefinite inference, but should
be granted only by a clear and unequivocal provision of law on the
basis of language too plain to be mistaken. Such exemptions must be
strictly construed against the taxpayer, as taxes are the lifeblood of
the government.
WHEREFORE, the petition for review on certiorari is GRANTED. The
Decision dated March 25, 2009 and Resolution dated June 24, 2009
of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax refund or credit filed by
respondent Pilipinas Shell Petroleum Corporation are DENIED for lack
of basis.
No pronouncement as to costs.
SO ORDERED.
Corona (C.J., Chairperson), Leonardo-De Castro, Bersamin and Del
Castillo, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes. — It may be conceded that the assailed law imposes an excise
tax on cigarettes which is a form of indirect tax, and thus, regressive
in character; Nevertheless, this does not mean that the assailed law
may be declared unconstitutional for being regressive in character
because the Constitution does not prohibit the imposition of indirect
taxes but merely provides that Congress shall evolve a progressive
system of taxation. (British American Tobacco vs. Camacho, 585 SCRA
36 [2009])
The person entitled to claim a tax refund is the taxpayer, but in case
the taxpayer does not file a claim for refund, the withholding agent
may file the claim. (Commissioner of Internal Revenue vs. Smart
Communication, Inc., 629 SCRA 342 [2010])
Tax refunds, like tax exemptions, are construed strictly against the
taxpayer and liberally in favor of the taxing authority; It has been a
long-standing policy and practice of the Supreme Court to respect the
conclusions of quasi-judicial agencies such as the Court of Tax Appeals
(CTA), a highly specialized body specifically created for the purpose of
reviewing tax cases. (United Airlines, Inc. vs. Commissioner of Internal
Revenue, 631 SCRA 567 [2010])
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