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G.R. No. 119706 March 14, 1996

PHILIPPINE
AIRLINES,
INC., petitioner,
vs.
COURT OF APPEALS and GILDA C. MEJIA, respondents.

REGALADO, J.:p
This is definitely not a case of first impression. The incident which eventuated
in the present controversy is a drama of common contentious occurrence
between passengers and carriers whenever loss is sustained by the former.
Withal, the exposition of the factual ambience and the legal precepts in this
adjudication may hopefully channel the assertiveness of passengers and the
intransigence of carriers into the realization that at times a bad extrajudicial
compromise could be better than a good judicial victory.
Assailed in this petition for review is the decision of respondent Court of
Appeals in CA-G.R. CV No. 42744 1 which affirmed the decision of the lower
court 2 finding petitioner Philippine Air Lines, Inc. (PAL) liable as follows:
ACCORDINGLY, judgment is hereby rendered ordering
defendant Philippine Air Lines, Inc., to pay plaintiff Gilda C.
Mejia:
(1) P30,000.00 by way of actual damages of the microwave
oven;
(2) P10,000.00 by way of moral damages;
(3) P20,000.00 by way of exemplary damages;
(4) P10,000.00 as attorney's fee;
all in addition to the costs of the suit.
Defendant's counterclaim is hereby dismissed for lack of
merit. 3

The facts as found by respondent Court of Appeals are as follows:

On January 27, 1990, plaintiff Gilda C. Mejia shipped thru
defendant, Philippine Airlines, one (1) unit microwave oven,
with a gross weight of 33 kilograms from San Francisco,
U.S.A. to Manila, Philippines. Upon arrival, however, of said
article in Manila, Philippines, plaintiff discovered that its front
glass door was broken and the damage rendered it
unserviceable. Demands both oral and written were made by
plaintiff against the defendant for the reimbursement of the
value of the damaged microwave oven, and transportation
charges paid by plaintiff to defendant company. But these
demands fell on deaf ears.
On September 25, 1990, plaintiff Gilda C. Mejia filed the
instant action for damages against defendant in the lower
court.
In its answer, defendant Airlines alleged inter alia, by way of
special and affirmative defenses, that the court has no
jurisdiction over the case; that plaintiff has no valid cause of
action against defendant since it acted only in good faith and
in compliance with the requirements of the law, regulations,
conventions and contractual commitments; and that
defendant had always exercised the required diligence in the
selection, hiring and supervision of its employees. 4
What had theretofore transpired at the trial in the court a quo is narrated as
follows:
Plaintiff Gilda Mejia testified that sometime on January 27,
1990, she took defendant's plane from San Francisco, U.S.A.
for Manila, Philippines (Exh. "F"). Amongst her baggages (sic)
was a slightly used microwave oven with the brand name
"Sharp" under PAL Air Waybill No. 0-79-1013008-3 (Exh.
"A"). When shipped, defendant's office at San Francisco
inspected it. It was in good condition with its front glass
intact. She did not declare its value upon the advice of
defendant's personnel at San Francisco.

TRANSPO | ASS3| 2

When she arrived in Manila, she gave her sister Concepcion

C. Dio authority to claim her baggag(e) (Exh. "G") and took
a connecting flight for Bacolod City.
When Concepcion C. Dio claimed the baggag(e) (Exh. "B")
with defendant, then with the Bureau of Customs, the front
glass of the microwave oven was already broken and cannot
be repaired because of the danger of radiation. They
demanded from defendant thru Atty. Paco P30,000.00 for the
damages although a brand new one costs P40,000.00, but
defendant refused to pay.
Hence, plaintiff engaged the services of counsel. Despite
demand (Exh. "E") by counsel, defendant still refused to pay.
The damaged oven is still with defendant. Plaintiff is engaged
in (the) catering and restaurant business. Hence, the
necessity of the oven. Plaintiff suffered sleepless nights when
defendant refused to pay her (for) the broken oven and
claims P10,000.00 moral damages, P20,000.00 exemplary
damages, P10,000.00 attorney's fees plus P300.00 per court
appearance and P15,000.00 monthly loss of income in her
business beginning February, 1990.
Defendant Philippine Airlines thru its employees Rodolfo
Pandes and Vicente Villaruz posited that plaintiff's claim was
not investigated until after the filing of the formal claim on
August 13, 1990 (Exh. "6" also Exh. "E"). During the
investigations, plaintiff failed to submit positive proof of the
value of the cargo. Hence her claim was denied.
Also plaintiff's claim was filed out of time under paragraph
12, a (1) of the Air Waybill (Exh. "A", also Exh. "1") which
provides: "(a) the person entitled to delivery must make a
complaint to the carrier in writing in case: (1) of visible
damage to the goods, immediately after discovery of the
damage and at the latest within 14 days from the receipt of
the goods. 5
As stated at the outset, respondent Court of Appeals similarly ruled in favor
of private respondent by affirming in full the trial court's judgment in Civil

Case No. 6210, with costs against petitioner. 6 Consequently, petitioner now
impugns respondent appellate court's ruling insofar as it agrees with (1) the
conclusions of the trial court that since the air waybill is a contract of
adhesion, its provisions should be strictly construed against herein petitioner;
(2) the finding of the trial court that herein petitioner's liability is not limited
by the provisions of the air waybill; and (3) the award by the trial court to
private respondent of moral and exemplary damages, attorney's fees and
litigation expenses.
The trial court relied on the ruling in the case of Fieldmen's Insurance Co.,
Inc. vs. Vda. De Songco, et al. 7 in finding that the provisions of the air
waybill should be strictly construed against petitioner. More particularly, the
court below stated its findings thus:
In this case, it is seriously doubted whether plaintiff had read
the printed conditions at the back of the Air Waybill (Exh.
"1"), or even if she had, if she was given a chance to
negotiate on the conditions for loading her microwave oven.
Instead she was advised by defendant's employee at San
Francisco, U.S.A., that there is no need to declare the value
of her oven since it is not brand new. Further, plaintiff
testified that she immediately submitted a formal claim for
P30,000.00 with defendant. But their claim was referred from
one employee to another th(e)n told to come back the next
day, and the next day, until she was referred to a certain
Atty. Paco. When they got tired and frustrated of coming
without a settlement of their claim in sight, they consulted a
lawyer who demanded from defendant on August 13, 1990
(Exh. "E", an[d] Exh. "6").
The conclusion that inescapably emerges from the above
findings of fact is to concede it with credence. . . . . 8
Respondent appellate court approved said findings of the trial court in this
manner:
We cannot
agree
with
defendant-appellant's
above
contention. Under our jurisprudence, the Air Waybill is a
contract of adhesion considering that all the provisions
thereof are prepared and drafted only by the carrier (Sweet
Lines v. Teves, 83 SCRA 361). The only participation left of

TRANSPO | ASS3| 3

the other party is to affix his signature thereto (BPI Credit

Corporation vs. Court of Appeals, 204 SCRA 601; Saludo, Jr.
vs. C.A., 207 SCRA 498; Maersk vs. Court of Appeals, 222
SCRA 108, among the recent cases). In the earlier case of
Angeles v. Calasanz, 135 SCRA 323, the Supreme Court ruled
that "the terms of a contract [of adhesion] must be
interpreted against the party who drafted the same." . . . . 9
Petitioner airlines argues that the legal principle enunciated in Fieldmen's
Insurance does not apply to the present case because the provisions of the
contract involved here are neither ambiguous nor obscure. The front portion
of the air waybill contains a simple warning that the shipment is subject to
the conditions of the contract on the dorsal portion thereof regarding the
limited liability of the carrier unless a higher valuation is declared, as well as
the reglementary period within which to submit a written claim to the carrier
in case of damage or loss to the cargo. Granting that the air waybill is a
contract of adhesion, it has been ruled by the Court that such contracts are
not entirely prohibited and are in fact binding regardless of whether or not
respondent herein read the provisions thereof. Having contracted the services
of petitioner carrier instead of other airlines, private respondent in effect
negotiated the terms of the contract and thus became bound thereby. 10
Counsel for private respondent refutes these arguments by saying that due
to her eagerness to ship the microwave oven to Manila, private respondent
assented to the terms and conditions of the contract without any opportunity
to question or change its terms which are practically on a "take-it-or-leave-it"
basis, her only participation therein being the affixation of her signature.
Further, reliance on the Fieldmen's Insurance case is misplaced since it is not
the ambiguity or obscurity of the stipulation that renders necessary the strict
interpretation of a contract of adhesion against the drafter, but the peculiarity
of the transaction wherein one party, normally a corporation, drafts all the
provisions of the contract without any participation whatsoever on the part of
the other party other than affixment of signature. 11

passenger regardless of the latter's lack of knowledge or

assent to the regulation. It is what is known as a contract of
"adhesion," in regards which it has been said that contracts
of adhesion wherein one party imposes a ready-made form of
contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. . . , a contract limiting liability
upon an agreed valuation does not offend against the policy
of the law forbidding one from contracting against his own
negligence.
As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:
. . . , it should be borne in mind that a contract of adhesion
may be struck down as void and unenforceable, for being
subversive of public policy, only when the weaker party is
imposed upon in dealing with the dominant bargaining party
and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal
footing. . . . .
but subject to the caveat that
. . . . Just because we have said that Condition No. 5 of the
airway bill is binding upon the parties to and fully operative in
this transaction, it does not mean, and let this serve as fair
warning to respondent carriers, that they can at all times
whimsical seek refuge from liability in the exculpatory
sanctuary of said Condition No. 5 . . . .

A review of jurisprudence on the matter reveals the consistent holding of the

Court that contracts of adhesion are not invalid per se and that it has on
numerous occasions upheld the binding effect thereof. 12 As explained in Ong
Yiu vs. Court of Appeals, et al., supra:

The peculiar nature of such contracts behooves the Court to closely scrutinize
the factual milieu to which the provisions are intended to apply. Thus, just as
consistently and unhesitatingly, but without categorically invalidating such
contracts, the Court has construed obscurities and ambiguities in the
restrictive provisions of contracts of adhesion strictly albeit not unreasonably
against the drafter thereof when justified in light of the operative facts and
surrounding circumstances. 13

. . . . Such provisions have been held to be a part of the

contract of carriage, and valid and binding upon the

We find nothing objectionable about the lower court's reliance upon

the Fieldmen's Insurance case, the principles wherein squarely apply to the

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present petition. The parallelism between the aforementioned case and this
one is readily apparent for, just as in the instant case, it is the binding effect
of the provisions in a contract of adhesion (an insurance policy in Fieldmen's
Insurance) that is put to test.

This Court
defendant.

A judicious reading of the case reveals that what was pivotal in the judgment
of liability against petitioner insurance company therein, and necessarily
interpreting the provisions of the insurance policy as ineffective, was the
finding that the representations made by the agent of the insurance company
rendered it impossible to comply with the conditions of the contract in
question, rather than the mere ambiguity of its terms. The extended
pronouncements regarding strict construction of ambiguous provisions in an
adhesion contract against its drafter, which although made by the Court as an
aside but has perforce evolved into a judicial tenet over time, was actually an
incidental statement intended to emphasize the duty of the court to protect
the weaker, as against the more dominant, party to a contract, as well as to
prevent the iniquitous situation wherein the will of one party is imposed upon
the other in the course of negotiation.

Finally, the Court finds no merit to defendant's contention

that under the Warsaw Convention, its liability if any, cannot
exceed U.S. $20.00 based on weight as plaintiff did not
declare the contents of her baggage nor pay additional
charges before the flight. 14

Thus, there can be no further question as to the validity of the terms of the
air waybill, even if the same constitutes a contract of adhesion. Whether or
not the provisions thereof particularly on the limited liability of the carrier are
binding on private respondent in this instance must be determined from the
facts and circumstances involved vis-a-vis the nature of the provisions sought
to be enforced, taking care that equity and fair play should characterize the
transaction under review.
On petitioner's insistence that its liability for the damage to private
respondent's microwave oven, if any, should be limited by the provisions of
the air waybill, the lower court had this to say:
By and large, defendant's evidence is anchored principally on
plaintiff's alleged failure to comply with paragraph 12, a(1)
(Exh. "1-C-2") of the Air waybill (Exh. "A," also Exh. "1"), by
filing a formal claim immediately after discovery of the
damage. Plaintiff filed her formal claim only on August 13,
1990 (Exh. "6", also Exh. "E"). And, failed to present positive
proof on the value of the damaged microwave oven. Hence,
the denial of her claim.

has

misgivings

about

these

pretensions

of

xxx xxx xxx

The appellate court declared correct the non-application by the trial court of
the limited liability of therein defendant-appellant under the "Conditions of
the Contract" contained in the air waybill, based on the ruling in Cathay
Pacific Airways, Ltd. vs. Court of Appeals, et al., 15 which substantially
enunciates the rule that while the Warsaw Convention has the force and
effect of law in the Philippines, being a treaty commitment by the
government and as a signatory thereto, the same does not operate as an
exclusive enumeration of the instances when a carrier shall be liable for
breach of contract or as an absolute limit of the extent of liability, nor does it
preclude the operation of the Civil Code or other pertinent laws.
Petitioner insists that both respondent court and the trial court erred in
finding that petitioner's liability, if any, is not limited by the provisions of the
air waybill, for, as evidence of the contract of carriage between petitioner and
private respondent, it substantially states that the shipper certifies to the
correctness of the entries contained therein and accepts that the carrier's
liability is limited to US $20 per kilogram of goods lost, damaged or
destroyed unless a value is declared and a supplementary charge paid.
Inasmuch as no such declaration was made by private respondent, as she
admitted during cross-examination, the liability of petitioner, if any, should be
limited to 28 kilograms multiplied by US $20, or $560. Moreover, the validity
of these conditions has been upheld in the leading case of Ong Yiu vs. Court
of Appeals, et al., supra, and subsequent cases, for being a mere reiteration
of the limitation of liability under the Warsaw Convention, which treaty has
the force and effect of law. 16
It is additionally averred that since private respondent was merely advised,
not ordered, that she need not declare a higher value for her cargo, the final
decision of refraining from making such a declaration fell on private

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respondent and should not put the petitioner in estoppel from invoking its
limited liability. 17
In refutation, private respondent explains that the reason for the absence of
a declaration of a higher value was precisely because petitioner's personnel in
San Francisco, U.S.A. advised her not to declare the value of her cargo,
which testimony has not at all been rebutted by petitioner. This being so,
petitioner is estopped from faulting private respondent for her failure to
declare the value of the microwave oven. 18
The validity of provisions limiting the liability of carriers contained in bills of
lading have been consistently upheld for the following reason:
. . . . The stipulation in the bill of lading limiting the common
carrier's liability to the value of goods appearing in the bill,
unless the shipper or owner declares a greater value, is valid
and binding. The limitation of the carrier's liability is
sanctioned by the freedom of the contracting parties to
establish such stipulations, clauses, terms, or conditions as
they may deem convenient, provided they are not contrary to
law, morals, good customs and public policy. . . . . 19

It cannot be denied that the attention of PAL through its personnel in San
Francisco was sufficiently called to the fact that private respondent's cargo
was highly susceptible to breakage as would necessitate the declaration of its
actual value. Petitioner had all the opportunity to check the condition and
manner of packing prior to acceptance for shipment, 22 as well as during the
preparation of the air waybill by PAL's Acceptance Personnel based on
information supplied by the shipper, 23 and to reject the cargo if the contents
or the packing did not meet the company's required specifications. Certainly,
PAL could not have been otherwise prevailed upon to merely accept the
cargo.
While Vicente Villaruz, officer-in-charge of the PAL Import Section at the time
of incident, posited that there may have been inadequate and improper
packing of the cargo, 24 which by itself could be a ground for refusing
carriage of the goods presented for shipment, he nonetheless admitted on
cross-examination that private respondent's cargo was accepted by PAL in its
San Francisco office:
ATTY. VINCO
So that, be that as it may, my
particular concern is that, it is
the
PAL
personnel
that
accepts the baggage?

However, the Court has likewise cautioned against blind reliance on

adhesion contracts where the facts and circumstances warrant that
they should be disregarded. 20
WITNESS
In the case at bar, it will be noted that private respondent signified an
intention to declare the value of the microwave oven prior to shipment, but
was explicitly advised against doing so by PAL's personnel in San Francisco,
U.S.A., as borne out by her testimony in court:

Yes, sir.
ATTY. VINCO

xxx xxx xxx

Also, if he comes from abroad

like in this particular case, it
is the PAL personnel who
accepts the baggage?

Q Did you declare the value of the shipment?

A No. I was advised not to.
WITNESS
Q Who advised you?

Yes, sir.
A At the PAL Air Cargo.

21

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ATTY. VINCO

And you could not show any

document to the Court that
would
suggest
that
this
baggage
was
denied
admittance by your office at
San Francisco?

And the PAL personnel may or

may not accept the baggage?
WITNESS
Yes, sir.

WITNESS
No, I cannot show.

ATTY. VINCO
According to what is stated as
in the acceptance of the
cargo, it is to the best interest
of the airlines, that is, he
want(s) also that the airlines
would be free from any
liability. Could that be one of
the grounds for not admitting
a baggage?
WITNESS

Now, can you show any

document that would suggest
that there was insufficient
pac(k)aging on this particular
baggage from abroad?
WITNESS
No, sir. 25

Safety is number one (1)

xxx xxx xxx
ATTY. VINCO
So,
this
baggage
was
accepted and admitted in San
Francisco?
WITNESS
Yes, sir.
ATTY. VINCO

ATTY. VINCO

In response to the trial court's questions during the trial, he also stated that
while the passenger's declaration regarding the general or fragile character of
the cargo is to a certain extent determinative of its classification, PAL
nevertheless has and exercises discretion as to the manner of handling
required by the nature of the cargo it accepts for carriage. He further opined
that the microwave oven was only a general, not a fragile, cargo which did
not require any special handling. 26
There is no absolute obligation on the part of a carrier to accept a cargo.
Where a common carrier accepts a cargo for shipment for valuable
consideration, it takes the risk of delivering it in good condition as when it
was loaded. And if the fact of improper packing is known to the carrier or its
personnel, or apparent upon observation but it accepts the goods
notwithstanding such condition, it is not relieved of liability for loss or injury
resulting therefrom. 27

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The acceptance in due course by PAL of private respondent's cargo as packed

and its advice against the need for declaration of its actual value operated as
an assurance to private respondent that in fact there was no need for such a
declaration. Petitioner can hardly be faulted for relying on the representations
of PAL's own personnel.
In other words, private respondent Mejia could and would have complied with
the conditions stated in the air waybill, i.e., declaration of a higher value and
payment of supplemental transportation charges, entitling her to recovery of
damages beyond the stipulated limit of US $20 per kilogram of cargo in the
event of loss or damage, had she not been effectively prevented from doing
so upon the advice of PAL's personnel for reasons best known to themselves.
As pointed out by private respondent, the aforestated facts were not denied
by PAL in any of its pleadings nor rebutted by way of evidence presented in
the course of the trial, and thus in effect it judicially admitted that such an
advice was given by its personnel in San Francisco, U.S.A. Petitioner,
therefore, is estopped from blaming private respondent for not declaring the
value of the cargo shipped and which would have otherwise entitled her to
recover a higher amount of damages. The Court's bidding in the Fieldmen's
Insurance case once again rings true:

Her testimony relates what took place thereafter:

ATTY. VINCO
So, after that
what did you do?
WITNESS
After that annotation placed
by Mr. Villaruz, I went home
and I followed it up the next
day with the Clerk of PAL
cargo office.
ATTY. VINCO
What did the clerk tell you?
WITNESS
She told me that the claim
was being processed and I
made several phone calls
after that. I started my
follow-ups February up to
June 1990.

. . . As estoppel is primarily based on the doctrine of good

faith and the avoidance of harm that will befall an innocent
party due to its injurious reliance, the failure to apply it in
this case would result in gross travesty of justice.
We likewise uphold the lower court's finding that private respondent complied
with the requirement for the immediate filing of a formal claim for damages
as required in the air waybill or, at least, we find that there was substantial
compliance therewith.
Private respondent testified that she authorized her sister, Concepcion Dio,
to claim her cargo consisting of a microwave oven since the former had to
take a connecting flight to Bacolod City on the very same afternoon of the
day of her arrival. 28 As instructed, Concepcion Dio promptly proceeded to
PAL's Import Section the next day to claim the oven. Upon discovering that
the glass door was broken, she immediately filed a claim by way of the
baggage freight claim 29 on which was duly annotated the damage sustained
by the oven. 30

inspection,

ATTY. VINCO
And what results did those
follow-ups produce?
WITNESS
All they said (was) that the
document
was
being
processed, that they were
waiting for Atty. Paco to
report to the office and they

TRANSPO | ASS3| 8

could refer the matter to Atty.

Paco.

ATTY. VINCO
And what answer did Atty.
Paco make after you have
reported back to him?

ATTY. VINCO
Who is this Atty. Paco?
WITNESS
WITNESS

They told me that they were

going to process the claim
based on the price that I gave
them but there was no
definite result.

He was the one in-charge of

approving our claim.
ATTY. VINCO
Were you able to see Atty.
Paco?

ATTY. VINCO
How many times did you go
and see Atty. Paco regarding
the claim of your sister?

WITNESS
Yes, sir. I personally visited
Atty. Paco together with my
auntie who was a former PAL
employee.

WITNESS
I made one personal visit and
several follow-up calls. With
Atty. Paco, I made one phone
call but I made several phone
calls with his secretary or the
clerk at PAL cargo office and I
was trying to locate him but
unfortunately, he was always
out of his office. 31

xxx xxx xxx

ATTY. VINCO
So, what did you do, did you
make a report or did you tell
Atty. Paco of your scouting
around
for
a
possible
replacement?
WITNESS
I did call him back at his
office. I made a telephone
call.

PAL claims processor, Rodolfo Pandes, * confirmed having received the

baggage freight claim on January 30, 1990 32 and the referral to and
extended pendency of the private respondent's claim with the office of Atty.
Paco, to wit:
ATTY. VINCO:

TRANSPO | ASS3| 9

Q And you did instruct the claimant to see the

Claim Officer of the company, right?

A Yes, sir.
ATTY. VINCO:

WITNESS:
A Yes, sir.
ATTY. VINCO:
Q And the Claim Officer happened to be Atty.
Paco?

Q You know this fact because a personnel saw

you in one of the pre-trial here when this
case was heard before the sala of Judge
Moscardon, is that correct?
WITNESS:
A Yes.

WITNESS:
ATTY. VINCO:
A Yes, sir.
ATTY. VINCO:
Q And you know that the plaintiff thru her
authorized representative Concepcion Dio,
who is her sister had many times gone to
Atty. Paco, in connection with this claim of her
sister?
WITNESS:
A Yes, sir.
ATTY. VINCO:
Q As a matter of fact even when the
complaint was already filed here in Court the
claimant had continued to call about the
settlement of her claim with Atty. Paco, is
that correct?
xxx xxx xxx
WITNESS:

Q In other words, the plaintiff rather had

never stop(ped) in her desire for your
company to settle this claim, right?
WITNESS:
A Yes, sir. 33
Considering the abovementioned incidents and private respondent Mejia's
own zealous efforts in following up the claim, 34 it was clearly not her fault
that the letter of demand for damages could only be filed, after months of
exasperating follow-up of the claim, on August 13, 1990. 35 If there was any
failure at all to file the formal claim within the prescriptive period
contemplated in the air waybill, this was largely because of PAL's own doing,
the consequences of which cannot, in all fairness, be attributed to private
respondent.
Even if the claim for damages was conditioned on the timely filing of a formal
claim, under Article 1186 of the Civil Code that condition was deemed
fulfilled, considering that the collective action of PAL's personnel in tossing
around the claim and leaving it unresolved for an indefinite period of time
was tantamount to "voluntarily preventing its fulfillment." On grounds of
equity, the filing of the baggage freight claim, which sufficiently informed PAL
of the damage sustained by private respondent's cargo, constituted

TRANSPO | ASS3| 10

substantial compliance with the requirement in the contract for the filing of a
formal claim.
All told, therefore, respondent appellate court did not err in ruling that the
provision on limited liability is not applicable in this case. We, however, note
in passing that while the facts and circumstances of this case do not call for
the direct application of the provisions of the Warsaw Convention, it should
be stressed that, indeed, recognition of the Warsaw Convention does not
preclude the operation of the Civil Code and other pertinent laws in the
determination of the extent of liability of the common carrier. 36
The Warsaw Convention, being a treaty to which the Philippines is a
signatory, is as much a part of Philippine law as the Civil Code, Code of
Commerce and other municipal special laws. 37 The provisions therein
contained, specifically on the limitation of carrier's liability, are operative in
the Philippines but only in appropriate situations.
Petitioner ascribes ultimate error in the award of moral and exemplary
damages and attorney's fees in favor of private respondent in that other than
the statement of the trial court that petitioner acted in bad faith in denying
private respondent's claim, which was affirmed by the Court of Appeals, there
is no evidence on record that the same is true. The denial of private
respondent's claim was supposedly in the honest belief that the same had
prescribed, there being no timely formal claim filed; and despite having been
given an opportunity to submit positive proof of the value of the damaged
microwave oven, no such proof was submitted. Petitioner insists that its
failure to deliver the oven in the condition in which it was shipped could
hardly be considered as amounting to bad faith. 38
Private respondent counters that petitioner's failure to deliver the microwave
oven in the condition in which it was received can be described as gross
negligence amounting to bad faith, on the further consideration that it failed
to prove that it exercised the extraordinary diligence required by law, and
that no explanation whatsoever was given as to why the front glass of the
oven was broken. 39
The trial court justified its award of actual, moral and exemplary damages,
and attorney's fees in favor of private respondent in this wise:

Since the plaintiff's baggage destination was the Philippines,

Philippine law governs the liability of the defendant for
damages for the microwave oven.
The provisions of the New Civil Code on common carriers are
Article(s) 1733, 1735 and 1753 . . . .
xxx xxx xxx
In this case, defendant failed to overcome, not only the
presumption but more importantly, plaintiff's evidence that
defendant's negligence was the proximate cause of the
damages of the microwave oven. Further plaintiff has
established that defendant acted in bad faith when it denied
the former's claim on the ground that the formal claim was
filed beyond the period as provided in paragraph 12 (a-1)
(Exh. "1-C-2") of the Air Waybill (Exh. "1", also Exh. "A"),
when actually, Concepcion Dio, sister of plaintiff has
immediately filed the formal claim upon discovery of the
damage. 40
Respondent appellate court was in full agreement with the trial court's finding
of bad faith on the part of petitioner as a basis for the award of the
aforestated damages, declaring that:
As to the last assigned error, a perusal of the facts and law of
the case reveals that the lower court's award of moral and
exemplary damages, attorney's fees and costs of suit to
plaintiff-appellee is in accordance with current laws and
jurisprudence on the matter. Indeed, aside from the fact that
defendant-appellant acted in bad faith in breaching the
contract and in denying plaintiff's valid claim for damages,
plaintiff-appellee underwent profound distress, sleepless
nights, and anxiety upon knowledge of her damaged
microwave oven in possession of defendant-appellant,
entitling her to the award of moral and exemplary damages
(Cathay Pacific Airways, Ltd. vs. C.A., supra; Arts. 2219 &
2221, New Civil Code), and certainly plaintiff-appellant's
unjust refusal to comply with her valid demand for payment,
thereby also entitling her to reasonable attorney's fees [Art.
2208 (2) and (11), id.]. 41

TRANSPO | ASS3| 11

It will be noted that petitioner never denied that the damage to the
microwave oven was sustained while the same was in its custody. The
possibility that said damage was due to causes beyond the control of PAL has
effectively been ruled out since the entire process in handling of the cargo
from the unloading thereof from the plane, the towing and transfer to the
PAL warehouse, the transfer to the Customs examination area, and its
release thereafter to the shipper was done almost exclusively by, and with
the intervention or, at the very least, under the direct supervision of a
responsible PAL personnel. 42
The very admissions of PAL, through Vicente Villaruz of its Import Section, as
follows:
ATTY. VINCO
So that, you now claim, Mr.
Witness, that from the time
the cargo was unloaded from
the plane until the time it
reaches the Customs counter
where it was inspected, all
the way, it was the PAL
personnel who did all these
things?

ATTY. VINCO
This
locator,
is
he
an
employee of the PAL or the
Customs?
WITNESS
He is a PAL employee.

43

lead to the inevitable conclusion that whatever damage may have

been sustained by the cargo is due to causes attributable to PAL's
personnel or, at all events, under their responsibility.
Moreover, the trial court underscored the fact that petitioner was not able to
overcome the statutory presumption of negligence in Article 1735 which, as a
common carrier, it was laboring under in case of loss, destruction or
deterioration of goods, through proper showing of the exercise of
extraordinary diligence. Neither did it prove that the damage to the
microwave oven was because of any of the excepting causes under Article
1734, all of the same Code. Inasmuch as the subject item was received in
apparent good condition, no contrary notation or exception having been
made on the air waybill upon its acceptance for shipment, the fact that it was
delivered with a broken glass door raises the presumption that PAL's
personnel were negligent in the carriage and handling of the cargo. 44

WITNESS
Yes, however, there is also
what we call the Customs
storekeeper and the Customs
guard along with the cargo.
ATTY. VINCO
You made mention about a
locator?
WITNESS
Yes, sir.

Furthermore, there was glaringly no attempt whatsoever on the part of

petitioner to explain the cause of the damage to the oven. The unexplained
cause of damage to private respondent's cargo constitutes gross carelessness
or negligence which by itself justifies the present award of damages. 45 The
equally unexplained and inordinate delay in acting on the claim upon referral
thereof to the claims officer, Atty. Paco, and the noncommittal responses to
private respondent's entreaties for settlement of her claim for damages belies
petitioner's pretension that there was no bad faith on its part. This
unprofessional indifference of PAL's personnel despite full and actual
knowledge of the damage to private respondent's cargo, just to be
exculpated from liability on pure technicality and bureaucratic subterfuge,
smacks of willful misconduct and insensitivity to a passenger's plight
tantamount to bad faith 46 and renders unquestionable petitioner's liability for
damages. In sum, there is no reason to disturb the findings of the trial court

TRANSPO | ASS3| 12

in this case, especially with its full affirmance by respondent Court of

Appeals.
On this note, the case at bar goes into the annals of our jurisprudence after
six years and recedes into the memories of our legal experience as just
another inexplicable inevitability. We will never know exactly how many manhours went into the preparation, litigation and adjudication of this simple
dispute over an oven, which the parties will no doubt insist they contested as
a matter of principle. One thing, however, is certain. As long as the first letter
in "principle" is somehow outplaced by the peso sign, the courts will always
have to resolve similar controversies although mutual goodwill could have
dispensed with judicial recourse.
IN VIEW OF ALL OF THE FOREGOING, the assailed judgment of respondent
Court of Appeals is AFFIRMED in toto.
SO ORDERED.

TRANSPO | ASS3| 13

G.R. No. 162467

May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO.,
INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari 1 under Rule 45 of the 1997
Rules of Civil Procedure of the 29 October 2003 2 Decision of the Court of
Appeals and the 26 February 2004 Resolution3 of the same court denying
petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao
Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green
Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo
hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea
in favor of consignee Taegu Industries, Inc. Del Monte Produce insured the
shipment under an "open cargo policy" with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance company,
and private respondent McGee & Co. Inc. (McGee), the underwriting
manager/agent of Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau.
The vessel set sail from the port of Davao City and arrived at the port of
Inchon, Korea. It was then discovered upon discharge that some of the cargo
was in bad condition. The Marine Cargo Damage Surveyor of Incok Loss and
Average Adjuster of Korea, through its representative Byeong Yong Ahn
(Byeong), surveyed the extent of the damage of the shipment. In a survey
report, it was stated that 16,069 cartons of the banana shipment and 2,185
cartons of the pineapple shipment were so damaged that they no longer had
commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages
to its shipment. McGees Marine Claims Insurance Adjuster evaluated the
claim and recommended that payment in the amount of $210,266.43 be
made. A check for the recommended amount was sent to Del Monte Produce;
the latter then issued a subrogation receipt 6 to Phoenix and McGee.
Phoenix and McGee instituted an action for damages 7 against Mindanao
Terminal in the Regional Trial Court (RTC) of Davao City, Branch 12. After
trial, the RTC,8 in a decision dated 20 October 1999, held that the only
participation of Mindanao Terminal was to load the cargoes on board the M/V
Mistrau under the direction and supervision of the ships officers, who would
not have accepted the cargoes on board the vessel and signed the foremans
report unless they were properly arranged and tightly secured to withstand
voyage across the open seas. Accordingly, Mindanao Terminal cannot be held
liable for whatever happened to the cargoes after it had loaded and stowed
them. Moreover, citing the survey report, it was found by the RTC that the
cargoes were damaged on account of a typhoon which M/V Mistrau had
encountered during the voyage. It was further held that Phoenix and McGee
had no cause of action against Mindanao Terminal because the latter, whose
services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. The RTC
dismissed the complaint and awarded the counterclaim of Mindanao Terminal
in the amount of P83,945.80 as actual damages and P100,000.00 as
attorneys fees.9 The actual damages were awarded as reimbursement for the
expenses incurred by Mindanao Terminals lawyer in attending the hearings in
the case wherein he had to travel all the way from Metro Manila to Davao
City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court
reversed and set aside 10 the decision of the RTC in its 29 October 2003
decision. The same court ordered Mindanao Terminal to pay Phoenix and

TRANSPO | ASS3| 14

McGee "the total amount of $210,265.45 plus legal interest from the filing of
the complaint until fully paid and attorneys fees of 20% of the claim." 11 It
sustained Phoenixs and McGees argument that the damage in the cargoes
was the result of improper stowage by Mindanao Terminal. It imposed on
Mindanao Terminal, as the stevedore of the cargo, the duty to exercise
extraordinary diligence in loading and stowing the cargoes. It further held
that even with the absence of a contractual relationship between Mindanao
Terminal and Del Monte Produce, the cause of action of Phoenix and McGee
could be based on quasi-delict under Article 2176 of the Civil Code. 12
Mindanao Terminal filed a motion for reconsideration, 13 which the Court of
Appeals denied in its 26 February 200414 resolution. Hence, the present
petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it
was careless and negligent in the loading and stowage of the cargoes
onboard M/V Mistrau making it liable for damages; and, whether Phoenix and
McGee has a cause of action against Mindanao Terminal under Article 2176 of
the Civil Code on quasi-delict. To resolve the petition, three questions have to
be answered: first, whether Phoenix and McGee have a cause of action
against Mindanao Terminal; second, whether Mindanao Terminal, as a
stevedoring company, is under obligation to observe the same extraordinary
degree of diligence in the conduct of its business as required by law for
common carriers15 and warehousemen;16 and third, whether Mindanao
Terminal observed the degree of diligence required by law of a stevedoring
company.
We agree with the Court of Appeals that the complaint filed by Phoenix and
McGee against Mindanao Terminal, from which the present case has arisen,
states a cause of action. The present action is based on quasi-delict, arising
from the negligent and careless loading and stowing of the cargoes belonging
to Del Monte Produce. Even assuming that both Phoenix and McGee have
only been subrogated in the rights of Del Monte Produce, who is not a party
to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Courts
consistent ruling that the act that breaks the contract may be also a tort. 17 In
fine, a liability for tort may arise even under a contract, where tort is that
which breaches the contract18 . In the present case, Phoenix and McGee are
not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal
handled the cargoes belonging to Del Monte Produce. Despite the absence of

contractual relationship between Del Monte Produce and Mindanao Terminal,

the allegation of negligence on the part of the defendant should be sufficient
to establish a cause of action arising from quasi-delict. 19
The resolution of the two remaining issues is determinative of the ultimate
result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not
state the degree of diligence which is to be observed in the performance of
an obligation then that which is expected of a good father of a family or
ordinary diligence shall be required. Mindanao Terminal, a stevedoring
company which was charged with the loading and stowing the cargoes of Del
Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in
the case at bar. There is no specific provision of law that imposes a higher
degree of diligence than ordinary diligence for a stevedoring company or one
who is charged only with the loading and stowing of cargoes. It was neither
alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound
by contractual stipulation to observe a higher degree of diligence than that
required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V
Mistrau.
imposing a higher degree of diligence, 21 on Mindanao Terminal in loading and
stowing the cargoes. The case of Summa Insurance Corporation v. CA, which
involved the issue of whether an arrastre operator is legally liable for the loss
of a shipment in its custody and the extent of its liability, is inapplicable to
the factual circumstances of the case at bar. Therein, a vessel owned by the
National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far
East Ltd. with Semirara Coal Corporation (Semirara) as "notify party." The
shipment, including a bundle of PC 8 U blades, was discharged from the
vessel to the custody of the private respondent, the exclusive arrastre
operator at the South Harbor. Accordingly, three good-order cargo receipts
were issued by NGSC, duly signed by the ship's checker and a representative
of private respondent. When Semirara inspected the shipment at house, it
discovered that the bundle of PC8U blades was missing. From those facts, the
Court observed:
x x x The relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that existing

TRANSPO | ASS3| 15

between the consignee or owner of shipped goods and the common carrier,
or that between a depositor and a warehouseman [22 ]. In the performance of
its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and
Section 3(b) of the Warehouse Receipts Law, respectively. Being the
custodian of the goods discharged from a vessel, an arrastre
operator's duty is to take good care of the goods and to turn them
over to the party entitled to their possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore. 24 Arrastre, a
Spanish word which refers to hauling of cargo, comprehends the handling of
cargo on the wharf or between the establishment of the consignee or shipper
and the ship's tackle. The responsibility of the arrastre operator lasts until the
delivery of the cargo to the consignee. The service is usually performed by
longshoremen. On the other hand, stevedoring refers to the handling of the
cargo in the holds of the vessel or between the ship's tackle and the holds of
the vessel. The responsibility of the stevedore ends upon the loading and
stowing of the cargo in the vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring
function while the private respondent in the Summa case was performing
arrastre function. In the present case, Mindanao Terminal, as a stevedore,
was only charged with the loading and stowing of the cargoes from the pier
to the ships cargo hold; it was never the custodian of the shipment of Del
Monte Produce. A stevedore is not a common carrier for it does not transport
goods or passengers; it is not akin to a warehouseman for it does not store
goods for profit. The loading and stowing of cargoes would not have a far
reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract
and on quasi-delict. The public policy considerations in legally imposing upon
a common carrier or a warehouseman a higher degree of diligence is not
present in a stevedoring outfit which mainly provides labor in loading and
stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of
evidence25 that Mindanao Terminal had acted negligently. Where the evidence
on an issue of fact is in equipoise or there is any doubt on which side the
evidence preponderates the party having the burden of proof fails upon that
issue. That is to say, if the evidence touching a disputed fact is equally
balanced, or if it does not produce a just, rational belief of its existence, or if

it leaves the mind in a state of perplexity, the party holding the affirmative as
to such fact must fail.261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and
McGee. The Court of Appeals did not make any new findings of fact when it
reversed the decision of the trial court. The only participation of Mindanao
Terminal was to load the cargoes on board M/V Mistrau.29 It was not disputed
by Phoenix and McGee that the materials, such as ropes, pallets, and
cardboards, used in lashing and rigging the cargoes were all provided by M/V
Mistrau and these materials meets industry standard.30
It was further established that Mindanao Terminal loaded and stowed the
cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the
stowage plan, a guide for the area assignments of the goods in the vessels
hold, prepared by Del Monte Produce and the officers of M/V Mistrau.31 The
loading and stowing was done under the direction and supervision of the ship
officers. The vessels officer would order the closing of the hatches only if the
loading was done correctly after a final inspection. 32 The said ship officers
would not have accepted the cargoes on board the vessel if they were not
properly arranged and tightly secured to withstand the voyage in open seas.
They would order the stevedore to rectify any error in its loading and
stowing. A foremans report, as proof of work done on board the vessel, was
prepared by the checkers of Mindanao Terminal and concurred in by the Chief
Officer of M/V Mistrau after they were satisfied that the cargoes were
properly loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong Yong
Ahn34 and on the survey report35 of the damage to the cargoes. Byeong,
whose testimony was refreshed by the survey report, 36 found that the cause
of the damage was improper stowage37 due to the manner the cargoes were
arranged such that there were no spaces between cartons, the use of
cardboards as support system, and the use of small rope to tie the cartons
together but not by the negligent conduct of Mindanao Terminal in loading
and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment38 before us, the latter is merely a stevedoring company which was
tasked by Del Monte to load and stow the shipments of fresh banana and
pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it
should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. In other words, the work of the
stevedore was under the supervision of the shipper and officers of the vessel.
Even the materials used for stowage, such as ropes, pallets, and cardboards,

TRANSPO | ASS3| 16

are provided for by the vessel. Even the survey report found that it was
because of the boisterous stormy weather due to the typhoon Seth, as
encountered by M/V Mistrau during its voyage, which caused the shipments
in the cargo hold to collapse, shift and bruise in extensive extent. 39 Even the
deposition of Byeong was not supported by the conclusion in the survey
report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that
damage occurred aboard the carrying vessel during sea transit, being caused
by ships heavy rolling and pitching under boisterous weather while
proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
1994 as described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree
of diligence in loading and stowing the cargoes, which is the ordinary
diligence of a good father of a family, the grant of the petition is in order.
However, the Court finds no basis for the award of attorneys fees in favor of
petitioner.lawphil.net None of the circumstances enumerated in Article 2208
of the Civil Code exists. The present case is clearly not an unfounded civil
action against the plaintiff as there is no showing that it was instituted for the
mere purpose of vexation or injury. It is not sound public policy to set a
premium to the right to litigate where such right is exercised in good faith,
even if erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual
damages to Mindanao Terminal. Although actual expenses were incurred by
Mindanao Terminal in relation to the trial of this case in Davao City, the
lawyer of Mindanao Terminal incurred expenses for plane fare, hotel
accommodations and food, as well as other miscellaneous expenses, as he
attended the trials coming all the way from Manila. But there is no showing
that Phoenix and McGee made a false claim against Mindanao Terminal
resulting in the protracted trial of the case necessitating the incurrence of
expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the decision of the
Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is

hereby REINSTATED MINUS the awards of P100,000.00 as attorneys fees

and P83,945.80 as actual damages.
SO ORDERED.

TRANSPO | ASS3| 17

G.R. No. 84680

February 5, 1996

SUMMA
INSURANCE
CORPORATION, petitioner,
vs.
COURT OF APPEALS and METRO PORT SERVICE, INC., respondents.
DECISION
PANGANIBAN, J.:
Is an arrastre operator legally liable for the loss of a shipment in its custody?
If so, what is the extent of its liability? These are the two questions that this
Court faced in this petition for review on certiorari of the Decision1 of the
Court of Appeals2 in CA-G.R. No. CV 04964 promulgated on April 27, 1988,
which affirmed with modification the decision of the Court of First Instance of
Manila in Civil Case No. 82-13988, ordering petitioner to pay private
respondent a sum of money, with legal interest, attorney's fees and the costs
of the suit.
The Facts
On November 22, 1981, the S/S "Galleon Sapphire", a vessel owned by the
National Galleon Shipping Corporation (NGSC), arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far
East Ltd. with Semirara Coal Corporation (Semirara) as "notify party". The
shipment, including a bundle of PC 8 U blades, was covered by marine
insurance under Certificate No. 82/012-FEZ issued by petitioner and Bill of
Lading No. SF/MLA 1014. The shipment was discharged from the vessel to
the custody of private respondent, formerly known as E. Razon, Inc., the
exclusive arrastre operator at the South Harbor. Accordingly, three goodorder cargo receipts were issued by NGSC, duly signed by the ship's checker
and a representative of private respondent.
On February 24, 1982, the forwarder, Sterling International Brokerage
Corporation, withdrew the shipment from the pier and loaded it on the barge
"Semirara 8104". The barge arrived at its port of destination, Semirara
Island, on March 9, 1982. When Semirara inspected the shipment at its
warehouse, it discovered that the bundle of PC8U blades was missing.

TRANSPO | ASS3| 18

On March 15, 1982, private respondent issued a short-landed certificatestating that the bundle of PC8U blades was already missing when it received
the shipment from the NGSC vessel. Semirara then filed with petitioner,
private respondent and NGSC its claim for P280,969.68, the alleged value of
the lost bundle.
On September 29, 1982, petitioner paid Semirara the invoice value of the
lost shipment. Semirara thereafter executed a release of claim and
subrogation receipt. Consequently, petitioner filed its claims with NGSC and
private respondent but it was unsuccessful.
Petitioner then filed a complaint (Civil Case No. 8213988) with the Regional
Trial Court, Branch XXIV, Manila, against NGSC and private respondent for
collection of a sum of money, damages and attorney's fees.
On August 2, 1984, the trial court rendered a decision absolving NGSC from
any liability but finding private respondent liable to petitioner. The dispositive
portion of the decision reads as follows:
PREMISES CONSIDERED, judgment is hereby rendered ordering
defendant Metro Port Service, Inc. to pay plaintiff Summa Insurance
Corporation the sum of P280,969.68 with legal interest from
November 22, 1982, the date of the filing of the complaint, until full
payment, and attorney's fees in the sum of P20,000.00, with costs of
suit.
The complaint as against defendant National Galleon Shipping
Corporation and the counterclaim interposed by said defendant are
hereby dismissed. (Rollo, p. 32).
In resolving the issue as to who had custody of the shipment when it was
lost, the trial court relied more on the good-order cargo receipts issued by
NGSC than on the short-landed certificate issued by private respondent. The
trial court held:
As between the aforementioned two documentary exhibits, the Court
is more inclined to give credence to the cargo receipts. Said cargo
receipts were signed by a checker of defendant NGSC and a
representative of Metro Port. It is safe to presume that the cargo
receipts accurately describe the quantity and condition of the

shipment when it was discharged from the vessel. Metro Port's

representative would not have signed the cargo receipts if only four
(4) packages were discharged from the vessel and given to the
possession and custody of the arrastre operator. Having been signed
by its representative, the Metro Port is bound by the contents of the
cargo receipts.
On the other hand, the Metro Port's shortlanded certificate could not
be given much weight considering that, as correctly argued by
counsel for defendant NGSC, it was issued by Metro Port alone and
was not countersigned by the representatives of the shipping
company and the consignee. Besides, the certificate was prepared by
Atty. Servillano V. Dolina, Second Deputy General Manager of Metro
Port, and there is no proof on record that he was present at the time
the subject shipment was unloaded from the vessel and received by
the arrastre operator. Moreover, the shortlanded certificate bears the
date of March 15, 1982, more than three months after the discharge
of the cargo from the carrying vessel.
Neither could the Court give probative value to the marine report
(Exhibit "J", also Exhibit "l"-Razon). The attending surveyor who
attended the unloading of the shipment did not take the witness
stand to testify on said report. Although Transnational Adjustment
Co.'s general manager, Mariano C. Remorin, was presented as a
witness, his testimony is not competent because he was not present
at the time of the discharge of the cargo.
Under the foregoing considerations, the Court finds that the one (1)
bundle of PC8U blade in question was not lost while the cargo was in
the custody of the carrying vessel. Considering that the missing
bundle was discharged from the vessel unto the custody of defendant
arrastre operator and considering further that the consignee did not
receive this cargo from the arrastre operator, it is safe to conclude
from these facts that said missing cargo was lost while same was in
the possession and control of defendant Metro Port. Defendant Metro
Port has not introduced competent evidence to prove that the loss
was not due to its fault or negligence. Consequently, only the Metro
Port must answer for the value of the missing cargo. Defendant NGSC
is absolved of any liability for such loss.

TRANSPO | ASS3| 19

On appeal, the Court of Appeals modified the decision of the trial court and
reduced private respondent's liability to P3,500.00 as follows 3:
WHEREFORE, the judgment appealed from is MODIFIED in that
defendant Metro Port Service, Inc., is ordered to pay plaintiff Summa
Insurance Corporation:
(1) the sum of P3,500.00, with legal interest from November 22,
1982, until fully paid; and
(2) the sum of P7,000.00, as and for attorney's fees.
Costs against defendant Metro Port Service, Inc.
Petitioner moved for reconsideration of the said decision but the Court of
Appeals denied the same. Hence, the instant petition.
The Issues
The issues brought by the parties could be stated as follows:
(1) Is the private respondent legally liable for the loss of the
shipment in question?
(2) If so, what is the extent of its liability?
The First Issue: Liability for Loss of Shipment
Petitioner was subrogated to the rights of the consignee. The relationship
therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the
consignee or owner of shipped goods and the common carrier, or that
between a depositor and a warehouseman4. In the performance of its
obligations, an arrastre operator should observe the same degree of diligence
as that required of a common carrier and a warehouseman as enunciated
under Article 1733 of the Civil Code and Section 3(8) of the Warehouse
Receipts Law, respectively. Being the custodian of the goods discharged from
a vessel, an arrastre operator's duty is to take good care of the goods and to
turn them over to the party entitled to their possession.

In this case, it has been established that the shipment was lost while in the
custody of private respondent. We find private respondent liable for the loss.
This is an issue of fact determined by the trial court and respondent Court,
which is not reviewable in a petition under Rule 45 of the Rules of Court.
The Second Issue: Extent of Liability
In the performance of its job, an arrastre operator is bound by the
management contract it had executed with the Bureau of Customs. However,
a management contract, which is a sort of a stipulation pour autrui within the
meaning of Article 1311 of the Civil Code, is also binding on a consignee
because it is incorporated in the gate pass and delivery receipt which must be
presented by the consignee before delivery can be effected to 5 .The insurer,
as successor-in-interest of the consignee, is likewise bound by the
management contract6. Indeed, upon taking delivery of the cargo, a
consignee (and necessarily its successor-in-interest) tacitly accepts the
provisions of the management contract, including those which are intended
to limit the liability of one of the contracting parties, the arrastre operator.7
However, a consignee who does not avail of the services of the arrastre
operator is not bound by the management contract 8. Such an exception to
the rule does not obtain here as the consignee did in fact accept delivery of
the cargo from the arrastre operator.
Section 1, Article VI of the Management Contract between private respondent
and the Bureau of Customs9provides:
1. Responsibility and Liability for Losses and Damages The
CONTRACTOR shall, at its own expense handle all merchandise in the
piers and other designated places and at its own expense perform all
work undertaken by it hereunder diligently and in a skillful
workmanlike and efficient manner; that the CONTRACTOR shall be
solely responsible as an independent CONTRACTOR, and hereby
agrees to accept liability and to promptly pay to the steamship
company, consignee, consignor or other interested party or
parties for the loss, damage, or non-delivery of cargoes to the extent
of the actual invoice value of each package which in no case shall be
more than Three Thousand Five Hundred Pesos (P3,500.00) for each
package unless the value of the importation is otherwise specified or
manifested or communicated in writing together with the invoice
value and supported by a certified packing list to the CONTRACTOR

TRANSPO | ASS3| 20

by the interested party or parties before the discharge of the goods,

as well as all damage that may be suffered on account of loss,
damage, or destruction of any merchandise while in custody or under
the control of the CONTRACTOR in any pier, shed, warehouse, facility
or other designated place under the supervision of the BUREAU, . . .
(Emphasis supplied).
Interpreting a similar provision in the management contract between private
respondent's predecessor, E. Razon, Inc. and the Bureau of Customs, the
Court said in E. Razon Inc. vs. Court of Appeals 10:
Indeed, the provision in the management contract regarding the
declaration of the actual invoice value "before the arrival of the
goods" must be understood to mean a declaration before the arrival
of the goods in the custody of the arrastre operator, whether it be
done long before the landing of the shipment at port, or immediately
before turn-over thereof to the arrastre operator's custody. What is
essential is knowledge beforehand of the extent of the risk to be
undertaken by the arrastre operator, as determined by the value of
the property committed to its care that it may define its responsibility
for loss or damage to such cargo and to ascertain compensation
commensurate to such risk assumed . . . .
In the same case, the Court added that the advance notice of the actual
invoice of the goods entrusted to the arrastre operator is "for the purpose of
determining its liability, that it may obtain compensation commensurable to
the risk it assumes, (and) not for the purpose of determining the degree of
care or diligence it must exercise as a depository or warehouseman" 11 since
the arrastre operator should not discriminate between cargoes of substantial
and small values, nor exercise care and caution only for the handling of
goods announced to it beforehand to be of sizeable value, for that would be
spurning the public service nature of its business.
On the same provision limiting the arrastre operator's liability, the Court held
in Northern Motors, Inc. v. Prince Line12:
Appellant claims that the above quoted provision is null and void, as
it limits the liability of appellee for the loss, destruction or damage of
any merchandise, to P500.00 per package, contending that to sustain
the validity of the limitation would be to encourage acts of conversion
and unjust enrichment on the part of the arrastre operator. Appellant,

however, overlooks the fact that the limitation of appellee's liability

under said provision, is not absolute or unqualified, for if the value of
the merchandise is specified or manifested by the consignee, and the
corresponding arrastre charges are paid on the basis of the declared
value, the limitation does not apply. Consequently, the questioned
provision is neither unfair nor abitrary, as contended, because the
consignee has it in his hands to hold, if he so wishes, the arrastre
operator responsible for the full value of his merchandise by merely
specifying it in any of the various documents required of him, in
clearing the merchandise from the customs. For then, the appellee
arrastre operator, by reasons of the payment to it of a commensurate
charge based on the higher declared value of the merchandise, could
and should take extraordinary care of the special or valuable cargo.
In this manner, there would be mutuality. What would, indeed, be
unfair and arbitrary is to hold the arrastre operator liable for the full
value of the merchandise after the consignee has paid the arrastre
charges only (on) a basis much lower than the true value of the
goods.
In this case, no evidence was offered by petitioner proving the amount of
arrastre fees paid to private respondent so as to put the latter on notice of
the value of the cargo. While petitioner alleged that prior to the loss of the
package, its value had been relayed to private respondent through the
documents the latter had processed, petitioner does not categorically state
that among the submitted documents were the pro forma invoice value and
the certified packing list. Neither does petitioner pretend that these two
documents were prerequisites to the issuance of a permit to deliver or were
attachments thereto. Even the permit to deliver, upon which petitioner
anchors its arguments, may not be considered by the Court because it was
not identified and formally offered in evidence 13.
In civil cases, the burden of proof is on the party who would be defeated if no
evidence is given on either side. Said party must establish his case by a
preponderance of evidence, which means that the evidence as a whole
adduced by one side is superior to that of the other 14. Petitioner having
asserted the affirmative of the issue in this case, it should have presented
evidence required to obtain a favorable judgment.
On the other hand, on top of its denial that it had received the invoice value
and the packing list before the discharge of the shipment, private respondent
was able to prove that it was apprised of the value of the cargo only after its

TRANSPO | ASS3| 21

discharge from the vessel, ironically through petitioner's claim for the lost
package to which were attached the invoice and packing list. All told,
petitioner failed to convince the Court that the requirement of the
management contract had been complied with to entitle it to recover the
actual invoice value of the lost shipment.
Anent the attorney 's fees, we find the award to be proper considering that
the acts and omissions of private respondent have compelled petitioner to
litigate or incur expenses to protect its rights 15. However, as to the amount
of the award, we find no reason to re-examine the appellate court's
determination thereon in view of the amount of the principal obligation.
Otherwise, we would be disregarding the doctrine that discretion, when well
exercised, should not be disturbed.
WHEREFORE, the petition for review on certiorari is DENIED and the decision
of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 83613 February 21, 1990

TRANSPO | ASS3| 22

FIREMAN'S
FUND
INSURANCE
CO., petitioner,
vs.
METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), respondent.

The shipment arrived at the port of Manila on June 3, 1979 and was turned
over complete and in good order condition to the arrastre operator E. Razon
Inc. (now Metro Port Service Inc. and referred to as the ARRASTRE).

Dollete, Blanco, Ejercito & Associates for petitioner.

At about 10:20 in the morning of June 8, 1979, a tractor operator, named

Danilo Librando and employed by the ARRASTRE, was ordered to transfer the
shipment to the Equipment Yard at Pier 3. While Librando was maneuvering
the tractor (owned and provided by Maersk Line) to the left, the cargo fell
from the chassis and hit one of the container vans of American President
Lines. It was discovered that there were no twist lock at the rear end of the
chassis where the cargo was loaded.

Cruz, Durian, Agabin, Atienza, Alday & Tuason for respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision and resolution denying
reconsideration of the Court of Appeals in CA-G.R. CV No. 00673 entitled
"Fireman's Fund Insurance Co. v. Maersk Line, Compaia General de Tabacos
de Filipinas and E. Razon, Inc."
The facts are as follows:
Vulcan Industrial and Mining Corporation imported from the United States
several machineries and equipment which were loaded on board the SIS
Albert Maersk at the port of Philadelphia, U.S.A., and transhipped for Manila
through the vessel S/S Maersk Tempo.
The cargo which was covered by a clean bill of lading issued by Maersk Line
and Compania General de Tabacos de Filipinas (referred to as the CARRIER)
consisted of the following:
xxx xxx xxx
1 piece truck mounted core drill
1 piece trailer mounted core drill
1 (40') container of 321 pieces steel tubings
1 (40') container of 170 pieces steel tubings
1 (40') container of 13 cases, 3 crates, 2 pallets and 26
mining machinery parts. (Rollo, p. 4)

There was heavy damage to the cargo as the parts of the machineries were
broken, denied, cracked and no longer useful for their purposes.
The value of the damage was estimated at P187,500.00 which amount was
paid by the petitioner insurance company to the consignee, Vulcan Industrial
and Mining Corporation.
The petitioner, under its subrogation rights, then filed a suit against Maersk
Line, Compania General de Tabacos (as agent) and E. Razon, Inc., for the
recovery of the amount it paid the assured under the covering insurance
policy. On October 26, 1980, the trial court rendered judgment, the decretal
portion of which reads as follows:
xxx xxx xxx
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants by ordering the latter to
pay, jointly and severally, the plaintiff the sum of
P187,500.00, with legal interest thereon from August 29,
1980 until full payment thereof.
Defendants are also ordered to pay, in solidum, the sum of
P10,000.00 as attorney's fees to the plaintiff, and to pay the
costs of this suit.
There shall be no award for exemplary damages in favor of
the plaintiff, for the reason that defendants are probably

TRANSPO | ASS3| 23

acting in good faith in resisting the complaint. (Rollo, pp. 4546)

All the defendants appealed to the Court of Appeals. Eventually, Maersk Line
and Compania General de Tabacos negotiated with the petitioner for the
settlement of the latter's claim and no longer pursued their appeal.
On the appeal of the ARRASTRE, the Court of Appeals rendered a decision
with the following dispositive portion:
WHEREFORE, foregoing premises considered, the decision of
the court a quo insofar as herein defendant-appellant is
concerned is REVERSED It is hereby ordered that the
complaint against herein defendant-appellant be dismissed.
No costs. (Rollo, p. 50)
Reconsideration of the decision was denied in a resolution dated May 23,
1988.
Hence, the present recourse.
The petitioner raises this lone assignment of error:
THE HONORABLE COURT OF APPEALS ERRED IN LIMITING
LIABILITY SOLELY ON CO-DEFENDANT MAERSK LINES,
CONTRARY TO THE FINDINGS OF FACTS OF THE TRIAL
COURT A QUO AND OTHER FACTORS SHOWING CLEAR JOINT
LIABILITY OF DEFENDANTS IN SOLIDUM.
There is merit in this petition.
This Court has held in a number of cases that findings of fact of the Court of
Appeals are, in general, conclusive on the Supreme Court when supported by
the evidence on record. The rule is not absolute, however, and allows
exceptions, which we find present in the case at bar. The respondent court's
findings of facts are contrary to those of the trial court and appear to be
contradicted by the evidence on record thus calling for our review. (Metro
Port Service, Inc. v. Court of Appeals, 131 SCRA 365 [1984]).

In absolving the ARRASTRE, the respondent Court ruled that although

Librando was an employee of the ARRASTRE, since he was included in its
payroll, he was technically and strictly an employee of Maersk Line in this
particular instance when he drove the tractor admittedly owned by the
foreign shipping line. The Court ruled that he received instructions not from
Metro Port but from Maersk Line relative to this job. He was performing a
duty that properly pertained to Maersk Line which, for lack of a tractor
operator, had to get or hire from the ARRASTRE as per their management
contract. Nevertheless, Librando was not remiss in his duty as tractor-driver
considering that the proximate and direct cause of the damage was the
absence of twist locks in the rear end of the chassis which Maersk Line failed
to provide. The respondent court thereby placed the entire burden of liability
on the owner of the Chassis which in this case was the foreign shipping
company, Maersk Line.
The foregoing conclusion disregarded the pertinent findings of facts made by
the lower court which are supported by the evidence on record, to wit:
1. The accident occurred while the cargoes were in the
custody of the arrastre operator.
2. The tractor operator was an employee of the arrastre
operator.
xxx xxx xxx
4. By the management contract inasmuch as the foreign
shipping company has no tractor operator in its employ, the
arrastre provided the operator.
xxx xxx xxx
8. It was likewise the responsibility of the tractor operator, an
employee of the arrastre operator to inspect the chassis and
tractor before driving the same, but which obligation the
operator failed to do.
9. It was also the responsibility of the supervisor in the
employ of the arrastre operator to see that their men

TRANSPO | ASS3| 24

complied with their respective tasks, which included the

examination if the chassis has twist lock. (Rollo, pp. 44-45)
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad
Co., 19 SCRA 5 [1967]). The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is
the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the goods in
good condition to the consignee.

damage that may be suffered on account of loss, damage, or

destruction of any merchandise while in custody or under the
control of the CONTRACTOR in any pier, shed, warehouse,
facility; or other designated place under the supervision of
the BUREAU, but said CONTRACTOR shall not be responsible
for the condition of the contents of any package received nor
for the weight, nor for any loss, injury or damage to the said
cargo before or while the goods are being received or
remained on the piers, sheds, warehouse or facility if the
loss, injury or damage is caused by force majeure, or other
cause beyond the CONTRACTORS control or capacity to
prevent or remedy; ...
xxx xxx xxx

In general, the nature of the work of an arrastre operator covers the handling
of cargoes at piers and wharves (Visayan Cebu Terminal Co., Inc. v.
Commissioner of Internal Revenue, 13 SCRA 357 [1965]). This is embodied
in the Management Contract drawn between the Bureau of Customs and E.
Razon Inc., as the Arrastre Operator. The latter agreed to bind itself, to wit:
CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES
1. Responsibility and Liability for Losses and
Damages;
Claims. The CONTRACTOR shall, at its own expense handle
all merchandise in the piers and other designated places and
at its own expense perform all work undertaken by it
hereunder diligently and in skillful workmanlike and efficient
manner; That the CONTRACTOR shall be solely responsible as
an independent CONTRACTOR, and hereby agrees to accept
liability and to promptly pay to the s hip company, consignee,
consignor or other interested party or parties for the loss,
damage, or non-delivery of cargoes to the extent of the
actual invoice value of each package which in no case shall be
more than Three Thousand Five Hundred Pesos (P3,500.00)
for each package unless the value of the importation is
otherwise specified or manifested or communicated in writing
together with the invoice value and supported by a certified
packing list to the CONTRACTOR by the interested party or
parties before the discharge of the goods, as well as all

The CONTRACTOR shall be solely responsible for any and all

injury or damage that may arise on account of the negligence
or carelessness of the CONTRACTOR, its agent or employees
in the performance of the undertaking by it to be performed
under the terms of the contract, and the CONTRACTOR
hereby agree to and hold the BUREAU at all times harmless
therefrom and whole or any part thereof. (Original Records,
pp. 110-112; Emphasis supplied)
To carry out its duties, the ARRASTRE is required to provide cargo handling
equipment which includes among others trailers, chassis for containers. In
some cases, however, the shipping line has its own cargo handling
equipment.
In this particular instance, the records reveal that Maersk Line provided the
chassis and the tractor which carried the carried the subject shipment. It
merely requested the ARRASTRE to dispatch a tractor operator to drive the
tractor inasmuch as the foreign shipping line did not have any truck operator
in its employ. Such arrangement is allowed between the ARRASTRE and the
CARRIER pursuant to the Management Contract. It was clearly one of the
services offered by the ARRASTRE. We agree with the petitioner that it is the
ARRASTRE which had the sole discretion and prerogative to hire and assign
Librando to operate the tractor. It was also the ARRASTRE's sole decision to
detail and deploy Librando for the particular task from among its pool of
tractor operators or drivers. It is, therefore, inacurrate to state that Librando
should be considered an employee of Maersk Line on that specific occasion.

TRANSPO | ASS3| 25

Handling cargo is mainly the s principal work so its driver/operators,

"cargadors", or employees should observe the stand" and indispensable
measures necessary to prevent losses and damage to shipments under its
custody. Since the ARRASTRE offered its drivers for the operation of tractors
in the handling of cargo and equipment, then the ARRASTRE should see to it
that the drivers under its employ must exercise due diligence in the
performance of their work. From the testimonies of witnesses presented, we
gather that driver/operator Librando was remiss in his duty. Benildez Cepeda,
an arrastre-investigator of Metro Port admitted that Librando as tractoroperator should first have inspected the chassis and made sure that the
cargo was securely loaded on the chassis. He testified:
xxx xxx xxx
Q My question is in your investigation report
including enclosures, the principal reason was
that the chassis has no rear twist lock?
A Yes, sir.
Q Did you investigate whether the driver
Librando inspected the the truck before he
operated the same whether there was rear
twist lock or not?
A I have asked him about that question
whether he had inspected the has any rear
twist lock and the answer he did not inspect,
sir.
Q As a operator, do you agree with me that it
is the duty also of Librando to see to it that
the truck is in good condition and fit to travel,
is that correct?
A Yes, sir.
Q And as a tractor operator it is his duty to
see to it that the van mounted on top of the
tractor was properly is that correct?

A Yes, sir. (At pp. 18-20, T.S.N., February 17,

1982)
Again Danilo Librando also admitted that it was usually his practice to inspect
not only the tractor but the chassis as well but failed to do so in this
particular instance.
xxx xxx xxx
Q You mentioned of the absence of a twist
lock. Will you tell us where is this twist lock
supposed to be located?
A At the rear end of the chassis.
Q Before you operated the tractor which
carried the mounted cord drill truck and
trailer did you examine if the chasiss had any
twist locks?
A No, sir, because I presumed that it had
twist locks and I was confident that it had
twist locks.
Q As a matter of procedure and according to
you, you examined the tractor, do you not
make it a practice to examine whether the
chassis had any twist locks?
A I used to do that but in that particular
instance I thought it had already its twist
locks. (p. 8, T.S.N., October 5, 1981)
It is true that Maersk Line is also at fault for not providing twist locks on the
chassis. However, we find the testimony of Manuel Heraldez who is the Motor
Pool General Superintendent of Metro Port rather significant. On crossexamination, he stated that:
Q In your experience, Mr. witness, do you
know which is ahead of the placing of the

TRANSPO | ASS3| 26

container van or the placing of the twist lock

on the chassis?

to the arrastre operator and in fact processed by its chief claims examiner
based on the documents submitted.

A The twist lock is already permanently

attached on the chassis, sir.

WHEREFORE, the appealed judgment of respondent Court of Appeals is

hereby REVERSED and SET ASIDE and that of the Court of First Instance of
Manila, 6th Judicial District, Branch II is REINSTATED. No costs.

Q Earlier, you mentioned that you cannot see

the twist lock if the chassis is loaded, correct?
A Yes, sir.
Q Do you what to impress upon the
Honorable Court that, by mere looking at a
loaded chassis, the twist lock cannot be seen
by the naked eye? Because the van contained
a hole in which the twist lock thus entered
inside the hold and locked itself. It is already
loaded. So. you cannot no longer see it.
Q But if you closely examine this chassis
which has a load of container van. You can
see whether a twist lock is present or not?
A Yes, sir. A twist lock is present.
Q In other words, if the driver of this tractor
closely examined this van, he could have
detected whether or not a twist lock is
present?
A Yes, sir. (pp. 33-35, T.S.N., March 23,
1982; Emphasis supplied)
Whether or not the twist lock can be seen by the naked eye when the cargo
has been loaded on the chassis, an efficient and diligent tractor operator
must nevertheless check if the cargo is securely loaded on the chassis.
We, therefore, find Metro Port Service Inc., solidarily liable in the instant case
for the negligence of its employee. With respect to the limited liability of the
ARRASTRE, the records disclose that the value of the importation was relayed

SO ORDERED.

TRANSPO | ASS3| 27

BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM
PHILIPPINES SHIPPING, INC., respondents.
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and
style Ben-Mac Enterprises, shipped on board the vessel Nen Jiang, owned
and operated by respondent China Ocean Shipping Co., through local agent
respondent Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500
boxes of watermelons valued at US$5,950.00 covered by Bill of Lading No.
HKG 99012 and exported through Letter of Credit No. HK 1031/30 issued by
National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and
1,611 boxes of fresh mangoes with a value of US$14,273.46 covered by Bill
of Lading No. HKG 99013 and exported through Letter of Credit No. HK
1032/30 also issued by PAKISTAN BANK. The Bills of Lading contained the
following pertinent provision: "One of the Bills of Lading must be surrendered
duly endorsed in exchange for the goods or delivery order.1 The shipment
was bound for Hongkong with PAKISTAN BANK as consignee and Great
Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading
and commercial invoices were submitted to petitioner's depository bank,
Consolidated Banking Corporation (hereinafter SOLIDBANK), which paid
petitioner
in
advance
the
total
value
of
the
shipment
of
US$20,223.46.1wphi1.nt
Upon arrival in Hongkong, the shipment was delivered by respondent
WALLEM directly to GPC, not to PAKISTAN BANK, and without the required
bill of lading having been surrendered. Subsequently, GPC failed to pay
PAKISTAN BANK such that the latter, still in possession of the original bills of
lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK
already pre-paid petitioner the value of the shipment, it demanded payment
from respondent WALLEM through five (5) letters but was refused. Petitioner
was thus allegedly constrained to return the amount involved to SOLIDBANK,
then demanded payment from respondent WALLEM in writing but to no avail.

G.R. No. 125524

August 25, 1999

On 25 September 1991 petitioner sought collection of the value of the

shipment of US$20,223.46 or its equivalent of P546,033.42 from

TRANSPO | ASS3| 28

respondents before the Regional Trial Court of Manila, based on delivery of

the shipment to GPC without presentation of the bills of lading and bank
guarantee.
Respondents contended that the shipment was delivered to GPC without
presentation of the bills of lading and bank guarantee per request of
petitioner himself because the shipment consisted of perishable goods. The
telex dated 5 April 1989 conveying such request read
AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT
TO RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L 2 and bank
guarantee since for prepaid shipt ofrt charges already fully paid our
end . . . .3
Respondents explained that it is a standard maritime practice, when
immediate delivery is of the essence, for the shipper to request or instruct
the carrier to deliver the goods to the buyer upon arrival at the port of
destination without requiring presentation of the bill of lading as that usually
takes time. As proof thereof, respondents apprised the trial court that for the
duration of their two-year business relationship with petitioner concerning
similar shipments to GPC deliveries were effected without presentation of the
bills of lading.4 Respondents advanced next that the refusal of PAKISTAN
BANK to pay the letters of credit to SOLIDBANK was due to the latter's failure
to submit a Certificate of Quantity and Quality. Respondents counterclaimed
for attorney's fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and
severally, the following amounts: (1) P546,033.42 plus legal interest from 6
April 1989 until full payment; (2) P10,000.00 as attorney's fees; and, (3) the
costs. The counterclaims were dismissed for lack of merit. 5 The trial court
opined that respondents breached the provision in the bill of lading requiring
that "one of the Bills of Lading must be surrendered duly endorsed in
exchange for the goods or delivery order," when they released the shipment
to GPC without presentation of the bills of lading and the bank guarantee that
should have been issued by PAKISTAN BANK in lieu of the bills of lading. The
trial court added that the shipment should not have been released to GPC at
all since the instruction contained in the telex was to arrange delivery to the
respective consignees and not to any party. The trial court observed that the
only role of GPC in the transaction as notify party was precisely to be notified
of the arrival of the cargoes in Hongkong so it could in turn duly advise the
consignee.

Respondent Court of Appeals appreciated the evidence in a different manner.

According to it, as established by previous similar transactions between the
parties, shipped cargoes were sometimes actually delivered not to the
consignee but to notify party GPC without need of the bills of lading or bank
guarantee.6 Moreover, the bills of lading were viewed by respondent court to
have been properly superseded by the telex instruction and to implement the
instruction, the delivery of the shipment must be to GPC, the real
importer/buyer of the goods as shown by the export invoices, 7 and not to
PAKISTAN BANK since the latter could very well present the bills of lading in
its possession; likewise, if it were the PAKISTAN BANK to which the cargoes
were to be strictly delivered it would no longer be proper to require a bank
guarantee. Respondent court noted that besides, GPC was listed as a
consignee in the telex. It observed further that the demand letter of
petitioner to respondents never complained of misdelivery of goods. Lastly,
respondent court found that petitioner's claim of having reimbursed the
amount involved to SOLIDBANK was unsubstantiated. Thus, on 13 March
1996 respondent court set aside the decision of the trial court and dismissed
the complaint together with the counterclaims. 8 On 5 July 1996
reconsideration was denied.9
Petitioner submits that the fact that the shipment was not delivered to the
consignee as stated in the bill of lading or to a party designated or named by
the consignee constitutes a misdelivery thereof. Moreover, petitioner argues
that from the text of the telex, assuming there was such an instruction, the
delivery of the shipment without the required bill of lading or bank guarantee
should be made only to the designated consignee, referring to PAKISTAN
BANK.
We are not persuaded. The submission of petitioner that "the fact that the
shipment was not delivered to the consignee as stated in the Bill of Lading or
to a party designated or named by the consignee constitutes a misdelivery
thereof" is a deviation from his cause of action before the trial court. It is
clear from the allegation in his complaint that it does not deal with
misdelivery of the cargoes but of delivery to GPC without the required bills of
lading and bank guarantee
6. The goods arrived in Hongkong and were released by the
defendant Wallem directly to the buyer/notify party, Great Prospect
Company and not to the consignee, the National Bank of Pakistan,
Hongkong, without the required bills of lading and bank guarantee for

TRANSPO | ASS3| 29

the release of the shipment issued by the consignee of the goods . . .

.10

The real issue is whether respondents are liable to petitioner for releasing the
goods to GPC without the bills of lading or bank guarantee.

Even going back to an event that transpired prior to the filing of the present
case or when petitioner wrote respondent WALLEM demanding payment of
the value of the cargoes, misdelivery of the cargoes did not come into the
picture

Respondents submitted in evidence a telex dated 5 April 1989 as basis for

delivering the cargoes to GPC without the bills of lading and bank guarantee.
The telex instructed delivery of various shipments to the respective
consignees without need of presenting the bill of lading and bank guarantee
per the respective shipper's request since "for prepaid shipt ofrt charges
already fully paid." Petitioner was named therein as shipper and GPC as
consignee with respect to Bill of Lading Nos. HKG 99012 and HKG 99013.
Petitioner disputes the existence of such instruction and claims that this
evidence is self-serving.

We are writing you on behalf of our client, Ben-Mac Enterprises who

informed us that Bills of Lading No. 99012 and 99013 with a total
value of US$20,223.46 were released to Great Prospect, Hongkong
without the necessary bank guarantee. We were further informed
that the consignee of the goods, National Bank of Pakistan,
Hongkong, did not release or endorse the original bills of lading. As a
result thereof, neither the consignee, National Bank of Pakistan,
Hongkong, nor the importer, Great Prospect Company, Hongkong,
paid our client for the goods . . . .11
At any rate, we shall dwell on petitioner's submission only as a prelude to our
discussion on the imputed liability of respondents concerning the shipped
goods. Article 1736 of the Civil Code provides
Art. 1736. The extraordinary responsibility of the common carriers
lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.12
We emphasize that the extraordinary responsibility of the common carriers
lasts until actual or constructive delivery of the cargoes to the consignee or
to the person who has a right to receive them. PAKISTAN BANK was indicated
in the bills of lading as consignee whereas GPC was the notify party.
However, in the export invoices GPC was clearly named as buyer/importer.
Petitioner also referred to GPC as such in his demand letter to respondent
WALLEM and in his complaint before the trial court. This premise draws us to
conclude that the delivery of the cargoes to GPC as buyer/importer which,
conformably with Art. 1736 had, other than the consignee, the right to
receive them14 was proper.

From the testimony of petitioner, we gather that he has been transacting with
GPC as buyer/importer for around two (2) or three (3) years already. When
mangoes and watermelons are in season, his shipment to GPC using the
facilities of respondents is twice or thrice a week. The goods are released to
GPC. It has been the practice of petitioner to request the shipping lines to
immediately release perishable cargoes such as watermelons and fresh
mangoes through telephone calls by himself or his "people." In transactions
covered by a letter of credit, bank guarantee is normally required by the
shipping lines prior to releasing the goods. But for buyers using telegraphic
transfers, petitioner dispenses with the bank guarantee because the goods
are already fully paid. In his several years of business relationship with GPC
and respondents, there was not a single instance when the bill of lading was
first presented before the release of the cargoes. He admitted the existence
of the telex of 3 July 1989 containing his request to deliver the shipment to
the consignee without presentation of the bill of lading 15 but not the telex of 5
April 1989 because he could not remember having made such request.
Consider pertinent portions of petitioner's testimony
Q: Are you aware of any document which would indicate or show that
your request to the defendant Wallem for the immediate release of
your fresh fruits, perishable goods, to Great Prospect without the
presentation of the original Bill of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I
requested immediate release of the cargo because there was
immediate payment.

TRANSPO | ASS3| 30

Q: And you are referring, therefore, to this copy Telex release that
you mentioned where your Company's name appears Ben-Mac?

A: Telegraphic transfer, it means advance payment that I am already

fully paid . . . .

Atty. Hernandez: Just for the record, Your Honor, the witness
is showing a Bill of Lading referring to SKG (sic) 93023 and
93026 with Great Prospect Company.

Q: Mr. Macam, with regard to Wallem and to Great Prospect, would

you know and can you recall that any of your shipment was released
to Great Prospect by Wallem through telegraphic transfer?

Atty. Ventura:

A: I could not recall but there were so many instances sir.

Q: Is that the telegraphic transfer?

Q: Mr. Witness, do you confirm before this Court that in previous

shipments of your goods through Wallem, you requested Wallem to
release immediately your perishable goods to the buyer?

A: Yes, actually, all the shippers partially request for the immediate
release of the goods when they are perishable. I thought Wallem
Shipping Lines is not neophyte in the business. As far as LC is
concerned, Bank guarantee is needed for the immediate release of
the goods . . . .15
Q: Mr. Witness, you testified that if is the practice of the shipper of
the perishable goods to ask the shipping lines to release immediately
the shipment. Is that correct?

A: Yes, that is the request of the shippers of the perishable goods . . .

.16
Q: Now, Mr. Macam, if you request the Shipping Lines for the release
of your goods immediately even without the presentation of OBL,
how do you course it?
A: Usually, I call up the Shipping Lines, sir . . . . 17

A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping
lines to release the perishable goods to the importer of goods without
a Bill of Lading or Bank guarantee?
A: No, it cannot be without the Bank Guarantee.

Q: You also testified you made this request through phone calls. Who
of you talked whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let
your people to call? (sic)

Atty. Hernandez:
A: Not everytime, sir.
Q: Can you tell us an instance when you will allow the release of the
perishable goods by the shipping lines to the importer without the
Bank guarantee and without the Bill of Lading?

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem . . . . 18

A: As far as telegraphic transfer is concerned.

Q: Can you explain (to) this Honorable Court what telegraphic
transfer is?

Against petitioner's claim of "not remembering" having made a request for

delivery of subject cargoes to GPC without presentation of the bills of lading
and bank guarantee as reflected in the telex of 5 April 1989 are damaging
disclosures in his testimony. He declared that it was his practice to ask the

TRANSPO | ASS3| 31

shipping lines to immediately release shipment of perishable goods through

telephone calls by himself or his "people." He no longer required presentation
of a bill of lading nor of a bank guarantee as a condition to releasing the
goods in case he was already fully paid. Thus, taking into account that
subject shipment consisted of perishable goods and SOLIDBANK pre-paid the
full amount of the value thereof, it is not hard to believe the claim of
respondent WALLEM that petitioner indeed requested the release of the
goods to GPC without presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was "to deliver the shipment to
respective consignees." And so petitioner argues that, assuming there was
such an instruction, the consignee referred to was PAKISTAN BANK. We find
the argument too simplistic. Respondent court analyzed the telex in its
entirety and correctly arrived at the conclusion that the consignee referred to
was not PAKISTAN BANK but GPC

absence of privity of contract between itself and respondents. That is why

petitioner conveniently took the cudgels for the bank.
In view of petitioner's utter failure to establish the liability of respondents
over the cargoes, no reversible error was committed by respondent court in
ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent Court of
Appeals of 13 March 1996 dismissing the complaint of petitioner Benito
Macam and the counterclaims of respondents China Ocean Shipping Co.
and/or Wallem Philippines Shipping, Inc., as well as its resolution of 5 July
1996 denying reconsideration, is AFFIRMED.1wphi1.nt
SO ORDERED.

There is no mistake that the originals of the two (2) subject Bills of
Lading are still in the possession of the Pakistani Bank. The appealed
decision affirms this fact. Conformably, to implement the said telex
instruction, the delivery of the shipment must be to GPC, the notify
party or real importer/buyer of the goods and not the Pakistani Bank
since the latter can very well present the original Bills of Lading in its
possession. Likewise, if it were the Pakistani Bank to whom the
cargoes were to be strictly delivered, it will no longer be proper to
require a bank guarantee as a substitute for the Bill of Lading. To
construe otherwise will render meaningless the telex instruction.
After all, the cargoes consist of perishable fresh fruits and immediate
delivery thereof to the buyer/importer is essentially a factor to reckon
with. Besides, GPC is listed as one among the several consignees in
the telex (Exhibit 5-B) and the instruction in the telex was to arrange
delivery of A/M shipment (not any party) to respective consignees
without presentation of OB/L and bank guarantee . . . . 20
Apart from the foregoing obstacles to the success of petitioner's cause,
petitioner failed to substantiate his claim that he returned to SOLIDBANK the
full amount of the value of the cargoes. It is not far-fetched to entertain the
notion, as did respondent court, that he merely accommodated SOLIDBANK
in order to recover the cost of the shipped cargoes from respondents. We
note that it was SOLIDBANK which initially demanded payment from
respondents through five (5) letters. SOLIDBANK must have realized the

G.R. No. L-28673 October 23, 1984

SAMAR
MINING
vs.
NORDEUTSCHER
LLOYD
INC., defendants-appellants.

COMPANY,
and

C.F.

INC., plaintiff-appellee,
SHARP

&

COMPANY,

TRANSPO | ASS3| 32

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

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of
Optima welded wedge wire sieves was received by the carrier
NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany,
while the freight had been prepaid up to the port of destination or the "port
of discharge of goods in this case, Davao, the carrier undertook to transport
the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of
discharge from ship-Manila. Thereafter, the goods were to be transshipped by
the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the
following phrase printed below the space provided for the port of discharge
from ship", thus: t.hqw
if goods are to be transshipped at port of discharge, show
destination under the column for "description of contents" 7
As instructed above, the following words appeared typewritten under the
column for "description of contents": t.hqw
PORT
OF
DISCHARGE
FREIGHT PREPAID 8

OF

GOODS:

DAVAO

It is clear, then, that in discharging the goods from the ship at the port of
Manila, and delivering the same into the custody of AMCYL, the bonded
warehouse, appellants were acting in full accord with the contractual
stipulations contained in Bill of Lading No. 18. The delivery of the goods to
AMCYL was part of appellants' duty to transship the goods from Manila to
their port of destination-Davao. The word "transship" means: t.hqw
to transfer for further transportation from one ship or
conveyance to another 9
The extent of appellant carrier's responsibility and/or liability in the
transshipment of the goods in question are spelled out and delineated under
Section 1, paragraph 3 of Bill of Lading No. 18, to wit: t.hqw
The carrier shall not be liable in any capacity whatsoever for
any delay, loss or damage occurring before the goods enter

TRANSPO | ASS3| 33

ship's tackle to be loaded or after the goods leave ship's

tackle to be discharged, transshipped or forwarded ...
(Emphasis supplied)
and in Section 11 of the same Bill, which provides: t.hqw
Whenever the carrier or m aster may deem it advisable or in
any case where the goods are placed at carrier's disposal at
or consigned to a point where the ship does not expect to
load or discharge, the carrier or master may, without notice,
forward the whole or any part of the goods before or after
loading at the original port of shipment, ... This carrier, in
making arrangements for any transshipping or forwarding
vessels or means of transportation not operated by this
carrier shall be considered solely the forwarding agent of the
shipper and without any other responsibility whatsoever even
though the freight for the whole transport has been collected
by him. ... Pending or during forwarding or transshipping the
carrier may store the goods ashore or afloat solely as agent
of the shipper and at risk and expense of the goods and the
carrier shall not be liable for detention nor responsible for the
acts, neglect, delay or failure to act of anyone to whom the
goods are entrusted or delivered for storage, handling or any
service incidental thereto (Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by
claiming that they have discharged the same in full and good condition unto
the custody of AMCYL at the port of discharge from ship Manila, and
therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of
lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading
exempting the carrier from liability for loss or damage to the goods when the
same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said
case matches the present controversy not only as to the material facts but
more importantly, as to the stipulations contained in the bill of lading
concerned. As if to underline their awesome likeness, the goods in question
in both cases were destined for Davao, but were discharged from ship in
Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are
substantially the same as the subject stipulations before Us, provides: t.
hqw
The carrier shall not be liable in any capacity whatsoever for
any loss or damage to the goods while the goods are not in
its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any
person for or in connection with all transshipping or
forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated
by the carrier, shall be considered solely the agent of the
shipper and consignee and without any other responsibility
whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs,
public order or public policy, We sustained their validity 13 Applying said
stipulations as the law between the parties in the aforecited case, the Court
concluded that: t.hqw
... The short form Bill of Lading ( ) states in no uncertain
terms that the port of discharge of the cargo is Manila, but
that the same was to be transshipped beyond the port of
discharge to Davao City. Pursuant to the terms of the long
form Bill of Lading ( ), appellee's responsibility as a common
carrier ceased the moment the goods were unloaded in
Manila and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. ...
(Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the
above pronouncements, and in conformity with the pertinent provisions of
the New Civil Code, Section 11 of Bill of Lading No. 18 and the third
paragraph of Section 1 thereof are valid stipulations between the parties
insofar as they exempt the carrier from liability for loss or damage to the
goods while the same are not in the latter's actual custody.

TRANSPO | ASS3| 34

The liability of the common carrier for the loss, destruction or deterioration of
goods transported from a foreign country to the Philippines is governed
primarily by the New Civil Code. 15 In all matters not regulated by said
Code, the rights and obligations of common carriers shall be governed by the
Code of Commerce and by special laws. 16 A careful perusal of the provisions
of the New Civil Code on common carriers (Section 4, Title VIII, Book IV)
directs our attention to Article 1736 thereof, which reads: t.hqw
Article 1736. The extraordinary responsibility of the common
carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the
person who has a right to receive them, without prejudice to
the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus: t.hqw
Article 1738. The extraordinary liability of the common carrier
continues to be operative even during the time the goods are
stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the
arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The
said article contemplates a situation where the goods had already reached
their place of destination and are stored in the warehouse of the carrier. The
subject goods were still awaiting transshipment to their port of destination,
and were stored in the warehouse of a third party when last seen and/or
heard of. However, Article 1736 is applicable to the instant suit. Under said
article, the carrier may be relieved of the responsibility for loss or damage to
the goods upon actual or constructive delivery of the same by the carrier to
the consignee, or to the person who has a right to receive them. In sales,
actual delivery has been defined as the ceding of corporeal possession by the
seller, and the actual apprehension of corporeal possession by the buyer or
by some person authorized by him to receive the goods as his representative
for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been
turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. 18 The court a quo found

that there was actual delivery to the consignee through its duly authorized
agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that
had developed between appellant and appellee in the course of the
transactions that gave birth to the present suit. Two undertakings appeared
embodied and/or provided for in the Bill of Lading 19 in question. The first is
FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The
second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao,
with appellant acting as agent of the consignee. 20 At the hiatus between
these two undertakings of appellant which is the moment when the subject
goods are discharged in Manila, its personality changes from that of carrier to
that of agent of the consignee. Thus, the character of appellant's possession
also changes, from possession in its own name as carrier, into possession in
the name of consignee as the latter's agent. Such being the case, there was,
in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as
erstwhile carrier, ceases to be responsible for any loss or damage that may
befall the goods from that point onwards. This is the full import of Article
1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made
answerable for the value of the missing goods, It is true that the
transshipment of the goods, which was the object of the agency, was not
fully performed. However, appellant had commenced said performance, the
completion of which was aborted by circumstances beyond its control. An
agent who carries out the orders and instructions of the principal without
being guilty of negligence, deceit or fraud, cannot be held responsible for the
failure of the principal to accomplish the object of the agency, 21 This can be
gleaned from the following provisions of the New Civil Code on the
obligations of the agent: t.hqw
Article 1884. The agent is bound by his acceptance to carry
out the agency, and is liable for the damages which, through
his non-performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there
being a conflict between his interests and those of the
principal, he should prefer his own.

TRANSPO | ASS3| 35

Article 1892. The agent may appoint a substitute if the

principal has not prohibited him from doing so; but he shall
be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating
the person and the person appointed was notoriously
incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but
also for negligence which shall be judged with more or less
rigor by the courts, according to whether the agency was or
was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by
appellant or by its representative in the Philippines. Neither is there any

showing of notorious incompetence or insolvency on the part of AMCYT, which

acted as appellant's substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines
being in full faith with the lawful stipulations of Bill of Lading No. 18 and in
conformity with the provisions of the New Civil Code on common carriers,
agency and contracts, they incur no liability for the loss of the goods in
question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's
complaint is hereby DISMISSED.
No costs.
SO ORDERED.1wph1.t