THIRD DIVISION

[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
DECISION
PUNO, J.:
On appeal is the Court of Appeals May 11, 2000 Decision [1] in CA-G.R. CV No. 49195 and
February 21, 2001 Resolution[2] affirming with modification the April 6, 1994 Decision [3] of the
Regional Trial Court of Manila which found petitioner liable to pay private respondent the amount
of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.35[4] was shipped by Marubeni American Corporation of Portland, Oregon on board
the vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in
Manila, evidenced by Bill of Lading No. PTD/Man-4. [5] The shipment was insured by the private
respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90.[6]
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the
custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the
consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III,
evidenced by Lighterage Receipt No. 0364 [7] for delivery to consignee. The cargo did not reach its
destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a
warning of an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge
to Engineering Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied
down to other barges which arrived ahead of it while weathering out the storm that night.A few
days after, the barge developed a list because of a hole it sustained after hitting an unseen
protuberance underneath the water. The petitioner filed a Marine Protest on August 28, 1990. [8] It
likewise secured the services of Gaspar Salvaging Corporation which refloated the barge. [9] The
hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the
consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge
again ran aground due to strong current. To avoid the complete sinking of the barge, a portion of
the goods was transferred to three other barges. [10]
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely,
resulting in the total loss of the remaining cargo. [11] A second Marine Protest was filed on
September 7, 1990.[12]
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat
retrieved and loaded on the three other barges.[13] The total proceeds from the sale of the
salvaged cargo was P201,379.75.[14]
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and
another letter dated September 18, 1990 to the private respondent for the value of the lost
cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.[15] Thereafter, as subrogee, it sought recovery of said amount from the
petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery
of the amount of indemnity, attorney's fees and cost of suit. [16] Petitioner filed its answer with
counterclaim.[17]

The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia
Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the
sum ofP4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until fully
satisfied plus 10% of the amount awarded as and for attorney's fees. Defendant's counterclaim is
hereby DISMISSED.With costs against defendant. [18]
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The
appellate court affirmed the decision of the trial court with modification. The dispositive portion
of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that
the salvage value of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs
against appellant.
SO ORDERED.
Petitioners Motion for Reconsideration dated June 3, 2000 was likewise denied by the
appellate court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the
appellate court, viz:[19]
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
HELD THAT PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS OF THE
PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, THE LOSS OF
THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE
FIVE (5) CASES ENUMERATED.
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE DILIGENCE
AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE CONSIGNEES CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence
in its care and custody of the consignees cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no
fixed and publicly known route, maintains no terminals, and issues no tickets. It points out that it
is not obliged to carry indiscriminately for any person. It is not bound to carry goods unless it
consents. In short, it does not hold out its services to the general public. [20]
We disagree.
In De Guzman vs. Court of Appeals,[21] we held that the definition of common carriers in
Article 1732 of the Civil Code makes no distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity. We also did not distinguish between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Further, we ruled that Article 1732 does not distinguish between a carrier
offering its services to the general public, and one who offers services or solicits business only
from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and
drayage[22] and it offers its barges to the public for carrying or transporting goods by water for

compensation. Petitioner is clearly a common carrier. In De Guzman, supra,[23] we considered

private respondent Ernesto Cendaa to be a common carrier even if his principal occupation was
not the carriage of goods for others, but that of buying used bottles and scrap metal in
Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done
on an irregular rather than scheduled manner, and with an only limited clientele. A common
carrier need not have fixed and publicly known routes. Neither does it have to maintain terminals
or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.[24] The test to determine a common carrier is whether the given undertaking is a part of
the business engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted. [25] In the case at bar,
the petitioner admitted that it is engaged in the business of shipping and lighterage, [26] offering
its barges to the public, despite its limited clientele for carrying or transporting goods by water
for compensation.[27]
On the second issue, we uphold the findings of the lower courts that petitioner failed to
exercise extraordinary diligence in its care and custody of the consignees goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them.[28] They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. [29] To overcome the presumption of
negligence in the case of loss, destruction or deterioration of the goods, the common carrier
must prove that it exercised extraordinary diligence. There are, however, exceptions to this
rule. Article 1734 of the Civil Code enumerates the instances when the presumption of
negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(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.
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total
loss of its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held
liable for the loss of the cargo. However, petitioner failed to prove that the typhoon is the
proximate and only cause of the loss of the goods, and that it has exercised due diligence before,
during and after the occurrence of the typhoon to prevent or minimize the loss. [30] The evidence
show that, even before the towing bits of the barge broke, it had already previously sustained
damage when it hit a sunken object while docked at the Engineering Island. It even suffered a
hole. Clearly, this could not be solely attributed to the typhoon. The partly-submerged vessel was
refloated but its hole was patched with only clay and cement. The patch work was merely a
provisional remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to
proceed with the voyage, it recklessly exposed the cargo to further damage. A portion of the
cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:[31]
xxxxxxxxx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull
out the barge from the place of the accident, and bring it to the anchor terminal for
safety, then after deciding if the vessel is stabilized, they tried to pull it to the
consignees warehouse, now while on route another accident occurred, now this time
the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second
accident?

a - The sinking, sir.

q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on
the bottom part of the barge.
xxxxxxxxx
This is not all. Petitioner still headed to the consignees wharf despite knowledge of an
incoming typhoon. During the time that the barge was heading towards the consignee's wharf on
September 5, 1990, typhoon Loleng has already entered the Philippine area of responsibility. [32] A
part of the testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:[33]
xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie
where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their Wharf
since they needed badly the wheat that was loaded in PSTSI-3. It was needed badly
by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
xxxxxxxxx
CROSS-EXAMINATION BY ATTY. IGNACIO:[34]
xxxxxxxxx
q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I
correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I have
stated.
q - Despite of the threats of an incoming typhoon as you testified a while ago?
a - It is already in an inner portion of Pasig River. The typhoon would be coming and it
would be dangerous if we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
a - Yes.
q - And yet as a standard operating procedure of your Company, you have to secure a
sort of Certification to determine the weather condition, am I correct?
a - Yes, sir.
q - So, more or less, you had the knowledge of the incoming typhoon, right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are
already inside the vicinity or inside Pasig entrance, it is a safe place to tow
upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to
escape liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-

on falls short of due diligence required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted that when the towing bits of the vessel
broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was
no longer affected by the typhoon. The typhoon then is not the proximate cause of the loss of the
cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave.

[28]

Article 1733, Civil Code. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them, according to all the
circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in articles 1734,
1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
[29]

Article 1735, Civil Code. 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.

[30]

Article 1739, Civil Code. In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the proximate and only cause of the
loss. However, the common carrier must exercise due diligence to prevent or minimize the
loss before, during and after the occurrence of flood, storm or other natural disaster in
order that the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods. The same duty is incumbent upon the common carrier in case
of an act of the public enemy referred to in article 1734, no. 2.

[31]

TSN, 04 March 1993, pp. 12-13.

[32]

Certification dated 02 August 1991 issued by the Philippine Atmospheric Geophysical &
Astronomical Services Administration (PAGASA), Exhibit 7, Records, p. 147.

[33]

TSN, 09 March 1993, pp. 70-71.

[34]

Id., pp. 76-77.

SECOND DIVISION

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,

HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO,
in her official capacity as City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of
Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a
business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967[1] and renewed by the Energy Regulatory Board in 1992. [2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code. [3] The respondent City Treasurer assessed a business tax
on the petitioner amounting to P956,076.04 payable in four installments based on the gross
receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest
in the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession
granted under the Petroleum Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As
such, our Company is exempt from paying tax on gross receipts under Section 133 of the Local
Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included in the enumeration of contractors under
Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax
'on contractors and other independent contractors' under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under Section
147 of the Local Government Code. The said section limits the imposition of fees and charges on
business to such amounts as may be commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition thereof
based on gross receipts is violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition." [4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code. [5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents City
of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and
collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141
(e) and 151 does not include the authority to collect such taxes on transportation contractors for,
as defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and,
(3) the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting
the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to

"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to
the mode or manner by which a product is delivered to its destination. [8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax
exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions of
law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither
said law nor the deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the
Local Tax Code. Such being the situation obtained in this case (exemption being unclear and
equivocal) resort to distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only common
carriers so as not to overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special carrier extending its
services and facilities to a single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local
autonomy to local governments than the previous enactments, to make them
economically and financially viable to serve the people and discharge their
functions with a concomitant obligation to accept certain devolution of
powers, x x x So, consistent with this policy even franchise grantees are
taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of
the Code."[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration
and adjudication.[10]On November 29, 1995, the respondent court rendered a decision [11] affirming
the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in
a Resolution[14]of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the transportation of
goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and
over his established roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to carry for all persons indifferently, that
is, to all persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from the
definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making
any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering
its services to the 'general public,' i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from making such
distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide
neatly with the notion of 'public service,' under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth in
the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service'
includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In
fact, in the United States, oil pipe line operators are considered common carriers. [17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by him, but is
obligated to utilize the remaining transportation capacity pro rata for the transportation of such
other petroleum as may be offered by others for transport, and to charge without discrimination
such rates as may have been approved by the Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
"that everything relating to the exploration for and exploitation of petroleum x x and everything
relating to the manufacture, refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting

petroleum products, it is considered a common carrier under Republic Act No. 387 x x x. Such
being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78,
as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131].
Common Limitations on the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be
one of those being deemed to be exempted from the taxing powers of the local government
units. May we know the reason why the transportation business is being excluded from
the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line
16, paragraph 5. It states that local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there
that provinces have the power to impose a tax on business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual receipts. So, transportation contractors who
are enjoying a franchise would be subject to tax by the province. That is the exception, Mr.
Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on top
of what is already being imposed by the National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of this tax, so we just provided for
an exception under Section 125 [now Sec. 137] that a province may impose this tax at a
specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. [19] To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

of which are hereunder quoted:

"The petition is unmeritorious.
"As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not
offering its services to the public.
"Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
"We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears
that petitioner is not offering its services to the public.
"We agree with the findings of the appellate court that the claim for exemption from taxation
must be strictly construed against the taxpayer. The present understanding of the concept of
"common carriers" does not include carriers of petroleum using pipelines. It is highly
unconventional to say that the business of transporting petroleum through pipelines involves
"common carrier" business. The Local Government Code intended to give exemptions from local
taxation to common carriers transporting goods and passengers through moving vehicles or
vessels and not through pipelines. The term common carrier under Section 133 (j) of the Local
Government Code must be given its simple and ordinary or generally accepted meaning which
would definitely not include operators of pipelines."
[14]

G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)Considering the grounds of the motion for reconsideration, dated December 23, 1996, filed by
counsel for petitioner, of the resolution of November 11, 1996 which denied the petition for
review on certiorari, the Court Resolved:
(a) to GRANT the motion for reconsideration and to REINSTATE the petition; and
(b) to require respondent to COMMENT on the petition, within ten (10) days from notice.
.

THIRD DIVISION

[G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS

SHIPPING, INC., respondents.

[G.R. No. 112350. December 12, 1997]

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its
owners responsibility for damage to the cargo and its liability for demurrage and attorneys
fees.The Court also reiterates the well-known rule that findings of facts of trial courts, when
affirmed by the Court of Appeals, are binding on this Court.

The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals. [1] The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff
dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on
the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully
paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED.

[2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the
award for demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of
litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as to
costs.
SO ORDERED.

[3]

The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport
cargo or shipment for the general public. Its services are available only to specific persons who
enter into a special contract of charter party with its owner. It is undisputed that the ship is a
private carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered into a
contract of affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B;
also Exhibit 1) whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load
steel products at Iligan City and discharge them at North Harbor, Manila, under the following
terms and conditions, viz:
1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters
option.
3. x x x x x x
4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading
within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not
responsible for losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxxxxxxxx
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the
NANYOZAI Charter Party which stands for Freight In and Out including Stevedoring and Trading,
which means that the handling, loading and unloading of the cargoes are the responsibility of the
Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow
and discharge the cargo free of risk and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the
voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped
and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit
and safe for its reception, carriage and preservation. Owners shall not be liable for loss of or
damage of the cargo arising or resulting from: unseaworthiness unless caused by want of due
diligence on the part of the owners to make the vessel seaworthy, and to secure that the vessel
is properly manned, equipped and supplied and to make the holds and all other parts of the
vessel in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in bulk or
weight or any other loss or damage arising from inherent defect, quality or vice of the cargo;
insufficiency of packing; xxx; latent defects not discoverable by due diligence; any other cause
arising without the actual fault or privity of Owners or without the fault of the agents or servants
of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible
for split, chafing and/or any damage unless caused by the negligence or default of the master
and crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates
and 92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about
2,481.19 metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of
the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of
the cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on
August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
following day, August 13, 1974, when the vessels three (3) hatches containing the shipment
were opened by plaintiffs agents, nearly all the skids of tinplates and hot rolled sheets were
allegedly found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired
by the Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of
eleven (11) days due to the heavy rain which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated

March 17, 1975 (Exhibit G), MASCO made a report of its ocular inspection conducted on the
cargo, both while it was still on board the vessel and later at the NDC warehouse in Pureza St.,
Sta. Mesa, Manila where the cargo was taken and stored. MASCO reported that it found wetting
and rusting of the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin
hatch covers were noted torn at various extents; that container/metal casings of the skids were
rusting all over. MASCO ventured the opinion that rusting of the tinplates was caused by contact
with SEA WATER sustained while still on board the vessel as a consequence of the heavy weather
and rough seas encountered while en route to destination (Exhibit F). It was also reported that
MASCOs surveyors drew at random samples of bad order packing materials of the tinplates and
delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T.
Testing Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The analysis of bad
order samples of packing materials xxx shows that wetting was caused by contact with SEA
WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the downgrading of the damaged tinplates in
the amount ofP941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of
said claim but defendant VSI refused and failed to pay. Plaintiff filed its complaint against
defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
of P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the defendant to
make the vessel seaworthy and to make the holds and all other parts of the vessel in which the
cargo was carried, fit and safe for its reception, carriage and preservation -- all in violation of
defendants undertaking under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV
VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was
not a common carrier inasmuch as she was under voyage charter contract with the plaintiff as
charterer under the charter party; that in the course of the voyage from Iligan City to Manila, the
MV VLASONS I encountered very rough seas, strong winds and adverse weather condition,
causing strong winds and big waves to continuously pound against the vessel and seawater to
overflow on its deck and hatch covers; that under the Contract of Voyage Charter Hire, defendant
shall not be responsible for losses/damages except on proven willful negligence of the officers of
the vessel, that the officers of said MV VLASONS I exercised due diligence and proper
seamanship and were not willfully negligent; that furthermore the Voyage Charter Party provides
that loading and discharging of the cargo was on FIOST terms which means that the vessel was
free of risk and expense in connection with the loading and discharging of the cargo; that the
damage, if any, was due to the inherent defect, quality or vice of the cargo or to the insufficient
packing thereof or to latent defect of the cargo not discoverable by due diligence or to any other
cause arising without the actual fault or privity of defendant and without the fault of the agents
or servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff
who discharged the cargo in Manila were negligent and did not exercise due care in the
discharge of the cargo; and that the cargo was exposed to rain and seawater spray while on the
pier or in transit from the pier to plaintiffs warehouse after discharge from the vessel; and that
plaintiffs claim was highly speculative and grossly exaggerated and that the small stain marks or
sweat marks on the edges of the tinplates were magnified and considered total loss of the
cargo. Finally, defendant claimed that it had complied with all its duties and obligations under
the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the
Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire
of P75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum
of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila
waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay
defendant demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay
defendant attorneys fees and all expenses of litigation in the amount of not less
than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following
findings which were set forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is
available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the
MV VLASONS I was covered by the required seaworthiness certificates including the Certification
of Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh.
4); Coastwise License from the Board of Transportation (Exh. 5); International Loadline Certificate
from the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the
Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by
the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by the
Bureau of Customs (Exh. 9). That being a vessel engaged in both overseas and coastwise trade,
the MV VLASONS I has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage
Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by
the Philippine Coast Guard. In fact, subject voyage was the vessels first voyage after the
drydocking. The evidence shows that the MV VLASONS I was seaworthy and properly manned,
equipped and supplied when it undertook the voyage. It had all the required certificates of
seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings
were covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch
covers were water tight. Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by
evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo are not applicable. As to the
damage to the tinplates which was allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Vicente Angliongto that tinplates sweat by themselves when
packed even without being in contract (sic) with water from outside especially when the weather
is bad or raining. The rust caused by sweat or moisture on the tinplates may be considered as a
loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the
Civil Case which exempts the carrier from responsibility for loss or damage arising from the
character of the goods x x x. All the 1,769 skids of the tinplates could not have been damaged by
water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves
were wrapped in kraft paper lining and corrugated cardboards could not be affected by water
from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not
closing the hatch openings of the MV VLASONS I when rains occurred during the discharging of
the cargo thus allowing rainwater to enter the hatches. It was proven that the stevedores merely
set up temporary tents to cover the hatch openings in case of rain so that it would be easy for
them to resume work when the rains stopped by just removing the tent or canvas. Because of
this improper covering of the hatches by the stevedores during the discharging and unloading
operations which were interrupted by rains, rainwater drifted into the cargo through the hatch
openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly
made part of the Contract of Voyage Charter Hire, the loading, stowing and discharging of the
cargo is the sole responsibility of the plaintiff charterer and defendant carrier has no liability for
whatever damage may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en
route from Iligan City to Manila causing sea water to splash on the ships deck on account of
which the master of the vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13, 1974
(Exh. 15) which can be invoked by defendant as a force majeure that would exempt the
defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter
Hire contract that it was to insure the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from the insurer. Plaintiff also
violated the charter party contract when it loaded not only steel products, i.e. steel bars, angular
bars and the like but also tinplates and hot rolled sheets which are high grade cargo
commanding a higher freight. Thus plaintiff was able to ship high grade cargo at a lower freight
rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4
thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation
of the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight due
of P75,000.00 despite demands. The evidence also showed that the plaintiff was required and
bound under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage
of P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted to eleven
(11) days thereby making plaintiff liable to pay defendant for demurrage in the amount
of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned,
equipped and supplied, and that there is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature
or character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading
of NSCs shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and
expenses of litigation. NSC and VSI filed separate motions for reconsideration. In a
Resolution[5] dated October 20, 1993, the appellate court denied both motions. Undaunted, NSC
and VSI filed their respective petitions for review before this Court. On motion of VSI, the Court
ordered on February 14, 1994 the consolidation of these petitions. [6]

The Issues
In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:

Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11
and 12) were admissible in evidence and constituted evidence of the vessels
seaworthiness at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from
liability for cargo damage.

Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for
NSCs cargo;

3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence,
rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of
NSCs tinplates.
In its separate petition,
errors of the CA:

[9]

VSI submits for the consideration of this Court the following alleged

A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum:

[10]

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant
to which there exist[s] a presumption of negligence against the common carrier in case of loss or
damage to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the
Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the
demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common
carrier or as a private carrier. The resolution of this preliminary question determines the law,
standard of diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public. It has been held that
the true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee. [11] A carrier which does
not qualify under the above test is deemed a private carrier. Generally, private carriage is
undertaken by special agreement and the carrier does not hold himself out to carry goods for the
general public. The most typical, although not the only form of private carriage, is the charter
party, a maritime contract by which the charterer, a party other than the shipowner, obtains the
use and service of all or some part of a ship for a period of time or a voyage or voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As
found by the Regional Trial Court, it carried passengers or goods only for those it chose under a
special contract of charter party. [13] As correctly concluded by the Court of Appeals, the MV
Vlasons I was not a common but a private carrier. [14] Consequently, the rights and obligations of
VSI and NSC, including their respective liability for damage to the cargo, are determined
primarily by stipulations in their contract of private carriage or charter party. [15]Recently, in
Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers
Shipping Corporation, [16] the Court ruled:

x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations
which perforce would be binding on them. Unlike in a contract involving a common carrier,
private carriage does not involve the general public. Hence, the stringent provisions of the Civil
Code on common carriers protecting the general public cannot justifiably be applied to a ship
transporting commercial goods as a private carrier. Consequently, the public policy embodied
therein is not contravened by stipulations in a charter party that lessen or remove the protection
given by law in contracts involving common carriers. [17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall
not be responsible for losses except on proven willful negligence of the officers of the vessel. The
NANYOZAI Charter Party, which was incorporated in the parties contract of transportation, further
provided that the shipowner shall not be liable for loss of or damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make
the vessel seaworthy or to ensure that the same was properly manned, equipped and supplied,
and to make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe
for its reception, carriage and preservation. [18] The NANYOZAI Charter Party also provided that
[o]wners shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew. [19]

Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to
its shipment was caused by VSIs willful negligence or failure to exercise due diligence in
making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the
cargo. Ineluctably, the burden of proof was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary
has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to
fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the
account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in
the preceding article if proofs against him show that they occurred on account of his negligence
or his omission to take the precautions usually adopted by careful persons, unless the shipper
committed fraud in the bill of lading, making him to believe that the goods were of a class or
quality different from what they really were.
Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by
the foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general
rule, places the prima facie presumption of negligence on a common carrier. It is a hornbook
doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff
to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or
damaged while in the carriers custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a breach of
that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carriers
possession does not cast on it the burden of proving proper care and diligence on its part or that
the loss occurred from an excepted cause in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since the carrier is
in a better position to know the cause of the loss and that it was not one involving its liability, the
law requires that it come forward with the information available to it, and its failure to do so

warrants an inference or presumption of its liability. However, such inferences and presumptions,
while they may affect the burden of coming forward with evidence, do not alter the burden of
proof which remains on plaintiff, and, where the carrier comes forward with evidence explaining
the loss or damage, the burden of going forward with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the proximate cause of the damage rests on plaintiff,
and proof that the goods were lost or damaged while in the carriers possession does not cast on
it the burden of proving seaworthiness. x x x Where the contract of carriage exempts the carrier
from liability for unseaworthiness not discoverable by due diligence, the carrier has the
preliminary burden of proving the exercise of due diligence to make the vessel seaworthy. [20]
In the instant case, the Court of Appeals correctly found that NSC has not taken the correct
position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11),
after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiffappellants [NSCs] interpretation of Clause 12 is not even correct), it argues that a careful
examination of the evidence will show that VSI miserably failed to comply with any of these
obligations as if defendant-appellee [VSI] had the burden of proof. [21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the
intended purpose under the charter party; (2) whether the damage to the cargo should be
attributed to the willful negligence of the officers and crew of the vessel or of the stevedores
hired by NSC; and (3) whether the rusting of the tinplates was caused by its own sweat or by
contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the
firsthand opportunity to hear the parties conflicting claims and to carefully weigh their respective
evidence. The findings of the trial court were subsequently affirmed by the Court of
Appeals. Where the factual findings of both the trial court and the Court of Appeals coincide, the
same are binding on this Court. [22] We stress that, subject to some exceptional instances, [23] only
questions of law -- not questions of fact -- may be raised before this Court in a petition for review
under Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find no reason
to disturb the lower courts factual findings, as indeed NSC has not successfully proven the
application of any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy
and fit for the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was
drydocked and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its
voyage to Manila under the contract of voyage charter hire. [24] The vessels voyage from Iligan to
Manila was the vessels first voyage after drydocking. The Philippine Coast Guard Station in Cebu
cleared it as seaworthy, fitted and equipped; it met all requirements for trading as cargo
vessel. [25] The Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons
I was seaworthy. We find no reason to modify or reverse this finding of both the trial and the
appellate courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo was
caused by the negligence of the officers and the crew of MV Vlasons I in making their vessel
seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn
tarpaulin or canvas to cover the hatches through which the cargo was loaded into the cargo hold
of the ship. It faults the Court of Appeals for failing to consider such claim as an uncontroverted
fact [26] and denies that MV Vlasons I was equipped with new canvas covers in tandem with the
old ones as indicated in the Marine Protest xxx. [27] We disagree.

The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in
addition to the new one used primarily to make the ships hatches watertight. The foregoing are
clear from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the
deposition of the ships boatswain, Jose Pascua. The salient portions of said marine protest read:
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974,
loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel
Corporation; that before departure, the vessel was rigged, fully equipped and cleared by the
authorities; that on or about August 9, 1974, while in the vicinity of the western part of Negros
and Panay, we encountered very rough seas and strong winds and Manila office was advised by
telegram of the adverse weather conditions encountered; that in the morning of August 10,
1974, the weather condition changed to worse and strong winds and big waves continued
pounding the vessel at her port side causing sea water to overflow on deck andhatch (sic) covers
and which caused the first layer of the canvass covering to give way while the new canvass
covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that
we re-secured the canvass covering back to position; that in the afternoon of August 10, 1974,
while entering Maricaban Passage, we were again exposed to moderate seas and heavy rains;
that while approaching Fortune Island, we encountered again rough seas, strong winds and big
waves which caused the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx

[28]

And the relevant portions of Jose Pascuas deposition are as follows:

Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides
and we place[d] a flat bar over the canvas on the side of the hatches and then we
place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the
hatch opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood
are put on top?

A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A: Two, sir.

[29]

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did
not give way and the ships hatches and cargo holds remained waterproof. As aptly stated by the
Court of Appeals, xxx we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was seaworthy when it undertook the voyage on
August 8, 1974 carrying on board thereof plaintiff-appellants shipment of 1,677 skids of tinplates
and 92 packages of hot rolled sheets or a total of 1,769 packages from NSCs pier in Iligan City
arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and
the crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC
who were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the
ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went
on board the vessel upon notice from the National Steel Corporation in order to
conduct the inspection of the cargo. During the course of the investigation, did you
chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged
on the pier but majority of the tinplates were inside the hall, all the hatches were
opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.

Q: You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now,
will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d]
high at the middle with the whole side separated down to the hatch, the size of the
hatch and it is soaks [sic] at the middle because of those weather and this can be
used only to temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by
and the hatch tent was not good enough to hold all of it to prevent the water soaking
through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter
and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the
National Steel but nothing was done, just the same. Finally, I wrote a letter to
them. [31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores negligence on the first day of unloading, pointing out that he
wrote his letter to petitioner only seven days later. [32] The Court is not persuaded. Angliongtos
candid answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSCs representative, about the
negligent and defective procedure adopted in unloading the cargo. This series of actions
constitutes a reasonable response in accord with common sense and ordinary human
experience. Vicente Angliongto could not be blamed for calling the stevedores attention first and
then the NSCs representative on location before formally informing NSC of the negligence he had
observed, because he was not responsible for the stevedores or the unloading operations. In
fact, he was merely expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on
this point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores
hired by NSC were negligent in the unloading of NSCs shipment. We do not think so. Such
negligence according to the trial court is evident in the stevedores hired by [NSC], not closing the
hatch of MV VLASONS I when rains occurred during the discharging of the cargo thus allowing
rain water and seawater spray to enter the hatches and to drift to and fall on the cargo. It was
proven that the stevedores merely set up temporary tents or canvas to cover the hatch openings
when it rained during the unloading operations so that it would be easier for them to resume
work after the rains stopped by just removing said tents or canvass. It has also been shown that
on August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging the cargo on rainy days and the
improper closing of the hatches which allowed continuous heavy rain water to leak through and
drip to the tinplates covers and [Vicente Angliongto] also suggesting that due to four (4) days
continuos rains with strong winds that the hatches be totally closed down and covered with
canvas and the hatch tents lowered. (Exh 13). This letter was received by [NSC] on 22 August
1974 while discharging operations were still going on (Exhibit 13-A). [33]
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may
be noted that the NSC may seek indemnification, subject to the laws on prescription, from the
stevedoring company at fault in the discharge operations. A stevedore company engaged in
discharging cargo xxx has the duty to load the cargo xxx in a prudent manner, and it is liable for
injury to, or loss of, cargo caused by its negligence xxx and where the officers and members and
crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores
xxx the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx [34] as in the instant case.

Do Tinplates Sweat?
The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates
sweat by themselves when packed even without being in contact with water from outside
especially when the weather is bad or raining xxx. [35] The Court of Appeals affirmed the trial
courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed,
the damage to the tinplates was occasioned not by airborne moisture but by contact with rain
and seawater which the stevedores negligently allowed to seep in during the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory responsibility that may be incurred
by VSI for damage to the cargo caused by the willful negligence of the officers and the crew
of MV Vlasons I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as
owner and real party in interest, to file an action against VSI for damages caused by the latters
willful negligence. We do not find anything in the charter party that would make the liability of
VSI for damage to the cargo contingent on or affected in any manner by NSCs obtaining an
insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged
inadmissibility of the certificates of seaworthiness offered in evidence by VSI. The said
certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs.

[36]

NSC argues that the certificates are hearsay for not having been presented in accordance
with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or
acts of public officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official
publications or certified true copies as required by Sections 25 and 26, Rule 132, of the Rules of
Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9
and 12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4
are certificates issued by private parties, but they have not been proven by one who saw the
writing executed, or by evidence of the genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the
best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay
rule per Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official
records made in the performance of a duty by a public officer of the Philippines, or by a person in
the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein
stated. [38] Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued by
Lieutenant Junior Grade Noli C. Flores to the effect that the vessel VLASONS I was drydocked x x
x and PCG Inspectors were sent on board for inspection x x x. After completion of drydocking and
duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy
condition, meets all requirements, fitted and equipped for trading as a cargo vessel was cleared
by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974. (sic) NSCs claim,
therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons
I was not seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not
have the obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly
failed to discharge its duty of proving the willful negligence of VSI in making the ship seaworthy

resulting in damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is
not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters
option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day.

[39]

The Court defined demurrage in its strict sense as the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the laytime or that period of
time agreed on for loading and unloading of cargo. [40] It is given to compensate the shipowner
for the nonuse of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed
in running days, this means days when the ship would be run continuously, and holidays are not
excepted. A qualification of weather permitting excepts only those days when bad weather
reasonably prevents the work contemplated. [41]
In this case, the contract of voyage charter hire provided for a four-day laytime; it also
qualified laytime as WWDSHINC or weather working days Sundays and holidays included. [42] The
running of laytime was thus made subject to the weather, and would cease to run in the event
unfavorable weather interfered with the unloading of cargo. [43] Consequently, NSC may not be
held liable for demurrage as the four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather condition in view of the WWDSHINC qualification agreed upon by the
parties. Clearly, it was error for the trial court and the Court of Appeals to have found and
affirmed respectively that NSC incurred eleven days of delay in unloading the cargo. The trial
court arrived at this erroneous finding by subtracting from the twelve days, specifically August
13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable weather or
rain which was August 22, 1974. Based on our previous discussion, such finding is a reversible
error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI
for demurrage, even if it reduced the amount by half.

Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not
justify an award of attorneys fees under Article 2208 of the Civil Code when x x x no sufficient
showing of bad faith would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause x x x. [44] Moreover, attorneys fees may not be
awarded to a party for the reason alone that the judgment rendered was favorable to the latter,
as this is tantamount to imposing a premium on ones right to litigate or seek judicial redress of
legitimate grievances. [45]

Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the
damage to the cargo? Ranged against NSC are two formidable truths. First, both lower courts
found that such damage was brought about during the unloading process when rain and
seawater seeped through the cargo due to the fault or negligence of the stevedores employed by
it.Basic is the rule that factual findings of the trial court, when affirmed by the Court of Appeals,
are binding on the Supreme Court. Although there are settled exceptions, NSC has not

satisfactorily shown that this case is one of them. Second, the agreement between the parties -the Contract of Voyage Charter Hire -- placed the burden of proof for such loss or damage upon
the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid
because the parties entered into a contract of private charter, not one of common carriage. Basic
too is the doctrine that courts cannot relieve a party from the effects of a private contract freely
entered into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter
party is a normal commercial contract and its stipulations are agreed upon in consideration of
many factors, not the least of which is the transport price which is determined not only by the
actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss
or damage to the cargo. In recognition of such factors, the parties even stipulated that the
shipper should insure the cargo to protect itself from the risks it undertook under the charter
party. That NSC failed or neglected to protect itself with such insurance should not adversely
affect VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby
DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION
that the demurrage awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Romero, Melo, and Francisco, JJ., concur.

G.R. No. 102316 June 30, 1997

VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.

PANGANIBAN, J.:
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, shortlanding, breakages and any kind of damages to the cargo" 1 valid? This is the main question
raised in this petition for review assailing the Decision of Respondent Court of Appeals 2 in CAG.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the
judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive
portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance
Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00)
representing the value of the policy of the lost logs with legal interest thereon from
the date of demand on February 2, 1984 until the amount is fully paid or in the
alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the
amount of TWO MILLION PESOS (2,000,000.00) representing the value of lost logs
plus legal interest from the date of demand on April 24, 1984 until full payment
thereof; the reasonable attorney's fees in the amount equivalent to five (5) percent
of the amount of the claim and the costs of the suit.

Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation

the sum of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing
the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is hereby
dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as
the liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned
which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial
Supply, Inc.) entered into an agreement with the defendant Seven Brothers
(Shipping Corporation) whereby the latter undertook to load on board its vessel M/V
Seven Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with
defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter
issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said
date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the
premium and documentary stamps due on the policy was tendered due to the
insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc.
cancelled the insurance policy it issued as of the date of the inception for nonpayment of the premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and
Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied
liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven
Brothers Shipping Corporation for the value of the lost logs but the latter denied the
claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff
and against defendants. Both defendants shipping corporation and the surety
company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the
court a quo the following assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the
vessel Seven Ambassadors, was not due to fortuitous event but to the negligence of
the captain in stowing and securing the logs on board, causing the iron chains to
snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven
Brothers Shipping Corporation from logs (sic) of the cargo stipulated in the charter
party is void for being contrary to public policy invoking article 1745 of the New Civil
Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping
Corporation liable in the alternative and ordering/directing it to pay plaintiff-

appellee the amount of two million (2,000,000.00) pesos representing the value of
the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping
Corporation to pay appellee reasonable attorney's fees in the amount equivalent to
5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers
Corporation its counter-claim for attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers
Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendantappellant South Sea Surety and Insurance Company, Inc. and likewise erred in not
holding that he was the representative of the insurance broker Columbia Insurance
Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received
compensation/commission on the premiums paid on the policies issued by the
defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to
and forming part of the Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount
of premium and documentary stamps to be paid on the policy by the plaintiffappellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy
due to non-payment of premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and
Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value
of the policy with legal interest from 2 February 1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney's
fees alleged and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping
corporation and the surety company are liable to the plaintiff for the latter's lost
logs. 4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea
Surety and Insurance Company ("South Sea"), but modified it by holding that Seven Brothers
Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In modifying the RTC
judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would
be exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common
carriers to establish the liability of the shipping corporation. The provisions on
common carriers should not be applied where the carrier is not acting as such but
as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special
cargo or chartered to a special person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid (Home Insurance Company, Inc. vs. American
Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the
logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela")
filed separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court
denied the petition of South
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and the
Court of Appeals that Chua was indeed an authorized agent of South Sea when he received
Valenzuela's premium payment for the marine cargo insurance policy which was thus binding on
the insurer. 8
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the
CA Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent
Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in the
charter party executed between the petitioner and the private respondent exempting the latter
from liability for the loss of petitioner's logs arising from the negligence of its (Seven Brothers')
captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the "(o)wners
shall not be responsible for loss, split, short-landing, breakages and any kind of damages to the
cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate
cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the
"snapping of the iron chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the vessel and not due to
fortuitous event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as a
private carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the latter
admits this in its petition. 12
The trial court deemed the charter party stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the
goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a
good father of a family, or of a man of ordinary prudence in the vigilance over the
movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his
or its employees;

(6) That the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with
or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car, vehicle, ship,
airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587
of the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and
paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said stipulation
"gives no duty or obligation to the private respondent to observe the diligence of a good father of
a family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other
Civil Code provisions on common carriers which were cited by petitioner may not be applied
unless expressly stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo
rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the
cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 17 of the Civil
Code, such stipulation is valid because it is freely entered into by the parties and the same is not
contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We stress that in a contract of private
carriage, the parties may freely stipulate their duties and obligations which perforce would be
binding on them. Unlike in a contract involving a common carrier, private carriage does not
involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial
goods as a private carrier. Consequently, the public policy embodied therein is not contravened
by stipulations in a charter party that lessen or remove the protection given by law in contracts
involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies,
Inc. 18 In that case, the trial court similarly nullified a stipulation identical to that involved in the
present case for being contrary to public policy based on Article 1744 of the Civil Code and
Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for
damages resulting for the partial loss of the cargo. This Court reversed the trial court and laid
down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from AngloAmerican law. Under American jurisprudence, a common carrier undertaking to
carry a special cargo or chartered to a special person only, becomes a private
carrier. As a private carrier, a stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner from liability for
loss due to the negligence of its agent would be void if the strict public policy
governing common carriers is applied. Such policy has no force where the public at
large is not involved, as in this case of a ship totally chartered for the used of a
single party. 19(Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract; even if the public wants to,
it cannot submit its own stipulations for the approval of the common carrier. Thus, the law on
common carriers extends its protective mantle against one-sided stipulations inserted in tickets,
invoices or other documents over which the riding public has no understanding or, worse, no
choice. Compared to the general public, a charterer in a contract of private carriage is not
similarly situated. It can and in fact it usually does enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's
obligations and liabilities over the shipment which, in turn, determine the price or consideration
of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set

aside the protection of the law on common carriers. When the charterer decides to exercise this
option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because
it "covers only a stipulation exempting a private carrier from liability for the negligence of his
agent, but it does not apply to a stipulation exempting a private carrier like private respondent
from the negligence of his employee or servant which is the situation in this case." 20 This
contention of petitioner is bereft of merit, for it raises a distinction without any substantive
difference. The case Home Insurance specifically dealt with "the liability of the shipowner for acts
or negligence of its captain and crew" 21 and a charter party stipulation which "exempts the
owner of the vessel from any loss or damage or delay arising from any other source, even from
the neglect or fault of the captain or crew or some other person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said
paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the
rule in the Philippines 23 deserves scant consideration. The Court there categorically held that
said rule was "reasonable" and proceeded to apply it in the resolution of that case. Petitioner
miserably failed to show such circumstances or arguments which would necessitate a departure
from a well-settled rule. Consequently, our ruling in said case remains a binding judicial
precedent based on the doctrine of stare decisis and Article 8 of the Civil Code which provides
that "(j)udicial decisions applying or interpreting the laws or the Constitution shall form part of
the legal system of the Philippines."
In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agents is valid."

24

Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court,
however, will discuss the other arguments of petitioner for the benefit and satisfaction of all
concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587
of the Code of Commerce which confer on petitioner the right to recover damages from the
shipowner and ship agent for the acts or conduct of the captain. 25 We are not persuaded.
Whatever rights petitioner may have under the aforementioned statutory provisions were waived
when it entered into the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to
law, public order, public policy, morals, or good customs, or prejudicial to a person with a right
recognized by law." As a general rule, patrimonial rights may be waived as opposed to rights to
personality and family rights which may not be made the subject of waiver. 26 Being patently and
undoubtedly patrimonial, petitioner's right conferred under said articles may be waived. This, the
petitioner did by acceding to the contractual stipulation that it is solely responsible or any
damage to the cargo, thereby exempting the private carrier from any responsibility for loss or
damage thereto. Furthermore, as discussed above, the contract of private carriage binds
petitioner and private respondent alone; it is not imbued with public policy considerations for the
general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, shall apply.

If the law does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in
respect of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the
charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited
by petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph
of Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the
event the law or the contract is silent. In the instant case, Article 362 of the Code of
Commerce 28 provides the standard of ordinary diligence for the carriage of goods by a carrier.
The standard of diligence under this statutory provision may, however, be modified in a contract
of private carriage as the petitioner and private respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated there visa-vis contractual stipulations limiting the carrier's liability be applied "with equal force" to this
case. 31 It also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and contends that
stipulations exempting a party from liability for damages due to negligence "should not be
countenanced" and should be "strictly construed" against the party claiming its benefit. 33 We
disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify
the application of such policy considerations and concomitantly stricter rules. As already
discussed above, the public policy considerations behind the rigorous treatment of common
carriers are absent in the case of private carriers. Hence, the stringent laws applicable to
common carriers are not applied to private carries. The case of Manila Railroad is also
inapplicable because the action for damages there does not involve a contract for transportation.
Furthermore, the defendant therein made a "promise to use due care in the lifting operations"
and, consequently, it was "bound by its undertaking"'; besides, the exemption was intended to
cover accidents due to hidden defects in the apparatus or other unforseeable occurrences" not
caused by its "personal negligence." This promise was thus constructed to make sense together
with the stipulation against liability for damages. 34 In the present case, we stress that the
private respondent made no such promise. The agreement of the parties to exempt the
shipowner from responsibility for any damage to the cargo and place responsibility over the
same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith &
Co. vs.Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta
Development Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco Steamship Co. 39 in
support of its contention that the shipowner be held liable for damages. 40 These however are not
on all fours with the present case because they do not involve a similar factual milieu or an
identical stipulation in the charter party expressly exempting the shipowner form responsibility
for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it
because this Court has earlier affirmed the liability of South Sea for the loss suffered by
petitioner. Private respondent submits that petitioner is not legally entitled to collect twice for a
single loss. 41 In view of the above disquisition upholding the validity of the questioned charter
party stipulation and holding that petitioner may not recover from private respondent, the
present issue is moot and academic. It suffices to state that the Resolution of this Court dated
June 2, 1995 42 affirming the liability of South Sea does not, by itself, necessarily preclude the
petitioner from proceeding against private respondent. An aggrieved party may still recover the
deficiency for the person causing the loss in the event the amount paid by the insurance
company does not fully cover the loss. Article 2207 of the Civil Code provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
for the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If

the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency form the person
causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.

G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside
the following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401,
which affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16,
in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co.
(hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the compliant
until fully paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19
November 1997, 3 denying LOADSTAR's motion for reconsideration of said decision.
The facts are undisputed.1wphi1.nt
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel)
the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against
various risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn,
was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20
November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel,
along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the
consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC
paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a
subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking
of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed
that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said
amount to be deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later
dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR
to elevate the matter to the court of Appeals, which, however, agreed with the trial court and
affirmed its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground
that there was a single shipper on that fateful voyage. The court noted
that the charter of the vessel was limited to the ship, but LOADSTAR
retained control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil Code,
which should be applied in determining the rights and liabilities of the
parties.
3) The vessel was not seaworthy because it was undermanned on the
day of the voyage. If it had been seaworthy, it could have withstood
the "natural and inevitable action of the sea" on 20 November 1984,
when the condition of the sea was moderate. The vessel sank, not
because of force majeure, but because it was not seaworthy.
LOADSTAR'S allegation that the sinking was probably due to the
"convergence of the winds," as stated by a PAGASA expert, was not
duly proven at the trial. The "limited liability" rule, therefore, is not
applicable considering that, in this case, there was an actual finding of
negligence on the part of the carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do
not apply because said provisions bind only the shipper/consignee and
the carrier. When MIC paid the shipper for the goods insured, it was
subrogated to the latter's rights as against the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's defense
of "diligence of a good father of a family" in the training and selection
of its crew is unavailing because this is not a proper or complete
defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially construed
to mean that when goods are delivered on board a ship in good order
and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both
allege and prove that the goods were damaged by reason of some fact
which legally exempts him from liability." Transportation of the
merchandise at the risk and venture of the shipper means that the
latter bears the risk of loss or deterioration of his goods arising from
fortuitous events, force majeure, or the inherent nature and defects of

the goods, but not those caused by the presumed negligence or fault
of the carrier, unless otherwise proved. 7
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these
premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was
not issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed
route, and there was only "one shipper, one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not
timely raised below; hence, it is barred by estoppel. While it is true that the vessel had on board
only the cargo of wood products for delivery to one consignee, it was also carrying passengers as
part of its regular business. Moreover, the bills of lading in this case made no mention of any
charter party but only a statement that the vessel was a "general cargo carrier." Neither was
there any "special arrangement" between LOADSTAR and the shipper regarding the shipment of
the cargo. The singular fact that the vessel was carrying a particular type of cargo for one
shipper is not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19
November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was
duly inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that
the ship was fit to undertake a voyage. Its crew at the time was experienced, licensed and
unquestionably competent. With all these precautions, there could be no other conclusion except
that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessel's
seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19
November 1984, the weather was fine until the next day when the vessel sank due to strong
waves. MCI's witness, Gracelia Tapel, fully established the existence of two typhoons,
"WELFRING" and "YOLING," inside the Philippine area of responsibility. In fact, on 20 November
1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also
testified that the convergence of winds brought about by these two typhoons strengthened wind
velocity in the area, naturally producing strong waves and winds, in turn, causing the vessel to
list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such
as what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier,
and not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling
in the case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire
Insurance Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same suits based upon claims
arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days
from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for
recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the
cargo was due toforce majeure, because the same concurred with LOADSTAR's fault or
negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.

Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was
at fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the
voyage notwithstanding its knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary
that the carrier be issued a certificate of public convenience, and this public character is not
altered by the fact that the carriage of the goods in question was periodic, occasional, episodic or
unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special
cargo or chartering the vessel to a special person becomes a private carrier that is not subject to
the provisions of the Civil Code. Any stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at is not involved, as in the
case of a ship totally chartered for the use of a single party. LOADSTAR also cited Valenzuela
Hardwood and Industrial Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of
Appeals, 13 both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason
that the factual settings are different. The records do not disclose that the M/V "Cherokee," on
the date in question, undertook to carry a special cargo or was chartered to a special person
only. There was no charter party. The bills of lading failed to show any special arrangement, but
only a general provision to the effect that the M/V"Cherokee" was a "general cargo
carrier." 14 Further, the bare fact that the vessel was carrying a particular type of cargo for one
shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from
a common to a private carrier, especially where, as in this case, it was shown that the vessel was
also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a
common carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of
Appeals, 15 the Court juxtaposed the statutory definition of "common carriers" with the peculiar
circumstances of that case, viz.:
The Civil Code defines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as ancillary activity (in local idiom, as "a sideline". Article 1732 also carefully
avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
xxx xxx xxx
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate
of public convenience, and concluded he was not a common carrier. This is palpable

error. A certificate of public convenience is not a requisite for the incurring of

liability under the Civil Code provisions governing common carriers. That liability
arises the moment a person or firm acts as a common carrier, without regard to
whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary
certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with
applicable statutory requirements The business of a common carrier impinges
directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of
those who utilize their services and the law cannot allow a common carrier to render
such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy
when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently
manned at the time. "For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is
a clear breach of its duty prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be
applied in this case. The doctrine of limited liability does not apply where there was negligence
on the part of the vessel owner or agent. 17 LOADSTAR was at fault or negligent in not
maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an
approaching typhoon. In any event, it did not sink because of any storm that may be deemed
as force majeure, inasmuch as the wind condition in the performance of its duties, LOADSTAR
cannot hide behind the "limited liability" doctrine to escape responsibility for the loss of the
vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the
goods, in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v.
Macondray & Co., Inc., 18 andNational Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was
ruled in these two cases that after paying the claim of the insured for damages under the
insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can
recover only the amount that may, in turn, be recovered by the latter. Since the right of the
assured in case of loss or damage to the goods is limited or restricted by the provisions in the
bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and
restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a
limitation on the carrier's liability to an amount fixed in the bill of lading which the parties may
enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the
other hand, the stipulation in the case at bar effectively reduces the common carrier's liability for
the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745),
that is, the carrier is not liable for any loss or damage to shipments made at "owner's risk." Such
stipulation is obviously null and void for being contrary to public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first 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. 21
Since the stipulation in question is null and void, it follows that when MIC paid the shipper,
it was subrogated to all the rights which the latter has against the common carrier,
LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription.
MIC's cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither
the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of limitation on

claims for loss of, or damage to, cargoes sustained during transit may be applied suppletorily
to the case at bar. This one-year prescriptive period also applies to the insurer of the goods. 22 In
this case, the period for filing the action for recovery has not yet elapsed. Moreover, a stipulation
reducing the one-year period is null and void; 23 it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of
the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1wphi1.nt
SO ORDERED.

G.R. No. 108897 October 2, 1997

SARKIES TOURS PHILIPPINES, INC., petitioner,
vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL
A. FORTADES and FATIMA MINERVA A. FORTADES, respondents.

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 petitioner's motion for reconsideration for being a mere rehash of the arguments raised
in the appellant's 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 petitioner's 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 Marisol's U.S. immigration (green) card, among other important
documents and personal belongings. Her belongings were kept in the baggage compartment of
the bus, but during a stopover at Daet, it was discovered that only one bag remained in the open
compartment. The others, including Fatima's things, were missing and might have dropped along
the way. Some of the passengers suggested retracing the route of the bus 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 petitioner's office in
Legazpi City and later at its head office in Manila. Petitioner, 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, mother and daughter 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 Fatima's bags was recovered. Marisol further reported the incident to the
National Bureau of Investigation's 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,
attorney's fees and expenses of litigation. They claimed that the loss was due to petitioner's
failure to observe extraordinary diligence in the care of Fatima's 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
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 attorney's 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 court's 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 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 petitioner's 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 by 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 mother's 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. Apparently, other passengers had 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 lost her chemical engineering review materials,
while her brother lost abaca products he was transporting to Bicol. 5
Petitioner's receipt of Fatima's 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 . . . 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 to . . . 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 petitioner's 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:
. . . . Where the common carrier accepted its passenger's 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 carrier's own lookout. It is responsible for the consequent loss of the
baggage. In the instant case, defendant appellant's employee even helped Fatima Minerva
Fortades and her brother load the luggages/baggages in the bus' baggage compartment,
without asking that they be weighed, declared, receipted or paid for (TSN, August 4, 1986,
pp. 29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this required of the other
passengers (TSN, August 4, 1986, p. 104; February 5, 1988; p. 13).
Finally, petitioner questions the award of actual damages to respondents. On this point, we
likewise agree with the trial and appellate courts' conclusions. There is no dispute that of the
three pieces of luggage of Fatima, only one was recovered. The other two contained optometry
books, materials, equipment, as well as vital documents and personal belongings. Respondents
had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During
the trial, Fatima and Marisol had to travel from the United States just to be able to testify.
Expenses were also incurred in reconstituting their lost documents. Under these circumstances,
the Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and
P30,000.00 for the transportation expenses, but disagrees with the deletion of the award of
moral and exemplary damages which, in view of the foregoing proven facts, with negligence and
bad faith on the fault of petitioner having been duly established, should be granted to
respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its
resolution dated February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner
is ordered to pay respondents an additional P20,000.00 as moral damages and P5,000.00 as
exemplary damages. Costs against petitioner.
SO ORDERED.

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to
observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of
the insurer to be subrogated to the rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned
and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee
Coca-Cola Bottlers Philippines, Inc., Cebu. 1 The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No.
100367-PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the
same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the
waters of Zamboanga del Norte bringing down her entire cargo with her including the subject
7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink
bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to
file an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo
were due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It
further alleged that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby port or beach after the
vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no
right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any
event, FELMAN had abandoned all its rights, interests and ownership over "MV Asilda" together
with her freight and appurtenances for the purpose of limiting and extinguishing its liability under
Art. 587 of the Code of Commerce. 2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court
of Appeals set aside the dismissal and remanded the case to the lower court for trial on the
merits. FELMAN filed a petition forcertiorari with this Court but it was subsequently denied on 13
February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that "MV
Asilda" was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by
the Philippine Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the
loss of the vessel and its entire shipment could only be attributed to either a fortuitous event, in
which case, no liability should attach unless there was a stipulation to the contrary, or to the
negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should
apply.
The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could
not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached
its implied warranty on the vessel's seaworthiness. Resultantly, the payment made by
PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it was not legally
owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an action in
court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August
1994 respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being
top-heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In
other words, while the vessel possessed the necessary Coast Guard certification indicating its
seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to
the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that
the assured's implied warranty of seaworthiness was not complied with. Perfunctorily,
PHILAMGEN was not properly subrogated to the rights and interests of the shipper. Furthermore,
respondent court held that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left
the port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce
should apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal
actions which the shipper had against FELMAN, the shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the
captain as well as the chief mate of the vessel confirmed that the weather was fine when they
left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter
Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an
undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and
about 500 cases of Coca-Cola bottles on deck. 4 The ship captain stated that around four o'clock
in the morning of 7 July 1983 he was awakened by the officer on duty to inform him that the
vessel had hit a floating log. At that time he noticed that the weather had deteriorated with
strong southeast winds inducing big waves. After thirty minutes he observed that the vessel was
listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He
then ordered his crew to shift the cargo from starboard to portside until the vessel was balanced.
At about seven o'clock in the morning, the master of the vessel stopped the engine because the
vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to
starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to
resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could
decide on his next move, some of the cargo on deck were thrown overboard and seawater

entered the engine room and cargo holds of the vessel. At that instance, the master of the vessel
ordered his crew to abandon ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed
the sinking to the entry of seawater through a hole in the hull caused by the vessel's collision
with a partially submerged log. 5
The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report,
which was adopted by the Court of Appeals, reads
We found in the course of our investigation that a reasonable explanation for the
series of lists experienced by the vessel that eventually led to her capsizing and
sinking, was that the vessel wastop-heavy which is to say that while the vessel may
not have been overloaded, yet the distribution or stowage of the cargo on board
was done in such a manner that the vessel was in top-heavy condition at the time of
her departure and which condition rendered her unstable and unseaworthy for that
particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed
as a fishing vessel . . . and it was not designed to carry a substantial amount or
quantity of cargo on deck. Therefore, we believe strongly that had her cargo been
confined to those that could have been accommodated under deck, her stability
would not have been affected and the vessel would not have been in any danger of
capsizing, even given the prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck,
the vessel was rendered unseaworthy for the purpose of carrying the type of cargo
because the weight of the deck cargo so decreased the vessel's metacentric height
as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must
be pointed out that ships are precisely designed to be able to navigate safely even
during heavy weather and frequently we hear of ships safely and successfully
weathering encounters with typhoons and although they may sustain some amount
of damage, the sinking of ship during heavy weather is not a frequent occurrence
and is not likely to occur unless they are inherently unstable and unseaworthy . . . .
We believe, therefore, and so hold that the proximate cause of the sinking of the
M/V "Asilda" was her condition of unseaworthiness arising from her having been topheavy when she departed from the Port of Zamboanga. Her having capsized and
eventually sunk was bound to happen and was therefore in the category of an
inevitable occurrence (emphasis supplied). 6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the
proximate cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship
captain's allegations, evidence shows that approximately 2,500 cases of softdrink bottles were
stowed on deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola
plastic cases were recovered near the vicinity of the sinking. Considering that the ship's hatches
were properly secured, the empty Coca-Cola cases recovered could have come only from the
vessel's deck cargo. It is settled that carrying a deck cargo raises the presumption of
unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper
management of the ship. However, in this case it was established that "MV Asilda" was not
designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck
resulted in the decrease of the vessel's metacentric height 7 thus making it unstable. The strong
winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage
and as such merely contributed to its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at
bar. 8 Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods
loaded on the vessel. This liability however can be limited through abandonment of the vessel,
its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable despite the abandonment,
as where the loss or injury was due to the fault of the shipowner and the captain. 9 The
international rule is to the effect that the right of abandonment of vessels, as a legal limitation of
a shipowner's liability, does not apply to cases where the injury or average was occasioned by
the shipowner's own fault. 10 It must be stressed at this point that Art. 587 speaks only of
situations where the fault or negligence is committed solely by the captain. Where the shipowner

is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its
unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy
as an excessive amount of cargo was loaded on deck. Closer supervision on the part of the
shipowner could have prevented this fatal miscalculation. As such, FELMAN was equally
negligent. It cannot therefore escape liability through the expedient of filing a notice of
abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of 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 and for the safety of the passengers transported by them, according to all the
circumstances of each case . . ." In the event of loss of goods, common carriers are presumed to
have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV Asilda"
unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty
of seaworthiness that rendered the assured not entitled to the payment of is claim under the
policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a
"voluntary payment" and no right of subrogation accrued in its favor. In other words, when
PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the
assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if
expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that
"(i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a
ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary
perils of the voyage, contemplated by the parties to the policy." Thus it becomes the obligation of
the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full control in the selection of the
common carrier that will transport his goods. He also has full discretion in the choice of assurer
that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as
painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In
policies where the law will generally imply a warranty of seaworthiness, it can only be excluded
by terms in writing in the policy in the clearest language. 13And where the policy stipulates that
the seaworthiness of the vessel as between the assured and the assurer is admitted, the
question of seaworthiness cannot be raised by the assurer without showing concealment or
misrepresentation by the assured. 14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2)
instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open
Policy No. 100367-PAG reads "(t)he liberties as per Contract of Affreightment the presence of the
Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or
Contract of Affreightment as between the Assured and the Company shall not prejudice the
insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby
admitted." 15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which
states "(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby
admitted . . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two
things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses in
cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of
the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the
risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in
this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's
action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the
assurer to the assured operates as an equitable assignment to the assurer of all the remedies
which the assured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one
who in justice, equity and good conscience ought to pay. 19 Therefore, the payment made by
PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as
subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN
for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five
Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29
November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil
Code. 20
SO ORDERED.
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17,
1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is
liable to pay herein private respondent the amount of P700,000.00, plus legal interest thereon,
another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to
Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb
barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long" 1 As a consequence, the molasses
at the cargo tanks were contaminated and rendered unfit for the use it was intended. This
prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private
respondent, Philippine General Insurance Company (PhilGen, for short) and against the carrier,
herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied the claim and it was
PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing
the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court
of Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for
the latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and
claims which the consignee may have against the carrier, which is presumed to have violated the
contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment
which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence to which a private carrier
is in turn bound? Second, whether or not the insurer was subrogated into the rights of the
consignee against the carrier, upon payment by the insurer of the value of the consignee's goods
lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that
it was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to
transport the shipment of molasses from Negros Oriental to Manila and refers to this contract as
a "charter agreement". It then proceeds to cite the case of Home Insurance Company vs.
American Steamship Agencies, Inc. 2 wherein this Court held: ". . . a common carrier undertaking
to carry a special cargo or chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of
the court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole
vessel, rather than a demise. As such, the liability of the shipowner for acts or
negligence of its captain and crew, would remain in the absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of
Appeals, 4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be
regarded as the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject to liability
to others for damages caused by negligence. To create a demise, the owner of a
vessel must completely and exclusively relinquish possession, command and
navigation thereof to the charterer, anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the
vessel leases part or all of its space to haul goods for others. It is a contract for
special service to be rendered by the owner of the vessel and under such contract
the general owner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his
payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of
the charterer, remains liable as carrier and must answer for any breach of duty as to
the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however
is not true in a contract of affreightment on account of the aforementioned distinctions between
the two.
Petitioner admits that the contract it entered into with the consignee was one of
affreightment. 5 We agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to
carry cargo from one point to another, but the possession, command and navigation of the
vessels remained with petitioner Coastwise Lighterage.

Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common
carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods
in good order to a carrier and the subsequent arrival of the same goods at the place of
destination in bad order makes for aprima facie case against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the
goods it transports are lost, destroyed or deteriorated, applies to the petitioner. This
presumption, which is overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused
by its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be
a submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient
cause of the accident. Further it asserts that the fact that the Philippine Coastguard "has not
exerted any effort to prepare a chart to indicate the location of sunken derelicts within Manila
North Harbor to avoid navigational accidents" 6 effectively contributed to the happening of this
mishap. Thus, being unaware of the hidden danger that lies in its path, it became impossible for
the petitioner to avoid the same. Nothing could have prevented the event, making it beyond the
pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far
from having rendered service with the greatest skill and utmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed.
The Code of Commerce, which subsidiarily governs common carriers (which are primarily
governed by the provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal
capacity to contract in accordance with this code, and prove the skill capacity and
qualifications necessary to command and direct the vessel, as established by
marine and navigation laws, ordinances or regulations, and must not be disqualified
according to the same for the discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron
violates this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a
person whose navigational skills are questionable, at the helm of the vessel which eventually
met the fateful accident. It may also logically, follow that a person without license to navigate,
lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes
taken by seasoned and legally authorized ones. Had the patron been licensed, he could be
presumed to have both the skill and the knowledge that would have prevented the vessel's
hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported,
by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more
rule against the petitioner. We have already found petitioner liable for breach of the contract of
carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of
the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value
thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long
line of cases including Compania Maritima v. Insurance Company of North America; 7 Fireman's

Fund Insurance Company v. Jamilla & Company, Inc., 8 and Pan Malayan Insurance Corporation v.
Court of Appeals, 9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation.
If the insured property is destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured
operated as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity
of contract or upon written assignment of claim. It accrues simply upon payment of
the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pagasa Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported
by petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa
Sales, Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming
the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to
pay respondent Philippine General Insurance Company the "principal amount of P700,000.00
plus interest thereon at the legal rate computed from March 29, 1989, the date the complaint
was filed until fully paid and another sum of P100,000.00 as attorney's fees and costs" 10 is
likewise hereby AFFIRMED
SO ORDERED.