G.R. No.

149038 April 9, 2003

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,

vs.
PKS SHIPPING COMPANY, respondent.

VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV
No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional
Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner
insurance corporation against respondent shipping company.

Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags
of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00).
DUMC insured the goods for its full value with petitioner Philippine American General Insurance
Company (Philamgen). The goods were loaded aboard the dumb barge Limar I belonging to PKS
Shipping. On the evening of 22 December 1988, about nine o’clock, while Limar Iwas being towed
by respondent’s tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa
Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of cement.

DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly
made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the
shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.

The RTC dismissed the complaint after finding that the total loss of the cargo could have been
caused either by a fortuitous event, in which case the ship owner was not liable, or through the
negligence of the captain and crew of the vessel and that, under Article 587 of the Code of
Commerce adopting the "Limited Liability Rule," the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and earned freightage.

Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the
trial court. The appellate court ruled that evidence to establish that PKS Shipping was a common
carrier at the time it undertook to transport the bags of cement was wanting because the peculiar
method of the shipping company’s carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not being a common
carrier, was not expected to observe the stringent extraordinary diligence required of common
carriers in the care of goods. The appellate court, moreover, found that the loss of the goods was
sufficiently established as having been due to fortuitous event, negating any liability on the part of
PKS Shipping to the shipper.

In the instant appeal, Philamgen contends that the appellate court has committed a patent error in
ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject
cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against
respondent’s being a common carrier and that the only way by which such carrier can be held
exempt for the loss of the cargo would be if the loss were caused by natural disaster or calamity.
Petitioner avers that typhoon "APIANG" has not entered the Philippine area of responsibility and
that, even if it did, respondent would not be exempt from liability because its employees, particularly
the tugmaster, have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen
seeks is not a review on points or errors of law but a review of the undisputed factual findings of the
RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.

The determination of possible liability on the part of PKS Shipping boils down to the question of
whether it is a private carrier or a common carrier and, in either case, to the other question of
whether or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a
common carrier) required of it given the circumstances.

The findings of fact made by the Court of Appeals, particularly when such findings are consistent
with those of the trial court, may not at liberty be reviewed by this Court in a petition for review under
Rule 45 of the Rules of Court.1The conclusions derived from those factual findings, however, are not
necessarily just matters of fact as when they are so linked to, or inextricably intertwined with, a
requisite appreciation of the applicable law. In such instances, the conclusions made could well be
raised as being appropriate issues in a petition for review before this Court. Thus, an issue whether
a carrier is private or common on the basis of the facts found by a trial court or the appellate court
can be a valid and reviewable question of law.

The Civil Code defines "common carriers" in the following terms:

"Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public."

Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it
defines "public service" to be –

"x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, subway motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communication systems, wire or wireless broadcasting stations and other similar
public services. x x x. (Underscoring supplied)."

The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs.
Court of Appeals.2Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public
Service Act, this Court has held:

"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as `a sideline’). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
`general public,’ i.e., the general community or population, and one who offers services or
 solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions.

"So understood, the concept of `common carrier’ under Article 1732 may be seen to coincide
neatly with the notion of `public service,’ under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code."

Much of the distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is an isolated transaction, not a part of the
business or occupation, and the carrier does not hold itself out to carry the goods for the general
public or to a limited clientele, although involving the carriage of goods for a fee,3 the person or
corporation providing such service could very well be just a private carrier. A typical case is that of a
charter party which includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a period of time or a
voyage or voyages4 and gets the control of the vessel and its crew.5 Contrary to the conclusion made
by the appellate court, its factual findings indicate that PKS Shipping has engaged itself in the
business of carrying goods for others, although for a limited clientele, undertaking to carry such
goods for a fee. The regularity of its activities in this area indicates more than just a casual activity
on its part.6 Neither can the concept of a common carrier change merely because individual
contracts are executed or entered into with patrons of the carrier. Such restrictive interpretation
would make it easy for a common carrier to escape liability by the simple expedient of entering into
those distinct agreements with clients.

Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them.7 The provisions of Article 1733,
notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of
the goods due to any of the following causes:

(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; and

(5) Order or act of competent public authority.8

The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective
vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barge’s or the
tugboat’s crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barge’s hatches. The official Certificate of Inspection of the
barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to
the seaworthiness of Limar I and should strengthen the factual findings of the appellate court.

Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court are
contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of
the case and such findings are contrary to the admissions of both appellant and appellee; (6) when
the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court
of Appeals failed to notice certain relevant facts which, if properly considered, would justify a
different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of
fact are conclusions without citation of the specific evidence on which they are based; and (10) when
the findings of fact of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record – would appear to be clearly extant in this
instance.

All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for
the loss of the DUMC cargo.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

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

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF

APPEALS AND VLASONS SHIPPING, INC., respondents.

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

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND

NATIONAL STEEL CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of

a private carrier, its owners responsibility for damage to the cargo and its
liability for demurrage and attorneys fees.The Court also reiterates the well-
known rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.
 The Case

Before us are two separate petitions for review filed by National Steel
Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the
August 12, 1993 Decision of the Court of Appeals. The Court of Appeals
[1]

modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch
163 in Civil Case No. 23317. The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the

plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to
pay the defendant on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest
at the legal rate on both amounts from April 7, 1976 until the same shall have been
fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by

reducing the award for demurrage to P44,000.00 and deleting the award for attorneys
fees and expenses of litigation. Except as thus modified, the decision is
AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such,

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

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of

Bill of Lading within fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of

24 consecutive hours, Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners
not responsible for losses/damages except on proven willful negligence of the officers
of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other

internationally recognized Charter Party Agreement shall form part of this Contract.

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for Freight In and Out including
Stevedoring and Trading, which means that the handling, loading and unloading of the
cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI
Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk
and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all other parts of the vessel
in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or
without the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not
be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter
Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment
of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The
shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo
Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board
and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August
8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12,
1974. The following day, August 13, 1974, when the vessels three (3) hatches
containing the shipment were opened by plaintiffs agents, nearly all the skids of
tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo
was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to
the heavy rain which interrupted the unloading operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called for a
survey of the shipment by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a
report of its ocular inspection conducted on the cargo, both while it was still on board
the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the
cargo was taken and stored. MASCO reported that it found wetting and rusting of the
packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch
covers were noted torn at various extents; that container/metal casings of the skids
were rusting all over. MASCO ventured the opinion that rusting of the tinplates was
caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to
destination (Exhibit F). It was also reported that MASCOs surveyors drew at random
samples of bad order packing materials of the tinplates and delivered the same to the
M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The analysis of
bad order samples of packing materials xxx shows that wetting was caused by contact
with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff
filed with the defendant its claim for damages suffered due to the downgrading of the
damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but defendant VSI refused and failed to
pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
of P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the
defendant to make the vessel seaworthy and to make the holds and all other parts of
the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation -- all in violation of defendants undertaking under their Contract of
Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the
MV VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo;
that said vessel was not a common carrier inasmuch as she was under voyage charter
contract with the plaintiff as charterer under the charter party; that in the course of the
voyage from Iligan City to Manila, the MV VLASONS I encountered very rough
seas, strong winds and adverse weather condition, causing strong winds and big waves
to continuously pound against the vessel and seawater to overflow on its deck and
hatch covers; that under the Contract of Voyage Charter Hire, defendant shall not be
responsible for losses/damages except on proven willful negligence of the officers of
the vessel, that the officers of said MV VLASONS I exercised due diligence and
proper seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on FIOST terms
which means that the vessel was free of risk and expense in connection with the
loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent
defect of the cargo not discoverable by due diligence or to any other cause arising
without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of
plaintiff who discharged the cargo in Manila were negligent and did not exercise due
care in the discharge of the cargo; and that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to plaintiffs warehouse after
discharge from the vessel; and that plaintiffs claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations under
the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed
charter hire of P75,000.00 despite demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on demurrage
for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the
vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount
of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be
ordered to pay defendant attorneys fees and all expenses of litigation in the amount of
not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping

service and is available for hire only under special contracts of charter party as in this
particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire
(Exh. 1), the MV VLASONS I was covered by the required seaworthiness certificates
including the Certification of Classification issued by an international classification
society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of
Transportation (Exh. 5); International Loadline Certificate from the Philippine Coast
Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection
by the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both
overseas and coastwise trade, the MV VLASONS I has a higher degree of
seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract
of Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the
vessels first voyage after the drydocking. The evidence shows that the MV
VLASONS I was seaworthy and properly manned, equipped and supplied when it
undertook the voyage. It had all the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The
hatch openings were covered by hatchboards which were in turn covered by two or
double tarpaulins. The hatch covers were water tight. Furthermore, under the
hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers pursuant
to which there exists a presumption of negligence in case of loss or damage to the
cargo are not applicable. As to the damage to the tinplates which was allegedly due to
the wetting and rusting thereof, there is unrebutted testimony of witness Vicente
Angliongto that tinplates sweat by themselves when packed even without being in
contract (sic) with water from outside especially when the weather is bad or
raining. The rust caused by sweat or moisture on the tinplates may be considered as a
loss or damage but then, defendant cannot be held liable for it pursuant to Article
1734 of the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the character of the goods x x x. All the 1,769 skids of the
tinplates could not have been damaged by water as claimed by plaintiff. It was shown
as claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining
and corrugated cardboards could not be affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were
negligent in not closing the hatch openings of the MV VLASONS I when rains
occurred during the discharging of the cargo thus allowing rainwater to enter the
hatches. It was proven that the stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy for them to resume work when
the rains stopped by just removing the tent or canvas. Because of this improper
covering of the hatches by the stevedores during the discharging and unloading
operations which were interrupted by rains, rainwater drifted into the cargo through
the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party
which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer
and defendant carrier has no liability for whatever damage may occur or maybe [sic]
caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather
while en route from Iligan City to Manila causing sea water to splash on the ships
deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a
Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a
force majeure that would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the
Voyage Charter Hire contract that it was to insure the cargo because it did not. Had
plaintiff complied with the requirement, then it could have recovered its loss or
damage from the insurer. Plaintiff also violated the charter party contract when it
loaded not only steel products, i.e. steel bars, angular bars and the like but also
tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under
paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant
carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not
paid the total freight due of P75,000.00 despite demands. The evidence also showed
that the plaintiff was required and bound under paragraph 7 of the same Voyage
Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading
of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable
to pay defendant for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I

The trial court erred in finding that the MV VLASONS I was seaworthy, properly
manned, equipped and supplied, and that there is no proof of willful negligence
of the vessels officers.
II

The trial court erred in finding that the rusting of NSCs tinplates was due to the
inherent nature or character of the goods and not due to contact with seawater.
III

The trial court erred in finding that the stevedores hired by NSC were negligent
in the unloading of NSCs shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force
majeure.
V

The trial court erred in finding that NSC violated the contract of voyage charter
hire.
VI

The trial court erred in ordering NSC to pay freight, demurrage and attorneys
fees, to VSI. [4]

As earlier stated, the Court of Appeals modified the decision of the trial court
by reducing the demurrage from P88,000.00 to P44,000.00 and deleting the
award of attorneys fees and expenses of litigation. NSC and VSI filed separate
motions for reconsideration. In a Resolution dated October 20, 1993, the
[5]

appellate court denied both motions. Undaunted, NSC and VSI filed their
respective petitions for review before this Court. On motion of VSI, the Court
ordered on February 14, 1994 the consolidation of these petitions. [6]

The Issues

In its petition and memorandum, NSC raises the following questions of

[7] [8]

law and fact:

Questions of Law

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

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessels officers and crew were negligent in handling and caring for
NSCs cargo;
 3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence,
rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of
NSCs tinplates.

In its separate petition, VSI submits for the consideration of this Court the
[9]

following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award
of demurrage from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its

memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on common
carriers pursuant to which there exist[s] a presumption of negligence against the
common carrier in case of loss or damage to the cargo are applicable to a private
carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the
following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

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

Preliminary Matter: Common Carrier or Private Carrier?

 At the outset, it is essential to establish whether VSI contracted with NSC
as a common carrier or as a private carrier. The resolution of this preliminary
question determines the law, standard of diligence and burden of proof
applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. It has been held that the true
test of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a
fee. A carrier which does not qualify under the above test is deemed a private
[11]

carrier. Generally, private carriage is undertaken by special agreement and the

carrier does not hold himself out to carry goods for the general public. The most
typical, although not the only form of private carriage, is the charter party, a
maritime contract by which the charterer, a party other than the shipowner,
obtains the use and service of all or some part of a ship for a period of time or
a voyage or voyages. [12]

In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a special contract of charter party. As [13]

correctly concluded by the Court of Appeals, the MV Vlasons I was not a

common but a private carrier. Consequently, the rights and obligations of VSI
[14]

and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or
charter party. Recently, in Valenzuela Hardwood and Industrial Supply,
[15]

Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, the [16]

Court ruled:

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

Extent of VSIs Responsibility and Liability Over NSCs Cargo

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

shall not be responsible for split, chafing and/or any damage unless caused by
the negligence or default of the master or crew. [19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that

the damage to its shipment was caused by VSIs willful negligence or failure to
exercise due diligence in making MV Vlasons I seaworthy and fit for holding,
carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed
on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently
provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event, force majeure, or the nature and inherent defect
of the things, shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on
account of his negligence or his omission to take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading, making him
to believe that the goods were of a class or quality different from what they really
were.
 Because the MV Vlasons I was a private carrier, the shipowners obligations
are governed by the foregoing provisions of the Code of Commerce and not by
the Civil Code which, as a general rule, places the prima facie presumption of
negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on
the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that
the goods were lost or damaged while in the carriers custody does not put the burden
of proof on the carrier.

Since x x x a private carrier is not an insurer but undertakes only to exercise due care
in the protection of the goods committed to its care, the burden of proving negligence
or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo
while in the carriers possession does not cast on it the burden of proving proper care
and diligence on its part or that the loss occurred from an excepted cause in the
contract or bill of lading. However, in discharging the burden of proof, plaintiff is
entitled to the benefit of the presumptions and inferences by which the law aids the
bailor in an action against a bailee, and since the carrier is in a better position to know
the cause of the loss and that it was not one involving its liability, the law requires that
it come forward with the information available to it, and its failure to do so warrants
an inference or presumption of its liability. However, such inferences and
presumptions, while they may affect the burden of coming forward with evidence, do
not alter the burden of proof which remains on plaintiff, and, where the carrier comes
forward with evidence explaining the loss or damage, the burden of going forward
with the evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the burden of
proving a breach thereof and that such breach was the proximate cause of the damage
rests on plaintiff, and proof that the goods were lost or damaged while in the carriers
possession does not cast on it the burden of proving seaworthiness. x x x Where the
contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not
taken the correct position in relation to the question of who has the burden of
proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the
NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation
of Clause 12 is not even correct), it argues that a careful examination of the
evidence will show that VSI miserably failed to comply with any of these
obligations as if defendant-appellee [VSI] had the burden of proof. [21]
 First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions

is manifestly relevant: (1) whether VSI exercised due diligence in making MV
Vlasons I seaworthy for the intended purpose under the charter party; (2)
whether the damage to the cargo should be attributed to the willful negligence
of the officers and crew of the vessel or of the stevedores hired by NSC; and
(3) whether the rusting of the tinplates was caused by its own sweat or by
contact with seawater.
These questions of fact were threshed out and decided by the trial court,
which had the firsthand opportunity to hear the parties conflicting claims and to
carefully weigh their respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the factual findings of
both the trial court and the Court of Appeals coincide, the same are binding on
this Court. We stress that, subject to some exceptional instances, only
[22] [23]

questions of law -- not questions of fact -- may be raised before this Court in a
petition for review under Rule 45 of the Rules of Court. After a thorough review
of the case at bar, we find no reason to disturb the lower courts factual findings,
as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make
the ship seaworthy and fit for the carriage of NSCs cargo of steel and
tinplates. This is shown by the fact that it was drydocked and inspected by the
Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila
under the contract of voyage charter hire. The vessels voyage from Iligan to
[24]

Manila was the vessels first voyage after drydocking. The Philippine Coast
Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all
requirements for trading as cargo vessel. The Court of Appeals itself
[25]

sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We
find no reason to modify or reverse this finding of both the trial and the appellate
courts.

Who Were Negligent: Seamen or Stevedores?

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

Vlasons I was equipped with new canvas covers in tandem with the old ones
as indicated in the Marine Protest xxx. We disagree.
[27]

The records sufficiently support VSIs contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ships
hatches watertight. The foregoing are clear from the marine protest of the
master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships
boatswain, Jose Pascua. The salient portions of said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of
August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before departure, the vessel was rigged,
fully equipped and cleared by the authorities; that on or about August 9, 1974, while
in the vicinity of the western part of Negros and Panay, we encountered very rough
seas and strong winds and Manila office was advised by telegram of the adverse
weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the
vessel at her port side causing sea water to overflow on deck andhatch (sic) covers
and which caused the first layer of the canvass covering to give way while the new
canvass covering still holding on;

That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the
afternoon of August 10, 1974, while entering Maricaban Passage, we were again
exposed to moderate seas and heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;

xxx xxx xxx [28]

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

Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides
and we place[d] a flat bar over the canvas on the side of the hatches and then we
place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the
hatch opening.
A: Forty-five feet by thirty-five feet, sir.

xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood
are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
 Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV
Vlasons I was further demonstrated by the fact that, despite encountering rough
weather twice, the new tarpaulin did not give way and the ships hatches and
cargo holds remained waterproof. As aptly stated by the Court of Appeals,
xxx we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-
appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving safely
at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]

Indeed, NSC failed to discharge its burden to show negligence on the part
of the officers and the crew of MV Vlasons I. On the contrary, the records reveal
that it was the stevedores of NSC who were negligent in unloading the cargo
from the ship.
The stevedores employed only a tent-like material to cover the hatches
when strong rains occasioned by a passing typhoon disrupted the unloading of
the cargo. This tent-like covering, however, was clearly inadequate for keeping
rain and seawater away from the hatches of the ship. Vicente Angliongto, an
officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went
on board the vessel upon notice from the National Steel Corporation in order to
conduct the inspection of the cargo. During the course of the investigation, did you
chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged
on the pier but majority of the tinplates were inside the hall, all the hatches were
opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct
examination.
 ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at
the opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now,
will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d]
high at the middle with the whole side separated down to the hatch, the size of the
hatch and it is soaks [sic] at the middle because of those weather and this can be
used only to temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by
and the hatch tent was not good enough to hold all of it to prevent the water soaking
through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter
and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the
National Steel but nothing was done, just the same. Finally, I wrote a letter to
them. [31]

NSC attempts to discredit the testimony of Angliongto by questioning his

failure to complain immediately about the stevedores negligence on the first day
of unloading, pointing out that he wrote his letter to petitioner only seven days
later. The Court is not persuaded. Angliongtos candid answer in his
[32]

aforequoted testimony satisfactorily explained the delay. Seven days lapsed

because he first called the attention of the stevedores, then the NSCs
representative, about the negligent and defective procedure adopted in
unloading the cargo. This series of actions constitutes a reasonable response
in accord with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores attention first and
then the NSCs representative on location before formally informing NSC of the
negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely expressing
concern for NSC which was ultimately responsible for the stevedores it had
hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and
conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSCs shipment. We do
not think so. Such negligence according to the trial court is evident in the stevedores
hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred during
the discharging of the cargo thus allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was proven that the stevedores merely
set up temporary tents or canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on August
20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging the cargo on rainy days and
the improper closing of the hatches which allowed continuous heavy rain water to
leak through and drip to the tinplates covers and [Vicente Angliongto] also suggesting
that due to four (4) days continuos rains with strong winds that the hatches be totally
closed down and covered with canvas and the hatch tents lowered. (Exh 13). This
letter was received by [NSC] on 22 August 1974 while discharging operations were
still going on (Exhibit 13-A).[33]

The fact that NSC actually accepted and proceeded to remove the cargo
from the ship during unfavorable weather will not make VSI liable for any
damage caused thereby. In passing, it may be noted that the NSC may seek
indemnification, subject to the laws on prescription, from the stevedoring
company at fault in the discharge operations. A stevedore company engaged
in discharging cargo xxx has the duty to load the cargo xxx in a prudent manner,
and it is liable for injury to, or loss of, cargo caused by its negligence xxx and
where the officers and members and crew of the vessel do nothing and have
no responsibility in the discharge of cargo by stevedores xxx the vessel is not
liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx as in the instant case.
[34]

Do Tinplates Sweat?
 The trial court relied on the testimony of Vicente Angliongto in finding that
xxx tinplates sweat by themselves when packed even without being in contact
with water from outside especially when the weather is bad or raining xxx. The [35]

Court of Appeals affirmed the trial courts finding.

A discussion of this issue appears inconsequential and unnecessary. As
previously discussed, the damage to the tinplates was occasioned not by
airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of

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

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the

alleged inadmissibility of the certificates of seaworthiness offered in evidence
by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been presented
in accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11
allegedly are not written records or acts of public officers; while Exhibits 5, 6, 7,
8, 9, 11 and 12 are not evidenced by official publications or certified true copies
as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
 After a careful examination of these exhibits, the Court rules that Exhibits 3,
4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly offered
as evidence. Exhibits 3 and 4 are certificates issued by private parties, but they
have not been proven by one who saw the writing executed, or by evidence of
the genuineness of the handwriting of the maker, or by a subscribing witness.
Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best
evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of Court,
which provides that (e)ntries in official records made in the performance of a
duty by a public officer of the Philippines, or by a person in the performance of
a duty specially enjoined by law, are prima facie evidence of the facts therein
stated. Exhibit 11 is an original certificate of the Philippine Coast Guard in
[38]

Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that the
vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on
board for inspection x x x. After completion of drydocking and duly inspected by
PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy
condition, meets all requirements, fitted and equipped for trading as a cargo
vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on
July 10, 1974. (sic) NSCs claim, therefore, is obviously misleading and
erroneous.
At any rate, it should be stressed that that NSC has the burden of proving
that MV Vlasons I was not seaworthy. As observed earlier, the vessel was a
private carrier and, as such, it did not have the obligation of a common carrier
to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty
of proving the willful negligence of VSI in making the ship seaworthy resulting
in damage to its cargo. Assailing the genuineness of the certificate of
seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.

xxx xxx xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation

provided for in the contract of affreightment for the detention of the vessel
beyond the laytime or that period of time agreed on for loading and unloading
of cargo. It is given to compensate the shipowner for the nonuse of the
[40]

vessel. On the other hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. x x x If laytime is
expressed in running days, this means days when the ship would be run continuously,
and holidays are not excepted. A qualification of weather permitting excepts only
those days when bad weather reasonably prevents the work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day
laytime; it also qualified laytime as WWDSHINC or weather working days
Sundays and holidays included. The running of laytime was thus made
[42]

subject to the weather, and would cease to run in the event unfavorable weather
interfered with the unloading of cargo. Consequently, NSC may not be held
[43]

liable for demurrage as the four-day laytime allowed it did not lapse, having
been tolled by unfavorable weather condition in view of the WWDSHINC
qualification agreed upon by the parties. Clearly, it was error for the trial court
and the Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court arrived at
this erroneous finding by subtracting from the twelve days, specifically August
13, 1974 to August 24, 1974, the only day of unloading unhampered by
unfavorable weather or rain which was August 22, 1974. Based on our previous
discussion, such finding is a reversible error. As mentioned, the respondent
appellate court also erred in ruling that NSC was liable to VSI for demurrage,
even if it reduced the amount by half.

Attorneys Fees

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

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who
caused the damage to the cargo? Ranged against NSC are two formidable
truths. First, both lower courts found that such damage was brought about
during the unloading process when rain and seawater seeped through the cargo
due to the fault or negligence of the stevedores employed by it.Basic is the rule
that factual findings of the trial court, when affirmed by the Court of Appeals,
are binding on the Supreme Court. Although there are settled exceptions, NSC
has not satisfactorily shown that this case is one of them. Second, the
agreement between the parties -- the Contract of Voyage Charter Hire -- placed
the burden of proof for such loss or damage upon the shipper, not upon the
shipowner. Such stipulation, while disadvantageous to NSC, is valid because
the parties entered into a contract of private charter, not one of common
carriage. Basic too is the doctrine that courts cannot relieve a party from the
effects of a private contract freely entered into, on the ground that it is allegedly
one-sided or unfair to the plaintiff. The charter party is a normal commercial
contract and its stipulations are agreed upon in consideration of many factors,
not the least of which is the transport price which is determined not only by the
actual costs but also by the risks and burdens assumed by the shipper in regard
to possible loss or damage to the cargo. In recognition of such factors, the
parties even stipulated that the shipper should insure the cargo to protect itself
from the risks it undertook under the charter party. That NSC failed or neglected
to protect itself with such insurance should not adversely affect VSI, which had
nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are
hereby DENIED. The questioned Decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED.

G.R. No. 131621 September 28, 1999

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

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil Case
No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the
amount of P6,067,178, with legal interest from the filing of the compliant until fully paid, P8,000 as
attorney's fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3 denying
LOADSTAR's motion for reconsideration of said decision.

The facts are undisputed. 1âwphi 1.nêt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel)
the following goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was
insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November
1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its
cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a
claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to
the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking
of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed
that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said
amount to be deducted from MIC's claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later
dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the court of Appeals, which, however, agreed with the trial court and affirmed
its decision in toto.

In dismissing LOADSTAR's appeal, the appellate court made the following observations:
 1) LOADSTAR cannot be considered a private carrier on the sole
ground that there was a single shipper on that fateful voyage. The
court noted that the charter of the vessel was limited to the ship, but
LOADSTAR retained control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil Code,

which should be applied in determining the rights and liabilities of the
parties.

3) The vessel was not seaworthy because it was undermanned on

the day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate. The
vessel sank, not because of force majeure, but because it was not
seaworthy. LOADSTAR'S allegation that the sinking was probably
due to the "convergence of the winds," as stated by a PAGASA
expert, was not duly proven at the trial. The "limited liability" rule,
therefore, is not applicable considering that, in this case, there was
an actual finding of negligence on the part of the carrier.5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading

do not apply because said provisions bind only the shipper/consignee
and the carrier. When MIC paid the shipper for the goods insured, it
was subrogated to the latter's rights as against the carrier,
LOADSTAR. 6

5) There was a clear breach of the contract of carriage when the

shipper's goods never reached their destination. LOADSTAR's defense
of "diligence of a good father of a family" in the training and selection of
its crew is unavailing because this is not a proper or complete defense
in culpa contractual.

6) "Art. 361 (of the Code of Commerce) has been judicially construed
to mean that when goods are delivered on board a ship in good order
and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both
allege and prove that the goods were damaged by reason of some
fact which legally exempts him from liability." Transportation of the
merchandise at the risk and venture of the shipper means that the
latter bears the risk of loss or deterioration of his goods arising from
fortuitous events, force majeure, or the inherent nature and defects of
the goods, but not those caused by the presumed negligence or fault
of the carrier, unless otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V "Cherokee" a private or a common carrier?

(2) Did LOADSTAR observe due and/or ordinary diligence in these

premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was
not issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed
route, and there was only "one shipper, one consignee for a special cargo."

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to
convert the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the
maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a
voyage. Its crew at the time was experienced, licensed and unquestionably competent. With all these
precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good
father of a family in ensuring the vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November
1984, the weather was fine until the next day when the vessel sank due to strong waves. MCI's
witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and
"YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1
was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the
convergence of winds brought about by these two typhoons strengthened wind velocity in the area,
naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and
not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the
case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance
Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same — suits based upon claims arising
from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the accrual
of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only on
4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the
cargo was due toforce majeure, because the same concurred with LOADSTAR's fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that
the carrier be issued a certificate of public convenience, and this public character is not altered by
the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo or
chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of
the Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent is void only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at is not involved, as in the case of a ship totally chartered for the use of a
single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance
doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that
the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in
question, undertook to carry a special cargo or was chartered to a special person only. There was no
charter party. The bills of lading failed to show any special arrangement, but only a general provision
to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is
not reason enough to convert the vessel from a common to a private carrier, especially where, as in this
case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,15 the
Court juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that
case, viz.:

The Civil Code defines "common carriers" in the following terms:

Art. 1732. Common carriers are persons, corporations, firms or

associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as ancillary activity (in local idiom, as "a sideline". Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
 xxx xxx xxx

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite for the incurring of liability
under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not
such carrier has also complied with the requirements of the applicable regulatory
statute and implementing regulations and has been granted a certificate of public
convenience or other franchise. To exempt private respondent from the liabilities of a
common carrier because he has not secured the necessary certificate of public
convenience, would be offensive to sound public policy; that would be to reward
private respondent precisely for failing to comply with applicable statutory
requirements The business of a common carrier impinges directly and intimately
upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and
liabilities upon common carriers for the safety and protection of those who utilize their
services and the law cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it
embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the
time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code." 16

Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this
case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel
owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in
having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not
sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods,
in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray &
Co., Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two
cases that after paying the claim of the insured for damages under the insurance policy, the insurer is
subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be
recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or
restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to
the same limitations and restrictions. We do not agree. In the first place, the cases relied on by
LOADSTAR involved a limitation on the carrier's liability to an amount fixed in the bill of lading which the
parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On
the other hand, the stipulation in the case at bar effectively reduces the common carrier's liability for the
loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the
carrier is not liable for any loss or damage to shipments made at "owner's risk." Such stipulation is
obviously null and void for being contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the carrier to
an agreed valuation unless the shipper declares a higher value and pays a higher
rate of. freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third
is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's
cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil
Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on claims for loss
of, or damage to, cargoes sustained during transit — may be applied suppletorily to the case at bar.
This one-year prescriptive period also applies to the insurer of the goods. 22In this case, the period for
filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is
null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner. 1âwphi1.nêt

SO ORDERED.

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE
CO., LTD., respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for 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.

In 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.

On 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 then Court of Appeals which, on
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 (Civil Case No. 116151), 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.

On 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. On appeal by petitioner, the then Court of Appeals on 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.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
1985, and the parties were required to submit their respective Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-
numbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein,
being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
pleading in one action may be received in evidence against the pleader or his successor-in-interest
on the trial of another action to which he is a party, in favor of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?

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. 4 As the cargoes in question were
transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by
the Civil Code. 5 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. 6 Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7

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. 8Common 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 9

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. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

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. 14

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. 15

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."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75
(Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to
be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the
present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is
the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's
liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:
 When what would ordinarily be considered packages are shipped in a container
supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there

is, nonetheless, much to commend it. It gives needed recognition to
the responsibility of the courts to construe and apply the statute as
enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake
the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of
transport equipment qualify as COGSA packages — at least where,
as here, they were carrier owned and supplied — would amount to
just such a distortion.

Certainly, if the individual crates or cartons prepared by the shipper

and containing his goods can rightly be considered "packages"
standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board
stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other
grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

 Eurygenes concerned a shipment of stereo equipment packaged by the shipper into
cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier could limit its liability
to $500 per container if the bill of lading failed to disclose the number of cartons or
units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package

Limitations and Third World Delivery Problems by Chester D. Hooper
& Keith L. Flicker, published in Fordham International Law Journal,
Vol. 6, 1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be
considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished
or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of
the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the
shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill
of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to
do so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
told the Court since February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now
that it was denied due process when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
No. 71478 is affirmed.

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.

G.R. No. 119197 May 16, 1997

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE, INC., and NEW
ZEALAND INSURANCE CO., LTD., petitioners,
vs.
NORTH FRONT SHIPPING SERVICES, INC., and COURT OF APPEALS, respondents.

BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and New Zealand
Insurance Co., Ltd., in this petition for review on certiorari, assail the 22 December 1994 decision of
the Court of Appeals and its Resolution of 16 February 1995 which affirmed the 1 June 1993
decision of the Regional Trial Court dismissing their complaint for damages against North Front
Shipping Services, Inc.

On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were shipped on
board North Front 777, a vessel owned by North Front Shipping Services, Inc. The cargo was
consigned to Republic Flour Mills Corporation in Manila under Bill of Lading No. 001 1 and insured
with the herein mentioned insurance companies. The vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to carry the merchandise. The cargo was covered
with tarpaulins and wooden boards. The hatches were sealed and could only be opened by
representatives of Republic Flour Mills Corporation.

The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16 August 1990.
Republic Flour Mills Corporation was advised of its arrival but it did not immediately commence the
unloading operations. There were days when unloading had to be stopped due to variable weather
conditions and sometimes for no apparent reason at all. When the cargo was eventually unloaded
there was a shortage of 26.333 metric tons. The remaining merchandise was already moldy, rancid
and deteriorating. The unloading operations were completed on 5 September 1990 or twenty (20)
days after the arrival of the barge at the wharf of Republic Flour Mills Corporation in Pasig City.

Precision Analytical Services, Inc., was hired to examine the corn grains and determine the cause of
deterioration. A Certificate of Analysis was issued indicating that the corn grains had 18.56%
moisture content and the wetting was due to contact with salt water. The mold growth was only
incipient and not sufficient to make the corn grains toxic and unfit for consumption. In fact the mold
growth could still be arrested by drying.

Republic Flour Mills Corporation rejected the entire cargo and formally demanded from North Front
Shipping Services, Inc., payment for the damages suffered by it. The demands however were
unheeded. The insurance companies were perforce obliged to pay Republic Flour Mills Corporation
P2,189,433.40.

By virtue of the payment made by the insurance companies they were subrogated to the rights of
Republic Flour Mills Corporation. Thusly, they lodged a complaint for damages against North Front
Shipping Services, Inc., claiming that the loss was exclusively attributable to the fault and negligence
of the carrier. The Marine Cargo Adjusters hired by the insurance companies conducted a survey
and found cracks in the bodega of the barge and heavy concentration of molds on the tarpaulins and
wooden boards. They did not notice any seals in the hatches. The tarpaulins were not brand new as
there were patches on them, contrary to the claim of North Front Shipping Services, Inc., thus
making it possible for water to seep in. They also discovered that the bulkhead of the barge was
rusty.

North Front Shipping Services, Inc., averred in refutation that it could not be made culpable for the
loss and deterioration of the cargo as it was never negligent. Captain Solomon Villanueva, master of
the vessel, reiterated that the barge was inspected prior to the actual loading and was found
adequate and seaworthy. In addition, they were issued a permit to sail by the Coast Guard. The
tarpaulins were doubled and brand new and the hatches were properly sealed. They did not
encounter big waves hence it was not possible for water to seep in. He further averred that the corn
grains were farm wet and not properly dried when loaded.

The court below dismissed the complaint and ruled that the contract entered into between North
Front Shipping Services, Inc., and Republic Flour Mills Corporation was a charter-party agreement.
As such, only ordinary diligencein the care of goods was required of North Front Shipping Services,
Inc. The inspection of the barge by the shipper and the representatives of the shipping company
before actual loading, coupled with the Permit to Sail issued by the Coast Guard, sufficed to meet
the degree of diligence required of the carrier.

On the other hand, the Court of Appeals ruled that as a common carrier required to observe a higher
degree of diligence North Front 777 satisfactorily complied with all the requirements hence was
issued a Permit to Sail after proper inspection. Consequently, the complaint was dismissed and the
motion for reconsideration rejected.

The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills
Corporation did not in any way convert the common carrier into a private carrier. We have already
resolved this issue with finality in Planters Products, Inc. v. Court of Appeals 2 thus —

A "charter-party" is defined as a contract by which an entire ship, or some principal

part thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment by which the owner of a ship or other vessel lets the whole
or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight . . . Contract of
affreightment may either be time charter, wherein the vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a
single voyage. In both cases, the charter-party provides for the hire of the vessel
only, either for a determinate period of time or for a single or consecutive voyage, the
ship owner to supply the ship's store, pay for the wages of the master of the crew,
and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of
the Civil Code. The definition extends to carriers either by land, air or water which
hold themselves out as ready to engage in carrying goods or transporting
passengers or both for compensation as a public employment and not as a casual
occupation . . .

It is therefore imperative that a public carrier shall remain as such, notwithstanding

the charter of the whole or portion of a vessel by one or more persons, provided the
charter is limited to the shin only, as in the case of a time-charter or voyage-
charter (emphasis supplied).

North Front Shipping Services, Inc., is a corporation engaged in the business of transporting cargo
and offers its services indiscriminately to the public. It is without doubt a common carrier. As such it
is required to observe extraordinary diligence in its vigilance over the goods it transports. 3 When
goods placed in its care are lost or damaged, the carrier is presumed to have been at fault or to have
acted negligently. 4 North Front Shipping Services, Inc., therefore has the burden of proving that it
observed extraordinary diligence in order to avoid responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to take a load of corn grains. They were also
issued Permit to Sail by the Coast Guard. The master of the vessel testified that the corn grains
were farm wet when loaded. However, this testimony was disproved by the clean bill of lading issued
by North Front Shipping Services, Inc., which did not contain a notation that the corn grains were wet
and improperly dried. Having been in the service since 1968, the master of the vessel would have
known at the outset that corn grains that were farm wet and not properly dried would eventually
deteriorate when stored in sealed and hot compartments as in hatches of a ship. Equipped with this
knowledge, the master of the vessel and his crew should have undertaken precautionary measures
to avoid or lessen the cargo's possible deterioration as they were presumed knowledgeable about
the nature of such cargo. But none of such measures was taken.

In Compania Maritima v. Court of Appeals 5 we ruled —

. . . Mere proof of delivery of the goods in good order to a common carrier, and of
their arrival at the place of destination in bad order, makes out prima facie case
against the common carrier, so that if no explanation is given as to how the loss,
deterioration or destruction of the goods occurred, the common carrier must be held
responsible. Otherwise stated, it is incumbent upon the common carrier to prove that
the loss, deterioration or destruction was due to accident or some other
circumstances inconsistent with its liability . . .

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for safe carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and "to use all reasonable means to ascertain the nature and
characteristics of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires" (emphasis
supplied).

In fine, we find that the carrier failed to observe the required extraordinary diligence in the vigilance
over the goods placed in its care. The proofs presented by North Front Shipping Services, Inc., were
insufficient to rebut the prima facie presumption of private respondent's negligence, more so if we
consider the evidence adduced by petitioners.

It is not denied by the insurance companies that the vessel was indeed inspected before actual
loading and that North Front 777 was issued a Permit to Sail. They proved the fact of shipment and
its consequent loss or damage while in the actual possession of the carrier. Notably, the carrier
failed to volunteer any explanation why there was spoilage and how it occurred. On the other hand, it
was shown during the trial that the vessel had rusty bulkheads and the wooden boards and
tarpaulins bore heavy concentration of molds. The tarpaulins used were not new, contrary to the
claim of North Front Shipping Services, Inc., as there were already several patches on them, hence,
making it highly probable for water to enter.

Laboratory analysis revealed that the corn grains were contaminated with salt water. North Front
Shipping Services, Inc., failed to rebut all these arguments. It did not even endeavor to establish that
the loss, destruction or deterioration of the goods was due to the following: (a) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (b) act of the public enemy in war,
whether international or civil; (c) act or omission of the shipper or owner of the goods; (d) the
character of the goods or defects in the packing or in the containers; (e) order or act of competent
public authority. 6 This is a closed list. If the cause of destruction, loss or deterioration is other than
the enumerated circumstances, then the carrier is rightly liable therefor.

However, we cannot attribute the destruction, loss or deterioration of the cargo solely to the carrier.
We find the consignee Republic Flour Mills Corporation guilty of contributory negligence. It was
seasonably notified of the arrival of the barge but did not immediately start the unloading operations.
No explanation was proffered by the consignee as to why there was a delay of six (6) days. Had the
unloading been commenced immediately the loss could have been completely avoided or at least
minimized. As testified to by the chemist who analyzed the corn samples, the mold growth was only
at its incipient stage and could still be arrested by drying. The corn grains were not yet toxic or unfit
for consumption. For its contributory negligence, Republic Flour Mills Corporation should share at
least 40% of the loss. 7

WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its Resolution of 16
February 1995 are REVERSED and SET ASIDE. Respondent North Front Shipping Services, Inc., is
ordered to pay petitioners Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc., and
New Zealand Insurance Co. Ltd., P1,313,660.00 which is 60% of the amount paid by the insurance
companies to Republic Flour Mills Corporation, plus interest at the rate of 12% per annum from the
time this judgment becomes final until full payment.

SO ORDERED.

G.R. No. L-48757 May 30, 1988

MAURO GANZON, petitioner,

vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

Antonio B. Abinoja for petitioner.

Quijano, Arroyo & Padilla Law Office for respondents.

SARMIENTO, J.:

The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner for damages based on culpa
contractual. The antecedent facts, as found by the respondent Court, 2 are undisputed:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul
305 tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT
"Batman" (Exhibit 1, Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that
agreement, Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of
water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the
scrap iron to defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When about half of the
scrap iron was already loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of
Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted
the shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and
fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The <äre||anº• 1àw>

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:

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.

[G.R. No. 161833. July 8, 2005]

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,

vs. UNKNOWN OWNER OF THE VESSEL M/V NATIONAL HONOR,
NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES and
INTERNATIONAL CONTAINER SERVICES, INC., respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil
Procedure assailing the Decision[1] dated January 19, 2004 of the Court of
Appeals (CA) in CA-G.R. CV No. 57357 which affirmed the Decision dated
February 17, 1997 of the Regional Trial Court (RTC) of Manila, Branch 37, in
Civil Case No. 95-73338.

The Antecedent

On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a

shipment of four units of parts and accessories in the port of Pusan, Korea, on
board the vessel M/V National Honor, represented in the Philippines by its
agent, National Shipping Corporation of the Philippines (NSCP). The shipment
was for delivery to Manila, Philippines. Freight forwarder, Samhwa Inter-Trans
Co., Ltd., issued Bill of Lading No. SH9410306[2] in the name of the shipper
consigned to the order of Metropolitan Bank and Trust Company with arrival
notice in Manila to ultimate consignee Blue Mono International Company,
Incorporated (BMICI), Binondo, Manila.
NSCP, for its part, issued Bill of Lading No. NSGPBSML512565[3] in the
name of the freight forwarder, as shipper, consigned to the order of Stamm
International Inc., Makati, Philippines. It is provided therein that:

12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in
apparent good order and condition except as, otherwise, noted of the total number of
Containers or other packages or units enumerated overleaf. Proof to the contrary shall
be admissible when this Bill of Lading has been transferred to a third party acting in
good faith. No representation is made by the Carrier as to the weight, contents,
measure, quantity, quality, description, condition, marks, numbers, or value of the
Goods and the Carrier shall be under no responsibility whatsoever in respect of such
description or particulars.

13. The shipper, whether principal or agent, represents and warrants that the goods
are properly described, marked, secured, and packed and may be handled in ordinary
course without damage to the goods, ship, or property or persons and guarantees the
correctness of the particulars, weight or each piece or package and description of the
goods and agrees to ascertain and to disclose in writing on shipment, any condition,
nature, quality, ingredient or characteristic that may cause damage, injury or detriment
to the goods, other property, the ship or to persons, and for the failure to do so the
shipper agrees to be liable for and fully indemnify the carrier and hold it harmless in
respect of any injury or death of any person and loss or damage to cargo or
property. The carrier shall be responsible as to the correctness of any such mark,
descriptions or representations.[4]
 The shipment was contained in two wooden crates, namely, Crate No. 1
and Crate No. 2, complete and in good order condition, covered by Commercial
Invoice No. YJ-73564 DTD[5]and a Packing List.[6] There were no markings on
the outer portion of the crates except the name of the consignee.[7] Crate No. 1
measured 24 cubic meters and weighed 3,620 kgs. It contained the following
articles: one (1) unit Lathe Machine complete with parts and accessories; one
(1) unit Surface Grinder complete with parts and accessories; and one (1) unit
Milling Machine complete with parts and accessories. On the flooring of the
wooden crates were three wooden battens placed side by side to support the
weight of the cargo. Crate No. 2, on the other hand, measured 10 cubic meters
and weighed 2,060 kgs. The Lathe Machine was stuffed in the crate. The
shipment had a total invoice value of US$90,000.00 C&F Manila.[8] It was
insured for P2,547,270.00 with the Philippine Charter Insurance Corporation
(PCIC) thru its general agent, Family Insurance and Investment
Corporation,[9] under Marine Risk Note No. 68043 dated October 24, 1994.[10]
The M/V National Honor arrived at the Manila International Container
Terminal (MICT) on November 14, 1995. The International Container Terminal
Services, Incorporated (ICTSI) was furnished with a copy of the crate cargo list
and bill of lading, and it knew the contents of the crate.[11] The following day, the
vessel started discharging its cargoes using its winch crane. The crane was
operated by Olegario Balsa, a winchman from the ICTSI,[12] the exclusive
arrastre operator of MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew
and the surveyor of the ICTSI, conducted an inspection of the cargo.[13] They
inspected the hatches, checked the cargo and found it in apparent good
condition.[14] Claudio Cansino, the stevedore of the ICTSI, placed two sling
cables on each end of Crate No. 1.[15] No sling cable was fastened on the mid-
portion of the crate. In Dauzs experience, this was a normal procedure.[16] As
the crate was being hoisted from the vessels hatch, the mid-portion of the
wooden flooring suddenly snapped in the air, about five feet high from the
vessels twin deck, sending all its contents crashing down hard,[17] resulting in
extensive damage to the shipment.
BMICIs customs broker, JRM Incorporated, took delivery of the cargo in
such damaged condition.[18] Upon receipt of the damaged shipment, BMICI
found that the same could no longer be used for the intended purpose. The
Mariners Adjustment Corporation hired by PCIC conducted a survey and
declared that the packing of the shipment was considered insufficient. It ruled
out the possibility of taxes due to insufficiency of packing. It opined that three
to four pieces of cable or wire rope slings, held in all equal setting, never by-
passing the center of the crate, should have been used, considering that the
crate contained heavy machinery.[19]
BMICI subsequently filed separate claims against the NSCP,[20] the
ICTSI,[21] and its insurer, the PCIC,[22] for US$61,500.00. When the other
companies denied liability, PCIC paid the claim and was issued a Subrogation
Receipt[23] for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila,
Branch 35, a Complaint for Damages[24] against the Unknown owner of the
vessel M/V National Honor, NSCP and ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the
defendants. It prayed, among others

WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be

rendered ordering defendants to pay plaintiff, jointly or in the alternative, the
following:

1. Actual damages in the amount of P1,740,634.50 plus legal interest at the

time of the filing of this complaint until fully paid;

2. Attorneys fees in the amount of P100,000.00;

3. Cost of suit.[25]

ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim
against its co-defendant NSCP, claiming that the loss/damage of the shipment
was caused exclusively by the defective material of the wooden battens of the
shipment, insufficient packing or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that
the wooden battens placed on the wooden flooring of the crate was of good
material but was not strong enough to support the weight of the machines inside
the crate. He averred that most stevedores did not know how to read and write;
hence, he placed the sling cables only on those portions of the crate where the
arrow signs were placed, as in the case of fragile cargo. He said that unless
otherwise indicated by arrow signs, the ICTSI used only two cable slings on
each side of the crate and would not place a sling cable in the mid-section.[26] He
declared that the crate fell from the cranes because the wooden batten in the
mid-portion was broken as it was being lifted.[27] He concluded that the
loss/damage was caused by the failure of the shipper or its packer to place
wooden battens of strong materials under the flooring of the crate, and to place
a sign in its mid-term section where the sling cables would be placed.
 The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc.
that the damage to the cargo could be attributed to insufficient packing and
unbalanced weight distribution of the cargo inside the crate as evidenced by the
types and shapes of items found.[28]
The trial court rendered judgment for PCIC and ordered the complaint
dismissed, thus:

WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the
two defendants are dismissed, with costs against the plaintiff.

SO ORDERED.[29]

According to the trial court, the loss of the shipment contained in Crate No.
1 was due to the internal defect and weakness of the materials used in the
fabrication of the crates. The middle wooden batten had a hole (bukong-
bukong). The trial court rejected the certification[30] of the shipper, stating that
the shipment was properly packed and secured, as mere hearsay and devoid
of any evidentiary weight, the affiant not having testified.
Not satisfied, PCIC appealed[31] to the CA which rendered judgment on
January 19, 2004 affirming in toto the appealed decision, with this fallo

WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated
February 17, 1997, is AFFIRMED.

SO ORDERED.[32]

The appellate court held, inter alia, that it was bound by the finding of facts
of the RTC, especially so where the evidence in support thereof is more than
substantial. It ratiocinated that the loss of the shipment was due to an excepted
cause [t]he character of the goods or defects in the packing or in the containers
and the failure of the shipper to indicate signs to notify the stevedores that extra
care should be employed in handling the shipment.[33] It blamed the shipper for
its failure to use materials of stronger quality to support the heavy machines
and to indicate an arrow in the middle portion of the cargo where additional
slings should be attached.[34] The CA concluded that common carriers are not
absolute insurers against all risks in the transport of the goods.[35]
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT
HOLDING THAT RESPONDENT COMMON CARRIER IS LIABLE FOR THE
DAMAGE SUSTAINED BY THE SHIPMENT IN THE POSSESSION OF THE
ARRASTRE OPERATOR.

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT

APPLYING THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE
IN THE CASE AT BAR.

III.

THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN

FINDING THAT THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE
TO ITS DEFECTIVE PACKING AND NOT TO THE FAULT AND NEGLIGENCE
OF THE RESPONDENTS.[36]

The petitioner asserts that the mere proof of receipt of the shipment by the
common carrier (to the carrier) in good order, and their arrival at the place of
destination in bad order makes out a prima facie case against it; in such case,
it is liable for the loss or damage to the cargo absent satisfactory explanation
given by the carrier as to the exercise of extraordinary diligence. The petitioner
avers that the shipment was sufficiently packed in wooden boxes, as shown by
the fact that it was accepted on board the vessel and arrived in Manila safely. It
emphasizes that the respondents did not contest the contents of the bill of
lading, and that the respondents knew that the manner and condition of the
packing of the cargo was normal and barren of defects. It maintains that it
behooved the respondent ICTSI to place three to four cables or wire slings in
equal settings, including the center portion of the crate to prevent damage to
the cargo:

[A] simple look at the manifesto of the cargo and the bill of lading would have alerted
respondents of the nature of the cargo consisting of thick and heavy
machinery. Extra-care should have been made and extended in the discharge of the
subject shipment. Had the respondent only bothered to check the list of its contents,
they would have been nervous enough to place additional slings and cables to support
those massive machines, which were composed almost entirely of thick steel, clearly
intended for heavy industries. As indicated in the list, the boxes contained one lat[h]e
machine, one milling machine and one grinding machine-all coming with complete
parts and accessories. Yet, not one among the respondents were cautious
enough. Here lies the utter failure of the respondents to observed extraordinary
diligence in the handling of the cargo in their custody and possession, which the Court
of Appeals should have readily observed in its appreciation of the pertinent facts.[37]

The petitioner posits that the loss/damage was caused by the mishandling
of the shipment by therein respondent ICTSI, the arrastre operator, and not by
its negligence.
The petitioner insists that the respondents did not observe extraordinary
diligence in the care of the goods. It argues that in the performance of its
obligations, the respondent ICTSI should observe the same degree of diligence
as that required of a common carrier under the New Civil Code of the
Philippines. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,[38]it posits
that respondents are liable in solidum to it, inasmuch as both are charged with
the obligation to deliver the goods in good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged
liable, it is not solidarily liable with it. It further avers that the carrier cannot
discharge directly to the consignee because cargo discharging is the monopoly
of the arrastre. Liability, therefore, falls solely upon the shoulder of respondent
ICTSI, inasmuch as the discharging of cargoes from the vessel was its
exclusive responsibility. Besides, the petitioner is raising questions of facts,
improper in a petition for review on certiorari.[39]
Respondent ICTSI avers that the issues raised are factual, hence, improper
under Rule 45 of the Rules of Court. It claims that it is merely a depository and
not a common carrier; hence, it is not obliged to exercise extraordinary
diligence. It reiterates that the loss/damage was caused by the failure of the
shipper or his packer to place a sign on the sides and middle portion of the crate
that extra care should be employed in handling the shipment, and that the
middle wooden batten on the flooring of the crate had a hole. The respondent
asserts that the testimony of Anthony Abarquez, who conducted his
investigation at the site of the incident, should prevail over that of Rolando
Balatbat. As an alternative, it argues that if ever adjudged liable, its liability is
limited only to P3,500.00 as expressed in the liability clause of Gate Pass CFS-
BR-GP No. 319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that only questions of law may
be entertained by this Court in a petition for review on certiorari. This rule,
however, is not ironclad and admits certain exceptions, such as when (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse
of discretion; (4) the judgment is based on a misapprehension of facts; (5) the
findings of fact are conflicting; (6) there is no citation of specific evidence on
which the factual findings are based; (7) the findings of absence of facts are
contradicted by the presence of evidence on record; (8) the findings of the Court
of Appeals are contrary to those of the trial court; (9) the Court of Appeals
manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the findings of the Court of
Appeals are beyond the issues of the case; and (11) such findings are contrary
to the admissions of both parties.[40]
We have reviewed the records and find no justification to warrant the
application of any exception to the general rule.
We agree with the contention of the petitioner that common carriers, from
the nature of their business and for reasons of public policy, are mandated 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.[41] The Court has defined extraordinary diligence
in the vigilance over the goods as follows:

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.[42]

The common carriers 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.[43] When the goods shipped are either 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.[44] To overcome the presumption of negligence in
the case of loss, destruction or deterioration of the goods, the common carrier
must prove that it exercised extraordinary diligence.[45]
However, under Article 1734 of the New Civil Code, the presumption of
negligence does not apply to any of the following causes:
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.
It bears stressing that the enumeration in Article 1734 of the New Civil Code
which exempts the common carrier for the loss or damage to the cargo is a
closed list.[46] To exculpate itself from liability for the loss/damage to the cargo
under any of the causes, the common carrier is burdened to prove any of the
aforecited causes claimed by it by a preponderance of evidence. If the carrier
succeeds, the burden of evidence is shifted to the shipper to prove that the
carrier is negligent.[47]
Defect is the want or absence of something necessary for completeness or
perfection; a lack or absence of something essential to completeness; a
deficiency in something essential to the proper use for the purpose for which a
thing is to be used.[48] On the other hand, inferior means of poor quality,
mediocre, or second rate.[49] A thing may be of inferior quality but not
necessarily defective. In other words, defectiveness is not synonymous with
inferiority.
In the present case, the trial court declared that based on the record, the
loss of the shipment was caused by the negligence of the petitioner as the
shipper:

The same may be said with respect to defendant ICTSI. The breakage and collapse of
Crate No. 1 and the total destruction of its contents were not imputable to any fault or
negligence on the part of said defendant in handling the unloading of the cargoes from
the carrying vessel, but was due solely to the inherent defect and weakness of the
materials used in the fabrication of said crate.

The crate should have three solid and strong wooden batten placed side by side
underneath or on the flooring of the crate to support the weight of its
contents. However, in the case of the crate in dispute, although there were three
wooden battens placed side by side on its flooring, the middle wooden batten, which
carried substantial volume of the weight of the crates contents, had a knot hole
or bukong-bukong, which considerably affected, reduced and weakened its
strength. Because of the enormous weight of the machineries inside this crate, the
middle wooden batten gave way and collapsed. As the combined strength of the other
two wooden battens were not sufficient to hold and carry the load, they too
simultaneously with the middle wooden battens gave way and collapsed (TSN, Sept.
26, 1996, pp. 20-24).

Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is
nothing in the record which would indicate that defendant ICTSI had any role in the
choice of the materials used in fabricating this crate. Said defendant, therefore, cannot
be held as blame worthy for the loss of the machineries contained in Crate No. 1.[50]

The CA affirmed the ruling of the RTC, thus:

The case at bar falls under one of the exceptions mentioned in Article 1734 of the
Civil Code, particularly number (4) thereof, i.e., the character of the goods or defects
in the packing or in the containers. The trial court found that the breakage of the crate
was not due to the fault or negligence of ICTSI, but to the inherent defect and
weakness of the materials used in the fabrication of the said crate.

Upon examination of the records, We find no compelling reason to depart from the
factual findings of the trial court.

It appears that the wooden batten used as support for the flooring was not made of
good materials, which caused the middle portion thereof to give way when it was
lifted. The shipper also failed to indicate signs to notify the stevedores that extra care
should be employed in handling the shipment.

Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and
responsibilities:

Q: With regard to crates, what do you do with the crates?

A: Everyday with the crates, there is an arrow drawn where the sling is placed, Maam.
Q: When the crates have arrows drawn and where you placed the slings, what do you
do with these crates?
A: A sling is placed on it, Maam.
Q: After you placed the slings, what do you do with the crates?
A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.
Q: Now, what, if any, were written or were marked on the crate?
A: The thing that was marked on the cargo is an arrow just like of a chain, Maam.
Q: And where did you see or what parts of the crate did you see those arrows?
A: At the corner of the crate, Maam.
Q: How many arrows did you see?
A: Four (4) on both sides, Maam.
Q: What did you do with the arrows?
A: When I saw the arrows, thats where I placed the slings, Maam.
Q: Now, did you find any other marks on the crate?
A: Nothing more, Maam.
Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where
there are no arrows?
A: You can not place slings if there are no arrows, Maam.
Appellants allegation that since the cargo arrived safely from the port of [P]usan,
Korea without defect, the fault should be attributed to the arrastre operator who
mishandled the cargo, is without merit. The cargo fell while it was being carried only
at about five (5) feet high above the ground. It would not have so easily collapsed had
the cargo been properly packed. The shipper should have used materials of stronger
quality to support the heavy machines. Not only did the shipper fail to properly pack
the cargo, it also failed to indicate an arrow in the middle portion of the cargo where
additional slings should be attached. At any rate, the issue of negligence is factual in
nature and in this regard, it is settled that factual findings of the lower courts are
entitled to great weight and respect on appeal, and, in fact, accorded finality when
supported by substantial evidence.[51]

We agree with the trial and appellate courts.

The petitioner failed to adduce any evidence to counter that of respondent
ICTSI. The petitioner failed to rebut the testimony of Dauz, that the crates were
sealed and that the contents thereof could not be seen from the
outside.[52] While it is true that the crate contained machineries and spare parts,
it cannot thereby be concluded that the respondents knew or should have
known that the middle wooden batten had a hole, or that it was not strong
enough to bear the weight of the shipment.
There is no showing in the Bill of Lading that the shipment was in good order
or condition when the carrier received the cargo, or that the three wooden
battens under the flooring of the cargo were not defective or insufficient or
inadequate. On the other hand, under Bill of Lading No. NSGPBSML512565
issued by the respondent NSCP and accepted by the petitioner, the latter
represented and warranted that the goods were properly packed, and disclosed
in writing the condition, nature, quality or characteristic that may cause damage,
injury or detriment to the goods. Absent any signs on the shipment requiring
the placement of a sling cable in the mid-portion of the crate, the respondent
ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good
condition, is sufficient to sustain a finding of absence of defects in the
merchandise. Case law has it that such statement will create a prima
facie presumption only as to the external condition and not to that not open to
inspection.[53]
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of
merit.
SO ORDERED.
G.R. No. L-16629 January 31, 1962

SOUTHERN LINES, INC., petitioner,

vs.
COURT OF APPEALS and CITY OF ILOILO, respondents.

Jose Ma. Lopez Vito, Jr. for petitioner.

The City Fiscal for respondents.

DE LEON, J.:

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 15579-R
affirming that of the Court of First Instance of Iloilo which sentenced petitioner Southern Lines, Inc. to
pay respondent City of Iloilo the amount of P4,931.41.

Sometime in 1948, the City of Iloilo requisitioned for rice from the National Rice and Corn
Corporation (hereafter referred to as NARIC) in Manila. On August 24 of the same year, NARIC,
pursuant to the order, shipped 1,726 sacks of rice consigned to the City of Iloilo on board the SS
"General Wright" belonging to the Southern Lines, Inc. Each sack of rice weighed 75 kilos and the
entire shipment as indicated in the bill of lading had a total weight of 129,450 kilos. According to the
bill of lading, the cost of the shipment was P63,115.50 itemized and computed as follows: .

Unit Price per bag P36.25 P62,567.50

Handling at P0.13 per bag 224.38

Trucking at P2.50 per bag 323.62

T o t a l . . . . . .. . . . . 63,115.50

On September 3, 1948, the City of Iloilo received the shipment and paid the amount of P63,115.50.
However, it was noted that the foot of the bill of lading that the City of Iloilo 'Received the above
mentioned merchandise apparently in same condition as when shipped, save as noted below:
actually received 1685 sacks with a gross weight of 116,131 kilos upon actual weighing. Total
shortage ascertained 13,319 kilos." The shortage was equivalent to 41 sacks of rice with a net
weight of 13,319 kilos, the proportionate value of which was P6,486.35.

On February 14, 1951 the City of Iloilo filed a complaint in the Court of First Instance of Iloilo against
NARIC and the Southern Lines, Inc. for the recovery of the amount of P6,486.35 representing the
value of the shortage of the shipment of rice. After trial, the lower court absolved NARIC from the
complaint, but sentenced the Southern Lines, Inc. to pay the amount of P4,931.41 which is the
difference between the sum of P6,486.35 and P1,554.94 representing the latter's counterclaim for
handling and freight.

The Southern Lines, Inc. appealed to the Court of Appeals which affirmed the judgment of the trial
court. Hence, this petition for review.

The only question to be determined in this petition is whether or not the defendant-carrier, the herein
petitioner, is liable for the loss or shortage of the rice shipped.
Article 361 of the Code of Commerce provides: .

ART. 361. — The merchandise shall be transported at the risk and venture of the shipper, if
the contrary has not been expressly stipulated.

As a consequence, all the losses and deteriorations which the goods may suffer during the
transportation by reason of fortuitous event, force majeure, or the inherent nature and defect
of the goods, shall be for the account and risk of the shipper. 1äw phï1.ñët

Proof of these accidents is incumbent upon the carrier.

Article 362 of the same Code provides: .

ART. 362. — Nevertheless, the carrier shall be liable for the losses and damages resulting
from the causes mentioned in the preceding article if it is proved, as against him, that they
arose through his negligence or by reason of his having failed to take the precautions which
usage his establisbed among careful persons, unless the shipper has committed fraud in the
bill of lading, representing the goods to be of a kind or quality different from what they really
were.

If, notwithstanding the precautions referred to in this article, the goods transported run the
risk of being lost, on account of their nature or by reason of unavoidable accident, there
being no time for their owners to dispose of them, the carrier may proceed to sell them,
placing them for this purpose at the disposal of the judicial authority or of the officials
designated by special provisions.

Under the provisions of Article 361, the defendant-carrier in order to free itself from liability, was only
obliged to prove that the damages suffered by the goods were "by virtue of the nature or defect of
the articles." Under the provisions of Article 362, the plaintiff, in order to hold the defendant liable,
was obliged to prove that the damages to the goods by virtue of their nature, occurred on account of
its negligence or because the defendant did not take the precaution adopted by careful persons.
(Government v. Ynchausti & Co., 40 Phil. 219, 223).

Petitioner claims exemption from liability by contending that the shortage in the shipment of rice was
due to such factors as the shrinkage, leakage or spillage of the rice on account of the bad condition
of the sacks at the time it received the same and the negligence of the agents of respondent City of
Iloilo in receiving the shipment. The contention is untenable, for, if the fact of improper packing is
known to the carrier or his servants, or apparent upon ordinary observation, but it accepts the goods
notwithstanding such condition, it is not relieved of liability for loss or injury resulting thereform. (9
Am Jur. 869.) Furthermore, according to the Court of Appeals, "appellant (petitioner) itself frankly
admitted that the strings that tied the bags of rice were broken; some bags were with holes and
plenty of rice were spilled inside the hull of the boat, and that the personnel of the boat collected no
less than 26 sacks of rice which they had distributed among themselves." This finding, which is
binding upon this Court, shows that the shortage resulted from the negligence of petitioner.

Invoking the provisions of Article 366 of the Code of Commerce and those of the bill of lading,
petitioner further contends that respondent is precluded from filing an action for damages on account
of its failure to present a claim within 24 hours from receipt of the shipment. It also cites the cases
of Government v. Ynchausti & Co., 24 Phil. 315 and Triton Insurance Co. v. Jose, 33 Phil. 194, ruling
to the effect that the requirement that the claim for damages must be made within 24 hours from
delivery is a condition precedent to the accrual of the right of action to recover damages. These two
cases above-cited are not applicable to the case at bar. In the first cited case, the plaintiff never
presented any claim at all before filing the action. In the second case, there was payment of the
transportation charges which precludes the presentation of any claim against the carrier. (See Article
366, Code of Commerce.) It is significant to note that in the American case of Hoye v. Pennsylvania
Railroad Co., 13 Ann. Case. 414, it has been said: .

... "It has been held that a stipulation in the contract of shipment requiring the owner of the
goods to present a notice of his claim to the carrier within a specified time after the goods
have arrived at their destination is in the nature of a condition precedent to the owner's right
to enforce a recovery, that he must show in the first instance that be has complied with the
condition, or that the circumstances were such that to have complied with it would have
required him to do an unreasonable thing. The weight of authority, however, sustains the
view that such a stipulation is more in the nature of a limitation upon the owner's right to
recovery, and that the burden of proof is accordingly on the carrier to show that the limitation
was reasonable and in proper form or within the time stated." (Hutchinson on Carrier, 3d ed.,
par. 44) Emphasis supplied.

In the case at bar, the record shows that petitioner failed to plead this defense in its answer to
respondent's complaint and, therefore, the same is deemed waived (Section 10, Rule 9, Rules of
Court), and cannot be raised for the first time at the trial or on appeal. (Maxilom v. Tabotabo, 9 Phil.
390.) Moreover, as the Court of Appeals has said: .

... the records reveal that the appellee (respondent) filed the present action, within a
reasonable time after the short delivery in the shipment of the rice was made. It should be
recalled that the present action is one for the refund of the amount paid in excess, and not
for damages or the recovery of the shortage; for admittedly the appellee (respondent) had
paid the entire value of the 1726 sacks of rice, subject to subsequent adjustment, as to
shortages or losses. The bill of lading does not at all limit the time for filing an action for the
refund of money paid in excess.

WHEREFORE, the decision of the Court of Appeals is hereby affirmed in all respects and the
petition for certioraridenied.

With costs against the petitioner.