I.
Concept of Common Carrriers; Distinction from
Private Carriers; Liability of Registered Owner; Kabit
System; Nature of Business and Degree of Diligence
Required; Articles 1732-33
q. Sabena Belgian World Airlines vs CA and Ma. Paula
San Agustin
Facts: On August 21, 1987, plaintiff was a passenger on
board Flight SN 284 of defendant airline originating from
Casablanca to Brussels, Belgium on her way back to Manila.
Plaintiff checked in her luggage which contained her
valuables, namely: jewelries valued at $2,350.00; clothes
$1,500.00 shoes/bag $150; accessories $75; luggage itself
$10.00; or a total of $4,265.00, for which she was issued Tag
No. 71423. She stayed overnight in Brussels and her
luggage was left on board Flight SN 284.
When plaintiff arived at Manila International Airport on
September 2, 1987 and immediately submitted her Tag No.
71423 to facilitate the release of her luggage but the luggage
was missing. She submitted and filed a property Irregularity
Report on the same day.
She followed up her claim on September 14, 1987 but the
luggage remained to be missing.
The next day, she filed her formal complaint with the office of
Ferge Massed, defendant's Local Manager, demanding
immediate attention.
On September 30, 1987, she was informed that the Burssel's
Office of defendant found the luggage and that they have
broken the locks for identification. Plaintiff was assured by
the that the luggage will be shipped to Manila on October 27,
1987. Unfortunately thereafter, plaintiff was informed that the
luggage was lost for the second time.
At the time of the filing of the complaint, the luggage with its
content has not been found. Plaintiff demanded from the
defendant the money value of the luggage and its contents
amounting to $4,265.00 or its exchange value, but defendant
refused to settle the claim.
Defendant asserts that the loss of the luggage was due to
plaintiff's sole if not contributory negligence; that she did not
declare the valuable items in her checked in luggage at the
flight counter when she checked in for her flight from
Casablanca to Brussels so that either the representative of
the defendant at the counter would have advised her to
secure an insurance on the alleged valuable items and
required her to pay additional charges, or would have
refused acceptance of her baggage as required by the
generally accepted practices of international carriers; that
Section 9(a), Article IX of General Conditions of carriage
requiring passengers to collect their checked baggage at the
place of stop over, plaintiff neglected to claim her baggage at
the Brussels Airport; that plaintiff should have retrieved her
undeclared valuables from her baggage at the Brussels
Airport since her flight from Brussels to Manila will still have
to visit for confirmation inasmuch as only her flight from
Casablanca to Brussels was confirmed; that defendant
incorporated in all Sabena Plane Tickets, including Sabena
Ticket No. 082422-72502241 issued to plaintiff in Manila on
August 21, 1987, a warning that "Items of value should be
carried on your person" and that some carriers assume no
liability for fragile, valuable or perishable articles and that
further information may be obtained from the carrier for
guidance; that granting without conceding that defendant is
liable, its liability is limited only to US $20.00 per kilo due to
plaintiffs failure to declare a higher value on the contents of
her checked in luggage and pay additional charges thereon.
Issue: WON Sabena is liable for the loss of plaintiff’s luggage
and all its contents
Ruling: YES.
Fault or negligence consists in the omission of that diligence
which is demanded by the nature of an obligation and
corresponds with the circumstances of the person, of the
time, and of the place. When the source of an obligation is
derived from a contract, the mere breach or non-fulfillment of
the prestation gives rise to the presumption of fault on the
part of the obligor. This rule is no different in the case of
common carriers in the carriage of goods which, indeed, are
bound to observe not just the due diligence of a good father
of a family but that of "extraordinary" care in the vigilance
over the goods. The appellate court has aptly observed:
. . . Art. 1733 of the [Civil] Code provides that from
the very nature of their business and by reasons of
public policy, common carriers are bound to
observe extraordinary diligence in the vigilance
over the goods transported by them. This
extraordinary responsibility, according to Art. 1736,
lasts from the time the goods are unconditionally
placed in the possession of and received by the
carrier until they are delivered actually or
constructively to the consignee or person who has
the right to receive them. Art. 1737 states that the
common carrier's duty to observe extraordinary
diligence in the vigilance over the goods
transported by them remains in full force and effect
even when they are temporarily unloaded or
stored in transit. And Art. 1735 establishes the
presumption that if the goods are lost, destroyed
or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently,
unless they prove that they had observed
extraordinary diligence as required in Article 1733.
The only exceptions to the foregoing extraordinary
responsibility of the common carrier is when the
loss, destruction, or deterioration of the goods is
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;
(5) Order or act of competent public authority.
Not one of the above excepted causes obtains in
this case.
The above rules remain basically unchanged even when the
contract is breached by tort although noncontradictory
principles on quasi-delict may then be assimilated as also
forming part of the governing law. Petitioner is not thus
entirely off track when it has likewise raised in its defense the
tort doctrine of proximate cause. Unfortunately for petitioner,
however, the doctrine cannot, in this particular instance,
support its case. Proximate cause is that which, in natural
and continuous sequence, unbroken by any efficient
intervening cause, produces injury and without which the
result would not have occurred.
It remained undisputed that private respondent's luggage
was lost while it was in the custody of petitioner. It was
supposed to arrive on the same flight that private respondent
took in returning to Manila on 02 September 1987. When
she discovered that the luggage was missing, she promptly
accomplished and filed a Property Irregularity Report. She
followed up her claim on 14 September 1987, and filed, on
the following day, a formal letter-complaint with petitioner.
She felt relieved when, on 23 October 1987, she was
advised that her luggage had finally been found, with its
contents intact when examined, and that she could expect it
to arrive on 27 October 1987. She then waited anxiously
only to be told later that her luggage had been lost for the
second time. Thus, the appellate court, given all the facts
before it, sustained the trial court in finding petitioner
ultimately guilty of "gross negligence" in the handling of
private respondent's luggage. The "loss of said baggage not
only once but twice, said the appellate court, "underscores
the wanton negligence and lack of care" on the part of the
carrier.
r. Abelardo Lim and Esmadito Gunnaban vs CA and
Donato Gonzales
Facts: Sometime in 1982 private respondent Donato
Gonzales purchased an Isuzu passenger jeepney from
Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles plying
the Monumento-Bulacan route. While private respondent
Gonzales continued offering the jeepney for public transport
services he did not have the registration of the vehicle
transferred in his name nor did he secure for himself a
certificate of public convenience for its operation. Thus
Vallarta remained on record as its registered owner and
operator.
On 22 July 1990, while the jeepney was running northbound
along the North Diversion Road somewhere in Meycauayan,
Bulacan, it collided with a ten-wheeler-truck owned by
petitioner Abelardo Lim and driven by his co-petitioner
Esmadito Gunnaban. Gunnaban owned responsibility for the
accident, explaining that while he was traveling towards
Manila the truck suddenly lost its brakes. To avoid colliding
with another vehicle, he swerved to the left until he reached
the center island. However, as the center island eventually
came to an end, he veered farther to the left until he
smashed into a Ferroza automobile, and later, into private
respondent's passenger jeepney driven by one Virgilio
Gonzales. The impact caused severe damage to both the
Ferroza and the passenger jeepney and left one (1)
passenger dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of the
wounded, compensated the heirs of the deceased
passenger, and had the Ferroza restored to good condition.
He also negotiated with private respondent and offered to
have the passenger jeepney repaired at his shop. Private
respondent however did not accept the offer so Lim offered
him P20,000.00, the assessment of the damage as
estimated by his chief mechanic. Again, petitioner Lim's
proposition was rejected; instead, private respondent
demanded a brand-new jeep or the amount of P236,000.00.
Lim increased his bid to P40,000.00 but private respondent
was unyielding. Under the circumstances, negotiations had
to be abandoned; hence, the filing of the complaint for
damages by private respondent against petitioners.
In his answer Lim denied liability by contending that he
exercised due diligence in the selection and supervision of
his employees. He further asserted that as the jeepney was
registered in Vallarta’s name, it was Vallarta and not private
respondent who was the real party in interest. For his part,
petitioner Gunnaban averred that the accident was a
fortuitous event which was beyond his control.
RTC: The trial court upheld private respondent's claim. The
trial court ratiocinated that as vendee and current owner of
the passenger jeepney private respondent stood for all
intents and purposes as the real party in interest. Even
Vallarta himself supported private respondent's assertion of
interest over the jeepney for, when he was called to testify,
he dispossessed himself of any claim or pretension on the
property. Gunnaban was found by the trial court to have
caused the accident since he panicked in the face of an
emergency which was rather palpable from his act of
directing his vehicle to a perilous streak down the fast lane of
the superhighway then across the island and ultimately to
the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's
negligence was premised on his want of diligence in
supervising his employees. It was admitted during trial that
Gunnaban doubled as mechanic of the ill-fated truck despite
the fact that he was neither tutored nor trained to handle
such task.
CA: The Court of Appeals affirmed the trial court’s decision.
The Court of Appeals concluded that while an operator under
the kabit system could not sue without joining the registered
owner of the vehicle as his principal, equity demanded that
the present case be made an exception.
Issue: WON private respondent has the right to proceed
against petitioners for the damage caused on his passenger
jeepney as well as on his business
(WON private respondent, as the new owner, has any legal
personality to bring the action, or is he the real party in
interest in the suit, despite the fact that he is not the
registered owner under the certificate of public
convenience?)
Ruling: YES.
It is petitioners' contention that the Court of Appeals erred in
sustaining the decision of the trial court despite their
opposition to the well-established doctrine that an operator
of a vehicle continues to be its operator as long as he
remains the operator of record. According to petitioners, to
recognize an operator under the kabit system as the real
party in interest and to countenance his claim for damages is
utterly subversive of public policy.
Petitioners' attempt to illustrate that an affirmance of the
appealed decision could be supportive of the pernicious
kabit system does not persuade. The kabit system is an
arrangement whereby a person who has been granted a
certificate of public convenience allows other persons who
own motor vehicles to operate them under his license,
sometimes for a fee or percentage of the earnings. Although
the parties to such an agreement are not outrightly penalized
by law, the kabit system is invariably recognized as being
contrary to public policy and therefore void and inexistent
under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio the Court explained that
one of the primary factors considered in the granting of a
certificate of public convenience for the business of public
transportation is the financial capacity of the holder of the
license, so that liabilities arising from accidents may be duly
compensated. The kabit system renders illusory such
purpose and, worse, may still be availed of by the grantee to
escape civil liability caused by a negligent use of a vehicle
owned by another and operated under his license. If a
registered owner is allowed to escape liability by proving
who the supposed owner of the vehicle is, it would be easy
for him to transfer the subject vehicle to another who
possesses no property with which to respond financially for
the damage done. Thus, for the safety of passengers and
the public who may have been wronged and deceived
through the baneful kabit system, the registered owner of the
vehicle is not allowed to prove that another person has
become the owner so that he may be thereby relieved of
responsibility. Subsequent cases affirm such basic doctrine.
In the present case it is at once apparent that the evil sought
to be prevented in enjoining the kabit system does not exist.
First, neither of the parties to the pernicious kabit system is
being held liable for damages. Second, the case arose from
the negligence of another vehicle in using the public road to
whom no representation, or misrepresentation, as regards
the ownership and operation of the passenger jeepney was
made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said
that private respondent Gonzales and the registered owner
of the jeepney were in estoppel for leading the public to
believe that the jeepney belonged to the registered owner.
Third, the riding public was not bothered nor inconvenienced
at the very least by the illegal arrangement. On the contrary,
it was private respondent himself who had been wronged
and was seeking compensation for the damage done to him.
Certainly, it would be the height of inequity to deny him his
right.
In light of the foregoing, it is evident that private respondent
has the right to proceed against petitioners for the damage
caused on his passenger jeepney as well as on his
business. Any effort then to frustrate his claim of damages
by the ingenuity with which petitioners framed the issue
should be discouraged, if not repelled.
t. Villanueva v. Domingo
[G.R. No. 144274. September 20, 2004]
Facts: Priscilla R. Domingo is the registered owner of a silver
Mitsubishi Lancer Car model 1980 bearing plate No. NDW
781 '91 with [co-respondent] Leandro Luis R. Domingo as
authorized driver. [Petitioner] Nostradamus Villanueva was
then the registered "owner" of a green Mitsubishi Lancer
bearing Plate No. PHK 201 '91.
On 22 October 1991 at about 9:45 in the evening, following a
green traffic light, [respondent] Priscilla Domingo's silver
Lancer car with Plate No. NDW 781 '91 then driven by [co-
respondent] Leandro Luis R. Domingo was cruising along
the middle lane of South Superhighway at moderate speed
from north to south. Suddenly, a green Mitsubishi Lancer
with plate No. PHK 201 '91 driven by Renato Dela Cruz
Ocfemia darted from Vito Cruz Street towards the South
Superhighway directly into the path of NDW 781 '91 thereby
hitting and bumping its left front portion. As a result of the
impact, NDW 781 '91 hit two (2) parked vehicles at the
roadside, the second hitting another parked car in front of it.
Per traffic report, it was found out that Renato dela Cruz
Ocfemia was driving with expired license and positive for
alcoholic breath. Hence, Manila Assistant City Prosecutor
Oscar A. Pascua recommended the filing of information for
reckless imprudence resulting to (sic) damage to property
and physical injuries.
Nostradamus Villanueva claimed that he was no longer the
owner of the car at the time of the mishap because it was
swapped with a Pajero owned by Albert Jaucian/Auto Palace
Car Exchange. For her part, Linda Gonzales declared that
her presence at the scene of the accident was upon the
request of the actual owner of the Mitsubishi Lancer (PHK
201 '91) [Albert Jaucian] for whom she had been working as
agent/seller. On the other hand, Auto Palace Car Exchange
represented by Albert Jaucian claimed that he was not the
registered owner of the car. Moreover, it could not be held
subsidiary liable as employer of Ocfemia because the latter
was off-duty as utility employee at the time of the incident.
Neither was Ocfemia performing a duty related to his
employment.
However, the trial court found petitioner liable and ordered
him to pay respondent actual, moral and exemplary
damages plus appearance and attorney's fees.
Hence, this petition.
Issue: WON the registered owner of amotor vehicle should
be held liable for damages arising from a vehicular accident
involving his motor vehicle while being operated by the
employee of its buyer without the latter’s consent and
knowledge.
Held: Yes, a registered owner of any vehicle is directly and
primarily liable to the public and third persons while it is
being operated. The petition for review is denied and the
Court of Appeals decision is affirmed. The public has a right
to assume that the registered owner is the actual owner, to
make it easier for them to enforce actions for injuries caused
to them by vehicles negligently operated. However, the
registered owner may recover from the person to whom he
had sold, assigned, or conveyed the vehicle via a third-party
complaint. The registered owner of any vehicle, even if not
used for a public service, should be primarily responsible to
the public or third persons while the vehicle is being driven
on the streets. The main aim of registration is to identify the
owner so that if any accident happens, responsibility can be
fixed on a definite individual–the registered owner. The
primary purpose is to make certain that the violator shall not
escape because of lack of means to discover him.
The Revised Motor Vehicle Law (Act No. 3992, as amended)
provides that no vehicle may be used or operated upon any
public highway unless the same is property registered. It has
been stated that the system of licensing and the requirement
that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to
reduce the danger of injury to pedestrians and other
travelers from the careless management of automobiles. And
to furnish a means of ascertaining the identity of persons
violating the laws and ordinances, regulating the speed and
operation of machines upon the highways (2 R.C.L. 1176).
Not only are vehicles to be registered and that no motor
vehicles are to be used or operated without being properly
registered for the current year, but that dealers in motor
vehicles shall furnish the Motor Vehicles Office a report
showing the name and address of each purchaser of motor
vehicle during the previous month and the manufacturer's
serial number and motor number.
The main aim of motor vehicle registration is to identify the
owner so that if any accident happens, or that any damage
or injury is caused by the vehicle on the public highways,
responsibility therefore can be fixed on a definite individual,
the registered owner. Instances are numerous where
vehicles running on public highways caused accidents or
injuries to pedestrians or other vehicles without positive
identification of the owner or drivers, or with very scant
means of identification.
Petitioner further argues that the underlying theory behind
Duavit vs. CA, wherein the court absolved the registered
owner from liability after finding that the vehicle was virtually
stolen from the owner's garage by a person who was neither
authorized nor employed by the owner, is applicable to his
case. Petitioner concludes that the ruling in Duavit and not
the one in First Malayan should be applicable to him.
Held: Yes, Equitable Leasing is liable. The petition is denied
and the CA decision is affirmed. As the registered owner of
the tractor, Equitable Leasing is liable for the acts of Raul
Tutor even if he was actually the employee of Equitable’s
former lessee, Ecatine Corporation, who became the actual
owner of the tractor by virtue of a deed of sale not registered
with the LTO. Regardless of sales made of a motor vehicle,
the registered owner is the lawful operator insofar as the
public and third persons are concerned; consequently, it is
directly and primarily responsible for the consequences of its
operation. In the eyes of the law, the owner/operator of
record is the employer of the driver, the actual
owner/operator being considered as merely the agent of the
registered owner/operator. The principle applies even if the
registered owner of any vehicle does not use it for public
service.

Petitioner's argument lacks merit. Whether the driver is
authorized or not by the actual owner is irrelevant to
determining the liability of the registered owner who the law
holds primarily and directly responsible for any accident,
injury or death caused by the operation of the vehicle in the
streets and highways. To require the driver of the vehicle to
be authorized by the actual owner before the registered
owner can be held accountable is to defeat the very purpose
why motor vehicle legislations are enacted in the first place.
Contrary to petitioner's position, the First Malayan ruling is
applicable to him since the case involves the same set of
facts — the registered owner had previously sold the vehicle
to someone else and was being driven by an employee of
the new (actual) owner. Duavit is inapplicable since the
vehicle there was not transferred to another; the registered
and the actual owner was one and the same person.
Besides, in Duavit, the defense of the registered owner,
Gilberto Duavit, was that the vehicle was practically stolen
from his garage by Oscar Sabiano, as affirmed by the latter.
The main aim of motor vehicle registration is to identify the
owner so that if any accident happens, or any damage or
injury is caused by the vehicle, responsibility can be fixed on
a definite individual, the registered owner. Failure to register
the deed of sale should not prejudice victims, who have the
right to rely on the principle that the registered owner is liable
for damages caused by the negligence of the driver.
Equitable Leasing can’t hide behind the allegation that Tutor
was Ecatine Corp’s employee, because it will prevent victims
from recovering their loss on the basis of Equitable’s inaction
in failing to register the sale. The non-registration is
Equitable’s fault, which should face the legal consequences
thereof.

The main purpose of vehicle registration is the easy

identification of the owner who can be held responsible for
any accident, damage or injury caused by the vehicle. Easy
identification prevents inconvenience and prejudice to a third
party injured by one who is unknown or unidentified. To allow
a registered owner to escape liability by claiming that the
driver was not authorized by the new (actual) owner results
in the public detriment the law seeks to avoid.

u. EQUITABLE LEASING CORPORATION v. LUCITA

SUYOM
[G.R. No. 143360. September 5, 2002]

Facts: A tractor driven by Raul Tutor rammed into a house-

cum-store in Tondo, Manila. Part of the house was
destroyed. Two people died and four were injured. Tutor was
convicted of reckless imprudence resulting in multiple
homicide and multiple physical injuries. Verification with the
Land Transportation Office revealed that the registered
owner of the tractor was Equitable Leasing Corporation who
leased itto Edwin Lim. The relatives of the victims filed a civil
case for damages. The Regional Trial Court ruled against
Equitable and ordered it to pay damages to the victims’
relatives. Upon Equitable’s appeal, the Court of Appeals
sustained the RTC. Equitable filed a petition for review with
the Supreme Court.

Issue: Whether or not Equitable Leasing is liable for

damages.
II. Vigilance over the goods Article; Presumption of
Negligence; Defenses Available Diligence in Selection of
Employees; Articles 1734, 1735, 1756, 1742, 1743
d. THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., petitioner, vs. COURT OF
APPEALS and FELMAN SHIPPING LINES, respondents.
FACTS: On 6 July 1983 Coca-Cola Bottlers Philippines, Inc.,
loaded on board MV Asilda, a vessel owned and operated by
respondent Felman Shipping Lines (FELMAN for brevity),
7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for
consignee Coca-Cola Bottlers Philippines, Inc., Cebu.i The
shipment was insured with petitioner Philippine American
General Insurance Co., Inc. (PHILAMGEN for brevity), under
Marine Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather.
However, the vessel sank in the waters of Zamboanga del
Norte bringing down her entire cargo with her including the
subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
And so Coca-Cola Bottlers filed a claim with respondent
FELMAN for recovery of damages.
Claiming its right of subrogation PHILAMGEN sought
recourse against respondent FELMAN which disclaimed any
liability for the loss. In its complaint PHILAMGEN alleged
that the sinking and total loss of MV Asilda and its cargo
were due to the vessels unseaworthiness as she was put to
sea in an unstable condition. It further alleged that the vessel
was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed
to a nearby port or beach after the vessel started to list.
ISSUE:
(1) whether the limited liability under Art. 587 of the Code of
Commerce should apply; and,
(2) whether PHILAMGEN was properly subrogated to the
rights and legal actions which the shipper had against
FELMAN, the shipowner.
HELD:
(1) The vessel was unseaworthy. The proximate cause thru
the findings of the Elite Adjusters, Inc. Is the vessel’s being
top-heavy. Evidence shows that days after the sinking, the
coca-cola bottles that were found near the vicinity of the
sinking would mean that the bottles were in fact stowed on
the deck. The vessel was not designed to carry substantial
amount of cargo on deck. The inordinate loading of cargo
deck resulted in the decrease of the vessel’s metacentric
height. Thus, making it unstable.
Art. 587 of the Code of Commerce is not applicable, the
agent is liable for the negligent acts of the captain in the care
of the goods. This liability however can be limited through
abandonment of the vessel, its equipment and freightage.
Nonetheless, there are exceptions wherein the ship agent
could still be held answerable despite the abandonment, as
where the loss or injury was due to the fault of the ship
owner and the captain. The international rule is that the right
of abandonment of vessels, as legal limitation of liability,
does not apply to cases where the injury was occasioned by
the fault of the ship owner. Felman was negligent, it cannot
therefore escape liability.
Generally, in marine insurance policy, the assured impliedly
warrants to the assurer that the vessel is seaworthy and
such warranty is as much a term of the contract as if
expressly written on the face of the policy. However, the
implied warranty of seaworthiness can be excluded by terms
in writing in the policy of the clearest language. The marine
policy issued by Philamgen to cocacola has dispensed that
the "seaworthiness of the vessel as between the assured
and the underwriters in hereby admitted."
The result of the admission of seaworthiness by Philamgen
may mean two things: (1) the warranty of seaworthiness is
fulfilled and (2) the risk of unseaworthiness is assumed by
the insurance company. This waiver clause would mean that
Philamgen has accepted the risk of unseaworthiness,
therefore Philamgen is liable.
(2) On the matter of subrogation, it is provided that;
Art. 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Pan Malayan Insurance Corp. vs CA: The right of
subrogation is not dependent upon, nor does it grow out of
any privity of contract or upon payment by the insurance
company of the insurance claim. It accrues simply upon
payment by the insurance company of the insurance claim.
Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring
an action as subrogee against FELMAN. Having failed to
rebut the presumption of fault, the liability of FELMAN for the
loss of the 7,500 cases of 1-liter Coca-Cola soft drink bottles
is inevitable.
e. SARKIES TOURS PHILIPPINES, INC. petitioner vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION),
DR. ELINO G. FORTADES, MARISOL A. FORTADES and
FATIMA A. FORTADES., respondent.
FACTS: Sometime in 1984, Fatima boarded petitioners De
Luxe Bus No. 5 from Manila to Legazpi City. Her brother
Raul helped her load three pieces of luggage containing all
of her optometry review books, materials and equipment,
trial lenses, trial contact lenses, passport and visa, as well as
her mother Marisols U.S. immigration (green) card, among
other important documents and personal belongings. Her
belongings consisting of 3 bags were kept at the baggage
compartment of the bus, but during a stopover at Daet, it
was discovered that only one bag remained. The others
might have dropped along the way. Some of the passengers
suggested having the route traced, but the driver ignored it.
Fatima immediately told her mother who went to petitioners
office in Legazpi City and later in Manila. Petitioner offered
P1,000.00 for each bag but she turned down. Disappointed,
she sought help from Philtranco bus drivers and radio
stations. One of the bags were recovered. She was told by
the petitioners that a team is looking for the lost baggage.
After more than nine months of fruitless waiting, respondents
decided to file the case below to recover the value of the
remaining lost items, as well as moral and exemplary
damages, attorneys fees and expenses of litigation. They
claimed that the loss was due to petitioners failure to
observe extraordinary diligence in the care of Fatimas
luggage and that petitioner dealt with them in bad faith from
the start.
Petitioner, on the other hand, disowned any liability for the
loss on the ground that Fatima allegedly did not declare any
excess baggage upon boarding its bus.
ISSUES:
1. Whether petitioner is liable for the loss of the
luggage
2. Whether the damages sought should be
recovered
HELD:
1. The cause of the loss in the case at bar was
petitioners negligence in not ensuring that the
doors of the baggage compartment of its bus
were securely fastened. As a result of this lack of
care, almost all of the luggage was lost, to the
prejudice of the paying passengers.
2. There is no dispute that of the three pieces of
luggage of Fatima, only one was recovered.
Respondents had to shuttle between Bicol and
Manila in their efforts to be compensated for the
loss. During the trial, Fatima and Marisol had to
travel from the United States just to be able to
testify. Expenses were also incurred in
reconstituting their lost documents. Under these
circumstances, the Court agrees with the Court of
Appeals in awarding P30,000.00 for the lost items
and P30,000.00 for the transportation expenses,
but disagrees with the deletion of the award of
moral and exemplary damages which, in view of
the foregoing proven facts, with negligence and
bad faith on the fault of petitioner having been
duly established, should be granted to
respondents in the amount of P20,000.00 and
P5,000.00, respectively.
h. G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC.
vs. IAC and DEVELOPMENT INSURANCE & SURETY
CORPORATION
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.,
These 2 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 (cause unknown),
resulting in the total loss of ship and cargo.
This is a petition for review on certiorari filed by Eastern
Shipping before the SC.
DETAILS:
Operator: Eastern Shipping Lines
Vessel: M/S Asiatica (operated by Eastern Shipping)
Route: Kobe, Japan to Manila
Date of loading: Sometime in or prior to June 1977
Insurer: Dev’t. Insurance and Surety Corp.
Consignee 1: Phil. Blooming Mills Co. Inc.
Goods: 5,000 pcs calorized lance pipes in 28 packages;
Valued and Insured at P256,039
Consignee 2: Central Textile Mills Inc.
Goods: 7 cases of spare parts; valued and insured at
P92,361.75
Insurer: Nisshin Fire & Marine Insurance Co.
Consignee: Mariveles Apparel Corp.
Goods: 128 cartons of garment fabrics and accessories, in 2
containers; valued and insured at US46,583
Insurer: Dowa Fire & Marine Insurance Co. Ltd.
Consignee: Aman Enterprises and Gen. Merchandise
Goods: 2 cases of surveying instruments; valued and
insured at US11, 385
FACTS
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.
Allegations of the Insurance companies: That Eastern
Shipping did not observe extraordinary diligence and the
unseaworthiness of M/V Asiatica
Defenses of Eastern Shipping:
- Not liable on the ground that the loss of the vessel by fire is
an extraordinary fortuitous event, which 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
-that it was not the operator of M/S Asiatica, but merely a
charterer thereof
-its liability, if any, should not exceed $500 per package as
provided in Sec. 4(5) of COGSA
(GR 69044)
CFI (8/31/1979): Ruled in favor of Devt. 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.
CA (8/14/1984): Affirmed CFI’s decision.
(G.R. NO. 71478)
CFI (9/15/1980): Rule in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively,
with legal interest, plus attorney's fees of P5,000.00 and
costs.
CA (9/10/1984): 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.
ISSUES
1. WON Eastern is merely a charterer of M/S Asiatica- No.
2. Which law should govern—the Civil Code provisions on
Common Carriers or the COGSA? Civil Code primarily,
COGSA suppletorily
3. Who has the burden of proof to show negligence of the
carrier? Eastern has the burden of proving it exercised
extraordinary diligence, since the presumption of
negligence applies in this case.
4. WON the sinking of the ship through fire is a fortuitous
event which would exempt Eastern Shipping from liability.
No.
5. WON Eastern’s liability should not exceed $500 per
package - Yes
HELD
1. WON Eastern is merely a charterer of M/S Asiatica
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.
2. Which law should govern—the Civil Code provisions
on Common Carriers or the COGSA?
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. (Art.1753, CC)
As the cargoes in question were transported from Japan to
the Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. However, in all matters not
regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of
Commerce and by special laws. (Art.1766) Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to
the provisions of the Civil Code.
3. Who has the burden of proof to show negligence of the
carrier?
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. 8 Common
carriers are responsible for the loss, destruction, or
deterioration of the goods unless the same is due to any of
the following causes only:
(1) Flood, storm, earthquake, lightning or other natural
disaster or calamity;
xxx xxx xxx 9
4. WON the sinking of the ship through fire is a
fortuitous event which would exempt Eastern Shipping
from liability.
Petitioner Carrier claims that the loss of the vessel by fire
exempts it from liability under the phrase "natural disaster or
calamity. " However, we are of the opinion that fire may not
be considered a natural disaster or calamity. This must be so
as it arises almost invariably from some act of man or by
human means. It does not fall within the category of an act of
God unless caused by lightning or by other natural disaster
or calamity. It may even be caused by the actual fault or
privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an
extraordinary fortuitous event refers to leases of rural lands
where a reduction of the rent is allowed when more than
one-half of the fruits have been lost due to such event,
considering that the law adopts a protection policy towards
agriculture.
As the peril of the fire is not comprehended within the
exception in Article 1734, supra, Article 1735 of the Civil
Code provides that all cases than those mention in Article
1734, the common carrier shall be presumed to have been
at fault or to have acted negligently, unless it proves that it
has observed the extraordinary deligence required by law.
In this case, the respective Insurers as subrogees of the
cargo shippers, have proven that the transported goods
have been lost. Petitioner Carrier has also proved that the
loss was caused by fire. The burden then is upon Petitioner
Carrier to prove that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court,
concurred in by the Appellate Court, made the following
Finding of fact:
The cargoes in question were, according to the
witnesses defendant placed in hatches No, 2 and
3 cf the vessel, Boatswain Ernesto Pastrana
noticed that smoke was coming out from hatch No.
2 and hatch No. 3; that where the smoke was
noticed, the fire was already big; that the fire must
have started twenty-four 24) our the same was
noticed; that carbon dioxide was ordered released
and the crew was ordered to open the hatch
covers of No, 2 tor commencement of fire fighting
by sea water: that all of these effort were not
enough to control the fire.
Pursuant to Article 1733, common carriers are bound to
extraordinary diligence in the vigilance over the goods. The
evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the
occurrence of fire at hatches numbers 2 and 3. Defendant's
evidence did not likewise show he amount of diligence made
by the crew, on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in the hatches,
no regular inspection was made as to their condition during
the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in
the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the crew
to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of
deligence required of it under Article 1733 of the Civil Code.
Having failed to discharge the burden of proving that it had
exercised the extraordinary diligence required by law,
Petitioner Carrier cannot escape liability for the loss of the
cargo.
And even if fire were to be considered a "natural disaster"
within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the
"natural disaster" must have been the "proximate and only
cause of the loss," and that the carrier has "exercised due
diligence to prevent or minimize the loss before, during or
after the occurrence of the disaster. " This Petitioner Carrier
has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under
the Carriage of Goods by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be
responsible for loss or damage arising or resulting
from
(b) Fire, unless caused by the actual fault or
privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in
effect, found, as a fact, that there was "actual fault" of the
carrier shown by "lack of diligence" in that "when the smoke
was noticed, the fire was already big; that the fire must have
started twenty-four (24) hours before the same was noticed;
" and that "after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the
voyage." The foregoing suffices to show that the
circumstances under which the fire originated and spread
are such as to show that Petitioner Carrier or its servants
were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results
from fire is unavailing to Petitioner Carrier.
5. WON Eastern’s liability should not exceed $500 per
package
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
i