CASES RE: HOW TO DISTINGUISH COMMON CARRIERS FROM PRIVATE CARRIERS
1. NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS
SHIPPING, INC., respondents.
G.R. No. 112350. December 12, 1997.*
VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents.
Common Carriers; Private Carriers; Ships and Shipping; It has been held that the true test of a common
carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of
its transportation service for a fee.—Article 1732 of the Civil Code defines a common carrier as “persons,
corporations, firms or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the public.” It has been
held that the true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee. A carrier which does not qualify
under the above test is deemed a private carrier. “Generally, private carriage is undertaken by special
agreement and the carrier does not hold himself out to carry goods for the general public. The most
typical, although not the only form of private carriage, is the charter party, a maritime contract by which
the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for
a period of time or a voyage or voyages.”
Same; Same; Same; The rights and obligations of a private carrier and a shipper, including their
respective liability for damage to the cargo, are determined primarily by stipulations in their contract of
private carriage or charter party.—In the instant case, it is undisputed that VSI did not offer its services to
the general public. As found by the Regional Trial Court, it carried passengers or goods only for those it
chose under a “special contract of charter party.” As correctly concluded by the Court of Appeals, the MV
Vlasons I “was not a common but a private carrier.” Consequently, the rights and obligations of VSI and
NSC, including their respective liability for damage to the cargo, are determined primarily by stipulations
in their contract of private carriage or charter party.
Same; Same; Same; Evidence; Burden of Proof; Code of Commerce; In an action against a private carrier
for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier was negligent or
unseaworthy, and the fact that the goods were lost or damaged while in the carrier’s custody does not put
the burden of proof on the carrier.—This view finds further support in the Code of Commerce which
pertinently provides: “Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if
the contrary has not been expressly stipulated. Therefore, the damage and impairment suffered by the
goods during the transportation, due to fortuitous event, force majeure, or the nature and inherent defect
of the things, shall be for the account and risk of the shipper. The burden of proof of these accidents is on
the carrier.” “Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned
in the preceding article if proofs against him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful persons, unless the shipper committed fraud
in the bill of lading, making him to believe that the goods were of a class or quality different from what
they really were.” Because the MV Vlasons I was a private carrier, the shipowner’s obligations are
governed by the foregoing provisions of the Code of Commerce and not by the Civil Code which, as a
general rule, places the prima facie presumption of negligence on a common carrier. It is a hornbook
doctrine that: “In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or
damaged while in the carrier’s custody does not put the burden of proof on the carrier.”
Same; Same; Same; Where the factual findings of both the trial court and the Court of Appeals coincide,
the same are binding on the Supreme Court.—These questions of fact were threshed out and decided by
the trial court, which had the firsthand opportunity to hear the parties ’conflicting claims and to carefully
weigh their respective evidence. The findings of the trial court were subsequently affirmed by the Court
of Appeals. Where the factual findings of both the trial court and the Court of Appeals coincide, the same
are binding on this Court. We stress that, subject to some exceptional instances, only questions of law—
not questions of fact—may be raised before this Court in a petition for review under Rule 45 of the Rules
of Court.
Same; Same; Same; Only questions of law—not questions of fact—may be raised before the Supreme
Court in a petition for review under Rule 45 of the Rules of Court; Exceptions.—Fuentes v. Court of
Appeals, G.R. No. 109849, pp. 6-8, February 26, 1997, per Panganiban, J., enumerated the following
instances: “(1) When the factual findings of the Court of Appeals and the trial court are contradicttory; (2)
When the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (3) When the
inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or
impossible; (4) When there is a grave abuse of discretion in the appreciation of facts; (5) When the
appellate court, in making its findings, went beyond the issues of the case, and such findings are contrary
to the admissions of both appellant and appellee; (6) When the judgment of the Court of Appeals is
premised on a misapprehension of facts; (7) When the Court of Appeals failed to notice certain relevant
facts which, if properly considered, would justify a different conclusion; (8) When the findings of fact are
themselves conflicting; (9) When the findings of fact are conclusions without citation of the specific
evidence on which they are based; and (10) When the findings of fact of the Court of Appeals are
premised on the absence of evidence but such findings are contradicted by the evidence on record.”
Same; Same; Same; Stevedoring Service; A Stevedore company engaged in discharging cargo has the
duty to load the cargo in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its
negligence and where the officers and members and crew of the vessel do nothing and have no
responsibility in the discharge of cargo by stevedores the vessel is not liable for loss of, or damage to, the
cargo caused by the negligence of the stevedores.—The fact that NSC actually accepted and proceeded to
remove the cargo from the ship during unfavorable weather will not make VSI liable for any damage
caused thereby. In passing, it may be noted that the NSC may seek indemnification, subject to the laws on
prescription, from the stevedoring company at fault in the discharge operations. “A stevedore company
engaged in discharging cargo x x x has the duty to load the cargo x x x in a prudent manner, and it is
liable for injury to, or loss of, cargo caused by its negligence x x x and where the officers and members
and crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores x x x
the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the stevedores x x
x” as in the instant case.
Evidence; Hearsay Rule; Entries in official records made in the performance of a duty by a public officer
of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie
evidence of the facts therein stated.—We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that
“(e)ntries in official records made in the performance of a duty by a public officer of the Philippines, or by
a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts
therein stated.” Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued by
Lieutenant Junior Grade Noli C. Flores to the effect that “the vessel ‘VLASONS I ’was drylocked x x x
and PCG Inspectors were sent on board for inspection x x x. After completion of drydocking and duly
inspected by PCG Inspectors, the vessel ‘VLASONS I, ’a cargo vessel, is in seaworthy condition, meets
all requirements, fitted and equipped for trading as a cargo vessel, was cleared by the Philippine Coast
Guard and sailed for Cebu Port on July 10, 1974.” (sic) NSC’s claim, therefore, is obviously misleading
and erroneous.
Ships and Shipping; Words and Phrases; “Demurrage” and “Laytime,” Explained.—The Court defined
demurrage in its strict sense as the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the laytime or that period of time agreed on for loading and unloading of
cargo. It is given to compensate the shipowner for the nonuse of the vessel. On the other hand, the
following is well-settled: “Laytime runs according to the particular clause of the charter party. x x x If
laytime is expressed in ‘running days, ’this means days when the ship would be run continuously, and
holidays are not expected. A qualification of ‘weather permitting ’excepts only those days when bad
weather reasonably prevents the work contemplated.”
Same; Same; Same; Where laytime is qualified as WWDSHINC or weather, working days Sundays and
holidays, the running of laytime is made subject to the weather, and would cease to run in the event
unfavorable weather interferes with the unloading of cargo.—In this case, the contract of voyage charter
hire provided for a four-day laytime; it also qualified laytime as WWDSHINC or weather, working days
Sundays and holidays included. The running of laytime was thus made subject to the weather, and would
cease to run in the event unfavorable weather interfered with the unloading of cargo. Consequently, NSC
may not be held liable for demurrage as the four-day laytime allowed it did not lapse, having been tolled
by unfavorable weather condition in view of the WWDSHINC qualification agreed upon by the parties.
Clearly, it was error for the trial court and the Court of Appeals to have found and affirmed respectively
that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous
finding by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only
day of unloading unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court also
erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.
Attorney’s Fees; The mere fact that a party was compelled to litigate to protect its rights will not justify an
award of attorney’s fees under Article 2208 of the Civil Code when no sufficient showing of bad faith
would be reflected in the other party’s persistence in a case other than an erroneous conviction of the
righteousness of his cause.— VSI assigns as error of law the Court of Appeals ’deletion of the award of
attorney’s fees. We disagree. While VSI was compelled to litigate to protect its rights, such fact by itself
will not justify an award of attorney’s fees under Article 2208 of the Civil Code when “x x x no sufficient
showing of bad faith would be reflected in a party’s persistence in a case other than an erroneous
conviction of the righteousness of his cause x x x.” Moreover, attorney’s fees may not be awarded to a
party for the reason alone that the judgment rendered was favorable to the latter, as this is tantamount to
imposing a premium on one’s right to litigate or seek judicial redress of legitimate grievances.
PETITIONS for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Napoleon J. Poblador, Victoria G. De los Reyes & Heraldo A. Dacayo, Jr. for National Steel
Corporation.
Del Rosario & Del Rosario for Vlasons Shipping, Inc.
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owner’s
responsibility for damage to the cargo and its liability for demurrage and attorney’s fees. The Court also
reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons
Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals.1 The
Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163
in Civil Case No. 23317. The RTC disposed as follows:
“WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing
the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim
as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on
both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorney’s fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED.”2
On the other hand, the Court of Appeals ruled:
“WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorney’s fees and expenses of litigation. Except as
thus modified, the decision is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.”3
The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or
shipment for the general public. Its services are available only to specific persons who enter into a special
contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in this
capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of
voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
“(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit ‘B’; also Exhibit
‘1’) whereby NSC hired VSI’s vessel, the MV ‘VLASONS I ’to make one (1) voyage to load steel
products at Iligan City and discharge them at North Harbor, Manila, under the following terms and
conditions, viz.:
‘1. x x x x x x.
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master’s option.
3. x x x x
x x.
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading within
fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x x x
x x.
9. Cargo Insurance: Charterer’s and/or Shipper’s must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxx xxx
x x x’
The terms ‘F.I.O.S.T. ’which is used in the shipping business is a standard provision in the NANYOZAI
Charter Party which stands for ‘Freight In and Out including Stevedoring and Trading, ’which means that
the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, ‘Charterers to load, stow and discharge the cargo
free of risk and expenses to owners. x x x ’(Italics supplied).
Under paragraph 10 thereof, it is provided that ‘(o)wners shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to make
the vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; x x x; perils, dangers and accidents of the sea or other navigable waters; x x x;
wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the
cargo; insufficiency of packing; x x x; latent defects not discoverable by due diligence; any other cause
arising without the actual fault or privity of Owners or without the fault of the agents or servants of
owners.’
Paragraph 12 of said NANYOZAI Charter Party also provides that ‘(o)wners shall not be responsible for
split, chafing and/or any damage unless caused by the negligence or default of the master and crew.’
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
‘VLASONS I ’loaded at plaintiff’s pier at Iligan City, the NSC’s shipment of 1,677 skids of tinplates and
92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric
tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate
Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed
the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit ‘D’) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
following day, August 13, 1974, when the vessel’s three (3) hatches containing the shipment were opened
by plaintiff’s agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet
and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain
which interrupted the unloading operations. (Exhibit ‘E’)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment
by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975
(Exhibit ‘G’), MASCO made a report of its ocular inspection conducted on the cargo, both while it was
still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo
was taken and stored. MASCO reported that it found wetting and rusting of the packages of hot rolled
sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents;
that container/metal casings of the skids were rusting all over. MASCO ventured the opinion that ‘rusting
of the tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit ‘F’).
It was also reported that MASCO’s surveyors drew at random samples of bad order packing materials of
the tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974,
the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit ‘I’) which in part, states, ‘The analysis of
bad order samples of packing materials x x x shows that wetting was caused by contact with SEA
WATER.’
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant
its claim for damages suffered due to the downgrading of the damaged tinplates in the amount of
P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but defendant
VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a
result of the act, neglect and default of the master and crew in the management of the vessel as well as the
want of due diligence on the part of the defendant to make the vessel seaworthy and to make the holds
and all other parts of the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation—all in violation of defendant’s undertaking under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV ‘VLASONS I ’
was seaworthy in all respects for the carriage of plaintiff’s cargo; that said vessel was not a ‘common
carrier ’inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter
party; that in the course of the voyage from Iligan City to Manila, the MV ‘VLASONS I ’encountered
very rough seas, strong winds and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its deck and hatch covers; that under
the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on
proven willful negligence of the officers of the vessel, that the officers of said MV ‘VLASONS I ’
exercised due diligence and proper seamanship and were not willfully negligent; that furthermore the
Voyage Charter Party provides that loading and discharging of the cargo was on FIOST terms which
means that the vessel was free of risk and expense in connection with the loading and discharging of the
cargo; that the damage, if any, was due to the inherent defect, quality or vice of the cargo or to the
insufficient packing thereof or to latent defect of the cargo not discoverable by due diligence or to any
other cause arising without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who
discharged the cargo in Manila were negligent and did not exercise due care in the discharge of the cargo;
and that the cargo was exposed to rain seawater spray while on the pier or in transit from the pier to
plaintiff’s warehouse after discharge from the vessel; and that plaintiff’s claim was highly speculative and
grossly exaggerated and that the small stain marks or sweat marks on the edges of the tinplates were
magnified and considered total loss of the cargo. Finally, defendant claimed that it had complied with all
its duties and obligations under the Voyage Charter Hire Contract and had no responsibility whatsoever to
plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter
Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands
made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of
P8,000.00 per day for demurrage. The vessel was on demurrer for eleven (11) days in Manila waiting for
plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in
the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay
defendant attorney’s fees and all expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings
which were set forth in its decision:
(a) The MV ‘VLASONS I ’is a vessel of Philippine registry engaged in the tramping service and is
available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. ‘1’), the MV
‘VLASONS I ’was covered by the required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. ‘4’);
Coastwise License from the Board of Transportation (Exh. ‘5’); International Loadline Certificate from
the Philippine Coast Guard (Exh. ‘6’); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. ‘7’); Ship Radio Station License (Exh. ‘8’); Certificate of Inspection by the Philippine
Coast Guard (Exh. ‘12’); and Certificate of Approval for Conversion issued by the Bureau of Customs
(Exh. ‘9’). That being a vessel engaged in both overseas and coastwise trade, the MV ‘VLASONS I ’has a
higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter
Hire, the MV ‘VLASONS I ’underwent drydocking in Cebu and was thoroughly inspected by the
Philippine Coast Guard. In fact, subject voyage was the vessel’s first voyage after the drydocking. The
evidence shows that the MV ‘VLASONS I ’was seaworthy and properly manned, equipped and supplied
when it undertook the voyage. It had all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were
covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were
water tight. Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence.
The provisions of the Civil Code on common carriers pursuant to which there exists a presumption of
negligence in case of loss or damage to the cargo are not applicable. As to the damage to the tinplates
which was allegedly due to the wetting and rusting thereof, there is unrebutted testimony of witness
Vicente Angliongto that tinplates ‘sweat ’by themselves when packed even without being in contract (sic)
with water from outside especially when the weather is bad or raining. The rust caused by sweat or
moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be held liable
for it pursuant to Article 1743 of the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the ‘character of the goods x x x. ’All the 1,769 skids of the tinplates could not have
been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates
themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected by water
from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing
the hatch openings of the MV ‘VLASONS I ’when rains occurred during the discharging of the cargo thus
allowing rainwater to enter the hatches. It was proven that the stevedores merely set up temporary tents to
cover the hatch openings in case of rain so that it would be easy for them to resume work when the rains
stopped by just removing the tent or canvas. Because of this improper covering of the hatches by the
stevedores during the discharging and unloading operations which were interrupted by rains, rainwater
drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic]
Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant
carrier has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en route from
Iligan City to Manila causing sea water to splash on the ship’s deck on account of which the master of the
vessel (Mr. Antonio C. Dumlao) filed a ‘Marine Protest ’on August 13, 1974 (Exh. ‘15’) which can be
invoked by defendant as a force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire
contract that it was to insure the cargo because it did not. Had plaintiff complied with the requirement,
then it could have recovered its loss or damage from the insurer. Plaintiff also violated the charter party
contract when it loaded not only ‘steel products, ’i.e. steel bars, angular bars and the like but also tinplates
and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to
ship high grade cargo at a lower freight rate.
(i) As regards defendant’s counterclaim, the contract of voyage charter hire under paragraph 4 thereof,
fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of
lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00 despite
demands. The evidence also showed that the plaintiff was required and bound under paragraph 7 of
the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the
unloading of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to
pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
“I
The trial court erred in finding that the MV ‘VLASONS I ’was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessel’s officers.
“II
The trial court erred in finding that the rusting of NSC’s tinplates was due to the inherent nature or
character of the goods and not due to contact with seawater.
“III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSC’s
shipment.
“IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
“V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
“VI
The trial court erred in ordering NSC to pay freight, demurrage and attorney’s fees, to VSI.”4
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage
from P88,000.00 to P44,000.00 and deleting the award of attorney’s fees and expenses of litigation. NSC
and VSI filed separate motions for reconsideration. In a Resolution5 dated October 20, 1993, the appellate
court denied both motions. Undaunted, NSC and VSI filed their respective petitions for review before this
Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation of these petitions.6
The Issues
In its petition7 and memorandum,8 NSC raises the following questions of law and fact:
Questions of Law
“1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by
weather interruption;
2. Whether or not the alleged ‘seaworthiness certificates ’(Exhibits ‘3,‘ ’4,‘ ’5,‘ ’6,‘ ’7,‘ ’8,‘ ’9,‘ ’11 ’and ‘12’)
were admissible in evidence and constituted evidence of the vessel’s seaworthiness at the beginning of the
voyages; and
3. Whether or not a charterer’s failure to insure its cargo exempts the shipowner from liability for cargo
damage.”
Questions of Fact
“1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel’s officers and crew were negligent in handling and caring for NSC’s cargo;
3. Whether or not NSC’s cargo of tinplates did sweat during the voyage and, hence, rusted on their own;
and
4. Whether or not NSC’s stevedores were negligent and caused the wetting[/]rusting of NSC’s tinplates.”
In its separate petition,9 VSI submits for the consideration of this Court the following alleged errors of
the CA:
“A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage from
P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorney’s fees and expenses of litigation.”
Amplifying the foregoing, VSI raises the following issues in its memorandum:10
“I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to
which there exist[s] a presumption of negligence against the common carrier in case of loss or damage to
the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the
Nanyozai Charter, are valid and binding on both contracting parties.”
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSC’s Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney’s Fees.
The Court’s Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a
private carrier. The resolution of this preliminary question determines the law, standard of diligence and
burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as “persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.” It has been held that the true test of a common carrier
is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its
transportation service for a fee.11 A carrier which does not qualify under the above test is deemed a
private carrier. “Generally, private carriage is undertaken by special agreement and the carrier does not
hold himself out to carry goods for the general public. The most typical, although not the only form of
private carriage, is the charter party, a maritime contract by which the charterer, a party other than the
shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or
voyages.”12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by
the Regional Trial Court, it carried passengers or goods only for those it chose under a “special contract of
charter party.”13 As correctly concluded by the Court of Appeals, the MV Vlasons I “was not a common
but a private carrier.”14 Consequently, the rights and obligations of VSI and NSC, including their
respective liability for damage to the cargo, are determined primarily by stipulations in their contract of
private carriage or charter party.15 Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs.
Court of Appeals and Seven Brothers Shipping Corporation,16 the Court ruled:
“x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage
does not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving common
carriers.”17
Extent of VSI’s Responsibility and Liability Over NSC’s Cargo
It is clear from the parties ’Contract of Voyage Charter Hire, dated July 17, 1974, that VSI “shall not be
responsible for losses except on proven willful negligence of the officers of the vessel.” The NANYOZAI
Charter Party, which was incorporated in the parties ’contract of transportation, further provided that the
shipowner shall not be liable for loss of or damage to the cargo arising or resulting from unseaworthiness,
unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the
same was “properly manned, equipped and supplied,” and to “make the holds and all other parts of the
vessel in which cargo [was] carried, fit and safe for its reception, carriage and preservation.”18 The
NANYOZAI Charter Party also provided that “[o]wners shall not be responsible for split, chafing and/or
any damage unless caused by the negligence or default of the master or crew.”19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment
was caused by VSI’s willful negligence or failure to exercise due diligence in making MV Vlasons I
seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was
placed on NSC by the parties ’agreement.
This view finds further support in the Code of Commerce which pertinently provides:
“Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not
been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous
event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of
the shipper.
The burden of proof of these accidents is on the carrier.”
“Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful persons, unless the shipper committed fraud
in the bill of lading, making him to believe that the goods were of a class or quality different from what
they really were.”
Because the MV Vlasons I was a private carrier, the shipowner’s obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places
the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that:
“In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove
that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in
the carrier’s custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of
the goods committed to its care, the burden of proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo while in the carrier’s possession does not cast on it the
burden of proving proper care and diligence on its part or that the loss occurred from an excepted cause in
the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the
benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee,
and since the carrier is in a better position to know the cause of the loss and that it was not one involving
its liability, the law requires that it come forward with the information available to it, and its failure to do
so warrants an inference or presumption of its liability. However, such inferences and presumptions,
while they may affect the burden of coming forward with evidence, do not alter the burden of proof which
remains on plaintiff, and, where the carrier comes forward with evidence explaining the loss or damage,
the burden of going forward with the evidence is again on plaintiff.
Where the action is based on the shipowner’s warranty of seaworthiness, the burden of proving a breach
thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the
goods were lost or damaged while in the carrier’s possession does not cast on it the burden of proving
seaworthiness. x x x Where the contract of carriage exempts the carrier from liability for unseaworthiness
not discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due
diligence to make the vessel seaworthy.”20
In the instant case, the Court of Appeals correctly found that NSC “has not taken the correct position in
relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause
10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellant’s [NSC’s]
interpretation of Clause 12 is not even correct), it argues that ‘a careful examination of the evidence will
show that VSI miserably failed to comply with any of these obligations ’as if defendant-appellee [VSI]
had the burden of proof.”21
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1)
whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under
the charter party; (2) whether the damage to the cargo should be attributed to the willful negligence of the
officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the
tinplates was caused by its own “sweat” or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties ’conflicting claims and to carefully weigh their respective evidence. The
findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings
of both the trial court and the Court of Appeals coincide, the same are binding on this Court.22 We stress
that, subject to some exceptional instances,23 only questions of law–not questions of fact–may be raised
before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough review of
the case at bar, we find no reason to disturb the lower courts ’factual findings, as indeed NSC has not
successfully proven the application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for
the carriage of NSC’s cargo of steel and tinplates. This is shown by the fact that it was drydocked and
inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under
the contract of voyage charter hire.24 The vessel’s voyage from Iligan to Manila was the vessel’s first
voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted and
equipped; it met all requirements for trading as cargo vessel.25 The Court of Appeals itself sustained the
conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or reverse
this finding of both the trial and the appellate courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the
negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the
carriage of tinplates. NSC failed to discharge this burden. Before us, NSC relies heavily on its claim that
MV Vlasons I had used an old and torn tarpaulin or canvas to cover the hatches through which the cargo
was loaded into the cargo hold of the ship. It faults the Court of Appeals for failing to consider such claim
as an “uncontroverted fact”26 and denies that MV Vlasons I “was equipped with new canvas covers in
tandem with the old ones as indicated in the Marine Protest x x x.”27 We disagree.
The records sufficiently support VSI’s contention that the ship used the old tarpaulin, only in addition to
the new one used primarily to make the ship’s hatches watertight. The foregoing are clear from the marine
protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship’s
boatswain, Jose Pascua. The salient portions of said marine protest read:
“x x x That the M/V “VLASONS I” departed Iligan City on or about 0730 hours of August 8, 1974,
loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel
Corporation; that before departure, the vessel was rigged, fully equipped and cleared by the authorities;
that on or about August 9, 1974, while in the vicinity of the western part of Negros and Panay, we
encountered very rough seas and strong winds and Manila office was advised by telegram of the adverse
weather conditions encountered; that in the morning of August 10, 1974, the weather condition changed
to worse and strong winds and big waves continued pounding the vessel at her port side causing sea water
to overflow on deck andhatch (sic) covers and which caused the first layer of the canvass covering to give
way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that we resecured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching
Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;
xxx xxx
x x x”28
And the relevant portions of Jose Pascua’s deposition are as follows:
“q
What is the purpose of the canvas cover?
a
So that the cargo would not be soaked with water.
q
And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
a
It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a
flat bar over the canvas on the side of the hatches and then we place[d] a stopper so that the canvas could
not be removed.
ATTY. DEL ROSARIO
q
And will you tell us the size of the hatch opening? The length and the width of the hatch opening.
a
Forty-five feet by thirty-five feet, sir.
xxx
q
xxx
xxx
How was the canvas supported in the middle of the hatch opening?
a
There is a hatch board.
ATTY. DEL ROSARIO
q
What is the hatch board made of?
a
It is made of wood, with a handle.
q
And aside from the hatch board, is there any other material there to cover the hatch?
a
There is a beam supporting the hatch board.
q
What is this beam made of?
a
It is made of steel, sir.
q
Is the beam that was placed in the hatch opening covering the whole hatch opening?
a
No, sir.
q
How many hatch beams were there placed across the opening.
a
There are five beams in one hatch opening.
ATTY. DEL ROSARIO
q
And on top of the beams you said there is a hatch board. How many pieces of wood are put on top?
a
Plenty, sir, because there are several pieces on top of the hatch beam.
q
And is there a space between the hatch boards?
a
There is none, sir.
q
They are tight together?
a
Yes, sir.
q
How tight?
a
Very tight, sir.
q
Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas covers?
a
Two, sir.”29
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give
way and the ship’s hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals,
“x x x we find no reason not to sustain the conclusion of the lower court based on overwhelming
evidence, that the MV ‘VLASONS I ’was seaworthy when it undertook the voyage on August 8, 1974
carrying on board thereof plaintiff-appellant’s shipment of 1,677 skids of tinplates and 92 packages of hot
rolled sheets or a total of 1,769 packages from NSC’s pier in Iligan City arriving safely at North Harbor,
Port Area, Manila, on August 12, 1974; x x x.”30
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of
MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent
in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a
passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly
inadequate for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an
officer of VSI, testified thus:
“ATTY. ZAMORA:
Q
Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel
upon notice from the National Steel Corporation in order to conduct the inspection of the cargo. During
the course of the investigation, did you chance to see the discharging operation?
WITNESS:
A
Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but
majority of the tinplates were inside the hall, all the hatches were opened.
Q
In connection with these cargoes which were unloaded, where is the place.
A
At the Pier.
Q
What was used to protect the same from weather?
ATTY. LOPEZ:
We object, your Honor, this question was already asked. This particular matter. . . the transcript of
stenographic notes shows the same was covered in the direct examination.
ATTY. ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
72
ATTY. LOPEZ:
Q
What was used in order to protect the cargo from the weather?
A
A base of canvas was used as cover on top of the tinplates, and tents were built at the opening of the
hatches.
Q
You also stated that the hatches were already opened and that there were tents constructed at the opening
of the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the tents
constructed.
A
The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle
with the whole side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle
because of those weather and this can be used only to temporarily protect the cargo from getting wet by
rains.
Q
Now, is this procedure adopted by the stevedores of covering tents proper?
A
No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent
was not good enough to hold all of it to prevent the water soaking through the canvas and enter the cargo.
Q
In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the
canvas and tinplates.
A
Yes, sir, the second time I went there, I saw it.
Q
As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by
its stevedores in discharging the cargo particularly in this tent covering of the hatches?
A
Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind
at all, so, I called the attention of the representative of the National Steel but nothing was done, just the
same. Finally, I wrote a letter to them.”31
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores ’negligence on the first day of unloading, pointing out that he wrote his
letter to petitioner only seven days later.32 The Court is not persuaded. Angliongto’s candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he first called the
attention of the stevedores, then the NSC’s representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with
common sense and ordinary human experience. Vicente Angliongto could not be blamed for calling the
stevedores ’attention first and then the NSC’s representative on location before formally informing NSC
of the negligence he had observed, because he was not responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts ’findings and conclusions on this point, viz:
“In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired
by NSC were negligent in the unloading of NSC’s shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV
‘VLASONS I ’when rains occurred during the discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores
merely set up temporary tents or canvas to cover the hatch openings when it rained during the unloading
operations so that it would be easier for them to resume work after the rains stopped by just removing said
tents or canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto
wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on
rainy days and the improper closing of the hatches which allowed continuous heavy rain water to leak
through and drip to the tinplates ’covers and [Vicente Angliongto] also suggesting that due to four (4)
days continuous rains with strong winds that the hatches be totally closed down and covered with canvas
and the hatch tents lowered. (Exh. ‘13’). This letter was received by [NSC] on 22 August 1974 while
discharging operations were still going on (Exhibit ’13-A’).”33
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable
weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the
NSC may seek indemnification, subject to the laws on prescription, from the stevedoring company at fault
in the discharge operations. “A stevedore company engaged in discharging cargo x x x has the duty to
load the cargo x x x in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its
negligence x x x and where the officers and members and crew of the vessel do nothing and have no
responsibility in the discharge of cargo by stevedores x x x the vessel is not liable for loss of, or damage
to, the cargo caused by the negligence of the stevedores x x x”34 as in the instant case.
Do Tinplates “Sweat?”
The trial court relied on the testimony of Vicente Angliongto in finding that “x x x tinplates ‘sweat ’by
themselves when packed even without being in contact with water from outside especially when the
weather is bad or raining x x x.”35 The Court of Appeals affirmed the trial court’s finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage
to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the
stevedores negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC’s Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I.
Clearly, therefore, NSC’s failure to insure the cargo will not affect its right, as owner and real party in
interest, to file an action against VSI for damages caused by the latter’s willful negligence. We do not find
anything in the charter party that would make the liability of VSI for damage to the cargo contingent on
or affected in any manner by NSC’s obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates Proving Seaworthiness
NSC’s contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the
certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs36
NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of
Court. It points out that Exhibits 3, 4 and 11 allegedly are “not written records or acts of public officers”;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not “evidenced by official publications or certified true copies”
as required by Sections 25 and 26, Rule 132, of the Rules of Court.37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are
inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued
by private parties, but they have not been proven by one who saw the writing executed, or by evidence of
the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12
are photocopies, but their admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Court, which provides that “(e)ntries in official records made in the
performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts therein stated.”38 Exhibit 11 is an original
certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the
effect that “the vessel ‘VLASONS I ’was drylocked x x x and PCG Inspectors were sent on board for
inspection x x x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel
‘VLASONS I, ’a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for
trading as a cargo vessel, was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10,
1974.” (sic) NSC’s claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation
of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of
proving the willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo.
Assailing the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not
seaworthy.
Fourth Issue: Demurrage and Attorney’s Fees
The contract of voyage charter hire provides inter alia:
“x x x x x x x x x
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master’s option.
xxx xxx
xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.”39
The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo.40 It is given to compensate the shipowner for the nonuse of the vessel.
On the other hand, the following is well-settled:
“Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in
‘running days, ’this means days when the ship would be run continuously, and holidays are not expected.
A qualification of ‘weather permitting ’excepts only those days when bad weather reasonably prevents the
work contemplated.”41
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime
as WWDSHINC or weather, working days Sundays and holidays included.42 The running of laytime was
thus made subject to the weather, and would cease to run in the event unfavorable weather interfered with
the unloading of cargo.43 Consequently, NSC may not be held liable for demurrage as the four-day
laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view of the
WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the
Court of Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in
unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the twelve days,
specifically August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable
weather or rain, which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to
VSI for demurrage, even if it reduced the amount by half.
Attorney’s Fees
VSI assigns as error of law the Court of Appeals ’deletion of the award of attorney’s fees. We disagree.
While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an award of
attorney’s fees under Article 2208 of the Civil Code when “x x x no sufficient showing of bad faith would
be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of
his cause x x x.”44 Moreover, attorney’s fees may not be awarded to a party for the reason alone that the
judgment rendered was favorable to the latter, as this is tantamount to imposing a premium on one’s right
to litigate or seek judicial redress of legitimate grievances.45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the
cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage
was brought about during the unloading process when rain and seawater seeped through the cargo due to
the fault or negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial
court, when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are
settled exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement
between the parties—the Contract of Voyage Charter Hire—placed the burden of proof for such loss or
damage upon the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is
valid because the parties entered into a contract of private charter, not one of common carriage. Basic too
is the doctrine that courts cannot relieve a party from the effects of a private contract freely entered into,
on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal
commercial contract and its stipulations are agreed upon in consideration of many factors, not the least of
which is the transport price which is determined not only by the actual costs but also by the risks and
burdens assumed by the shipper in regard to possible loss or damage to the cargo. In recognition of such
factors, the parties even stipulated that the shipper should insure the cargo to protect itself from the risks it
undertook under the charter party. That NSC failed or neglected to protect itself with such insurance
should not adversely affect VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
demurrage awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.
Narvasa (C.J., Chairman), Romero, Melo and Francisco, JJ., concur.
Consolidated petitions denied; Questioned decision affirmed with modification.
Note.—A common carrier is liable as such to a stevedore who was hired by a shipper to help load cargo,
even if such stevedore was not himself a passenger. (Sulpicio Lines, Inc. vs. Court of Appeals, 246 SCRA
299 [1995])
——o0o——
2. G.R. No. 101503. September 15, 1993.*
PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS, SORIAMONT STEAMSHIP
AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA, respondents.
Words and Phrases; Shipping; “Charter Party” defined.—A “charter-party” is defined as a contract by
which an entire ship, or some principal part thereof, is let by the owner to another person for a specified
time or use; a contract of affreightment by which the owner of a ship or other vessel lets the whole or a
part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; Charter parties are of two types: (a) contract of affreightment
which involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry
goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is
let to the charterer with a transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants. Contract of affreightment
may either be time charter, wherein the vessel is leased to the charterer for a fixed period of time, or
voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for
the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage,
the shipowner to supply the ship’s stores, pay for the wages of the master and the crew, and defray the
expenses for the maintenance of the ship.
Same; Same; “Common Carrier” defined.—Upon the other hand, the term “common or public carrier” is
defined in Art. 1732 of the Civil Code. The definition extends to carriers either by land, air or water
which hold themselves out as ready to engage in carrying goods or transporting passengers or both for
compensation as a public employment and not as a casual occupation. The distinction between a
“common or public carrier” and a “private or special carrier” lies in the character of the business, such that
if the undertaking is a single transaction, not a part of the general business or occupation, although
involving the carriage of goods for a fee, the person or corporation offering such service is a private
carrier.
Shipping; Transportation; Evidence; Common carriers required to observe extraordinary diligence and
presumed at fault; no such presumption applies to private carriers.—Article 1733 of the New Civil Code
mandates that common carriers, by reason of the nature of their business, should observe extraordinary
diligence in the vigilance over the goods they carry. In the case of private carriers, however, the exercise
of ordinary diligence in the carriage of goods will suffice. Moreover, in case of loss, destruction or
deterioration of the goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. On the contrary, no such presumption
applies to private carriers, for whosoever alleges damage to or deterioration of the goods carried has the
onus of proving that the cause was the negligence of the carrier.
Same; Same; Same; In a time or voyage charter, in contrast to a bareboat charter, the ship remains a
common or public carrier.—It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when the
charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes
private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a
shipowner in a time or voyage charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.
Same; Same; Same; In the common carriage of highly soluble goods, like fertilizer, it is the shipper or
owner of the goods that commonly face risk of loss or damage.—Indeed, we agree with respondent carrier
that bulk shipment of highly soluble goods like fertilizer carries with it the risk of loss or damage. More
so, with a variable weather condition prevalent during its unloading, as was the case at bar. This is a risk
the shipper or the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved the
inherent character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was
adduced by the petitioner showing that the carrier was remiss in the exercise of due diligence in order to
minimize the loss or damage to the goods it carried.
BELLOSILLO, J.:
Does a charter-party1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI)
of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped
in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent
Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando,
La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel
and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party
starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and
4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th of May
1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably inspected
by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of
the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo
Bureau inspector or substitute appointed by charterers for his account certifying the vessel's
readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and dried at
the vessel's expense and the vessel to be presented clean for use in bulk to the satisfaction of
the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of
the shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of
tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed throughout
the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its
steelbodied dump trucks which were parked alongside the berth, using metal scoops attached to
the ship, pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause).6 The hatches remained open throughout the duration of the discharge.7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway
to the warehouse, the trucks were made to pass through a weighing scale where they were
individually weighed for the purpose of ascertaining the net weight of the cargo. The port area
was windy, certain portions of the route to the warehouse were sandy and the weather was
variable, raining occasionally while the discharge was in progress.8 The petitioner's warehouse
was made of corrugated galvanized iron (GI) sheets, with an opening at the front where the dump
trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were
placed in-between and alongside the trucks to contain spillages of the ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc.
(CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings
of the vessel prior to and after discharge. 11 The survey report submitted by CSCI to the consignee
(PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of
the Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were
contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which
showed that the cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered
unfit
for
commerce,
having
been
polluted
with
sand,
rust
and
12
dirt.
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the
alleged shortage in the goods shipped and the diminution in value of that portion said to have
been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they "had
nothing to do with the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action
for damages with the Court of First Instance of Manila. The defendant carrier argued that the strict
public policy governing common carriers does not apply to them because they have become
private carriers by reason of the provisions of the charter-party. The court a quo however
sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed negligent in case
of loss or damage of the goods it contracts to transport, all that a shipper has to do in a suit to
recover for loss or damage is to show receipt by the carrier of the goods and to delivery by it of
less than what it received. After that, the burden of proving that the loss or damage was due to
any of the causes which exempt him from liability is shipted to the carrier, common or private he
may be. Even if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that the shortage
or contamination sustained by the cargo is attributable to the fault or negligence on the part of the
shipper or consignee in the loading, stowing, trimming and discharge of the cargo. This they failed
to do. By this omission, coupled with their failure to destroy the presumption of negligence against
them, the defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled that the cargo
vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a
common carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on
common carriers which set forth a presumption of negligence do not find application in the case
at bar. Thus —
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce
sufficient evidence to prove the negligence of the defendant carrier as alleged in its complaint. It
is an old and well settled rule that if the plaintiff, upon whom rests the burden of proving his cause
of action, fails to show in a satisfactory manner the facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense (Moran, Commentaries on the
Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of
action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was under the
impression that it did not have to establish defendant's negligence. Be that as it may, contrary to
the trial court's finding, the record of the instant case discloses ample evidence showing that
defendant carrier was not negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due
deligence on its part or that of its manager to make the vessel seaworthy in all respects, and not
whether the presumption of negligence provided under the Civil Code applies only to common
carriers and not to private carriers. 19 Petitioner further argues that since the possession and
control of the vessel remain with the shipowner, absent any stipulation to the contrary, such
shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence against respondent carrier, and
instead shifting the onus probandi on the shipper to show want of due deligence on the part of
the carrier, when he was not even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier
by reason of a charter-party; in the negative, whether the shipowner in the instant case was able
to prove that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being
so, we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof,
is let by the owner to another person for a specified time or use; 20 a contract of affreightment by
which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of
shipping space on vessels leased by the owner in part or as a whole, to carry goods for others;
and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to
the charterer with a transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed
period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases,
the charter-party provides for the hire of vessel only, either for a determinate period of time or for
a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of
the master and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code.
23
The definition extends to carriers either by land, air or water which hold themselves out as ready
to engage in carrying goods or transporting passengers or both for compensation as a public
employment and not as a casual occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the business, such that if the undertaking
is a single transaction, not a part of the general business or occupation, although involving the
carriage of goods for a fee, the person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of
their business, should observe extraordinary diligence in the vigilance over the goods they carry.25
In the case of private carriers, however, the exercise of ordinary diligence in the carriage of goods
will suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common
carriers are presumed to have been at fault or to have acted negligently, and the burden of proving
otherwise rests on them.26 On the contrary, no such presumption applies to private carriers, for
whosoever alleges damage to or deterioration of the goods carried has the onus of proving that
the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner chartered
the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ
of the shipowner and therefore continued to be under its direct supervision and control. Hardly
then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring
for his cargo when the charterer did not have any control of the means in doing so. This is evident
in the present case considering that the steering of the ship, the manning of the decks, the
determination of the course of the voyage and other technical incidents of maritime navigation
were all consigned to the officers and crew who were screened, chosen and hired by the
shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of
the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship
only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at
least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a
shipowner in a time or voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the
validity of a stipulation in the charter-party exempting the shipowners from liability for loss due to
the negligence of its agent, and not the effects of a special charter on common carriers. At any
rate, the rule in the United States that a ship chartered by a single shipper to carry special cargo
is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that
the growing concern for safety in the transportation of passengers and /or carriage of goods by
sea requires a more exacting interpretation of admiralty laws, more particularly, the rules
governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —
As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is
used to convey the goods of one and of several persons. Where the ship herself is let to a
charterer, so that he takes over the charge and control of her, the case is different; the shipowner
is not then a carrier. But where her services only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or many. The master and the crew are in each
case his servants, the freighter in each case is usually without any representative on board the
ship; the same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper
or consignee should first prove the fact of shipment and its consequent loss or damage while the
same was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof
shifts to respondent to prove that he has exercised extraordinary diligence required by law or that
the loss, damage or deterioration of the cargo was due to fortuitous event, or some other
circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the
prima facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan,
testified that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried
and fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel
pontoon hatches were closed and sealed with iron lids, then covered with three (3) layers of
serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly
sealed while the ship was in transit as the weight of the steel covers made it impossible for a
person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33
When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded,
and in the presence of a representative of the shipowner, the foreman, the stevedores, and a
cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of
the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who
were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care
of the cargo. This was confirmed by respondent appellate court thus —
. . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses
ample evidence showing that defendant carrier was not negligent in performing its obligations.
Particularly, the following testimonies of plaintiff-appellee's own witnesses clearly show absence
of negligence by the defendant carrier; that the hull of the vessel at the time of the discharge of
the cargo was sealed and nobody could open the same except in the presence of the owner of
the cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of tarpaulins and
therefore their contents were protected from the weather (TSN, 5 April 1978, p. 24); and, that to
open these hatches, the seals would have to be broken, all the seals were found to be intact
(TSN, 20 July 1977, pp. 15-16) (emphasis supplied).
The period during which private respondent was to observe the degree of diligence required of it
as a public carrier began from the time the cargo was unconditionally placed in its charge after
the vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the
vessel reached its destination and its hull was reexamined by the consignee, but prior to
unloading. This is clear from the limitation clause agreed upon by the parties in the Addendum to
the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning, that the
loading, stowing, trimming and discharge of the cargo was to be done by the charterer, free from
all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo
resulting from improper stowage only when the stowing is done by stevedores employed by him,
and therefore under his control and supervision, not when the same is done by the consignee or
stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous event,
force majeure, or the inherent defect of the goods, shall be for the account and risk of the shipper,
and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall
be liable for the loss and damage resulting from the preceding causes if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take the
precautions which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer
working with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of
ammonia and carbon monoxide compounds which are used as fertilizer. Urea also contains 46%
nitrogen and is highly soluble in water. However, during storage, nitrogen and ammonia do not
normally evaporate even on a long voyage, provided that the temperature inside the hull does not
exceed eighty (80) degrees centigrade. Mr. Chupungco further added that in unloading fertilizer
in bulk with the use of a clamped shell, losses due to spillage during such operation amounting to
one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause
of these spillages is the clamped shell which does not seal very tightly. Also, the wind tends to
blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an
extremely high temperature in its place of storage, or when it comes in contact with water. When
Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged
portion which is in liquid form still remains potent and usable although no longer saleable in its
original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various pieces of
equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to
seep into the vessel's holds during the voyage since the hull of the vessel was in good condition
and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects
seaworthy to carry the cargo she was chartered for. If there was loss or contamination of the
cargo, it was more likely to have occurred while the same was being transported from the ship to
the dump trucks and finally to the consignee's warehouse. This may be gleaned from the
testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He explained
that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an
approximation or estimate made by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged
according to the supply officer of PPI, who also testified that it was windy at the waterfront and
along the shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent
during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods
has to face. Clearly, respondent carrier has sufficiently proved the inherent character of the goods
which makes it highly vulnerable to deterioration; as well as the inadequacy of its packaging which
further contributed to the loss. On the other hand, no proof was adduced by the petitioner showing
that the carrier was remise in the exercise of due diligence in order to minimize the loss or damage
to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of
the First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
3. FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING
CORPORATION and LAMBERT M. EROLES, respondents.
Transportation; Common Carriers; A trucking company which is an exclusive contractor and
hauler of another company, rendering or offering its services to no other individual or entity, cannot
be considered a common carrier.—On the first issue, the Court finds the conclusion of the trial
court and the Court of Appeals to be amply justified. GPS, being an exclusive contractor and
hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or
entity, cannot be considered a common carrier. Common carriers are persons, corporations, firms
or associations engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for hire or compensation, offering their services to the public, whether to the
public in general or to a limited clientele in particular, but never on an exclusive basis. The true
test of a common carrier is the carriage of passengers or goods, providing space for those who
opt to avail themselves of its transportation service for a fee. Given accepted standards, GPS
scarcely falls within the term “common carrier.”
Same; Contracts; Breach of Contracts; In culpa contractual, the mere proof of the existence of
the contract and the failure of its compliance justify, prima facie, a corresponding right of relief;
Indeed, agreements can accomplish little, either for their makers or for society, unless they are
made the basis for action—the effect of every infraction is to create a new duty, that is, to make
recompense to the one who has been injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances, like proof of his exercise of due
diligence or of the attendance of fortuitous event, to excuse him from his ensuing liability.—In
culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion
Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of
contracts, will not permit a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach upon the contract
confers upon the injured party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests of the promisee that may include his
“expectation interest,” which is his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been performed, or his “reliance
interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract not been made; or his
“restitution interest,” which is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can accomplish little, either for their makers or
for society, unless they are made the basis for action. The effect of every infraction is to create a
new duty, that is, to make recompense to the one who has been injured unless he can show
extenuating circumstances, like proof of his exercise of due diligence (normally that of the
diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case
of common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to
excuse him from his ensuing liability.
Same; Same; Same; Quasi-Delicts; Torts; The driver, not being a party to the contract of carriage,
may not be held liable under the agreement—action against him can only be based on culpa
aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove
negligence or fault on his part.—Respondent driver, on the other hand, without concrete proof of
his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party
to the contract of carriage between petitioner’s principal and defendant, may not be held liable
under the agreement. A contract can only bind the parties who have entered into it or their
successors who have assumed their personality or their juridical position. Consonantly with the
axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor prejudice
a third person. Petitioner’s civil action against the driver can only be based on culpa aquiliana,
which, unlike culpa contractual, would require the claimant for damages to prove negligence or
fault on the part of the defendant.
Same; Same; Same; Same; Same; Res Ipsa Loquitur; Requisites; Words and Phrases; Res ipsa
loquitur is not a rule of substantive law and, as such, it does not create an independent ground of
liability—instead, it is regarded as a mode of proof, and relieves the plaintiff of the burden of
producing specific proof of negligence.—A word in passing. Res ipsa loquitur, a doctrine being
invoked by petitioner, holds a defendant liable where the thing which caused the injury complained
of is shown to be under the latter’s management and the accident is such that, in the ordinary
course of things, cannot be expected to happen if those who have its management or control use
proper care. It affords reasonable evidence, in the absence of explanation by the defendant, that
the accident arose from want of care. It is not a rule of substantive law and, as such, it does not
create an independent ground of liability. Instead, it is regarded as a mode of proof, or a mere
procedural convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden
of producing specific proof of negligence. The maxim simply places on the defendant the burden
of going forward with the proof.Resort to the doctrine, however, may be allowed only when (a) the
event is of a kind which does not ordinarily occur in the absence of negligence; (b) other
responsible causes, including the conduct of the plaintiff and third persons, are sufficiently
eliminated by the evidence; and (c) the indicated negligence is within the scope of the defendant’s
duty to the plaintiff. Thus, it is not applicable when an unexplained accident may be attributable
to one of several causes, for some of which the defendant could not be responsible.
Same; Same; Same; Same; Same; Same; While res ipsa loquitur generally finds relevance
whether or not a contractual relationship exists between the plaintiff and the defendant—for the
inference of negligence arises from the circumstances and nature of the occurrence and not from
the nature of the relation of the parties—the requirement that responsible causes other than those
due to defendant’s conduct must first be eliminated, for the doctrine to apply, should be
understood as being confined only to cases of pure (non-contractual) tort since obviously the
presumption of negligence in culpa contractual immediately attaches by a failure of the covenant
or its tenor.—Res ipsa loquitur generally finds relevance whether or not a contractual relationship
exists between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the parties.
Nevertheless, the requirement that responsible causes other than those due to defendant’s
conduct must first be eliminated, for the doctrine to apply, should be understood as being confined
only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa
contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its
tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa
acquiliana, while he admittedly can be said to have been in control and management of the vehicle
which figured in the accident, it is not equally shown, however, that the accident could have been
exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work
against him.
Actions; Pleadings and Practice; Demurrer to Evidence; If a demurrer to evidence is granted but
on appeal the order of dismissal is reversed, the movant shall be deemed to have waived the right
to present evidence.—If a demurrer to evidence is granted but on appeal the order of dismissal
is reversed, the movant shall be deemed to have waived the right to present evidence. Thus,
respondent corporation may no longer offer proof to establish that it has exercised due care in
transporting the cargoes of the assured so as to still warrant a remand of the case to the trial
court. FGU Insurance Corporation vs. G.P. Sarmiento Trucking Corporation, 386 SCRA 312, G.R.
No. 141910 August 6, 2002
VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units
of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from
the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila,
to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north
diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an
unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries,
Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the
subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the
amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim,
FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver
Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer,
respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc.,
since 1988, and it was not so engaged in business as a common carrier. Respondents further
claimed that the cause of damage was purely accidental.1âwphi1.nêt
The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its
evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to
evidence on the ground that petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996,1 granted the motion to dismiss, explaining thusly:
"Under Section 1 of Rule 131 of the Rules of Court, it is provided that ‘Each party must prove his
own affirmative allegation, xxx.’
"In the instant case, plaintiff did not present any single evidence that would prove that defendant
is a common carrier.
"x x x
xxx
xxx
"Accordingly, the application of the law on common carriers is not warranted and the presumption
of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of
goods during transport under 1735 of the Civil Code is not availing.
"Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was
subrogated and the owner of the vehicle which transports the cargo are the laws on obligation
and contract of the Civil Code as well as the law on quasi delicts.
"Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi
delict provides for some presumption of negligence but only upon the attendance of some
circumstances. Thus, Article 2185 provides:
‘Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor
vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.’
"Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation.
Hence, the presumption of negligence is not obtaining.
"Considering that plaintiff failed to adduce evidence that defendant is a common carrier and
defendant’s driver was the one negligent, defendant cannot be made liable for the damages of
the subject cargoes."2
The subsequent motion for reconsideration having been denied,3 plaintiff interposed an appeal to
the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee
corporation was not a common carrier defined under the law and existing jurisprudence; and (b)
in dismissing the complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate
court, in its decision of 10 June 1999,4 discoursed, among other things, that "x x x in order for the presumption of negligence provided for under the law governing common
carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a
common carrier. Should the appellant fail to prove that the appellee is a common carrier, the
presumption would not arise; consequently, the appellant would have to prove that the carrier was
negligent.
"x x x
xxx
xxx
"Because it is the appellant who insists that the appellees can still be considered as a common
carrier, despite its `limited clientele, ’(assuming it was really a common carrier), it follows that it
(appellant) has the burden of proving the same. It (plaintiff-appellant) `must establish his case by
a preponderance of evidence, which means that the evidence as a whole adduced by one side is
superior to that of the other. ’(Summa Insurance Corporation vs. Court of Appeals, 243 SCRA
175). This, unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiff’s
complaint by the trial court is justified.
"x x x
xxx
xxx
"Based on the foregoing disquisitions and considering the circumstances that the appellee
trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has no
choice but to comply with the directive of its principal, ’the inevitable conclusion is that the appellee
is a private carrier.
"x x x
xxx
xxx
"x x x the lower court correctly ruled that 'the application of the law on common carriers is not
warranted and the presumption of fault or negligence on the part of a common carrier in case of
loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil Code is
not availing.' x x x.
"Finally, We advert to the long established rule that conclusions and findings of fact of a trial court
are entitled to great weight on appeal and should not be disturbed unless for strong and valid
reasons."5
Petitioner's motion for reconsideration was likewise denied;6 hence, the instant petition,7 raising
the following issues:
I
WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS
DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.
II
WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE
CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT
UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.
III
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT
CASE.
On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be
amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc.,
rendering or offering its services to no other individual or entity, cannot be considered a common
carrier. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for hire
or compensation, offering their services to the public,8 whether to the public in general or to a
limited clientele in particular, but never on an exclusive basis.9 The true test of a common carrier
is the carriage of passengers or goods, providing space for those who opt to avail themselves of
its transportation service for a fee.10 Given accepted standards, GPS scarcely falls within the term
"common carrier."
The above conclusion nothwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.11 The law, recognizing the
obligatory force of contracts,12 will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof.13 A breach
upon the contract confers upon the injured party a valid cause for recovering that which may have
been lost or suffered. The remedy serves to preserve the interests of the promisee that may
include his "expectation interest," which is his interest in having the benefit of his bargain by being
put in as good a position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract not been
made; or his "restitution interest," which is his interest in having restored to him any benefit that
he has conferred on the other party.14 Indeed, agreements can accomplish little, either for their
makers or for society, unless they are made the basis for action.15 The effect of every infraction
is to create a new duty, that is, to make recompense to the one who has been injured by the
failure of another to observe his contractual obligation16 unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good
father of a family or, exceptionally by stipulation or by law such as in the case of common carriers,
that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his
ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of carriage between it
and petitioner’s assured, and admits that the cargoes it has assumed to deliver have been lost or
damaged while in its custody. In such a situation, a default on, or failure of compliance with, the
obligation – in this case, the delivery of the goods in its custody to the place of destination - gives
rise to a presumption of lack of care and corresponding liability on the part of the contractual
obligor the burden being on him to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage
between petitioner’s principal and defendant, may not be held liable under the agreement. A
contract can only bind the parties who have entered into it or their successors who have assumed
their personality or their juridical position.17 Consonantly with the axiom res inter alios acta aliis
neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioner’s
civil action against the driver can only be based on culpa aquiliana, which, unlike culpa
contractual, would require the claimant for damages to prove negligence or fault on the part of
the defendant.18
A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant
liable where the thing which caused the injury complained of is shown to be under the latter’s
management and the accident is such that, in the ordinary course of things, cannot be expected
to happen if those who have its management or control use proper care. It affords reasonable
evidence, in the absence of explanation by the defendant, that the accident arose from want of
care.19 It is not a rule of substantive law and, as such, it does not create an independent ground
of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it
furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of
negligence. The maxim simply places on the defendant the burden of going forward with the
proof.20 Resort to the doctrine, however, may be allowed only when (a) the event is of a kind which
does not ordinarily occur in the absence of negligence; (b) other responsible causes, including
the conduct of the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c)
the indicated negligence is within the scope of the defendant's duty to the plaintiff.21 Thus, it is not
applicable when an unexplained accident may be attributable to one of several causes, for some
of which the defendant could not be responsible.22
Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the parties.23
Nevertheless, the requirement that responsible causes other than those due to defendant’s
conduct must first be eliminated, for the doctrine to apply, should be understood as being confined
only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa
contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its
tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa
acquiliana, while he admittedly can be said to have been in control and management of the vehicle
which figured in the accident, it is not equally shown, however, that the accident could have been
exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work
against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant
shall be deemed to have waived the right to present evidence.24 Thus, respondent corporation
may no longer offer proof to establish that it has exercised due care in transporting the cargoes
of the assured so as to still warrant a remand of the case to the trial court.1âwphi1.nêt
WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati
City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar
as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and
decision of the appellate court are REVERSED as regards G.P. Sarmiento Trucking Corporation
which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged
and lost cargoes in the amount of P204,450.00. No costs.
SO ORDERED.
CASES RE: RESPONSIBILITIES OF COMMON CARRIERS
1. NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., petitioner, vs. NYKFILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP
INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA
PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN
INSURANCE CO., INC., respondents. G.R. No. 174241. August 24, 2011.*
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., petitioner, vs. SEABOARDEASTERN INSURANCE CO., INC., respondent.
Civil Law; Common Carriers; That the loss was occasioned by a typhoon, an exempting cause
under Article 1734 of the Civil Code, does not automatically relieve the common carrier of
liability.—That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of
the Civil Code, does not automatically relieve the common carrier of liability. The latter had the
burden of proving that the typhoon was the proximate and only cause of loss and that it
exercised due diligence to prevent or minimize such loss before, during, and after the disastrous
typhoon.
Insurance Law; Under Section 243 of the Insurance Code, the insurer has 30 days after proof of
loss is received and ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90
days to pay or settle the claim.—Under Section 243, the insurer has 30 days after proof of loss
is received and ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90
days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the
prescribed time, the insured shall be entitled to interest on the proceeds of the policY for the
duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.
Same; Section 244 of the Insurance Code also provides for an award of attorney’s fees and
other expenses incurred by the assured due to the unreasonable withholding of payment of his
claim.—The term “ceiling prescribed by the Monetary Board” means the legal rate of interest of
12% per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116.
Section 244 of the Insurance Code also provides for an award of attorney’s fees and other
expenses incurred by the assured due to the unreasonable withholding of payment of his claim.
New World International Development (Phils.), Inc. vs. NYK-FilJapan Shipping Corp., 656
SCRA 129, G.R. No. 171468 August 24, 2011
ABAD, J.:
These consolidated petitions involve a cargo owner’s right to recover damages from the loss of
insured goods under the Carriage of Goods by Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency
generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit
International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to
Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by
NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila. NYK
issued a bill of lading, declaring that it received the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also
owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang
whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator,
received the shipment on October 7, 1993. Upon inspection of the three container vans separately
carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending
clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities
allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw the
shipment and deliver the same to petitioner New World’s job site in Makati City.
An examination of the three generator sets in the presence of petitioner New World’s
representatives, Federal Builders (the project contractor) and surveyors of petitioner New World’s
insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all three sets suffered
extensive damage and could no longer be repaired. For these reasons, New World demanded
recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International
Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the
demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it
a formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required
petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories,
with corresponding values, for the processing of the claim. But petitioner New World did not submit
what was required of it, insisting that the insurance policy did not include the submission of such
a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the
claim.
On October 11, 1994 petitioner New World filed an action for specific performance and damages
against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in
Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability
with the exception of NYK. The RTC found that the generator sets were damaged during transit
while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise
the degree of diligence required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK
beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World
filed its complaint on October 11, 1994 when the deadline for filing the action (on or before October
7, 1994) had already lapsed. The RTC held that the one-year period should be counted from the
date the goods were delivered to the arrastre operator and not from the date they were delivered
to petitioner’s job site.1
As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter
cannot be faulted for denying the claim against it since New World refused to submit the itemized
list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing
of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of
subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the
RTC’s rulings except with respect to Seaboard’s liability. The CA held that petitioner New World
can still recoup its loss from Seaboard’s marine insurance policy, considering a) that the
submission of the itemized listing is an unreasonable imposition and b) that the one-year
prescriptive period under the COGSA did not affect New World’s right under the insurance policy
since it was the Insurance Code that governed the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the CA decision before the
Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On
August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized listing was a reasonable
requirement that Seaboard asked of New World. Further, the CA held that the one-year
prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New
World’s right against the vessel owner. New World’s failure to comply promptly with what was
required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review
before the Court in G.R. 174241, assailing the CA’s amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of
respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one time or
another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from petitioner
New World for an itemized list is a reasonable imposition and did not violate the insurance contract
between them; and 2) whether or not the CA erred in failing to rule that the one-year COGSA
prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its
claim against Seaboard, its insurer.
The Court’s Rulings
In G.R. 171468 -Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit,
Marina and Serbros in handling and transporting its shipment from Wisconsin to Manila
collectively resulted in the damage to the same, rendering such respondents solidarily liable with
NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not
a proper subject of a petition for review on certiorari. And petitioner New World has been unable
to make out an exception to this rule.3 Consequently, the Court will not disturb the finding of the
RTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon which
beset the vessel’s voyage from Hong Kong to Manila and that it was her negligence in continuing
with that journey despite the adverse condition which caused petitioner New World’s loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil
Code, does not automatically relieve the common carrier of liability. The latter had the burden of
proving that the typhoon was the proximate and only cause of loss and that it exercised due
diligence to prevent or minimize such loss before, during, and after the disastrous typhoon.4 As
found by the RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of reasonableness of Seaboard’s
additional requirement of an itemized listing of the damage that the generator sets suffered. The
record shows that petitioner New World complied with the documentary requirements evidencing
damage to its generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy
insured against all causes of conceivable loss or damage except when otherwise excluded or
when the loss or damage was due to fraud or intentional misconduct committed by the insured.
The policy covered all losses during the voyage whether or not arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that
petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New
World’s goods suffered going by the documents that it already submitted, namely, (1) copy of the
Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of
Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and
Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of
Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port
Services, Inc.; and c) Serbros Carrier Corporation.7 Notably, Seaboard’s own marine surveyor
attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely
the documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in
the policy that was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that
submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local
agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and
the ship shall be discharged from all liability in case of loss or damage unless the suit is brought
within one year after delivery of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on
time? The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner
New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to
take, as early as November 16, 1993 or about 11 months before the suit against NYK would have
fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would
have been subrogated to petitioner New World’s right to recover from NYK. And it could have
then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable
demand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories,
with corresponding values when it appeared settled that New World’s loss was total and when
the insurance policy did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard
against whom a formal claim was pending should not have remained obstinate in refusing to
process that claim. It should have examined the same, found it unsubstantiated by documents if
that were the case, and formally rejected it. That would have at least given petitioner New World
a clear signal that it needed to promptly file its suit directly against NYK and the others. Ultimately,
the fault for the delayed court suit could be brought to Seaboard’s doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the
Philippines shall refuse without just cause to pay or settle claims arising under coverages provided
by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not
had within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the
claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall
be entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice
the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as
Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in
payment of the claim is created by the failure of the insurer to pay the claim within the time fixed
in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the
delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary
Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of
12% per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9
Section 244 of the Insurance Code also provides for an award of attorney’s fees and other
expenses incurred by the assured due to the unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court
regarded as proper an award of 10% of the insurance proceeds as attorney’s fees. Such amount
is fair considering the length of time that has passed in prosecuting the claim.11 Pursuant to the
Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum
from the finality of judgment until full satisfaction of the claim should likewise be imposed, the
interim period equivalent to a forbearance of credit.1avvphi1
Petitioner New World is entitled to the value stated in the policy which is commensurate to the
value of the three emergency generator sets or US$721,500.00 with double interest plus
attorney’s fees as discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals
decision of January 31, 2006 insofar as petitioner New World International Development (Phils.),
Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc.,
LEP International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and
Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE
the Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS SeaboardEastern Insurance Company, Inc. to pay petitioner New World International Development (Phils.),
Inc. US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration
of delay in accordance with Sections 243 and 244 of the Insurance Code and attorney’s fees
equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from finality of judgment,
a 12% interest per annum on the total amount due to petitioner until its full satisfaction.
SO ORDERED.
2. ABOITIZ SHIPPING CORPORATION, petitioner, vs. INSURANCE COMPANY OF NORTH
AMERICA, respondent.
Corporation Law; A foreign corporation not licensed to do business in the Philippines is not
absolutely incapacitated from filing a suit in local courts.—A foreign corporation not licensed to
do business in the Philippines is not absolutely incapacitated from filing a suit in local courts.
Only when that foreign corporation is “transacting” or “doing business” in the country will a
license be necessary before it can institute suits. It may, however, bring suits on isolated
business transactions, which is not prohibited under Philippine law. Thus, this Court has held
that a foreign insurance company may sue in Philippine courts upon the marine insurance
policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier,
even if it has no license to do business in this country. It is the act of engaging in business
without the prescribed license, and not the lack of license per se, which bars a foreign
corporation from access to our courts.
Civil Law; Subrogation; Respondent’s cause of action is founded on it being subrogated to the
rights of the consignee of the damaged shipment.—Respondent’s cause of action is founded on
it being subrogated to the rights of the consignee of the damaged shipment. The right of
subrogation springs from Article 2207 of the Civil Code, which states: Article 2207. If the
plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
Same; Same; Subrogation is not dependent upon, nor does it grow out of, any privity of contract
or upon written assignment of claim.—As this Court held in the case of Pan Malayan Insurance
Corporation v. Court of Appeals, 184 SCRA 54 (1990), payment by the insurer to the assured
operates as an equitable assignment of all remedies the assured may have against the third
party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.
Same; Insurance Law; The giving of notice of loss or injury is a condition precedent to the action
for loss or injury or the right to enforce the carrier’s liability.—The giving of notice of loss or
injury is a condition precedent to the action for loss or injury or the right to enforce the carrier’s
liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement
was complied with. As held in the case of Philippine American General Insurance Co., Inc. v.
Sweet Lines, Inc., 212 SCRA 194 (1992), this notice requirement protects the carrier by
affording it an opportunity to make an investigation of the claim while the matter is still fresh and
easily investigated. It is meant to safeguard the carrier from false and fraudulent claims.
Mercantile Law; The notice of claim must be made within 24 hours from receipt of the cargo if
the damage is not apparent from the outside of the package. For damages that are visible from
the outside of the package, the claim must be made immediately.—Under the Code of
Commerce, the notice of claim must be made within twenty-four (24) hours from receipt of the
cargo if the damage is not apparent from the outside of the package. For damages that are
visible from the outside of the package, the claim must be made immediately. The law provides:
Article 366. Within twenty-four hours following the receipt of the merchandise, the claim against
the carrier for damages or average which may be found therein upon opening the packages,
may be made, provided that the indications of the damage or average which give 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.
Same; Stipulations requiring notice of loss or claim for damage as a condition precedent to the
right of recovery from a carrier must be given a reasonable and practical construction, adapted
to the circumstances of the case under adjudication, and their application is limited to cases
falling fairly within their object and purpose.—Stipulations requiring notice of loss or claim for
damage as a condition precedent to the right of recovery from a carrier must be given a
reasonable and practical construction, adapted to the circumstances of the case under
adjudication, and their application is limited to cases falling fairly within their object and purpose.
Same; Provisions specifying a time to give notice of damage to common carriers are ordinarily
to be given a reasonable and practical, rather than a strict construction.—Provisions specifying
a time to give notice of damage to common carriers are ordinarily to be given a reasonable and
practical, rather than a strict construction. We give due consideration to the fact that the final
destination of the damaged cargo was a school institution where authorities are bound by rules
and regulations governing their actions. Understandably, when the goods were delivered, the
necessary clearance had to be made before the package was opened. Upon opening and
discovery of the damaged condition of the goods, a report to this effect had to pass through the
proper channels before it could be finalized and endorsed by the institution to the claims
department of the shipping company.
Subrogation; Parties; We have found that respondent, as subrogee of the consignee, is the real
party in interest to institute the claim for damages against petitioner.—To recapitulate, We have
found that respondent, as subrogee of the consignee, is the real party in interest to institute the
claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by
respondent.
Civil Law; The rule as stated in Article 1735 of the Civil Code is that in cases where the goods
are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence required by
law.—We now discuss petitioner’s liability for the damages sustained by the shipment. The rule
as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence required by law. Extraordinary
diligence is that extreme measure of care and caution which persons of unusual prudence and
circumspection use for securing and preserving their own property rights. This standard is
intended to grant favor to the shipper who is at the mercy of the common carrier once the goods
have been entrusted to the latter for shipment. Aboitiz Shipping Corporation vs. Insurance
Company of North America, 561 SCRA 262, G.R. No. 168402 August 6, 2008
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the
assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only
those rights that the assured may have against the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which
reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz
Shipping Corporation to pay the sum of P280,176.92 plus interest and attorney's fees in favor of
respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of
London. The insurance was for a transshipment of certain wooden work tools and workbenches
purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center,
Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies on behalf of the title holder: - Loss, if any, payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg,
Germany on board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which stated
the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour
Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container
Port where the container van was again off-loaded. On July 26, 1993, the cargo was received by
petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking
representative, Aboitiz Transport System. The bill of lading7 issued by Aboitiz contained the
notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without any
notation on the condition of the cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the
container van was loaded on board petitioner's vessel, MV Super Concarrier I. The vessel left
Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of
the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation
pending clearance from the Customs authorities. In the Stripping Report9 dated August 5, 1993,
petitioner's checker noted that the crates were slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science
Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta
Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez,
then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo
sustained water damage. Perez, upon receiving the call, immediately went to the bonded
warehouse and checked the condition of the container and other cargoes stuffed in the same
container. He found that the container van and other cargoes stuffed there were completely dry
and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself
appeared to be completely dry and had no water marks. But he confirmed that the tools which
were stored inside the crate were already corroded. He further explained that the "grounded
outside warehouse" notation in the bill of lading referred only to the container van bearing the
cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of
the cargo.12 The letter stated that the crate was broken at its bottom part such that the contents
were exposed. The work tools and workbenches were found to have been completely soaked in
water with most of the packing cartons already disintegrating. The crate was properly sealed off
from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all
the edges. The letter concluded that apparently, the damage was caused by water entering
through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993,
the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the
damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion
which were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount of
P276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official
weather report from the Philippine Atmospheric, Geophysical and Astronomical Services
Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage
to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4,
North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside
the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the
notation "grounded outside warehouse." It was only on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to
consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the
claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was
received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of
P280,176.92, plus interest and attorney's fees.16 ICNA alleged that the damage sustained by the
shipment was exclusively and solely brought about by the fault and negligence of Aboitiz when
the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It
countered that the complaint stated no cause of action, plaintiff ICNA had no personality to
institute the suit, the cause of action was barred, and the suit was premature there being no claim
made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the
decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief
claimed in the complaint for being baseless and without merit. The complaint is hereby
DISMISSED. The defendant's counterclaims are, likewise, DISMISSED for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim
against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK
Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant
ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or
that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it
had been subrogated to the rights of the consignee must fail because the subrogation receipt had
no probative value for being hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North
America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M
7NA, no evidence has been adduced which would show that ICNA UK is the same as or the
predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address
at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or
that ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy
appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies.
Plaintiff's witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo
International is an endorsement of the marine policy in favor of Science Teaching Improvement
Project. Plaintiff's witness, however, failed to identify whose signature it was and plaintiff did not
present on the witness stand or took (sic) the deposition of the person who made that signature.
Hence, the claim that there was an endorsement of the marine policy has no probative value as
it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching
Improvement Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by a
representative of Science Teaching Improvement Project. Such representative, however, was not
presented on the witness stand. Hence, the Subrogation Form is self-serving and has no
probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation
duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue before
Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance
company duly authorized to do business in the Philippines. This allegation was, however,
denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined
by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine
law, the condition is that a foreign insurance company must obtain licenses/authority to do
business in the Philippines. These licenses/authority are obtained from the Securities and
Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to
obtain these licenses/authority, such foreign corporation doing business in the Philippines cannot
sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis
supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action
is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one
and the same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal
claim was not filed within the period required under Article 366 of the Code of Commerce; that
ICNA had no right of subrogation because the subrogation receipt should have been signed by
MSAS, the assured in the open policy, and not Willig, who is merely the representative of the
consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed
decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby
REVERSED and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee
Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America
the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of
this case until fully paid, and attorney's fees in the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz,
even assuming that it is an unlicensed foreign corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable.
Even assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation,
such circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue
of subrogation under the contract of insurance and as recognized by Philippine courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the
country, as subrogee of the claim of the insured under the subject marine policy, is therefore the
real party in interest to bring this suit and recover the full amount of loss of the subject cargo
shipped by it from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not
overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint
and in not finding that based on the evidence on record and relevant provisions of law, Aboitiz is
liable for the loss or damage sustained by the subject cargo.
Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE
RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY
RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE
PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO,
THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED
BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY
OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM
THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF
THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN
FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE
VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF
ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE
SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO
WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA
the real party-in-interest that possesses the right of subrogation to claim reimbursement from
petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required under Article 366
of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
"transacting" or "doing business" in the country will a license be necessary before it can institute
suits.24 It may, however, bring suits on isolated business transactions, which is not prohibited
under Philippine law.25 Thus, this Court has held that a foreign insurance company may sue in
Philippine courts upon the marine insurance policies issued by it abroad to cover internationalbound cargoes shipped by a Philippine carrier, even if it has no license to do business in this
country. It is the act of engaging in business without the prescribed license, and not the lack of
license per se, which bars a foreign corporation from access to our courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued
the subject marine policy, the present suit was filed by the said company's authorized agent in
Manila. It was the domestic corporation that brought the suit and not the foreign company. Its
authority is expressly provided for in the open policy which includes the ICNA office in the
Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the
insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the
consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought
against ICNA UK, the company who issued the insurance, or against any of its listed agents
worldwide.27 MSAS accepted said provision when it signed and accepted the policy. The
acceptance operated as an acceptance of the authority of the agents. Hence, a formal
indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise
the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary
Companies in behalf of the title holder: - Loss, if any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file
claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which
states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of
the risk, may become the owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of the
consignee of the damaged shipment. The right of subrogation springs from Article 2207 of the
Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28
payment by the insurer to the assured operates as an equitable assignment of all remedies the
assured may have against the third party who caused the damage. Subrogation is not dependent
upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement
to subrogation equipped it with a cause of action against petitioner in case of a contractual breach
or negligence.30 This right of subrogation, however, has its limitations. First, both the insurer and
the consignee are bound by the contractual stipulations under the bill of lading.31 Second, the
insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If
by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who
caused the loss from liability, the insurer loses its claim against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury
or the right to enforce the carrier's liability. Circumstances peculiar to this case lead Us to
conclude that the notice requirement was complied with. As held in the case of Philippine
American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement protects the
carrier by affording it an opportunity to make an investigation of the claim while the matter is still
fresh and easily investigated. It is meant to safeguard the carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours
from receipt of the cargo if the damage is not apparent from the outside of the package. For
damages that are visible from the outside of the package, the claim must be made immediately.
The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against
the carrier for damages or average which may be found therein upon opening the packages, may
be made, provided that the indications of the damage or average which give 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. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms of the bill
of lading, which is the contract between the parties. Notably, neither of the parties in this case
presented the terms for giving notices of claim under the bill of lading issued by petitioner for the
goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the
damage was dated August 15, 1993, that letter, together with the notice of claim, was received
by petitioner only on September 21, 1993. But petitioner admits that even before it received the
written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by
telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and
to the delivery site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage
Corporation,35 the notice was allegedly made by the consignee through telephone. The claim for
damages was denied. This Court ruled that such a notice did not comply with the notice
requirement under the law. There was no evidence presented that the notice was timely given.
Neither was there evidence presented that the notice was relayed to the responsible authority of
the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to
rule differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be made
a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of
recovery from a carrier must be given a reasonable and practical construction, adapted to the
circumstances of the case under adjudication, and their application is limited to cases falling fairly
within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the
information that the delivered goods were discovered to have sustained water damage to no less
than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able to investigate
the claims himself and he confirmed that the goods were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be
given a reasonable and practical, rather than a strict construction.37 We give due consideration to
the fact that the final destination of the damaged cargo was a school institution where authorities
are bound by rules and regulations governing their actions. Understandably, when the goods were
delivered, the necessary clearance had to be made before the package was opened. Upon
opening and discovery of the damaged condition of the goods, a report to this effect had to pass
through the proper channels before it could be finalized and endorsed by the institution to the
claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the
goods could not have corroded instantly overnight such that it could only have sustained the
damage during transit. Moreover, petitioner was able to immediately inspect the damage while
the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled.
Thus, there was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party
in interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice
of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as
stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed
or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence required by
law.38 Extraordinary diligence is that extreme measure of care and caution which persons of
unusual prudence and circumspection use for securing and preserving their own property rights.39
This standard is intended to grant favor to the shipper who is at the mercy of the common carrier
once the goods have been entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the
findings of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a
representative from Trabajo Arrastre, and the crates opened, it was discovered that the
workbenches and work tools suffered damage due to "wettage" although by then they were
already physically dry. Appellee carrier having failed to discharge the burden of proving that it
exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the
presumption of fault or negligence on its part from the time the goods were unconditionally placed
in its possession (July 26, 1993) up to the time the same were delivered to the consignee (August
11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26,
1993. On the same day, it was stripped from the container van. Five days later, on July 31, 1993,
it was re-stuffed inside another container van. On August 1, 1993, it was loaded onto another
vessel bound for Cebu. During the period between July 26 to 31, 1993, the shipment was outside
a container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside
warehouse," suggesting that from July 26 to 31, the goods were kept outside the warehouse. And
since evidence showed that rain fell over Manila during the same period, We can conclude that
this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage. It must prove that it used
"all reasonable means to ascertain the nature and characteristic of the goods tendered for
transport and that it exercised due care in handling them.42 Extraordinary diligence must include
safeguarding the shipment from damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for
shipment but only to the carrier van, petitioner failed to mention where exactly the goods were
stored during the period in question. It failed to show that the crate was properly stored indoors
during the time when it exercised custody before shipment to Cebu. As amply explained by the
CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was
rainwater that seeped into the cargo based on official data from the PAGASA that there was,
indeed, rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically
noted that the subject cargo was under the custody of appellee carrier from the time it was
delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-2137984 on July 31, 1993. No other inevitable conclusion can be deduced from the foregoing established
facts that damage from "wettage" suffered by the subject cargo was caused by the negligence of
appellee carrier in grounding the shipment outside causing rainwater to seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the
subject goods by claiming that the notation "GROUNDED OUTSIDE WHSE." actually refers to
the container and not the contents thereof or the cargoes. And yet it presented no evidence to
explain where did they place or store the subject goods from the time it accepted the same for
shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container
van to another container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993
and left Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded
outside prior to shipment to Cebu City, appellee provided no explanation as to where said cargo
was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo
was stripped from the container van of the shipper and transferred to the container on August 1,
1993 and finally loaded into the appellee's vessel bound for Cebu City on August 2, 1993. The
Stuffing/Stripping Report (Exhibit "D") at the Manila port did not indicate any such defect or
damage, but when the container was stripped upon arrival in Cebu City port after being discharged
from appellee's vessel, it was noted that only one (1) slab was slightly broken at the bottom
allegedly hit by a forklift blade (Exhibit "F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to
satisfactorily prove that it exercised the extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.