UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC.

, Petitioner,
vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION, Respondents.

DECISION

NACHURA, J.:

For review is the Court of Appeals (CA) Decision1 dated April 29, 2004 and Resolution2 dated November 26,
2004. The assailed Decision affirmed the Regional Trial Court (RTC) decision3 dated February 22, 2001; while
the assailed Resolution denied petitioner Unsworth Transport International (Philippines), Inc., American
President Lines, Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s) motion for reconsideration.

The facts of the case are:

On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of
various raw materials for pharmaceutical manufacturing, consisting of: "1) 3 drums (of) extracts, flavoring
liquid, flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine oil; 2
pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex Extract."4 UTI issued Bill
of Lading No. C320/C15991-2,5 covering the aforesaid shipment. The subject shipment was insured with
private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all risks in the amount
of ₱1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 926 and Open Cargo
Policy No. HO-022-RIU.7

On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40 container van, with
no. APLU-982012, boarded on APL’s vessel M/V "Pres. Jackson," Voyage 42, and transshipped to APL’s M/V
"Pres. Taft"8 for delivery to petitioner in favor of the consignee United Laboratories, Inc. (Unilab).

On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992, petitioner received the
said shipment in its warehouse after it stamped the Permit to Deliver Imported Goods9 procured by the Champs
Customs Brokerage.10 Three days thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors
Corporation (OCMSC) conducted a stripping survey of the shipment located in petitioner’s warehouse. The
survey results stated:

2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed

19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly sealed

1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling of 1%11

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate Pass No.
761412 which stated that "22 drums13 Raw Materials for Pharmaceutical Mfg." were loaded on a truck
with Plate No. PCK-434 facilitated by Champs for delivery to Unilab’s warehouse. The materials were
noted to be complete and in good order in the gate pass.14 On the same day, the shipment arrived in
Unilab’s warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas Adjusters
& Surveyors, Inc. (J.G. Bernas). The Report stated:

1-p/bag torn on side contents partly spilled

1-s/drum #7 punctured and retaped on bottom side content lacking

 5-drums shortship/short delivery15

On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys which yielded
the same results. Consequently, Unilab’s quality control representative rejected one paper bag containing dried
yeast and one steel drum containing Vitamin B Complex as unfit for the intended purpose.16

On November 7, 1992, Unilab filed a formal claim17 for the damage against private respondent and UTI. On
November 20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that the goods were in
complete and good condition; while private respondent paid the claimed amount on March 23, 1993. By virtue
of the Loss and Subrogation Receipt18 issued by Unilab in favor of private respondent, the latter filed a
complaint for Damages against APL, UTI and petitioner with the RTC of Makati.19 The case was docketed as
Civil Case No. 93-3473 and was raffled to Branch 134.

After the termination of the pre-trial conference, trial on the merits ensued. On February 22, 2001, the RTC
decided in favor of private respondent and against APL, UTI and petitioner, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE & SURETY
CORPORATION and against the defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO TRANSPORT INT’L., PHILS.),
ordering the latter to pay, jointly and severally, the former the following amounts:

1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100
(Php76,231.27) with interest at the legal rate of 6% per annum to be computed starting from September
30, 1993 until fully paid, for and as actual damages;

2. The amount equivalent to 25% of the total sum as attorney’s fees;

3. Cost of this litigation.

SO ORDERED.20

On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s defense that it was
merely a forwarder, declaring instead that it was a common carrier. The appellate court added that by issuing
the Bill of Lading, UTI acknowledged receipt of the goods and agreed to transport and deliver them at a specific
place to a person named or his order. The court further concluded that upon the delivery of the subject shipment
to petitioner’s warehouse, its liability became similar to that of a depositary. As such, it ought to have exercised
ordinary diligence in the care of the goods. And as found by the RTC, the CA agreed that petitioner failed to
exercise the required diligence. The CA also rejected petitioner’s claim that its liability should be limited to
$500 per package pursuant to the Carriage of Goods by Sea Act (COGSA) considering that the value of the
shipment was declared pursuant to the letter of credit and the pro forma invoice. As to APL, the court
considered it as a common carrier notwithstanding the non-issuance of a bill of lading inasmuch as a bill of
lading is not indispensable for the execution of a contract of carriage.21

Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the following issues:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE
DECISION OF THE REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE SUM
OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS (PHP76,231.27)
WITH LEGAL INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S
FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.

3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE.

4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE ALLEGED

DAMAGE TO ITS CARGO.22

Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a common carrier. It also
questions the appellate court’s findings that it failed to establish that it exercised extraordinary or ordinary
diligence in the vigilance over the subject shipment. As to the damages allegedly suffered by private
respondent, petitioner counters that they were not sufficiently proven. Lastly, it insists that its liability, in any
event, should be limited to $500 pursuant to the package limitation rule. Indeed, petitioner wants us to review
the factual findings of the RTC and the CA and to evaluate anew the evidence presented by the parties.

The petition is partly meritorious.

Well established is the rule that factual questions may not be raised in a petition for review on certiorari as
clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:

Section 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The
petition shall raise only questions of law which must be distinctly set forth.

Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm holding itself out to
the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property
for compensation and, in the ordinary course of its business, (1) to assemble and consolidate, or to provide for
assembling and consolidating, shipments, and to perform or provide for break-bulk and distribution operations
of the shipments; (2) to assume responsibility for the transportation of goods from the place of receipt to the
place of destination; and (3) to use for any part of the transportation a carrier subject to the federal law
pertaining to common carriers.231avvphi1

A freight forwarder’s liability is limited to damages arising from its own negligence, including negligence in
choosing the carrier; however, where the forwarder contracts to deliver goods to their destination instead of
merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods. A
freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even though the
forwarder does not carry the merchandise itself.24

It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner undertook to
transport, ship, and deliver the 27 drums of raw materials for pharmaceutical manufacturing to the consignee.

A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport and to
deliver them at a specified place to a person named or on his or her order.25 It operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and

deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods
as to quantity, weight, dimensions, identification marks, condition, quality, and value. As a contract, it names
the contracting parties, which include the consignee; fixes the route, destination, and freight rate or charges; and
stipulates the rights and obligations assumed by the parties.26

Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are presumed to have been
at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove
that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any
loss or damage, therefore, they have the burden of proving that they observed such diligence.27 Mere proof of
delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination
constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to
how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible.28

Though it is not our function to evaluate anew the evidence presented, we refer to the records of the case to
show that, as correctly found by the RTC and the CA, petitioner failed to rebut the prima facie presumption of
negligence in the carriage of the subject shipment.

First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good order and
condition in New York, United States of America. Second, the OCMSC Survey Report stated that one steel
drum STC Vitamin B Complex Extract was discovered to be with a cut/hole on the side, with approximate
spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine, noted that the subject shipment was in
good order and condition, it was specifically stated that there were 22 (should be 27 drums per Bill of Lading
No. C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G. Bernas’ Survey
Report stated that "1-s/drum was punctured and retaped on the bottom side and the content was lacking, and
there was a short delivery of 5-drums."

All these conclusively prove the fact of shipment in good order and condition, and the consequent damage to
one steel drum of Vitamin B Complex Extract while in the possession of petitioner which failed to explain the
reason for the damage. Further, petitioner failed to prove that it observed the extraordinary diligence and
precaution which the law requires a common carrier to exercise and to follow in order to avoid damage to or
destruction of the goods entrusted to it for safe carriage and delivery.29

However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to the RTC
and the CA’s findings.

It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed amount per
package. In all matters not regulated by the Civil Code, the rights and obligations of common carriers are
governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code by
establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher value
in the bill of lading.30 Section 4(5) of the COGSA provides:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package of lawful money of the
United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that
sum in other currency, unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.

In the present case, the shipper did not declare a higher valuation of the goods to be shipped. Contrary to the
CA’s conclusion, the insertion of the words "L/C No. LC No. 1-187-008394/ NY 69867 covering shipment of
raw materials for pharmaceutical Mfg. x x x" cannot be the basis of petitioner’s liability.31 Furthermore, the
insertion of an invoice number does not in itself sufficiently and convincingly show that petitioner had
knowledge of the value of the cargo.32

In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In this case, as there was
only one drum lost, private respondent is entitled to receive only $500 as damages for the loss. In addition to
said amount, as aptly held by the trial court, an interest rate of 6% per annum should also be imposed, plus 25%
of the total sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision
dated April 29, 2004 and Resolution dated November 26, 2004 are AFFIRMED with MODIFICATION by
reducing the principal amount due private respondent Pioneer Insurance and Surety Corporation from
₱76,231.27 to $500, with interest of 6% per annum from date of demand, and 25% of the amount due as
attorney’s fees.

The other aspects of the assailed Decision and Resolution STAND.

SO ORDERED.

ACE NAVIGATION CO., INC., petitioner,

vs.
FGU INSURANCE CORPORATION and PIONEER INSURANCE AND SURETY CORPORATION,
Respondents.

DECISION

PERLAS-BERNABE, J.:

This is an appeal under Rule 45 of the Rules of Court seeking to reverse the June 22, 2004 Decision1 and
February 17, 2006 Resolution2 of the Court of Appeals (CA) ordering petitioner Ace Navigation Co., Inc.,
jointly and severally with Cardia Limited, to pay respondents FGU Insurance Corp. and Pioneer Insurance and
Surety Corp. the sum of P213,518.20 plus interest at the rate of six percentum (6%) from the filing of the
complaint until paid.

The Facts

On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti Tiga at Shanghai Port
China, 8,260 metric tons or 165,200 bags of Grey Portland Cement to be discharged at the Port of Manila and
delivered to its consignee, Heindrich Trading Corp. (HEINDRICH). The subject shipment was insured with
respondents, FGU Insurance Corp. (FGU) and Pioneer Insurance and Surety Corp. (PIONEER), against all risks
under Marine Open Policy No. 062890275 for the amount of P18,048,421.00. 3

The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it chartered to Shinwa Kaiun Kaisha Ltd.
(SHINWA). 4 Representing itself as owner of the vessel, SHINWA entered into a charter party contract with
Sky International, Inc. (SKY), an agent of Kee Yeh Maritime Co. (KEE YEH), 5 which further chartered it to
Regency Express Lines S.A. (REGENCY). Thus, it was REGENCY that directly dealt with consignee
HEINDRICH, and accordingly, issued Clean Bill of Lading No. SM-1. 6

On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was discharged. However, upon
inspection of HEINDRICH and petitioner Ace Navigation Co., Inc. (ACENAV), agent of CARDIA, it was
found that out of the 165,200 bags of cement, 43,905 bags were in bad order and condition. Unable to collect
the sustained damages in the amount of P1,423,454.60 from the shipper, CARDIA, and the charterer,
REGENCY, the respondents, as co-insurers of the cargo, each paid the consignee, HEINDRICH, the amounts of
P427,036.40 and P284,690.94, respectively, 7 and consequently became subrogated to all the rights and causes
of action accruing to HEINDRICH.

Thus, on August 8, 1991, respondents filed a complaint for damages against the following defendants:
"REGENCY EXPRESS LINES, S.A./ UNKNOWN CHARTERER OF THE VESSEL 'PAKARTI TIGA'/
UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF THE VESSEL 'PAKARTI TIGA', SKY
INTERNATIONAL, INC. and/or ACE NAVIGATION COMPANY, INC." 8 which was docketed as Civil Case
No. 90-2016.
In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged that the suits against them
cannot prosper because they were not named as parties in the bill of lading. 9

Similarly, ACENAV claimed that, not being privy to the bill of lading, it was not a real party-in-interest from
whom the respondents can demand compensation. It further denied being the local ship agent of the vessel or
REGENCY and claimed to be the agent of the shipper, CARDIA. 10

For its part, SKY denied having acted as agent of the charterer, KEE YEH, which chartered the vessel from
SHINWA, which originally chartered the vessel from PAKARTI. SKY also averred that it cannot be sued as an
agent without impleading its alleged principal, KEE YEH. 11

On September 30, 1991, HEINDRICH filed a similar complaint against the same parties and Commercial Union
Assurance Co. (COMMERCIAL), docketed as Civil Case No. 91-2415, which was later consolidated with Civil
Case No. 91-2016. However, the suit against COMMERCIAL was subsequently dismissed on joint motion by
the respondents and COMMERCIAL. 12

Proceedings Before the RTC and the CA

In its November 26, 2001 Decision, 13 the RTC dismissed the complaint, the fallo of which reads:

WHEREFORE, premises considered, plaintiffs’ complaint is DISMISSED. Defendants’ counter-claim against

the plaintiffs are likewise dismissed, it appearing that plaintiff[s] did not act in evident bad faith in filing the
present complaint against them.

Defendant Pakarti and Shinwa’s cross-claims against their co-defendants are likewise dismissed for lack of
sufficient evidence.

No costs.

SO ORDERED.

Dissatisfied, the respondents appealed to the CA which, in its assailed June 22, 2004 Decision, 14 found
PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of the respondents' claim, with
the remaining 30% to be shouldered solidarily by CARDIA and its agent, ACENAV, thus:

WHEREFORE, premises considered, the Decision dated November 26, 2001 is hereby MODIFIED in the sense
that:

a) defendant-appellees P.T. Pakarti Tata, Shinwa Kaiun Kaisha, Ltd., Kee Yeh Maritime Co., Ltd. and
the latter’s agent Sky International, Inc. are hereby declared jointly and severally liable, and are
DIRECTED to pay FGU Insurance Corporation the amount of Two Hundred Ninety Eight Thousand
Nine Hundred Twenty Five and 45/100 (P298,925.45) Pesos and Pioneer Insurance and Surety Corp. the
sum of One Hundred Ninety Nine Thousand Two Hundred Eighty Three and 66/100 (P199,283.66)
Pesos representing Seventy (70%) percentum of their respective claims as actual damages plus interest
at the rate of six (6%) percentum from the date of the filing of the complaint; and

b) defendant Cardia Ltd. and defendant-appellee Ace Navigation Co., Inc. are DECLARED jointly and
severally liable and are hereby DIRECTED to pay FGU Insurance Corporation One Hundred Twenty
Eight Thousand One Hundred Ten and 92/100 (P128,110.92) Pesos and Pioneer Insurance and Surety
Corp. Eighty Five Thousand Four Hundred Seven and 28/100 (P85,407.28) Pesos representing thirty
 (30%) percentum of their respective claims as actual damages, plus interest at the rate of six (6%)
percentum from the date of the filing of the complaint.

SO ORDERED.

Finding that the parties entered into a time charter party, not a demise or bareboat charter where the owner
completely and exclusively relinquishes possession, command and navigation to the charterer, the CA held
PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of the damages sustained by the
cargo. This solidarity liability was borne by their failure to prove that they exercised extraordinary diligence in
the vigilance over the bags of cement entrusted to them for transport. On the other hand, the CA passed on the
remaining 30% of the amount claimed to the shipper, CARDIA, and its agent, ACENAV, upon a finding that
the damage was partly due to the cargo's inferior packing.

With respect to REGENCY, the CA affirmed the findings of the RTC that it did not acquire jurisdiction over its
person for defective service of summons.

PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for reconsideration were subsequently
denied in the CA's assailed February 17, 2006 Resolution.

Issues Before the Court

PAKARTI, SHINWA, SKY and ACENAV filed separate petitions for review on certiorari before the Court,
docketed as G.R. Nos. 171591, 171614, and 171663, which were ordered consolidated in the Court’s Resolution
dated July 31, 2006. 15

On April 21, 2006, SKY manifested 16 that it will no longer pursue its petition in G.R. No. 171614 and has
preferred to await the resolution in G.R. No. 171663 filed by PAKARTI and SHINWA. Accordingly, an entry
of judgment 17 against it was made on August 18, 2006. Likewise, on November 29, 2007, PAKARTI and
SHINWA moved 18 for the withdrawal of their petitions for lack of interest, which the Court granted in its
January 21, 2008 Resolution. 19 The corresponding entry of judgment 20 against them was made on March 17,
2008.

Thus, only the petition of ACENAV remained for the Court's resolution, with the lone issue of whether or not it
may be held liable to the respondents for 30% of their claim.

Maintaining that it was not a party to the bill of lading, ACENAV asserts that it cannot be held liable for the
damages sought to be collected by the respondents. It also alleged that since its principal, CARDIA, was not
impleaded as a party-defendant/respondent in the instant suit, no liability can therefore attach to it as a mere
agent. Moreover, there is dearth of evidence showing that it was responsible for the supposed defective packing
of the goods upon which the award was based.

The Court's Ruling

A bill of lading is defined as "an instrument in writing, signed by a carrier or his agent, describing the freight so
as to identify it, stating the name of the consignor, the terms of the contract for carriage, and agreeing or
directing that the freight to be delivered to the order or assigns of a specified person at a specified place." 21

It operates both as a receipt and as a contract. As a receipt, it recites the date and place of shipment, describes
the goods as to quantity, weight, dimensions, identification marks and condition, quality, and value. As a
contract, it names the contracting parties, which include the consignee, fixes the route, destination, and freight
rates or charges, and stipulates the rights and obligations assumed by the parties. 22 As such, it shall only be
binding upon the parties who make them, their assigns and heirs. 23
In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b) the carrier PAKARTI; and
(c) the consignee HEINDRICH. However, by virtue of their relationship with PAKARTI under separate charter
arrangements, SHINWA, KEE YEH and its agent SKY likewise became parties to the bill of lading. In the
same vein, ACENAV, as admitted agent of CARDIA, also became a party to the said contract of carriage.

The respondents, however, maintain 24 that ACENAV is a ship agent and not a mere agent of CARDIA, as
found by both the CA 25 and the RTC. 26

The Court disagrees.

Article 586 of the Code of Commerce provides:

ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the
obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that
the amount claimed was invested therein.

By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the
port in which she may be found. (Emphasis supplied)

Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH of the
arrival of the vessel in order for the latter to immediately take possession of the goods. No evidence was offered
to establish that ACENAV had a hand in the provisioning of the vessel or that it represented the carrier, its
charterers, or the vessel at any time during the unloading of the goods. Clearly, ACENAV's participation was
simply to assume responsibility over the cargo when they were unloaded from the vessel. Hence, no reversible
error was committed by the courts a quo in holding that ACENAV was not a ship agent within the meaning and
context of Article 586 of the Code of Commerce, but a mere agent of CARDIA, the shipper.

On this score, Article 1868 of the Civil Code states:

ART. 1868. By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.

Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such
party sufficient notice of his powers.

Both exceptions do not obtain in this case. Records are bereft of any showing that ACENAV exceeded its
authority in the discharge of its duties as a mere agent of CARDIA. Neither was it alleged, much less proved,
that ACENAV's limited obligation as agent of the shipper, CARDIA, was not known to HEINDRICH.

Furthermore, since CARDIA was not impleaded as a party in the instant suit, the liability attributed upon it by
the CA 27 on the basis of its finding that the damage sustained by the cargo was due to improper packing
cannot be borne by ACENAV. As mere agent, ACENAV cannot be made responsible or held accountable for
the damage supposedly caused by its principal. 28

Accordingly, the Court finds that theCA erred in ordering ACENAV jointly and severally liable with CARDIA
to pay 30o/o of the respondents' claim.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby
REVERSED.1awp++i1 The complaint against petitioner Ace Navigation Co., Inc. is hereby DISMISSED.
SO ORDERED.

AGUSTINO B. ONG YIU, petitioner,

vs.
HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a
reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim for
damages for breach of contract of transportation.

The facts are as follows:

On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc.
(PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was scheduled to
attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance,
Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece of
luggage, a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh. "A"). The plane left
Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past
2:00 o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not be
found. According to petitioner, it was only after reacting indignantly to the loss that the matter was
attended to by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00
o'clock P.M., PAL Butuan, sent a message to PAL, Cebu, inquiring about the missing luggage, which
message was, in turn relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh. "2")
that same afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same
afternoon, PAL Manila wired PAL Cebu advising that the luggage had been over carried to Manila
aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the same day.
Instructions were also given that the luggage be immediately forwarded to Butuan City on the first
available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL
Butuan that the luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(.
However, this message was not received by PAL Butuan as all the personnel had already left since
there were no more incoming flights that afternoon.

In the meantime, petitioner was worried about the missing luggage because it contained vital
documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu
demanding the delivery of his baggage before noon the next day, otherwise, he would hold PAL liable
for damages, and stating that PAL's gross negligence had caused him undue inconvenience, worry,
anxiety and extreme embarrassment (Exh. "B"). This telegram was received by the Cebu PAL
supervisor but the latter felt no need to wire petitioner that his luggage had already been forwarded
on the assumption that by the time the message reached Butuan City, the luggage would have
arrived.

Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire
about his luggage. He did not wait, however, for the morning flight which arrived at 10:00 o'clock that
morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez, paged petitioner,
but the latter had already left. A certain Emilio Dagorro a driver of a "colorum" car, who also used to
drive for petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to
be the same driver used by petitioner whenever the latter was in Butuan City, Gomez took the
luggage and placed it on the counter. Dagorro examined the lock, pressed it, and it opened. After
calling the attention of Maximo Gomez, the "maleta" was opened, Gomez took a look at its contents,
but did not touch them. Dagorro then delivered the "maleta" to petitioner, with the information that the
lock was open. Upon inspection, petitioner found that a folder containing certain exhibits, transcripts
and private documents in Civil Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two
gift items for his parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the
porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.

Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his
documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City
on August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu, petitioner called
attention to his telegram (Exh. "D"), demanded that his luggage be produced intact, and that he be
compensated in the sum of P250,000,00 for actual and moral damages within five days from receipt
of the letter, otherwise, he would be left with no alternative but to file suit (Exh. "D").

On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's
office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the contents
were listed and receipted for by petitioner (Exh. "E").

On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the
investigation which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to pinpoint
responsibility for the unauthorized opening of the "maleta" (Exh. "F").

The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:

Dear Atty. Ong Yiu:

This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma,
Acting Manager, Southern Philippines.

First of all, may we apologize for the delay in informing you of the result of our
investigation since we visited you in your office last August 31, 1967. Since there are
stations other than Cebu which are involved in your case, we have to communicate and
await replies from them. We regret to inform you that to date we have not found the
supposedly lost folder of papers nor have we been able to pinpoint the personnel who
allegedly pilferred your baggage.

You must realize that no inventory was taken of the cargo upon loading them on any
plane. Consequently, we have no way of knowing the real contents of your baggage
when same was loaded.

We realized the inconvenience you encountered of this incident but we trust that you will
give us another opportunity to be of better service to you.

Very
truly
yours,

PHILIPPINE AIR
LINES, INC.
 (Sgd) JEREMIAS S.
AGUSTIN

Branch Supervisor

Cebu

(Exhibit G, Folder of Exhibits) 1

On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract
of transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-
10188, which PAL traversed. After due trial, the lower Court found PAL to have acted in bad faith and
with malice and declared petitioner entitled to moral damages in the sum of P80,000.00, exemplary
damages of P30,000.00, attorney's fees of P5,000.00, and costs.

Both parties appealed to the Court of Appeals — petitioner in so far as he was awarded only the sum
of P80,000.00 as moral damages; and defendant because of the unfavorable judgment rendered
against it.

On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence,
reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but
ordered PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the
condition of carriage printed at the back of the ticket.

Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following
Assignments of Error:

I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT

PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE
BREACH OF ITS CONTRACT OF TRANSPORTATION WITH PETITIONER.

II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND

THE LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT
AWARDING TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00,
EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING
ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO COMPENSATE
PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT
PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF
THE PHILIPPINES.

On July 16, 1975, this Court gave due course to the Petition.

There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is
the correctness of respondent Court's conclusion that there was no gross negligence on the part of
PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral
and exemplary damages.

From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad
faith means a breach of a known duty through some motive of interest or ill will. 2 It was the duty of
PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in
complying with such duty.
As aptly stated by the appellate Court:

We do not find any evidence of bad faith in this. On the contrary, We find that the
defendant had exerted diligent effort to locate plaintiff's baggage. The trial court saw
evidence of bad faith because PAL sent the telegraphic message to Mactan only at 3:00
o'clock that same afternoon, despite plaintiff's indignation for the non-arrival of his
baggage. The message was sent within less than one hour after plaintiff's luggage could
not be located. Efforts had to be exerted to locate plaintiff's maleta. Then the Bancasi
airport had to attend to other incoming passengers and to the outgoing passengers.
Certainly, no evidence of bad faith can be inferred from these facts. Cebu office
immediately wired Manila inquiring about the missing baggage of the plaintiff. At 3:59
P.M., Manila station agent at the domestic airport wired Cebu that the baggage was
over carried to Manila. And this message was received in Cebu one minute thereafter,
or at 4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon.
His Honor stated that the fact that the message was sent at 3:59 P.M. from Manila and
completely relayed to Mactan at 4:00 P.M., or within one minute, made the message
appear spurious. This is a forced reasoning. A radio message of about 50 words can be
completely transmitted in even less than one minute depending upon atmospheric
conditions. Even if the message was sent from Manila or other distant places, the
message can be received within a minute. that is a scientific fact which cannot be
questioned. 3

Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The
telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time the
luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier
than a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the
arrival of the morning flight, he would have been able to retrieve his luggage sooner.

In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral
damages.

Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act of omission.

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant acted fraudulently or in
bad faith.

Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the
Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner, which has not been proven in this case.

Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection,
respondent Court opined:
 As a general proposition, the plaintiff's maleta having been pilfered while in the custody
of the defendant, it is presumed that the defendant had been negligent. The liability,
however, of PAL for the loss, in accordance with the stipulation written on the back of
the ticket, Exhibit 12, is limited to P100.00 per baggage, plaintiff not having declared a
greater value, and not having called the attention of the defendant on its true value and
paid the tariff therefor. The validity of this stipulation is not questioned by the plaintiff.
They are printed in reasonably and fairly big letters, and are easily readable. Moreover,
plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and back, and
he, being a lawyer and businessman, must be fully aware of these conditions. 4

We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the
plane ticket reads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage
of the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a
higher valuation in excess of P100.00, but not in excess, however, of a total valuation of
P1,000.00 and additional charges are paid pursuant to Carrier's tariffs.

There is no dispute that petitioner did not declare any higher value for his luggage, much less did he
pay any additional transportation charge.

But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and
that Article 1750* of the Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation". 5 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. 6 And
as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans
World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not
offend against the policy of the law forbidding one from contracting against his own negligence.

Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot
be permitted a recovery in excess of P100.00.Besides, passengers are advised not to place valuable
items inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise to be noted
that there is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner.

There is another matter involved, raised as an error by PAL — the fact that on October 24, 1974 or
two months after the promulgation of the Decision of the appellate Court, petitioner's widow filed a
Motion for Substitution claiming that petitioner died on January 6, 1974 and that she only came to
know of the adverse Decision on October 23, 1974 when petitioner's law partner informed her that he
received copy of the Decision on August 28, 1974. Attached to her Motion was an Affidavit of
petitioner's law partner reciting facts constitutive of excusable negligence. The appellate Court noting
that all pleadings had been signed by petitioner himself allowed the widow "to take such steps as she
or counsel may deem necessary." She then filed a Motion for Reconsideration over the opposition of
PAL which alleged that the Court of Appeals Decision, promulgated on August 22, 1974, had already
become final and executory since no appeal had been interposed therefrom within the reglementary
period.
Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel,
it is best that technicality yields to the interests of substantial justice. Besides, in the 'last analysis, no
serious prejudice has been caused respondent PAL.

In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not
erroneous.

WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be
reviewed hereby affirmed in toto.

No costs.

SO ORDERED.

[G.R. NO. 172822 : December18, 2009]

MOF COMPANY, INC., Petitioner, v. SHIN YANG BROKERAGE CORPORATION Respondent.

DECISION

DEL CASTILLO, J.:

The necessity of proving lies with the person who sues.

The refusal of the consignee named in the bill of lading to pay the freightage on the claim that it is not privy to
the contract of affreightment propelled the shipper to sue for collection of money, stressing that its sole
evidence, the bill of lading, suffices to prove that the consignee is bound to pay. Petitioner now comes to us by
way of Petition for Review on Certiorari1 under Rule 45 praying for the reversal of the Court of Appeals' (CA)
judgment that dismissed its action for sum of money for insufficiency of evidence.

Factual Antecedents

On October 25, 2001, Halla Trading Co., a company based in Korea, shipped to Manila secondhand cars and
other articles on board the vessel Hanjin Busan 0238W. The bill of lading covering the shipment, i.e., Bill of
Lading No. HJSCPUSI14168303,2 which was prepared by the carrier Hanjin Shipping Co., Ltd. (Hanjin),
named respondent Shin Yang Brokerage Corp. (Shin Yang) as the consignee and indicated that payment was on
a "Freight Collect" basis, i.e., that the consignee/receiver of the goods would be the one to pay for the freight
and other charges in the total amount of P57,646.00.3

The shipment arrived in Manila on October 29, 2001. Thereafter, petitioner MOF Company, Inc. (MOF),
Hanjin's exclusive general agent in the Philippines, repeatedly demanded the payment of ocean freight,
documentation fee and terminal handling charges from Shin Yang. The latter, however, failed and refused to
pay contending that it did not cause the importation of the goods, that it is only the Consolidator of the said
shipment, that the ultimate consignee did not endorse in its favor the original bill of lading and that the bill of
lading was prepared without its consent.

Thus, on March 19, 2003, MOF filed a case for sum of money before the Metropolitan Trial Court of Pasay
City (MeTC Pasay) which was docketed as Civil Case No. 206-03 and raffled to Branch 48. MOF alleged that
Shin Yang, a regular client, caused the importation and shipment of the goods and assured it that ocean freight
and other charges would be paid upon arrival of the goods in Manila. Yet, after Hanjin's compliance, Shin Yang
unjustly breached its obligation to pay. MOF argued that Shin Yang, as the named consignee in the bill of
lading, entered itself as a party to the contract and bound itself to the "Freight Collect" arrangement. MOF thus
prayed for the payment of P57,646.00 representing ocean freight, documentation fee and terminal handling
charges as well as damages and attorney's fees.

Claiming that it is merely a consolidator/forwarder and that Bill of Lading No. HJSCPUSI14168303 was not
endorsed to it by the ultimate consignee, Shin Yang denied any involvement in shipping the goods or in
promising to shoulder the freightage. It asserted that it never authorized Halla Trading Co. to ship the articles or
to have its name included in the bill of lading. Shin Yang also alleged that MOF failed to present supporting
documents to prove that it was Shin Yang that caused the importation or the one that assured payment of the
shipping charges upon arrival of the goods in Manila.

Ruling of the Metropolitan Trial Court

On June 16, 2004, the MeTC of Pasay City, Branch 48 rendered its Decision4 in favor of MOF. It ruled that
Shin Yang cannot disclaim being a party to the contract of affreightment because:

x x x it would appear that defendant has business transactions with plaintiff. This is evident from defendant's
letters dated 09 May 2002 and 13 May 2002 (Exhibits "1" and "2", defendant's Position Paper) where it
requested for the release of refund of container deposits x x x. [In] the mind of the Court, by analogy, a written
contract need not be necessary; a mutual understanding [would suffice]. Further, plaintiff would have not
included the name of the defendant in the bill of lading, had there been no prior agreement to that effect.

In sum, plaintiff has sufficiently proved its cause of action against the defendant and the latter is obliged to
honor its agreement with plaintiff despite the absence of a written contract.5

The dispositive portion of the MeTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendant, ordering the latter to pay plaintiff as follows:

1. P57,646.00 plus legal interest from the date of demand until fully paid,

2. P10,000.00 as and for attorney's fees and

3. the cost of suit.

SO ORDERED.6

Ruling of the Regional Trial Court

The Regional Trial Court (RTC) of Pasay City, Branch 108 affirmed in toto the Decision of the MeTC. It held
that:

MOF and Shin Yang entered into a contract of affreightment which Black's Law Dictionary defined as a
contract with the ship owner to hire his ship or part of it, for the carriage of goods and generally take the form
either of a charter party or a bill of lading.

The bill of lading contain[s] the information embodied in the contract.

Article 652 of the Code of Commerce provides that the charter party must be in writing; however, Article 653
says: "If the cargo should be received without charter party having been signed, the contract shall be understood
as executed in accordance with what appears in the bill of lading, the sole evidence of title with regard to the
cargo for determining the rights and obligations of the ship agent, of the captain and of the charterer". Thus, the
Supreme Court opined in the Market Developers, Inc. (MADE) v. Honorable Intermediate Appellate Court and
Gaudioso Uy, G.R. No. 74978, September 8, 1989, this kind of contract may be oral. In another case, Compania
Maritima v. Insurance Company of North America, 12 SCRA 213 the contract of affreightment by telephone
was recognized where the oral agreement was later confirmed by a formal booking.

xxx

Defendant is liable to pay the sum of P57,646.00, with interest until fully paid, attorney's fees of P10,000.00
[and] cost of suit.

Considering all the foregoing, this Court affirms in toto the decision of the Court a quo.

SO ORDERED.7

Ruling of the Court of Appeals

Seeing the matter in a different light, the CA dismissed MOF's complaint and refused to award any form of
damages or attorney's fees. It opined that MOF failed to substantiate its claim that Shin Yang had a hand in the
importation of the articles to the Philippines or that it gave its consent to be a consignee of the subject goods. In
its March 22, 2006 Decision,8 the CA said:

This Court is persuaded [that except] for the Bill of Lading, respondent has not presented any other evidence to
bolster its claim that petitioner has entered [into] an agreement of affreightment with respondent, be it verbal or
written. It is noted that the Bill of Lading was prepared by Hanjin Shipping, not the petitioner. Hanjin is the
principal while respondent is the former's agent. (p. 43, rollo)

The conclusion of the court a quo, which was upheld by the RTC Pasay City, Branch 108 xxx is purely
speculative and conjectural. A court cannot rely on speculations, conjectures or guesswork, but must depend
upon competent proof and on the basis of the best evidence obtainable under the circumstances. Litigation
cannot be properly resolved by suppositions, deductions or even presumptions, with no basis in evidence, for
the truth must have to be determined by the hard rules of admissibility and proof (Lagon v. Hooven Comalco
Industries, Inc. 349 SCRA 363).

While it is true that a bill of lading serves two (2) functions: first, it is a receipt for the goods shipped; second, it
is a contract by which three parties, namely, the shipper, the carrier and the consignee who undertake specific
responsibilities and assume stipulated obligations (Belgian Overseas Chartering and Shipping N.V. v. Phil. First
Insurance Co., Inc., 383 SCRA 23), x x x if the same is not accepted, it is as if one party does not accept the
contract. Said the Supreme Court:

"A bill of lading delivered and accepted constitutes the contract of carriage[,] even though not signed, because
the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the
contract and of all its terms and conditions of which the acceptor has actual or constructive notice" (Keng Hua
Paper Products Co., Inc. v. CA, 286 SCRA 257).

In the present case, petitioner did not only [refuse to] accept the bill of lading, but it likewise disown[ed] the
shipment x x x. [Neither did it] authorize Halla Trading Company or anyone to ship or export the same on its
behalf.
It is settled that a contract is upheld as long as there is proof of consent, subject matter and cause (Sta. Clara
Homeowner's Association v. Gaston, 374 SCRA 396). In the case at bar, there is not even any iota of evidence
to show that petitioner had given its consent.

"He who alleges a fact has the burden of proving it and a mere allegation is not evidence" (Luxuria Homes Inc.
v. CA, 302 SCRA 315).

The 40-footer van contains goods of substantial value. It is highly improbable for petitioner not to pay the
charges, which is very minimal compared with the value of the goods, in order that it could work on the release
thereof.

For failure to substantiate its claim by preponderance of evidence, respondent has not established its case
against petitioner.9

Petitionersfiled a motion for reconsideration but it was denied in a Resolution10 dated May 25, 2006. Hence, this
Petition for Review on Certiorari .

Petitioner's Arguments

In assailing the CA's Decision, MOF argues that the factual findings of both the MeTC and RTC are entitled to
great weight and respect and should have bound the CA. It stresses that the appellate court has no justifiable
reason to disturb the lower courts' judgments because their conclusions are well-supported by the evidence on
record.

MOF further argues that the CA erred in labeling the findings of the lower courts as purely 'speculative and
conjectural'. According to MOF, the bill of lading, which expressly stated Shin Yang as the consignee, is the
best evidence of the latter's actual participation in the transportation of the goods. Such document, validly
entered, stands as the law among the shipper, carrier and the consignee, who are all bound by the terms stated
therein. Besides, a carrier's valid claim after it fulfilled its obligation cannot just be rejected by the named
consignee upon a simple denial that it ever consented to be a party in a contract of affreightment, or that it ever
participated in the preparation of the bill of lading. As against Shin Yang's bare denials, the bill of lading is the
sufficient preponderance of evidence required to prove MOF's claim. MOF maintains that Shin Yang was the
one that supplied all the details in the bill of lading and acquiesced to be named consignee of the shipment on a
'Freight Collect' basis.

Lastly, MOF claims that even if Shin Yang never gave its consent, it cannot avoid its obligation to pay, because
it never objected to being named as the consignee in the bill of lading and that it only protested when the
shipment arrived in the Philippines, presumably due to a botched transaction between it and Halla Trading Co.
Furthermore, Shin Yang's letters asking for the refund of container deposits highlight the fact that it was aware
of the shipment and that it undertook preparations for the intended release of the shipment.

Respondent's Arguments

Echoing the CA decision, Shin Yang insists that MOF has no evidence to prove that it consented to take part in
the contract of affreightment. Shin Yang argues that MOF miserably failed to present any evidence to prove that
it was the one that made preparations for the subject shipment, or that it is an 'actual shipping practice' that
forwarders/consolidators as consignees are the ones that provide carriers details and information on the bills of
lading.

Shin Yang contends that a bill of lading is essentially a contract between the shipper and the carrier and
ordinarily, the shipper is the one liable for the freight charges. A consignee, on the other hand, is initially a
stranger to the bill of lading and can be liable only when the bill of lading specifies that the charges are to be
paid by the consignee. This liability arises from either a) the contract of agency between the shipper/consignor
and the consignee; or b) the consignee's availment of the stipulation pour autrui drawn up by and between the
shipper/ consignor and carrier upon the consignee's demand that the goods be delivered to it. Shin Yang
contends that the fact that its name was mentioned as the consignee of the cargoes did not make it automatically
liable for the freightage because it never benefited from the shipment. It never claimed or accepted the goods, it
was not the shipper's agent, it was not aware of its designation as consignee and the original bill of lading was
never endorsed to it.

Issue

The issue for resolution is whether a consignee, who is not a signatory to the bill of lading, is bound by the
stipulations thereof. Corollarily, whether respondent who was not an agent of the shipper and who did not make
any demand for the fulfillment of the stipulations of the bill of lading drawn in its favor is liable to pay the
corresponding freight and handling charges.

Our Ruling

Since the CA and the trial courts arrived at different conclusions, we are constrained to depart from the general
rule that only errors of law may be raised in a Petition for Review on Certiorari under Rule 45 of the Rules of
Court and will review the evidence presented.11

The bill of lading is oftentimes drawn up by the shipper/consignor and the carrier without the intervention of the
consignee. However, the latter can be bound by the stipulations of the bill of lading when a) there is a relation
of agency between the shipper or consignor and the consignee or b) when the consignee demands fulfillment of
the stipulation of the bill of lading which was drawn up in its favor.12

In Keng Hua Paper Products Co., Inc. v. Court of Appeals,13 we held that once the bill of lading is received by
the consignee who does not object to any terms or stipulations contained therein, it constitutes as an acceptance
of the contract and of all of its terms and conditions, of which the acceptor has actual or constructive notice. ςηα ñrοblεš νιr†υα l lα ω lι brαrÿ

In Mendoza v. Philippine Air Lines, Inc.,14 the consignee sued the carrier for damages but nevertheless claimed
that he was never a party to the contract of transportation and was a complete stranger thereto. In debunking
Mendoza's contention, we held that:

x x x First, he insists that the articles of the Code of Commerce should be applied; that he invokes the
provisions of said Code governing the obligations of a common carrier to make prompt delivery of goods given
to it under a contract of transportation. Later, as already said, he says that he was never a party to the contract of
transportation and was a complete stranger to it, and that he is now suing on a tort or a violation of his rights as
a stranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with the defendant
company, then he would hardly have any leg to stand on. His right to prompt delivery of the can of film at the
Pili Air Port stems and is derived from the contract of carriage under which contract, the PAL undertook to
carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and the
obligation to carry and to deliver and right to prompt delivery disappear. 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. Said rights and obligations are created by a specific
contract entered into by the parties. In the present case, the findings of the trial court which as already
stated, are accepted by the parties and which we must accept are to the effect that the LVN Pictures Inc.
and Jose Mendoza on one side, and the defendant company on the other, entered into a contract of
transportation (p. 29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures Inc.
through previous agreement with Mendoza acted as the latter's agent. When he negotiated with the LVN
Pictures Inc. to rent the film 'Himala ng Birhen' and show it during the Naga town fiesta, he most
probably authorized and enjoined the Picture Company to ship the film for him on the PAL on
September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own
initiative, and acting independently of Mendoza for the time being, made Mendoza a consignee.
[Mendoza made himself a party to the contract of transportaion when he appeared at the Pili Air Port
armed with the copy of the Air Way Bill (Exh. 1) demanding the delivery of the shipment to him.] The
very citation made by appellant in his memorandum supports this view. Speaking of the possibility of a conflict
between the order of the shipper on the one hand and the order of the consignee on the other, as when the
shipper orders the shipping company to return or retain the goods shipped while the consignee demands their
delivery, Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the
Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled
'Commentaries and Jurisprudence on the Commercial Laws of the Philippines' p. 209, says that the right of the
shipper to countermand the shipment terminates when the consignee or legitimate holder of the bill of
lading appears with such bill of lading before the carrier and makes himself a party to the contract. Prior
to that time he is a stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil
Code (now Art. 1311, second paragraph) which reads thus:

'Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked.'

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at
the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his
favor contained in the contract of carriage and delivery. In this case he also made himself a party to the
contract, or at least has come to court to enforce it. His cause of action must necessarily be founded on its
breach.15 (Emphasis Ours)

In sum, a consignee, although not a signatory to the contract of carriage between the shipper and the carrier,
becomes a party to the contract by reason of either a) the relationship of agency between the consignee and the
shipper/ consignor; b) the unequivocal acceptance of the bill of lading delivered to the consignee, with full
knowledge of its contents or c) availment of the stipulation pour autrui, i.e., when the consignee, a third person,
demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignee's
favor, specifically the delivery of the goods/cargoes shipped.16

In the instant case, Shin Yang consistently denied in all of its pleadings that it authorized Halla Trading, Co. to
ship the goods on its behalf; or that it got hold of the bill of lading covering the shipment or that it demanded
the release of the cargo. Basic is the rule in evidence that the burden of proof lies upon him who asserts it, not
upon him who denies, since, by the nature of things, he who denies a fact cannot produce any proof of it.17
Thus, MOF has the burden to controvert all these denials, it being insistent that Shin Yang asserted itself as the
consignee and the one that caused the shipment of the goods to the Philippines.

In civil cases, the party having the burden of proof must establish his case by preponderance of evidence,18
which means evidence which is of greater weight, or more convincing than that which is offered in opposition
to it.19 Here, MOF failed to meet the required quantum of proof. Other than presenting the bill of lading, which,
at most, proves that the carrier acknowledged receipt of the subject cargo from the shipper and that the
consignee named is to shoulder the freightage, MOF has not adduced any other credible evidence to strengthen
its cause of action. It did not even present any witness in support of its allegation that it was Shin Yang which
furnished all the details indicated in the bill of lading and that Shin Yang consented to shoulder the shipment
costs. There is also nothing in the records which would indicate that Shin Yang was an agent of Halla Trading
Co. or that it exercised any act that would bind it as a named consignee. Thus, the CA correctly dismissed the
suit for failure of petitioner to establish its cause against respondent.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated March 22, 2006
dismissing petitioner's complaint and the Resolution dated May 25, 2006 denying the motion for
reconsideration are AFFIRMED.

SO ORDERED.

ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G. SALUDO and

SATURNINO G. SALUDO, petitioners,

vs.

HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and PHILIPPINE AIRLINES, INC.,
respondents.

REGALADO, J.:

Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of
respondent Court of Appeals1 which affirmed the decision of the trial court2 dismissing for lack of
evidence herein petitioners' complaint in Civil Case No R-2101 of the then Court of First Instance of
Southern Leyte, Branch I.

The facts, as recounted by the court a quo and adopted by respondent court after "considering the
evidence on record," are as follows:

After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago Illinois, (on) October 23, 1976
(Exh. A), Pomierski and Son Funeral Home of Chicago, made the necessary preparations and
arrangements for the shipment, of the remains from Chicago to the Philippines. The funeral home had
the remains embalmed (Exb. D) and secured a permit for the disposition of dead human body on
October 25, 1976 (Exh. C), Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00
p.m. on October 26, 1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing
a hermetically sealed casket that is airtight and waterproof wherein was contained the remains of
Crispina Saludo Galdo (sic) (Exb. B). On the same date, October 26, 1976, Pomierski brought the
remains to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made the
necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national service used by
undertakers to throughout the nation (U.S.A.), they furnish the air pouch which the casket is enclosed
in, and they see that the remains are taken to the proper air freight terminal (Exh. 6-TWA). C.M.A.S.
booked the shipment with PAL thru the carrier's agent Air Care International, with Pomierski F.H. as
the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079-01180454 Ordinary
was issued wherein the requested routing was from Chicago to San Francisco on board TWA Flight
131 of October 27, 1976 and from San Francisco to Manila on board PAL Flight No. 107 of the same
date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E., Also Exh.
1-PAL).
In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru a travel agent, were
booked with United Airlines from Chicago to California, and with PAL from California to Manila. She
then went to the funeral director of Pomierski Funeral Home who had her mother's remains and she
told the director that they were booked with United Airlines. But the director told her that the remains
were booked with TWA flight to California. This upset her, and she and her brother had to change
reservations from UA to the TWA flight after she confirmed by phone that her mother's remains
should be on that TWA flight. They went to the airport and watched from the look-out area. She saw
no body being brought. So, she went to the TWA counter again, and she was told there was no body
on that flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug, that he
would look into the matter and inform her about it on the plane or have it radioed to her. But no
confirmation from her cousin reached her that her mother was on the West Coast.

Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to inquire about
her mother's remains. She was told they did not know anything about it.

She then called Pomierski that her mother's remains were not at the West Coast terminal, and
Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him that the
remains were on a plane to Mexico City, that there were two bodies at the terminal, and somehow
they were switched; he relayed this information to Miss Saludo in California; later C.M.A.S. called and
told him they were sending the remains back to California via Texas (see Exh. 6-TWA).

It-turned out that TWA had carried a shipment under PAL Airway Bill No. 079-ORD-01180454 on
TWA Flight 603 of October 27, 1976, a flight earlier than TWA Flight 131 of the same date. TWA
delivered or transferred the said shipment said to contain human remains to PAL at 1400H or 2:00
p.m. of the same date, October 27, 1976 (Bee Exh. 1- TWA). "Due to a switch(ing) in Chicago", this
shipment was withdrawn from PAL by CMAS at 1805H (or 6:05 p.m.) of the same date, October 27
(Exh. 3-PAL, see Exh. 3-a-PAL).

What transpired at the Chicago (A)irport is explained in a memo or incident report by Pomierski (Exh.
6-TWA) to Pomierski's lawyers who in turn referred to said' memo and enclosed it in their (Pomierski's
lawyers) answer dated July 18, 1981 to herein plaintiff's counsel (See Exh. 5-TWA). In that memo or
incident report (Exh. 6-TWA), it is stated that the remains (of Crispina Saludo) were taken to CMAS at
the airport; that there were two bodies at the (Chicago Airport) terminal, and somehow they were
switched, that the remains (of Crispina Saludo) were on a plane to Mexico City; that CMAS is a
national service used by undertakers throughout the nation (U.S.A.), makes all the necessary
arrangements, such as flights, transfers, etc., and see(s) to it that the remains are taken to the proper
air freight terminal.

The following day October 28, 1976, the shipment or remains of Crispina Saludo arrived (in) San
Francisco from Mexico on board American Airlines. This shipment was transferred to or received by
PAL at 1945H or 7:45 p.m. (Exh. 2-PAL, Exh. 2-a-PAL). This casket bearing the remains of Crispina
Saludo, which was mistakenly sent to Mexico and was opened (there), was resealed by Crispin F.
Patagas for shipment to the Philippines (See Exh. B-1). The shipment was immediately loaded on
PAL flight for Manila that same evening and arrived (in) Manila on October 30, 1976, a day after its
expected arrival on October 29, 1976.3

In a letter dated December 15, 1976,4 petitioners' counsel informed private respondent Trans World
Airlines (TWA) of the misshipment and eventual delay in the delivery of the cargo containing the
remains of the late Crispin Saludo, and of the discourtesy of its employees to petitioners Maria
Salvacion Saludo and Saturnino Saludo. In a separate letter on June 10, 1977 addressed to co-
respondent Philippine Airlines (PAL),5 petitioners stated that they were holding PAL liable for said
delay in delivery and would commence judicial action should no favorable explanation be given.

Both private respondents denied liability. Thus, a damage suit6 was filed by petitioners before the
then Court of First Instance, Branch III, Leyte, praying for the award of actual damages of
P50,000.00, moral damages of P1,000,000.00, exemplary damages, attorney's fees and costs of suit.

As earlier stated, the court below absolved the two respondent airlines companies of liability. The
Court of Appeals affirmed the decision of the lower court in toto, and in a subsequent resolution,7
denied herein petitioners' motion for reconsideration for lack of merit.

In predictable disagreement and dissatisfaction with the conclusions reached by respondent appellate
court, petitioners now urge this Court to review the appealed decision and to resolve whether or not
(1) the delay in the delivery of the casketed remains of petitioners' mother was due to the fault of
respondent airline companies, (2) the one-day delay in the delivery of the same constitutes
contractual breach as would entitle petitioners to damages, (3) damages are recoverable by
petitioners for the humiliating, arrogant and indifferent acts of the employees of TWA and PAL, and
(4) private respondents should be held liable for actual, moral and exemplary damages, aside from
attorney's fees and litigation expenses.8

At the outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed
that only questions of law may be raised in a petition filed in this Court to review on certiorari the
decision of the Court of Appeals.9 This being so, the factual findings of the Court of Appeals are final
and conclusive and cannot be reviewed by the Supreme Court. The rule, however, admits of
established exceptions, to wit: (a) where there is grave abuse of discretion; (b) when the finding is
grounded entirely on speculations, surmises or conjectures;(c) when the inference made is
manifestly-mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based
on a misapprehension of facts; (e) when the factual findings are conflicting; (f) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee; 10 (g) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered, would justify a
different conclusion; 11 and (h) where the findings of fact of the Court of Appeals are contrary to
those of the trial court, or are mere conclusions without citation of specific evidence, or where the
facts of set forth by the petitioner are not disputed by the respondent, or where the findings of fact of
the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence
on record. 12

To distinguish, a question of law is one which involves a doubt or controversy on what the law is on a
certain state of facts; and, a question of fact, contrarily, is one in which there is a doubt or difference
as to the truth or falsehood of the alleged facts. 13 One test, it has been held, is whether the
appellate court can determine the issue raised without reviewing or evaluating the evidence, in which
case it is a question of law, otherwise it will be a question of fact.14

Respondent airline companies object to the present recourse of petitioners on the ground that this
petition raises only factual questions. 15 Petitioners maintain otherwise or, alternatively, they are of
the position that, assuming that the petition raises factual questions, the same are within the
recognized exceptions to the general rule as would render the petition cognizable and worthy of
review by the Court. 16

Since it is precisely the soundness of the inferences or conclusions that may be drawn from the
factual issues which are here being assayed, we find that the issues raised in the instant petition
indeed warrant a second look if this litigation is to come to a reasonable denouement. A discussion
seriatim of said issues will further reveal that the sequence of the events involved is in effect disputed.
Likewise to be settled is whether or not the conclusions of the Court of Appeals subject of this review
indeed find evidentiary and legal support.

I. Petitioners fault respondent court for "not finding that private respondents failed to exercise
extraordinary diligence required by law which resulted in the switching and/or misdelivery of the
remains of Crispina Saludo to Mexico causing gross delay in its shipment to the Philippines, and
consequently, damages to petitioners." 17

Petitioner allege that private respondents received the casketed remains of petitioners' mother on
October 26, 1976, as evidenced by the issuance of PAL Air Waybill No. 079-01180454 18 by Air Care
International as carrier's agent; and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that for the alleged switching of the
caskets on October 27, 1976, or one day after private respondents received the cargo, the latter must
necessarily be liable.

To support their assertion, petitioners rely on the jurisprudential dictum, both under American and
Philippine law, that "(t)he issuance of a bill of lading carries the presumption that the goods were
delivered to the carrier issuing the bill, for immediate shipment, and it is nowhere questioned that a
bill of lading is prima facie evidence of the receipt of the goods by the carrier. . . . In the absence of
convincing testimony establishing mistake, recitals in the bill of lading showing that the carrier
received the goods for shipment on a specified date control (13 C.J.S. 235)." 19

A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport
and deliver them at a specified place to a person named or on his order. Such instrument may be
called a shipping receipt, forwarder's receipt and receipt for transportation. 20 The designation,
however, is immaterial. It has been hold that freight tickets for bus companies as well as receipts for
cargo transported by all forms of transportation, whether by sea or land, fall within the definition.
Under the Tariff and Customs Code, a bill of lading includes airway bills of lading. 21 The two-fold
character of a bill of lading is all too familiar; it is a receipt as to the quantity and description of the
goods shipped and a contract to transport the goods to the consignee or other person therein
designated, on the terms specified in such instrument. 22

Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods
to the carrier normally precedes the issuance of the bill; or, to some extent, delivery of the goods and
issuance of the bill are regarded in commercial practice as simultaneous acts. 23 However, except as
may be prohibited by law, there is nothing to prevent an inverse order of events, that is, the execution
of the bill of lading even prior to actual possession and control by the carrier of the cargo to be
transported. There is no law which requires that the delivery of the goods for carriage and the
issuance of the covering bill of lading must coincide in point of time or, for that matter, that the former
should precede the latter.

Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation
but, when issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier.
A bill of lading, when properly executed and delivered to a shipper, is evidence that the carrier has
received the goods described therein for shipment. Except as modified by statute, it is a general rule
as to the parties to a contract of carriage of goods in connection with which a bill of lading is issued
reciting that goods have been received for transportation, that the recital being in essence a receipt
alone, is not conclusive, but may be explained, varied or contradicted by parol or other evidence. 24

While we agree with petitioners' statement that "an airway bill estops the carrier from denying receipt
of goods of the quantity and quality described in the bill," a further reading and a more faithful
quotation of the authority cited would reveal that "(a) bill of lading may contain constituent elements of
estoppel and thus become something more than a contract between the shipper and the carrier. . . .
(However), as between the shipper and the carrier, when no goods have been delivered for shipment
no recitals in the bill can estop the carrier from showing the true facts . . . Between the consignor of
goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable
presumption that such goods were delivered for shipment. As between the consignor and a receiving
carrier, the fact must outweigh the recital." 25 (Emphasis supplied)
For this reason, we must perforce allow explanation by private respondents why, despite the issuance
of the airway bill and the date thereof, they deny having received the remains of Crispina Saludo on
October 26, 1976 as alleged by petitioners.

The findings of the trial court, as favorably adopted by the Court of Appeals and which we have
earner quoted, provide us with the explanation that sufficiently over comes the presumption relied on
by petitioners in insisting that the remains of their mother were delivered to and received by private
respondents on October 26, 1976. Thus —

. . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26,
1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically
sealed casket that is airtight and waterproof wherein was contained the remains of Crispina Saludo
Galdo (sic) (Exh. B). On the same date October 26, 1976, Pomierski brought the remains to C.M.A.S.
(Continental Mortuary Air Services) at the airport (Chicago) which made the necessary arrangements
such as flights, transfers, etc; C.M.A.S. is a national service used by undertakers throughout the
nation (U.S.A.), they furnish the air pouch which the casket is enclosed in, and they see that the
remains are taken to the proper air freight terminal (Exh. G-TWA). C.M.A.S. booked the shipment with
PAL thru the carrier's agent Air Care International, with Pomierski F.H. as the shipper and Mario
(Maria) Saludo as the consignee. PAL Airway Bill No. 079- 01180454 Ordinary was issued wherein
the requested routing was from Chicago to San Francisco on board TWA Flight-131 of October
27;1976, and from San Francisco to Manila on board PAL Flight No. 107 of the same date, and from
Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E, also Exh. 1-PAL).26
(Emphasis ours.)

Moreover, we are persuaded to believe private respondent PAL's account as to what transpired
October 26, 1976:

. . . Pursuant thereto, on 26 October 1976, CMAS acting upon the instruction of Pomierski, F.H., the
shipper requested booking of the casketed remains of Mrs. Cristina (sic) Saludo on board PAL's San
Francisco-Manila Flight No. PR 107 on October 27, 1976.

2. To signify acceptance and confirmation of said booking, PAL issued to said Pomierski F.H., PAL
Airway Bill No. 079-01180454 dated October 27, 1976 (sic, "10/26/76"). PAL confirmed the booking
and transporting of the shipment on board of its Flight PR 107 on October 27, 1976 on the basis of
the representation of the shipper and/or CMAS that the said cargo would arrive in San Francisco from
Chicago on board United Airlines Flight US 121 on 27 October 1976.27

In other words, on October 26, 1976 the cargo containing the casketed remains of Crispina Saludo
was booked for PAL Flight Number PR-107 leaving San Francisco for Manila on October 27, 1976,
PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt of delivery of the cargo on
October 26, 1976, but merely as a confirmation of the booking thus made for the San Francisco-
Manila flight scheduled on October 27, 1976. Actually, it was not until October 28, 1976 that PAL
received physical delivery of the body at San Francisco, as duly evidenced by the Interline Freight
Transfer Manifest of the American Airline Freight System and signed for by Virgilio Rosales at 1945H,
or 7:45 P.M. on said date.28

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the
common carrier begins from the time the goods are delivered to the carrier. This responsibility
remains in full force and effect even when they are temporarily unloaded or stored in transit, unless
the shipper or owner exercises the right of stoppage in transitu, 29 and terminates only after the lapse
of a reasonable time for the acceptance, of the goods by the consignee or such other person entitled
to receive them. 30 And, there is delivery to the carrier when the goods are ready for and have been
placed in the exclusive possession, custody and control of the carrier for the purpose of their
immediate transportation and the carrier has accepted them. 31 Where such a delivery has thus been
accepted by the carrier, the liability of the common carrier commences eo instanti. 32

Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be
observed by the carrier instantaneously commences upon delivery of the goods thereto, for such duty
to commence there must in fact have been delivery of the cargo subject of the contract of carriage.
Only when such fact of delivery has been unequivocally established can the liability for loss,
destruction or deterioration of goods in the custody of the carrier, absent the excepting causes under
Article 1734, attach and the presumption of fault of the carrier under Article 1735 be invoked.

As already demonstrated, the facts in the case at bar belie the averment that there was delivery of the
cargo to the carrier on October 26, 1976. Rather, as earlier explained, the body intended to be
shipped as agreed upon was really placed in the possession and control of PAL on October 28, 1976
and it was from that date that private respondents became responsible for the agreed cargo under
their undertakings in PAL Airway Bill No. 079-01180454. Consequently, for the switching of caskets
prior thereto which was not caused by them, and subsequent events caused thereby, private
respondents cannot be held liable.

Petitioners, proceeding on the premise that there was delivery of the cargo to private respondents on
October 26,1976 and that the latter's extraordinary responsibility had by then become operative, insist
on foisting the blame on private respondents for the switching of the two caskets which occurred on
October 27, 1976. It is argued that since there is no clear evidence establishing the fault Continental
Mortuary Air Services (CMAS) for the mix-up, private respondents are presumably negligent pursuant
to Article 1735 of the Civil Code and, for failure to rebut such presumption, they must necessarily be
held liable; or, assuming that CMAS was at fault, the same does not absolve private respondents of
liability because whoever brought the cargo to the airport or loaded it on the plane did so as agent of
private respondents.

This contention is without merit. As pithily explained by the Court of Appeals:

The airway bill expressly provides that "Carrier certifies goods described below were received for
carriage", and said cargo was "casketed human remains of Crispina Saludo," with "Maria Saludo as
Consignee; Pomierski F.H. as Shipper; Air Care International as carrier's agent." On the face of the
said airway bill, the specific flight numbers, specific routes of shipment and dates of departure and
arrival were typewritten, to wit: Chicago TWA Flight 131/27 to San Francisco and from San Francisco
by PAL 107 on, October 27, 1976 to Philippines and to Cebu via PAL Flight 149 on October 29, 1976.
The airway bill also contains the following typewritten words, as follows: all documents have been
examined (sic). Human remains of Crispina Saludo. Please return back (sic) first available flight to
SFO.

But, as it turned out and was discovered later the casketed human remains which was issued PAL
Airway Bill #079-1180454 was not the remains of Crispina Saludo, the casket containing her remains
having been shipped to Mexico City.

However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo's remains, hired
Continental Mortuary Services (hereafter referred to as C.M.A.S.), which is engaged in the business
of transporting and forwarding human remains. Thus, C.M.A.S. made all the necessary arrangements
such as flights, transfers, etc. — for shipment of the remains of Crispina Saludo.

The remains were taken on October 26th, 1976, to C.M.A.S. at the airport. These people made all the
necessary arrangements, such as flights, transfers, etc. This is a national service used by
undertakers throughout the nation. They furnished the air pouch which the casket is enclosed in, and
they see that the remains are taken to the proper air frieght terminal. I was very surprised when Miss
Saludo called me to say that the remains were not at the west coast terminal. I immediately called
C.M.A.S. They called me back in a matter of ten minutes to inform me that the remains were on a
plane to Mexico City. The man said that there were two bodies at the terminal, and somehow they
were switched. . . . (Exb. 6 — "TWA", which is the memo or incident report enclosed in the stationery
of Walter Pomierski & Sons Ltd.)

Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal for
shipment, which was supposed to contain the remains of Crispina Saludo, Air Care International
and/or TWA, had no way of determining its actual contents, since the casket was hermetically sealed
by the Philippine Vice-Consul in Chicago and in an air pouch of C.M.A.S., to the effect that Air Care
International and/or TWA had to rely on the information furnished by the shipper regarding the cargo's
content. Neither could Air Care International and/or TWA open the casket for further verification, since
they were not only without authority to do so, but even prohibited.

Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if Air Care
International should be considered as an agent of PAL) and/or TWA, the entire fault or negligence
being exclusively with C.M.A.S.33 (Emphasis supplied.)
It can correctly and logically be concluded, therefore, that the switching occurred or, more accurately,
was discovered on October 27, 1976; and based on the above findings of the Court of appeals, it
happened while the cargo was still with CMAS, well before the same was place in the custody of
private respondents.

Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 197634 was signed by Garry
Marcial of PAL at 1400H, or 2:00 P.M., on the same date, thereby indicating acknowledgment by PAL
of the transfer to them by TWA of what was in truth the erroneous cargo, said misshipped cargo was
in fact withdrawn by CMAS from PAL as shown by the notation on another copy of said manifest35
stating "Received by CMAS — Due to switch in Chicago 10/27-1805H," the authenticity of which was
never challenged. This shows that said misshipped cargo was in fact withdrawn by CMAS from PAL
and the correct shipment containing the body of Crispina Saludo was received by PAL only on
October 28, 1976, at 1945H, or 7:45 P.M., per American Airlines Interline Freight Transfer Manifest
No. AA204312.36

Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this matter:

ATTY. JUAN COLLAS, JR.:

On that date, do (sic) you have occasion to handle or deal with the transfer of cargo from TWA Flight
No. 603 to PAL San Francisco?

MICHAEL GIOSSO:

Yes, I did.

ATTY. JUAN COLLAS, JR.:

What was your participation with the transfer of the cargo?

MICHAEL GIOSSO:
I manifested the freight on a transfer manifest and physically moved it to PAL and concluded the
transfer by signing it off.

ATTY. JUAN COLLAS, JR.:

You brought it there yourself?

MICHAEL GIOSSO:

Yes sir.

ATTY. JUAN COLIAS, JR.:

Do you have anything to show that PAL received the cargo from TWA on October 27, 1976?

MICHAEL GIOSSO:

Yes, I do.

(Witness presenting a document)

ATTY. JUAN COLLAS, JR.:

For purposes of clarity, Exhibit I is designated as Exhibit I-TWA.

xxx xxx xxx

ATTY. JUAN COLLAS, JR.:

This Exhibit I-TWA, could you tell what it is, what it shows?

MICHAEL GIOSSO:

It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with two signatures as it
completed the transfer.

ATTY. JUAN COLLAS, JR.:

Very good,. Who was the PAL employee who received the cargo?

MICHAEL GIOSSO:

The name is Garry Marcial." 37

The deposition of Alberto A. Lim, PAL's cargo supervisor at San Francisco, as deponent-witness for
PAL, makes this further clarification:

ATTY. CESAR P. MANALAYSAY:

You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill Number 01180454 which
for purposes of evidence, I would like to request that the same be marked as evidence Exhibit I for
PAL.
xxx xxx xxx

In what circumstances did you encounter Exhibit I-PAL?

ALBERTO A. LIM:

If I recall correctly, I was queried by Manila, our Manila office with regard to a certain complaint that a
consignee filed that this shipment did not arrive on the day that the consignee expects the shipment
to arrive.

ATTY CESAR P. MANALAYSAY:

Okay. Now, upon receipt of that query from your Manila office, did you conduct any investigation to
pinpoint the possible causes of mishandling?

ALBERTO A. LIM:

Yes.

xxx xxx xxx

ATTY. CESAR P. MANALAYSAY:

What is the result of your investigation?

ALBERTO A. LIM:
In the course of my investigation, I found that we received the body on October 28, 1976, from
American Airlines.

ATTY. CESAR P. MANALAYSAY:

What body are you referring to?

xxx xxx xxx

ALBERTO A. LIM:

The remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:

Is that the same body mentioned in this Airway Bill?

ALBERTO A. LIM:

Yes.

ATTY. CESAR P. MANALAYSAY:

What time did you receive said body on October 28, 1976?

ALBERTO A. LIM:
If I recall correctly, approximately 7:45 of October 28, 1976.

ATTY. CESAR P. MANALAYSAY:

Do you have any proof with you to back the statement?

ALBERTO A. LIM:

Yes. We have on our records a Transfer Manifest from American Airlines Number 204312 showing
that we received a human remains shipment belong to Mrs. Cristina (sic) Saludo or the human
remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MAIALAYSAY:

At this juncture, may I request that the Transfer Manifest referred to by the witness be marked as an
evidence as Exhibit II-PAL.

xxx xxx xxx

Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I evidence tending to show that
on October 27, 1976 at about 2:00 in the, afternoon they delivered to you a cargo bearing human
remains. Could you go over this Exhibit I and please give us your comments as to that exhibit?

ATTY. ALBERTO C. MENDOZA:

That is a vague question. I would rather request that counsel propound specific questions rather than
asking for comments on Exhibit I-TWA.
ATTY. CESAR P. MANALAYSAY:

In that case, I will reform my question. Could you tell us whether TWA in fact delivered to you the
human remains as indicated in that Transfer Manifest?

ALBERTO A. LIM:

Yes, they did.

ATTY. CESAR P. MANALAYSAY:

I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the same numbers or the
same entries as the Airway Bill marked as Exhibit I-A PAL tending to show that this is the human
remains of Mrs Cristina (sic) Saludo. Could you tell us whether this is true?

ALBERTO A. LIM:

It is true that we received human remains shipment from TWA as indicated on this Transfer Manifest.
But in the course of investigation, it was found out that the human remains transferred to us is not the
remains of Mrs. Cristina (sic) Saludo this is the reason why we did not board it on our flight. 38

Petitioners consider TWA's statement that "it had to rely on the information furnished by the shipper"
a lame excuse and that its failure to prove that its personnel verified and identified the contents of the
casket before loading the same constituted negligence on the part of TWA.39

We upbold the favorable consideration by the Court of Appeals of the following findings of the trial
court:

It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains
of Crispina Saludo were not the ones inside the casket that was being presented to it for shipment.
TWA would have to rely on there presentations of C.M.A.S. The casket was hermetically sealed and
also sealed by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not
have opened such a sealed casket just for the purpose of ascertaining whose body was inside and to
make sure that the remains inside were those of the particular person indicated to be by C.M.A.S.
TWA had to accept whatever information was being furnished by the shipper or by the one presenting
the casket for shipment. And so as a matter of fact, TWA carried to San Francisco and transferred to
defendant PAL a shipment covered by or under PAL Airway Bill No. 079-ORD-01180454, the airway
bill for the shipment of the casketed remains of Crispina Saludo. Only, it turned out later, while the
casket was already with PAL, that what was inside the casket was not the body of Crispina Saludo so
much so that it had to be withdrawn by C.M.A.S. from PAL. The body of Crispina Saludo had been
shipped to Mexico. The casket containing the remains of Crispina Saludo was transshipped from
Mexico and arrived in San Francisco the following day on board American Airlines. It was immediately
loaded by PAL on its flight for Manila.

The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the ONE
responsible for the switching or mix-up of the two bodies at the Chicago Airport terminal, and started
a chain reaction of the misshipment of the body of Crispina Saludo and a one-day delay in the
delivery thereof to its destination.40

Verily, no amount of inspection by respondent airline companies could have guarded against the
switching that had already taken place. Or, granting that they could have opened the casket to
inspect its contents, private respondents had no means of ascertaining whether the body therein
contained was indeed that of Crispina Saludo except, possibly, if the body was that of a male person
and such fact was visually apparent upon opening the casket. However, to repeat, private
respondents had no authority to unseal and open the same nor did they have any reason or
justification to resort thereto.

It is the right of the carrier to require good faith on the part of those persons who deliver goods to be
carried, or enter into contracts with it, and inasmuch as the freight may depend on the value of the
article to be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the
duty of the carrier to make inquiry as to the general nature of the articles shipped and of their value
before it consents to carry them; and its failure to do so cannot defeat the shipper's right to recovery
of the full value of the package if lost, in the absence of showing of fraud or deceit on the part of the
shipper. In the absence of more definite information, the carrier has a the right to accept shipper's
marks as to the contents of the package offered for transportation and is not bound to inquire
particularly about them in order to take advantage of a false classification and where a shipper
expressly represents the contents of a package to be of a designated character, it is not the duty of
the carrier to ask for a repetition of the statement nor disbelieve it and open the box and see for itself.
41 However, where a common carrier has reasonable ground to suspect that the offered goods are of
a dangerous or illegal character, the carrier has the right to know the character of such goods and to
insist on an inspection, if reasonable and practical under the circumstances, as a condition of
receiving and transporting such goods.42
It can safely be said then that a common carrier is entitled to fair representation of the nature and
value of the goods to be carried, with the concomitant right to rely thereon, and further noting at this
juncture that a carrier has no obligation to inquire into the correctness or sufficiency of such
information. 43 The consequent duty to conduct an inspection thereof arises in the event that there
should be reason to doubt the veracity of such representations. Therefore, to be subjected to unusual
search, other than the routinary inspection procedure customarily undertaken, there must exist proof
that would justify cause for apprehension that the baggage is dangerous as to warrant exhaustive
inspection, or even refusal to accept carriage of the same; and it is the failure of the carrier to act
accordingly in the face of such proof that constitutes the basis of the common carrier's liability. 44

In the case at bar, private respondents had no reason whatsoever to doubt the truth of the shipper's
representations. The airway bill expressly providing that "carrier certifies goods received below were
received for carriage," and that the cargo contained "casketed human remains of Crispina Saludo,"
was issued on the basis of such representations. The reliance thereon by private respondents was
reasonable and, for so doing, they cannot be said to have acted negligently. Likewise, no evidence
was adduced to suggest even an iota of suspicion that the cargo presented for transportation was
anything other than what it was declared to be, as would require more than routine inspection or call
for the carrier to insist that the same be opened for scrutiny of its contents per declaration.

Neither can private respondents be held accountable on the basis of petitioners' preposterous
proposition that whoever brought the cargo to the airport or loaded it on the airplane did so as agent
of private respondents, so that even if CMAS whose services were engaged for the transit
arrangements for the remains was indeed at fault, the liability therefor would supposedly still be
attributable to private respondents.

While we agree that the actual participation of CMAS has been sufficiently and correctly established,
to hold that it acted as agent for private respondents would be both an inaccurate appraisal and an
unwarranted categorization of the legal position it held in the entire transaction.

It bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the
transportation of the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the
Pomierski & Son Funeral Home, as shipper, brought the remains of petitioners' mother for shipment,
with Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the
carrier's agent, Air Care International. 45 With its aforestated functions, CMAS may accordingly be
classified as a forwarder which, by accepted commercial practice, is regarded as an agent of the
shipper and not of the carrier. As such, it merely contracts for the transportation of goods by carriers,
and has no interest in the freight but receives compensation from the shipper as his agent. 46

At this point, it can be categorically stated that, as culled from the findings of both the trial court and
appellate courts, the entire chain of events which culminated in the present controversy was not due
to the fault or negligence of private respondents. Rather, the facts of the case would point to CMAS
as the culprit. Equally telling of the more likely possibility of CMAS' liability is petitioners' letter to and
demanding an explanation from CMAS regarding the statement of private respondents laying the
blame on CMAS for the incident, portions of which, reading as follows:

. . . we were informed that the unfortunate a mix-up occurred due to your negligence. . . .

Likewise, the two airlines pinpoint the responsibility upon your agents. Evidence were presented to
prove that allegation.

On the face of this overwhelming evidence we could and should have filed a case against you. . . . 47

clearly allude to CMAS as the party at fault. This is tantamount to an admission by petitioners that
they consider private respondents without fault, or is at the very least indicative of the fact that
petitioners entertained serious doubts as to whether herein private respondents were responsible for
the unfortunate turn of events.

Undeniably, petitioners' grief over the death of their mother was aggravated by the unnecessary
inconvenience and anxiety that attended their efforts to bring her body home for a decent burial. This
is unfortunate and calls for sincere commiseration with petitioners. But, much as we would like to give
them consolation for their undeserved distress, we are barred by the inequity of allowing recovery of
the damages prayed for by them at the expense of private respondents whose fault or negligence in
the very acts imputed to them has not been convincingly and legally demonstrated.

Neither are we prepared to delve into, much less definitively rule on, the possible liability of CMAS as
the evaluation and adjudication of the same is not what is presently at issue here and is best deferred
to another time and addressed to another forum.

II. Petitioners further fault the Court of Appeals for ruling that there was no contractual breach on the
part of private respondents as would entitle petitioners to damages.

Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners' mother on
its Flight 131 from Chicago to San Francisco on October 27, 1976, made itself a party to the contract
of carriage and, therefore, was bound by the terms of the issued airway bill. When TWA undertook to
ship the remains on its Flight 603, ten hours earlier than scheduled, it supposedly violated the
express agreement embodied in the airway bill. It was allegedly this breach of obligation which
compounded, if not directly caused, the switching of the caskets.
In addition, petitioners maintain that since there is no evidence as to who placed the body on board
Flight 603, or that CMAS actually put the cargo on that flight, or that the two caskets at the Chicago
airport were to be transported by the same airline, or that they came from the same funeral home, or
that both caskets were received by CMAS, then the employees or agents of TWA presumably caused
the mix-up by loading the wrong casket on the plane. For said error, they contend, TWA must
necessarily be presumed negligent and this presumption of negligence stands undisturbed unless
rebutting evidence is presented to show that the switching or misdelivery was due to circumstances
that would exempt the carrier from liability.

Private respondent TWA professes otherwise. Having duly delivered or transferred the cargo to its co-
respondent PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA Transfer Manifest, TWA
faithfully complied with its obligation under the airway bill. Said faithful compliance was not affected
by the fact that the remains were shipped on an earlier flight as there was no fixed time for completion
of carriage stipulated on. Moreover, the carrier did not undertake to carry the cargo aboard any
specified aircraft, in view of the condition on the back of the airway bill which provides:

CONDITIONS OF CONTRACT

xxx xxx xxx

It is agreed that no time is fixed for the completion of carriage hereunder and that Carrier may without
notice substitute alternate carriers or aircraft. Carrier assumes no obligation to carry the goods by any
specified aircraft or over any particular route or routes or to make connection at any point according
to any particular schedule, and Carrier is hereby authorized to select, or deviate from the route or
routes of shipment, notwithstanding that the same may be stated on the face hereof. The shipper
guarantees payment of all charges and advances.48

Hence, when respondent TWA shipped the body on earlier flight and on a different aircraft, it was
acting well within its rights. We find this argument tenable.

The contention that there was contractual breach on the part of private respondents is founded on the
postulation that there was ambiguity in the terms of the airway bill, hence petitioners' insistence on
the application of the rules on interpretation of contracts and documents. We find no such ambiguity.
The terms are clear enough as to preclude the necessity to probe beyond the apparent intendment of
the contractual provisions.
The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the
parties, the same having the force of law between them. When the terms of the agreement are clear
and explicit, that they do not justify an attempt to read into any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the contract.49 The various
stipulations of a contract shall be interpreted together50 and such a construction is to be adopted as
will give effect to all provisions thereof.51 A contract cannot be construed by parts, but its clauses
should be interpreted in relation to one another. The whole contract must be interpreted or read
together in order to arrive at its true meaning. Certain stipulations cannot be segregated and then
made to control; neither do particular words or phrases necessarily determine the character of a
contract. The legal effect of the contract is not to be determined alone by any particular provision
disconnected from all others, but in the ruling intention of the parties as gathered from all the
language they have used and from their contemporaneous and subsequent acts. 52

Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 079-01180454,
respondent court approvingly quoted the trial court's disquisition on the aforequoted condition
appearing on the reverse side of the airway bill and its disposition of this particular assigned error:

The foregoing stipulation fully answers plaintiffs' objections to the one-day delay and the shipping of
the remains in TWA Flight 603 instead of TWA Flight 131. Under the stipulation, parties agreed that
no time was fixed to complete the contract of carriage and that the carrier may, without notice,
substitute alternate carriers or aircraft. The carrier did not assume the obligation to carry the shipment
on any specified aircraft.

xxx xxx xxx

Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of the Air Waybill are big
enough to be read and noticed. Also, the mere fact that the cargo in question was shipped in TWA
Flight 603, a flight earlier on the same day than TWA Flight 131, did not in any way cause or add to
the one-day delay complained of and/or the switching or mix-up of the bodies.53

Indubitably, that private respondent can use substitute aircraft even without notice and without the
assumption of any obligation whatsoever to carry the goods on any specified aircraft is clearly
sanctioned by the contract of carriage as specifically provided for under the conditions thereof.

Petitioners' invocation of the interpretative rule in the Rules of Court that written words control printed
words in documents, 54 to bolster their assertion that the typewritten provisions regarding the routing
and flight schedule prevail over the printed conditions, is tenuous. Said rule may be considered only
when there is inconsistency between the written and printed words of the contract.
As previously stated, we find no ambiguity in the contract subject of this case that would call for the
application of said rule. In any event, the contract has provided for such a situation by explicitly
stating that the above condition remains effective "notwithstanding that the same (fixed time for
completion of carriage, specified aircraft, or any particular route or schedule) may be stated on the
face hereof." While petitioners hinge private respondents' culpability on the fact that the carrier
"certifies goods described below were received for carriage," they may have overlooked that the
statement on the face of the airway bill properly and completely reads —

Carrier certifies goods described below were received for carriage subject to the Conditions on the
reverse hereof the goods then being in apparent good order and condition except as noted hereon.
55 (Emphasis ours.)

Private respondents further aptly observe that the carrier's certification regarding receipt of the goods
for carriage "was of a smaller print than the condition of the Air Waybill, including Condition No. 5 —
and thus if plaintiffs-appellants had recognized the former, then with more reason they were aware of
the latter. 56

In the same vein, it would also be incorrect to accede to the suggestion of petitioners that the
typewritten specifications of the flight, routes and dates of departures and arrivals on the face of the
airway bill constitute a special contract which modifies the printed conditions at the back thereof. We
reiterate that typewritten provisions of the contract are to be read and understood subject to and in
view of the printed conditions, fully reconciling and giving effect to the manifest intention of the parties
to the agreement.

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. 57 But where a
carrier has made an express contract to transport and deliver property 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.
58 This result logically follows from the well-settled rule that where the law creates a duty or charge,
and the party is disabled from performing it without any default in himself, and has no remedy over,
then the law will excuse him, but where the party by 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 to be determined from the circumstances surrounding the case
and by application of the ordinary rules for the interpretation of contracts.59

Echoing the findings of the trial court, the respondent court correctly declared that —
In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the
airway bill which reads: "The carrier does not obligate itself to carry the goods by any specified
aircraft or on a specified time. Said carrier being hereby authorized to deviate from the route of the
shipment without any liability therefor", our Supreme Court ruled 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. Said rights and
obligations are created by a specific contract entered into by the parties (Mendoza vs. PAL, 90 Phil.
836).

There is no showing by plaintiffs that such a special or specific contract had been entered into
between them and the defendant airline companies.

And this special contract for prompt delivery should call the attention of the carrier to the
circumstances surrounding the case and the approximate amount of damages to be suffered in case
of delay (See Mendoza vs. PAL, supra). There was no such contract entered into in the instant
case.60

Also, the theory of petitioners that the specification of the flights and dates of departure and arrivals
constitute a special contract that could prevail over the printed stipulations at the back of the airway
bill is vacuous. To countenance such a postulate would unduly burden the common carrier for that
would have the effect of unilaterally transforming every single bill of lading or trip ticket into a special
contract by the simple expedient of filling it up with the particulars of the flight, trip or voyage, and
thereby imposing upon the carrier duties and/or obligations which it may not have been ready or
willing to assume had it been timely, advised thereof.

Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill
militate against its binding effect on petitioners as parties to the contract, for there were sufficient
indications on the face of said bill that would alert them to the presence of such additional condition to
put them on their guard. Ordinary prudence on the part of any person entering or contemplating to
enter into a contract would prompt even a cursory examination of any such conditions, terms and/or
stipulations.

There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raises a
presumption that all terms therein were brought to the knowledge of the shipper and agreed to by
him, and in the absence of fraud or mistake, he is estopped from thereafter denying that he assented
to such terms. This rule applies with particular force where a shipper accepts a bill of lading with full
knowledge of its contents, and acceptance under such circumstances makes it a binding contract. In
order that any presumption of assent to a stipulation in a bill of lading limiting the liability of a carrier
may arise, it must appear that the clause containing this exemption from liability plainly formed a part
of the contract contained in the bill of lading. A stipulation printed on the back of a receipt or bill of
lading or on papers attached to such receipt will be quite as effective as if printed on its face, if it is
shown that the consignor knew of its terms. Thus, where a shipper accepts a receipt which states that
its conditions are to be found on the back, such receipt comes within the general rule, and the shipper
is held to have accepted and to be bound by the conditions there to be found. 61

Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion and as such
must be construed strictly against the party who drafted the same or gave rise to any ambiguity
therein, it should be borne in mind that a contract of adhesion may be struck down as void and
unenforceable, for being subversive of public policy, only when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal footing. 62 However, Ong Yiu vs. Court of
Appeals, et al 63 instructs us that contracts of adhesion are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, be gives his consent.
Accordingly, petitioners, far from being the weaker party in this situation, duly signified their presumed
assent to all terms of the contract through their acceptance of the airway bill and are consequently
bound thereby. It cannot be gainsaid that petitioners' were not without several choices as to carriers
in Chicago with its numerous airways and airliner servicing the same.

We wish to allay petitioners' apprehension that Condition No. 5 of the airway bill is productive of
mischief as it would validate delay in delivery, sanction violations of contractual obligations with
impunity or put a premium on breaches of contract.

Just because we have said that condition No. 5 of the airway bill is binding upon the parties to and
fully operative in this transaction, it does not mean, and let this serve as fair warning to respondent
carriers, that they can at all times whimsically seek refuge from liability in the exculpatory sanctuary of
said Condition No. 5 or arbitrarily vary routes, flights and schedules to the prejudice of their
customers. This condition only serves to insulate the carrier from liability in those instances when
changes in routes, flights and schedules are clearly justified by the peculiar circumstances of a
particular case, or by general transportation practices, customs and usages, or by contingencies or
emergencies in aviation such as weather turbulence, mechanical failure, requirements of national
security and the like. And even as it is conceded that specific routing and other navigational
arrangements for a trip, flight or voyage, or variations therein, generally lie within the discretion of the
carrier in the absence of specific routing instructions or directions by the shipper, it is plainly
incumbent upon the carrier to exercise its rights with due deference to the rights, interests and
convenience of its customers.

A common carrier undertaking to transport property has the implicit duty to carry and deliver it within
reasonable time, absent any particular stipulation regarding time of delivery, and to guard against
delay. In case of any unreasonable delay, the carrier shall be liable for damages immediately and
proximately resulting from such neglect of duty. 64 As found by the trial court, the delay in the delivery
of the remains of Crispina Saludo, undeniable and regrettable as it was, cannot be attributed to the
fault, negligence or malice of private respondents,65 a conclusion concurred in by respondent court
and which we are not inclined to disturb.
We are further convinced that when TWA opted to ship the remains of Crispina Saludo on an earlier
flight, it did so in the exercise of sound discretion and with reasonable prudence, as shown by the
explanation of its counsel in his letter of February 19, 1977 in response to petitioners' demand letter:

Investigation of TWA's handling of this matter reveals that although the shipment was scheduled on
TWA Flight 131 of October 27, 1976, it was actually boarded on TWA Flight 603 of the same day,
approximately 10 hours earlier, in order to assure that the shipment would be received in San
Francisco in sufficient time for transfer to PAL. This transfer was effected in San Francisco at 2:00
P.M. on October 27, 1976. 66

Precisely, private respondent TWA knew of the urgency of the shipment by reason of this notation on
the lower portion of the airway bill: "All documents have been certified. Human remains of Cristina
(sic) Saludo. Please return bag first available flight to SFO." Accordingly, TWA took it upon itself to
carry the remains of Crispina Saludo on an earlier flight, which we emphasize it could do under the
terms of the airway bill, to make sure that there would be enough time for loading said remains on the
transfer flight on board PAL.

III. Petitioners challenge the validity of respondent court's finding that private respondents are not
liable for tort on account of the humiliating, arrogant and indifferent acts of their officers and
personnel. They posit that since their mother's remains were transported ten hours earlier than
originally scheduled, there was no reason for private respondents' personnel to disclaim knowledge of
the arrival or whereabouts of the same other than their sheer arrogance, indifference and extreme
insensitivity to the feelings of petitioners. Moreover, being passengers and not merely consignors of
goods, petitioners had the right to be treated with courtesy, respect, kindness and due consideration.

In riposte, TWA claims that its employees have always dealt politely with all clients, customers and
the public in general. PAL, on the other hand, declares that in the performance of its obligation to the
riding public, other customers and clients, it has always acted with justice, honesty, courtesy and
good faith.

Respondent appellate court found merit in and reproduced the trial court's refutation of this assigned
error:

About the only evidence of plaintiffs that may have reference to the manner with which the personnel
of defendants treated the two plaintiffs at the San Francisco Airport are the following pertinent
portions of Maria Saludo's testimony:
Q When you arrived there, what did you do, if any?

A I immediately went to the TWA counter and I inquired about whether my mother was there or if' they
knew anything about it.

Q What was the answer?

A They said they do not know. So, we waited.

Q About what time was that when you reached San Francisco from Chicago?

A I think 5 o'clock. Somewhere around that in the afternoon.

Q You made inquiry it was immediately thereafter?

A Right after we got off the plane.

Q Up to what time did you stay in the airport to wait until the TWA people could tell you the
whereabouts?

A Sorry, Sir, but the TWA did not tell us anything. We stayed there until about 9 o'clock. They have
not heard anything about it. They did not say anything.

Q Do you want to convey to the Court that from 5 up to 9 o'clock in the evening you yourself went
back to the TWA and they could not tell you where the remains of your mother were?

A Yes sir.
Q And after nine o'clock, what did you do?

A I told my brother my Mom was supposed to be on the Philippine Airlines flight. "Why don't" we
check with PAL instead to see if she was there?" We tried to comfort each other. I told him anyway
that was a shortest flight from Chicago to California. We will be with our mother on this longer flight.
So, we checked with the PAL.

Q What did you find?

A We learned, Yes, my Mom would be on the flight.

Q Who was that brother?

A Saturnino Saludo.

Q And did you find what was your flight from San Francisco to the Philippines?

A I do not know the number. It was the evening flight of the Philippine Airline(s) from San Francisco to
Manila.

Q You took that flight with your mother?

A We were scheduled to, Sir.

Q Now, you could not locate the remains of your mother in San Francisco could you tell us what did
you feel?
A After we were told that my mother was not there?

Q After you learned that your mother could not fly with you from Chicago to California?

A Well, I was very upset. Of course, I wanted the confirmation that my mother was in the West Coast.
The fliqht was about 5 hours from Chicago to California. We waited anxiously all that time on the
plane. I wanted to be assured about my mother's remains. But there was nothing and we could not
get any assurance from anyone about it.

Q Your feeling when you reached San Francisco and you could not find out from the TWA the
whereabouts of the remains, what did you feel?

A Something nobody would be able to describe unless he experiences it himself. It is a kind of panic.
I think it's a feeling you are about to go crazy. It is something I do not want to live through again.
(Inting, t.s.n., Aug. 9, 1983, pp. 14-18).

The foregoing does not show any humiliating or arrogant manner with which the personnel of both
defendants treated the two plaintiffs. Even their alleged indifference is not clearly established. The
initial answer of the TWA personnel at the counter that they did not know anything about the remains,
and later, their answer that they have not heard anything about the remains, and the inability of the
TWA counter personnel to inform the two plaintiffs of the whereabouts of the remains, cannot be said
to be total or complete indifference to the said plaintiffs. At any rate, it is any rude or discourteous
conduct, malfeasance or neglect, the use of abusive or insulting language calculated to humiliate and
shame passenger or had faith by or on the part of the employees of the carrier that gives the
passenger an action for damages against the carrier (Zulueta vs. Pan American World Airways, 43
SCRA 397; Air France vs. Carrascoso, et al., 18 SCRA 155; Lopez, et al. vs. Pan American World
Airways, 16 SCRA 431; Northwest Airlines, Inc. vs. Cuenca, 14 SCRA 1063), and none of the above
is obtaining in the instant case. 67

We stand by respondent court's findings on this point, but only to the extent where it holds that the
manner in which private respondent TWA's employees dealt with petitioners was not grossly
humiliating, arrogant or indifferent as would assume the proportions of malice or bad faith and lay the
basis for an award of the damages claimed. It must however, be pointed out that the lamentable
actuations of respondent TWA's employees leave much to be desired, particularly so in the face of
petitioners' grief over the death of their mother, exacerbated by the tension and anxiety wrought by
the impasse and confusion over the failure to ascertain over an appreciable period of time what
happened to her remains.
Airline companies are hereby sternly admonished that it is their duty not only to cursorily instruct but
to strictly require their personnel to be more accommodating towards customers, passengers and the
general public. After all, common carriers such as airline companies are in the business of rendering
public service, which is the primary reason for their enfranchisement and recognition in our law.
Because the passengers in a contract of carriage do not contract merely for transportation, they have
a right to be treated with kindness, respect, courtesy and consideration. 68 A contract to transport
passengers is quite different in kind and degree from any other contractual relation, and generates a
relation attended with public duty. The operation of a common carrier is a business affected with
public interest and must be directed to serve the comfort and convenience of passengers. 69
Passengers are human beings with human feelings and emotions; they should not be treated as mere
numbers or statistics for revenue.

The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five
hours, over the possibility of losing their mother's mortal remains, unattended to and without any
assurance from the employees of TWA that they were doing anything about the situation. This is not
to say that petitioners were to be regaled with extra special attention. They were, however, entitled to
the understanding and humane consideration called for by and commensurate with the extraordinary
diligence required of common carriers, and not the cold insensitivity to their predicament. It is hard to
believe that the airline's counter personnel were totally helpless about the situation. Common sense
would and should have dictated that they exert a little extra effort in making a more extensive inquiry,
by themselves or through their superiors, rather than just shrug off the problem with a callous and
uncaring remark that they had no knowledge about it. With all the modern communications equipment
readily available to them, which could have easily facilitated said inquiry and which are used as a
matter of course by airline companies in their daily operations, their apathetic stance while not legally
reprehensible is morally deplorable.

Losing a loved one, especially one's, parent, is a painful experience. Our culture accords the
tenderest human feelings toward and in reverence to the dead. That the remains of the deceased
were subsequently delivered, albeit belatedly, and eventually laid in her final resting place is of little
consolation. The imperviousness displayed by the airline's personnel, even for just that fraction of
time, was especially condemnable particularly in the hour of bereavement of the family of Crispina
Saludo, intensified by anguish due to the uncertainty of the whereabouts of their mother's remains.
Hence, it is quite apparent that private respondents' personnel were remiss in the observance of that
genuine human concern and professional attentiveness required and expected of them.

The foregoing observations, however, do not appear to be applicable or imputable to respondent PAL
or its employees. No attribution of discourtesy or indifference has been made against PAL by
petitioners and, in fact, petitioner Maria Saludo testified that it was to PAL that they repaired after
failing to receive proper attention from TWA. It was from PAL that they received confirmation that their
mother's remains would be on the same flight to Manila with them.

We find the following substantiation on this particular episode from the deposition of Alberto A. Lim,
PAL's cargo supervisor earlier adverted to, regarding their investigation of and the action taken on
learning of petitioner's problem:
ATTY. ALBERTO C. MENDOZA:

Yes.

Mr. Lim, what exactly was your procedure adopted in your so called investigation?

ALBERTO A. LIM:

I called the lead agent on duty at that time and requested for a copy of airway bill, transfer manifest
and other documents concerning the shipment.

ATTY ALBERTO C. MENDOZA:

Then, what?

ALBERTO A. LIM:

They proceeded to analyze exactly where PAL failed, if any, in forwarding the human remains of Mrs.
Cristina (sic) Saludo. And I found out that there was not (sic) delay in shipping the remains of Mrs.
Saludo to Manila. Since we received the body from American Airlines on 28 October at 7:45 and we
expedited the shipment so that it could have been loaded on our flight leaving at 9:00 in the evening
or just barely one hour and 15 minutes prior to the departure of the aircraft. That is so (sic) being the
case, I reported to Manila these circumstances. 70

IV. Finally, petitioners insist, as a consequence of the delay in the shipment of their mother's remains
allegedly caused by wilful contractual breach, on their entitlement to actual, moral and exemplary
damages as well as attorney's fees, litigation expenses, and legal interest.
The uniform decisional tenet in our jurisdiction bolds that moral damages may be awarded for wilful or
fraudulent breach of contract 71 or when such breach is attended by malice or bad faith. 72 However,
in the absence of strong and positive evidence of fraud, malice or bad faith, said damages cannot be
awarded.73 Neither can there be an award of exemplary damages 74 nor of attorney's fees 75 as an
item of damages in the absence of proof that defendant acted with malice, fraud or bad faith.

The censurable conduct of TWA's employees cannot, however, be said to have approximated the
dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced
and engrained in some people by the mechanically routine nature of their work and a racial or societal
culture which stultifies what would have been their accustomed human response to a human need
under a former and different ambience.

Nonetheless, the facts show that petitioners' right to be treated with due courtesy in accordance with
the degree of diligence required by law to be exercised by every common carrier was violated by
TWA and this entitles them, at least, to nominal damages from TWA alone. Articles 2221 and 2222 of
the Civil Code make it clear that nominal damages are not intended for indemnification of loss
suffered but for the vindication or recognition of a right violated of invaded. They are recoverable
where some injury has been done but the amount of which the evidence fails to show, the
assessment of damages being left to the discretion of the court according to the circumstances of the
case.76 In the exercise of our discretion, we find an award of P40,000.00 as nominal damages in
favor of, petitioners to be a reasonable amount under the circumstances of this case.

WHEREFORE, with the modification that an award of P40,000.00 as and by way of nominal damages
is hereby granted in favor of petitioners to be paid by respondent Trans World Airlines, the appealed
decision is AFFIRMED in all other respects.

SO ORDERED.

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 :

I
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.

JOSE MENDOZA, plaintiff-appellant,

vs.
PHILIPPINE AIR LINES, INC., defendant-appellee.

Manuel O. Chan, Reyes and Dy-Liaco for appellant.

Daniel Me. Gomez and Emigdio Tanjuatco for appellee.

MONTEMAYOR, J.:

The present appeal by plaintiff Jose Mendoza from the decision of the Court of First Instance of Camarines Sur,
has come directly to this Tribunal for the reason that both parties, appellant and appellee, accepted the findings
of fact made by the trial court and here raise only questions of law. On our part, we must also accept said
findings of fact of the lower court.

In the year 1948, appellant Jose Mendoza was the owner of the Cita Theater located in the City of Naga,
Camarines Sur, where he used to exhibit movie pictures booked from movie producers or film owners in
Manila. The fiesta or town holiday of the City of Naga, held on September 17 and 18, yearly, was usually
attended by a great many people, mostly from the Bicol region, especially since the Patron Saint Virgin of Peña
Francia was believed by many to be miraculous. As a good businessman, appellant, taking advantage of these
circumstances, decided to exhibit a film which would fit the occasion and have a special attraction and
significance to the people attending said fiesta. A month before the holiday, that is to say, August 1948, he
contracted with the LVN pictures, Inc., a movie producer in Manila for him to show during the town fiesta the
Tagalog film entitled "Himala ng Birhen" or Miracle of the Virgin. He made extensive preparations; he had two
thousand posters printed and later distributed not only in the City of Naga but also in the neighboring towns. He
also advertised in a weekly of general circulation in the province. The posters and advertisement stated that the
film would be shown in the Cita theater on the 17th and 18th of September, corresponding to the eve and day of
the fiesta itself.

In pursuance of the agreement between the LVN Pictures Inc. and Mendoza, the former on September 17th,
1948, delivered to the defendant Philippine Airlines (PAL) whose planes carried passengers and cargo and
made regular trips from Manila to the Pili Air Port near Naga, Camarines Sur, a can containing the film "Himala
ng Birhen" consigned to the Cita Theater. For this shipment the defendant issued its Air Way Bill No. 317133
marked Exhibit "1". This can of films was loaded on flight 113 of the defendant, the plane arriving at the Air
Port at Pili a little after four o'clock in the afternoon of the same day, September 17th. For reasons not explained
by the defendant, but which would appear to be the fault of its employees or agents, this can of film was not
unloaded at Pili Air Port and it was brought ba to Manila. Mendoza who had completed all arrangements for the
exhibition of the film beginning in the evening of September 17th, to exploit the presence of the big crowd that
came to attend the town fiesta, went to the Air Port and inquired from the defendant's station master there about
the can of film. Said station master could not explain why the film was not unloaded and sent several
radiograms to his principal in Manila making inquiries and asking that the film be sent to Naga immediately.
After investigation and search in the Manila office, the film was finally located the following day, September
18th, and then shipped to the Pili Air Port on September 20th. Mendoza received it and exhibited the film but he
had missed his opportunity to realize a large profit as he expected for the people after the fiesta had already left
for their towns. To recoup his losses, Mendoza brought this action against the PAL. After trial, the lower court
found that because of his failure to exhibit the film "Himala ng Birhen" during the town fiesta, Mendoza
suffered damages or rather failed to earn profits in the amount of P3,000.00, but finding the PAL not liable for
said damages, dismissed the complaint.

To avoid liability, defendant-appellee, called the attention of the trial court to the terms and conditions of
paragraph 6 of the Way Bill printed on the back thereof which paragraph reads as follows:

6. The Carrier does not obligate itself to carry the Goods by any specified aircraft or on a specified time.
Said Carrier being hereby authorized to deviate from the route of the shipment without any liability
therefor.

It claimed that since there was no obligation on its part to carry the film in question on any specified time, it
could not be held accountable for the delay of about three days. The trial court, however, found and held that
although the defendant was not obligated to load the film on any specified plane or on any particular day, once
said can film was loaded and shipped on one of its planes making trip to Camarines, then it assumed the
obligation to unload it at its point of destination and deliver it to the consignee, and its unexplained failure to
comply with this duty constituted negligence. If however found that fraud was not involved and that the
defendant was a debtor in good faith.

The trial court presided over by Judge Jose N. Leuterio in a well-considered decision citing authorities,
particularly the case of Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil. 587, held that not
because plaintiff failed to realize profits in the sum of P3,000.00 due to the negligence of the defendant, should
the latter be made to reimburse him said sum. Applying provisions of Art. 1107 of the Civil Code which
provides that losses and those foreseen, or which might have been foreseen, at the time of constituting the
obligation, and which are a necessary consequence of the failure to perform it, the trial court held that inasmuch
as these damages suffered by Mendoza were not foreseen or could not have been foreseen at the time that the
defendant accepted the can of film for shipment, for the reason that neither the shipper LVN Pictures Inc. nor
the consignee Mendoza had called its attention to the special circumstances attending the shipment and the
showing of the film during the town fiesta of Naga, plaintiff may not recover the damages sought.

Counsel for appellant insists that the articles of the Code of Commerce rather than those of the Civil Code
should have been applied in deciding this case for the reason that the shipment of the can of film is an act of
commerce; that the contract of transportation in this case should be considered commercial under Art. 349 of
the Code of Commerce because it only involves merchandise or an object of commerce but also the
transportation company, the defendant herein, was a common carrier, that is to say, customarily engaged in
transportation for the public, and that although the contract of transportation was not by land or waterways as
defined in said Art. 349, nevertheless, air transportation being analogous to land and water transportation,
should be considered as included, especially in view of the second paragraph of Art. 2 of the same Code which
says that transactions covered by the Code of Commerce and all others of analogous character shall be deemed
acts of commerce. The trial court, however, disagreed to this contention and opined that air transportation not
being expressly covered by the Code of Commerce, cannot be governed by its provisions.
We believe that whether or not transportation by air should be regarded as a commercial contract under Art.
349, would be immaterial in the present case, as will be explained later. Without making a definite ruling on the
civil or commercial nature of transportation by air, it being unnecessary, we are inclined to believe and to hold
that a contract of transportation by air may be regarded as commercial. The reason is that at least in the present
case the transportation company (PAL) is a common carrier; besides, air transportation is clearly similar or
analogous to land and water transportation. The obvious reason for its non-inclusion in the Code of Commerce
was that at the time of its promulgation, transportation by air on a commercial basis was not yet known. In the
United Sates where air transportation has reached its highest development, an airline company engaged in the
transportation business is regarded as a common carrier.

The principles which govern carriers by other means, such as by railroad or motor bus, govern carriers
by aircraft. 6 Am. Jur., Aviation, Sec. 56, p. 33.

When Aircraft Operator is Common Carrier. — That aircraft and the industry of carriage by aircraft are
new is no reason why one in fact employing aircraft as common-carrier vehicles should not be classified
as a common carrier and charged with liability as such. There can be no doubt, under the general law of
common carriers, that those air lines and aircraft owners engaged in the passenger service on regular
schedules on definite routes, who solicit the patronage of the traveling public, advertise schedules for
routes, time of leaving, and rates of fare, and make the usual stipulation as to baggage, are common
carriers by air. A flying service company which, according to its printed advertising, will take anyone
anywhere at any time, though not operating on regular routes or schedules, and basing its charges not on
the number of passengers, but on the operating cost of the plane per mile, has been held to be a common
carrier. It is not necessary, in order to make one carrying passengers by aircraft a common carrier of
passengers that the passengers can be carried from one point to another; the status and the liability as a
common carrier may exist notwithstanding the passenger's ticket issued by an airplane carrier of
passengers for hire contains a statement that it is not a common carrier, etc., or a stipulation that it is to
be held only for its proven negligence. But an airplane owner cannot be classed as a common carrier of
passengers unless he undertakes, for hire, to carry all persons who apply for passage indiscriminately as
long as there is room and no legal excuse for refusing. . . . 6 Am. Jur., Aviation, Sec. 58, pp. 34-35.

The rules governing the business of a common carrier by airship or flying machine may be readily
assimilated to those applied to other common carriers. 2 C.J.S., 1951, Cumulative Pocket Part, Aerial
Navigation, Sec. 38, p. 99.

The test of whether one is a common carrier by air is whether he holds out that he will carry for hire, so
long as he has room, goods for everyone bringing goods to him for carriage, not whether he is carrying
as a public employment or whether he carries to a fixed place. (Ibid., Sec. 39, p. 99.)

Appellant contends that Art. 358 of the Code of Commerce should govern the award of the damages in his
favor. Said article provides that if there is no period fixed for the delivery of the goods, the carrier shall be
bound to forward them in the first shipment of the same or similar merchandise which he may make to the point
of delivery, and that upon failure to do so, the damages caused by the delay should be suffered by the carrier.
This is a general provision for ordinary damages and is no different from the provisions of the Civil Code,
particularly Art. 1101 thereof, providing for the payment of damages caused by the negligence or delay in the
fulfillment of one's obligation. Even applying the provisions of the Code of Commerce, as already stated, the
pertinent provisions regarding damages only treats of ordinary damages or damages in general, not special
damages like those suffered by the plaintiff herein. Article 2 of the Code of Commerce provides that
commercial transactions are to be governed by the provisions of the Code of Commerce, but in the absence of
applicable provisions, they will be governed by the usages of commerce generally observed in each place; and
in default of both, by those of the Civil Law. So that assuming that the present case involved a commercial
transaction, still inasmuch as the special damages herein claimed finds no applicable provision in the Code of
Commerce, neither has it been shown that there are any commercial usages applicable thereto, then in the last
analysis, the rules of the civil law would have to come into play. Under Art. 1107 of the Civil Code, a debtor in
good faith like the defendant herein, may be held liable only for damages that were foreseen or might have been
foreseen at the time the contract of the transportation was entered into. The trial court correctly found that the
defendant company could not have foreseen the damages that would be suffered by Mendoza upon failure to
deliver the can of film on the 17th of September, 1948 for the reason that the plans of Mendoza to exhibit that
film during the town fiesta and his preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's attention.

In our research for authorities we have found a case very similar to the one under consideration. In the case of
Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered picture films to the
defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the time of the
shipment the attention of the express company was called to the fact that the shipment involved motion picture
films to be exhibited in Utica, and that they should be sent to their destination, rush. There was delay in their
delivery and it was found that the plaintiff because of his failure to exhibit the film in Utica due to the delay
suffered damages or loss of profits. But the highest court in the State of New York refused to award him special
damages. Said appellate court observed:

But before defendant could be held to special damages, such as the present alleged loss of profits on
account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery to
him of the particular circumstances attending the shipment, and which probably would lead to such
special loss if he defaulted. Or, as the rule has been stated in another form, in order to impose on the
defaulting party further liability than for damages naturally and directly, i.e., in the ordinary course of
things, arising from a breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of a breach at the time of or prior
to contracting. Generally, notice then of any special circumstances which will show that the damages to
be anticipated from a breach would be enhanced has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that the attention of
the common carrier in said case was called to the nature of the articles shipped, the purpose of shipment, and the
desire to rush the shipment, circumstances and facts absent in the present case.

But appellants now contends that he is not suing on a breach of contract but on a tort as provided for in Art.
1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First, he insists that the
articles of the Code of Commerce should be applied; that he invokes the provisions of said Code governing the
obligations of a common carrier to make prompt delivery of goods given to it under a contract of transportation.
Later, as already said, he says that he was never a party to the contract of transportation and was a complete
stranger to it, and that he is now suing on a tort or violation of his rights as a stranger (culpa aquiliana). If he
does not invoke the contract of carriage entered into with the defendant company, then he would hardly have
any leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port stems and is derived from
the contract of carriage under which contract, the PAL undertook to carry the can of film safely and to deliver it
to him promptly. Take away or ignore that contract and the obligation to carry and to deliver and the right to
prompt delivery disappear. Common carriers are not obligated by law to carry and to deliver merchandise, and
persons are not vested with the right of prompt delivery, unless such common carriers previously assume the
obligation. Said rights and obligations are created by a specific contract entered into by the parties. In the
present case, the findings of the trial court which as already stated, are accepted by the parties and which we
must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the defendant
company on the other, entered into a contract of transportation. (p. 29, Rec. on Appeal). One interpretation of
said finding is that the LVN Pictures Inc. through previous agreement with Mendoza acted as the latter's agent.
When he negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the
Naga town fiesta, he most probably authorized and enjoined the Picture Company to ship the film for him on
the PAL on September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own
initiative, and acting independently of Mendoza for the time being, made Mendoza as consignee, a stranger to
the contract if that is possible, nevertheless when he, Mendoza, appeared at the Pili Air Port armed with the
copy of the Air Way Bill (Exh. 1) demanding the delivery of the shipment to him, he thereby made himself a
party to the contract of the transportation. The very citation made by appellant in his memorandum supports this
view. Speaking of the possibility of a conflict between the order of the shipper on the one hand and the order of
the consignee on the other, as when the shipper orders the shipping company to return or retain the goods
shipped while the consignee demands their delivery, Malagarriga in his book Codigo de Comercio Comentado,
Vol. I, p. 400, citing a decision of Argentina Court of Appeals on commercial matters, cited by Tolentino in
Vol. II of his book entitled "Commentaries and Jurisprudence on the Commercial Laws of the Philippines" p.
209, says that the right of the shipper to countermand the shipment terminates when the consignee or legitimate
holder of the bill of lading appears with such bill of lading before the carrier and makes himself a party to the
contract. Prior to that time, he is stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil Code
which reads thus:

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment,
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked.

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations
of the delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the Pili Air
Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the
contract of carriage, such demand being one of the fulfillment of the contract of carriage and delivery. In this
case he also made himself a party to the contract, or at least has come to court to enforce it. His cause of action
must necessarily be founded on its breach.

One can readily sympathize with the appellant herein for his loss of profits which he expected to realize. But he
overlooked the legal angle. In situations like the present where failure to exhibit films on a certain day would
spell substantial damages or considerable loss of profits, including waste of efforts on preparations and
expenses incurred in advertisements, exhibitors, for their security, may either get hold of the films well ahead of
the time of exhibition in order to make allowance for any hitch in the delivery, or else enter into a special
contract or make a suitable arrangement with the common carrier for the prompt delivery of the films, calling
the attention of the carrier to the circumstances surrounding the case and the approximate amount of damages to
be suffered in case of delay.

Finding no reversible error in the decision appealed from, the same is hereby affirmed. No pronouncement as to
costs. So ordered.

G.R. No. L-22134 October 17, 1924

MARIANO UY CHACO SONS & CO., Plaintiff-Appellee, vs. THE ADMIRAL LINE, Defendant-
Appellant.

J. A. Wolfson for appellant.

Feria and La O for appellee.

MALCOLM, J.:

The plaintiff, Mariano Uy Chaco Sons & Co., alleges as a cause of action, that upon arrival of the S. S. Satsuma
at the port of Manila on June 22, 1920, there were short-delivered one case of varnish and paint remover and
fifty bales of oakum, for the conversion of which, defendant is liable. The defendant, the Admiral Line, relies
on the defense in its second amended answer that the merchandise had been tendered and rejected. Judgment
was for plaintiff for the value of the case of varnish and paint remover, P22.80, for the value of the fifty bales of
oakum, P700, for the freight, P195.50, and for the insurance, P18, or a total of P936.30, with legal interest and
costs. chanroblesvirtualawlibrary chanrobles virtual law library

It is defendant's contention on appeal that plaintiff was in duty bound to have accepted the goods when
tendered, as the plaintiff, not the defendant, was the owner of the goods and as there was no conversion by
defendant. To this, plaintiff replies that it was justified, following such a long delay in delivery, in refusing the
tender of the merchandise so tardily made. chanroblesv irtualawlibrary chanrobles virtual law library

Defendant relies on the general rule that mere delay in the delivery of goods by a common carrier, no matter
how long continued, is not a conversion thereof, but is only a breach of the contract of carriage. Therefore,
where a carrier fails to deliver goods within a reasonable time, although he thereby makes himself liable for the
damages incurred by reason of the delay, the consignee cannot refuse to accept the goods from him and recover
their value, but it compelled to receive them. The most usual element of damages for a carrier's negligent delay
in delivering the goods of the consignee is the difference between the market value of the goods at the time
when they were delivered, to which may be added reasonable expenses caused by the delay; but if there has
been a conversion of the goods by the carrier, and the consignee has not thereafter accepted them, he is entitle to
recover the value of the goods at the time they should have been delivered to him. (10 C. J., pp. 283, 307; 45 R.
C. L., pp. 737, 745, 931; Carver's Carriage by Sea, secs. 711-727; 2 Hutchinson on Carriers, sec. 651; Baltimore
& Ohio Railroad Co. vs. O'Donnell [1893], 49 O. St., 489; 21 L. R. A., 117; Chesapeak & Ohio Railway Co. vs.
Saulsberry [1907], 12 L. R. A., [N. S.], 431.) chanrobles virtual law library

That is sound doctrine. It should be applied to the multiform transactions coming before the courts. But our
heads should not be so lost in the clouds of abstract theory, even in charmingly advanced by learned counsel, as
to cause us to lose sight of the necessity of keeping out feet firmly planted on the mundane earth of actual
fact.
chanroblesvir tualawlibrary chanrobles virtual law library

The relevant data follows: The merchandise should have been landed on June 22, 1920. Not having been
delivered either on that day or any subsequent day before May 21, 1921, and all efforts to secure satisfaction
from the carrier having failed, the complaint was presented on the date last mentioned. It was amended on July
21, 1921. Answer in the form of a general denial was interposed by the defendant on August 11, 1921. The first
amended answer was filed on February 18, 1922. Formal tender of the goods was made by the defendant on
October 7, 1922. Efforts at compromise having failed, plaintiff moved on April 27, 1923, for the assignment of
the case for hearing. On August 14, 1923, defendant offered its second amended answer in which the claim now
advanced was first announced, saying "That since the institution of this action, etc." One week later, on August
21, 1923, the trial commenced. chanroblesv irtualawlibrary chanrobles virtual law library

The interval which elapsed between the date when the merchandise should have been delivered and the
presentation of the complaint was approximately eleven months. The delay which ensued between the date
when the merchandise should have been delivered and the date when it was finally tendered was close to two
years and four months. The time which passed between the date when the merchandise should have been
delivered and the date when the defense of tender was set up, was over three years, and this particular line of
defense was not announced until shortly before the trial. chanroblesvirtualawlibrary chanrobles virtual law library

With the facts to the forefront, certain pertinent interrogatories may be propounded. Accepting the general
principles of carriers, damages, and conversion, are there not exception to these broad rules? Is there not some
limit to the time which the consignee must wait for the delivery of his goods before he can justly assume
conversion of them to have taken place and sue for the recovery of their value? Where the goods have not been
landed with other goods as expected, and where after long delay they are still undelivered, cannot the consignee
bring suit to recoup himself for the loss, without having to wait for a period of time which might extend to
eternity, before asking for redress? chanrobles virtual law library
No case coming either from the local forum or from foreign jurisdictions which exactly fits the facts has been
found. (But Behn, Meyer & Co. vs. Banco Espanol-Filipino [1908], 11 Phil., 253, and Yangco vs. Meerkamp &
Company, R. G. No. 15498, 1 can be noted.) However, we invite attention to the following: chanrobles v irtual law library

Volume 10, Corpus Juris, at page 272, is authority for this: ". . . . A demand and a refusal to deliver is
sometimes essential to show a conversion. Even after demand, if the goods are tendered before suit brought, the
consignee cannot refuse to receive the good and sue for conversion, his sole remedy being an action for
damages resulting from the delay." Hutchinson's Treatise on the Law of Carriers (third edition, vol. 2, p. 717)
contains this: "Though the carrier may delay ever so long, the owner cannot charge him with a conversion, or
for value of the goods, if they are safely kept, unless they have been demanded of the carrier and their delivery
refused, . . ." replying on Hamilton vs. Chicago, Milwaukee & St. Paul Railway Company ([1897], 103 Iowa,
325). Following the lines of the note to the text, we find this: "Where property in the hands of a common carrier
is not delivered within a reasonable time after it has reached its destination, the carrier, in the absence of any
legal exemption and after demand has been made and delivery refused, is liable for a conversion of the property.
The consignee, under such circumstances, may elect to waive all title to the property and sue for the conversion,
and after he has done so, a subsequent tender by the carrier will not be available for it as a defense. . . ."
Consulting the body of the decision, to confirm the foregoing, we discover this statement: ". . . A tender of the
property, to be effectual, must have been made within the time in which the defendant was entitled to deliver it
and the plaintiff bound to receive it. The tender made was not until long after the lapse of this period, and, not
being accepted, is no bar to plaintiff's right to recover. . . ." The subsequent case of Clark vs. American Express
Co. ([1906], 130 Iowa, 254), after distinguishing Hamilton vs. Chicago, Milwaukee & St. Paul Railway
Company, supra, continues: ". . . Under the conceded facts defendant tendered the goods to plaintiff before this
action was commenced, and plaintiff refused to receive them. His action, then, was not for conversion, but for
damages. . . ."chanrobles virtual law library

A delay of more than two years in making delivery was conclusively unreasonable. A delay in pressing a
defense predicated on tender, of more than two years counted from the date when the complaint was filed, was
likewise defendant was sufficiently complete since it was unable to turn the goods over to the plaintiff at any
time before the complaint was presented, and in fact, could not do so until a long time thereafter. And these
facts together, and the reasons why the plaintiff can be permitted to recover on its action are self-evident. chanroblesvirtualawlibrary chanrobles virtual law library

We would not be understood as laying down the absolute rule that tender not made until after the action is
commenced is unavailable as a defense. Suit might conceivably be instituted with disconcerting haste. In this
jurisdiction we have a remedial code susceptible to extremely elastic construction. What we do mean is that on
the facts at bar, defendant was in effect guilty of conversion and must accordingly respond for the value of the
property at the time of conversion. chanroblesvirtualawlibrary chanrobles virtual law library

What has been said disposes of the defendant's first assignment of error, and its second and third specifications
of error fall with it. chanroblesvirtualawlibrary chanrobles virtual law library

Judgment affirmed with costs. So ordered.

UCPB GENERAL INSURANCE CO., INC., Petitioner,

vs.
ABOITIZ SHIPPING CORP. EAGLE EXPRESS LINES, DAMCO INTERMODAL SERVICES, INC.,
and PIMENTEL CUSTOMS BROKERAGE CO., Respondents.

DECISION

TINGA, J.:
UCPB General Insurance Co., Inc. (UCPB) assails the Decision1 of the Court of Appeals dated October 29,
2004, which reversed the Decision2 dated November 29, 1999 of the Regional Trial Court of Makati City,
Branch 146, and its Resolution3 dated June 14, 2005, which denied UCPB’s motion for reconsideration.

The undisputed facts, culled from the assailed Decision, are as follows:

On June 18, 1991, three (3) units of waste water treatment plant with accessories were purchased by San Miguel
Corporation (SMC for brevity) from Super Max Engineering Enterprises, Co., Ltd. of Taipei, Taiwan. The
goods came from Charleston, U.S.A. and arrived at the port of Manila on board MV "SCANDUTCH STAR".
The same were then transported to Cebu on board MV "ABOITIZ SUPERCON II". After its arrival at the port
of Cebu and clearance from the Bureau of Customs, the goods were delivered to and received by SMC at its
plant site on August 2, 1991. It was then discovered that one electrical motor of DBS Drive Unit Model DE-30-
7 was damaged.

Pursuant to an insurance agreement, plaintiff-appellee paid SMC the amount of ₱1,703,381.40 representing the
value of the damaged unit. In turn, SMC executed a Subrogation Form dated March 31, 1992 in favor of
plaintiff-appellee.

Consequently, plaintiff-appellee filed a Complaint on July 21, 1992 as subrogee of SMC seeking to recover
from defendants the amount it had paid SMC.

On September 20, 1994, plaintiff-appellee moved to admit its Amended Complaint whereby it impleaded East
Asiatic Co. Ltd. (EAST for brevity) as among the defendants for being the "general agent" of DAMCO. In its
Order dated September 23, 1994, the lower court admitted the said amended complaint.

Upon plaintiff-appellee’s motion, defendant DAMCO was declared in default by the lower court in its Order
dated January 6, 1995.

In the meantime, on January 25, 1995, defendant EAST filed a Motion for Preliminary Hearing on its
affirmative defenses seeking the dismissal of the complaint against it on the ground of prescription, which
motion was however denied by the court a quo in its Order dated September 1, 1995. Such denial was elevated
by defendant EAST to this Court through a Petition for Certiorari on October 30, 1995 in CA G.R. SP No.
38840. Eventually, this Court issued its Decision dated February 14, 1996 setting aside the lower court’s
assailed order of denial and further ordering the dismissal of the complaint against defendant EAST. Plaintiff-
appellee moved for reconsideration thereof but the same was denied by this Court in its Resolution dated
November 8, 1996. As per Entry of Judgment, this Court’s decision ordering the dismissal of the complaint
against defendant EAST became final and executory on December 5, 1996.

Accordingly, the court a quo noted the dismissal of the complaint against defendant EAST in its Order dated
December 5, 1997. Thus, trial ensued with respect to the remaining defendants.

On November 29, 1999, the lower court rendered its assailed Decision, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered declaring DAMCO
Intermodal Systems, Inc., Eagle Express Lines, Inc. and defendant Aboitiz Shipping solidarily liable to
plaintiff-subrogee for the damaged shipment and orders them to pay plaintiff jointly and severally the sum of
₱1,703,381.40.

No costs.

SO ORDERED.
Not convinced, defendants-appellants EAGLE and ABOITIZ now come to this Court through their respective
appeals x x x4

The appellate court, as previously mentioned, reversed the decision of the trial court and ruled that UCPB’s
right of action against respondents did not accrue because UCPB failed to file a formal notice of claim within
24 hours from (SMC’s) receipt of the damaged merchandise as required under Art. 366 of the Code of
Commerce. According to the Court of Appeals, the filing of a claim within the time limitation in Art. 366 is a
condition precedent to the accrual of a right of action against the carrier for the damages caused to the
merchandise.

In its Memorandum5 dated February 8, 2007, UCPB asserts that the claim requirement under Art. 366 of the
Code of Commerce does not apply to this case because the damage to the merchandise had already been known
to the carrier. Interestingly, UCPB makes this revelation: "x x x damage to the cargo was found upon discharge
from the foreign carrier onto the International Container Terminal Services, Inc. (ICTSI) in the presence of the
carrier’s representative who signed the Request for Bad Order Survey6 and the Turn Over of Bad Order
Cargoes.7 On transshipment, the cargo was already damaged when loaded on board the inter-island carrier."8
This knowledge, UCPB argues, dispenses with the need to give the carrier a formal notice of claim.
Incidentally, the carrier’s representative mentioned by UCPB as present at the time the merchandise was
unloaded was in fact a representative of respondent Eagle Express Lines (Eagle Express).

UCPB claims that under the Carriage of Goods by Sea Act (COGSA), notice of loss need not be given if the
condition of the cargo has been the subject of joint inspection such as, in this case, the inspection in the
presence of the Eagle Express representative at the time the cargo was opened at the ICTSI.

UCPB further claims that the issue of the applicability of Art. 366 of the Code of Commerce was never raised
before the trial court and should, therefore, not have been considered by the Court of Appeals.

Eagle Express, in its Memorandum9 dated February 7, 2007, asserts that it cannot be held liable for the damage
to the merchandise as it acted merely as a freight forwarder’s agent in the transaction. It allegedly facilitated the
transshipment of the cargo from Manila to Cebu but represented the interest of the cargo owner, and not the
carrier’s. The only reason why the name of the Eagle Express representative appeared on the Permit to Deliver
Imported Goods was that the form did not have a space for the freight forwarder’s agent, but only for the agent
of the shipping line. Moreover, UCPB had previously judicially admitted that upon verification from the Bureau
of Customs, it was East Asiatic Co., Ltd. (East Asiatic), regarding whom the original complaint was dismissed
on the ground of prescription, which was the real agent of DAMCO Intermodal Services, Inc. (DAMCO), the
ship owner.

Eagle Express argues that the applicability of Art. 366 of the Code of Commerce was properly raised as an issue
before the trial court as it mentioned this issue as a defense in its Answer to UCPB’s Amended Complaint.
Hence, UCPB’s contention that the question was raised for the first time on appeal is incorrect.

Aboitiz Shipping Corporation (Aboitiz), on the other hand, points out, in its Memorandum10 dated March 29,
2007, that it obviously cannot be held liable for the damage to the cargo which, by UCPB’s admission, was
incurred not during transshipment to Cebu on

board one of Aboitiz’s vessels, but was already existent at the time of unloading in Manila. Aboitiz also argues
that Art. 366 of the Code of Commerce is applicable and serves as a condition precedent to the accrual of
UCPB’s cause of action against it.lawphil.net

The Memorandum11 dated June 3, 2008, filed by Pimentel Customs Brokerage Co. (Pimentel Customs), is also
a reiteration of the applicability of Art. 366 of the Code of Commerce.
It should be stated at the outset that the issue of whether a claim should have been made by SMC, or UCPB as
SMC’s subrogee, within the 24-hour period prescribed by Art. 366 of the Code of Commerce was squarely
raised before the trial court.

In its Answer to Amended Complaint12 dated May 10, 1993, Eagle Express averred, thus:

The amended complaint states no cause of action under the provisions of the Code of Commerce and the terms
of the bill of lading; consignee made no claim against herein defendant within twenty four (24) hours following
the receipt of the alleged cargo regarding the condition in which said cargo was delivered; however, assuming
arguendo that the damage or loss, if any, could not be ascertained from the outside part of the shipment,
consignee never made any claim against herein defendant at the time of receipt of said cargo; herein defendant
learned of the alleged claim only upon receipt of the complaint.13

Likewise, in its Answer14 dated September 21, 1992, Aboitiz raised the defense that UCPB did not file a claim
with it and that the complaint states no cause of action.

UCPB obviously made a gross misrepresentation to the Court when it claimed that the issue regarding the
applicability of the Code of Commerce, particularly the 24-hour formal claim rule, was not raised as an issue
before the trial court. The appellate court, therefore, correctly looked into the validity of the arguments raised by
Eagle Express, Aboitiz and Pimentel Customs on this point after the trial court had so ill-advisedly centered its
decision merely on the matter of extraordinary diligence.

Interestingly enough, UCPB itself has revealed that when the shipment was discharged and opened at the ICTSI
in Manila in the presence of an Eagle Express representative, the cargo had already been found damaged. In
fact, a request for bad order survey was then made and a turnover survey of bad order cargoes was issued,
pursuant to the procedure in the discharge of bad order cargo. The shipment was then repacked and transshipped
from Manila to Cebu on board MV Aboitiz Supercon II. When the cargo was finally received by SMC at its
Mandaue City warehouse, it was found in bad order, thereby confirming the damage already uncovered in
Manila.15

In charging Aboitiz with liability for the damaged cargo, the trial court condoned UCPB’s wrongful suit against
Aboitiz to whom the damage could not have been attributable since there was no evidence presented that the
cargo was further damaged during its transshipment to Cebu. Even by the exercise of extraordinary diligence,
Aboitiz could not have undone the damage to the cargo that had already been there when the same was shipped
on board its vessel.

That said, it is nonetheless necessary to ascertain whether any of the remaining parties may still be held liable
by UCPB. The provisions of the Code of Commerce, which apply to overland, river and maritime
transportation, come into play.

Art. 366 of the Code of Commerce states:

Art. 366. Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for
damage or average which may be found therein upon opening the packages, may be made, provided that the
indications of the damage or average which gives rise to the claim cannot be ascertained from the outside part
of such packages, in which case the claim shall be admitted only at the time of receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in which the goods transported were delivered.1avvphi1

The law clearly requires that the claim for damage or average must be made within 24 hours from receipt of the
merchandise if, as in this case, damage cannot be ascertained merely from the outside packaging of the cargo.
In Philippine Charter Insurance Corporation v. Chemoil Lighterage Corporation,16 petitioner, as subrogee of
Plastic Group Phil., Inc. (PGP), filed suit against respondent therein for the damage found on a shipment of
chemicals loaded on board respondent’s barge. Respondent claimed that no timely notice in accordance with
Art. 366 of the Code of Commerce was made by petitioner because an employee of PGP merely made a phone
call to respondent’s Vice President, informing the latter of the contamination of the cargo. The Court ruled that
the notice of claim was not timely made or relayed to respondent in accordance with Art. 366 of the Code of
Commerce.

The requirement to give notice of loss or damage to the goods is not an empty formalism. The fundamental
reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it
that the shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to
examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is still fresh and easily investigated so as to safeguard itself from false
and fraudulent claims.17

We have construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action
against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the
fulfillment of the condition. Otherwise, no right of action against the carrier can accrue in favor of the former.18

The shipment in this case was received by SMC on August 2, 1991. However, as found by the Court of
Appeals, the claims were dated October 30, 1991, more than three (3) months from receipt of the shipment and,
at that, even after the extent of the loss had already been determined by SMC’s surveyor. The claim was,
therefore, clearly filed beyond the 24-hour time frame prescribed by Art. 366 of the Code of Commerce.

But what of the damage already discovered in the presence of Eagle Express’s representative at the time the
shipment was discharged in Manila? The Request for Bad Order Survey and Turn Over Survey of Bad Order
Cargoes, respectively dated June 17, 1999 and June 28, 1991, evince the fact that the damage to the cargo was
already made known to Eagle Express and, possibly, SMC, as of those dates.

Sec. 3(6) of the COGSA provides a similar claim mechanism as the Code of Commerce but prescribes a period
of three (3) days within which notice of claim must be given if the loss or damage is not apparent. It states:

Sec. 3(6). Unless notice of loss or damage and the general nature of such loss or damage be given in writing to
the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of
the delivery by the carrier of the goods as descibed in the bill of lading. If the loss or damage is not apparent,
the notice must be given within three days of the delivery.

Said notice of loss or damage may be endorsed upon the receipt of the goods given by the person taking
delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject
of joint survey or inspection.

UCPB seizes upon the last paragraph which dispenses with the written notice if the state of the goods has been
the subject of a joint survey which, in this case, was the opening of the shipment in the presence of an Eagle
Express representative. It should be noted at this point that the applicability of the above-quoted provision of the
COGSA was not raised as an issue by UCPB before the trial court and was only cited by UCPB in its
Memorandum in this case.

UCPB, however, is ambivalent as to which party Eagle Express represented in the transaction. By its own
manifestation, East Asiatic, and not Eagle Express, acted as the agent through which summons
and court notices may be served on DAMCO. It would be unjust to hold that Eagle Express’s knowledge of the
damage to the cargo is such that it served to preclude or dispense with the 24-hour notice to the carrier required
by Art. 366 of the Code of Commerce. Neither did the inspection of the cargo in which Eagle Express’s
representative had participated lead to the waiver of the written notice under the Sec. 3(6) of the COGSA. Eagle
Express, after all, had acted as the agent of the freight consolidator, not that of the carrier to whom the notice
should have been made.

At any rate, the notion that the request for bad order survey and turn over survey of bad cargoes signed by Eagle
Express’s representative is construable as compliant with the notice requirement under Art. 366 of the Code of
Commerce was foreclosed by the dismissal of the complaint against DAMCO’s representative, East Asiatic.

As regards respondent Pimentel Customs, it is sufficient to acknowledge that it had no participation in the
physical handling, loading and delivery of the damaged cargo and should, therefore, be absolved of liability.

Finally, UCPB’s misrepresentation that the applicability of the Code of Commerce was not raised as an issue
before the trial court warrants the assessment of double costs of suit against it.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 68168,
dated October 29, 2004 and its Resolution dated June 14, 2005 are AFFIRMED. Double costs against petitioner.

SO ORDERED.

SOUTHERN LINES, INC., petitioner,

vs.
COURT OF APPEALS and CITY OF ILOILO, respondents.

Jose Ma. Lopez Vito, Jr. for petitioner.

The City Fiscal for respondents.

DE LEON, J.:

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 15579-R
affirming that of the Court of First Instance of Iloilo which sentenced petitioner Southern Lines, Inc. to pay
respondent City of Iloilo the amount of P4,931.41.

Sometime in 1948, the City of Iloilo requisitioned for rice from the National Rice and Corn Corporation
(hereafter referred to as NARIC) in Manila. On August 24 of the same year, NARIC, pursuant to the order,
shipped 1,726 sacks of rice consigned to the City of Iloilo on board the SS "General Wright" belonging to the
Southern Lines, Inc. Each sack of rice weighed 75 kilos and the entire shipment as indicated in the bill of lading
had a total weight of 129,450 kilos. According to the bill of lading, the cost of the shipment was P63,115.50
itemized and computed as follows: .

Unit Price per bag P36.25 P62,567.50

Handling at P0.13 per bag 224.38
Trucking at P2.50 per bag 323.62

T o t a l . . . . . .. . . . . 63,115.50
On September 3, 1948, the City of Iloilo received the shipment and paid the amount of P63,115.50. However, it
was noted that the foot of the bill of lading that the City of Iloilo 'Received the above mentioned merchandise
apparently in same condition as when shipped, save as noted below: actually received 1685 sacks with a gross
weight of 116,131 kilos upon actual weighing. Total shortage ascertained 13,319 kilos." The shortage was
equivalent to 41 sacks of rice with a net weight of 13,319 kilos, the proportionate value of which was
P6,486.35.

On February 14, 1951 the City of Iloilo filed a complaint in the Court of First Instance of Iloilo against NARIC
and the Southern Lines, Inc. for the recovery of the amount of P6,486.35 representing the value of the shortage
of the shipment of rice. After trial, the lower court absolved NARIC from the complaint, but sentenced the
Southern Lines, Inc. to pay the amount of P4,931.41 which is the difference between the sum of P6,486.35 and
P1,554.94 representing the latter's counterclaim for handling and freight.

The Southern Lines, Inc. appealed to the Court of Appeals which affirmed the judgment of the trial court.
Hence, this petition for review.

The only question to be determined in this petition is whether or not the defendant-carrier, the herein petitioner,
is liable for the loss or shortage of the rice shipped.

Article 361 of the Code of Commerce provides: .

ART. 361. — The merchandise shall be transported at the risk and venture of the shipper, if the contrary
has not been expressly stipulated.

As a consequence, all the losses and deteriorations which the goods may suffer during the transportation
by reason of fortuitous event, force majeure, or the inherent nature and defect of the goods, shall be for
the account and risk of the shipper.1äwphï1.ñët

Proof of these accidents is incumbent upon the carrier.

Article 362 of the same Code provides: .

ART. 362. — Nevertheless, the carrier shall be liable for the losses and damages resulting from the
causes mentioned in the preceding article if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage his establisbed among
careful persons, unless the shipper has committed fraud in the bill of lading, representing the goods to be
of a kind or quality different from what they really were.

If, notwithstanding the precautions referred to in this article, the goods transported run the risk of being
lost, on account of their nature or by reason of unavoidable accident, there being no time for their
owners to dispose of them, the carrier may proceed to sell them, placing them for this purpose at the
disposal of the judicial authority or of the officials designated by special provisions.

Under the provisions of Article 361, the defendant-carrier in order to free itself from liability, was only obliged
to prove that the damages suffered by the goods were "by virtue of the nature or defect of the articles." Under
the provisions of Article 362, the plaintiff, in order to hold the defendant liable, was obliged to prove that the
damages to the goods by virtue of their nature, occurred on account of its negligence or because the defendant
did not take the precaution adopted by careful persons. (Government v. Ynchausti & Co., 40 Phil. 219, 223).

Petitioner claims exemption from liability by contending that the shortage in the shipment of rice was due to
such factors as the shrinkage, leakage or spillage of the rice on account of the bad condition of the sacks at the
time it received the same and the negligence of the agents of respondent City of Iloilo in receiving the shipment.
The contention is untenable, for, if the fact of improper packing is known to the carrier or his servants, or
apparent upon ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved of
liability for loss or injury resulting thereform. (9 Am Jur. 869.) Furthermore, according to the Court of Appeals,
"appellant (petitioner) itself frankly admitted that the strings that tied the bags of rice were broken; some bags
were with holes and plenty of rice were spilled inside the hull of the boat, and that the personnel of the boat
collected no less than 26 sacks of rice which they had distributed among themselves." This finding, which is
binding upon this Court, shows that the shortage resulted from the negligence of petitioner.

Invoking the provisions of Article 366 of the Code of Commerce and those of the bill of lading, petitioner
further contends that respondent is precluded from filing an action for damages on account of its failure to
present a claim within 24 hours from receipt of the shipment. It also cites the cases of Government v. Ynchausti
& Co., 24 Phil. 315 and Triton Insurance Co. v. Jose, 33 Phil. 194, ruling to the effect that the requirement that
the claim for damages must be made within 24 hours from delivery is a condition precedent to the accrual of the
right of action to recover damages. These two cases above-cited are not applicable to the case at bar. In the first
cited case, the plaintiff never presented any claim at all before filing the action. In the second case, there was
payment of the transportation charges which precludes the presentation of any claim against the carrier. (See
Article 366, Code of Commerce.) It is significant to note that in the American case of Hoye v. Pennsylvania
Railroad Co., 13 Ann. Case. 414, it has been said: .

... "It has been held that a stipulation in the contract of shipment requiring the owner of the goods to
present a notice of his claim to the carrier within a specified time after the goods have arrived at their
destination is in the nature of a condition precedent to the owner's right to enforce a recovery, that he
must show in the first instance that be has complied with the condition, or that the circumstances were
such that to have complied with it would have required him to do an unreasonable thing. The weight of
authority, however, sustains the view that such a stipulation is more in the nature of a limitation upon the
owner's right to recovery, and that the burden of proof is accordingly on the carrier to show that the
limitation was reasonable and in proper form or within the time stated." (Hutchinson on Carrier, 3d ed.,
par. 44) Emphasis supplied.

In the case at bar, the record shows that petitioner failed to plead this defense in its answer to respondent's
complaint and, therefore, the same is deemed waived (Section 10, Rule 9, Rules of Court), and cannot be raised
for the first time at the trial or on appeal. (Maxilom v. Tabotabo, 9 Phil. 390.) Moreover, as the Court of
Appeals has said: .

... the records reveal that the appellee (respondent) filed the present action, within a reasonable time after
the short delivery in the shipment of the rice was made. It should be recalled that the present action is
one for the refund of the amount paid in excess, and not for damages or the recovery of the shortage; for
admittedly the appellee (respondent) had paid the entire value of the 1726 sacks of rice, subject to
subsequent adjustment, as to shortages or losses. The bill of lading does not at all limit the time for filing
an action for the refund of money paid in excess.

WHEREFORE, the decision of the Court of Appeals is hereby affirmed in all respects and the petition for
certiorari denied.

With costs against the petitioner.

G.R. No. L-25047 March 18, 1967

DOMINGO ANG, plaintiff-appellant,

vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
-----------------------------

G.R. No. L-25050 March 18, 1967

DOMINGO ANG, plaintiff-appellant,

vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.

Juan T. David for plaintiff-appellant.

Ross, Selph & Carrascoso for defendant-appellee.

BENGZON, J. P., J.:

These are two cases separately appealed to the Court of Appeals and certified to Us by said Court. Since both
appeals involve the same parties and issue, they are decided together herein.

Yau Yue Commercial Bank, Ltd. of Hongkong, also referred to hereafter as Yau Yue, agreed to sell one boat
(50 feet, 30 tons) containing used U.S. Military Surplus to one Davao Merchandising Corp. for the sum of
$8,820.27 (US), and 42 cases (62 sets and 494 pieces) of Hiranos Automatic Cop Change for Cotton Loom for
Calieo to one Herminio Teves for the sum of $18,246.,65 (US), respectively.

Said agreements were both subject to the following terms and arrangements: (a) the purchase price should be
covered by a bank draft for the corresponding amount which should be paid by the purchaser in exchange for
the delivery of the corresponding bill of lading to be deposited with a local bank, the Hongkong & Shanghai
Bank of Manila; (b) upon arrival of the articles in Manila the purchaser would be notified and would have to
pay the amount called for in the corresponding demand draft, after which the bill of lading would be delivered
to said purchaser; and (c) the purchaser would present said bill of lading to the carrier's agent; American
Steamship Agencies, Inc., which would then issue the correspoding "Permit To Deliver Imported Articles" to be
presented to the Bureau of Custom to obtain the release of the articles.

Pursuant thereto, on February 17, 1961, Hirahira & Co., Ltd. shipped the 42 cases (62 sets and 494 pieces ) of
Hiranos Automatic Cop Change for Cotton Loom for Calico at Nagoya, aboard the "S.S. CELEBES MARU",
for Manila, with the Kansai Steamship Co., Ltd. of Osaka, Japan, as carrier, of which the American Steamship
Agencies, Inc. is the agent in the Philippines, under a shipping agreement, Bill of Lading No. NM 1, dated
February 17, 1961, consigned "to order of the shipper", with Herminio G. Teves as the party to be notified of
the arrival of said articles.1äwphï1.ñët

Similarly, on June 3, 1961, the United States Contracting Officer, on behalf of Nippon Trading Shokai for
Nishiman Kaihatsu Co., Ltd. shipped the boat containing U.S. Military Surplus at Yokohama, Japan, the
"KYOJU MARU", with Sankyo Kiun Kabushiki Kaisha of Japan as carrier, of which the American Steamship
Agencies, Inc. is the agent in the Philippines, under a shipping agreement, Bill of Lading No. YM-3, dated June
3, 1961, consigned "to the order of Yau Yue Commercial Bank, Ltd. of Hongkong", with Davao Merchandising
Corporation as the party to be notified of the arrival of said boat.

The bills of lading were indorsed to the order of Yau Yue and delivered to it by the respective shippers. Upon
receipt thereof, Yan Yue drew demand drafts together with the bills of lading against Teves and Davao
Merchandising Corp., through the Hongkong & Shanghai Bank.

The shipment for Teves arrived in Manila on March 2, 1961; that of Davao Merchandising Corp., arrived on
June 10, 1961. Accordingly, Hongkong & Shanghai Bank notified Teves and the Davao Merchandising
Corporation, the "notify parties" under the bills of lading, of the arrival of the goods and requested payment of
the demand drafts representing the purchase prices of the articles. The Davao Merchandising Corp. and Teves,
however, did not pay the respective drafts, prompting the bank in both cases to make the corresponding protests.
The bank likewise returned the bills of lading and demand drafts to Yau Yue which indorsed both bills of lading
to Domingo Ang.

Teves and Davao Merchandising Corporation, however, were able to obtain bank guaranties in favor of the
American Steamship Agencies., Inc., as carriers' agent, to the effect that they would surrender the original and
negotiable bills of lading duly indorsed by Yau Yue. And on the strength of said guaranties, Davao
Merchandising Corp. and Teves each succeeded in securing a "Permit To Deliver Imported Articles" from the
carriers' agent, which they presented to the Bureau of Customs. In turn the latter released to them the articles
covered by the bills of lading.

After being informed by the American Steamship Agencies that the articles covered by the respective bills of
lading were already delivered by them to the Davao Merchandising Corp. and to Teves, Domingo Ang filed
claims with the carriers' agent for the cost of said articles, interests and damages. The American Steamship
Agencies, Inc., however, refused payment.

Domingo Ang thereafter filed separate complaints in the Court of First Instance of Manila against the American
Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted the goods covered by the
bills of lading belonging to plaintiff Ang, to the damage and prejudice of the latter. The suit as to the Teves
shipment was filed on October 30, 1963; that referring to the Davao Merchandising Corp.'s shipment was filed
on November 14, 1963.

Subsequently, defendant filed motions to dismiss upon the ground that plaintiff's causes of action have
prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more particularly section
3(6), paragraph 4, which provides:

In any event, the carrier and the ship shall be discharged from all liability in respect to loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered.

It argued that the cargoes should have been delivered to the person entitled to the delivery thereof, i.e.,
plaintiff, on March 2, 1961 (Teves shipment) and June 10, 1961 (Davao Merchandising Corp.
shipment), the respective dates of the vessels' arrival in Manila, and that even allowing a reasonable time
(even one month) after such arrivals within which to make delivery, still, the actions commenced on
October 30, 1963 and November 14, 1963. respectively, were filed beyond the prescribed period of one
year.

By order dated February 21, 1964, copy of which was received by plaintiff on February 28, 1964, the lower
court presided over by the Hon. Judge Guillermo S. Santos, dismissed the action (in re the 42 cases [62 sets and
494 pieces] of Hiranos Automatic Cop Change for Cotton Loom for Calico) on the ground of prescription. His
motion for reconsideration dated March 20, 1964 having been denied by the lower court in its order dated June
5, 1964, plaintiff appealed to the Court of Appeals. This is now L-25050 and refers to the Teves shipment.

Upon the other hand, by order dated January 6, 1964, the lower court presided over by the Hon. Jesus P. Morfe
(in re the boat [50 feet, 30 tons] containing used U.S. Military Surplus) denied the motion to dismiss on the
ground that there being no allegation in the complaint as to the date of arrival of the cargo or the date of which
it should have been delivered, the defendant was relying on facts which are not yet in evidence such as
presuming that the cargo had arrived on the specific date and that the same had been delivered on another
specific date.

Upon a motion for reconsideration filed by the defendant on January 13, 1964 and after the parties submitted
their memoranda of authorities and counter-authorities, respectively, the lower court by an order dated February
20, 1964, reconsidered its prior order of January 6, 1964 and dismissed plaintiff's action also on the ground of
prescription. From this order, defendant appealed to the Court of Appeals. This is now L-25047 and refers to the
Davao Merchandising Corp. shipment.

At issue is a question purely of law, namely: Did plaintiff-appellant's causes of action prescribe under Section
3(6), paragraph 4 of the Carriage of Goods by Sea Act? .

The point has already been resolved by this Court in a case involving the same parties and parallel facts to those
herein involved. In Domingo Ang vs. American Steamship Agencies, Inc., L-22491, January 27, 1967, We held
that the one-year prescriptive period under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act does
not apply to cases of misdelivery or conversion. For convenience, We quote the ruling therein:

The provision of law involved in this case speaks of "loss or damage". That there was no damage caused
to the goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is
admitted by both parties in this case. What is to be resolved — in order to determine the applicability of
the prescriptive period of one year to the case at bar — is whether or not there was 'loss' of the goods
subject matter of the complaint.

Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to the
Civil Code which provides in Article 18 thereof that, "In matters which are governed by the Code of
Commerce and special law, their deficiency shall be supplied by the provision of this Code."

Article 1189 of the Civil Code defines the word 'loss' in cases where condition have been imposed with
the intention of suspending the efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship Agencies, Inc. and the Yau Yue (which
later on endorsed the bill of lading covering the shipment to plaintiff herein Domingo Ang), is one
involving an obligation to give or to deliver the goods "to the order of shipper" that is, upon the
presentation and surrender of the bill of lading. This being so, said article can be applied to the present
controversy, more specifically paragraph 2 thereof which provides that, "... it is understood that a thing
is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered."

As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by
Sea Act, 'loss' contemplates merely a situation where no delivery at all was made by the shipper of the
goods because the same had perished, gone out of commerce, or disappeared in much a way that their
existence is unknown or they cannot be recovered. It does not include a situation where there was indeed
delivery — but delivery to the wrong person, or a misdelivery, as alleged fir the complaint in this case.

xxx xxx xxx

The point that matters here is that the situation is either delivery or misdelivery, but not non-delivery.
Thus, the goods were either rightly delivered or misdelivered, but they were not lost. There being no loss
or damage to the goods, the aforequoted provision of the Carriage of Goods by Sea Act stating that "In
any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless it is brought within one year after delivery of the goods or the date of when the goods should have
been delivered," does not apply. The reason is not difficult to see. Said one-year period of limitation is
designed to meet the exigencies of maritime hazards. In a case where the goods shipped were neither
lost nor damaged in transit but were, on the contrary, delivered in port to someone who claimed to be
entitled thereto, the situation is different, and the special need for the short period of limitation in case of
loss or damage caused by maritime perils does not obtain.
 It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of
the goods, the applicable rule on prescription is that found in the Civil Code, namely, either ten years for
breach of a written contract or four years for quasi-delict (Arts. 1144[1], 1146, Civil Code). ...

The goods covered by the two shipments subject matter of these appealed cases were also delivered to the notify
parties, Davao Merchandising Corporation and Herminio Teves, despite the latter's inability to present the
proper bills of lading and without the knowledge and consent of plaintiff-appellant Domingo Ang to whom
were endorsed said bills of lading. There is therefore likewise misdelivery not nondelivery. Finally, the
recipients of said goods did not file any complaint with defendant regarding any damage to the same. No loss
nor damage is therefore involved in these cases. And thus the prescriptive period under Section 3(6), paragraph
4 of the Carriage of Goods by Sea Act does not apply. The applicable prescriptive period is that found in the
Civil Code, namely, either ten years for breach of a written contract or four years for quasi-delict (Arts. 1144[1]
and 1146). Since the complaints in these appealed cases were filed two years and five months (as to Davao
Merchandising Corp. shipment) and 2 years and 8 months (as to Teves shipment), from the arrival of the two
shipments, it is clear that the causes of action have not yet prescribed.

Wherefore, the orders appealed from dismissing plaintiff's complaints in these two cases on the ground of
prescription are hereby reversed and set aside; let said cases be remanded to the respective court a quo for
further proceedings. So ordered.

G.R. No. L-22491 January 27, 1967

DOMINGO ANG, plaintiff-appellant,

vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.

Juan T. David and M.C. Ginigundo for plaintiff-appellant.

Ross, Salcedo, Del Rosario, Bito & Misa for defendant-appellee.

BENGZON, J.P., J.:

Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue agreed to sell 140 packages of
galvanized steel durzinc sheets to one Herminio G. Teves (the date of said agreement is not shown in the record
here) for the sum of $32,458.26 (US). Said agreement was subject to the following terms and arrangements: (a)
the purchase price should be covered by a bank draft for the corresponding amount which should be paid by
Herminio G. Teves in exchange for the delivery to him of the corresponding bill of lading to be deposited with a
local bank, the Hongkong & Shanghai Bank of Manila (b) upon arrival of the articles in Manila, Teves would
be notified and he would have to pay the amount called for in the corresponding demand draft, after which the
bill of lading would be delivered to him; and (c) Teves would present said bill of lading to the carrier's agent,
American Steamship Agencies, Inc. which would then issue the corresponding "Permit To Deliver Imported
Articles" to be presented to the Bureau of Customs to obtain the release of the articles.

Pursuant to said terms and arrangements, Yau Yue through Tokyo Boeki Ltd. of Tokyo, Japan, shipped the
articles at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU, Manila, belonging to the Nissho
Shipping Co., Ltd. of Japan, of which the American Steamship Agencies, Inc. is the agent in the Philippines,
under a shipping agreement, Bill of Lading No. WM-2 dated April 30, 1961, consigned "to order of the shipper
with Herminio G. Teves as the party to be notified of the arrival of the 140 packages of galvanized steel durzinc
sheets in Manila.
The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon receipt thereof,
Yau Yue drew a demand draft together with the bill of lading against Herminio G. Teves, through the
Hongkong & Shanghai Bank.

When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank notified Teves, the
"notify party" under the bill of lading, of the arrival of the goods and requested payment of the demand draft
representing the purchase price of the articles. Teves, however, did not pay the demand draft, prompting the
bank to make the corresponding protest. The bank likewise returned the bill of lading and demand draft to Yau
Yue which indorsed the said bill of lading to Domingo Ang.

Meanwhile, despite his non-payment of the purchase price of the articles, Teves was able to obtain a bank
guaranty in favor of the American Steamship Agencies, Inc., as carrier's agent, to the effect that he would
surrender the original and negotiable bill of lading duly indorsed by Yau Yue. On the strength of this guaranty,
Teves succeeded in securing a "Permit To Deliver Imported Articles" from the carrier's agent, which he
presented to the Bureau of Customs which in turn released to him the articles covered by the bill of lading.

Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc., by presenting
the indorsed bill of lading, but he was informed by the latter that it had delivered the articles to Teves.

On October 30, 1963 Domingo Ang filed a complaint in the Court of First Instance of Manila against the
American Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted the goods
covered by the bill of lading belonging to plaintiff Ang, to the damage and prejudice of the latter.

On December 2, 1963, defendant filed a motion to dismiss upon the ground that plaintiff's cause of action has
prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more particularly Section 3
(6), paragraph 4, which provides:

In any event, the carrier and the ship shall be discharged from all liability in respect to loss or damage
unless suit is brought within one year, after delivery of the goods or the date when the goods should
have been delivered.

It argued that the cargo should have been delivered to the person entitled to the delivery thereof
(meaning the plaintiff) on May 9, 1961, the date of the vessel's arrival in Manila, and that even allowing
a reasonable time (even one month) after such arrival within which to make delivery, still, the action
commenced on October 30, 1963 was filed beyond the prescribed period of one year.

By order dated December 21, 1963, copy of which was received by plaintiff on December 26, 1963, the lower
court dismissed the action on the ground of prescription. His motion for reconsideration dated December 26,
1963 having been denied by the lower court in its order dated January 13, 1964, plaintiff appealed directly to
this Court on a question of law: Has plaintiff-appellant's cause of action prescribed under Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act?

The provision of law involved in this case speaks of "loss or damage". That there was no damage caused to the
goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is admitted by
both parties in this case. What is to be resolved — in order to determine the applicability of the prescriptive
period of one year to the case at bar — is whether or not there was "loss" of the goods subject matter of the
complaint.

Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to the Civil
Code which provides in Article 18 thereof that, "In matters which are governed by the Code of Commerce and
special laws, their deficiency shall be supplied by the provisions of this Code."
Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been imposed with the
intention of suspending the efficacy of an obligation to give. The contract of carriage under consideration
entered into by and between American Steamship Agencies, Inc. and the Yau Yue (which later on endorsed the
bill of lading covering the shipment to plaintiff herein Domingo Ang), is one involving an obligation to give or
to deliver the goods "to the order of shipper", that is, upon the presentation and surrender of the bill of lading.
This being so, said article can be applied to the present controversy, more specifically paragraph 2 thereof
which provides that, "... it is understood that a thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence unknown or it cannot be recovered."

As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by Sea Act,
"loss" contemplates merely a situation where no delivery at all was made by the shipper of the goods because
the same had perished, gone out of commerce, or disappeared that their existence is unknown or they cannot be
recovered. It does not include a situation where there was indeed delivery — but delivery to the wrong person,
or a misdelivery, as alleged in the complaint in this case.

The distinction between non-delivery and misdelivery has reference to bills of lading. As this Court shall in Tan
Pho vs. Hassamal Dalamal, 67 Phil. 555, 557-558:

Considering that the bill of lading covering the goods in question has been made to order, which means
that said goods cannot be delivered without previous payment of the value thereof, it is evident that, the
said goods having been delivered to Aldeguer without paying the price of the same, these facts
constitute misdelivery and not nondelivery, because their was in fact delivery of merchandise. We do not
believe it can be seriously and reasonably argued that what took place, as contended of by the petitioner,
is a case of misdelivery with respect to Aldeguer and at the same time nondelivery with respect to the
PNB who had the bill of lading, because the only thing to consider in this question is whether Enrique
Aldeguer was entitled to get the merchandise or whether, on the contrary, the PNB is the one entitled
thereto. Under the facts, the defendant petitioner should not have delivered the goods to Aldeguer but to
the Philippine National Bank. Having made the delivery to Aldeguer, the delivery is a case of
misdelivery. If the goods have been delivered, it cannot at the same time be said that they have not been
delivered.

According to the bill of lading which was issued in the case at bar to the order of the shipper, the carrier
was under a duty not to deliver the merchandise mentioned in the bill of lading except upon presentation
of the bill of lading duly endorsed by the shipper. (10 C.J., 259) Hence, the defendant-petitioner Tan
Pho having delivered the goods to Enrique Aldeguer without the presentation by the latter of the bill of
lading duly endorsed to him by the shipper, the said defendant made a misdelivery and violated the bill
of lading, because his duty was not only to transport the goods entrusted to him safely, but to deliver
them to the person indicated in the bill of lading. (Emphasis supplied)

Now, it is well settled in this jurisdiction that when a defendant files a motion to dismiss, he thereby
hypothetically admits the truth of the allegations of fact contained in the complaint (Philippine National Bank v.
Hipolito, et al., L-16463, Jan. 30, 1965; Republic v. Ramos, L-15484, Jan. 31, 1963; Pascual v. Secretary of
Public Works & Communications, L-10405, Dec. 29, 1960; Pangan v. Evening News Publishing Co., Inc., L-
13308, Dec. 29, 1960). Thus, defendant-appellant having filed a motion to dismiss, it is deemed to have
admitted, hypothetically, paragraphs 6, 7 and 8 of the complaint, and these alleges:

6. — That, when the said articles arrived in Manila, the defendant authorized the delivery thereof to
Herminio G. Teves, through the issuance of the corresponding Permit To Deliver Imported Articles,
without the knowledge and consent of the plaintiff, who is the holder in due course of said bill of lading,
notwithstanding the fact that the said Herminio G. Teves could not surrender the corresponding bill of
lading; .
 7. — That, without any evidence of the fact that Herminio G. Teves is the holder of the corresponding
bill of lading in due course; without the surrender of the bill of lading without the knowledge and
consent of the plaintiff, as holder thereof in due course, and in violation of the provision on the bill of
lading which requires that the articles are only to be delivered to the person who is the holder in due
course of the said bill of lading, or his order, the defendant issued the corresponding 'Permit To Deliver
Imported Articles' in favor of the defendant, without the knowledge and consent of the plaintiff as holder
in due course of said bill of lading, which, originally was Yau Yue subsequently, the plaintiff Domingo
Ang;

8. — That, as a result of the issuance by the defendant of said permit, Herminio G. Teves was able to
secure the release of the articles from the Bureau of Customs, which is not legally possible without the
presentation of said permit to the said Bureau; ...

From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were delivered to
Herminio G. Teves, so that there can only be either delivery, if Teves really was entitled to receive them, or
misdelivery, if he was not so entitled. It is not for Us now to resolve whether or not delivery of the goods to
Teves was proper, that is, whether or not there was rightful delivery or misdelivery.

The point that matters here is that the situation is either delivery or misdelivery, but not nondelivery. Thus, the
goods were either rightly delivered or misdelivered, but they were not lost. There being no loss or damage to the
goods, the aforequoted provision of the Carriage of Good by Sea Act stating that "In any event, the carrier and
the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year
after delivery of the goods or the date when the goods should have been delivered," does not apply. The reason
is not difficult to see. Said one-year period of limitation is designed to meet the exigencies of maritime hazards.
In a case where the goods shipped were neither last nor damaged in transit but were, on the contrary, delivered
in port to someone who claimed to be entitled thereto, the situation is different, and the special need for the
short period of limitation in cases of loss or damage caused by maritime perils does not obtain.

It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of the
goods, the applicable rule on prescription is that found in the Civil Code, namely, either ten years for breach of
a written contract or four years for quasi-delict. (Arts. 1144[1], 1146, Civil Code) In either case, plaintiff's cause
of action has not vet prescribed, since his right of action would have accrued at the earliest on May 9, 1961
when the ship arrived in Manila and he filed suit on October 30, 1963.

Wherefore, the dismissal order appealed from is hereby reversed and set aside and this case is remanded to the
court a quo for further proceedings. No costs. So ordered.