234 Phil.

455

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the
same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the
total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel
operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as
Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces
of calorized lance pipes in 28 packages valued at P256,039.00 consigned to
Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75,
consigned to Central Textile Mills, Inc. Both sets of goods were insured against
marine risk for their stated value with respondent Development Insurance and Sure-
ty Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128
cartons of garment fabrics and accessories, in two (2) containers, consigned
to Mariveles Apparel Corporation, and two cases of surveying instruments consigned
to Aman Enterprises and General Merchandise. The 128 cartons were insured for
their stated value by respondent Nisshin Fire & Marine Insurance Co. for
US$46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co.,
Ltd., for US$11,385.00
Enroute from Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in
the total loss of ship and cargo. The respective respondent Insurers paid the
corresponding marine insurance values to the consignees concerned and were thus
subrogated unto the rights of the latter as insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation
(Development Insurance, for short), having been subrogated unto the rights of the
two insured companies, filed suit against petitioner Carrier for the recovery of the
amounts it had paid to the insured before the then Court of First Instance of Manila,
Branch XXX (Civil Case No. 116087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
extraordinary fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development
Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal
interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an
appeal to the then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. (NISSHIN, for
short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity),
as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of
the insured value of the cargo lost with the then Court of First Instance of Manila,
Branch II (Civil Case No. 116151), imputing unseaworthiness of the ship and non-
observance of extraordinary diligence by Petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused
the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the
Carriage of Goods by Sea Act (COGSA); and that when the loss by fire is established,
the burden of proving negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and
DOWA in the amounts of US$46,583.00 and US$11,385.00, respectively, with legal
interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the
then Court of Appeals on September 10, 1984, affirmed with modification the Trial
Court's judgment by decreasing the amount recoverable by DOWA to US$1,000.00
because of the $500 per package limitation of liability under the COGSA.
Hence, this Petition for Review on Certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16,
1985 by the First Division, and G.R. No. 71478 on September 25, 1985 by the Second
Division. Upon Petitioner Carrier's Motion for Reconsideration, however, G.R. No.
69044 was given due course on March 25, 1985, and the parties were required to
submit their respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of
the Resolution denying the Petition for Review and moved for its consolidation with
G.R. No. 69044, the lower-numbered case, which was then pending resolution with
the First Division. The same was granted; the Resolution of the Second Division of
September 25, 1985 was set aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the
M/S Asiatica but merely a charterer thereof. We note that in G.R. No. 69044,
Petitioner Carrier stated in its Petition:
"There are about 22 cases of the 'ASIATICA' pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein,
being the operator of said vessel. x x x x x x"[1]
Petitioner Carrier should be held bound to said admission. As a general rule, the
facts alleged in a party's pleading are deemed admissions of that party and binding
upon it.[2] And an admission in one pleading in one action may be received in
evidence against the pleader or his successor-in-interest on the trial of another
action to which he is a party, in favor of a party to the latter action.[3]
The threshold issues in both cases are: (1) which law should govern - the Civil Code
provisions on common carriers or the Carriage of Goods by Sea Act? and (2) who
has the burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability
of the common carrier, in case of their loss, destruction or deterioration.[4] As the
cargoes in question were transported from Japan to the Philippines, the liability of
Petitioner Carrier is governed primarily by the Civil Code.[5] However, in all matters
not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of Commerce and by special laws.[6] Thus, the Carriage of
Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code.[7]
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence in the vigilance
over goods, according to all the circumstances of each case.[8] Common carriers are
responsible for the loss, destruction, or deterioration of the goods unless the same is
due to any of the following causes only:
"(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
"x x x x x x"[9]
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability
under the phrase "natural disaster or calamity". However, we are of the opinion that
fire may not be considered a natural disaster or calamity. This must be so as it arises
almost invariably from some act of man or by human means.[10] It does not fall
within the category of an act of God unless caused by lightning[11] or by other natural
disaster or calamity.[12] It may even be caused by the actual fault or privity of the
carrier.[13]
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous
event refers to leases of rural lands where a reduction of the rent is allowed when
more than one-half of the fruits have been lost due to such event, considering that
the law adopts a protective policy towards agriculture.[14]
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 re-
quired by law.
In this case, the respective Insurers, as subrogees of the cargo shippers, have proven
that the transported goods have been lost. Petitioner Carrier has also proven that
the loss was caused by fire. The burden then is upon Petitioner Carrier to prove that
it has exercised the extraordinary diligence required by law. In this regard, the Trial
Court, concurred in by the Appellate Court, made the following finding of fact:
"The cargoes in question were, according to the witnesses for the defendant, placed
in hatches No. 2 and 3 of the vessel. Boatswain Ernesto Pastrana noticed that smoke
was coming out from hatch No. 2 and hatch No. 3; that when the smoke was noticed,
the fire was already big; that the fire must have started twenty-four (24) hours
before the same was noticed; that carbon dioxide was ordered released and the crew
was ordered to open the hatch covers of No. 2 hold for commencement of fire
fighting by sea water; that all of these efforts were not enough to control the fire.
"Pursuant to Article 1733, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods. The evidence of the defendant did not
show that extraordinary vigilance was observed by the vessel to prevent the
occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not
likewise show the amount of diligence made by the crew, on orders, in the care of the
cargoes. What appears is that after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage. Consequently,
the crew could not even explain what could have caused the fire. The defendant, in
the Court's mind, failed to satisfactorily show that extraordinary vigilance and care
had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of diligence required of it
under Article 1733 of the Civil Code."[15]
Having failed to discharge the burden of proving that it had exercised the
extraordinary diligence required by law, Petitioner Carrier cannot escape liability for
the loss of the cargo.
And even if fire were to be considered a "natural disaster'' within the meaning of
Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that
the "natural disaster" must have been the "proximate and only cause of the loss",
and that the carrier has "exercised due diligence to prevent or minimize the loss
before, during or after the occurrence of the disaster". This, Petitioner Carrier has
also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by
Sea Act. It is provided therein that:
"Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
'(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx x x x"
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact,
that there was "actual fault" of the carrier shown by "lack of diligence" in that "when
the smoke was noticed, the fire was already big; that the fire must have started
twenty-four (24) hours before the same was noticed;" and that "after the cargoes
were stored in the hatches, no regular inspection was made as to their condition
during the voyage." The foregoing suffices to show that the circumstances under
which the fire originated and spread are such as to show that Petitioner Carrier or its
servants were negligent in connection therewith. Consequently, the complete
defense afforded by the COGSA when loss results from fire is unavailing to
Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should net exceed US$500 per
package as provided in section 4(5) of the COGSA, which reads:
"(5) Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in bill of lading. This declaration if embodied
in the bill of lading shall be prima facie evidence, but shall be conclusive on the
carrier.
"By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be
fixed: Provided, That such maximum shall not be less than the figure above
named. In no event shall the carrier liable for more than the amount of damage
actually sustained."
xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
"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."
It is to be noted that the Civil Code does not of itself limit the liability of the common
carrier to a fixed amount per package although the Code expressly permits a
stipulation limiting such liability. Thus, the COGSA, which is suppletory to the
provisions of the Civil Code, steps in and supplements the Code by establishing a
statutory provision limiting the carrier's liability in the absence of a declaration of a
higher value of the goods by the shipper in the bill of lading. The provisions of the
Carriage of Goods by Sea Act on limited liability are as much a part of a bill of lading
as though physically in it and as much a part thereof as though placed therein by
agreement of the parties.[16]
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits
"C-2" and "I-3")[17] limiting the carrier's liability for the loss or destruction of the
goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner
Carrier's liability should not exceed US$500 per package, or its peso equivalent, at
the time of payment of the value of the goods lost, but in no case "more than the
amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039
(Exhibit "C"), which was exactly the amount of the insurance coverage by
Development Insurance (Exhibit "A"), and the amount affirmed to be paid by
respondent Court. The goods were shipped in 28 packages (Exhibit "C-
2"). Multiplying 28 packages by $500 would result in a product of $14,000 which,
at the current exchange rate of P20.44 to US$1, would be P286,160, or "more than
the amount of damage actually sustained". Consequently, the aforestated amount of
P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value
was P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhi-
bit "H") and which amount was affirmed to be paid by respondent Court. However,
multiplying seven (7) cases by $500 per package at the present prevailing rate of
P20.44 to US$1 (US$3,500 x P20.44) would yield P71,540 only, which is the amount
that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are
concerned, the amount awarded to DOWA, which was already reduced to $1,000 by
the Appellate Court following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers
and insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's
liability to $500 per package and affirmed the award of $46,583 to NISSHIN. It
multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the
figure of $64,000, and explained that "since this amount is more than the insured
value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation
of the carrier's liability".
We find no reversible error. The 128 cartons and not the two (2) containers should
be considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the
consignees of tin ingots and the shipper of floor covering brought action against the
vessel owner and operator to recover for loss of ingots and floor covering, which had
been shipped in vessel-supplied containers. The U.S. District Court for the Southern
District of New York rendered judgment for the plaintiffs, and the defendant
appealed. The United States Court of Appeals, Second Division, modified and
affirmed holding that:
"When what would ordinarily be considered packages are shipped in a container
supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the 'package'
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage
of Goods by Sea Act, § 4(5), 46 U.S.C.A. § 1304(5).
"Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
as packages, the interest in securing international uniformity would suggest that
they should not be so treated. Carriage of Goods by Sea Act, §4(5), 46 U.S.C.A. §
1304(5).
"x x x After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that
treating a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there is, nonetheless,
much to commend it. It gives needed recognition to the responsibility of the courts
to construe and apply the statute as enacted, however great might be the temptation
to 'modernize' or reconstitute it by artful judicial gloss. If COGSA's package
limitation scheme suffers from internal illness, Congress alone must undertake the
surgery. There is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in
Hartford that technological advancements, whether or not forseeable by the COGSA
promulgators, do not warrant a distortion or artificial construction of the statutory
term 'package'. A ruling that these large reusable metal pieces of transport
equipment qualify as COGSA packages - at least where, as here, they were carrier-
owned and supplied - would amount to just such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing
his goods can rightly be considered 'packages' standing by themselves, they do not
suddenly lose that character upon being stowed in a carrier's container. I would
liken these containers to detachable stowage compartments of the ship. They simply
serve to divide the ship's overall cargo stowage space into smaller, more serviceable
loci. Shippers' packages are quite literally 'stowed' in the containers utilizing
stevedoring practices and materials analogous to those employed in traditional on
board stowage.
In Yeramex International v. S.S. Tando, 1977 A.M.C. 1807 (E.D. Va.), rev'd on other
grounds, 595 F 2d 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.
"x x x xxx"
The case of Smithgreyhound v. M/V Eurygenes[18] followed the Mitsui test:
"Eurygenes concerned a shipment of stereo equipment packaged by the shipper into
cartons which were then placed by the shipper into a carrier-furnished
container. The number of cartons was disclosed to the carrier in the bill
of lading. Eurygenes followed the Mitsui test and treated the cartons,
not the container, as the COGSA packages. However, Eurygenesindicated
that a carrier could limit its liability to $500 per container if the bill of lading failed
to disclose the number of cartons or units within the container, or if the parties
indicated, in clear and unambiguous language, an agreement to treat the container
as the package."
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitation
and Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker,
published in Fordham International Law Journal, Vol. 6, 1982-83, Number 1)
(Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
" 2 Containers
" (128 Cartons)
==========
" Men's Garments Fabrics and Accessories Freight Prepaid
" Say: Two (2) Containers Only."
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the
containers, the number of cartons or units, as well as the nature of the goods, and
applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons,
not the two (2) containers should be considered as the shipping unit subject to the
$500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were
carrier-furnished or not usually, however, containers are provided by the
carrier.[19] In this case, the probability is that they were so furnished for Petitioner
Carrier was at liberty to pack and carry the goods in containers if they were not so
packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the
following stipulation in fine print:
"11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s)."
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only"
in the Bill of Lading, meaning that the goods could probably fit in two (2) containers
only. It cannot mean that the shipper had furnished the containers for if so, "Two
(2) Containers" appearing as the first entry would have sufficed. And if there is any
ambiguity in the Bill of Lading, it is a cardinal principle in the construction of
contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.[20] This applies with even greater force
in a contract of adhesion where a contract is already prepared and the other party
merely adhere to it, like the Bill of Lading in this case, which is drawn up by the
carrier.[21]
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R.
No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take
the depositions of its witnesses in Japan by written interrogatories.
We do not agree. Petitioner Carrier was given full opportunity to present its
evidence but it failed to do so. On this point, the Trial Court found:
"x x x xxx
"Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11th that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
told the Court since February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.
xxx x x x "[22]
Petitioner Carrier was afforded ample time to present its side of the case.[23] It
cannot complain now that it was denied due process when the Trial Court rendered
its Decision on the basis of the evidence adduced. What due process abhors is
absolute lack of opportunity to be heard.[24]
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent
Court affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor
of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN
and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is
believed that the amount of P5,000.00 would be more reasonable in G.R. No.
69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay
the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages
of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date
of the filing of the Complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

2) In G.R. No. 71478, the judgment is hereby affirmed.

SO ORDERED
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 104685 March 14, 1996

SABENA BELGIAN WORLD AIRLINES, petitioner,

vs.
HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN, respondents.

VITUG, J.:p
The appeal before the Court involves the issue of an airline's liability for lost luggage. The petition for review assails the decision of the Court of
Appeals,1dated 27 February 1992, affirming an award of damages made by the trial court in a complaint filed by private respondent against petitioner.

The factual background of the case, narrated by the trial court and reproduced at length by the
appellate court, is hereunder quoted:

On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of defendant
airline originating from Casablanca to Brussels, Belgium on her way back to Manila.
Plaintiff checked in her luggage which contained her valuables, namely: jewelries
valued at $2,350.00; clothes $1,500.00 shoes/bag $150; accessories $75; luggage
itself $10.00; or a total of $4,265.00, for which she was issued Tag No. 71423. She
stayed overnight in Brussels and her luggage was left on board Flight SN 284.

Plaintiff arrived at Manila International Airport on September 2, 1987 and

immediately submitted her Tag No. 71423 to facilitate the release of her luggage but
the luggage was missing. She was advised to accomplish and submit a property
Irregularity Report which she submitted and filed on the same day.

She followed up her claim on September 14, 1987 but the luggage remained to be
missing.

On September 15, 1987, she filed her formal complaint with the office of Ferge
Massed, defendant's Local Manager, demanding immediate attention (Exh. "A").

On September 30, 1987, on the occasion of plaintiffs following up of her luggage

claim, she was furnished copies of defendant's telexes with an information that the
Burssel's Office of defendant found the luggage and that they have broken the locks
for identification (Exhibit "B"). Plaintiff was assured by the defendant that it has
notified its Manila Office that the luggage will be shipped to Manila on October 27,
1987. But unfortunately plaintiff was informed that the luggage was lost for the
second time (Exhibits "C" and "C-1").

At the time of the filing of the complaint, the luggage with its content has not been
found.
 Plaintiff demanded from the defendant the money value of the luggage and its
contents amounting to $4,265.00 or its exchange value, but defendant refused to
settle the claim.

Defendant asserts in its Answer and its evidence tend to show that while it admits
that the plaintiff was a passenger on board Flight No. SN 284 with a piece of
checked in luggage bearing Tag No. 71423, the loss of the luggage was due to
plaintiff's sole if not contributory negligence; that she did not declare the valuable
items in her checked in luggage at the flight counter when she checked in for her
flight from Casablanca to Brussels so that either the representative of the defendant
at the counter would have advised her to secure an insurance on the alleged
valuable items and required her to pay additional charges, or would have refused
acceptance of her baggage as required by the generally accepted practices of
international carriers; that Section 9(a), Article IX of General Conditions of carriage
requiring passengers to collect their checked baggage at the place of stop over,
plaintiff neglected to claim her baggage at the Brussels Airport; that plaintiff should
have retrieved her undeclared valuables from her baggage at the Brussels Airport
since her flight from Brussels to Manila will still have to visit for confirmation
inasmuch as only her flight from Casablanca to Brussels was confirmed; that
defendant incorporated in all Sabena Plane Tickets, including Sabena Ticket No.
082422-72502241 issued to plaintiff in Manila on August 21, 1987, a warning that
"Items of value should be carried on your person" and that some carriers assume no
liability for fragile, valuable or perishable articles and that further information may be
obtained from the carrier for guidance;' that granting without conceding that
defendant is liable, its liability is limited only to US $20.00 per kilo due to plaintiffs
failure to declare a higher value on the contents of her checked in luggage and pay
additional charges thereon.2

The trial court rendered judgment ordering petitioner Sabena Belgian World Airlines to pay private
respondent Ma. Paula San Agustin —

(a) . . . US $4,265.00 or its legal exchange in Philippine pesos;

(b) . . . P30,000.00 as moral damages;

(c) . . . P10,000.00 as exemplary damages;

(d) . . . P10,000.00 as attorney's fees; and

(e) (t)he costs of the suit.3

Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate
court, in its decision of 27 February 1992, affirmed in toto the trial court's judgment.

Petitioner airline company, in contending that the alleged negligence of private respondent should
be considered the primary cause for the loss of her luggage, avers that, despite her awareness
that the flight ticket had been confirmed only for Casablanca and Brussels, and that her flight from
Brussels to Manila had yet to be confirmed, she did not retrieve the luggage upon arrival in
Brussels. Petitioner insists that private respondent, being a seasoned international traveler, must
have likewise been familiar with the standard provisions contained in her flight ticket that items of
value are required to be hand-carried by the passenger and that the liability of the airline for loss,
delay or damage to baggage would be limited, in any event, to only US $20.00 per kilo unless a
higher value is declared in advance and corresponding additional charges are paid thereon. At the
Casablanca International Airport, private respondent, in checking in her luggage, evidently did not
declare its contents or value. Petitioner cites Section 5(c), Article IX, of the General Conditions of
Carriage, signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of
1955, generally observed by International carriers, stating, among other things, that:

Passengers shall not include in his checked baggage, and the carrier may refuse to
carry as checked baggage, fragile or perishable articles, money, jewelry, precious
metals, negotiable papers, securities or other valuable.4

Fault or negligence consists in the omission of that diligence which is demanded by the nature of
an obligation and corresponds with the circumstances of the person, of the time, and of the place.
When the source of an obligation is derived from a contract, the mere breach or non-fulfillment of
the prestation gives rise to the presumption of fault on the part of the obligor. This rule is no
different in the case of common carriers in the carriage of goods which, indeed, are bound to
observe not just the due diligence of a good father of a family but that of "extraordinary" care in the
vigilance over the goods. The appellate court has aptly observed:

. . . Art. 1733 of the [Civil] Code provides that from the very nature of their business
and by reasons of public policy, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods transported by them. This extraordinary
responsibility, according to Art. 1736, lasts from the time the goods are
unconditionally placed in the possession of and received by the carrier until they are
delivered actually or constructively to the consignee or person who has the right to
receive them. Art. 1737 states that the common carrier's duty to observe
extraordinary diligence in the vigilance over the goods transported by them remains
in full force and effect even when they are temporarily unloaded or stored in transit.
And Art. 1735 establishes the presumption that if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they had observed extraordinary diligence as
required in Article 1733.

The only exceptions to the foregoing extraordinary responsibility of the common

carrier is when the loss, destruction, or deterioration of the goods is due to any of the
following causes:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

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

(5) Order or act of competent public authority.

Not one of the above excepted causes obtains in this case.5

The above rules remain basically unchanged even when the contract is breached by tort 6 although
noncontradictory principles on quasi-delict may then be assimilated as also forming part of the
governing law. Petitioner is not thus entirely off track when it has likewise raised in its defense the
tort doctrine of proximate cause. Unfortunately for petitioner, however, the doctrine cannot, in this
particular instance, support its case. Proximate cause is that which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces injury and without which the
result would not have occurred. The exemplification by the Court in one case7 is simple and
explicit; viz:

(T)he proximate legal cause is that acting first and producing the injury, either
immediately or by setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal connection with its
immediate predecessor, the final event in the chain immediately affecting the injury
as a natural and probable result of the cause which first acted, under such
circumstances that the person responsible for the first event should, as an ordinarily
prudent and intelligent person, have reasonable ground to expect at the moment of
his act or default that an injury to some person might probably result therefrom.

It remained undisputed that private respondent's luggage was lost while it was in the custody of
petitioner. It was supposed to arrive on the same flight that private respondent took in returning to
Manila on 02 September 1987. When she discovered that the luggage was missing, she promptly
accomplished and filed a Property Irregularity Report. She followed up her claim on 14 September
1987, and filed, on the following day, a formal letter-complaint with petitioner. She felt relieved
when, on 23 October 1987, she was advised that her luggage had finally been found, with its
contents intact when examined, and that she could expect it to arrive on 27 October 1987. She
then waited anxiously only to be told later that her luggage had been lost for the second time.
Thus, the appellate court, given all the facts before it, sustained the trial court in finding petitioner
ultimately guilty of "gross negligence" in the handling of private respondent's luggage. The "loss of
said baggage not only once but twice, said the appellate court, "underscores the wanton
negligence and lack of care" on the part of the carrier.

The above findings, which certainly cannot be said to be without basis, foreclose whatever rights
petitioner might have had to the possible limitation of liabilities enjoyed by international air carriers
under the Warsaw Convention (Convention for the Unification of Certain Rules Relating to
International Carriage by Air, as amended by the Hague Protocol of 1955, the Montreal Agreement
of 1966, the Guatemala Protocol of 1971 and the Montreal Protocols of 1975). In Alitalia vs.
Intermediate Appellate Court,8 now Chief Justice Andres R. Narvasa, speaking for the Court, has
explained it well; he said:

The Warsaw Convention however 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. The Hague Protocol amended the Warsaw Convention by removing
the provision that if the airline took all necessary steps to avoid the damage, it could
exculpate itself completely, and declaring the stated limits of liability not applicable if
it is proved that the damage resulted from an act or omission of the carrier, its
servants or agents, done with intent to cause damage or recklessly and with
knowledge that damage would probably result. The same deletion was effected by
the Montreal Agreement of 1966, with the result that a passenger could recover
unlimited damages upon proof of wilful misconduct.

The Convention does not thus 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 wilful 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. Otherwise, an air carrier would be exempt from any liability for damages
in the event of its absolute refusal, in bad faith, to comply with a contract of carriage,
which is absurd. Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or
maliciously destroy or damage the latter's property, the Convention might
successfully be pleaded as the sole gauge to determine the carrier's liability to the
passenger. 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. It is in this sense that the
Convention has been applied, or ignored, depending on the peculiar facts presented
by each case.

The Court thus sees no error in the preponderant application to the instant case by the appellate
court, as well as by the trial court, of the usual rules on the extent of recoverable damages beyond
the Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the country
of destination), the attendance of gross negligence (given the equivalent of fraud or bad faith)
holds the common carrier liable for all damages which can be reasonably attributed, although
unforeseen, to the non-performance of the obligation,9 including moral and exemplary damages. 10

WHEREFORE, the decision appealed from is AFFIRMED. Costs against petitioner.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 119197. May 16, 1997]

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE,

INC., and NEW ZEALAND INSURANCE CO., LTD., petitioners, vs.NORTH
FRONT SHIPPING SERVICES, INC., and COURT OF
APPEALS, respondents.

DECISION
BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and

New Zealand Insurance Co., Ltd., in this petition for review on certiorari, assail the 22
December 1994 decision of the Court of Appeals and its Resolution of 16 February
1995 which affirmed the 1 June 1993 decision of the Regional Trial Court dismissing
their complaint for damages against North Front Shipping Services, Inc.
On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were
shipped on board North Front 777, a vessel owned by North Front
Shipping Services, Inc. The cargo was consigned to Republic Flour Mills Corporation in
Manila under Bill of Lading No. 001 and insured with the herein mentioned insurance
[1]

companies. The vessel was inspected prior to actual loading by representatives of the
shipper and was found fit to carry the merchandise. The cargo was covered with
tarpaulins and wooden boards. The hatches were sealed and could only be opened by
representatives of Republic Flour Mills Corporation.
The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16
August 1990. Republic Flour Mills Corporation was advised of its arrival but it did not
immediately commence the unloading operations. There were days when unloading
had to be stopped due to variable weather conditions and sometimes for no apparent
reason at all. When the cargo was eventually unloaded there was a shortage of 26.333
metric tons. The remaining merchandise was already moldy, rancid and
deteriorating. The unloading operations were completed on 5 September 1990 or
twenty (20) days after the arrival of the barge at the wharf of Republic Flour Mills
Corporation in Pasig City.
Precision Analytical Services, Inc., was hired to examine the corn grains and
determine the cause of deterioration. A Certificate of Analysis was issued indicating
that the corn grains had 18.56% moisture content and the wetting was due to contact
with salt water. The mold growth was only incipient and not sufficient to make the corn
grains toxic and unfit for consumption. In fact the mold growth could still be arrested by
drying.
Republic Flour Mills Corporation rejected the entire cargo and formally demanded
from North Front Shipping Services, Inc., payment for the damages suffered by it. The
demands however were unheeded. The insurance companies were perforce obliged to
pay Republic Flour Mills Corporation P2,189,433.40.
By virtue of the payment made by the insurance companies they were subrogated
to the rights of Republic Flour Mills Corporation. Thusly, they lodged a complaint for
damages against North Front Shipping Services, Inc., claiming that the loss was
exclusively attributable to the fault and negligence of the carrier. The Marine Cargo
Adjusters hired by the insurance companies conducted a survey and found cracks in
the bodega of the barge and heavy concentration of molds on the tarpaulins and
wooden boards. They did not notice any seals in the hatches. The tarpaulins were not
brand new as there were patches on them, contrary to the claim of North Front
Shipping Services, Inc., thus making it possible for water to seep in. They also
discovered that the bulkhead of the barge was rusty.
North Front Shipping Services, Inc., averred in refutation that it could not be made
culpable for the loss and deterioration of the cargo as it was never negligent. Captain
Solomon Villanueva, master of the vessel, reiterated that the barge was inspected prior
to the actual loading and was found adequate and seaworthy. In addition, they were
issued a permit to sail by the Coast Guard. The tarpaulins were doubled and brand new
and the hatches were properly sealed. They did not encounter big waves hence it was
not possible for water to seep in.He further averred that the corn grains were farm wet
and not properly dried when loaded.
The court below dismissed the complaint and ruled that the contract entered into
between North Front Shipping Services, Inc., and Republic Flour Mills Corporation was
a charter-party agreement. As such, only ordinary diligence in the care of goods was
required of North Front Shipping Services, Inc. The inspection of the barge by the
shipper and the representatives of the shipping company before actual loading, coupled
with the Permit to Sail issued by the Coast Guard, sufficed to meet the degree of
diligence required of the carrier.
On the other hand, the Court of Appeals ruled that as a common carrier required to
observe a higher degree of diligence North Front 777 satisfactorily complied with all the
requirements hence was issued a Permit to Sail after proper inspection. Consequently,
the complaint was dismissed and the motion for reconsideration rejected.
The charter-party agreement between North Front Shipping Services, Inc., and
Republic Flour Mills Corporation did not in any way convert the common carrier into a
private carrier.We have already resolved this issue with finality in Planters Products,
Inc. v. Court of Appeals thus -
[2]

A 'charter-party' is defined as a contract by which an entire ship, or some principal part thereof,
is let by the owner to another person for a specified time or use; a contract of affreightment by
which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight x x x x Contract of affreightment may either be time charter, wherein the vessel is leased
to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a
single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for
a determinate period of time or for a single or consecutive voyage, the ship owner to supply the
ship's store, pay for the wages of the master of the crew, and defray the expenses for the
maintenance of the ship.

Upon the other hand, the term 'common or public carrier' is defined in Art. 1732 of the Civil
Code. The definition extends to carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or both for compensation as a
public employment and not as a casual occupation x x x x

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
of the whole or portion of a vessel by one or more persons, provided the charter is limited to the
ship only, as in the case of a time-charter or voyage-charter (underscoring supplied).

North Front Shipping Services, Inc., is a corporation engaged in the business of

transporting cargo and offers its services indiscriminately to the public. It is without
doubt a common carrier. As such it is required to observe extraordinary diligence in its
vigilance over the goods it transports. . When goods placed in its care are lost or
[3]

damaged, the carrier is presumed to have been at fault or to have acted

negligently. North Front Shipping Services, Inc., therefore has the burden of proving
[4]

that it observed extraordinary diligence in order to avoid responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the vessel was inspected prior to
actual loading by representatives of the shipper and was found fit to take a load of corn
grains. They were also issued Permit to Sail by the Coast
Guard. The master of the vessel testified that the corn grains were farm wet when
loaded. However, this testimony was disproved by the clean bill of lading issued by
North Front Shipping Services, Inc., which did not contain a notation that the corn
grains were wet and improperly dried. Having been in the service since 1968, the
master of the vessel would have known at the outset that corn grains that were farm
wet and not properly dried would eventually deteriorate when stored in sealed and hot
compartments as in hatches of a ship. Equipped with this knowledge, the master of the
vessel and his crew should have undertaken precautionary measures to avoid or
lessen the cargo's possible deterioration as they were presumed knowledgeable about
the nature of such cargo. But none of such measures was taken.
In Compania Maritima v. Court of Appeals we ruled -
[5]

x x x x 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, so that if no explanation is given as to how the loss, deterioration or destruction of the
goods occurred, the common carrier must be held responsible. Otherwise stated, it is incumbent
upon the common carrier to prove that the loss, deterioration or destruction was due to accident
or some other circumstances inconsistent with its liability x x x x

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 safe carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and 'to use all reasonable means to
ascertain the nature and characteristics of goods tendered for shipment, and to exercise due care
in the handling and stowage, including such methods as their nature requires' (underscoring
supplied).

In fine, we find that the carrier failed to observe the required extraordinary
diligence in the vigilance over the goods placed in its
care. The proofs presented by North Front ShippingServices, Inc., were insufficient to
rebut the prima facie presumption of private respondent's negligence, more so if we
consider the evidence adduced by petitioners.
It is not denied by the insurance companies that the vessel was indeed inspected
before actual loading and that North Front 777 was issued a Permit to Sail. They
proved the fact of shipment and its consequent loss or damage while in the actual
possession of the carrier. Notably, the carrier failed to volunteer any explanation why
there was spoilage and how it occurred. On the other hand, it was shown during the
trial that the vessel had rusty bulkheads and the wooden boards and tarpaulins bore
heavy concentration of molds. The tarpaulins used were not new, contrary to the claim
of North Front Shipping Services, Inc., as there were already several patches on them,
hence, making it highly probable for water to enter.
Laboratory analysis revealed that the corn grains were contaminated with salt
water. North Front Shipping Services, Inc., failed to rebut all these arguments. It did not
even endeavor to establish that the loss, destruction or deterioration of the goods
was due to the following: (a) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (b) act of the public enemy in war, whether international or civil; (c)
act or omission of the shipper or owner of the goods; (d) the character of the goods or
defects in the packing or in the containers; (e) order or act of competent public
authority. This is a closed list. If the cause of destruction, loss or deterioration is other
[6]

than the enumerated circumstances, then the carrier is rightly liable therefor.
However, we cannot attribute the destruction, loss or deterioration of the cargo
solely to the carrier. We find the consignee Republic Flour Mills Corporation guilty of
contributorynegligence. It was seasonably notified of the arrival of the barge but did not
immediately start the unloading operations. No explanation was proffered by the
consignee as to why there was a delay of six (6) days. Had the unloading been
commenced immediately the loss could have been completely avoided or at least
minimized. As testified to by the chemist who analyzed the corn samples, the mold
growth was only at its incipient stage and could still be arrested by drying. The corn
grains were not yet toxic or unfit for consumption. For its contributory negligence,
Republic Flour Mills Corporation should share at least 40% of the loss. [7]

WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its
Resolution of 16 February 1995 are REVERSED and SET ASIDE. Respondent North
Front Shipping Services, Inc., is ordered to pay petitioners Tabacalera Insurance Co.,
Prudential Guarantee & Assurance, Inc., and New Zealand Insurance Co.
Ltd., P1,313,660.00 which is 60% of the amount paid by the insurance companies to
Republic Flour Mills Corporation, plus interest at the rate of 12% per annum from the
time this judgment becomes final until full payment.
SO ORDERED
 [G.R. No. 108897. October 2, 1997]

SARKIES TOURS PHILIPPINES, INC. petitioner vs. HONORABLE COURT OF

APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL A.
FORTADES and FATIMA A. FORTADES., respondent.

DECISION
ROMERO, J.:

This petition for review is seeking the reversal of the decision of the Court of
Appeals in CA-G.R. CV No. 18979 promulgated on January 13, 1993, as well as its
resolution of February 19, 1993, denying petitioners motion for reconsideration for
being a mere rehash of the arguments raised in the appellants brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and
Fatima Minerva, all surnamed Fortades, against petitioner for breach of contract of
carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on
her way to Legazpi City. Her brother Raul helped her load three pieces of luggage
containing all of her optometry review books, materials and equipment, trial lenses, trial
contact lenses, passport and visa, as well as her mother Marisols U.S. immigration
(green) card, among other important documents and personal belongings. Her
belongings was kept in the baggage compartment of the bus, but during a stopover at
Daet, it was discovered that all but one bag remained in the open compartment. The
others, including Fatimas things, were missing and could have dropped along the
way. Some of the passengers suggested retracing the route to try to recover the lost
items, but the driver ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioners
office in Legazpi City and later at its head office in Manila. The latter, however, merely
offered her P1,000.00 for each piece of luggage lost, which she turned down. After
returning to Bicol disappointed but not defeated, they asked assistance from the radio
stations and even from Philtranco bus drivers who plied the same route on August
31st. The effort paid off when one of Fatimas bags was recovered. Marisol also
reported the incident to the National Bureau of Investigations field office in Legazpi City,
and to the local police.
On September 20, 1984, respondents, through counsel, formally demanded
satisfaction of their complaint from petitioner. In a letter dated October 1, 1984, the
latter apologized for the delay and said that (a) team has been sent out to Bicol for the
purpose of recovering or at least getting the full detail of the incident.
[1]

After more than nine months of fruitless waiting, respondents decided to file the
case below to recover the value of the remaining lost items, as well as moral and
exemplary damages, attorneys fees and expenses of litigation. They claimed that the
loss was due to petitioners failure to observe extraordinary diligence in the care of
Fatimas luggage and that petitioner dealt with them in bad faith from the
start. Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in
favor of herein respondents, viz:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein

respondents) and against the herein defendant Sarkies Tours Philippines, Inc., ordering the latter
to pay to the former the following sums of money, to wit:

1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima
Minerva Fortades, etc. less the value of one luggage recovered;

2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;

3. The sum of P10,000.00 by way of exemplary damages;

4. The sum of P5,000.00 as attorneys fees; and

5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand
(P140,000.00) Pesos.

to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30
days from receipt of this Decision.

SO ORDERED.

On appeal, the appellate court affirmed the trial courts judgment, but deleted the
award of moral and exemplary damages. Thus,

WHEREFORE, premises considered, except as above modified, fixing the award for
transportation expenses at P30,000.00 and the deletion of the award for moral and exemplary
damages, the decision appealed from is AFFIRMED, with costs against defendant-appellant.

SO ORDERED."

Its motion for reconsideration having was likewise rejected by the Court of Appeals,
so petitioner elevated its case to this Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial
and appellate courts resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if
she did, none was declared at the start of the trip. The documentary and testimonial
evidence presented at the trial, however, established that Fatima indeed boarded
petitioners De Luxe Bus No. 5 in the evening of August 31, 1984, and she brought
three pieces of luggage with her, as testified by her brother Raul, who helped her pack
[2]

her things and load them on said bus. One of the bags was even recovered with the
help of a Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly
admitted its liability by apologizing to respondents and assuring them that efforts were
being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their
loss. The incident was reported to the police, the NBI, and the regional and head offices
of petitioner. Marisol even sought the assistance of Philtranco bus drivers and the radio
stations. To expedite the replacement of her mothers lost U.S. immigration documents,
Fatima also had to execute an affidavit of loss. Clearly, they would not have gone
[3]

through all that trouble in pursuit of a fancied loss.

Fatima was not the only one who lost her luggage. Other passengers suffered a
similar fate: Dr. Lita Samarista testified that petitioner offered her P1,000.00 for her lost
baggage and she accepted it; Carleen Carullo-Magno also lost her chemical
[4]

engineering review materials, while her brother lost abaca products he was transporting
to Bicol.[5]

Petitioners receipt of Fatimas personal luggage having been thus established, it

must now be determined if, as a common carrier, it is responsible for their loss. Under
the Civil Code, (c)ommon 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 x x x transported by them, and this liability lasts from the time the goods are
[6]

unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier
to x x x the person who has a right to receive them, unless the loss is due to any of the
[7]

excepted causes under Article 1734 thereof. [8]

The cause of the loss in the case at bar was petitioners negligence in not ensuring
that the doors of the baggage compartment of its bus were securely fastened. As a
result of this lack of care, almost all of the luggage was lost, to the prejudice of the
paying passengers. As the Court of Appeals correctly observed:

x x x. Where the common carrier accepted its passengers baggage for transportation and even
had it placed in the vehicle by its own employee, its failure to collect the freight charge is the
common carriers own lookout. It is responsible for the consequent loss of the baggage. In the
instant case, defendant appellants employee even helped Fatima Minerva Fortades and her
brother load the luggages/baggages in the bus baggage compartment, without asking that they be
weighed, declared, receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December
23, 1987, p. 35). Neither was this required of the other passengers (TSN, August 4, 1986, p. 104;
February 5, 1988, p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this

point, we likewise agree with the trial and appellate courts conclusions. There is no
dispute that of the three pieces of luggage of Fatima, only one was recovered. The
other two contained optometry books, materials, equipment, as well as vital documents
and personal belongings.Respondents had to shuttle between Bicol and Manila in their
efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel
from the United States just to be able to testify. Expenses were also incurred in
reconstituting their lost documents. Under these circumstances, the Court agrees with
the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the
transportation expenses, but disagrees with the deletion of the award of moral and
exemplary damages which, in view of the foregoing proven facts, with negligence and
bad faith on the fault of petitioner having been duly established, should be granted to
respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13,
1993, and its resolution dated February 19, 1993, are hereby AFFIRMED with the
MODIFICATION that petitioner is ordered to pay respondent an additional P20,000.00
as moral damages and P5,000.00 as exemplary damages. Costs against petitioner.
SO ORDERED.
G.R. No. L-36481-2 October 23, 1982

AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,

vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.

Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.

Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.

Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.

ESCOLIN, J.:

This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court
of First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant
Philippine Steam Navigation liable for damages for the loss of the appellees' cargoes as a result of
a fire which gutted the Bureau of Customs' warehouse in Pulupandan, Negros Occidental.

The Court of Appeals certified the case to Us because only pure questions of law are raised
therein.

The facts culled from the pleadings and the stipulations submitted by the parties are as follows:

On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the
appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the
following cargoes, to wit:

Clara Uy Bico —

1,528 cavans of rice valued

at P40,907.50;

Amparo Servando —

44 cartons of colored paper,

toys and general merchandise valued at P1,070.50;

as evidenced by the corresponding bills of lading issued by the appellant. 1

Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were discharged,
complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the
same day, said warehouse was razed by a fire of unknown origin, destroying appellees' cargoes. Before the fire,
however, appellee Uy Bico was able to take delivery of 907 cavans of rice 2 Appellees' claims for the value of said
goods were rejected by the appellant.

On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of
which reads as follows:
 WHEREFORE, judgment is rendered as follows:

1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C.
Servando the aggregate sum of P1,070.50 with legal interest thereon from the date
of the filing of the complaint until fully paid, and to pay the costs.

2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico
the aggregate sum of P16,625.00 with legal interest thereon from the date of the
filing of the complaint until fully paid, and to pay the costs.

Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary
diligence from the moment the goods are unconditionally placed in their possession "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. "

The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau
of Customs is not the delivery contemplated by Article 1736; and since the burning of the
warehouse occurred before actual or constructive delivery of the goods to the appellees, the loss
is chargeable against the appellant.

It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the
parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to
the shipment by inserting therein the following stipulation:

Clause 14. Carrier shall not be responsible for loss or damage to shipments billed
'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall
carrier be responsible for loss or damage caused by force majeure, dangers or
accidents of the sea or other waters; war; public enemies; . . . fire . ...

We sustain the validity of the above stipulation; there is nothing therein that is contrary to law,
morals or public policy.

Appellees would contend that the above stipulation does not bind them because it was printed in
fine letters on the back-of the bills of lading; and that they did not sign the same. This argument
overlooks the pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29,
1979, 3 where the same issue was resolved in this wise:

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." (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L.
Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).

Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic
principle of law written in Article 1 1 7 4 of the Civil Code:

Article 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.

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss,
the obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent of Article 1174 of
the Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could not have been foreseen.
Examples of this are destruction of houses, unexpected fire, shipwreck, violence of robbers.'

In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In a legal
sense and, consequently, also in relation to contracts, a 'caso fortuito' presents the following essential characteristics:
(1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his
obligation, must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the
'caso fortuito', or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor." In the case at bar, the burning of the customs
warehouse was an extraordinary event which happened independently of the will of the appellant. The latter could not
have foreseen the event.

There is nothing in the record to show that appellant carrier ,incurred in delay in the performance
of its obligation. It appears that appellant had not only notified appellees of the arrival of their
shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand,
appellee Uy Bico had taken delivery of 907 cavans of rice before the burning of the warehouse.

Nor can the appellant or its employees be charged with negligence. The storage of the goods in
the Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with
their knowledge and consent. Since the warehouse belonged to and was maintained by the
government, it would be unfair to impute negligence to the appellant, the latter having no control
whatsoever over the same.

The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where
this Court held the defendant liable for damages arising from a fire caused by the negligence of the defendant's
employees while loading cases of gasoline and petroleon products. But unlike in the said case, there is not a shred of
proof in the present case that the cause of the fire that broke out in the Custom's warehouse was in any way
attributable to the negligence of the appellant or its employees. Under the circumstances, the appellant is plainly not
responsible.

WHEREFORE, the judgment appealed from is hereby set aside. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerrero, Abad Santos and De Castro, JJ., concur.

Separate Opinions

AQUINO, J., concurring:

I concur. Under article 1738 of the Civil Code "the extraordinary liability of the common carrier
continues to be operative even during the time the goods are stored in the 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".

From the time the goods in question were deposited in the Bureau of Customs' warehouse in the
morning of their arrival up to two o' clock in the afternoon of the same day, when the warehouse
was burned, Amparo C. Servando and Clara Uy Bico, the consignees, had reasonable opportunity
to remove the goods. Clara had removed more than one-half of the rice consigned to her.

Moreover, the shipping company had no more control and responsibility over the goods after they
were deposited in the customs warehouse by the arrastre and stevedoring operator.

No amount of extraordinary diligence on the part of the carrier could have prevented the loss of
the goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable to the
consignees for the loss of the goods. The consignees should bear the loss which was due to a
fortuitous event.

Separate Opinions

AQUINO, J., concurring:

I concur. Under article 1738 of the Civil Code "the extraordinary liability of the common carrier
continues to be operative even during the time the goods are stored in the 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".

From the time the goods in question were deposited in the Bureau of Customs' warehouse in the
morning of their arrival up to two o' clock in the afternoon of the same day, when the warehouse
was burned, Amparo C. Servando and Clara Uy Bico, the consignees, had reasonable opportunity
to remove the goods. Clara had removed more than one-half of the rice consigned to her.

Moreover, the shipping company had no more control and responsibility over the goods after they
were deposited in the customs warehouse by the arrastre and stevedoring operator.

No amount of extraordinary diligence on the part of the carrier could have prevented the loss of
the goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable to the
consignees for the loss of the goods. The consignees should bear the loss which was due to a
fortuitous event.

Footnotes
G.R. No. 94761 May 17, 1993

MAERSK LINE, petitioner,

vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style
of Ethegal Laboratories, respondents.

Bito, Lozada, Ortega & Castillo for petitioner.

Humberto A. Jambora for private respondent.

BIDIN, J.:

Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the
Philippines through its general agent Compania General de Tabacos de Filipinas.

Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a
firm engaged in the manutacture of pharmaceutical products.

On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its
(Eli Lilly, Inc.'s) agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the
manufacture of his pharmaceutical products. The capsules were placed in six (6) drums of
100,000 capsules each valued at US $1,668.71.

Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6),
the shipper Eli Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000
empty gelatin capsules in six (6) drums of 100,000 capsules each, were already shipped on board
MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland,
California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3,
1977.

For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia,
USA and then transported back Oakland, Califorilia. The goods finally arrived in the Philippines on
June 10, 1977 or after two (2) months from the date specified in the memorandum. As a
consequence, private respondent as consignee refused to take delivery of the goods on account
of its failure to arrive on time.

Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed
an action before the court a quo for rescission of contract with damages against petitioner and Eli
Lilly, Inc. as defendants.

Denying that it committed breach of contract, petitioner alleged in its that answer that the subject
shipment was transported in accordance with the provisions of the covering bill of lading and that
its liability under the law on transportation of good attaches only in case of loss, destruction or
deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16).

Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its
cross-claim, it alleged that the delay in the arrival of the the subject merchandise was due solely to
the gross negligence of petitioner Maersk Line.
The issues having been joined, private respondent moved for the dismissal of the complaint
against Eli Lilly, Inc.on the ground that the evidence on record shows that the delay in the delivery
of the shipment was attributable solely to petitioner.

Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated
December 3, 1979.

After trial held between respondent and petitioner, the court a quo rendered judgment dated
January 8, 1982 in favor of respondent Castillo, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there
was a breach in the performance of their obligation by the defendant Maersk Line
consisting of their negligence to ship the 6 drums of empty Gelatin Capsules which
under their own memorandum shipment would arrive in the Philippines on April 3,
1977 which under Art. 1170 of the New Civil Code, they stood liable for damages.

Considering that the only evidence presented by the defendant Maersk line thru its
agent the Compania de Tabacos de Filipinas is the testimony of Rolando Ramirez
who testified on Exhs. "1" to "5" which this Court believe (sic) did not change the
findings of this Court in its decision rendered on September 4, 1980, this Court
hereby renders judgment in favor of the plaintiff Efren Castillo as against the
defendant Maersk Line thru its agent, the COMPANIA GENERAL DE TABACOS DE
FILIPINAS and ordering:

(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED
SIXTY NINE THOUSAND PESOS, (P369,000.00) as unrealized profit;.

(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS
(P200,000.00), as moral damages;

(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as
exemplary damages;

(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED
EIGHTY PESOS AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of credit
line; and

(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00),
as attorney's fees and to pay the costs of suit.

That the above sums due to the plaintiff will bear the legal rate of interest until they
are fully paid from the time the case was filed.

SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).

On appeal, respondent court rendered its decision dated August 1, 1990 affirming with
modifications the lower court's decision as follows:

WHEREFORE, the decision appealed from is affirmed with a modification, and, as

modified, the judgment in this case should read as follows:
 Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay
plaintiff-appellee (1) compensatory damages of P11,680.97 at 6% annual interest
from filing of the complaint until fully paid, (2) moral damages of P50,000.00, (3)
exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees, and
litigation expenses of P30,000.00, (4) 30% of the total damages awarded except
item (3) above, and the costs of suit.

SO ORDERED. (Rollo, p. 50)

In its Memorandum, petitioner submits the following "issues" for resolution of the court :

Whether or not the respondent Court of Appeals committed an error when it ruled
that a defendant's cross-claim against a co-defendant survives or subsists even after
the dismissal of the complaint against defendant-cross claimant.

II

Whether or not respondent Castillo is entitled to damages resulting from delay in the
delivery of the shipment in the absence in the bill of lading of a stipulation on the
period of delivery.

III

Whether or not the respondent appellate court erred in awarding actual, moral and
exemplary damages and attorney's fees despite the absence of factual findings
and/or legal bases in the text of the decision as support for such awards.

IV

Whether or not the respondent Court of Appeals committed an error when it

rendered an ambiguous and unexplained award in the dispositive portion of the
decision which is not supported by the body or the text of the decision. (Rollo, pp.94-
95).

With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim
against co-defendant (petitioner herein) survives or subsists even after the dismissal of the
complaint against defendant-cross-claimant (petitioner herein), we rule in the negative.

Apparently this issue was raised by reason of the declaration made by respondent court in its
questioned decision, as follows:

Re the first assigned error: What should be rescinded in this case is not the
"Memorandum of Shipment" but the contract between appellee and defendant Eli
Lilly (embodied in three documents, namely: Exhs. A, A-1 and A-2) whereby the
former agreed to buy and the latter to sell those six drums of gelatin capsules. It is by
virtue of the cross-claim by appellant Eli Lilly against defendant Maersk Line for the
latter's gross negligence in diverting the shipment thus causing the delay and
damage to appellee that the trial court found appellant Maersk Line liable. . . .

xxx xxx xxx

 Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no
cause of action against it and appellant Eli Lilly because the shipment was delivered
in good order and condition, and the bill of lading in question contains "stipulations,
exceptions and conditions" Maersk Line's liability only to the "loss, destruction or
deterioration," indeed, this issue of lack of cause of action has already been
considered in our foregoing discussion on the second assigned error, and our
resolution here is still that appellee has a cause of action against appellant Eli Lilly.
Since the latter had filed a cross-claim against appellant Maersk Line, the trial court
committed no error, therefore, in holding the latter appellant ultimately liable to
appellee. (Rollo, pp. 47-50; Emphasis supplied)

Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-
claim filed its co-defendant Eli Lilly, Inc. which cross-claim has been dismissed, the original
complaint against it should likewise be dismissed. We disagree. It should be recalled that the
complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier.
Petitioner being an original party defendant upon whom the delayed shipment is imputed cannot
claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit.

Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-
claim of Eli Lilly, Inc. As borne out by the record, the trial court anchored its decision on petitioner's
delay or negligence to deliver the six (6) drums of gelatin capsules within a reasonable time on the
basis of which petitioner was held liable for damages under Article 1170 of the New Civil Code
which provides that 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.

Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the
delivery of the 600,000 empty gelatin capsules since it acted in good faith and there was no
special contract under which the carrier undertook to deliver the shipment on or before a specific
date (Rollo, p. 103).

On the other hand, private respondent claims that during the period before the specified date of
arrival of the goods, he had made several commitments and contract of adhesion. Therefore,
petitioner can be held liable for the damages suffered by private respondent for the cancellation of
the contracts he entered into.

We have carefully reviewed the decisions of respondent court and the trial court and both of them
show that, in finding petitioner liable for damages for the delay in the delivery of goods, reliance
was made on the rule that contracts of adhesion are void. Added to this, the lower court stated that
the exemption against liability for delay is against public policy and is thus, void. Besides, private
respondent's action is anchored on Article 1170 of the New Civil Code and not under the law on
Admiralty (AC-GR CV No. 10340, Rollo, p. 14).

The bill of lading covering the subject shipment among others, reads:

6. GENERAL

(1) The Carrier does not undertake that the goods shall arive at the port of discharge
or the place of delivery at any particular time or to meet any particular market or use
and save as is provided in clause 4 the Carrier shall in no circumstances be liable for
any direct, indirect or consequential loss or damage caused by delay. If the Carrier
should nevertheless be held legally liable for any such direct or indirect or
consequential loss or damage caused by delay, such liability shall in no event
 exceed the freight paid for the transport covered by this Bill of Lading. (Exh. "1-A";
AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)

It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a
contract of adhesion. Generally, contracts of adhesion are considered void since almost all the
provisions of these types of contracts are prepared and drafted only by one party, usually the
carrier (Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the other party in
such a contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit
Corporation v. Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135 SCRA 323
[1985]).

Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v.
Court of Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co.,
117 SCRA 832 [1982]). One who adheres to the contract is in reality free to reject it in its entirety;
if he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court of
Appeals, et al., 201 SCRA 102 [1991]).

In Magellan, (supra), we ruled:

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt
and as contract to transport and deliver the same a 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. (Emphasis supplied)

However, the aforequoted ruling applies only if such contracts will not create an absurd situation
as in the case at bar. The questioned provision in the subject bill of lading has the effect of
practically leaving the date of arrival of the subject shipment on the sole determination and will of
the carrier.

While it is true that common carriers are not obligated by law to carry and to deliver merchandise,
and persons are not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation to deliver at a given date or time (Mendoza v. Philippine Air
Lines, Inc., 90 Phil. 836 [1952]), delivery of shipment or cargo should at least be made within a
reasonable time.

In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a
special contract, a carrier is not an insurer against delay in transportation of
goods. When a common carrier undertakes to convey goods, the law implies a
contract that they shall be delivered at destination within a reasonable time, in the
absence, of any agreement as to the time of delivery. But where a carrier has made
an express contract to transport and deliver properly within a specified time, it is
bound to fulfill its contract and is liable for any delay, no matter from what cause it
may have arisen. This result logically follows from the well-settled rule that where the
law creates a duty or charge, and the default in himself, and has no remedy over,
 then his own contract creates a duty or charge upon himself, he is bound to make it
good notwithstanding any accident or delay by inevitable necessity because he
might have provided against it by contract. Whether or not there has been such an
undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of
contracts.

An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p.
41) shows that the subject shipment was estimated to arrive in Manila on April 3, 1977. While
there was no special contract entered into by the parties indicating the date of arrival of the subject
shipment, petitioner nevertheless, was very well aware of the specific date when the goods were
expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to
execute another contract for the purpose as it would be a mere superfluity.

In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2)
months and seven (7) days falls was beyond the realm of reasonableness. Described as gelatin
capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the
possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But
through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it
cannot be held liable for the delay finds no merit.

Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are
not valid since there are no factual findings or legal bases stated in the text of the trial court's
decision to support the award thereof.

Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v.
Macasaet. 189 SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently
prove through an invoice (Exh. 'A-1'), certification from the issuer of the letter of credit (Exh.'A-2')
and the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit line for the
subject goods. Therefore, respondent court acted correctly in affirming the award of eleven
thousand six hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of said credit
line.

As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that
moral damages may be awarded in "breaches of contract where the defendant acted fraudulently
or in bad faith" (Pan American World Airways v. Intermediate Appellate Court, 186 SCRA 687
[1990]).

In the case before us, we that the only evidence presented by petitioner was the testimony of Mr.
Rolando Ramirez, a claims manager of its agent Compania General de Tabacos de Filipinas, who
merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and nothing else. Petitioner never
even bothered to explain the course for the delay, i.e. more than two (2) months, in the delivery of
subject shipment. Under the circumstances of the case, we hold that petitioner is liable for breach
of contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral
damages if therefore proper in this case.

In line with this pronouncement, we hold that exemplary damages may be awarded to the private
respondent. In contracts, exemplary damages may be awarded if the defendant acted in a wanton,
fraudulent, reckless, oppresive or malevolent manner. There was gross negligence on the part of
the petitioner in mishiping the subject goods destined for Manila but was inexplicably shipped to
Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct,
hence, exemplary damages may be awarded to the aggrieved party (Radio Communication of the
Phils., Inc. v. Court of Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party can be held lible for such if
exemplary damages are awarded (Artice 2208, New Civil Code). In the case at bar, we hold that
private respondent is entitled to reasonable attorney`s fees since petitioner acte with gross
negligence amounting to bad faith.

However, we find item 4 in the dispositive portion of respondent court`s decision which awarded
thirty (30) percent of the total damages awarded except item 3 regarding attorney`s fees and
litigation expenses in favor of private respondent, to be unconsionable, the same should be
deleted.

WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s
decision, the appealed decision is is hereby AFFIRMED in all respects.

SO ORDERED.