Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18965 October 30, 1964
COMPAIA MARITIMA, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the Compaia
Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to
Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral
contract was later on confirmed by a formal and written booking issued by Macleod's branch office in Sasa and handcarried to
Compaia Maritima's branch office in Davao in compliance with which the latter sent to Macleod's private wharf LCT Nos.
1023 and 1025 on which the loading of the hemp was completed on October 29, 1952. These two lighters were manned each
by a patron and an assistant patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by
the patron of Barge No. 1025 reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES,
Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's marginal wharf in
the same place to await the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which the hemp was to be
loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage
or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's main office in
Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum,
Davao, for cleaning, washing, reconditioning, and redrying. During the period from November 1-15, 1952, the carrier's trucks
and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo
of 1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the value of the
reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72. Adding to this last amount the sum of
P8,863.30 representing Macleod's expenses in checking, grading, rebating, and other fees for washing, cleaning and redrying in
the amount of P19.610.00, the total loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the
Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss it suffered
as above stated with said insurance company, and after the same had been processed, the sum of P64,018.55 was paid, which
was noted down in a document which aside from being a receipt of the amount paid, was a subrogation agreement between
Macleod and the insurance company wherein the former assigned to the latter its rights over the insured and damaged cargo.
Having failed to recover from the carrier the sum of P60,421.02, which is the only amount supported by receipts, the insurance
company instituted the present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the carrier
to pay the insurance company the sum of P60,421.02, with legal interest thereon from the date of the filing of the complaint
until fully paid, and the costs. This judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition
for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the loss
occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not actually
loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued therefore?; (2) Was the
damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural disaster
that would exempt the carrier from liability?; (3) Can respondent insurance company sue the carrier under its insurance
contract as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this
jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the carrier of the
correctness and sufficiency of the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the
insurance company maintain this suit without proof of its personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company contracted by
telephone the services of petitioner to ship the hemp in question from the former's private pier at Sasa, Davao City, to Manila,
to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and
written booking issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters to
undertake the service. It also appears that the patrons of said lighters were employees of the carrier with due authority to
undertake the transportation and to sign the documents that may be necessary therefor so much so that the patron of LCT No.
1025 signed the receipt covering the cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES,
Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its
loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the
carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were merely
employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the
rights and obligations of the parties attached thereby subjecting them to the principles and usages of the maritime law. In
other words, here we have a complete contract of carriage the consummation of which has already begun: the shipper
delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized
employees, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if
actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a
contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized
agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in
that way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery
to the lighter. ... and, similarly, where there is a contract to carry goods from one port to another, and they cannot be
loaded directly on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its
substitutes, so that the bill of landing is applicable to the goods as soon as they are placed on the lighters. (80 C.J.S., p.
901, emphasis supplied)
... The test as to whether the relation of shipper and carrier had been established is, Had the control and possession of
the cotton been completely surrendered by the shipper to the railroad company? Whenever the control and
possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with
certainty that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W.
419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St.
L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W.
148).
The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that was to take
it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's lighter is in line
with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was receiving the
cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect that a bill
of lading is not indispensable for the creation of a contract of carriage.
Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of lading, although article 350 of
the Code of Commerce provides that "the shipper as well as the carrier of merchandise or goods may mutua-lly
demand that a bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that
provided that there is a meeting of the minds and from such meeting arise rights and obligations, there should be no
limitations as to form." The bill of lading is not essential to the contract, although it may become obligatory by reason
of the regulations of railroad companies, or as a condition imposed in the contract by the agreement of the parties
themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions agreed upon by
both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not demand, as
necessary requisite in the contract of transportation, the delivery of the bill of lading to the shipper, but gives right to
both the carrier and the shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May
6, 1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not
merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to
complete delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of
the bill of lading, actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim offorce
majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate
precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the Court of
Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom (pp. 18-
19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered "thru tank man-holes",
according to the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the barge was not seaworthy it
should be noted that on the night of the nautical accident there was no storm, flood, or other natural disaster or
calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing
in Davao on October 29, 1952 (exh. 5), cannot be classified as storm. For according to Beaufort's wind scale, a storm
has wind velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau standards winds should have a
velocity of from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan
Stevedore Transportation Co., CA-G.R. No. 23167-R, March 12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of LCT No.
1025 to the 'non-water-tight conditions of various buoyancy compartments' (exh. JJJ); and this report finds confirmation on
the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance
of the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the cargo
for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo that was
damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but fair that it be
given the right to recover from the party responsible for the loss. The instant case, therefore, is not one between the insured
and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of
the shipper. And since the shipper has a direct cause of action against the carrier on account of the damage of the cargo, no
valid reason is seen why such action cannot be asserted or availed of by the insurance company as a subrogee of the shipper.
Nor can the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but also because
it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be caused to
the cargo involved therein. Thus, we find fitting the following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the question of whether or not the disputed abaca
cargo was covered by Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a party nor
privy to this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a
valid reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the
policy contained, if any, is deemed to have been waived by the subsequent payment of Macleod's claim by appellee.
Besides, appellant is herein sued in its capacity as a common carrier, and appellee is suing as the assignee of the
shipper pursuant to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the
Philippines for the los or damage to the 1,162 bales of hemp after these were received in good order and condition by
the patron of appellant's LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as
assignee of Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from appellant the
payment for the loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to order
the production of the books of accounts of the Odell Plantation containing the charges it made for the loss of the damaged
hemp for verification of its accountants, but later it desisted therefrom on the claim that it finds their production no longer
necessary. This desistance notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered
in connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And
after the Court of Appeals affirmed this award upon the theory that the desistance of the carrier from producing the books of
accounts of Odell Plantation implies an admission of the correctness of the statements of accounts contained therein,
petitioner now contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous
interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell Plantation
presented in court is tantamount to an admission that the statements contained therein are correct and their verification not
necessary because its main defense here, as well as below, was that it is not liable for the loss because there was no contract of
carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's theory,
the correctness of the account representing the loss was not so material as would necessitate the presentation of the books in
question. At any rate, even if the books of accounts were not produced, the correctness of the accounts cannot now be disputed
for the same is supported by the original documents on which the entries in said books were based which were presented by
the shipper as part of its evidence. And according to the Court of Appeals, these documents alone sufficiently establish the
award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action, we find the
same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign corporation doing
business in the Philippines with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9840 April 22, 1957
LU DO & LU YM CORPORATION, petitioner-defendant,
vs.
I. V. BINAMIRA, respondent-plaintiff.
Ross, Selph, Carrascoso and Janda for petitioner.
I. V. Binamira in his own behalf.
BAUTISTA ANGELO, J.:
On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against defendant to recover the sum of P324.63
as value of certain missing shipment, P150 as actual and compensatory damages, and P600 as moral and pecuniary damages.
After trial, the court rendered judgment ordering defendant to pay plaintiff the sum of P216.84, with legal interest. On appeal,
the Court of Appeals affirmed the judgment, hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S "FERNSIDE" at New York, U.S.A.,
six cases of films and/or photographic supplies consigned to the order of respondent I. V. Binamira. For this shipment, Bill of
Lading No. 29 was issued. The ship arrived at the port of Cebu on September 23, 1951 and discharged her cargo on September
23, and 24, 1951, including the shipment in question, placing it in the possession and custody of the arrastre operator of said
port, the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo. During the discharge, good
order cargo was separated from the bad order cargo on board the ship, and a separate list of bad order cargo was prepared by
Pascual Villamor, checker of the stevedoring company. All the cargo unloaded was received at the pier by the Visayan Cebu
Terminal Company Inc, arrastre operator of the port. This terminal company had also its own checker, Romeo Quijano, who
also recorded and noted down the good cargo from the bad one. The shipment in question, was not included in the report of
bad order cargo of both checkers, indicating that it was discharged from the, ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship, respondent took delivery of his six cases of
photographic supplies from the arrastre operator. He discovered that the cases showed signs of pilferage and, consequently,
he hired marine surveyors, R. J. del Pan & Company, Inc., to examine them. The surveyors examined the cases and made a
physical count of their contents in the presence of representatives of petitioner, respondent and the stevedoring company. The
surveyors examined the cases and made a physical count of their contents in the presence of representatives of petitioner,
respondent and the stevedoring company. The finding of the surveyors showed that some films and photographic supplies
were missing valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies were discharged from the ship at the port of
Cebu by the stevedoring company hired by petitioner as agent of the carrier. All the unloaded cargo, including the shipment in
question, was received by the Visayan Cebu Terminal Company Inc., the arrastre operator appointed by the Bureau of
Customs. It also appears that during the discharge, the cargo was checked both by the stevedoring company hired by
petitioner as well as by the arrastre operator of the port, and the shipment in question, when discharged from the ship, was
found to be in good order and condition. But after it was delivered to respondent three days later, the same was examined by a
marine surveyor who found that some films and supplies were missing valued at P324.63.
The question now to be considered is: Is the carrier responsible for the loss considering that the same occurred after the
shipment was discharged from the ship and placed in the possession and custody of the customs authorities?
The Court of Appeals found for the affirmative, making on this point the following comment:
In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in the same condition in which
it received them. Except where the loss, destruction or deterioration of the merchandise was due to any of the cases
enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have been at fault and to have acted
negligently, unless it could prove that it observed extraordinary diligence in the care and handling of the goods
(Article 1735, supra). Such presumption and the liability of the carrier attach until the goods are delivered actually or
constructively, to the consignee, or to the person who has a right to receive them (Article 1736, supra), and we believe
delivery to the customs authorities is not the delivery contemplated by Article 1736, supra, in connection with second
paragraph of Article 1498, supra, because, in such a case, the goods are then still in the hands of the Government and
their owner could not exercise dominion whatever over them until the duties are paid. In the case at bar, the
presumption against the carrier, represented appellant as its agent, has not been successfully rebutted.
It is now contended that the Court of Appeals erred in its finding not only because it made wrong interpretation of the law on
the matter, but also because it ignored the provisions of the bill of lading covering the shipment wherein it was stipulated that
the responsibility of the carrier is limited only to losses that may occur while the cargo is still under its custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible for the loss, destruction or
deterioration of the goods it assumes to carry from one place to another unless the same is due to any to any of the causes
mentioned in Article 1734 on the new Civil Code, and that, if the goods are lost, destroyed or deteriorated, for causes other
that those mentioned, the common carrier is presumed to have been at fault or to have acted negligently, unless it proves that
it has observed extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary liability lasts from the
time the goods are placed in the possession of the carrier until they are delivered to the consignee, or "to the person who has
the right to receive them" (Article 1736, Idem.), but these provisions only apply when the loss, destruction or deterioration
takes place while the goods are in the possession of the carrier, and not after it has lost control of them. The reason is obvious.
While the goods are in its possession, it is but fair that it exercise extraordinary diligence in protecting them from damage, and
if loss occurs, the law presumes that it was due to its fault or negligence. This is necessary to protect the interest the interest of
the owner who is at its mercy. The situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to the person who has a right to
receive them", contemplated in Article 1736, because in such case the goods are still in the hands of the Government and the
owner cannot exercise dominion over them, we believe however that the parties may agree to limit the liability of the carrier
considering that the goods have still to through the inspection of the customs authorities before they are actually turned over
to the consignee. This is a situation where we may say that the carrier losses control of the goods because of a custom
regulation and it is unfair that it be made responsible for what may happen during the interregnum. And this is precisely what
was done by the parties herein. In the bill of lading that was issued covering the shipment in question, both the carrier and the
consignee have stipulated to limit the responsibility of the carrier for the loss or damage that may because to the goods before
they are actually delivered by insert in therein the following provisions:
1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery or misdelivery, or loss of or
damage to the goods occurring while the goods are not in the actual custody of the Carrier. . . . (Emphasis ours.)
(Paragraph 1, Exhibit "1")
2. . . . The responsibility of the Carrier in any capacity shall altogether cease and the goods shall be considered to be
delivered and at their own risk and expense in every respect when taken into the custody of customs or other
authorities. The Carrier shall not be required to give any notification of disposition of the goods. . . . (Emphasis ours.)
(Paragraph 12, Exhibit "1")
3. Any provisions herein to the contrary notwithstanding, goods may be . . . by Carrier at ship's tackle . . . and delivery
beyond ship's tackle shall been tirely at the option of the Carrier and solely at the expense of the shipper or consignee.
(Paragraph 22, Exhibit "1")
It therefore appears clear that the carrier does not assume liability for any loss or damage to the goods once they have been
"taken into the custody of customs or other authorities", or when they have been delivered at ship's tackle. These stipulations
are clear. They have been adopted precisely to mitigate the responsibility of the carrier considering the present law on the
matter, and we find nothing therein that is contrary to morals or public policy that may justify their nullification. We are
therefore persuaded to conclude that the carrier is not responsible for the loss in question, it appearing that the same
happened after the shipment had been delivered to the customs authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-36481-2 October 23, 1982
AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,
vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.
Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.
ESCOLIN, J.:
This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court of First Instance of Negros
Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant Philippine Steam Navigation liable for damages for the loss
of the appellees' cargoes as a result of a fire which gutted the Bureau of Customs' warehouse in Pulupandan, Negros
Occidental.
The Court of Appeals certified the case to Us because only pure questions of law are raised therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant's vessel, FS-176, for
carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to wit:
Clara Uy Bico
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando
44 cartons of colored paper,
toys and general merchandise valued at P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant.
1

Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were discharged, complete and in
good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the same day, said warehouse was
razed by a fire of unknown origin, destroying appellees' cargoes. Before the fire, however, appellee Uy Bico was able to take
delivery of 907 cavans of rice
2
Appellees' claims for the value of said goods were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is rendered as follows:
1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C. Servando the aggregate
sum of P1,070.50 with legal interest thereon from the date of the filing of the complaint until fully paid, and to
pay the costs.
2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the aggregate sum of
P16,625.00 with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay
the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary diligence from the moment
the goods are unconditionally placed in their possession "until the same are delivered, actually or constructively, by the carrier
to the consignee or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. "
The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of Customs is not the
delivery contemplated by Article 1736; and since the burning of the warehouse occurred before actual or constructive delivery
of the goods to the appellees, the loss is chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the parties agreed to limit the
responsibility of the carrier for the loss or damage that may be caused to the shipment by inserting therein the following
stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to shipments billed 'owner's risk' unless such
loss or damage is due to negligence of carrier. Nor shall carrier be responsible for loss or damage caused by
force majeure, dangers or accidents of the sea or other waters; war; public enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or public policy.
Appellees would contend that the above stipulation does not bind them because it was printed in fine letters on the back-of the
bills of lading; and that they did not sign the same. This argument overlooks the pronouncement of this Court in Ong Yiu vs.
Court of Appeals, promulgated June 29, 1979,
3
where the same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is nevertheless bound by
the provisions thereof. 'Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation'. It is what
is known as a contract of 'adhesion', in regards which it has been said that contracts of adhesion wherein one
party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent." (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer's Journal, Jan. 31, 1951, p. 49).
Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic principle of law written in
Article 1 1 7 4 of the Civil Code:
Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were inevitable.
Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the obligor is exempt from
liability for non-performance. The Partidas,
4
the antecedent of Article 1174 of the Civil Code, defines 'caso fortuito' as 'an
event that takes place by accident and could not have been foreseen. Examples of this are destruction of houses, unexpected
fire, shipwreck, violence of robbers.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola
5
says: "In a legal sense and, consequently,
also in relation to contracts, a 'caso fortuito' presents the following essential characteristics: (1) the cause of the unforeseen
and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human
will; (2) it must be impossible to foresee the event which constitutes the 'caso fortuito', or if it can be foreseen, it must be
impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor." In the case at bar, the burning of the customs warehouse was an extraordinary event which happened independently
of the will of the appellant. The latter could not have foreseen the event.
There is nothing in the record to show that appellant carrier ,incurred in delay in the performance of its obligation. It appears
that appellant had not only notified appellees of the arrival of their shipment, but had demanded that the same be withdrawn.
In fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the burning of the
warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of the goods in the Customs warehouse
pending withdrawal thereof by the appellees was undoubtedly made with their knowledge and consent. Since the warehouse
belonged to and was maintained by the government, it would be unfair to impute negligence to the appellant, the latter having
no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio
6
, where this Court held the
defendant liable for damages arising from a fire caused by the negligence of the defendant's employees while loading cases of
gasoline and petroleon products. But unlike in the said case, there is not a shred of proof in the present case that the cause of
the fire that broke out in the Custom's warehouse was in any way attributable to the negligence of the appellant or its
employees. Under the circumstances, the appellant is plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J.:+.wph!1
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila, finding
defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue raised is a pure
question of law, which is, the liability of the defendants, now appellants, under the bill of lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1) crate Optima
welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER
LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18
duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, the
aforementioned importation was unloaded and delivered in good order and condition to the bonded warehouse of
AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed a formal
claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the former, but neither
paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in AMCYL as third party
defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus attorney's fees
and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment
against third party defendant AMCYL which had earlier been declared in default. Only the defendants appealed from said
decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which should be
examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only proper but
necessary as well because of the nature of the bill of lading which operates both as a receipt for the goods; and more
importantly, as a contract to transport and deliver the same as stipulated therein.
2
Being a contract, it is the law between the
parties thereto
3
who are bound by its terms and conditions
4
provided that these are not contrary to law, morals, good
customs, public order and public policy.
5

Bill of Lading No. 18 sets forth in page 2 thereof
6
that one (1) crate of Optima welded wedge wire sieves was received by the
carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight had been prepaid up to
the port of destination or the "port of discharge of goods in this case, Davao, the carrier undertook to transport the goods in its
vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to be
transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation is plainly indicated on the
face of the bill which contains the following phrase printed below the space provided for the port of discharge from ship",
thus: t.hqw
if goods are to be transshipped at port of discharge, show destination under the column for "description of
contents"
7

As instructed above, the following words appeared typewritten under the column for "description of contents": t.hqw
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID
8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the custody of
AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations contained in Bill of
Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the goods from Manila to their
port of destination-Davao. The word "transship" means: t.hqw
to transfer for further transportation from one ship or conveyance to another
9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled out
and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: t.hqw
The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the
goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or
forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides: t.hqw
Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's
disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master
may, without notice, forward the whole or any part of the goods before or after loading at the original port of
shipment, ... This carrier, in making arrangements for any transshipping or forwarding vessels or means of
transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the freight for the whole transport has been
collected by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or
afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for
detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are
entrusted or delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in
full and good condition unto the custody of AMCYL at the port of discharge from ship Manila, and therefore, pursuant to the
aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or
damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs.
UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but
more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the
goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their
respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before
Us, provides: t.hqw
The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods
are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with all transshipping or
forwarding of the goods or the use of any means of transportation or forwarding of goods not used or
operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any
other responsibility whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their
validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded
that: t.hqw
... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is
Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the
terms of the long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the
goods were unloaded in Manila and in the matter of transshipment, appellee acted merely as an agent of the
shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with the
pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are
valid stipulations between the parties insofar as they exempt the carrier from liability for loss or damage to the goods while
the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the
Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16 A careful perusal of the
provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736
thereof, which reads: t.hqw
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus: t.hqw
Article 1738. The extraordinary liability of the common carrier continues to be operative even during the
time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has
been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or
otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the
goods had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were
still awaiting transshipment to their port of destination, and were stored in the warehouse of a third party when last seen
and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the
responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee,
or to the person who has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal
possession by the seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by
him to receive the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly
authorized agent and a reasonable time is given him to remove the goods.18 The court a quo found that there was actual
delivery to the consignee through its duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in
the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied and/or provided for in
the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second,
THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee.
20
At the
hiatus between these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its
personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant's possession also
changes, from possession in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being
the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the
consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may
befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that
the transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had
commenced said performance, the completion of which was aborted by circumstances beyond its control. An agent who
carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency,
21
This can be gleaned from the following
provisions of the New Civil Code on the obligations of the agent: t.hqw
Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages
which, through his non-performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of
the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he
shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the person appointed was
notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with
more or less rigor by the courts, according to whether the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the
Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted as
appellant's substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill
of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they
incur no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.
No costs.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48757 May 30, 1988
MAURO GANZON, petitioner,
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
Antonio B. Abinoja for petitioner.
Quijano, Arroyo & Padilla Law Office for respondents.
SARMIENTO, J.:
The private respondent instituted in the Court of First Instance of Manila
1
an action against the petitioner for damages based
on culpa contractual. The antecedent facts, as found by the respondent Court,
2
are undisputed:
On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons of scrap iron from
Mariveles, Bataan, to the port of Manila on board the lighter LCT "Batman" (Exhibit 1, Stipulation of Facts, Amended Record on
Appeal, p. 38). Pursuant to that agreement, Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three
feet of water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the scrap iron to
defendant Filomeno Niza, captain of the lighter, for loading which was actually begun on the same date by the crew of the
lighter under the captain's supervision. When about half of the scrap iron was already loaded (t.s.n., December 14, 1972, p. 20),
Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted the
shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing
(t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7).<re||an1w> The gunshot was not fatal but Tumambing had to be
taken to a hospital in Balanga, Bataan, for treatment (t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor Basilio Rub, accompanied
by three policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron (t.s.n., June 16, 1972, pp. 8-9) where
the lighter was docked (t.s.n., September 28, 1972, p. 31). The rest was brought to the compound of NASSCO (Record on
Appeal, pp. 20-22). Later on Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken custody of
the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972, p. 10.)
On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion of which states:
WHEREFORE, the decision appealed from is hereby reversed and set aside and a new one entered ordering
defendant-appellee Mauro Ganzon to pay plaintiff-appellant Gelacio E. Tumambimg the sum of P5,895.00 as
actual damages, the sum of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's fees.
Costs against defendant-appellee Ganzon.
3

In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:
I
THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE CONTRACT OF TRANSPORTATION
AND IN IMPOSING A LIABILITY AGAINST HIM COMMENCING FROM THE TIME THE SCRAP WAS PLACED IN HIS CUSTODY
AND CONTROL HAVE NO BASIS IN FACT AND IN LAW.
II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS EMPLOYEES IN DUMPING THE
SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY THE LOCAL GOVERNMENT OFFICIAL WITHOUT HIS
PARTICIPATION.
III
THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE TO A FORTUITOUS EVENT AND
THE PETITIONER IS THEREFORE NOT LIABLE FOR LOSSES AS A CONSEQUENCE THEREOF.
4

The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally placed under his
custody and control to make him liable. However, he completely agrees with the respondent Court's finding that on December
1, 1956, the private respondent delivered the scraps to Captain Filomeno Niza for loading in the lighter "Batman," That the
petitioner, thru his employees, actually received the scraps is freely admitted. Significantly, there is not the slightest allegation
or showing of any condition, qualification, or restriction accompanying the delivery by the private respondent-shipper of the
scraps, or the receipt of the same by the petitioner. On the contrary, soon after the scraps were delivered to, and received by
the petitioner-common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession and control of the common carrier, and
upon their receipt by the carrier for transportation, the contract of carriage was deemed perfected. Consequently, the
petitioner-carrier's extraordinary responsibility for the loss, destruction or deterioration of the goods commenced. Pursuant
to Art. 1736, such extraordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the
consignee, or to the person who has a right to receive them.
5
The fact that part of the shipment had not been loaded on board
the lighter did not impair the said contract of transportation as the goods remained in the custody and control of the carrier,
albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes enumerated in Article 1734
of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Hence, the petitioner is presumed to have been at fault or to have acted negligently.
6
By reason of this presumption, the court
is not even required to make an express finding of fault or negligence before it could hold the petitioner answerable for the
breach of the contract of carriage. Still, the petitioner could have been exempted from any liability had he been able to prove
that he observed extraordinary diligence in the vigilance over the goods in his custody, according to all the circumstances of
the case, or that the loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the
part of the petitioner to prove that he exercised such extraordinary diligence.
It is in the second and third assignments of error where the petitioner maintains that he is exempt from any liability because
the loss of the scraps was due mainly to the intervention of the municipal officials of Mariveles which constitutes a caso
fortuito as defined in Article 1174 of the Civil Code.
7

We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that the loss of the scraps was
due to an "order or act of competent public authority," and this contention was correctly passed upon by the Court of Appeals
which ruled that:
... In the second place, before the appellee Ganzon could be absolved from responsibility on the ground that he
was ordered by competent public authority to unload the scrap iron, it must be shown that Acting Mayor
Basilio Rub had the power to issue the disputed order, or that it was lawful, or that it was issued under legal
process of authority. The appellee failed to establish this. Indeed, no authority or power of the acting mayor
to issue such an order was given in evidence. Neither has it been shown that the cargo of scrap iron belonged
to the Municipality of Mariveles. What we have in the record is the stipulation of the parties that the cargo of
scrap iron was accilmillated by the appellant through separate purchases here and there from private
individuals (Record on Appeal, pp. 38-39). The fact remains that the order given by the acting mayor to dump
the scrap iron into the sea was part of the pressure applied by Mayor Jose Advincula to shakedown the
appellant for P5,000.00. The order of the acting mayor did not constitute valid authority for appellee Mauro
Ganzon and his representatives to carry out.
Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we cannot, however, allow. In any
case, the intervention of the municipal officials was not In any case, of a character that would render impossible the fulfillment
by the carrier of its obligation. The petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron.
Moreover, there is absence of sufficient proof that the issuance of the same order was attended with such force or intimidation
as to completely overpower the will of the petitioner's employees. The mere difficulty in the fullfilment of the obligation is not
considered force majeure. We agree with the private respondent that the scraps could have been properly unloaded at the
shore or at the NASSCO compound, so that after the dispute with the local officials concerned was settled, the scraps could
then be delivered in accordance with the contract of carriage.
There is no incompatibility between the Civil Code provisions on common carriers and Articles 361
8
and 362
9
of the Code of
Commerce which were the basis for this Court's ruling in Government of the Philippine Islands vs. Ynchausti & Co.10 and
which the petitioner invokes in tills petition. For Art. 1735 of the Civil Code, conversely stated, means that the shipper will
suffer the losses and deterioration arising from the causes enumerated in Art. 1734; and in these instances, the burden of
proving that damages were caused by the fault or negligence of the carrier rests upon him. However, the carrier must first
establish that the loss or deterioration was occasioned by one of the excepted causes or was due to an unforeseen event or to
force majeure. Be that as it may, insofar as Art. 362 appears to require of the carrier only ordinary diligence, the same is
.deemed to have been modified by Art. 1733 of the Civil Code.
Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by us. Besides, these were
not sufficiently controverted by the petitioner.
WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby AFFIRMED. Costs against the
petitioner.
This decision is IMMEDIATELY EXECUTORY.

SECOND DIVISION
[G.R. No. 125524. August 25, 1999]
BENITO MACAM doing business under the name and style BEN-MAC ENTERPRISES, petitioner, vs. COURT OF APPEALS,
CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES SHIPPING, INC., respondents.
D E C I S I O N
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac Enterprises, shipped on
board the vessel Nen Jiang, owned and operated by respondent China Ocean Shipping Co., through local agent respondent
Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of watermelons valued at US$5,950.00 covered by Bill
of Lading No. HKG 99012 and exported through Letter of Credit No. HK 1031/30 issued by National Bank of Pakistan,
Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of US$14,273.46 covered by Bill of
Lading No. HKG 99013 and exported through Letter of Credit No. HK 1032/30 also issued by PAKISTAN BANK. The Bills of
Lading contained the following pertinent provision: "One of the Bills of Lading must be surrendered duly endorsed in
exchange for the goods or delivery order."
[1]
The shipment was bound for Hongkong with PAKISTAN BANK as consignee and
Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices were submitted to
petitioner's depository bank, Consolidated Banking Corporation (hereinafter SOLIDBANK), which paid petitioner in advance
the total value of the shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not to PAKISTAN BANK,
and without the required bill of lading having been surrendered. Subsequently, GPC failed to pay PAKISTAN BANK such that
the latter, still in possession of the original bills of lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK
already pre-paid petitioner the value of the shipment, it demanded payment from respondent WALLEM through five (5)
letters but was refused. Petitioner was thus allegedly constrained to return the amount involved to SOLIDBANK, then
demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or its equivalent
of P546,033.42 from respondents before the Regional Trial Court of Manila, based on delivery of the shipment to GPC without
presentation of the bills of lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation of the bills of lading and bank
guarantee per request of petitioner himself because the shipment consisted of perishable goods. The telex dated 5 April 1989
conveying such request read -
AS PER SHPRS REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE CNEES WITHOUT PRESENTATION OF
OB/L
[2]
and bank guarantee since for prepaid shipt ofrt charges already fully paid our end x x x x
[3]

Respondents explained that it is a standard maritime practice, when immediate delivery is of the essence, for the shipper
to request or instruct the carrier to deliver the goods to the buyer upon arrival at the port of destination without requiring
presentation of the bill of lading as that usually takes time. As proof thereof, respondents apprised the trial court that for the
duration of their two-year business relationship with petitioner concerning similar shipments to GPC deliveries were effected
without presentation of the bills of lading.
[4]
Respondents advanced next that the refusal of PAKISTAN BANK to pay the letters
of credit to SOLIDBANK was due to the latter's failure to submit a Certificate of Quantity and Quality. Respondents
counterclaimed for attorneys fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following
amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as attorney's fees; and, (3)
the costs. The counterclaims were dismissed for lack of merit.
[5]
The trial court opined that respondents breached the
provision in the bill of lading requiring that "one of the Bills of Lading must be surrendered duly endorsed in exchange for the
goods or delivery order," when they released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading. The trial court added that the
shipment should not have been released to GPC at all since the instruction contained in the telex was to arrange delivery to the
respective consignees and not to any party. The trial court observed that the only role of GPC in the transaction as notify party
was precisely to be notified of the arrival of the cargoes in Hongkong so it could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as established by previous
similar transactions between the parties, shipped cargoes were sometimes actually delivered not to the consignee but to notify
party GPC without need of the bills of lading or bank guarantee.
[6]
Moreover, the bills of lading were viewed by respondent
court to have been properly superseded by the telex instruction and to implement the instruction, the delivery of the shipment
must be to GPC, the real importer/buyer of the goods as shown by the export invoices,
[7]
and not to PAKISTAN BANK since the
latter could very well present the bills of lading in its possession; likewise, if it were the PAKISTAN BANK to which the cargoes
were to be strictly delivered it would no longer be proper to require a bank guarantee. Respondent court noted that besides,
GPC was listed as a consignee in the telex. It observed further that the demand letter of petitioner to respondents never
complained of misdelivery of goods. Lastly, respondent court found that petitioners claim of having reimbursed

the amount
involved to SOLIDBANK was unsubstantiated. Thus, on 13 March 1996 respondent court set aside the decision of the trial
court and dismissed the complaint together with the counterclaims.
[8]
On 5 July 1996 reconsideration was denied.
[9]

Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the bill of lading or to a
party designated or named by the consignee constitutes a misdelivery thereof. Moreover, petitioner argues that from the text
of the telex, assuming there was such an instruction, the delivery of the shipment without the required bill of lading or bank
guarantee should be made only to the designated consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that the fact that the shipment was not delivered to the consignee
as stated in the Bill of Lading or to a party designated or named by the consignee constitutes a misdelivery thereof is a
deviation from his cause of action before the trial court. It is clear from the allegation in his complaint that it does not deal
with misdelivery of the cargoes but of delivery to GPC without the required bills of lading and bank guarantee -
6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the buyer/notify party, Great Prospect
Company and not to the consignee, the National Bank of Pakistan, Hongkong, without the required bills of lading and bank
guarantee for the release of the shipment issued by the consignee of the goods x x x x
[10]

Even going back to an event that transpired prior to the filing of the present case or when petitioner wrote respondent
WALLEM demanding payment of the value of the cargoes, misdelivery of the cargoes did not come into the picture -
We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of Lading No. 99012 and 99013 with a
total value of US$20,223.46 were released to Great Prospect, Hongkong without the necessary bank guarantee. We were further
informed that the consignee of the goods, National Bank of Pakistan, Hongkong, did not release or endorse the original bills of
lading. As a result thereof, neither the consignee, National Bank of Pakistan, Hongkong, nor the importer, Great Prospect
Company, Hongkong, paid our client for the goods x x x x
[11]

At any rate, we shall dwell on petitioners submission only as a prelude to our discussion on the imputed liability of
respondents concerning the shipped goods. Article 1736 of the Civil Code provides -
Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738.
[12]

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or constructive delivery of
the cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK was indicated in the bills of
lading as consignee whereas GPC was the notify party. However, in the export invoices GPC was clearly named as
buyer/importer. Petitioner also referred to GPC as such in his demand letter to respondent WALLEM and in his complaint
before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as buyer/importer which,
conformably with Art. 1736 had, other than the consignee, the right to receive them
[13]
was proper.
The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without the bills of lading or
bank guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to GPC without the bills
of lading and bank guarantee. The telex instructed delivery of various shipments to the respective consignees without need of
presenting the bill of lading and bank guarantee per the respective shippers request since for prepaid shipt ofrt charges
already fully paid. Petitioner was named therein as shipper and GPC as consignee with respect to Bill of Lading Nos. HKG
99012 and HKG 99013. Petitioner disputes the existence of such instruction and claims that this evidence is self-serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer for around two (2)
or three (3) years already. When mangoes and watermelons are in season, his shipment to GPC using the facilities of
respondents is twice or thrice a week. The goods are released to GPC. It has been the practice of petitioner to request the
shipping lines to immediately release perishable cargoes such as watermelons and fresh mangoes through telephone calls by
himself or his people. In transactions covered by a letter of credit, bank guarantee is normally required by the shipping lines
prior to releasing the goods. But for buyers using telegraphic transfers, petitioner dispenses with the bank guarantee because
the goods are already fully paid. In his several years of business relationship with GPC and respondents, there was not a single
instance when the bill of lading was first presented before the release of the cargoes. He admitted the existence of the telex of
3 July 1989 containing his request to deliver the shipment to the consignee without presentation of the bill of lading
[14]
but not
the telex of 5 April 1989 because he could not remember having made such request.
Consider pertinent portions of petitioners testimony -
Q: Are you aware of any document which would indicate or show that your request to the defendant Wallem for the
immediate release of your fresh fruits, perishable goods, to Great Prospect without the presentation of the original Bill of
Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested the immediate release of the cargo because
there was immediate payment.
Q And you are referring, therefore, to this copy Telex release that you mentioned where your Companys name appears Ben-
Mac?
Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading referring to SKG (sic) 93023 and
93026 with Great Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate release of the goods when they are perishable. I thought
Wallem Shipping Lines is not neophyte in the business. As far as LC is concerned, Bank guarantee is needed for the
immediate release of the goods x x x x
[15]

Q: Mr. Witness, you testified that it is the practice of the shipper of the perishable goods to ask the shipping lines to release
immediately the shipment. Is that correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines to release the perishable goods to the importer of
goods without a Bill of Lading or Bank guarantee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the perishable goods by the shipping lines to the importer
without the Bank guarantee and without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully paid x x x x
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you recall that any of your shipment
was released to Great Prospect by Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods through Wallem, you requested
Wallem to release immediately your perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods x x x x
[16]

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods immediately even without the presentation
of OBL, how do you course it?
A: Usually, I call up the Shipping Lines, sir x x x x
[17]

Q: You also testified you made this request through phone calls. Who of you talked whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your people to call? (sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem x x x x
[18]

Against petitioners claim of not remembering having made a request for delivery of subject cargoes to GPC without
presentation of the bills of lading and bank guarantee as reflected in the telex of 5 April 1989 are damaging disclosures in his
testimony. He declared that it was his practice to ask the shipping lines to immediately release shipment of perishable goods
through telephone calls by himself or his people. He no longer required presentation of a bill of lading nor of a bank
guarantee as a condition to releasing the goods in case he was already fully paid. Thus, taking into account that subject
shipment consisted of perishable goods and SOLIDBANK pre-paid the full amount of the value thereof, it is not hard to believe
the claim of respondent WALLEM that petitioner indeed requested the release of the goods to GPC without presentation of the
bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was to deliver the shipment to respective consignees. And so petitioner
argues that, assuming there was such an instruction, the consignee referred to was PAKISTAN BANK. We find the argument
too simplistic. Respondent court analyzed the telex in its entirety and correctly arrived at the conclusion that the consignee
referred to was not PAKISTAN BANK but GPC -
There is no mistake that the originals of the two (2) subject Bills of Lading are still in the possession of the Pakistani Bank. The
appealed decision affirms this fact. Conformably, to implement the said telex instruction, the delivery of the shipment must be to
GPC, the notify party or real importer/buyer of the goods and not the Pakistani Bank since the latter can very well present the
original Bills of Lading in its possession. Likewise, if it were the Pakistani Bank to whom the cargoes were to be strictly delivered,
it will no longer be proper to require a bank guarantee as a substitute for the Bill of Lading. To construe otherwise will render
meaningless the telex instruction. After all, the cargoes consist of perishable fresh fruits and immediate delivery thereof to the
buyer/importer is essentially a factor to reckon with. Besides, GPC is listed as one among the several consignees in the telex
(Exhibit 5-B) and the instruction in the telex was to arrange delivery of A/M shipment (not any party) to respective consignees
without presentation of OB/L and bank guarantee x x x x
[19]

Apart from the foregoing obstacles to the success of petitioners cause, petitioner failed to substantiate his claim that he
returned to SOLIDBANK the full amount of the value of the cargoes. It is not far-fetched to entertain the notion, as did
respondent court, that he merely accommodated SOLIDBANK in order to recover the cost of the shipped cargoes from
respondents. We note that it was SOLIDBANK which initially demanded payment from respondents through five (5)
letters. SOLIDBANK must have realized the absence of privity of contract between itself and respondents. That is why
petitioner conveniently took the cudgels for the bank.
In view of petitioners utter failure to establish the liability of respondents over the cargoes, no reversible error was
committed by respondent court in ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March 1996 dismissing the
complaint of petitioner Benito Macam and the counterclaims of respondents China Ocean Shipping Co. and/or Wallem
Philippines Shipping, Inc., as well as its resolution of 5 July 1996 denying reconsideration, is AFFIRMED.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16598 October 3, 1921
H. E. HEACOCK COMPANY, plaintiff-appellant,
vs.
MACONDRAY & COMPANY, INC., defendant-appellant.
Fisher & DeWitt for plaintiff-appellant.
Wolfson, Wolfson & Schwarzkopf for defendant-appellant.
JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover the sum of P240 together with
interest thereon. The facts are stipulated by the parties, and are, briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of steamship Bolton Castle,
then in the harbor of New York, four cases of merchandise one of which contained twelve (12) 8-day Edmond clocks
properly boxed and marked for transportation to Manila, and paid freight on said clocks from New York to Manila in
advance. The said steampship arrived in the port of Manila on or about the 10th day of September, 1919, consigned to
the defendant herein as agent and representative of said vessel in said port. Neither the master of said vessel nor the
defendant herein, as its agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand
was made upon them for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and the market value of
the same in the City of Manila at the time when they should have been delivered to the plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton Castlecontained,
among others, the following clauses:
1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton,
or, in proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid
thereon.
9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not
be liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or
damage for which the carrier may be liable shall be adjusted pro rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the freight ton value
thereof was $1,480, U. S. currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the aforesaid clocks, and
no ad valorem freight was paid thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate freight ton value of
the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment in favor of the plaintiff
against the defendant for the sum of P226.02, this being the invoice value of the clocks in question plus the freight and
insurance thereon, with legal interest thereon from November 20, 1919, the date of the complaint, together with costs. From
that judgment both parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the clocks in question, to wit:
the sum of P420. The defendant-appellant, on the other hand, contends that, in accordance with clause 1 of the bill of lading,
the plaintiff is entitled to recover only the sum of P76.36, the proportionate freight ton value of the said clocks. The claim of
the plaintiff is based upon the argument that the two clause in the bill of lading above quoted, limiting the liability of the
carrier, are contrary to public order and, therefore, null and void. The defendant, on the other hand, contends that both of said
clauses are valid, and the clause 1 should have been applied by the lower court instead of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations inserted in the bill of lading, limit its
liability for the loss of or damage to the cargo to an agreed valuation of the latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any and all
liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13, 1893]: Louisville Ry.
Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr., 124; 48 Am. Rep., 742) support the proposition that the
first and second stipulations in a bill of lading are invalid which either exempt the carrier from liability for loss or damage
occasioned by its negligence, or provide for an unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the present case falls within the
third stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a certain amount unless the
shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. This proposition is supported by a
uniform lien of decisions of the Supreme Court of the United States rendered both prior and subsequent to the passage of the
Harter Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the case of the Union
Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage, signed by the shipper, is
fairly made with a railroad company, agreeing on a valuation of the property carried, with the rate of freight based on the
condition that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or damage by the
negligence of the carrier, the contract will be upheld as proper and lawful mode of securing a due proportion between the
amount for which the carrier may be responsible and the freight he receives, and protecting himself against extravagant and
fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the decision in
Hartvs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston and M. R.
Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared
to be the settled Federal law that if a common carrier gives to a shipper the choice of two rates, the lower of the conditioned
upon his agreeing to a stipulated valuation of his property in case of loss, even by the carrier's negligence, if the shipper makes
such a choice, understandingly and freely, and names his valuation, he cannot thereafter recover more than the value which he
thus places upon his property. As a matter of legal distinction, estoppel is made the basis of this ruling, that, having
accepted the benefit of the lower rate, in common honesty the shipper may not repudiate the conditions on which it was
obtained, but the rule and the effect of it are clearly established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a shipper, limit its liability in
case of the loss by negligence of an interstate shipment to less than the real value thereof, unless the shipper is given a choice
of rates, based on valuation."
A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any sound principle of
public policy; and it is not conformable to plain principles of justice that a shipper may understate value in order to
reduce the rate and then recover a larger value in case of loss. (Adams Express Co. vs.Croninger 226 U. S. 491, 492.)
See also Reid vs. Farbo (130 C. C. A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and
Co. (227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in question are not contrary to
public order. Article 1255 of the Civil Code provides that "the contracting parties may establish any agreements, terms and
conditions they may deem advisable, provided they are not contrary to law, morals or public order." Said clauses of the bill of
lading are, therefore, valid and binding upon the parties thereto.
II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the bill of lading here in question is
to be adopted as the measure of defendant's liability. Clause 1 provides as follows:
1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in
proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon.
Clause 9 provides:
9. Also, that in the even of claims for short delivery of, or damage to, cargo being made, the carrier shall not be liable
for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage for which
the carrier may be liable shall be adjusted pro rata on the said basis.
The defendant-appellant contends that these two clauses, if construed together, mean that the shipper and the carrier
stipulate and agree that the value of the goods receipted for does not exceed $500 per freight ton, but should the invoice value
of the goods be less than $500 per freight ton, then the invoice value governs; that since in this case the invoice value is more
than $500 per freight ton, the latter valuation should be adopted and that according to that valuation, the proportionate value
of the clocks in question is only P76.36 which the defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in case of loss on the basis of not
exceeding $500 per freight ton, clause 9 contains an express undertaking to settle on the basis of the net invoice price plus
freight and insurance less all charges saved. "Any loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis," clause 9 expressly provides. It seems to us that there is an irreconcilable conflict between the two
clauses with regard to the measure of defendant's liability. It is difficult to reconcile them without doing violence to the
language used and reading exceptions and conditions into the undertaking contained in clause 9 that are not there. This being
the case, the bill of lading in question should be interpreted against the defendant carrier, which drew said contract. "A written
contract should, in case of doubt, be interpreted against the party who has drawn the contract." (6 R. C. L. 854.) It is a well-
known principle of construction that ambiguity or uncertainty in an agreement must be construed most strongly against the
party causing it. (6 R. C. L., 855.) These rules as applicable to contracts contained in bills of lading. "In construing a bill of lading
given by the carrier for the safe transportation and delivery of goods shipped by a consignor, the contract will be construed
most strongly against the carrier, and favorably to the consignor, in case of doubt in any matter of construction." (Alabama, etc.
R. R. Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed, without any finding as to costs. So
ordered.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 75118 August 31, 1987
SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and style of "SEN HIAP
HING," respondents.
NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the covering bill of lading
limiting to a fixed amount the liability of the carrier for loss or damage to the cargo where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and forwarding company
licensed to do business in the Philippines, received from Seaborne Trading Company in Oakland, California a shipment
consigned to Sen Hiap Hing the business name used by Paulino Cue in the wholesale and retail trade which he operated out of
an establishment located on Borromeo and Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill of lading. The bill described the
shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume measurements Sea-land charged the shipper the total amount
of US$209.28
2
for freight age and other charges. The shipment was loaded on board the MS Patriot, a vessel owned and
operated by Sea-Land, for discharge at the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996 into the custody of the
arrastre contractor and the customs and port authorities.
3
Sometime between February 13 and 16, 1981, after the shipment
had been transferred, along with other cargoes to Container No. 40158 near Warehouse 3 at Pier 3 in South Harbor, Manila,
awaiting trans-shipment to Cebu, it was stolen by pilferers and has never been recovered.
4

On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the lost shipment allegedly
amounting to P179,643.48.
5
Sea-Land offered to settle for US$4,000.00, or its then Philippine peso equivalent of P30,600.00.
asserting that said amount represented its maximum liability for the loss of the shipment under the package limitation clause
in the covering bill of lading.
6
Cue rejected the offer and thereafter brought suit for damages against Sea-Land in the then
Court of First Instance of Cebu, Branch X.
7
Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land to
pay him P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00 for unrealized profit with one
(1%) percent monthly interest from the filing of the complaint until fully paid, P25,000.00 for attorney's fees and P2,000.00 as
litigation expenses.
8

Sea-Land appealed to the Intermediate Appellate Court.
9
That Court however affirmed the decision of the Trial Court xxx in all
its parts ... . 10 Sea-Land thereupon filed the present petition for review which, as already stated, poses the question of
whether, upon the facts above set forth, it can be held liable for the loss of the shipment in any amount beyond the limit of
US$600.00 per package stipulated in the bill of lading.
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the carrier or
shipper for loss of, or damage to, goods being transported under said bill ,although that document may have been as in
practice it oftentimes is drawn up only by the consignor and the carrier without the intervention of
the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some length into the reasons behind this when,
upon a claim made by the consignee of a motion picture film shipped by air that he was never a party to the contract of
transportation and was a complete stranger thereto, it said:
But appellant now contends that he is not suing on a breach of contract but on a tort as provided for in Art.
1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First, he insists that the
articles of the Code of Commerce should be applied: that he invokes the provisions of aid Code governing the
obligations of a common carrier to make prompt delivery of goods given to it under a contract of
transportation. Later, as already said, he says that he was never a party to the contract of transportation and
was a complete stranger to it, and that he is now suing on a tort or a violation of his rights as a stranger (culpa
aquiliana) If he does not invoke the contract of carriage entered into with the defendant company, then he
would hardly have any leg to stand on. His right to prompt delivery of the can of film at the Phil. Air Port
stems and is derived from the contract of carriage under which contract, the PAL undertook to carry the can
of film safely and to deliver it to him promptly. Take away or ignore that contract and the obligation to carry
and to deliver and right to prompt delivery disappear. Common carriers are not obligated by law to carry and
to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common
carriers previously assume the obligation. Said rights and obligations are created by a specific contract
entered into by the parties. In the present case, the findings of the trial court which as already stated, are
accepted by the parties and which we must accept are to the effect that the LVN Pictures Inc. and Jose
Mendoza on one side, and the defendant company on the other, entered into a contract of transportation (p.
29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures Inc. through previous
agreement with Mendoza acted as the latter's agent. When he negotiated with the LVN Pictures Inc. to rent
the film "Himala ng Birhen" and show it during the Naga town fiesta, he most probably authorized and
enjoined the Picture Company to ship the film for him on the PAL on September 17th. Another interpretation
is that even if the LVN Pictures Inc. as consignor of its own initiative, and acting independently of Mendoza for
the time being, made Mendoza as consignee, a stranger to the contract if that is possible, nevertheless when
he, Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding the
delivery of the shipment to him, he thereby made himself a party to the contract of transportation. The very
citation made by appellant in his memorandum supports this view. Speaking of the possibility of a conflict
between the order of the shipper on the one hand and the order of the consignee on the other, as when the
shipper orders the shipping company to return or retain the goods shipped while the consignee demands
their delivery, Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the
Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled
"Commentaries and Jurisprudence on the Commercial Laws of the Philippines" p. 209, says that the right of
the shipper to countermand the shipment terminates when the consignee or legitimate holder of the bill of
lading appears with such big of lading before the carrier and makes himself a party to the contract. Prior to
that time he is a stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil Code
(now Art, 1311, second paragraph) which reads thus:
Should the contract contain any stipulation in favor of a third person, he may demand its
fulfillment provided he has given notice of his acceptance to the person bound before the
stipulation has been revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the
Phil Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor
contained in the contract of carriage and delivery. In this case he also made himself a party to the contract, or
at least has come to court to enforce it. His cause of action must necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it under a contract of carriage is governed
by the laws of the country of destination 12 and the goods in question were shipped from the United States to the Philippines,
the liability of petitioner Sea-Land to the respondent consignee is governed primarily by the Civil Code, and as ordained by the
said Code, suppletorily, in all matters not determined thereby, by the Code of Commerce and special laws. 13 One of these
suppletory special laws is the Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts
for the carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65, approved on
October 22, 1936. Sec. 4(5) of said Act in part reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money of the
United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that
sum in other currency, unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum amount
than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the
figure above named. In no event shall the carrier be liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to its shipping clients 14 is a virtual
copy of the first paragraph of the foregoing provision. It says:
22. VALUATION. In the event of any loss, damage or delay to or in connection with goods exceeding in actual
value $500 per package, lawful money of the United States, or in case of goods not shipped in packages, per
customary freight unit, the value of the goods shall be deemed to be $500 per package or per customary
freight unit, as the case may be, and the carrier's liability, if any, shall be determined on the basis of a value of
$500 per package or customary freight unit, unless the nature and a higher value shall be declared by the
shipper in writing before shipment and inserted in this Bill of Lading.
And in its second paragraph, the bill states:
If a value higher than $500 shag have been declared in writing by the shipper upon delivery to the carrier and
inserted in this bill of lading and extra freight paid, if required and in such case if the actual value of the goods
per package or per customary freight unit shall exceed such declared value, the value shall nevertheless be
deemed to be declared value and the carrier's liability, if any, shall not exceed the declared value and any
partial loss or damage shall be adjusted pro rata on the basis of such declared value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and obligations of common carriers to
the provisions of the Code of Commerce and of special laws in matters not regulated by said (Civil) Code, the Court fails to
fathom the reason or justification for the Appellate Court's pronouncement in its appealed Decision that the Carriage of Goods
by Sea Act " ... has no application whatsoever in this case. 15 Not only is there nothing in the Civil Code which absolutely
prohibits agreements between shipper and carrier limiting the latter's liability for loss of or damage to cargo shipped under
contracts of carriage; it is also quite clear that said Code in fact has agreements of such character in contemplation in
providing, in its Articles 1749 and 1750, that:
ART. 1749 A stipulation that the common carrier's liability is limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction,
or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or inconsistent with any
of the just-cited provisions of the Civil Code. Said section merely gives more flesh and greater specificity to the rather general
terms of Article 1749 (without doing any violence to the plain intent thereof) and of Article 1750, to give effect to just
agreements limiting carriers' liability for loss or damage which are freely and fairly entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of
the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil
Code provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise
would amount to questioning the justice and fairness of that law itself, and this the private respondent does not pretend to do.
But over and above that consideration, the lust and reasonable character of such stipulation is implicit in it giving the shipper
or owner the option of avoiding acrrual of liability limitation by the simple and surely far from onerous expedient of declaring
the nature and value of the shipment in the bill of lading. And since the shipper here has not been heard to complaint of having
been "rushed," imposed upon or deceived in any significant way into agreeing to ship the cargo under a bill of lading carrying
such a stipulation in fact, it does not appear that said party has been heard from at all insofar as this dispute is concerned
there is simply no ground for assuming that its agreement thereto was not as the law would require, freely and fairly sought
and given.
The private respondent had no direct part or intervention in the execution of the contract of carriage between the shipper and
the carrier as set forth in the bill of lading in question. As pointed out in Mendoza vs. PAL, supra, the right of a party in the same
situation as respondent here, to recover for loss of a shipment consigned to him under a bill of lading drawn up only by and
between the shipper and the carrier, springs from either a relation of agency that may exist between him and the shipper or
consignor, or his status as a stranger in whose favor some stipulation is made in said contract, and who becomes a party
thereto when he demands fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither
capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may be
observed that in one comparatively recent case 16 where this Court found that a similar package limitation clause was
"(printed in the smallest type on the back of the bill of lading, it nonetheless ruled that the consignee was bound thereby on
the strength of authority holding that such provisions on liability limitation are as much a part of a bill of lading as though
physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon stipulations in a
contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless the shipper declares a
higher value and inserts it into said contract or bill. This pro position, moreover, rests upon an almost uniform weight of
authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly authorizes trans-shipment of the
goods at any point in the voyage in these terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its or his discretion
and although transshipment or forwarding of the goods may not have been contemplated or provided for
herein, may at port of discharge or any other place whatsoever transship or forward the goods or any part
thereof by any means at the risk and expense of the goods and at any time, whether before or after loading on
the ship named herein and by any route, whether within or outside the scope of the voyage or beyond the
port of discharge or destination of the goods and without notice to the shipper or consignee. The carrier or
master may delay such transshipping or forwarding for any reason, including but not limited to awaiting a
vessel or other means of transportation whether by the carrier or others.
Said provision obviates the necessity to offer any other justification for offloading the shipment in question in Manila for
transshipment to Cebu City, the port of destination stipulated in the bill of lading. Nonetheless, the Court takes note of Sea-
Land's explanation that it only directly serves the Port of Manila from abroad in the usual course of voyage of its carriers,
hence its maintenance of arrangements with a local forwarder. Aboitiz and Company, for delivery of its imported cargo to the
agreed final point of destination within the Philippines, such arrangements not being prohibited, but in fact recognized, by
law. 18
Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the final port of destination
and that the fact that transshipment was made on an interisland vessel did not remove the contract of carriage of goods from
the operation of said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon by petitioner Sea Land
form no part of the short-form bill of lading attached to his complaint before the Trial Court and appear only in the long form
of that document which, he claims. SeaLand offered (as its Exhibit 2) as an unused blank form with no entries or signatures
therein. He, however, admitted in the Trial Court that several times in the past shipments had been delivered to him through
Sea-Land,
20
from which the assumption may fairly follow that by the time of the consignment now in question, he was already
reasonably apprised of the usual terms covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by Sea Act on package
limitation [sec 4(5) of the Act hereinabove referred to] are as much a part of a bill of lading as though actually placed therein
by agreement of the parties.
21

Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes accepted said bill.
Having done so, he
... becomes bound by all stipulations contained therein whether on the front or the back thereof. Respondent
cannot elude its provisions simply because they prejudice him and take advantage of those that are beneficial.
Secondly, the fact that respondent shipped his goods on board the ship of petitioner and paid the
corresponding freight thereon shows that he impliedly accepted the bill of lading which was issued in
connection with the shipment in question, and so it may be said that the same is finding upon him as if it had
been actually signed by him or by any other person in his behalf. ...
22
.
There is one final consideration. The private respondent admits
23
that as early as on April 22, 1981, Sea-Land had offered to
settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the shipment under the bill of lading. This Court
having reached the conclusion that said sum is all that is justly due said respondent, it does not appear just or equitable that
Sea-Land, which offered that amount in good faith as early as six years ago, should, by being made to pay at the current
conversion rate of the dollar to the peso, bear for its own account all of the increase in said rate since the time of the offer of
settlement. The decision of the Regional Trial Court awarding the private respondent P186,048.00 as the peso value of the lost
shipment is clearly based on a conversion rate of P8.00 to US$1.00, said respondent having claimed a dollar value of
$23,256.00 for said shipment.
24
All circumstances considered, it is just and fair that Sea-Land's dollar obligation be convertible
at the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set aside. The stipulation in the
questioned bill of lading limiting Sea-Land's liability for loss of or damage to the shipment covered by said bill to US$500.00
per package is held valid and binding on private respondent. There being no question of the fact that said shipment consisted
of eight (8) cartons or packages, for the loss of which Sea-Land is therefore liable in the aggregate amount of US$4,000.00, it is
the judgment of the Court that said petitioner discharge that obligation by paying private respondent the sum of P32,000.00,
the equivalent in Philippine currency of US$4,000.00 at the conversion rate of P8.00 to $1.00. Costs against private
respondent.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 88092 April 25, 1990
CITADEL LINES, INC., petitioner,
vs.
COURT OF APPEALS * and MANILA WINE MERCHANTS, INC., respondents.
Del Rosario & Del Rosario Law Offices for petitioner.
Limqueco and Macaraeg Law Office for private respondent.
REGALADO, J.:
Through this petition, we are asked to review the decision of the Court of Appeals dated December 20, 1988, in CA-G.R. No. CV-
10070,
1
which affirmed the August 30, 1985 decision of the Regional Trial Court of Manila, Branch 27, in Civil Case No.
126415, entitled Manila Wine Merchants, Inc. vs. Citadel Lines, Inc. and E. Razon, Inc., with a modification by deleting the
award of attorney's fees and costs of suit.
The following recital of the factual background of this case is culled from the findings in the decision of the court a quo and
adopted by respondent court based on the evidence of record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent of the vessel "Cardigan Bay/Strait
Enterprise," while respondent Manila Wine Merchants, Inc. (hereafter, the CONSIGNEE) is the importer of the subject
shipment of Dunhill cigarettes from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board at Southampton, England, for
carriage to Manila, 180 Filbrite cartons of mixed British manufactured cigarettes called "Dunhill International Filter" and
"Dunhill International Menthol," as evidenced by Bill of Lading No. 70621374
2
and Bill of Lading No. 70608680
3
of the Ben
Line Containers Ltd. The shipment arrived at the Port of Manila Pier 13, on April 18, 1979 in container van No. BENU 204850-
9. The said container was received by E. Razon, Inc. (later known as Metro Port Service, Inc. and referred to herein as the
ARRASTRE) under Cargo Receipt No. 71923 dated April 18, 1979.
4

On April 30, 1979, the container van, which contained two shipments was stripped. One shipment was delivered and the other
shipment consisting of the imported British manufactured cigarettes was palletized. Due to lack of space at the Special Cargo
Coral, the aforesaid cigarettes were placed in two containers with two pallets in container No. BENU 204850-9, the original
container, and four pallets in container No. BENU 201009-9, with both containers duly padlocked and sealed by the
representative of the CARRIER.
In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van No. BENU 201009-9 had a different
padlock and the seal was tampered with. The matter was reported to Jose G. Sibucao, Pier Superintendent, Pier 13, and upon
verification, it was found that 90 cases of imported British manufactured cigarettes were missing. This was confirmed in the
report of said Superintendent Sibucao to Ricardo Cosme, Assistant Operations Manager, dated May 1, 1979
5
and the Official
Report/Notice of Claim of Citadel Lines, Inc. to E. Razon, Inc. dated May 8, 1979.
6
Per investigation conducted by the
ARRASTRE, it was revealed that the cargo in question was not formally turned over to it by the CARRIER but was kept inside
container van No. BENU 201009-9 which was padlocked and sealed by the representatives of the CARRIER without any
participation of the ARRASTRE.
When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated May 21, 1979,
7
with the CARRIER,
demanding the payment of P315,000.00 representing the market value of the missing cargoes. The CARRIER, in its reply letter
dated May 23, 1979,
8
admitted the loss but alleged that the same occurred at Pier 13, an area absolutely under the control of
the ARRASTRE. In view thereof, the CONSIGNEE filed a formal claim, dated June 4, 1979,
9
with the ARRASTRE, demanding
payment of the value of the goods but said claim was denied.
After trial, the lower court rendered a decision on August 30, 1985, exonerating the ARRASTRE of any liability on the ground
that the subject container van was not formally turned over to its custody, and adjudging the CARRIER liable for the principal
amount of P312,480.00 representing the market value of the lost shipment, and the sum of P30,000.00 as and for attorney's
fees and the costs of suit.
As earlier stated, the court of Appeals affirmed the decision of the court a quo but deleted the award of attorney's fees and
costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was in the custody of E. Razon, Inc. or of Citadel Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier contained in the bill of lading is binding on the consignee.
The first issue is factual in nature. The Court of Appeals declared in no uncertain terms that, on the basis of the evidence
presented, the subject cargo which was placed in a container van, padlocked and sealed by the representative of the CARRIER
was still in its possession and control when the loss occurred, there having been no formal turnover of the cargo to the
ARRASTRE. Besides, there is the categorical admission made by two witnesses, namely, Atty. Lope M. Velasco and Ruben
Ignacio, Claims Manager and Head Checker, respectively, of the CARRIER,
10
that for lack of space the containers were not
turned over to and as the responsibility of E. Razon Inc. The CARRIER is now estopped from claiming otherwise.
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
11
If the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extra ordinary diligence as required in Article 1733 of
the Civil Code.
12
The duty of the consignee is to prove merely that the goods were lost. Thereafter, the burden is shifted to the
carrier to prove that it has exercised the extraordinary diligence required by law. And, its extraordinary responsibility lasts
from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until
the same are delivered, actually or constructively, by the carrier to the consignee or to the person who has the right to receive
them.
13

Considering, therefore, that the subject shipment was lost while it was still in the custody of herein petitioner CARRIER, and
considering further that it failed to prove that the loss was occasioned by an excepted cause, the inescapable conclusion is that
the CARRIER was negligent and should be held liable therefor.
The cases cited by petitioner in support of its allegations to the contrary do not find proper application in the case at bar
simply because those cases involve a situation wherein the shipment was turned over to the custody and possession of the
arrastre operator.
We, however, find the award of damages in the amount of P312,800.00 for the value of the goods lost, based on the alleged
market value thereof, to be erroneous. It is clearly and expressly provided under Clause 6 of the aforementioned bills of lading
issued by the CARRIER that its liability is limited to $2.00 per kilo. Basic is the rule, long since enshrined as a statutory
provision, that a stipulation limiting the liability of the carrier to the value of the goods appearing in the bill of lading, unless
the shipper or owner declares a greater value, is binding.
14
Further, a contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
15

The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does not appear in the bills of
lading.
16
Hence, the stipulation on the carrier's limited liability applies. There is no question that the stipulation is just and
reasonable under the circumstances and have been fairly and freely agreed upon. In Sea-land Service, Inc. vs.Intermediate
Appellate Court, et al.
17
we there explained what is a just and reasonable, and a fair and free, stipulation, in this wise:
. . . That said stipulation is just and reasonable arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justice and fairness of that law itself, and this the private
respondent does not pretend to do. But over and above that consideration the just and reasonable character
of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability
limitation by the simple and surely far from onerous expedient of declaring the nature and value of the
shipment in the bill of lading. And since the shipper here has not been heard to complain of having been
"rushed," imposed upon or deceived in any significant way into agreeing to ship the cargo under a bill of
lading carrying such a stipulation in fact, it does not appear, that said party has been heard from at all
insofar as this dispute is concerned there is simply no ground for assuming that its agreement thereto was
not as the law would require, freely and fairly sought and well.
The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since 90 cartons were lost and the weight
of said cartons is 2,233.80 kilos, at $2.00 per kilo the CARRIER's liability amounts to only US$4,467.60.
WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel Lines, Inc. is ordered to pay
private respondent Manila Wine Merchants, Inc. the sum of US$4,465.60. or its equivalent in Philippine currency at the
exchange rate obtaining at the time of payment thereof. In all other respects, said judgment of respondent Court is AFFIRMED.
SO ORDERED.

SECOND DIVISION
[G.R. No. 122494. October 8, 1998]
EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT OF APPEALS and HERNANDEZ TRADING CO.
INC., respondents.
D E C I S I O N
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the decision
[1]
of the
Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the decision of the Regional Trial Court of
Kalookan City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez Trading Co.,
Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO
C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based in Inazawa,
Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board ADELFAEVERETTE, a vessel owned by
petitioners principal, Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was
confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter made
a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two Thousand Five
Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner
offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the
covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil Case No. C-15532,
against petitioner before the Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer and agreed instead to
file their respective memoranda.
On July 16, 1993, the trial court rendered judgment
[2]
in favor of private respondent, ordering petitioner to pay: (a)
Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value of the lost cargo and the material and
packaging cost; (c) 10% of the total amount as an award for and as contingent attorneys fees; and (d) to pay the cost of the
suit. The trial court ruled:
Considering defendants categorical admission of loss and its failure to overcome the presumption of negligence and
fault, the Court conclusively finds defendant liable to the plaintiff. The next point of inquiry the Court wants to
resolve is the extent of the liability of the defendant. As stated earlier, plaintiff contends that defendant should be
held liable for the whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms appearing
at the back of the bill of lading was so written in fine prints and that the same was not signed by plaintiff or shipper
thus, they are not bound by the clause stated in paragraph 18 of the bill of lading. On the other hand, defendant
merely admitted that it lost the shipment but shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code -
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction
or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon.
It is required, however, that the contract must be reasonable and just under the circumstances and has been fairly
and freely agreed upon. The requirements provided in Art. 1750 of the New Civil Code must be complied with before
a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the
goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article have not been met. The fact that
those conditions are printed at the back of the bill of lading in letters so small that they are hard to read would not
warrant the presumption that the plaintiff or its supplier was aware of these conditions such that he had fairly and
freely agreed to these conditions. It can not be said that the plaintiff had actually entered into a contract with the
defendant, embodying the conditions as printed at the back of the bill of lading that was issued by the defendant to
plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed the trial courts findings with the
additional observation that private respondent can not be bound by the terms and conditions of the bill of lading because it
was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the appellee (Hernandez Trading Co.)
consented to the terms of the Bill of Lading. The shipper named in the Bill of Lading is Maruman Trading Co., Ltd.
whom the appellant (Everett Steamship Corp.) contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of the bill of lading when it
delivered the cargo to the appellant, still it does not necessarily follow that appellee Hernandez Trading Company as
consignee is bound thereby considering that the latter was never privy to the shipping contract.
x x x x x x x x x
Never having entered into a contract with the appellant, appellee should therefore not be bound by any of the terms
and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of which is not the
breach of contract as appellee was never a privy to the any contract with the appellant, but is based on Article 1735
of the New Civil Code, there being no evidence to prove satisfactorily that the appellant has overcome the
presumption of negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of the consignee to the
terms and conditions of the bill of lading is necessary to make such stipulations binding upon it; (2) in holding that the
carriers limited package liability as stipulated in the bill of lading does not apply in the instant case; and (3) in allowing
private respondent to fully recover the full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Code which provide:
ART. 1749. A stipulation that the common carriers liability is limited to the value of the goods appearing in the bill
of lading, unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly
agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of cases.
[3]
Thus, in Sea Land
Service, Inc. vs Intermediate Appellate Court
[4]
, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of
the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil
Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise
would amount to questioning the justness and fairness of the law itself, and this the private respondent does not pretend to
do. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of
declaring the nature and value of the shipment in the bill of lading..
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carriers liability
for loss must be reasonable and just under the circumstances, and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shippers net
invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of
possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount
exceeding One Hundred Thousand Yen in Japanese Currency (Y100,000.00) or its equivalent in any other currency
per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is
declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and
extra freight is paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability
would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to
declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that
the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and freely agreed to the limited liability
clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals
[5]
that the jurisprudence on the matter reveals the consistent holding of the
court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect
thereof. Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines , Inc.
[6]
this Court , speaking through the
learned Justice Florenz D. Regalado, held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of adhesion wherein one party imposes a ready-
made form of contract on the other x x x are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres he gives his consent. In the present case, not even an allegation of
ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for ensuring
full comprehension of the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper,
or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals
[7]
that stipulations in contracts of adhesion are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x, he is nevertheless bound by the provisions
thereof. Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the
passenger regardless of the latters lack of knowledge or assent to the regulation. It is what is known as a contract of
adhesion, in regards which it has been said that contracts of adhesion wherein one party imposes a ready-made
form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. x x x , a contract
limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from
contracting against his own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said contracts
must be carefully scrutinized in order to shield the unwary (or weaker party) from deceptive schemes contained in ready-
made covenants,
[8]
such as the bill of lading in question. The stringent requirement which the courts are enjoined to observe
is in recognition of Article 24 of the Civil Code which mandates that (i)n all contractual, property or other relations, when one
of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender
age or other handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be said to be
ignorant of the business transactions it entered into involving the shipment of its goods to its customers. The shipper could
not have known, or should know the stipulations in the bill of lading and there it should have declared a higher valuation of the
goods shipped. Moreover, Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing
to ship the cargo in petitioners vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is not a signatory to the bill of
lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the consignee was not a
signatory to the contract of carriage between the shipper and the carrier, the consignee can still be bound by the
contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the
carrier or shipper for loss of, or damage to goods being transported under said bill,although that document may
have been- as in practice it oftentimes is-drawn up only by the consignor and the carrier without the
intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to recover for loss of a shipment
consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs
from either a relation of agency that may exist between him and the shipper or consignor, or his status as
stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he
demands fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither
capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that
fair and free agreement to such provision was vitiated by its being in such fine print as to be hardly
readable. Parenthetically, it may be observed that in one comparatively recent case (Phoenix Assurance Company
vs. Macondray & Co., Inc., 64 SCRA 15) where this Court found that a similar package limitation clause was
printed in the smallest type on the back of the bill of lading, it nonetheless ruled that the consignee was
bound thereby on the strength of authority holding that such provisions on liability limitation are as much a
part of a bill of lading as though physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon
stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless
the shipper declares a higher value and inserts it into said contract or bill. This proposition, moreover, rests
upon an almost uniform weight of authority. (Underscoring supplied)
When private respondent formally claimed reimbursement for the missing goods from petitioner and subsequently filed
a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions of the contract
and thereby made itself a party thereto, or at least has come to court to enforce it.
[9]
Thus, private respondent cannot now
reject or disregard the carriers limited liability stipulation in the bill of lading. In other words, private respondent is bound
by the whole stipulations in the bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for the full value of the lost cargo in the amount of
Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared the shipment x x x, the contents of each
crate, the dimensions, weight and value of the contents,"
[10]
as shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents, quantity and value of "the shipment
which consisted of three pre-packed crates described in Bill of Lading No. NGO-53MN merely as 3 CASES SPARE PARTS.
[11]

The bill of lading in question confirms petitioners contention. To defeat the carriers limited liability, the aforecited
Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher valuation of its goods
before receipt thereof by the carrier and insert the said declaration in the bill of lading, with the extra freight paid. These
requirements in the bill of lading were never complied with by the shipper, hence, the liability of the carrier under the limited
liability clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that
petitioner has knowledge of the value of the cargo as contended by private respondent. No other evidence was proffered by
private respondent to support is contention. Thus, we are convinced that petitioner should be liable for the full value of the
lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand (Y100,000.00) Yen,
pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No. 42803 is hereby REVERSED
and SET ASIDE.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS and ARCHER
PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost baggage, containing
promotional and advertising materials for films to be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and
personal belongings, to the amount specified in the airline ticket absent a declaration of a higher valuation and the payment of
additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang Bastos and
Archer Production while in San Francisco, Califonia and Primo Quesada of Prime Films, San Francisco,
California, entered into an agreement (Exh. A) whereby the former, for and in consideration of the amount of
US $2,500.00 per picture, bound himself to supply the latter with three films. 'Ang Mabait, Masungit at ang
Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United States. It
was also their agreement that plaintiffs would provide the necessary promotional and advertising materials
for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick of the
Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with Slutchnick for the
exhibition of two of the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for the
consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the
necessary promotional and advertising materials for said films on or before the exhibition date on May
30,1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite promotional
handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C1). Likewise in
preparation for his trip abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch bags,
four capiz lamps and four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the Your Travel
Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage from Manila to Guam
on defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff of the regular fare. The Your
Travel Guide is a tour and travel office owned and managed by plaintiffs witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's ticket counter at
the Manila International Airport and presented his ticket and checked in his two luggages, for which he was
given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained the
promotional and advertising materials, the clutch bags, barong tagalog and his personal belongings.
Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight No.
842 in the economy class. Since there was no space in the economy class, plaintiff Pangan took the first class
because he wanted to be on time in Guam to comply with his commitment, paying an additional sum of
$112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not arrive with his
flight, as a consequence of which his agreements with Slutchnick and Quesada for the exhibition of the films
in Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a written claim (Exh. J) for his
missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to
protest as to the treatment which he received from the employees of the defendant and the loss of his two
luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances would be
investigated and given its immediate consideration (Exhs. N, P and R). Due to the defendant's failure to
communicate with Pangan about the action taken on his protests, the present complaint was filed by the
plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of P83,000.00, for
actual damages, with interest thereon at the rate of 14% per annum from December 6, 1978, when the
complaint was filed, until the same is fully paid, plus the further sum of P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum of
P8,123.34, for additional actual damages, with interest thereon at the rate of 14% per annum from December
6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective memoranda. In due time the case
was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of actual damages beyond the limitation of
liability set forth in the Warsaw Convention and the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of actual damages consisting of alleged
lost profits in the face of this Court's ruling concerning special or consequential damages as set forth inMendoza v.
Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the country of
departure the Warsaw Convention may be applicable and the Convention governs and in most cases limits
the liability of carriers for death or personal injury and in respect of loss of or damage to baggage. See also
notice headed "Advice to International Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of which these conditions
and the notices form part, "carriage" is equivalent to "transportation," "carrier" means all air carriers that
carry or undertake to carry the passenger or his baggage hereunder or perform any other service incidental
to such air carriage. "WARSAW CONVENTION" means the convention for the Unification of Certain Rules
Relating to International Carriage by Air signed at Warsaw, 12th October 1929, or that Convention as
amended at The Hague, 28th September 1955, whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw
Convention unless such carriage is not "international carriage" as defined by that Convention.
3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are
subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and
related regulations which are made part hereof (and are available on application at the offices of carrier),
except in transportation between a place in the United States or Canada and any place outside thereof to
which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in advance
and additional charges are paid: (1)for most international travel (including domestic portions of international
journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked baggageand $400 per passenger for
unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger on most carriers (a few
have lower limits). Excess valuation may not be declared on certain types of valuable articles. Carriers
assume no liability for fragile or perishable articles. Further information may be obtained from the carrier.
[Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its liability for the lost
baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for
his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA
223], where the Court sustained the validity of a printed stipulation at the back of an airline ticket limiting the liability of the
carrier for lost baggage to a specified amount and ruled that the carrier's liability was limited to said amount since the
passenger did not declare a higher value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through Justice Melencio Herrera,
stated:
Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage
liability to the amount of P100.00 as stipulated at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane
ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a total valuation of Pl,000.00
and additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less (lid he pay any
additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract
with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and that Article
1750 * of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless bound by
the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation."
[Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed.
Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of
"adhesion," in regards which it has been said that contracts of adhesion wherein one party imposes a ready
made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his
consent,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31,
1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein v.
Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability upon an agreed valuation does not
offend against the policy of the law forbidding one from contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be
permitted a recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966, 17 SCRA 606], where the
Court held that the stipulation limiting the carrier's liability to a specified amount was invalid, finds no application in the
instant case, as the ruling in said case was premised on the finding that the conditions printed at the back of the ticket were so
small and hard to read that they would not warrant the presumption that the passenger was aware of the conditions and that
he had freely and fairly agreed thereto. In the instant case, similar facts that would make the case fall under the exception have
not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as stipulated at the back of the
ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the Court of Appeal's
reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain
the view that "to apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in
cases of contractual breach of carriage ** is against public policy" is utterly misplaced, to say the least. In said case, while the
Court, as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of death of a
passenger or injury suffered by him, or of destruction or loss of, or damages to any checked baggage or any
goods, or of delay in the transportation by air of passengers, baggage or goods. This pretense is not borne out
by the language of said Articles. The same merely declare the carrier liable for damages in enumerated cases,
if the conditions therein specified are present. Neither said provisions nor others in the aforementioned
Convention regulate or exclude liability for other breaches of contract by the carrier. Under petitioner's
theory, an air carrier would be exempt from any liability for damages in the event of its absolute refusal, in
bad faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the ground that the lower court has
erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative to transportation by air is not
in force in the Philippines: (2) in not holding that respondent has no cause of action; and (3) in awarding
P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error because the same is the basis of the second
assignment of error, and the latter is devoid of merit, even if we assumed the former to be well taken. (Emphasis
supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity of provisions of the
Warsaw Convention. Consequently, by no stretch of the imagination may said quotation from Northwest be considered as
supportive of the appellate court's statement that the provisions of the Warsaw Convention limited a carrier's liability are
against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court of Appeals, awarding
private respondents damages as and for lost profits when their contracts to show the films in Guam and San Francisco,
California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held liable only for
damages that were foreseen or might have been foreseen at the time the contract of transportation was entered
into. The trial court correctly found that the defendant company could not have foreseen the damages that
would be suffered by Mendoza upon failure to deliver the can of filmon the 17th of September, 1948 for the
reason that the plans of Mendoza to exhibit that film during the town fiesta and his preparations, specially the
announcement of said exhibition by posters and advertisement in the newspaper, were not called to the
defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration. In the case of Chapman vs.
Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion picture films to the defendant Fargo, an
express company, consigned and to be delivered to him in Utica. At the time of shipment the attention of the express company
was called to the fact that the shipment involved motion picture films to be exhibited in Utica, and that they should be sent to
their destination, rush. There was delay in their delivery and it was found that the plaintiff because of his failure to exhibit the
film in Utica due to the delay suffered damages or loss of profits. But the highest court in the State of New York refused to
award him special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss of profits on account of
delay or failure of delivery, it must have appeared that he had notice at the time of delivery to him of the
particular circumstances attending the shipment, and which probably would lead to such special loss if he
defaulted. Or, as the rule has been stated in another form, in order to purpose on the defaulting party further
liability than for damages naturally and directly, i.e., in the ordinary course of things, arising from a breach of
contract, such unusual or extraordinary damages must have been brought within the contemplation of the
parties as the probable result of breach at the time of or prior to contracting. Generally, notice then of any
special circumstances which will show that the damages to be anticipated from a breach would be enhanced has
been held sufficient for this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that the attention of the common
carrier in said case was called to the nature of the articles shipped, the purpose of shipment, and the desire to rush the
shipment, circumstances and facts absent in the present case. [Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that petitioner's attention was
called to the special circumstances requiring prompt delivery of private respondent Pangan's luggages, petitioner cannot be
held liable for the cancellation of private respondents' contracts as it could not have foreseen such an eventuality when it
accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in Mendoza and affirmance of
the trial court's conclusion that petitioner is liable for damages based on the finding that "[tlhe undisputed fact is that the
contracts of the plaintiffs for the exhibition of the films in Guam and California were cancelled because of the loss of the two
luggages in question." [Rollo, p. 36] The evidence reveals that the proximate cause of the cancellation of the contracts was
private respondent Pangan's failure to deliver the promotional and advertising materials on the dates agreed upon. For this
petitioner cannot be held liable. Private respondent Pangan had not declared the value of the two luggages he had checked in
and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its attention called to the
condition therein requiring delivery of the promotional and advertising materials on or before a certain date.
3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket, the award of attorney's fees,
which is grounded on the alleged unjustified refusal of petitioner to satisfy private respondent's just and valid claim, loses
support and must be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is SET ASIDE and a new
judgment is rendered ordering petitioner to pay private respondents damages in the amount of US $600.00 or its equivalent in
Philippine currency at the time of actual payment.
SO ORDERED.
FIRST DIVISION
[G.R. No. 71929 : December 4, 1990.]
192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, Respondents.

D E C I S I O N

NARVASA, J.:

Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a research grantee of the Philippine
Atomic Energy Agency was invited to take part at a meeting of the Department of Research and Isotopes of the Joint FAO-
IAEA Division of Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was invited in view of her
specialized knowledge in "foreign substances in food and the agriculture environment." She accepted the invitation, and was
then scheduled by the organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating Vegetable
Crops." 3 The program announced that she would be the second speaker on the first day of the meeting. 4 To fulfill this
engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set for her by ALITALIA. She
was however told by the ALITALIA personnel there at Milan that her luggage was "delayed inasmuch as the same . . . (was) in
one of the succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2) suitcases: one contained her clothing and
other personal items; the other, her scientific papers, slides and other research material. But the other flights arriving from
Rome did not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired about her suitcases in the
domestic and international airports, and filled out the forms prescribed by ALITALIA for people in her predicament. However,
her baggage could not be found. Completely distraught and discouraged, she returned to Manila without attending the meeting
in Ispra, Italy. : nad
Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by her. ALITALIA offered
her "free airline tickets to compensate her for any alleged damages. . . ." She rejected the offer, and forthwith commenced the
action 6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on the day after her
scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr. Pablo was no longer there to accept
delivery; she was already on her way home to Manila. And for some reason or other, the suitcases were not actually restored
to Prof. Pablo by ALITALIA until eleven (11) months later, and four (4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS (P20,000.00),
Philippine Currency, by way of nominal damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine Currency, as
and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment. 11 Indeed, the
Appellate Court not only affirmed the Trial Court's decision but also increased the award of nominal damages payable by
ALITALIA to P40,000.00. 12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed by defendant, the amount
of P20,000.00 under present inflationary conditions as awarded . . . to the plaintiff as nominal damages, is too little to
make up for the plaintiff's frustration and disappointment in not being able to appear at said conference; and for the
embarrassment and humiliation she suffered from the academic community for failure to carry out an official mission
for which she was singled out by the faculty to represent her institution and the country. After weighing carefully all
the considerations, the amount awarded to the plaintiff for nominal damages and attorney's fees should be increased
to the cost of her round trip air fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the same points it tried to make before the
Trial Court and the Intermediate Appellate Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have refused to pass on all the
assigned errors and in not stating the facts and the law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on board the aircraft
or in the course of its operations of embarking or disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it took place
during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however, founded, can only be brought subject to
conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 250,000 francs . . .
Nevertheless, by special contract, the carrier and the passenger may agree to a higher limit of liability.: nad
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250 francs per
kilogramme, unless the passenger or consignor has made, at the time when the package was handed over to the
carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that sum
is greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein, the
weight to be taken into consideration in determining the amount to which the carrier's liability is limited shall be only
the total weight of the package or packages concerned. Nevertheless, when the loss, damage or delay of a part of the
registered baggage or cargo, or of an object contained therein, affects the value of other packages covered by the same
baggage check or the same air way bill, the total weight of such package or packages shall also be taken into
consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5000 francs
per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in addition, the
whole or part of the court costs and of the other expenses of litigation incurred by the plaintiff. The foregoing
provision shall not apply if the amount of the damages awarded, excluding court costs and other expenses of the
litigation, does not exceed the sum which the carrier has offered in writing to the plaintiff within a period of six
months from the date of the occurrence causing the damage, or before the commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or limit his liability, if the
damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court seized of
the case, is considered to be equivalent to wilful misconduct," or "if the damage is (similarly) caused . . by any agent of the
carrier acting within the scope of his employment." 22 The Hague Protocol amended the Warsaw Convention by removing the
provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely, 23 and declaring
the stated limits of liability not applicable "if it is proved that the damage resulted from an act or omission of the carrier, its
servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result."
The same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited
damages upon proof of wilful misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an airline's liability, or as an absolute
limit of the extent of that liability. Such a proposition is not borne out by the language of the Convention, as this Court has now,
and at an earlier time, pointed out. 25 Moreover, slight reflection readily leads to the conclusion that it should be deemed a
limit of liability only in those cases where the cause of the death or injury to person, or destruction, loss or damage to property
or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise
improper conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise no special
or extraordinary form of resulting injury. The Convention's provisions, in short, do not "regulate or exclude liability for other
breaches of contract by the carrier" 26 or misconduct of its officers and employees, or for some particular or exceptional type
of damage. Otherwise, "an air carrier would be exempt from any liability for damages in the event of its absolute refusal, in bad
faith, to comply with a contract of carriage, which is absurd." 27 Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously destroy or damage the latter's property,
the Convention might successfully be pleaded as the sole gauge to determine the carrier's liability to the passenger. Neither
may the Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a passenger and
preclude recovery therefor beyond the limits set by said Convention. It is in this sense that the Convention has been applied, or
ignored, depending on the peculiar facts presented by each case.:-cralaw
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was applied as regards the limitation on
the carrier's liability, there being a simple loss of baggage without any otherwise improper conduct on the part of the officials
or employees of the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not restrictive of the carrier's liability,
where there was satisfactory evidence of malice or bad faith attributable to its officers and employees. 29 Thus, an air carrier
was sentenced to pay not only compensatory but also moral and exemplary damages, and attorney's fees, for instance, where
its employees rudely put a passenger holding a first-class ticket in the tourist or economy section, 30 or ousted a brown
Asiatic from the plane to give his seat to a white man, 31 or gave the seat of a passenger with a confirmed reservation to
another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of petitioner airline; and Dr.
Pablo's luggage was eventually returned to her, belatedly, it is true, but without appreciable damage. The fact is, nevertheless,
that some special species of injury was caused to Dr. Pablo because petitioner ALITALIA misplaced her baggage and failed to
deliver it to her at the time appointed a breach of its contract of carriage, to be sure with the result that she was unable
to read the paper and make the scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations)
that she had painstakingly labored over, at the prestigious international conference, to attend which she had traveled
hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of the organizers. She felt, not
unreasonably, that the invitation for her to participate at the conference, extended by the Joint FAO/IAEA Division of Atomic
Energy in Food and Agriculture of the United Nations, was a singular honor not only to herself, but to the University of the
Philippines and the country as well, an opportunity to make some sort of impression among her colleagues in that field of
scientific activity. The opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of
its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which gradually turned to
panic and finally despair, from the time she learned that her suitcases were missing up to the time when, having gone to Rome,
she finally realized that she would no longer be able to take part in the conference. As she herself put it, she "was really
shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be restricted to that
prescribed by the Warsaw Convention for delay in the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As already mentioned, her baggage was
ultimately delivered to her in Manila, tardily but safely. She is however entitled to nominal damages which, as the law says,
is adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated and
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the purely technical argument that the
award to her of such nominal damages is precluded by her omission to include a specific claim therefor in her complaint, it
suffices to draw attention to her general prayer, following her plea for moral and exemplary damages and attorney's fees, "for
such other and further just and equitable relief in the premises," which certainly is broad enough to comprehend an
application as well for nominal damages. Besides, petitioner should have realized that the explicit assertion, and proof, that Dr.
Pablo's right had been violated or invaded by it absent any claim for actual or compensatory damages, the prayer thereof
having been voluntarily deleted by Dr. Pablo upon the return to her of her baggage necessarily raised the issue of nominal
damages.: rd
This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr. Pablo, and the amount of
P5,000.00 set by it is reasonable in the premises. The law authorizes recovery of attorney's fees inter alia where, as here, "the
defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest," 34 or "where the court deems it just and equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it appearing on the contrary to be
entirely in accord with the facts and the law, said decision is hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 92501 March 6, 1992
PHILIPPINE AIR LINES, petitioner,
vs.
HON. COURT OF APPEALS and ISIDRO CO, respondents.
GRIO-AQUINO, J.:
This is a petition for review of the decision dated July 19, 1989 of the Court of Appeals affirming the decision of the Regional
Trial Court of Pasay City which awarded P72,766.02 as damages and attorney's fees to private respondent Isidro Co for the
loss of his checked-in baggage as a passenger of petitioner airline.
The findings of the trial court, which were adopted by the appellate court, are:
"At about 5:30 a.m. on April 17, 1985, plaintiff [Co], accompanied by his wife and son, arrived at the Manila
International Airport aboard defendant airline's PAL Flight No. 107 from San Francisco, California, U.S.A. Soon
after his embarking (sic), plaintiff proceeded to the baggage retrieval area to claim his checks in his
possession. Plaintiff found eight of his luggage, but despite diligent search, he failed to locate ninth luggage,
with claim check number 729113 which is the one in question in this case.
"Plaintiff then immediately notified defendant company through its employee, Willy Guevarra, who was then
in charge of the PAL claim counter at the airport. Willy Guevarra, who testified during the trial court on April
11, 1986, filled up the printed form known as a Property Irregularity Report (Exh. "A"), acknowledging one of
the plaintiff's luggages to be missing (Exh. "A-1"), and signed after asking plaintiff himself to sign the same
document (Exh. "A-2"). In accordance with this procedure in cases of this nature, Willy Guevarra asked
plaintiff to surrender to him the nine claim checks corresponding to the nine luggages, i.e., including the one
that was missing.
The incontestable evidence further shows that plaintiff lost luggage was a Samsonite suitcase measuring
about 62 inches in length, worth about US$200.00 and containing various personal effects purchased by
plaintiff and his wife during their stay in the United States and similar other items sent by their friends
abroad to be given as presents to relatives in the Philippines. Plaintiff's invoices evidencing their purchases
show their missing personal effects to be worth US$1,243.01, in addition to the presents entrusted to them by
their friends which plaintiffs testified to be worth about US$500.00 to US$600.00 (Exhs. "D", "D-1", to "D-17";
tsn, p. 4, July 11, 1985; pp. 5-14, March 7, 1986).
Plaintiff on several occasions unrelentingly called at defendant's office in order to pursue his complaint about
his missing luggage but no avail. Thus, on April 15, 1985, plaintiff through his lawyer wrote a demand letter
to defendant company though Rebecca V. Santos, its manager, Central Baggage Services (Exhs. "B" & "B-1").
On April 17, 1985, Rebecca Santos replied to the demand letter (Exh. "B") acknowledging "that to date we
have been unable to locate your client's (plaintiff's) baggage despite our careful search" and requesting
plaintiff's counsel to "please extend to him our sincere apologies for the inconvenience he was caused by this
unfortunate incident" (Exh. "C"). Despite the letter (Exh. "C"), however, defendants never found plaintiff's
missing luggage or paid its corresponding value. Consequently, on May 3, 1985, plaintiff filed his present
complaint against said defendants. (pp. 38-40, Rollo.)
Co sued the airline for damages. The Regional Trial Court of Pasay City found the defendant airline (now petitioner) liable, and
rendered judgment on June 3, 1986, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine Airlines, Inc. to pay plaintiff
Isidro Co:
1) P42,766.02 by way of actual damages;
2) P20,000.00 by way of exemplary damages;
3) P10,000.00 as attorney's fees;
all in addition to the costs of the suit.
"Defendants' counterclaim is hereby dismissed for lack of merit."
(p. 40, Rollo.)
On appeal, the Court of Appeals affirmed in toto the trial court's award.
In his petition for review of the Court of Appeal's decision, petitioner alleges that the appellate court erred:
1. in affirming the conclusion of the trial court that the petitioner's retrieval baggage report was a fabrication;
2. in not applying the limit of liability under the Warsaw Convention which limits the liability of an air carrier
of loss, delay or damage to checked-in baggage to US$20.00 based on weight; and
3. in awarding private respondent Isidro Co actual and exemplary damages, attorney's fees, and costs.
The first and third assignments of error raise purely factual issues which are not reviewable by this Court (Sec. 2, Rule 45,
Rules of Court). The Court reviews only questions of law which must be distinctly set forth in the petition. (Hodges vs. People,
68 Phil. 178.) The probative value of petitioner's retrieval report was passed upon by the Regional Trial Court of Pasay City,
whose finding was affirmed by the Court of Appeals as follows:
In this respect, it is further argued that appellee should produce his claim tag if he had not surrendered it
because there was no baggage received. It appeared, however, that appellee surrendered all the nine claim
checks corresponding to the nine luggages, including the one that was missing, to the PAL officer after
accomplishing the Property, Irregularity Report. Therefore, it could not be possible for appellee to produce
the same in court. It is now for appellant airlines to produce the veracity of their Baggage Retrieval Report by
corroborating evidence other than testimonies of their employees. Such document is within the control of
appellant and necessarily requires other corroborative evidence. Since there is no compelling reason to
reverse the factual findings of the lower court, this Court resolves not to disturb the same. (p. 41, Rollo.)
Whether or not the lost luggage was ever retrieved by the passenger, and whether or not the actual and exemplary damages
awarded by the court to him are reasonable, are factual issues which we may not pass upon in the absence of special
circumstances requiring a review of the evidence.
In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC 164 SCRA 268), the Warsaw Convention
limiting the carrier's liability was applied because of a simple loss of baggage without any improper conduct on the part of the
officials or employees of the airline, or other special injury sustained by the passengers. The petitioner therein did not declare
a higher value for his luggage, much less did he pay an additional transportation charge.
Petitioner contends that under the Warsaw Convention, its liability, if any, cannot exceed US $20.00 based on weight as private
respondent Co did not declare the contents of his baggage nor pay traditional charges before the flight (p. 3, tsn, July 18, 1985).
We find no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher Lloyd (132 SCRA 529), this Court ruled:
The liability of the common carrier for the loss, destruction or deterioration of goods transported from a
foreign country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated by
said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by
Special Laws.
The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and 1753 which provide:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article if the goods
are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as required in article 1733.
Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the
common carrier for their loss, destruction or deterioration.
Since the passenger's destination in this case was the Philippines, Philippine law governs the liability of the carrier for the loss
of the passenger's luggage.
In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the private respondent's
evidence, proving that the carrier's negligence was the proximate cause of the loss of his baggage. Furthermore, petitioner
acted in bad faith in faking a retrieval receipt to bail itself out of having to pay Co's claim.
The Court of Appeals therefore did not err in disregarding the limits of liability under the Warsaw Convention.
The award of exemplary damages and attorney's fees to the private respondent was justified. In the cases ofImperial Insurance,
Inc. vs. Simon, 122 Phil. 189 and Bert Osmea and Associates vs. CA, 120 SCRA 396, the appellant was awarded attorney's fees
because of appellee's failure to satisfy the former's just and valid demandable claim which forced the appellant to litigate.
Likewise, in the case of Phil. Surety Ins. Co., Inc. vs. Royal Oil Products, 102 Phil. 326, this Court justified the grant of exemplary
damages and attorney's fees to the petitioner's failure, even refusal, to pay the private respondent's valid claim.
WHEREFORE, the petition for review is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 60501. March 5, 1993.
CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS and TOMAS L. ALCANTARA, respondents.
Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner.
Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS CONTRACT OF CARRIAGE WITH
PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS LUGGAGE AT THE DESIGNATED PLACE AND TIME. Petitioner
breached its contract of carriage with private respondent when it failed to deliver his luggage at the designated place and time,
it being the obligation of a common carrier to carry its passengers and their luggage safely to their destination, which includes
the duty not to delay their transportation, and the evidence shows that petitioner acted fraudulently or in bad faith.
2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF CONTRACT OF CARRIAGE;
RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS IN DEATH OF A PASSENGER, OR WHERE THE CARRIER
IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT OF PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT
JUSTIFIES THE GRANT OF MORAL AND EXEMPLARY DAMAGES IN CASE AT BAR. Moral damages predicated upon a breach
of contract of carriage may only be recoverable in instances where the mishap results in death of a passenger, or where the
carrier is guilty of fraud or bad faith. The language and conduct of petitioner's representative towards respondent Alcantara
was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only indifferent and
impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not
sincere because the representative knew that the passenger was limited only to $20.00 which, certainly, was not enough to
purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a revenue
passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial Attache of the
Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more courteous and
accommodating to private respondent, instead of giving him a curt reply, "What can we do, the baggage is missing. I cannot do
anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." Where in breaching the contract of carriage
the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that
case, such liability does not include moral and exemplary damages. Conversely, if the defendant airline is shown to have acted
fraudulently or in bad faith, the award of moral and exemplary damages is proper.
3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT SUSTAINED SOME PECUNIARY LOSS.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a quo, in the absence
of any showing that he sustained some pecuniary loss. It cannot be gainsaid that respondent's luggage was ultimately
delivered to him without serious or appreciable damage.
4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE INSTANCES FOR DECLARING A
CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR AS AN ABSOLUTE LIMIT OF THE EXTENT OF THAT
LIABILITY; DOES NOT PRECLUDE THE OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. As We have
repeatedly held, although the Warsaw Convention has the force and effect of law in this country, being a treaty commitment
assumed by the Philippine government, said convention does not operate as an exclusive enumeration of the instances for
declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. The Warsaw
Convention declares the carrier liable for damages in the enumerated cases and under certain limitations. However, it must
not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt,
the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, especially if
wilfull misconduct on the part of the carrier's employees is found or established, which is clearly the case before Us.
D E C I S I O N
BELLOSILLO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed with modification that of the
trial court by increasing the award of damages in favor of private respondent Tomas L. Alcantara.
The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first class passenger of petitioner Cathay
Pacific Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-900 from Manila to Hongkong and onward from Hongkong to
Jakarta on Flight No. CX-711. The purpose of his trip was to attend the following day, 20 October 1975, a conference with the
Director General of Trade of Indonesia, Alcantara being the Executive Vice-President and General Manager of Iligan Cement
Corporation, Chairman of the Export Committee of the Philippine Cement Corporation, and representative of the Cement
Industry Authority and the Philippine Cement Corporation. He checked in his luggage which contained not only his clothing
and articles for personal use but also papers and documents he needed for the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he inquired about his luggage from
CATHAY's representative in Jakarta, private respondent was told that his luggage was left behind in Hongkong. For this,
respondent Alcantara was offered $20.00 as "inconvenience money" to buy his immediate personal needs until the luggage
could be delivered to him.
His luggage finally reached Jakarta more than twenty four (24) hours after his arrival. However, it was not delivered to him at
his hotel but was required by petitioner to be picked up by an official of the Philippine Embassy.
On 1 March 1976, respondent filed his complaint against petitioner with the Court of First Instance (now Regional Trial Court)
of Lanao del Norte praying for temperate, moral and exemplary damages, plus attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff P20,000.00 for moral damages,
P5,000.00 for temperate damages, P10,000.00 for exemplary damages, and P25,000.00 for attorney's fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court that it was accountable for
breach of contract and questioned the non-application by the court of the Warsaw Convention as well as the excessive
damages awarded on the basis of its finding that respondent Alcantara was rudely treated by petitioner's employees during
the time that his luggage could not be found. For his part, respondent Alcantara assigned as error the failure of the trial court
to grant the full amount of damages sought in his complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision affirming the findings of fact of the trial court but
modifying its award by increasing the moral damages to P80,000.00, exemplary damages to P20,000.00 and temperate or
moderate damages to P10,000.00. The award of P25,000.00 for attorney's fees was maintained.
The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY contends that: (1) the Court
of Appeals erred in holding petitioner liable to respondent Alcantara for moral, exemplary and temperate damages as well as
attorney's fees; and, (2) the Court of Appeals erred in failing to apply the Warsaw Convention on the liability of a carrier to its
passengers.
On its first assigned error, CATHAY argues that although it failed to transport respondent Alcantara's luggage on time, the one-
day delay was not made in bad faith so as to justify moral, exemplary and temperate damages. It submits that the conclusion of
respondent appellate court that private respondent was treated rudely and arrogantly when he sought assistance from
CATHAY's employees has no factual basis, hence, the award of moral damages has no leg to stand on.
Petitioner's first assigned error involves findings of fact which are not reviewable by this Court. 2 At any rate, it is not
impressed with merit. Petitioner breached its contract of carriage with private respondent when it failed to deliver his luggage
at the designated place and time, it being the obligation of a common carrier to carry its passengers and their luggage safely to
their destination, which includes the duty not to delay their transportation, 3 and the evidence shows that petitioner acted
fraudulently or in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap
results in death of a passenger, 4 or where the carrier is guilty of fraud or bad faith. 5
In the case at bar, both the trial court and the appellate court found that CATHAY was grossly negligent and reckless when it
failed to deliver the luggage of petitioner at the appointed place and time. We agree. CATHAY alleges that as a result of
mechanical trouble, all pieces of luggage on board the first aircraft bound for Jakarta were unloaded and transferred to the
second aircraft which departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner was not even aware that
it left behind private respondent's luggage until its attention was called by the Hongkong Customs authorities. More, bad faith
or otherwise improper conduct may be attributed to the employees of petitioner. While the mere failure of CATHAY to deliver
respondent's luggage at the agreed place and time did not ipso facto amount to willful misconduct since the luggage was
eventually delivered to private respondent, albeit belatedly, 6 We are persuaded that the employees of CATHAY acted in bad
faith. We refer to the deposition of Romulo Palma, Commercial Attache of the Philippine Embassy at Jakarta, who was with
respondent Alcantara when the latter sought assistance from the employees of CATHAY. This deposition was the basis of the
findings of the lower courts when both awarded moral damages to private respondent. Hereunder is part of Palma's testimony

"Q: What did Mr. Alcantara say, if any?
A. Mr. Alcantara was of course . . . . I could understand his position. He was furious for the experience because probably he was
thinking he was going to meet the Director-General the following day and, well, he was with no change of proper clothes and
so, I would say, he was not happy about the situation.
Q: What did Mr. Alcantara say?
A: He was trying to press the fellow to make the report and if possible make the delivery of his baggage as soon as possible.
Q: And what did the agent or duty officer say, if any?
A: The duty officer, of course, answered back saying 'What can we do, the baggage is missing. I cannot do anything.' something
like it. 'Anyhow you can buy anything you need, charged to Cathay Pacific.'
Q: What was the demeanor or comportment of the duty officer of Cathay Pacific when he said to Mr. Alcantara 'You can buy
anything chargeable to Cathay Pacific'?
A: If I had to look at it objectively, the duty officer would like to dismiss the affair as soon as possible by saying indifferently
'Don't worry. It can be found.'" 7
Indeed, the aforequoted testimony shows that the language and conduct of petitioner's representative towards respondent
Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only
indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even
that was not sincere because the representative knew that the passenger was limited only to $20.00 which, certainly, was not
enough to purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a
revenue passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial
Attache of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more
courteous and accommodating to private respondent, instead of giving him a curt reply, "What can we do, the baggage is
missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." CATHAY's employees
should have been more solicitous to a passenger in distress and assuaged his anxieties and apprehensions. To compound
matters, CATHAY refused to have the luggage of Alcantara delivered to him at his hotel; instead, he was required to pick it up
himself and an official of the Philippine Embassy. Under the circumstances, it is evident that petitioner was remiss in its duty
to provide proper and adequate assistance to a paying passenger, more so one with first class accommodation.
Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the breach of obligation which the parties had
foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages. 8
Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and exemplary
damages is proper.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a quo, in the absence
of any showing that he sustained some pecuniary loss. 9 It cannot be gainsaid that respondent's luggage was ultimately
delivered to him without serious or appreciable damage.
As regards its second assigned error, petitioner airline contends that the extent of its liability for breach of contract should be
limited absolutely to that set forth in the Warsaw Convention. We do not agree. As We have repeatedly held, although the
Warsaw Convention has the force and effect of law in this country, being a treaty commitment assumed by the Philippine
government, said convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for
breach of contract of carriage or as an absolute limit of the extent of that liability. 10 The Warsaw Convention declares the
carrier liable for damages in the enumerated cases and under certain limitations. 11 However, it must not be construed to
preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from
liability for damages for violating the rights of its passengers under the contract of carriage, 12 especially if wilfull misconduct
on the part of the carrier's employees is found or established, which is clearly the case before Us. For, the Warsaw Convention
itself provides in Art. 25 that
"(1) The carrier shall not be entitled to avail himself of the provisions of this convention which exclude or limit his liability, if
the damage is caused by his wilfull misconduct or by such default on his part as, in accordance with the law of the court to
which the case is submitted, is considered to be equivalent to wilfull misconduct."
(2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused under the same
circumstances by any agent of the carrier acting within the scope of his employment."
When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at the appointed place and
time, some special species of injury must have been caused to him. For sure, the latter underwent profound distress and
anxiety, and the fear of losing the opportunity to fulfill the purpose of his trip. In fact, for want of appropriate clothings for the
occasion brought about by the delay of the arrival of his luggage, to his embarrassment and consternation respondent
Alcantara had to seek postponement of his pre-arranged conference with the Director General of Trade of the host country.
In one case, 13 this Court observed that a traveller would naturally suffer mental anguish, anxiety and shock when he finds
that his luggage did not travel with him and he finds himself in a foreign land without any article of clothing other than what
he has on.
Thus, respondent is entitled to moral and exemplary damages. We however find the award by the Court of Appeals of
P80,000.00 for moral damages excessive, hence, We reduce the amount to P30,000.00. The exemplary damages of P20,000.00
being reasonable is maintained, as well as the attorney's fees of P25,000.00 considering that petitioner's act or omission has
compelled Alcantara to litigate with third persons or to incur expenses to protect his interest. 14
WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the exception of the award of temperate
damages of P10,000.00 which is deleted, while the award of moral damages of P80,000.00 is reduced to P30,000.00. The
award of P20,000.00 for exemplary damages is maintained as reasonable together with the attorney's fees of P25,000.00. The
moral and exemplary damages shall earn interest at the legal rate from 1 March 1976 when the complaint was filed until full
payment.
SO ORDERED.

THIRD DIVISION
[G.R. No. 108897. October 2, 1997]
SARKIES TOURS PHILIPPINES, INC. petitioner vs. HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G.
FORTADES, MARISOL A. FORTADES and FATIMA A. FORTADES., respondent.
D E C I S I O N
ROMERO, J.:
This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 18979
promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying petitioners motion for
reconsideration for being a mere rehash of the arguments raised in the appellants brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all surnamed
Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on her way to Legazpi City. Her brother
Raul helped her load three pieces of luggage containing all of her optometry review books, materials and equipment, trial
lenses, trial contact lenses, passport and visa, as well as her mother Marisols U.S. immigration (green) card, among other
important documents and personal belongings. Her belongings was kept in the baggage compartment of the bus, but during a
stopover at Daet, it was discovered that all but one bag remained in the open compartment. The others, including Fatimas
things, were missing and could have dropped along the way. Some of the passengers suggested retracing the route to try to
recover the lost items, but the driver ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioners office in Legazpi City and later at its
head office in Manila. The latter, however, merely offered her P1,000.00 for each piece of luggage lost, which she turned
down. After returning to Bicol disappointed but not defeated, they asked assistance from the radio stations and even from
Philtranco bus drivers who plied the same route on August 31st. The effort paid off when one of Fatimas bags was
recovered. Marisol also reported the incident to the National Bureau of Investigations field office in Legazpi City, and to the
local police.
On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their complaint from
petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said that (a) team has been sent out to
Bicol for the purpose of recovering or at least getting the full detail
[1]
of the incident.
After more than nine months of fruitless waiting, respondents decided to file the case below to recover the value of the
remaining lost items, as well as moral and exemplary damages, attorneys fees and expenses of litigation. They claimed that
the loss was due to petitioners failure to observe extraordinary diligence in the care of Fatimas luggage and that petitioner
dealt with them in bad faith from the start. Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of herein respondents, viz:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and against the herein
defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the following sums of money, to wit:
1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima Minerva Fortades, etc.
less the value of one luggage recovered;
2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;
3. The sum of P10,000.00 by way of exemplary damages;
4. The sum of P5,000.00 as attorneys fees; and
5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand (P140,000.00) Pesos.
to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30 days from receipt of this
Decision.
SO ORDERED.
On appeal, the appellate court affirmed the trial courts judgment, but deleted the award of moral and exemplary
damages. Thus,
WHEREFORE, premises considered, except as above modified, fixing the award for transportation expenses at P30,000.00 and
the deletion of the award for moral and exemplary damages, the decision appealed from is AFFIRMED, with costs against
defendant-appellant.
SO ORDERED."
Its motion for reconsideration having was likewise rejected by the Court of Appeals, so petitioner elevated its case to this
Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts resolved the issues
judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was declared at the
start of the trip. The documentary and testimonial evidence presented at the trial, however, established that Fatima indeed
boarded petitioners De Luxe Bus No. 5 in the evening of August 31, 1984, and she brought three pieces of luggage with her, as
testified by her brother Raul,
[2]
who helped her pack her things and load them on said bus. One of the bags was even
recovered with the help of a Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its liability by
apologizing to respondents and assuring them that efforts were being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their loss. The incident was reported to the
police, the NBI, and the regional and head offices of petitioner. Marisol even sought the assistance of Philtranco bus drivers
and the radio stations. To expedite the replacement of her mothers lost U.S. immigration documents, Fatima also had to
execute an affidavit of loss.
[3]
Clearly, they would not have gone through all that trouble in pursuit of a fancied loss.
Fatima was not the only one who lost her luggage. Other passengers suffered a similar fate: Dr. Lita Samarista testified
that petitioner offered her P1,000.00 for her lost baggage and she accepted it;
[4]
Carleen Carullo-Magno also lost her chemical
engineering review materials, while her brother lost abaca products he was transporting to Bicol.
[5]

Petitioners receipt of Fatimas personal luggage having been thus established, it must now be determined if, as a common
carrier, it is responsible for their loss. Under the Civil Code, (c)ommon carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods x x x transported by
them,
[6]
and this liability lasts from the time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to x x x the person who has a right to receive them,
[7]
unless the
loss is due to any of the excepted causes under Article 1734 thereof.
[8]

The cause of the loss in the case at bar was petitioners negligence in not ensuring that the doors of the baggage
compartment of its bus were securely fastened. As a result of this lack of care, almost all of the luggage was lost, to the
prejudice of the paying passengers. As the Court of Appeals correctly observed:
x x x. Where the common carrier accepted its passengers baggage for transportation and even had it placed in the vehicle by
its own employee, its failure to collect the freight charge is the common carriers own lookout. It is responsible for the
consequent loss of the baggage. In the instant case, defendant appellants employee even helped Fatima Minerva Fortades and
her brother load the luggages/baggages in the bus baggage compartment, without asking that they be weighed, declared,
receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this required of the
other passengers (TSN, August 4, 1986, p. 104; February 5, 1988, p. 13).
Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise agree with the trial
and appellate courts conclusions. There is no dispute that of the three pieces of luggage of Fatima, only one was
recovered. The other two contained optometry books, materials, equipment, as well as vital documents and personal
belongings. Respondents had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During the
trial, Fatima and Marisol had to travel from the United States just to be able to testify. Expenses were also incurred in
reconstituting their lost documents. Under these circumstances, the Court agrees with the Court of Appeals in
awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagrees with the deletion of the
award of moral and exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault
of petitioner having been duly established, should be granted to respondents in the amount of P20,000.00 andP5,000.00,
respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution dated February 19,
1993, are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to pay respondent an additional P20,000.00 as
moral damages and P5,000.00 as exemplary damages. Costs against petitioner.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 94761 May 17, 1993
MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of Ethegal
Laboratories, respondents.
Bito, Lozada, Ortega & Castillo for petitioner.
Humberto A. Jambora for private respondent.
BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines through its general
agent Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm engaged in the
manutacture of pharmaceutical products.
On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly, Inc.'s) agent in the
Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The
capsules were placed in six (6) drums of 100,000 capsules each valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc. of
Puerto Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six (6) drums of 100,000
capsules each, were already shipped on board MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines
via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then transported
back Oakland, Califorilia. The goods finally arrived in the Philippines on June 10, 1977 or after two (2) months from the date
specified in the memorandum. As a consequence, private respondent as consignee refused to take delivery of the goods on
account of its failure to arrive on time.
Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an action before the court a
quo for rescission of contract with damages against petitioner and Eli Lilly, Inc. as defendants.
Denying that it committed breach of contract, petitioner alleged in its that answer that the subject shipment was transported
in accordance with the provisions of the covering bill of lading and that its liability under the law on transportation of good
attaches only in case of loss, destruction or deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p.
16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its cross-claim, it alleged that
the delay in the arrival of the the subject merchandise was due solely to the gross negligence of petitioner Maersk Line.
The issues having been joined, private respondent moved for the dismissal of the complaint against Eli Lilly, Inc.on the ground
that the evidence on record shows that the delay in the delivery of the shipment was attributable solely to petitioner.
Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc. Correspondingly, the latter
withdraw its cross-claim against petitioner in a joint motion dated December 3, 1979.
After trial held between respondent and petitioner, the court a quo rendered judgment dated January 8, 1982 in favor of
respondent Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a breach in the
performance of their obligation by the defendant Maersk Line consisting of their negligence to ship the 6
drums of empty Gelatin Capsules which under their own memorandum shipment would arrive in the
Philippines on April 3, 1977 which under Art. 1170 of the New Civil Code, they stood liable for damages.
Considering that the only evidence presented by the defendant Maersk line thru its agent the Compania de
Tabacos de Filipinas is the testimony of Rolando Ramirez who testified on Exhs. "1" to "5" which this Court
believe (sic) did not change the findings of this Court in its decision rendered on September 4, 1980, this
Court hereby renders judgment in favor of the plaintiff Efren Castillo as against the defendant Maersk Line
thru its agent, the COMPANIA GENERAL DE TABACOS DE FILIPINAS and ordering:
(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY NINE THOUSAND
PESOS, (P369,000.00) as unrealized profit;.
(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), as moral
damages;
(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as exemplary damages;
(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY PESOS AND NINETY
SEVEN CENTAVOS (P11,680.97) as cost of credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as attorney's fees and to pay
the costs of suit.
That the above sums due to the plaintiff will bear the legal rate of interest until they are fully paid from the
time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications the lower court's
decision as follows:
WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified, the judgment in
this case should read as follows:
Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-appellee (1)
compensatory damages of P11,680.97 at 6% annual interest from filing of the complaint until fully paid, (2)
moral damages of P50,000.00, (3) exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees,
and litigation expenses of P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the
costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following "issues" for resolution of the court :
I
Whether or not the respondent Court of Appeals committed an error when it ruled that a defendant's cross-
claim against a co-defendant survives or subsists even after the dismissal of the complaint against defendant-
cross claimant.
II
Whether or not respondent Castillo is entitled to damages resulting from delay in the delivery of the shipment
in the absence in the bill of lading of a stipulation on the period of delivery.
III
Whether or not the respondent appellate court erred in awarding actual, moral and exemplary damages and
attorney's fees despite the absence of factual findings and/or legal bases in the text of the decision as support
for such awards.
IV
Whether or not the respondent Court of Appeals committed an error when it rendered an ambiguous and
unexplained award in the dispositive portion of the decision which is not supported by the body or the text of
the decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against co-defendant (petitioner
herein) survives or subsists even after the dismissal of the complaint against defendant-cross-claimant (petitioner herein), we
rule in the negative.
Apparently this issue was raised by reason of the declaration made by respondent court in its questioned decision, as follows:
Re the first assigned error: What should be rescinded in this case is not the "Memorandum of Shipment" but
the contract between appellee and defendant Eli Lilly (embodied in three documents, namely: Exhs. A, A-1
and A-2) whereby the former agreed to buy and the latter to sell those six drums of gelatin capsules. It is by
virtue of the cross-claim by appellant Eli Lilly against defendant Maersk Line for the latter's gross negligence in
diverting the shipment thus causing the delay and damage to appellee that the trial court found appellant
Maersk Line liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause of action against it
and appellant Eli Lilly because the shipment was delivered in good order and condition, and the bill of lading
in question contains "stipulations, exceptions and conditions" Maersk Line's liability only to the "loss,
destruction or deterioration," indeed, this issue of lack of cause of action has already been considered in our
foregoing discussion on the second assigned error, and our resolution here is still that appellee has a cause of
action against appellant Eli Lilly. Since the latter had filed a cross-claim against appellant Maersk Line, the trial
court committed no error, therefore, in holding the latter appellant ultimately liable to appellee. (Rollo, pp. 47-
50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-claim filed its co-defendant
Eli Lilly, Inc. which cross-claim has been dismissed, the original complaint against it should likewise be dismissed. We
disagree. It should be recalled that the complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as
carrier. Petitioner being an original party defendant upon whom the delayed shipment is imputed cannot claim that the
dismissal of the complaint against Eli Lilly, Inc. inured to its benefit.
Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim of Eli Lilly, Inc. As borne
out by the record, the trial court anchored its decision on petitioner's delay or negligence to deliver the six (6) drums of gelatin
capsules within a reasonable time on the basis of which petitioner was held liable for damages under Article 1170 of the New
Civil Code which provides that those who in the performance of their obligations are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor thereof, are liable for damages.
Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the delivery of the 600,000 empty
gelatin capsules since it acted in good faith and there was no special contract under which the carrier undertook to deliver the
shipment on or before a specific date (Rollo, p. 103).
On the other hand, private respondent claims that during the period before the specified date of arrival of the goods, he had
made several commitments and contract of adhesion. Therefore, petitioner can be held liable for the damages suffered by
private respondent for the cancellation of the contracts he entered into.
We have carefully reviewed the decisions of respondent court and the trial court and both of them show that, in finding
petitioner liable for damages for the delay in the delivery of goods, reliance was made on the rule that contracts of adhesion
are void. Added to this, the lower court stated that the exemption against liability for delay is against public policy and is thus,
void. Besides, private respondent's action is anchored on Article 1170 of the New Civil Code and not under the law on
Admiralty (AC-GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among others, reads:
6. GENERAL
(1) The Carrier does not undertake that the goods shall arive at the port of discharge or the place of delivery
at any particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier
shall in no circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If
the Carrier should nevertheless be held legally liable for any such direct or indirect or consequential loss or
damage caused by delay, such liability shall in no event exceed the freight paid for the transport covered by
this Bill of Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)
It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a contract of adhesion.
Generally, contracts of adhesion are considered void since almost all the provisions of these types of contracts are prepared
and drafted only by one party, usually the carrier (Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the
other party in such a contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit Corporation v.
Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v. Court of Appeals, et al., 91
SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]). One who adheres to the contract
is in reality free to reject it in its entirety; if he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation
v. Court of Appeals, et al., 201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as contract to
transport and deliver the same a therein stipulated. As a contract, it names the parties, which includes the
consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations
assumed by the parties. Being a contract, it is the law between the parties who are bound by its terms and
conditions provided that these are not contrary to law, morals, good customs, public order and public policy.
A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed
that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the
shipper, and he is generally bound by his acceptance whether he reads the bill or not. (Emphasis supplied)
However, the aforequoted ruling applies only if such contracts will not create an absurd situation as in the case at bar. The
questioned provision in the subject bill of lading has the effect of practically leaving the date of arrival of the subject shipment
on the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and persons are not vested
with the right to prompt delivery, unless such common carriers previously assume the obligation to deliver at a given date or
time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 [1952]), delivery of shipment or cargo should at least be made within a
reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a
carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to
convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in
the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to
transport and deliver properly within a specified time, it is bound to fulfill its contract and is liable for any
delay, no matter from what cause it may have arisen. This result logically follows from the well-settled rule
that where the law creates a duty or charge, and the default in himself, and has no remedy over, then his own
contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or
delay by inevitable necessity because he might have provided against it by contract. Whether or not there has
been such an undertaking on the part of the carrier is to be determined from the circumstances surrounding
the case and by application of the ordinary rules for the interpretation of contracts.
An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41) shows that the subject
shipment was estimated to arrive in Manila on April 3, 1977. While there was no special contract entered into by the parties
indicating the date of arrival of the subject shipment, petitioner nevertheless, was very well aware of the specific date when
the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to execute another
contract for the purpose as it would be a mere superfluity.
In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2) months and seven (7) days
falls was beyond the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject
shipment was delivered to, and left in, the possession and custody of petitioner-carrier for transport to Manila via Oakland,
California. But through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it cannot be
held liable for the delay finds no merit.
Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not valid since there are no
factual findings or legal bases stated in the text of the trial court's decision to support the award thereof.
Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v. Macasaet. 189 SCRA 561
[1990]). In the case at bar, private respondent was able to sufficiently prove through an invoice (Exh. 'A-1'), certification from
the issuer of the letter of credit (Exh.'A-2') and the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the
credit line for the subject goods. Therefore, respondent court acted correctly in affirming the award of eleven thousand six
hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of said credit line.
As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral damages may be
awarded in "breaches of contract where the defendant acted fraudulently or in bad faith" (Pan American World Airways v.
Intermediate Appellate Court, 186 SCRA 687 [1990]).
In the case before us, we that the only evidence presented by petitioner was the testimony of Mr. Rolando Ramirez, a claims
manager of its agent Compania General de Tabacos de Filipinas, who merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340,
p. 2) and nothing else. Petitioner never even bothered to explain the course for the delay, i.e. more than two (2) months, in the
delivery of subject shipment. Under the circumstances of the case, we hold that petitioner is liable for breach of contract of
carriage through gross negligence amounting to bad faith. Thus, the award of moral damages if therefore proper in this case.
In line with this pronouncement, we hold that exemplary damages may be awarded to the private respondent. In contracts,
exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppresive or malevolent manner.
There was gross negligence on the part of the petitioner in mishiping the subject goods destined for Manila but was
inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct, hence,
exemplary damages may be awarded to the aggrieved party (Radio Communication of the Phils., Inc. v. Court of Appeals, 195
SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary damages are awarded
(Artice 2208, New Civil Code). In the case at bar, we hold that private respondent is entitled to reasonable attorney`s fees since
petitioner acte with gross negligence amounting to bad faith.
However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty (30) percent of the
total damages awarded except item 3 regarding attorney`s fees and litigation expenses in favor of private respondent, to be
unconsionable, the same should be deleted.
WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision, the appealed decision is is
hereby AFFIRMED in all respects.
SO ORDERED.