Philippine Charter Insurance v. Neptune Orient Line/Overseas Agency Service, Inc.

554 SCRA 335 common carrier are thus governed by the provisions of the Civil Code, and the COGSA, which is a special
(2008) law applying suppletorily.

FACTS:
The pertinent provisions of the Civil Code applicable to this case are as follows:
L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong 3 sets of warp yarn on returnable beams
aboard respondent Neptune Orient Lines' vessel, M/V Baltimar Orion, for transport and delivery to
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the
Fukuyama Manufacturing Corporation (Fukuyama) in Manila.
bill of lading, unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction,
The said cargoes were loaded in a container under a bill of lading. Fukuyama insured the shipment against
or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly
all risks with petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy. During
and freely agreed upon.
the course of the voyage, the container with the cargoes fell overboard and was lost.
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for the carriage of
Thus, Fukuyama wrote a letter to respondent Overseas Agency Services, Inc, the agent of Neptune Orient,
goods by sea to and from Philippine ports in foreign trade, provides: Neither the carrier nor the ship shall in
and claimed for the value of the lost cargoes. However, Overseas Agency ignored the claim. Hence,
any event be or become liable for any loss or damage to or in connection with the transportation of goods in
Fukuyama sought payment from its insurer, PCIC, for the insured value which claim was fully satisfied by
an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped
PCIC. PCIC then demanded from respondents reimbursement of the entire amount it paid to Fukuyama,
in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature
but respondents refused payment. Hence, PCIC filed a complaint for damages against respondents.
and value of such goods have been declared by the shipper before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading shall be prima facie evidence, but shall be
Respondents denied liability and alleged that during the voyage, the vessel encountered strong winds and
conclusive on the carrier.
heavy seas making the vessel pitch and roll, which caused the subject container with the cargoes to fall
overboard. They claim that the occurrence was a fortuitous event which exempted them from any liability,
In this case, Bill of Lading stipulates: Neither the Carrier nor the vessel shall in any event become liable for
and that their liability, if any, should not exceed US$500 or the limit of liability in the bill of lading, whichever
any loss of or damage to or in connection with the transportation of Goods in an amount exceeding US$500
is lower.
(which is the package or shipping unit limitation under U.S. COGSA) unless the nature and value of such
Goods have been declared by the Shipper before shipment and inserted in this Bill of Lading and the
The RTC held that respondents, as common carrier, failed to prove that they observed the required
Shipper has paid additional charges on such declared value. . . .
extraordinary diligence to prevent loss of the subject cargoes and ordered them to pay the plaintiff the
amount claimed. The CA on the other hand found respondent’s liability to be only US$1,500 or US$500 per
The bill of lading submitted in evidence by petitioner did not show that the shipper in Hong Kong declared
package under the limited liability provision of the Carriage of Goods by Sea Act (COGSA). Hence, the
the actual value of the goods as insured by Fukuyama before shipment and that the said value was inserted
instant appeal.
in the Bill of Lading, and so no additional charges were paid. Hence, the stipulation in the bill of lading that
the carrier's liability shall not exceed US$500 per package applies.
Petitioner’s Contention: The vessel committed a "quasi deviation" which is a breach of the contract of
carriage when it intentionally threw overboard the container for its own benefit. Such breach of contract
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a cargo to a
resulted in the abrogation of respondents' rights under the contract and COGSA including the US$500 per
certain sum, unless the shipper or owner declares a greater value, is sanctioned and allowed by law. It
package limitation.
seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and
binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on
ISSUE:
the basis alone of the cited Civil Code Provisions.
W/N the liability of the respondents is only US$1,500 or US$500 per package as provided in the COGSA -
Yes EASTERN SHIPPING LINES, INC., petitioner, vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
RULING: CORPORATION, respondents.
The facts as found by the RTC do not support the new allegation regarding the intentional throwing G.R. No. L-69044 May 29, 1987
overboard of the subject cargoes and quasi deviation. The Court notes that the petitioner's Complaint and MELENCIO-HERRERA, J.:
the survey report provide that the shipment “were lost/fell overboard”. The records show that the subject FACTS:
cargoes fell overboard the ship and petitioner should not vary the facts of the case on appeal.

G.R. No. 69044- sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner
Since the subject cargoes were lost while being transported by respondent common carrier from Hong Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for
Kong to the RP - Philippine law applies pursuant to the Civil Code. The rights and obligations of respondent transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00
consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75,
consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated
value with respondent Development Insurance and Surety Corporation.
G.R. No. 71478- during the same period, the same vessel took on board 128 cartons of garment fabrics
and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of
surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were
insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and
the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and
cargo. The respective respondent Insurers paid the corresponding marine insurance values to the
consignees concerned and were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for
short), having been subrogated unto the rights of the two insured companies, filed suit against petitioner
Carrier for the recovery of the amounts it had paid to the insured before the then Court of First instance of
Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous
event, hence, it is not liable under the law.
 CFI: August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00
as attorney's fees and costs. Petitioner Carrier took an appeal to the CA
 CA: August 14, 1984, affirmed. Petitioner Carrier is now before us on a Petition for Review on
Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire &
Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner
Carrier for the recovery of the insured value of the cargo lost with the then Court of First Instance of Manila,
Branch 11, imputing unseaworthiness of the ship and non-observance of extraordinary diligence by
petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship
is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and
that when the loss of fire is established, the burden of proving negligence of the vessel is shifted to the
cargo shipper.
 CFI: September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs.
 CA: September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing
the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
liability under the COGSA.
ISSUE: 1. WON the law that should govern is the Civil Code the Civil Code provisions on Common
carriers or the Carriage of Goods by Sea Act. – Civil Code
2. WON carrier proved that they had exercised extraordinary diligence NO
3. What is the extent of carrier’s liability.
HELD:
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common carrier
in case of their loss, destruction or deterioration. As the cargoes in question were transported from Japan to
the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. However, in all
matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the
Code of Commerce and by special laws. Thus, the Carriage of Goods by Sea Act, a special law, is
suppletory to the provisions of the Civil Code.
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances
of each case. Common carriers are responsible for the loss, destruction, or deterioration of the goods
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity; xxx xxx
xxx
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural
disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or
calamity. This must be so as it arises almost invariably from some act of man or by human means. It does
not fall within the category of an act of God unless caused by lightning or by other natural disaster or
calamity. It may even be caused by the actual fault or privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of
rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due
to such event, considering that the law adopts a protection policy towards agriculture.
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of
the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary deligence required by law.
In this case, the respective Insurers as subrogees of the cargo shippers, have proven that the transported
goods have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then
is upon Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this
regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No,
2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from
hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that
the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide was
ordered released and the crew was ordered to open the hatch covers of No, 2 tor
 commencement of fire fighting by sea water: that all of these effort were not enough to control
the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2
and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on
orders, in the care of the cargoes. What appears is that after the cargoes were stored in the
hatches, no regular inspection was made as to their condition during the voyage. Consequently,
the crew could not have even explain what could have caused the fire. The defendant, in the
Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made
by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable
to the consignees for said lack of deligence required of it under Article 1733 of the Civil Code.
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required
by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil
Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the
"proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or
minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also
failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided
therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier. xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual
fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already
big; that the fire must have started twenty-four (24) hours before the same was noticed; " and that "after the
cargoes were stored in the hatches, no regular inspection was made as to their condition during the
voyage." The foregoing suffices to show that the circumstances under which the fire originated and spread
are such as to show that Petitioner Carrier or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to
Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in
section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding
$500 per package lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in bill of lading. This declaration if embodied in the bill of lading
shall be prima facie evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount
per package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA
which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a
statutory provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods
by the shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are
as much a part of a bill of lading as though physically in it and as much a part thereof as though placed
therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7
limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher
value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its
peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount
of damage actually sustained."
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines
shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight
(28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at
the legal rate from the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees,
and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
MAURO GANZON, petitioner,
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner
for damages based on culpa contractual. The antecedent facts, as found by the respondent Court, 2 are
undisputed:
On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons
of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT "Batman" (Exhibit 1,
Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that agreement, Mauro B. Ganzon
sent his lighter "Batman" to Mariveles where it docked in three feet of water (t.s.n., September 28, 1972, p.
31). On December 1, 1956, Gelacio Tumambing delivered the scrap iron to defendant Filomeno Niza,
captain of the lighter, for loading which was actually begun on the same date by the crew of the lighter
under the captain's supervision. When about half of the scrap iron was already loaded (t.s.n., December
14, 1972, p. 20), Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from
Gelacio Tumambing. The latter resisted the shakedown and after a heated argument between them,
Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9;
September 28, 1972, pp. 6-7).<äre||anº•1àw> The gunshot was not fatal but Tumambing had to be taken
to a hospital in Balanga, Bataan, for treatment (t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor
Basilio Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump the
scrap iron (t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28, 1972, p. 31).
The rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22). Later on Acting Mayor
Rub issued a receipt stating that the Municipality of Mariveles had taken custody of the scrap iron
(Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972, p. 10.)
On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion of
which states:
WHEREFORE, the decision appealed from is hereby reversed and set aside and a new one entered
ordering defendant-appellee Mauro Ganzon to pay plaintiff-appellant Gelacio E. Tumambimg the sum of
P5,895.00 as actual damages, the sum of P5,000.00 as exemplary damages, and the amount of
P2,000.00 as attorney's fees. Costs against defendant-appellee Ganzon. 3
In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:
I
THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE
CONTRACT OF TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM COMMENCING
FROM THE TIME THE SCRAP WAS PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN
FACT AND IN LAW.
II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS
EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY THE
LOCAL GOVERNMENT OFFICIAL WITHOUT HIS PARTICIPATION.
III
THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE TO A
FORTUITOUS EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR LOSSES AS A
CONSEQUENCE THEREOF. 4
The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally
placed under his custody and control to make him liable. However, he completely agrees with the
respondent Court's finding that on December 1, 1956, the private respondent delivered the scraps to
Captain Filomeno Niza for loading in the lighter "Batman," That the petitioner, thru his employees, actually
received the scraps is freely admitted. Significantly, there is not the slightest allegation or showing of any
condition, qualification, or restriction accompanying the delivery by the private respondent-shipper of the
scraps, or the receipt of the same by the petitioner. On the contrary, soon after the scraps were delivered
to, and received by the petitioner-common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession and control of the
common carrier, and upon their receipt by the carrier for transportation, the contract of carriage was
deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee, or
to the person who has a right to receive them. 5 The fact that part of the shipment had not been loaded on
board the lighter did not impair the said contract of transportation as the goods remained in the custody
and control of the carrier, albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of this
presumption, the court is not even required to make an express finding of fault or negligence before it
could hold the petitioner answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he observed extraordinary diligence
in the vigilance over the goods in his custody, according to all the circumstances of the case, or that the
loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the
part of the petitioner to prove that he exercised such extraordinary diligence.
It is in the second and third assignments of error where the petitioner maintains that he is exempt from any
liability because the loss of the scraps was due mainly to the intervention of the municipal officials of
Mariveles which constitutes a caso fortuito as defined in Article 1174 of the Civil Code. 7
We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that the
loss of the scraps was due to an "order or act of competent public authority," and this contention was
correctly passed upon by the Court of Appeals which ruled that:
... In the second place, before the appellee Ganzon could be absolved from responsibility on the ground
that he was ordered by competent public authority to unload the scrap iron, it must be shown that Acting
Mayor Basilio Rub had the power to issue the disputed order, or that it was lawful, or that it was issued
under legal process of authority. The appellee failed to establish this. Indeed, no authority or power of the
acting mayor to issue such an order was given in evidence. Neither has it been shown that the cargo of
scrap iron belonged to the Municipality of Mariveles. What we have in the record is the stipulation of the
parties that the cargo of scrap iron was accilmillated by the appellant through separate purchases here
and there from private individuals (Record on Appeal, pp. 38-39). The fact remains that the order given by
the acting mayor to dump the scrap iron into the sea was part of the pressure applied by Mayor Jose
Advincula to shakedown the appellant for P5,000.00. The order of the acting mayor did not constitute valid
authority for appellee Mauro Ganzon and his representatives to carry out.
Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we cannot,
however, allow. In any case, the intervention of the municipal officials was not In any case, of a character
that would render impossible the fulfillment by the carrier of its obligation. The petitioner was not duty
bound to obey the illegal order to dump into the sea the scrap iron. Moreover, there is absence of sufficient
proof that the issuance of the same order was attended with such force or intimidation as to completely
overpower the will of the petitioner's employees. The mere difficulty in the fullfilment of the obligation is not
considered force majeure. We agree with the private respondent that the scraps could have been properly
unloaded at the shore or at the NASSCO compound, so that after the dispute with the local officials
concerned was settled, the scraps could then be delivered in accordance with the contract of carriage.
There is no incompatibility between the Civil Code provisions on common carriers and Articles 361 8 and
362 9 of the Code of Commerce which were the basis for this Court's ruling in Government of the Philippine
Islands vs. Ynchausti & Co.10 and which the petitioner invokes in tills petition. For Art. 1735 of the Civil
Code, conversely stated, means that the shipper will suffer the losses and deterioration arising from the
causes enumerated in Art. 1734; and in these instances, the burden of proving that damages were caused
by the fault or negligence of the carrier rests upon him. However, the carrier must first establish that the
loss or deterioration was occasioned by one of the excepted causes or was due to an unforeseen event or
to force majeure. Be that as it may, insofar as Art. 362 appears to require of the carrier only ordinary
diligence, the same is .deemed to have been modified by Art. 1733 of the Civil Code.
Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by us.
Besides, these were not sufficiently controverted by the petitioner.
WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby AFFIRMED.
Costs against the petitioner.
This decision is IMMEDIATELY EXECUTORY.
ALFREDO MANAY, JR., FIDELINO SAN LUIS, ADRIAN SAN LUIS, ANNALEE SAN LUIS, MARK
ANDREW JOSE, MELISSA JOSE, CHARLOTTE JOSE, DAN JOHN DE GUZMAN, PAUL MARK
BALUYOT, AND CARLOS S. JOSE,
v.
CEBU AIR,INC,
The Air Passenger Bill of Rights[1] mandates that the airline must inform the passenger in writing of all the
conditions and restrictions in the contract of carriage. ] Purchase of the contract of carriage binds the
passenger and imposes reciprocal obligations on both the airline and the passenger. The airline must
exercise extraordinary diligence in the fulfillment of the terms and conditions of the contract of carriage.
The passenger, however, has the correlative obligation to exercise ordinary diligence in the conduct of his
or her affairs.
FACTS:
Petitioner, Jose (Jose), purchased 20 Cebu Pacific round-trip tickets from Manila to Palawan for
himself and on behalf of his relatives and friends. Jose alleged that he specified to "Alou," the Cebu Pacific
ticketing agent, that his preferred date and time of departure from Manila to Palawan should be on July 20,
2008 at 0820 (or 8:20 a.m.) and flight back to Manila should be on July 22, 2008 at 1615 (or 4:15 p.m.).
Alou printed the tickets,[12] which consisted of three (3) pages, and recapped only the first page to
him.[13] Since the first page contained the details he specified to Alou, he no longer read the other pages of
the flight information.
On the said date, petitioners boarded Cebu Pacific flight to Palawan and had an enjoyable
stay .During the processing of their boarding passes for their flight back to Manila, they were informed by
Cebu Pacific personnel that nine (9)[17] of them could not be admitted because their tickets were for the
1005 (or 10:05 a.m.)[18] flight earlier that day. Upon checking the tickets, they learned that only the first two
(2) pages had the schedule Jose specified.[21] They were left with no other option but to rebook their tickets.
However, the petitioners had not enough cash for the rebooking they offered to pay the amount by credit
card but were informed by the ground personnel that they only accepted cash. Eventually, they pooled
enough cash to be able to buy tickets for five (5) of their companions.[27] The other four (4) were left
behind in Palawan and had to spend the night at an inn, incurring additional expenses. [28] Upon his arrival
in Manila, Jose immediately purchased four (4) tickets for the companions they left behind.
Jose and his companions were frustrated and annoyed by Cebu Pacific's handling of the incident so
they sent the airline demand letters dated September 3, 2008[32] and January 20, 2009[33] asking for a
reimbursement of P42,955.00, representing the additional amounts spent to purchase the nine (9) tickets,
the accommodation, and meals of the four (4) that were left behind. Cebu Pacific argued that ticketing
agents, like Alou, recap [the] flight details to the purchaser to avoid erroneous booking[s] and according
to its records, Jose was given a full recap. Jose and his companions were unsatisfied with Cebu Pacific's
response so they filed a Complaint[42] for Damages against Cebu Pacific before Branch 59 of the
Metropolitan Trial Court of Mandaluyong.
MTC:
MTC rendered its Decision ordering Cebu Pacific to pay, Cebu Pacific should have exercised
extraordinary diligence in performing its contractual obligations should have placed markings or underlined
the time of the departure of the nine passengers"[51] who were not in the afternoon flight since it was only
logical for Jose to expect that all of them would be on the same flight. Cebu Pacific appealed to RTC
RTC:
The Regional Trial Court affirmed, Cebu Pacific appealed CA
CA:
CA rendered the Decision granting the appeal and reversing the order of payment. According to the
CA, the extraordinary diligence expected of common carriers only applies to the carriage of passengers
and not to the act of encoding the requested flight schedule.[59] It was incumbent upon the passenger to
exercise ordinary care in reviewing flight details and checking schedules.
ISSUES:
1. Whether or not the degree of diligence of a common carrier covers the encoding of the
request of flight schedule?
2. Whether or not Cebu Pacific is liable for damage?
HELD:
 1.Yes, the degree of diligence covers the encoding of the request of flight schedule.
Common carriers are required to exercise extraordinary diligence in the performance of its
obligations under the contract of carriage. This extraordinary diligence must be observed not only in
the transportation of goods and services but also in the issuance of the contract of carriage, including its
ticketing operations. A contract of carriage is defined as "one whereby a certain person or association of
persons obligate themselves to transport persons, things, or news from one place to another for a fixed
price."
When a common carrier, through its ticketing agent, has not yet issued a ticket to the
prospective passenger, the transaction between them is still that of a seller and a buyer. The obligation of
the airline to exercise extraordinary diligence commences upon the issuance of the contract of
carriage.[92] Ticketing, as the act of issuing the contract of carriage, is necessarily included in the exercise
of extraordinary diligence. Once a plane ticket is issued, the common carrier binds itself to deliver the
passenger safely on the date and time stated in the ticket.
2.No, Cebu Pacific is not liable of damage.
The Air Passenger Bill of Rights[1] mandates that the airline must inform the passenger in
writing of all the conditions and restrictions in the contract of carriage. ] Purchase of the contract of carriage
binds the passenger and imposes reciprocal obligations on both the airline and the passenger. The airline
must exercise extraordinary diligence in the fulfillment of the terms and conditions of the contract of
carriage. The passenger, however, has the correlative obligation to exercise ordinary diligence in the
conduct of his or her affairs.
Even assuming that the ticketing agent encoded the incorrect flight information, it is incumbent
upon the purchaser of the tickets to at least check if all the information is correct before making the
purchase. Once the ticket is paid for and printed, the purchaser is presumed to have agreed to all its terms
and conditions.
Since the tickets were for 20 passengers, he was expected to have checked each name on each
page of the tickets in order to see if all the passengers' names were encoded and correctly spelled. Had he
done this, he would have noticed that there was a different flight schedule. Petitioners' flight information
was not written in fine print. It was clearly stated on the left portion of the ticket above the passengers'
names. If petitioners had exercised even the slightest bit of prudence, they would have been able to
remedy any erroneous booking.
Petitioners, in failing to exercise the necessary care in the conduct of their affairs, were without a doubt
negligent. Thus, they are not entitled to damages.
NEDLLOYD LIJNEN B.V. ROTTERDAM and THE EAST ASIATIC CO., LTD., Petitioners,
vs.
GLOW LAKS ENTERPRISES, LTD., Respondent.
This is a Petition for Review on Certiorari1 filed pursuant to Ruic 45 of the Revised Rules of Comi, primarily
assailing the 11 December 2002 Resolution rendered by the Special Former Sixteenth Division of the
Court of Appeals in CA-G.R. CV No. 48277,2 the decretal portion of which states:
WHEREFORE, the appeal is GRANTED and the April 29. 1994 Decision of the Regional Trial Court of
Manila, Branch 52 thereof' in Civil Case No. 88-45595, SET ASIDE. Nedlloyd Lijncn B.V. Rotterdam and
The East Asiatic Co., Ltd arc ordered to pay Glow l ,aks Enterprises, I ,td. the following:
1. The invoice value of the goodslost worth $53,640.00, or its equivalent in Philippine currency;
2. Attorney’s fees of ₱50,000.00; and
3. Costs.3
The Facts
Petitioner Nedlloyd Lijnen B.V. Rotterdam (Nedlloyd) is a foreign corporation engaged in the business of
carrying goods by sea, whose vessels regularly call at the port of Manila. It is doing business in the
Philippines thru its local ship agent, co-petitioner East Asiatic Co., Ltd. (East Asiatic).
Respondent Glow Laks Enterprises,Ltd., is likewise a foreign corporation organized and existing under the
laws of Hong Kong. It is not licensed to do, and it is not doing business in, the Philippines.
On or about 14 September 1987, respondent loaded on board M/S Scandutch at the Port of Manila a total
343 cartoons of garments, complete and in good order for pre-carriage tothe Port of Hong Kong. The
goods covered by Bills of Lading Nos. MHONX-2 and MHONX-34 arrived in good condition in Hong Kong
and were transferred to M/S Amethyst for final carriage to Colon, Free Zone, Panama. Both vessels, M/S
Scandutch and M/S Amethyst, are owned by Nedlloyd represented in the Phlippines by its agent, East
Asiatic. The goods which were valued at US$53,640.00 was agreed to be released to the consignee,
Pierre Kasem, International, S.A., upon presentation of the original copies of the covering bills of
lading.5 Upon arrival of the vessel at the Port of Colon on 23 October 1987, petitioners purportedly notified
the consignee of the arrival of the shipments, and its custody was turned over tothe National Ports
Authority in accordance with the laws, customs regulations and practice of trade in Panama. By an
unfortunate turn ofevents, however, unauthorized persons managed to forge the covering bills of lading
and on the basis of the falsified documents, the ports authority released the goods.
On 16 July 1988, respondent filed a formal claim with Nedlloyd for the recovery of the amount of
US$53,640.00 representing the invoice value of the shipment but to no avail.6 Claiming that petitioners are
liable for the misdelivery of the goods, respondent initiated Civil Case No. 88-45595 before the Regional
Trial Court (RTC) of Manila, Branch 52, seeking for the recovery of the amount of US$53,640.00, including
the legal interest from the date of the first demand.7
In disclaiming liability for the misdelivery of the shipments, petitioners asserted in their Answer8 that they
were never remiss in their obligation as a common carrier and the goods were discharged in good order
and condition into the custody of the National Ports Authority of Panama in accordance with the
Panamanian law. They averred that they cannot be faulted for the release of the goods to unauthorized
persons, their extraordinary responsibility as a common carrier having ceased at the time the possession
of the goods were turned over to the possession of the port authorities.
After the Pre-Trial Conference, trial on the merits ensued. Both parties offered testimonial and
documentary evidence to support their respective causes. On 29 April 2004, the RTC rendered a
Decision9 ordering the dismissal of the complaint but granted petitioners’ counterclaims. In effect,
respondent was directed to pay petitioners the amount of ₱120,000.00 as indemnification for the litigation
expenses incurred by the latter. In releasing the common carrier from liability for the misdelivery of the
goods, the RTC ruled that Panama law was duly proven during the trial and pursuant to the said statute,
carriers of goods destined to any Panama port of entry have to discharge their loads into the custody of
Panama Ports Authority to make effective government collection of port dues, customs duties and taxes.
The subsequent withdrawal effected by unauthorized persons on the strength of falsified bills of lading
does not constitute misdelivery arising from the fault of the common carrier. The decretal part of the RTC
Decision reads: WHEREFORE, judgment is renderedfor [petitioners] and against [Respondent], ordering
the dismissal of the complaint and ordering the latter to pay [petitioners] the amount of ONE HUNDRED
TWENTY THOUSAND PESOS (₱120,000.00) on their counterclaims.
Cost against [Respondent].10
On appeal, the Court of Appeals reversed the findings of the RTC and held that foreign laws were not
proven in the manner provided by Section 24, Rule 132 of the Revised Rules of Court, and therefore, it
cannot be given full faith and credit.11 For failure to prove the foreign law and custom, it is presumed that
foreign laws are the sameas our local or domestic or internal law under the doctrine of processual
presumption. Under the New Civil Code, the discharge of the goods intothe custody of the ports authority
therefore does not relieve the commoncarrier from liability because the extraordinary responsibility of the
common carriers lasts until actual or constructive delivery of the cargoes tothe consignee or to the person
who has the right to receive them. Absent any proof that the notify party or the consignee was informed of
the arrival of the goods, the appellate court held that the extraordinary responsibility of common carriers
remains. Accordingly, the Court of Appeals directed petitioners to pay respondent the value of the
misdelivered goods in the amount of US$53,640.00.
The Issues
Dissatisfied with the foregoing disquisition, petitioners impugned the adverse Court of Appeals Decision
before the Court on the following grounds:
I.
THERE IS ABSOLUTELY NO NEED TO PROVE PANAMANIAN LAWS BECAUSE THEYHAD BEEN
JUDICIALLY ADMITTED. AN ADMISSION BY A PARTY IN THE COURSE OF THE PROCEEDINGS
DOES NOT REQUIRE PROOF.
II.
BY PRESENTING AS EVIDENCE THE [GACETA] OFFICIAL OF REPUBLICA DE PANAMA NO. 17.596
WHERE THE APPLICABLE PANAMANIAN LAWS WERE OFFICIALLY PUBLISHED, AND THE
TESTIMONY OF EXPERT WITNESSES, PETITIONERS WERE ABLE TO PROVE THE LAWS OF
PANAMA.
III.
IF WE HAVE TO CONCEDE TO THE COURT OF APPEALS’ FINDING THAT THERE WAS FAILURE OF
PROOF, THE LEGAL QUESTION PRESENTED TO THE HONORABLE COURT SHOULD BE
RESOLVED FAVORABLY BECAUSE THE CARRIER DISCHARGED ITS DUTY WHETHER UNDER THE
PANAMANIAN LAW OR UNDER PHILIPPINE LAW.12
The Court’s Ruling
We find the petition bereft of merit.
It is well settled that foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them. Like any other fact, they must be alleged and proved. 13 To prove
a foreign law, the party invoking it must present a copy thereof and comply with Sections 24 and 25 of Rule
132 of the Revised Rules of Court14 which read: SEC. 24. Proof of official record. — The record of public
documents referred to in paragraph (a) of Section 19, when admissible for any purpose, may be evidenced
by an official publication thereof or by a copy attested by the officer having the legal custody of the record,
or by his deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that such
officer has the custody. If the office in which the record is kept is in a foreigncountry, the certificate may be
made by a secretary of the embassy or legation, consul general, consul, vice- consul, or consular agent or
by any officer in the foreign service of the Philippines stationed in the foreign country in which the record is
kept, and authenticated by the seal of his office.
SEC. 25. What attestation of copy must state. — Whenever a copy of a document or record is attested for
the purpose of the evidence, the attestation must state,in substance, that the copy is a correct copy of the
original, or a specific part thereof, as the case may be. The attestation must be under the official seal of the
attesting officer, if there be any, or if he be the clerk of a court having a seal, under the seal of such court.
For a copy of a foreign public document to be admissible, the following requisites are mandatory: (1) itmust
be attested by the officer having legal custody of the records or by his deputy; and (2) it must be
accompanied by a certificate by a secretary of the embassy or legation, consul general, consul,
vice-consular or consular agent or foreign service officer, and with the seal of his office. 15 Such official
publication or copy must be accompanied, if the record is not kept in the Philippines, with a certificate that
the attesting officer has the legal custody thereof.16 The certificate may be issued by any of the authorized
Philippine embassy or consular officials stationed in the foreign country in which the record is kept, and
authenticated by the seal of his office.17 The attestation must state, in substance, that the copy is a correct
copy of the original, or a specific part thereof, as the case may be, and mustbe under the official seal of the
attesting officer.18
Contrary to the contention of the petitioners, the Panamanian laws, particularly Law 42 and its
Implementing Order No. 7, were not duly proven in accordance with Rules of Evidence and as such, it
cannot govern the rights and obligations of the parties in the case at bar. While a photocopy of the Gaceta
Official of the Republica de Panama No. 17.596, the Spanish text of Law 42 which is theforeign statute
relied upon by the court a quoto relieve the common carrier from liability, was presented as evidence
during the trial of the case below, the same however was not accompanied by the required attestation and
certification.
It is explicitly required by Section 24, Rule 132 of the Revised Rules of Court that a copy of the statute
must be accompanied by a certificate of the officer who has legal custody of the records and a certificate
made by the secretary of the embassy or legation, consul general, consul, vice-consular or by any officer
in the foreign service of the Philippines stationed in the foreign country, and authenticated by the seal of
his office. The latter requirement is not merely a technicality but is intended to justify the giving of full faith
and credit to the genuineness of the document in a foreign country.19 Certainly, the deposition of Mr.
Enrique Cajigas, a maritime law practitioner in the Republic of Panama, before the Philippine Consulate in
Panama, is not the certificate contemplated by law. At best, the deposition can be considered as an
opinion of an expert witness who possess the required special knowledge on the Panamanian laws but
could not be recognized as proof of a foreign law, the deponent not being the custodian of the statute who
can guarantee the genuineness of the document from a foreign country. To admit the deposition as proof
of a foreign law is, likewise, a disavowal of the rationaleof Section 24, Rule 132 of the Revised Rules of
Court, which isto ensure authenticity of a foreign law and its existence so as to justify its import and legal
consequence on the event or transaction in issue. The above rule, however, admits exceptions, and the
Court in certain cases recognized that Section 25, Rule132 of the Revised Rules of Court does not exclude
the presentation of other competent evidence to prove the existence of foreign law. In Willamete Iron and
Steel Works v. Muzzal20 for instance, we allowed the foreign law tobe established on the basis of the
testimony in open court during the trial in the Philippines of an attorney-atlaw in San Francisco, California,
who quoted the particular foreign law sought to be established. 21 The ruling is peculiar to the facts.
Petitioners cannot invoke the Willamete ruling to secure affirmative relief since their so called expert
witness never appeared during the trial below and his deposition, that was supposed to establish the
existence of the foreign law, was obtained ex-parte.
It is worth reiterating at this point that under the rules of private international law, a foreign law must be
properly pleaded and proved as a fact. In the absence of pleading and proof, the laws of the foreign
country or state will be presumed to be the same as our local or domestic law. This is known as processual
presumption.22 While the foreign law was properly pleaded in the case at bar, it was,however, proven not
in the manner provided by Section 24, Rule 132 of the Revised Rules of Court. The decision of the RTC,
which proceeds from a disregard of specific rules cannot be recognized.
Having settled the issue on the applicable Rule, we now resolve the issue of whether or not petitioners are
liable for the misdelivery of goods under Philippine laws.
Under the New Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligencein the vigilance over goods, according to the
circumstances of each case.23Common carriers are responsible for loss, destruction or deterioration of the
goods unless the same is due to flood, storm, earthquake or other natural disaster or
calamity.24 Extraordinary diligence is that extreme care and caution which persons of unusual prudence
and circumspection use for securing or preserving their own property or rights. 25This expecting
standardimposed on common carriers in contract of carrier of goods is intended to tilt the scales in favor of
the shipper who is at the mercy of the common carrier once the goods have been lodged for the
shipment.26Hence, in case of loss of goods in transit, the common carrier is presumed under the law to
have been in fault or negligent.27
While petitioners concede that, as a common carrier, they are bound to observe extraordinary diligence in
the care and custody of the goods in their possession, they insist that they cannot be held liable for the
loss of the shipments, their extraordinary responsibility having ceased at the time the goods were
discharged into the custody of the customs arrastreoperator, who in turn took complete responsibility over
the care, storage and delivery of the cargoes.28
In contrast, respondent, submits that the fact that the shipments were not delivered to the consignee as
statedin the bill of lading or to the party designated or named by the consignee, constitutes misdelivery
thereof, and under the law it is presumed that the common carrier is at fault or negligent if the goods they
transported, as in this case, fell into the hands of persons who have no right to receive them.
We sustain the position of the respondent.
Article 1736 and Article 1738 are the provisions in the New Civil Code which define the period when the
common carrier is required to exercise diligence lasts, viz:
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goodsare
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. 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.
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the common
carrier begins from the time the goods are delivered to the carrier.29 This responsibility remains in full force
and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner
exercises the right of stop page in transitu, and terminates only after the lapse of a reasonable time for the
acceptance, of the goods by the consignee or such other person entitled to receive them. 30
It was further provided in the samestatute that the carrier may be relieved from 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 the right to receive them.31 In sales, actual delivery has been defined as the ceding of
the corporeal possession by the seller, and the actual apprehension of the 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.32 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.33
In this case, there is no dispute that the custody of the goods was never turned over to the consignee or
his agents but was lost into the hands of unauthorized persons who secured possession thereof on the
strength of falsified documents. The loss or the misdelivery of the goods in the instant case gave rise to the
presumption that the common carrier is at fault or negligent.
A common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary
vigilance over the goods it transported.34 When the goods shipped are either lost or arrived in damaged
condition, a presumption arises against the carrier of its failure to observe that diligence, and there need
not be an express finding of negligence to hold it liable.35 To overcome the presumption of negligence, the
common carrier must establish by adequateproof that it exercised extraordinary diligence over the
goods.36 It must do more than merely show that some other party could be responsible for the damage. 37
In the present case, petitioners failed to prove that they did exercise the degree of diligence required by
law over the goods they transported. Indeed, aside from their persistent disavowal of liability by
conveniently posing an excuse that their extraordinary responsibility isterminated upon release of the
goods to the Panamanian Ports Authority, petitioners failed to adduce sufficient evidence they exercised
extraordinary care to prevent unauthorized withdrawal of the shipments. Nothing in the New Civil Code,
however, suggests, even remotely, that the common carriers’ responsibility over the goods ceased upon
delivery thereof to the custom authorities. To the mind of this Court, the contract of carriage remains in full
force and effect even after the delivery of the goods to the port authorities; the only delivery that releases it
from their obligation to observe extraordinary care is the delivery to the consignee or his agents. Even
more telling of petitioners’ continuing liability for the goods transported to the fact that the original bills of
lading up to this time, remains in the possession of the notify party or consignee. Explicit on this point is the
provision of Article 353 of the Code of Commerce which provides:
Article 353. The legal evidence of the contract between the shipper and the carrier shall be the bills of
lading, by the contents of which the disputes which may arise regarding their execution and performance
shall be decided, no exceptions being admissible other than those of falsity and material error in the
drafting.
After the contract has been complied with, the bill of lading which the carrier has issued shall be returned
to him, and by virtue of the exchange of this title with the thing transported, the respective obligations and
actions shall be considered cancelled, unless in the same act the claim which the parties may wish to
reserve be reduced to writing, with the exception of that provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier,
because of its loss or of any other cause, he must give the latter a receiptfor the goods delivered, this
receipt producing the same effects as the return of the bill of lading.
While surrender of the original bill of lading is not a condition precedent for the common carrier to
bedischarged from its contractual obligation, there must be, at the very least, an acknowledgement of the
delivery by signing the delivery receipt, if surrender of the original of the bill of lading is not
possible.38 There was neither surrender of the original copies of the bills of lading nor was there
acknowledgment of the delivery in the present case. This leads to the conclusion that the contract of
carriage still subsists and petitioners could be held liable for the breach thereof.
Petitioners could have offered evidence before the trial court to show that they exercised the highest
degree of care and caution even after the goods was turned over to the custom authorities, by promptly
notifying the consignee of its arrival at the P01i of Cristobal in order to afford them ample opportunity to
remove the cargoes from the port of discharge. We have scoured the records and found that neither the
consignee nor the notify paiiy was informed by the petitioners of the arrival of the goods, a crucial fact
indicative of petitioners' failure to observe extraordinary diligence in handling the goods entrusted to their
custody for transport. They could have presented proof to show that they exercised extraordinary care but
they chose in vain, full reliance to their cause on applicability of Panamanian law to local jurisdiction. It is
for this reason that we find petitioners liable for the misdelivery of the goods. It is evident from the review of
the records and by the evidence adduced by the respondent that petitioners failed to rebut the prima facie
presumption of negligence. We find no compelling reason to depa1i from the ruling of the Court of Appeals
that under the contract of carriage, petitioners are liable for the value of the misdelivcred goods.
WHEREFORE, premises considered, the petition is hereby DENIED. The assailed Resolution of the Court
of Appeals is hereby AFFIRMED. SO ORDERED.
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage
is to be computed from the time the complaint is filed or from the date the decision appealed from is
rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts
that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the
consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage
was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro
Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under
the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said
consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N,
and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the complaint contending
that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport
averred that although subject shipment was discharged unto its custody, portion of the same was already
in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not
having negligent or at fault for the shipment was already in damage and bad order condition when received
by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the
cargo to consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose
respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad
order.
Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the
respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report
(Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was
observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order
Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the
shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the
shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of
the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's
own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12,
1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant
Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct.
As there is sufficient evidence that the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the
consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED
IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT
AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier
for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646;
Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine
National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131
SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but
these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied
to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering
the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance
vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre
operator liable in solidum, thus:
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 the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault,
is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the
appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage
while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of
whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in
its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed
upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest
thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court
ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted
for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable certainty."
And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts
after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally
the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is
the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss
suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the
total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until
paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.
(Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the
trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate
court's decision became final, the case was remanded to the lower court for execution, and this was when
the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article
2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank
Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any
money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it
is not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less forbearances
of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the
said case is Article 2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest
agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986.
The case was for damages occasioned by an injury to person and loss of property. The trial court awarded
private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00
with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina
v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum but sustained
the time computation thereof, i.e., from the filing of the complaint until fully paid.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from
the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are
not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount
of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as
exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In
a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered
a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a
from the collapse of a building, ordered,
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
court moral and exemplary damages without, however, providing any legal interest thereon. When the
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968,
decision was appealed to the Court of Appeals, the latter held:
the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount
granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this
Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except
defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages,
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do
with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.)
hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta)
a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to The petition for review to this Court was denied. The records were thereupon transmitted to the trial court,
cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including and an entry of judgment was made. The writ of execution issued by the trial court directed that only
interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint.
and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said
such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts order. This Court said:
from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman
Ozaeta). (Emphasis supplied) . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the
time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) based on a breach of employment contract like the case at bar. (Emphasis supplied)
per cent per annum imposed on the total amount of the monetary award was in contravention of law." The
Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its
The Court reiterated that the 6% interest per annum on the damages should be computed from the time
resolution of 15 April 1988, it explained:
the complaint was filed until the amount is fully paid.

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels of land. After
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the
any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
private respondents certain sums of money as just compensation for their lands so expropriated "with legal
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or
interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil
a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are
Code, the Court15 declared:
paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation rate of interest, as well as the accrual thereof, is imposed, as follows:
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages.
The legal interest required to be paid on the amount of just compensation for the properties expropriated is
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the
forbearance of money, the interest due should be that which may have been stipulated in
kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is
writing.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall
demanded.22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
apply.
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
116923 of the Civil Code.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985),
amount of damages awarded may be imposed at the discretion of the court24 at the rate of 6% per
Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
the demand can be established with reasonable certainty.26 Accordingly, where the demand is established
Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
Express International v.Intermediate Appellate Court (1988).
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies
only to loans or forbearance16 of money, goods or credits, as well as to judgments involving such loan or
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
transaction involves the payment of indemnities in the concept of damage arising from the breach or a
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame
forbearance of credit.
in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed
until the adjudged amount is fully paid.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
from the decision, dated
annum,17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained
shall be imposed on such amount upon finality of this decision until the payment thereof.
consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest. SO ORDERED.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court
a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then, interest 'should be from the date of the
decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6%
interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons
case ruled that 12% interest per annum should be imposed from the finality of the decision until the
judgment amount is paid.
SARKIES TOURS PHILIPPINES, INC. petitioner vs. HONORABLE COURT OF APPEALS (TENTH
DIVISION), DR. ELINO G. FORTADES, MARISOL A. FORTADES and FATIMA A.
FORTADES., respondent.
This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV
No. 18979 promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying
petitioners motion for reconsideration for being a mere rehash of the arguments raised in the appellants
brief.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title
XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20
The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva,
all surnamed Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on her way to Legazpi
City. Her brother Raul helped her load three pieces of luggage containing all of her optometry review
books, materials and equipment, trial lenses, trial contact lenses, passport and visa, as well as her mother
Marisols U.S. immigration (green) card, among other important documents and personal belongings. Her
belongings was kept in the baggage compartment of the bus, but during a stopover at Daet, it was
discovered that all but one bag remained in the open compartment. The others, including Fatimas things,
were missing and could have dropped along the way. Some of the passengers suggested retracing the
route to try to recover the lost items, but the driver ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioners office in Legazpi
City and later at its head office in Manila. The latter, however, merely offered her P1,000.00 for each piece
of luggage lost, which she turned down. After returning to Bicol disappointed but not defeated, they asked
assistance from the radio stations and even from Philtranco bus drivers who plied the same route on
August 31st. The effort paid off when one of Fatimas bags was recovered. Marisol also reported the
incident to the National Bureau of Investigations field office in Legazpi City, and to the local police.
On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their
complaint from petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said that
(a) team has been sent out to Bicol for the purpose of recovering or at least getting the full detail[1] of the
incident.
After more than nine months of fruitless waiting, respondents decided to file the case below to
recover the value of the remaining lost items, as well as moral and exemplary damages, attorneys fees
and expenses of litigation. They claimed that the loss was due to petitioners failure to observe
extraordinary diligence in the care of Fatimas luggage and that petitioner dealt with them in bad faith from
the start. Petitioner, on the other hand, disowned any liability for the loss on the ground that Fatima
allegedly did not declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of herein
respondents, viz:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and
against the herein defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the
following sums of money, to wit:
1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima Minerva
Fortades, etc. less the value of one luggage recovered;
2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;
3. The sum of P10,000.00 by way of exemplary damages;
4. The sum of P5,000.00 as attorneys fees; and
5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand (P140,000.00)
Pesos.
to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30 days from
receipt of this Decision.
SO ORDERED.
On appeal, the appellate court affirmed the trial courts judgment, but deleted the award of moral and
exemplary damages. Thus,
WHEREFORE, premises considered, except as above modified, fixing the award for transportation
expenses at P30,000.00 and the deletion of the award for moral and exemplary damages, the decision
appealed from is AFFIRMED, with costs against defendant-appellant.
SO ORDERED."
Its motion for reconsideration having was likewise rejected by the Court of Appeals, so petitioner
elevated its case to this Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and appellate
courts resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none
was declared at the start of the trip. The documentary and testimonial evidence presented at the trial,
however, established that Fatima indeed boarded petitioners De Luxe Bus No. 5 in the evening of August
31, 1984, and she brought three pieces of luggage with her, as testified by her brother Raul, [2] who helped
her pack her things and load them on said bus. One of the bags was even recovered with the help of a
Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its liability by
apologizing to respondents and assuring them that efforts were being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their loss. The
incident was reported to the police, the NBI, and the regional and head offices of petitioner.Marisol even
sought the assistance of Philtranco bus drivers and the radio stations. To expedite the replacement of her
mothers lost U.S. immigration documents, Fatima also had to execute an affidavit of loss.[3] Clearly, they
would not have gone through all that trouble in pursuit of a fancied loss.
Fatima was not the only one who lost her luggage. Other passengers suffered a similar fate: Dr. Lita
Samarista testified that petitioner offered her P1,000.00 for her lost baggage and she accepted
it;[4] Carleen Carullo-Magno also lost her chemical engineering review materials, while her brother lost
abaca products he was transporting to Bicol.[5]
Petitioners receipt of Fatimas personal luggage having been thus established, it must now be
determined if, as a common carrier, it is responsible for their loss. Under the Civil Code, (c)ommon carriers,
from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods x x x transported by them,[6] and this liability lasts from the time
the goods are unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to x x x the person who has a right to receive
them,[7] unless the loss is due to any of the excepted causes under Article 1734 thereof.[8]
The cause of the loss in the case at bar was petitioners negligence in not ensuring that the doors of
the baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of
the luggage was lost, to the prejudice of the paying passengers. As the Court of Appeals correctly
observed:
x x x. Where the common carrier accepted its passengers baggage for transportation and even had it
placed in the vehicle by its own employee, its failure to collect the freight charge is the common carriers
own lookout. It is responsible for the consequent loss of the baggage. In the instant case, defendant
appellants employee even helped Fatima Minerva Fortades and her brother load the luggages/baggages
in the bus baggage compartment, without asking that they be weighed, declared, receipted or paid for
(TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this required of the
other passengers (TSN, August 4, 1986, p. 104; February 5, 1988, p. 13).
 Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise
agree with the trial and appellate courts conclusions. There is no dispute that of the three pieces of
luggage of Fatima, only one was recovered. The other two contained optometry books, materials,
equipment, as well as vital documents and personal belongings.Respondents had to shuttle between Bicol
and Manila in their efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel
from the United States just to be able to testify. Expenses were also incurred in reconstituting their lost
documents. Under these circumstances, the Court agrees with the Court of Appeals in
awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagrees with
the deletion of the award of moral and exemplary damages which, in view of the foregoing proven facts,
with negligence and bad faith on the fault of petitioner having been duly established, should be granted to
respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its
resolution dated February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner is
ordered to pay respondent an additional P20,000.00 as moral damages and P5,000.00 as exemplary
damages. Costs against petitioner.
SO ORDERED.
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs. COURT OF APPEALS
AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.
Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of damages to the cargo[1] valid? This is the main question raised in
this petition for review assailing the Decision of Respondent Court of Appeals [2] in CA-G.R. No. CV-20156
promulgated on October 15, 1991. The Court of Appeals modified the judgment of the Regional Trial Court
of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay
plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost
logs with legal interest thereon from the date of demand on February 2, 1984 until the amount is fully paid
or in the alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the amount of TWO
MILLION PESOS (P2,000,000.00) representing the value of lost logs plus legal interest from the date of
demand on April 24, 1984 until full payment thereof; the reasonable attorneys fees in the amount
equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight
charges.
Defendant South Sea Surety and Insurance Companys counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the
Seven Brothers Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET
ASIDE.[3]
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered
into an agreement with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook
to load on board its vessel M/V Seven Ambassador the formers lauan round logs numbering 940 at the
port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea
Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy
No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr.
Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of
the plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium and documentary
stamps due on the policy was tendered due to the insurer but was not accepted. Instead, the South Sea
Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of the inception for
non-payment of the premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the
payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a
formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the
latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against
defendants. Both defendants shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following
assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven
Ambassadors, was not due to fortuitous event but to the negligence of the captain in stowing and securing
the logs on board, causing the iron chains to snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping
Corporation from logs (sic) of the cargo stipulated in the charter party is void for being contrary to public
policy invoking article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the
alternative and ordering/directing it to pay plaintiff-appellee the amount of two million (P2,000,000.00)
pesos representing the value of the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay
appellee reasonable attorneys fees in the amount equivalent to 5% of the amount of the claim and the
costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its
counter-claim for attorneys fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea
Surety and Insurance Company, Inc. and likewise erred in not holding that he was the representative of the
insurance broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums
paid on the policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the receipt of payment clause attached to and forming part of the
Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and
documentary stamps to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the indorsement of cancellation of the policy due to non-payment of
premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to
pay plaintiff-appellee P2,000,000.00 representing value of the policy with legal interest from 2 February
1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorneys fees alleged and proven in
its counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety
company are liable to the plaintiff for the latters lost logs.[4]
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea
Surety and Insurance Company (South Sea), but modified it by holding that Seven Brothers Shipping
Corporation (Seven Brothers) was not liable for the lost cargo. [5] In modifying the RTC judgment, the
respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from
liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the
liability of the shipping corporation. The provisions on common carriers should not be applied where the
carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is
valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs.[6]
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (Valenzuela) filed
separate petitions for review before this Court. In a Resolution dated June 2, 1995,this Court denied the
petition of South Sea.[7] There the Court found no reason to reverse the factual findings of the trial court
and the Court of Appeals that Chua was indeed an authorized agent of South Sea when he received
Valenzuelas premium payment for the marine cargo insurance policy which was thus binding on the
insurer.[8]
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA
Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuelas arguments revolve around a single issue: whether or not respondent Court
(of Appeals) committed a reversible error in upholding the validity of the stipulation in the charter party
executed between the petitioner and the private respondent exempting the latter from liability for the loss
of petitioners logs arising from the negligence of its (Seven Brothers) captain.[9]
The Courts Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the (o)wners shall
not be responsible for loss, split, short-landing, breakages and any kind of damages to the cargo.[10] The
validity of this stipulation is the lis mota of this case.
 It should be noted at the outset that there is no dispute between the parties that the proximate cause
of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the snapping of the iron
chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing
and securing the logs on board the vessel and not due to fortuitous event. [11] Likewise undisputed is the
status of Private Respondent Seven Brothers as a private carrier when it contracted to transport the cargo
of Petitioner Valenzuela. Even the latter admits this in its petition.[12]
The trial court deemed the charter party stipulation void for being contrary to public policy, [13] citing
Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family,
or of a man of ordinary prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) That the common carriers liability for acts committed by thieves, or of robbers who do not act with grave
or irresistible threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on
account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract
of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of
the Code of Commerce[14] and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph
1, Article 1409 of the Civil Code,[15] petitioner further contends that said stipulation gives no duty or
obligation to the private respondent to observe the diligence of a good father of a family in the custody and
transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioners lauan logs. Thus, Article 1745 and other Civil Code
provisions on common carriers which were cited by petitioner may not be applied unless expressly
stipulated by the parties in their charter party.[16]
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo
rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo
caused even by the negligence of the ship captain. Pursuant to Article 1306[17] of the Civil Code, such
stipulation is valid because it is freely entered into by the parties and the same is not contrary to law,
morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a
contract of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their
duties and obligations which perforce would be binding on them. Unlike in a contract involving a common
carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil
Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc. [18] In that
case, the trial court similarly nullified a stipulation identical to that involved in the present case for being
contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code of
Commerce. Consequently, the trial court held the shipowner liable for damages resulting from the partial
loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P. Bengzon,
the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability
for the negligence of its agent is not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied
where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving
the owner from liability for loss due to the negligence of its agent would be void only if the strict public
policy governing common carriers is applied. Such policy has no force where the public at large is not
involved, as in this case of a ship totally chartered for the use of a single party.[19] (Underscoring supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the preparation
thereof. The riding public merely adheres to the contract; even if the public wants to, it cannot submit its
own stipulations for the approval of the common carrier. Thus, the law on common carriers extends its
protective mantle against one-sided stipulations inserted in tickets, invoices or other documents over
which the riding public has no understanding or, worse, no choice. Compared to the general public, a
charterer in a contract of private carriage is not similarly situated. It can -- and in fact it usually does -- enter
into a free and voluntary agreement. In practice, the parties in a contract of private carriage can stipulate
the carriers obligations and liabilities over the shipment which, in turn, determine the price or consideration
of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside the
protection of the law on common carriers. When the charterer decides to exercise this option, he takes a
normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it
covers only a stipulation exempting a private carrier from liability for the negligence of his agent, but it does
not apply to a stipulation exempting a private carrier like private respondent from the negligence of his
employee or servant which is the situation in this case.[20] This contention of petitioner is bereft of merit, for
it raises a distinction without any substantive difference. The case of Home Insurance specifically dealt
with the liability of the shipowner for acts or negligence of its captain and crew[21] and a charter party
stipulation which exempts the owner of the vessel from any loss or damage or delay arising from any other
source, even from the neglect or fault of the captain or crew or some other person employed by the owner
on board, for whose acts the owner would ordinarily be liable except for said
paragraph.[22] Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the
rule in the Philippines[23] deserves scant consideration. The Court there categorically held that said rule
was reasonable and proceeded to apply it in the resolution of that case. Petitioner miserably failed to show
such circumstances or arguments which would necessitate a departure from a well-settled
rule. Consequently, our ruling in said case remains a binding judicial precedent based on the doctrine
of stare decisis and Article 8 of the Civil Code which provides that (j)udicial decisions applying or
interpreting the laws or the Constitution shall form part of the legal system of the Philippines.
In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a stipulation
exempting the owner from liability even for the negligence of its agent is valid. [24]
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however,
will discuss the other arguments of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of
the Code of Commerce which confer on petitioner the right to recover damages from the shipowner and
ship agent for the acts or conduct of the captain.[25] We are not persuaded. Whatever rights petitioner may
have under the aforementioned statutory provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is contrary to law,
public order, public policy, morals, or good customs, or prejudicial to a person with a right recognized by
law. As a general rule patrimonial rights may be waived as opposed to rights to personality and family
rights which may not be made the subject of waiver.[26] Being patently and undoubtedly patrimonial,
petitioners right conferred under said articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible for any damage to the cargo, thereby exempting the
private carrier from any responsibility for loss or damage thereto. Furthermore, as discussed above, the
contract of private carriage binds petitioner and private respondent alone; it is not imbued with public policy
considerations for the general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to
Articles 1170 and 1173 of the Civil Code[27] which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of
a good father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in respect
of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the charter party. This
shifting of responsibility, as earlier observed, is not void. The provisions cited by petitioner are, therefore,
inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of
Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the event the
law or the contract is silent. In the instant case, Article 362 of the Code of Commerce[28] provides the
standard of ordinary diligence for the carriage of goods by a carrier. The standard of diligence under this
statutory provision may, however, be modified in a contract of private carriage as the petitioner and private
respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc.[29] which, in turn, quoted Juan Ysmael & Co.
vs. Gabino Barreto & Co.[30] and argues that the public policy considerations stated
there vis--vis contractual stipulations limiting the carriers liability be applied with equal force to this
case.[31] It also cites Manila Railroad Co. vs. Compaia Transatlantica[32] and contends that stipulations
exempting a party from liability for damages due to negligence should not be countenanced and should be
strictly construed against the party claiming its benefit. [33] We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify
the application of such policy considerations and concomitantly stricter rules. As already discussed above,
the public policy considerations behind the rigorous treatment of common carriers are absent in the case
of private carriers. Hence, the stringent laws applicable to common carriers are not applied to private
carriers. The case of Manila Railroad is also inapplicable because the action for damages there does not
involve a contract for transportation.Furthermore, the defendant therein made a promise to use due care in
the lifting operations and, consequently, it was bound by its undertaking; besides, the exemption was
intended to cover accidents due to hidden defects in the apparatus or other unforseeable occurrences not
caused by its personal negligence. This promise was thus construed to make sense together with the
stipulation against liability for damages.[34] In the present case, we stress that the private respondent made
no such promise. The agreement of the parties to exempt the shipowner from responsibility for any
damage to the cargo and place responsibility over the same to petitioner is the lone stipulation considered
now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,[35] Walter A. Smith & Co.
vs. Cadwallader Gibson Lumber Co.,[36] N. T. Hashim and Co. vs. Rocha and Co.,[37] Ohta Development
Co. vs. SteamshipPompey[38] and Limpangco Sons vs. Yangco Steamship Co.[39] in support of its
contention that the shipowner be held liable for damages. [40] These however are not on all fours with the
present case because they do not involve a similar factual milieu or an identical stipulation in the charter
party expressly exempting the shipowner from responsibility for any damage to the cargo.
Effect of the South Sea Resolution
 In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because
this Court has earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private
respondent submits that petitioner is not legally entitled to collect twice for a single loss. [41] In view of the
above disquisition upholding the validity of the questioned charter party stipulation and holding that
petitioner may not recover from private respondent, the present issue is moot and academic. It suffices to
state that the Resolution of this Court dated June 2, 1995[42] affirming the liability of South Sea does not, by
itself, necessarily preclude the petitioner from proceeding against private respondent. An aggrieved party
may still recover the deficiency from the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the Civil Code provides:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED. SO ORDERED.
SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and style
of "SEN HIAP HING," respondents.
The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the
covering bill of lading limiting to a fixed amount the liability of the carrier for loss or damage to the cargo
where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and
forwarding company licensed to do business in the Philippines, received from Seaborne Trading Company
in Oakland, California a shipment consigned to Sen Hiap Hing the business name used by Paulino Cue in
the wholesale and retail trade which he operated out of an establishment located on Borromeo and
Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill of lading. The
bill described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume measurements
Sea-land charged the shipper the total amount of US$209.28 2 for freight age and other charges. The
shipment was loaded on board the MS Patriot, a vessel owned and operated by Sea-Land, for discharge at
the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996 into
the custody of the arrastre contractor and the customs and port authorities. 3 Sometime between February
13 and 16, 1981, after the shipment had been transferred, along with other cargoes to Container No.
40158 near Warehouse 3 at Pier 3 in South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen
by pilferers and has never been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the
lost shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle for US$4,000.00, or its
then Philippine peso equivalent of P30,600.00. asserting that said amount represented its maximum
liability for the loss of the shipment under the package limitation clause in the covering bill of lading. 6 Cue
rejected the offer and thereafter brought suit for damages against Sea-Land in the then Court of First
Instance of Cebu, Branch X.7 Said Court, after trial, rendered judgment in favor of Cue, sentencing
Sea-Land to pay him P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00
for unrealized profit with one (1%) percent monthly interest from the filing of the complaint until fully paid,
P25,000.00 for attorney's fees and P2,000.00 as litigation expenses. 8
Sea-Land appealed to the Intermediate Appellate Court.9 That Court however affirmed the decision of the
Trial Court xxx in all its parts ... . 10 Sea-Land thereupon filed the present petition for review which, as
already stated, poses the question of whether, upon the facts above set forth, it can be held liable for the
loss of the shipment in any amount beyond the limit of US$600.00 per package stipulated in the bill of
lading.
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from
the carrier or shipper for loss of, or damage to, goods being transported under said bill ,although that
document may have been — as in practice it oftentimes is — drawn up only by the consignor and the
carrier without the intervention of the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court
delved at some length into the reasons behind this when, upon a claim made by the consignee of a motion
picture film shipped by air that he was never a party to the contract of transportation and was a complete
stranger thereto, it said:
But appellant now contends that he is not suing on a breach of contract but on a tort as provided for in Art.
1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First, he insists that
the articles of the Code of Commerce should be applied: that he invokes the provisions of aid Code
governing the obligations of a common carrier to make prompt delivery of goods given to it under a
contract of transportation. Later, as already said, he says that he was never a party to the contract of
transportation and was a complete stranger to it, and that he is now suing on a tort or a violation of his
rights as a stranger (culpa aquiliana) If he does not invoke the contract of carriage entered into with the
defendant company, then he would hardly have any leg to stand on. His right to prompt delivery of the can
of film at the Phil. Air Port stems and is derived from the contract of carriage under which contract, the PAL
undertook to carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract
and the obligation to carry and to deliver and right to prompt delivery disappear. Common carriers are not
obligated by law to carry and to deliver merchandise, and persons are not vested with the right to prompt
delivery, unless such common carriers previously assume the obligation. Said rights and obligations are
created by a specific contract entered into by the parties. In the present case, the findings of the trial court
which as already stated, are accepted by the parties and which we must accept are to the effect that the
LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company on the other, entered into a
contract of transportation (p. 29, Rec. on Appeal). One interpretation of said finding is that the LVN
Pictures Inc. through previous agreement with Mendoza acted as the latter's agent. When he negotiated
with the LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga town fiesta, he
most probably authorized and enjoined the Picture Company to ship the film for him on the PAL on
September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own
initiative, and acting independently of Mendoza for the time being, made Mendoza as consignee, a
stranger to the contract if that is possible, nevertheless when he, Mendoza appeared at the Phil Air Port
armed with the copy of the Air Way Bill (Exh. 1) demanding the delivery of the shipment to him, he thereby
made himself a party to the contract of transportation. The very citation made by appellant in his
memorandum supports this view. Speaking of the possibility of a conflict between the order of the shipper
on the one hand and the order of the consignee on the other, as when the shipper orders the shipping
company to return or retain the goods shipped while the consignee demands their delivery, Malagarriga in
his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of
Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled "Commentaries and
Jurisprudence on the Commercial Laws of the Philippines" p. 209, says that the right of the shipper to
countermand the shipment terminates when the consignee or legitimate holder of the bill of lading appears
with such big of lading before the carrier and makes himself a party to the contract. Prior to that time he is
a stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil
Code (now Art, 1311, second paragraph) which reads thus:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at
the Phil Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor
contained in the contract of carriage and delivery. In this case he also made himself a party to the contract,
or at least has come to court to enforce it. His cause of action must necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it under a contract of
carriage is governed by the laws of the country of destination 12 and the goods in question were shipped
from the United States to the Philippines, the liability of petitioner Sea-Land to the respondent consignee is
governed primarily by the Civil Code, and as ordained by the said Code, suppletorily, in all matters not
determined thereby, by the Code of Commerce and special laws. 13 One of these suppletory special laws
is the Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts
for the carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65,
approved on October 22, 1936. Sec. 4(5) of said Act in part reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money of the
United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of
that sum in other currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be
prima facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be
less than the figure above named. In no event shall the carrier be liable for more than the amount of
damage actually sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to its shipping
clients 14 is a virtual copy of the first paragraph of the foregoing provision. It says:
22. VALUATION. In the event of any loss, damage or delay to or in connection with goods exceeding in
actual value $500 per package, lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, the value of the goods shall be deemed to be $500 per package or
per customary freight unit, as the case may be, and the carrier's liability, if any, shall be determined on the
basis of a value of $500 per package or customary freight unit, unless the nature and a higher value shall
be declared by the shipper in writing before shipment and inserted in this Bill of Lading.
And in its second paragraph, the bill states:
If a value higher than $500 shag have been declared in writing by the shipper upon delivery to the carrier
and inserted in this bill of lading and extra freight paid, if required and in such case if the actual value of the
goods per package or per customary freight unit shall exceed such declared value, the value shall
nevertheless be deemed to be declared value and the carrier's liability, if any, shall not exceed the
declared value and any partial loss or damage shall be adjusted pro rata on the basis of such declared
value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and obligations
of common carriers to the provisions of the Code of Commerce and of special laws in matters not
regulated by said (Civil) Code, the Court fails to fathom the reason or justification for the Appellate Court's
pronouncement in its appealed Decision that the Carriage of Goods by Sea Act " ... has no application
whatsoever in this case. 15 Not only is there nothing in the Civil Code which absolutely prohibits
agreements between shipper and carrier limiting the latter's liability for loss of or damage to cargo shipped
under contracts of carriage; it is also quite clear that said Code in fact has agreements of such character in
contemplation in providing, in its Articles 1749 and 1750, that:
ART. 1749 A stipulation that the common carrier's liability is limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and
has been fairly and freely agreed upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or
inconsistent with any of the just-cited provisions of the Civil Code. Said section merely gives more flesh
and greater specificity to the rather general terms of Article 1749 (without doing any violence to the plain
intent thereof) and of Article 1750, to give effect to just agreements limiting carriers' liability for loss or
damage which are freely and fairly entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity
and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable
on the basis alone of the cited Civil Code provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is
not declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the
justice and fairness of that law itself, and this the private respondent does not pretend to do. But over and
above that consideration, the lust and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding acrrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in the bill of lading. And since the
shipper here has not been heard to complaint of having been "rushed," imposed upon or deceived in any
significant way into agreeing to ship the cargo under a bill of lading carrying such a stipulation — in fact, it
does not appear that said party has been heard from at all insofar as this dispute is concerned — there is
simply no ground for assuming that its agreement thereto was not as the law would require, freely and
fairly sought and given.
The private respondent had no direct part or intervention in the execution of the contract of carriage
between the shipper and the carrier as set forth in the bill of lading in question. As pointed out in Mendoza
vs. PAL, supra, the right of a party in the same situation as respondent here, to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier,
springs from either a relation of agency that may exist between him and the shipper or consignor, or his
status as a stranger in whose favor some stipulation is made in said contract, and who becomes a party
thereto when he demands fulfillment of that stipulation, in this case the delivery of the goods or cargo
shipped. In neither capacity can he assert personally, in bar to any provision of the bill of lading, the
alleged circumstance that fair and free agreement to such provision was vitiated by its being in such fine
print as to be hardly readable. Parenthetically, it may be observed that in one comparatively recent
case 16where this Court found that a similar package limitation clause was "(printed in the smallest type
on the back of the bill of lading, it nonetheless ruled that the consignee was bound thereby on the strength
of authority holding that such provisions on liability limitation are as much a part of a bill of lading as though
physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of
freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to
an agreed valuation unless the shipper declares a higher value and inserts it into said contract or bill. This
pro position, moreover, rests upon an almost uniform weight of authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly authorizes
trans-shipment of the goods at any point in the voyage in these terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its or his
discretion and although transshipment or forwarding of the goods may not have been contemplated or
provided for herein, may at port of discharge or any other place whatsoever transship or forward the goods
or any part thereof by any means at the risk and expense of the goods and at any time, whether before or
after loading on the ship named herein and by any route, whether within or outside the scope of the voyage
or beyond the port of discharge or destination of the goods and without notice to the shipper or consignee.
The carrier or master may delay such transshipping or forwarding for any reason, including but not limited
to awaiting a vessel or other means of transportation whether by the carrier or others.
Said provision obviates the necessity to offer any other justification for offloading the shipment in question
in Manila for transshipment to Cebu City, the port of destination stipulated in the bill of lading. Nonetheless,
the Court takes note of Sea-Land's explanation that it only directly serves the Port of Manila from abroad in
the usual course of voyage of its carriers, hence its maintenance of arrangements with a local forwarder.
Aboitiz and Company, for delivery of its imported cargo to the agreed final point of destination within the
Philippines, such arrangements not being prohibited, but in fact recognized, by law. 18
Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the
final port of destination and that the fact that transshipment was made on an interisland vessel did not
remove the contract of carriage of goods from the operation of said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon by
petitioner Sea Land form no part of the short-form bill of lading attached to his complaint before the Trial
Court and appear only in the long form of that document which, he claims. SeaLand offered (as its Exhibit
2) as an unused blank form with no entries or signatures therein. He, however, admitted in the Trial Court
that several times in the past shipments had been delivered to him through Sea-Land, 20 from which the
assumption may fairly follow that by the time of the consignment now in question, he was already
reasonably apprised of the usual terms covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by
Sea Act on package limitation [sec 4(5) of the Act hereinabove referred to] are as much a part of a bill of
lading as though actually placed therein by agreement of the parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes
accepted said bill. Having done so, he —
... becomes bound by all stipulations contained therein whether on the front or the back thereof.
Respondent cannot elude its provisions simply because they prejudice him and take advantage of those
that are beneficial. Secondly, the fact that respondent shipped his goods on board the ship of petitioner
and paid the corresponding freight thereon shows that he impliedly accepted the bill of lading which was
issued in connection with the shipment in question, and so it may be said that the same is finding upon him
as if it had been actually signed by him or by any other person in his behalf. ... 22.
There is one final consideration. The private respondent admits 23 that as early as on April 22, 1981,
Sea-Land had offered to settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the
shipment under the bill of lading. This Court having reached the conclusion that said sum is all that is justly
due said respondent, it does not appear just or equitable that Sea-Land, which offered that amount in good
faith as early as six years ago, should, by being made to pay at the current conversion rate of the dollar to
the peso, bear for its own account all of the increase in said rate since the time of the offer of settlement.
The decision of the Regional Trial Court awarding the private respondent P186,048.00 as the peso value
of the lost shipment is clearly based on a conversion rate of P8.00 to US$1.00, said respondent having
claimed a dollar value of $23,256.00 for said shipment. 24 All circumstances considered, it is just and fair
that Sea-Land's dollar obligation be convertible at the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set aside.
The stipulation in the questioned bill of lading limiting Sea-Land's liability for loss of or damage to the
shipment covered by said bill to US$500.00 per package is held valid and binding on private respondent.
There being no question of the fact that said shipment consisted of eight (8) cartons or packages, for the
loss of which Sea-Land is therefore liable in the aggregate amount of US$4,000.00, it is the judgment of
the Court that said petitioner discharge that obligation by paying private respondent the sum of P32,000.00,
the equivalent in Philippine currency of US$4,000.00 at the conversion rate of P8.00 to $1.00. Costs
against private respondent. SO ORDERED.
CITADEL LINES, INC., petitioner,
vs.
COURT OF APPEALS* and MANILA WINE MERCHANTS, INC., respondents.
Through this petition, we are asked to review the decision of the Court of Appeals dated December 20,
1988, in CA-G.R. No. CV-10070, 1 which affirmed the August 30, 1985 decision of the Regional Trial Court
of Manila, Branch 27, in Civil Case No. 126415, entitled Manila Wine Merchants, Inc. vs. Citadel Lines, Inc.
and E. Razon, Inc., with a modification by deleting the award of attorney's fees and costs of suit.
The following recital of the factual background of this case is culled from the findings in the decision of the
court a quo and adopted by respondent court based on the evidence of record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent of the vessel
"Cardigan Bay/Strait Enterprise," while respondent Manila Wine Merchants, Inc. (hereafter, the
CONSIGNEE) is the importer of the subject shipment of Dunhill cigarettes from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board at Southampton,
England, for carriage to Manila, 180 Filbrite cartons of mixed British manufactured cigarettes called
"Dunhill International Filter" and "Dunhill International Menthol," as evidenced by Bill of Lading No.
70621374 2 and Bill of Lading No. 70608680 3 of the Ben Line Containers Ltd. The shipment arrived at the
Port of Manila Pier 13, on April 18, 1979 in container van No. BENU 204850-9. The said container was
received by E. Razon, Inc. (later known as Metro Port Service, Inc. and referred to herein as the
ARRASTRE) under Cargo Receipt No. 71923 dated April 18, 1979. 4
On April 30, 1979, the container van, which contained two shipments was stripped. One shipment was
delivered and the other shipment consisting of the imported British manufactured cigarettes was palletized.
Due to lack of space at the Special Cargo Coral, the aforesaid cigarettes were placed in two containers
with two pallets in container No. BENU 204850-9, the original container, and four pallets in container No.
BENU 201009-9, with both containers duly padlocked and sealed by the representative of the CARRIER.
In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van No. BENU
201009-9 had a different padlock and the seal was tampered with. The matter was reported to Jose G.
Sibucao, Pier Superintendent, Pier 13, and upon verification, it was found that 90 cases of imported British
manufactured cigarettes were missing. This was confirmed in the report of said Superintendent Sibucao to
Ricardo Cosme, Assistant Operations Manager, dated May 1, 1979 5 and the Official Report/Notice of
Claim of Citadel Lines, Inc. to E. Razon, Inc. dated May 8, 1979. 6 Per investigation conducted by the
ARRASTRE, it was revealed that the cargo in question was not formally turned over to it by the CARRIER
but was kept inside container van No. BENU 201009-9 which was padlocked and sealed by the
representatives of the CARRIER without any participation of the ARRASTRE.
When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated May 21,
1979, 7 with the CARRIER, demanding the payment of P315,000.00 representing the market value of the
missing cargoes. The CARRIER, in its reply letter dated May 23, 1979, 8 admitted the loss but alleged that
the same occurred at Pier 13, an area absolutely under the control of the ARRASTRE. In view thereof, the
CONSIGNEE filed a formal claim, dated June 4, 1979, 9 with the ARRASTRE, demanding payment of the
value of the goods but said claim was denied.
After trial, the lower court rendered a decision on August 30, 1985, exonerating the ARRASTRE of any
liability on the ground that the subject container van was not formally turned over to its custody, and
adjudging the CARRIER liable for the principal amount of P312,480.00 representing the market value of
the lost shipment, and the sum of P30,000.00 as and for attorney's fees and the costs of suit.
As earlier stated, the court of Appeals affirmed the decision of the court a quo but deleted the award of
attorney's fees and costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was in the custody of E. Razon, Inc. or of Citadel
Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier contained in the bill of lading is binding on the
consignee.
The first issue is factual in nature. The Court of Appeals declared in no uncertain terms that, on the basis
of the evidence presented, the subject cargo which was placed in a container van, padlocked and sealed
by the representative of the CARRIER was still in its possession and control when the loss occurred, there
having been no formal turnover of the cargo to the ARRASTRE. Besides, there is the categorical
admission made by two witnesses, namely, Atty. Lope M. Velasco and Ruben Ignacio, Claims Manager
and Head Checker, respectively, of the CARRIER, 10 that for lack of space the containers were not turned
over to and as the responsibility of E. Razon Inc. The CARRIER is now estopped from claiming otherwise.
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. 11 If the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that
they observed extra ordinary diligence as required in Article 1733 of the Civil Code. 12 The duty of the
consignee is to prove merely that the goods were lost. Thereafter, the burden is shifted to the carrier to
prove that it has exercised the extraordinary diligence required by law. And, its extraordinary responsibility
lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or constructively, by the carrier to the consignee or
to the person who has the right to receive them. 13
Considering, therefore, that the subject shipment was lost while it was still in the custody of herein
petitioner CARRIER, and considering further that it failed to prove that the loss was occasioned by an
excepted cause, the inescapable conclusion is that the CARRIER was negligent and should be held liable
therefor.
The cases cited by petitioner in support of its allegations to the contrary do not find proper application in
the case at bar simply because those cases involve a situation wherein the shipment was turned over to
the custody and possession of the arrastre operator.
We, however, find the award of damages in the amount of P312,800.00 for the value of the goods lost,
based on the alleged market value thereof, to be erroneous. It is clearly and expressly provided under
Clause 6 of the aforementioned bills of lading issued by the CARRIER that its liability is limited to $2.00 per
kilo. Basic is the rule, long since enshrined as a statutory provision, that a stipulation limiting the liability of
the carrier to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding. 14 Further, a contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon. 15
The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does not appear in
the bills of lading. 16 Hence, the stipulation on the carrier's limited liability applies. There is no question that
the stipulation is just and reasonable under the circumstances and have been fairly and freely agreed upon.
In Sea-land Service, Inc.vs. Intermediate Appellate Court, et al. 17 we there explained what is a just and
reasonable, and a fair and free, stipulation, in this wise:
. . . That said stipulation is just and reasonable arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To
hold otherwise would amount to questioning the justice and fairness of that law itself, and this the private
respondent does not pretend to do. But over and above that consideration the just and reasonable
character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of
liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading. And since the shipper here has not been heard to complain of having
been "rushed," imposed upon or deceived in any significant way into agreeing to ship the cargo under a bill
of lading carrying such a stipulation — in fact, it does not appear, that said party has been heard from at all
insofar as this dispute is concerned — there is simply no ground for assuming that its agreement thereto
was not as the law would require, freely and fairly sought and well.
The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since 90 cartons were
lost and the weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the CARRIER's liability amounts to
only US$4,467.60.
WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel Lines, Inc. is
ordered to pay private respondent Manila Wine Merchants, Inc. the sum of US$4,465.60. or its equivalent
in Philippine currency at the exchange rate obtaining at the time of payment thereof. In all other respects,
said judgment of respondent Court is AFFIRMED.
SO ORDERED.
EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT OF APPEALS and HERNANDEZ
TRADING CO. INC., respondents.
DECISION
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the
decision[1] of the Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the
decision of the Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding
petitioner liable to private respondent Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO
C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a
foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to
Manila on board ADELFAEVERETTE, a vessel owned by petitioners principal, Everett Orient Lines. The
said crates were covered by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was
missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to
private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo
amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the
amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay
only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the
covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil
Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer
and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment [2] in favor of private respondent, ordering
petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value of
the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for and as
contingent attorneys fees; and (d) to pay the cost of the suit. The trial court ruled:
Considering defendants categorical admission of loss and its failure to overcome the
presumption of negligence and fault, the Court conclusively finds defendant liable to the
plaintiff. The next point of inquiry the Court wants to resolve is the extent of the liability of the
defendant. As stated earlier, plaintiff contends that defendant should be held liable for the
whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms
appearing at the back of the bill of lading was so written in fine prints and that the same was
not signed by plaintiff or shipper thus, they are not bound by the clause stated in paragraph 18
of the bill of lading. On the other hand, defendant merely admitted that it lost the shipment but
shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code -
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.
It is required, however, that the contract must be reasonable and just under the circumstances
and has been fairly and freely agreed upon. The requirements provided in Art. 1750 of the New
Civil Code must be complied with before a common carrier can claim a limitation of its
pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken to
transport.
In the case at bar, the Court is of the view that the requirements of said article have not been
met. The fact that those conditions are printed at the back of the bill of lading in letters so small
that they are hard to read would not warrant the presumption that the plaintiff or its supplier
was aware of these conditions such that he had fairly and freely agreed to these conditions. It
can not be said that the plaintiff had actually entered into a contract with the defendant,
embodying the conditions as printed at the back of the bill of lading that was issued by the
defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed the trial courts
findings with the additional observation that private respondent can not be bound by the terms and
conditions of the bill of lading because it was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the appellee
(Hernandez Trading Co.) consented to the terms of the Bill of Lading. The shipper named in
the Bill of Lading is Maruman Trading Co., Ltd. whom the appellant (Everett Steamship Corp.)
contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of
the bill of lading when it delivered the cargo to the appellant, still it does not necessarily follow
that appellee Hernandez Trading Company as consignee is bound thereby considering that
the latter was never privy to the shipping contract.
xxxxxxxxx
 Never having entered into a contract with the appellant, appellee should therefore not be
bound by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of
which is not the breach of contract as appellee was never a privy to the any contract with the
appellant, but is based on Article 1735 of the New Civil Code, there being no evidence to prove
satisfactorily that the appellant has overcome the presumption of negligence provided for in the
law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of
the consignee to the terms and conditions of the bill of lading is necessary to make such stipulations
binding upon it; (2) in holding that the carriers limited package liability as stipulated in the bill of lading does
not apply in the instant case; and (3) in allowing private respondent to fully recover the full alleged value of
its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo
to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which provide:
ART. 1749. A stipulation that the common carriers liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of
cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate Court[4], we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity
and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable
on the basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is
not declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the
justness and fairness of the law itself, and this the private respondent does not pretend to do. But over and
above that consideration, the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in the bill of lading..
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common
carriers liability for loss must be reasonable and just under the circumstances, and has been freely and
fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of
the shippers net invoice cost plus freight and insurance premiums, if paid, and in no event shall
the carrier be liable for any loss of possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods
in an amount exceeding One Hundred Thousand Yen in Japanese Currency (Y100,000.00) or
its equivalent in any other currency per package or customary freight unit (whichever is
least) unless the value of the goods higher than this amount is declared in writing by the
shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra
freight is paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it
clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the
shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was
higher than the limited liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and freely agreed to the
limited liability clause in the bill of lading because the said conditions were printed in small letters does not
make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals[5] that the jurisprudence on the matter reveals the
consistent holding of the court that contracts of adhesion are not invalid per se and that it has on
numerous occasions upheld the binding effect thereof. Also, in Philippine American General Insurance
Co., Inc. vs. Sweet Lines , Inc.[6] this Court , speaking through the learned Justice Florenz D. Regalado,
held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of adhesion wherein one
party imposes a ready-made form of contract on the other x x x are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres he gives his consent. In the present case, not even an allegation of ignorance of a
party excuses non-compliance with the contractual stipulations since the responsibility for
ensuring full comprehension of the provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations in contracts of adhesion
are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x, he is nevertheless
bound by the provisions thereof. Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latters lack of knowledge
or assent to the regulation. It is what is known as a contract of adhesion, in regards which it
has been said that contracts of adhesion wherein one party imposes a ready-made form of
contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives
his consent. x x x , a contract limiting liability upon an agreed valuation does not offend against
the policy of the law forbidding one from contracting against his own negligence. (Emphasis
supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that
the said contracts must be carefully scrutinized in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants,[8] such as the bill of lading in question. The
stringent requirement which the courts are enjoined to observe is in recognition of Article 24 of the Civil
Code which mandates that (i)n all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender
age or other handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading
business. It can not be said to be ignorant of the business transactions it entered into involving the
shipment of its goods to its customers. The shipper could not have known, or should know the stipulations
in the bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover,
Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing to
ship the cargo in petitioners vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is not a
signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if
the consignee was not a signatory to the contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to
recover from the carrier or shipper for loss of, or damage to goods being transported under
said bill, although that document may have been- as in practice it oftentimes is-drawn up
only by the consignor and the carrier without the intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the
shipper and the carrier, springs from either a relation of agency that may exist between
him and the shipper or consignor, or his status as stranger in whose favor some
stipulation is made in said contract, and who becomes a party thereto when he
demands fulfillment of that stipulation, in this case the delivery of the goods or cargo
shipped. In neither capacity can he assert personally, in bar to any provision of the bill
of lading, the alleged circumstance that fair and free agreement to such provision was
vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may be
observed that in one comparatively recent case (Phoenix Assurance Company vs. Macondray
& Co., Inc., 64 SCRA 15) where this Court found that a similar package limitation clause
was printed in the smallest type on the back of the bill of lading, it nonetheless ruled
that the consignee was bound thereby on the strength of authority holding that such
provisions on liability limitation are as much a part of a bill of lading as though
physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of
freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of
the carrier to an agreed valuation unless the shipper declares a higher value and inserts it
into said contract or bill. This proposition, moreover, rests upon an almost uniform weight of
authority. (Underscoring supplied)
When private respondent formally claimed reimbursement for the missing goods from petitioner and
subsequently filed a case against the latter based on the very same bill of lading, it (private respondent)
accepted the provisions of the contract and thereby made itself a party thereto, or at least has come to
court to enforce it.[9] Thus, private respondent cannot now reject or disregard the carriers limited liability
stipulation in the bill of lading. In other words, private respondent is bound by the whole stipulations in the
bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for the full value of the lost
cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared
the shipment x x x, the contents of each crate, the dimensions, weight and value of the contents,"[10] as
shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents, quantity and
value of "the shipment which consisted of three pre-packed crates described in Bill of Lading No.
NGO-53MN merely as 3 CASES SPARE PARTS.[11]
The bill of lading in question confirms petitioners contention. To defeat the carriers limited liability,
the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing a
higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in the
bill of lading, with the extra freight paid. These requirements in the bill of lading were never complied with
by the shipper, hence, the liability of the carrier under the limited liability clause stands. The commercial
Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner has knowledge of
the value of the cargo as contended by private respondent. No other evidence was proffered by private
respondent to support is contention. Thus, we are convinced that petitioner should be liable for the full
value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand
(Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No.
42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, respondents.
DECISION
ROMERO, J.:
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
respondent Court of Appeals[1] promulgated on September 7, 1995, which affirmed the award of damages
and attorneys fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of
private respondent GOP Mahtani as well as the dismissal of its third-party complaint against Philippine
Airlines (PAL).[2]
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he
obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a
ticket from BA where the following itinerary was indicated:[3]
CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via
PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be
transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and
that upon inquiry from the BA representatives, he was told that the same might have been diverted to
London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by
accomplishing the Property Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
attorneys fees[5] against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim[6] to the complaint raising, as special
and affirmative defenses, that Mahtani did not have a cause of action against it.Likewise, on November 9,
1990, BA filed a third-party complaint[7] against PAL alleging that the reason for the non-transfer of the
luggage was due to the latters late arrival in Hongkong, thus leaving hardly any time for the proper transfer
of Mahtanis luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any
liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in
Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered as
transfer to BA.[8]
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in
favor of Mahtani,[9] the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the
defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand
(P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of plaintiffs luggage; Fifty Thousand (P50,000.00) Pesos
for moral and actual damages and twenty percent (20%) of the total amount imposed against
the defendant for attorneys fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for
lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial courts
findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from
to be in accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs
against defendant-appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of Appeals decision.
In essence, BA assails the award of compensatory damages and attorneys fees, as well as the
dismissal of its third-party complaint against PAL.[11]
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the
separate sum of P7,000.00 for the loss of Mahtanis two pieces of luggage was without basis since Mahtani
in his complaint[12] stated the following as the value of his personal belongings:
8. On said travel, plaintiff took with him the following items and its corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for
in the ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in
advance and additional charges are paid:
1. For most international travel (including domestic corporations of international journeys) the
liability limit is approximately U.S. $9.07 per pound (U.S. $20.00) per kilo for checked baggage
and U.S. $400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an airlines contract
of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its destination
and a contract to transport passengers to their destination. A business intended to serve the travelling
public primarily, it is imbued with public interest, hence, the law governing common carriers imposes an
exacting standard.[14] Neglect or malfeasance by the carriers employees could predictably furnish bases
for an action for damages.[15]
In the instant case, it is apparent that the contract of carriage was between Mahtani and
BA. Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a
number of cases[16] we have assessed the airlines culpability in the form of damages for breach of contract
involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal
connection to defendants acts.[17]
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed to show
receipts of the alleged gifts for the members of his family in Bombay, the most that can be
expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00)
per kilo, or a combined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos
representing the contents plus Seven Thousand (P7,000.00) Pesos representing the purchase
price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no separate award for
the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the
luggage,[18] and therefore, its liability is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to
recover a greater amount. Article 22(1) of the Warsaw Convention,[19] provides as follows:
xxxxxxxxx
(2) In the transportation of checked baggage and goods, the liability of the carrier shall be
limited to a sum of 250 francs per kilogram, unless the consignor has made, at the time the
package was handed over to the carrier, a special declaration of the value at delivery and has
paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a
sum not exceeding the declared sum, unless he proves that the sum is greater than the actual
value to the consignor at delivery.
 American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount
in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff being
binding on the passenger regardless of the passengers lack of knowledge thereof or assent
thereto.[20] This doctrine is recognized in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify that they should be disregarded. [22]
In addition, we have held that benefits of limited liability are subject to waiver such as when the air
carrier failed to raise timely objections during the trial when questions and answers regarding the actual
claims and damages sustained by the passenger were asked.[23]
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of
limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the
misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript of
stenographic notes of Mahtanis direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of
the adverse party to be inadmissible for any reason, the latter has the right to object.However, such right is
a mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity,
lest silence when there is opportunity to speak may operate as a waiver of objections.[25] BA has precisely
failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well.[26] In the early case of Abrenica v. Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against
the admission of any evidence must be made at the proper time, and that if not so made it will
be understood to have been waived. The proper time to make a protest or objection is when,
from the question addressed to the witness, or from the answer thereto, or from the
presentation of proof, the inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to
great respect.[28] Since the actual value of the luggage involved appreciation of evidence, a task within the
competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a
finding not reviewable by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint against PAL, the Court of Appeals
justified its ruling in this wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants third-party complaint against
PAL.
The contract of air transportation in this case pursuant to the ticket issued by appellant to
plaintiff-appellee was exclusively between the plaintiff Mahtani and defendant-appellant
BA. When plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely acting as
a subcontractor or agent of BA. This is shown by the fact that in the ticket issued by appellant
to plaintiff-appellee, it is specifically provided on the Conditions of Contract, paragraph 4
thereof that:
4. x x x carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is regarded as a
single operation and that the carrier issuing the passengers ticket is considered the principal
party and the other carrier merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko,[31] we expounded on the
nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a third party who is neither
a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case
with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such
third-party defendant a right for contribution, indemnity, subrogation or any other relief, in
respect of the plaintiffs claim. The third-party complaint is actually independent of and separate
and distinct from the plaintiffs complaint. Were it not for this provision of the Rules of Court, it
would have to be filed independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiffs claim
against a third-party in the original and principal case with the object of avoiding circuitry of
action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation
the entire subject matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the
latter naturally denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively
between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the formers journey to
PAL, as its subcontractor or agent. In fact, the fourth paragraph of the Conditions of Contracts of the
ticket[32] issued by BA to Mahtani confirms that the contract was one of continuous air transportation from
Manila to Bombay.
4. x x x carriage to be performed hereunder by several successive carriers is regarded as a
single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from
Manila to Hongkong acted as the agent of BA.
 Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that
an agent is also responsible for any negligence in the performance of its function[33] and is liable for
damages which the principal may suffer by reason of its negligent act.[34] Hence, the Court of Appeals
erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or
sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air Transport
Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their relationship.[35] Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being the principal, since it was the one
which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa
German Airlines v. Court of Appeals.[36] In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda
covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to
carry Antiporda to a specific destination bumped him off.
An action for damages was filed against Lufthansa which, however, denied any liability, contending
that its responsibility towards its passenger is limited to the occurrence of a mishap on its own
line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage
with Antiporda and remains to be so, regardless of those instances when actual carriage was
to be performed by various carriers. The issuance of confirmed Lufthansa ticket in favor of
Antiporda covering his entire five-leg trip aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA
alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is
relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of
Appeals,[37] while not exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another carrier,
is also liable for its own negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the
purpose of ultimately determining who was primarily at fault as between them, is without legal basis. After
all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving
the same or similar evidence for both cases and enforcing separate judgments therefor. It must be borne
in mind that the purpose of a third-party complaint is precisely to avoid delay and circuity of action and to
enable the controversy to be disposed of in one suit.[38] It is but logical, fair and equitable to allow BA to sue
PAL for indemnification, if it is proven that the latters negligence was the proximate cause of Mahtanis
unfortunate experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No.
43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No costs.
SO ORDERED.
SWEET LINES, INC., petitioner,
vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII, LEOVIGILDO
TANDOG, JR., and ROGELIO TIRO, respondents.
Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.
Leovigildo Vallar for private respondents.
SANTOS, J.:
This is an original action for Prohibition with Pre Injunction filed October 3, 1973 to restrain respondent
Judge from proceeding further with Civil Case No. 4091, entitled Leovigildo D. Tandog, Jr. and Rogelio
Tiro v. Sweet Lines, Inc." after he denied petitioner's Motion to Dismiss the complaint, and the Motion for
Reconsideration of said order. 1
Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and Rogelio Tiro, a
contractor by professions, bought tickets Nos. 0011736 and 011737 for Voyage 90 on December 31, 1971
at the branch office of petitioner, a shipping company transporting inter-island passengers and cargoes, at
Cagayan de Oro City. Respondents were to board petitioner's vessel, M/S "Sweet Hope" bound for
Tagbilaran City via the port of Cebu. Upon learning that the vessel was not proceeding to Bohol, since
many passengers were bound for Surigao, private respondents per advice, went to the branch office for
proper relocation to M/S "Sweet Town". Because the said vessel was already filled to capacity, they were
forced to agree "to hide at the cargo section to avoid inspection of the officers of the Philippine
Coastguard." Private respondents alleged that they were, during the trip," "exposed to the scorching heat
of the sun and the dust coming from the ship's cargo of corn grits," and that the tickets they bought at
Cagayan de Oro City for Tagbilaran were not honored and they were constrained to pay for other tickets.
In view thereof, private respondents sued petitioner for damages and for breach of contract of carriage in
the alleged sum of P10,000.00 before respondents Court of First Instance of Misamis Oriental. 2
Petitioner moved to dismiss the complaint on the ground of improper venue. This motion was premised on
the condition printed at the back of the tickets, i.e., Condition No. 14, which reads:
14. It is hereby agreed and understood that any and all actions arising out of the conditions and provisions
of this ticket, irrespective of where it is issued, shall be filed in the competent courts in the City of Cebu. 3
The motion was denied by the trial court. 4 Petitioner moved to reconnsider the order of denial, but no
avail. 5 Hence, this instant petition for prohibition for preliminary injunction, 'alleging that the respondent
judge has departed from the accepted and usual course of judicial preoceeding" and "had acted without or
in excess or in error of his jurisdicton or in gross abuse of discretion. 6
In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding further with the
case and required respondent to comment. 7 On January 18, 1974, We gave due course to the petition
and required respondent to answer. 8 Thereafter, the parties submitted their respesctive memoranda in
support of their respective contentions. 9
Presented thus for Our resolution is a question is aquestion which, to all appearances, is one of first
impression, to wit — Is Condition No. 14 printed at the back of the petitioner's passage tickets purchased
by private respondents, which limits the venue of actions arising from the contract of carriage to theCourt
of First Instance of Cebu, valid and enforceable? Otherwise stated, may a common carrier engaged in
inter-island shipping stipulate thru condition printed at the back of passage tickets to its vessels that any
and all actions arising out of the ocntract of carriage should be filed only in a particular province or city, in
this case the City of Cebu, to the exclusion of all others?
Petitioner contends thaty Condition No. 14 is valid and enforceable, since private respndents acceded to tit
when they purchased passage tickets at its Cagayan de Oro branch office and took its vessel M/S "Sweet
Town" for passage to Tagbilaran, Bohol — that the condition of the venue of actions in the City of Cebu is
proper since venue may be validly waived, citing cases; 10 that is an effective waiver of venue, valid and
binding as such, since it is printed in bold and capital letters and not in fine print and merely assigns the
place where the action sing from the contract is institution likewise citing cases; 11 and that condition No.
14 is unequivocal and mandatory, the words and phrases "any and all", "irrespective of where it is issued,"
and "shag" leave no doubt that the intention of Condition No. 14 is to fix the venue in the City of Cebu, to
the exclusion of other places; that the orders of the respondent Judge are an unwarranted departure from
established jurisprudence governing the case; and that he acted without or in excess of his jurisdiction in is
the orders complained of. 12
On the other hand, private respondents claim that Condition No. 14 is not valid, that the same is not an
essential element of the contract of carriage, being in itself a different agreement which requires the
mutual consent of the parties to it; that they had no say in its preparation, the existence of which they could
not refuse, hence, they had no choice but to pay for the tickets and to avail of petitioner's shipping facilities
out of necessity; that the carrier "has been exacting too much from the public by inserting impositions in
the passage tickets too burdensome to bear," that the condition which was printed in fine letters is an
imposition on the riding public and does not bind respondents, citing cases; 13 that while venue 6f actions
may be transferred from one province to another, such arrangement requires the "written agreement of the
parties", not to be imposed unilaterally; and that assuming that the condition is valid, it is not exclusive and
does not, therefore, exclude the filing of the action in Misamis Oriental, 14
There is no question that there was a valid contract of carriage entered into by petitioner and private
respondents and that the passage tickets, upon which the latter based their complaint, are the best
evidence thereof. All the essential elements of a valid contract, i.e., consent, cause or consideration and
object, are present. As held in Peralta de Guerrero, et al. v. Madrigal Shipping Co., Inc., 15
It is a matter of common knowledge that whenever a passenger boards a ship for transportation from one
place to another he is issued a ticket by the shipper which has all the elements of a written contract,
Namely: (1) the consent of the contracting parties manifested by the fact that the passenger boards the
ship and the shipper consents or accepts him in the ship for transportation; (2) cause or consideration
which is the fare paid by the passenger as stated in the ticket; (3) object, which is the transportation of the
passenger from the place of departure to the place of destination which are stated in the ticket.
It should be borne in mind, however, that with respect to the fourteen (14) conditions — one of which is
"Condition No. 14" which is in issue in this case — printed at the back of the passage tickets, these are
commonly known as "contracts of adhesion," the validity and/or enforceability of which will have to be
determined by the peculiar circumstances obtaining in each case and the nature of the conditions or terms
sought to be enforced. For, "(W)hile generally, stipulations in a contract come about after deliberate
drafting by the parties thereto, ... there are certain contracts almost all the provisions of which have been
drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because
the only participation of the party is the signing of his signature or his 'adhesion' thereto. Insurance
contracts, bills of lading, contracts of make of lots on the installment plan fall into this category" 16
By the peculiar circumstances under which contracts of adhesion are entered into — namely, that it is
drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other
party, in this instance the passengers, private respondents, who cannot change the same and who are
thus made to adhere thereto on the "take it or leave it" basis — certain guidelines in the determination of
their validity and/or enforceability have been formulated in order to that justice and fan play characterize
the relationship of the contracting parties. Thus, this Court speaking through Justice J.B.L. Reyes in Qua
Chee Gan v. Law Union and Rock Insurance Co., 17 and later through Justice Fernando in Fieldman
Insurance v. Vargas, 18 held —
The courts cannot ignore that nowadays, monopolies, cartels and concentration of capital endowed with
overwhelm economic power, manage to impose upon parties d with them y prepared 'agreements' that the
weaker party may not change one whit his participation in the 'agreement' being reduced to the alternative
'to take it or leave it,' labelled since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion) in
contrast to those entered into by parties bargaining on an equal footing. Such contracts (of which policies
of insurance and international bill of lading are prime examples) obviously cap for greater strictness and
vigilance on the part of the courts of justice with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary.
To the same effect and import, and, in recognition of the character of contracts of this kind, the protection
of the disadvantaged is expressly enjoined by the New Civil Code —
In all contractual property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance indigence, mental weakness, tender age and other handicap, the courts
must be vigilant for his
protection. 19
Considered in the light Of the foregoing norms and in the context Of circumstances Prevailing in the
inter-island ship. ping industry in the country today, We find and hold that Condition No. 14 printed at the
back of the passage tickets should be held as void and unenforceable for the following reasons first, under
circumstances obligation in the inter-island ship. ping industry, it is not just and fair to bind passengers to
the terms of the conditions printed at the back of the passage tickets, on which Condition No. 14 is Printed
in fine letters, and second, Condition No. 14 subverts the public policy on transfer of venue of proceedings
of this nature, since the same will prejudice rights and interests of innumerable passengers in different s of
the country who, under Condition No. 14, will have to file suits against petitioner only in the City of Cebu.
1. It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth of and
acute shortage in inter- island vessels plying between the country's several islands, and the facilities they
offer leave much to be desired. Thus, even under ordinary circumstances, the piers are congested with
passengers and their cargo waiting to be transported. The conditions are even worse at peak and/or the
rainy seasons, when Passengers literally scramble to whatever accommodations may be availed of, even
through circuitous routes, and/or at the risk of their safety — their immediate concern, for the moment,
being to be able to board vessels with the hope of reaching their destinations. The schedules are — as
often as not if not more so — delayed or altered. This was precisely the experience of private respondents
when they were relocated to M/S "Sweet Town" from M/S "Sweet Hope" and then any to the scorching
heat of the sun and the dust coming from the ship's cargo of corn grits, " because even the latter was filed
to capacity.
Under these circumstances, it is hardly just and proper to expect the passengers to examine their tickets
received from crowded/congested counters, more often than not during rush hours, for conditions that may
be printed much charge them with having consented to the conditions, so printed, especially if there are a
number of such conditions m fine print, as in this case. 20
Again, it should be noted that Condition No. 14 was prepared solely at the ms of the petitioner,
respondents had no say in its preparation. Neither did the latter have the opportunity to take the into
account prior to the purpose chase of their tickets. For, unlike the small print provisions of contracts — the
common example of contracts of adherence — which are entered into by the insured in his awareness of
said conditions, since the insured is afforded the op to and co the same, passengers of inter-island v do
not have the same chance, since their alleged adhesion is presumed only from the fact that they purpose
chased the tickets.
It should also be stressed that slapping companies are franchise holders of certificates of public
convenience and therefore, posses a virtual monopoly over the business of transporting passengers
between the ports covered by their franchise. This being so, shipping companies, like petitioner, engaged
in inter-island shipping, have a virtual monopoly of the business of transporting passengers and may thus
dictate their terms of passage, leaving passengers with no choice but to buy their tickets and avail of their
vessels and facilities. Finally, judicial notice may be taken of the fact that the bulk of those who board these
inter-island vested come from the low-income groups and are less literate, and who have little or no choice
but to avail of petitioner's vessels.
2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although venue
may be changed or transferred from one province to another by agreement of the parties in writing t to
Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it practically
negates the action of the claimants, such as the private respondents herein. The philosophy underlying the
provisions on transfer of venue of actions is the convenience of the plaintiffs as well as his witnesses and
to promote 21 the ends of justice. Considering the expense and trouble a passenger residing outside of
Cebu City would incur to prosecute a claim in the City of Cebu, he would most probably decide not to file
the action at all. The condition will thus defeat, instead of enhance, the ends of justice. Upon the other
hand, petitioner has branches or offices in the respective ports of call of its vessels and can afford to
litigate in any of these places. Hence, the filing of the suit in the CFI of Misamis Oriental, as was done in
the instant case, will not cause inconvenience to, much less prejudice, petitioner.
Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully do that which
has a tendency to be injurious to the public or against the public good ... 22 Under this principle" ... freedom
of contract or private dealing is restricted by law for the good of the public. 23 Clearly, Condition No. 14, if
enforced, will be subversive of the public good or interest, since it will frustrate in meritorious cases,
actions of passenger cants outside of Cebu City, thus placing petitioner company at a decided advantage
over said persons, who may have perfectly legitimate claims against it. The said condition should,
therefore, be declared void and unenforceable, as contrary to public policy — to make the courts
accessible to all who may have need of their services.
WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining order issued on November 20,
1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.
PARMANAND SHEWARAM, plaintiff and appellee,
vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an
action to recover damages suffered by him due to the alleged failure of defendant-appellant Philippines Air
Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After trial the
municipal court of Zamboanga City rendered judgment ordering the appellant to pay appellee P373.00 as
actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After hearing the
Court of First Instance of Zamboanga City modified the judgment of the inferior court by ordering the
appellant to pay the appellee only the sum of P373.00 as actual damages, with legal interest from May 6,
1960 and the sum of P150.00 as attorney's fees, eliminating the award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on a
question of law, assigning two errors allegedly committed by the lower court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the tariff
regulations filed by defendant-appellant with the civil aeronautics board and the conditions of carriage
printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the defendant-appellant to
P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger with
ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga City bound for Manila; that
defendant is a common carrier engaged in air line transportation in the Philippines, offering its services to
the public to carry and transport passengers and cargoes from and to different points in the Philippines;
that on the above-mentioned date of November 23, 1959, he checked in three (3) pieces of baggages — a
suitcase and two (2) other pieces; that the suitcase was mistagged by defendant's personnel in
Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (for Manila). When
plaintiff Parmanand Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not
arrive with his flight because it was sent to Iligan. So, he made a claim with defendant's personnel in
Manila airport and another suitcase similar to his own which was the only baggage left for that flight, the
rest having been claimed and released to the other passengers of said flight, was given to the plaintiff for
him to take delivery but he did not and refused to take delivery of the same on the ground that it was not
his, alleging that all his clothes were white and the National transistor 7 and a Rollflex camera were not
found inside the suitcase, and moreover, it contained a pistol which he did not have nor placed inside his
suitcase; that after inquiries made by defendant's personnel in Manila from different airports where the
suitcase in question must have been sent, it was found to have reached Iligan and the station agent of the
PAL in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaram and which suitcase
belonging to the plaintiff herein arrived in Manila airport on November 24, 1959; that it was also found out
that the suitcase shown to and given to the plaintiff for delivery which he refused to take delivery belonged
to a certain Del Rosario who was bound for Iligan in the same flight with Mr. Shewaram; that when the
plaintiff's suitcase arrived in Manila as stated above on November 24, 1959, he was informed by Mr.
Tomas Blanco, Jr., the acting station agent of the Manila airport of the arrival of his suitcase but of course
minus his Transistor Radio 7 and the Rollflex Camera; that Shewaram made demand for these two (2)
items or for the value thereof but the same was not complied with by defendant.
xxx xxx xxx
It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The tampering
of the suitcase is more apparent when on November 24, 1959, when the suitcase arrived in Manila,
defendant's personnel could open the same in spite of the fact that plaintiff had it under key when he
delivered the suitcase to defendant's personnel in Zamboanga City. Moreover, it was established during
the hearing that there was space in the suitcase where the two items in question could have been placed.
It was also shown that as early as November 24, 1959, when plaintiff was notified by phone of the arrival of
the suitcase, plaintiff asked that check of the things inside his suitcase be made and defendant admitted
that the two items could not be found inside the suitcase. There was no evidence on record sufficient to
show that plaintiff's suitcase was never opened during the time it was placed in defendant's possession
and prior to its recovery by the plaintiff. However, defendant had presented evidence that it had authority to
open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the defendant would
show that the baggage that was offered to plaintiff as his own was opened and the plaintiff denied
ownership of the contents of the baggage. This proven fact that baggage may and could be opened
without the necessary authorization and presence of its owner, applied too, to the suitcase of plaintiff
which was mis-sent to Iligan City because of mistagging. The possibility of what happened in the baggage
of Mr. Del Rosario at the Manila Airport in his absence could have also happened to plaintiffs suitcase at
Iligan City in the absence of plaintiff. Hence, the Court believes that these two items were really in plaintiff's
suitcase and defendant should be held liable for the same by virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said court had found that the
suitcase of the appellee was tampered, and the transistor radio and the camera contained therein were
lost, and that the loss of those articles was due to the negligence of the employees of the appellant. The
evidence shows that the transistor radio cost P197.00 and the camera cost P176.00, so the total value of
the two articles was P373.00.
There is no question that the appellant is a common carrier. 1 As such common carrier the appellant, from
the nature of its business and for reasons of public policy, is bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by it according to the
circumstances of each case. 2 It having been shown that the loss of the transistor radio and the camera of
the appellee, costing P373.00, was due to the negligence of the employees of the appellant, it is clear that
the appellant should be held liable for the payment of said loss.3
A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon.
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability
of a common carrier may, by contract, be limited to a fixed amount. It is required, however, that the
contract must be "reasonable and just under the circumstances and has been fairly and freely agreed
upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with before a common
carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the
goods it has undertaken to transport. In the case before us We believe that the requirements of said article
have not been met. It can not be said that the appellee had actually entered into a contract with the
appellant, embodying the conditions as printed at the back of the ticket stub that was issued by the
appellant to the appellee. The fact that those conditions are printed at the back of the ticket stub in letters
so small that they are hard to read would not warrant the presumption that the appellee was aware of
those conditions such that he had "fairly and freely agreed" to those conditions. The trial court has
categorically stated in its decision that the "Defendant admits that passengers do not sign the ticket, much
less did plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore,
that the appellee is not, and can not be, bound by the conditions of carriage found at the back of the ticket
stub issued to him when he made the flight on appellant's plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles 1734 and
1735 of the New Civil Code, which We quote as follows:
ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

It is, however, contended by the appellant that its liability should be limited to the amount stated in the
conditions of carriage printed at the back of the plane ticket stub which was issued to the appellee, which
conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil Aeronautics (3) Act or omission of the shipper or owner of the goods;
Board. One of those conditions, which is pertinent to the issue raised by the appellant in this case provides
as follows: (4) The character of the goods or defects in the packing or in the containers;

The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is limited to (5) Order or act of competent public authority.1äwphï1.ñët
its value and, unless the passenger declares in advance a higher valuation and pay an additional charge
therefor, the value shall be conclusively deemed not to exceed P100.00 for each ticket.
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have
The appellant maintains that in view of the failure of the appellee to declare a higher value for his luggage, acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.
and pay the freight on the basis of said declared value when he checked such luggage at the Zamboanga
City airport, pursuant to the abovequoted condition, appellee can not demand payment from the appellant
It having been clearly found by the trial court that the transistor radio and the camera of the appellee were
of an amount in excess of P100.00.
lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant is clear
— it must pay the appellee the value of those two articles.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code which provides as
follows:
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its decision, this
Court had laid down the rule that the carrier can not limit its liability for injury to or loss of goods shipped
where such injury or loss was caused by its own negligence.

Corpus Juris, volume 10, p. 154, says:

"Par. 194, 6. Reasonableness of Limitations. — The validity of stipulations limiting the carrier's liability is to
be determined by their reasonableness and their conformity to the sound public policy, in accordance with
which the obligations of the carrier to the public are settled. It cannot lawfully stipulate for exemption from
liability, unless such exemption is just and reasonable, and unless the contract is freely and fairly made.
No contractual limitation is reasonable which is subversive of public policy.

"Par. 195. 7. What Limitations of Liability Permissible. — a. Negligence — (1) Rule in America — (a) In
Absence of Organic or Statutory Provisions Regulating Subject — aa. Majority Rule. — In the absence of
statute, it is settled by the weight of authority in the United States, that whatever limitations against its
common-law liability are permissible to a carrier, it cannot limit its liability for injury to or loss of goods
shipped, where such injury or loss is caused by its own negligence. This is the common law doctrine and it
makes no difference that there is no statutory prohibition against contracts of this character.

"Par. 196. bb. Considerations on which Rule Based. — The rule, it is said, rests on considerations of public
policy. The undertaking is to carry the goods, and to relieve the shipper from all liability for loss or damage
arising from negligence in performing its contract is to ignore the contract itself. The natural effect of a
limitation of liability against negligence is to induce want of care on the part of the carrier in the
performance of its duty. The shipper and the common carrier are not on equal terms; the shipper must
send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier
unless protected by the higher power of the law against being forced into contracts limiting the carrier's
liability. Such contracts are wanting in the element of voluntary assent.

"Par. 197. cc. Application and Extent of Rule — (aa) Negligence of Servants. — The rule prohibiting
limitation of liability for negligence is often stated as a prohibition of any contract relieving the carrier from
loss or damage caused by its own negligence or misfeasance, or that of its servants; and it has been
specifically decided in many cases that no contract limitation will relieve the carrier from responsibility for
the negligence, unskillfulness, or carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51
Phil. 90, 98, 99).

In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.