Coastwise Lighterage Corp. vs. CA (GR 114167, 12 July 1995)Third Division, Francisco R. (J): 4 concur

Facts: Pag-asa Sales Inc. entered into a contract to transport molasses from the province of Negros to Manila with Coastwise Lighterage Corp., using the latter’s dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise. Upon reaching Manila Bay, while approaching Pier 18, one of the barges, “Coastwise 9″, struck an unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in through a hole “2 inches wide and 22 inches long”. As a consequence, the molasses at the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, Philippine General Insurance Company (PhilGen) and against the carrier, Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which. paid the consignee, Pag-asa Sales the amount of P700,000.00 representing the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the RTC of Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales for the latter’s lost cargo PhilGen now claims to be subrogated to all the contractual rights and claims which the consignee may have against the carrier, which is presumed to have violated the contract of carriage. The RTC (Branch 35) awarded the amount prayed for by PhilGen, i.e. the principal amount of P700,000.00 plus interest thereon at the legal rate computed from 29 March 1989, the date the complaint was filed until fully paid and another sum of P100,000.00 as attorney’s fees and costs.

On Coastwise Lighterage’s appeal to the Court of Appeals, the award was affirmed on 17 December 1993. Hence, the petition for review.

The Supreme Court denied the petition, and affirmed the appealed decision.

1. Liability of shipowner in contract of affreightment over vessels, as common carrier, remains in the absence of the stipulationWhen the charter party contract is one of affreightment over the whole vessels, rather than a demise, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation. Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment on account of the distinctions between a contract of affreightment and a bareboat charter. Herein, Pag-asa Sales only leased three of Coastwise Lighterage’s vessels, in order to carry cargo from one point to another, but the possession, command mid navigation of the vessels remained with Coastwise Lighterage. The contract thus entered into with the consignee was one of affreightment.

2. Demise or bareboat charter of the vessel; Puromines vs. CAUnder the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish

possession, command and navigation thereof to the charterer anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party all.

3. Contract of affreightment; Puromines vs. CAA contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for special service to be rendered by the owner of the vessel and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment or the charter hire. An owner who retains possession of the ship though the hold is the property of the charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading and unloading of the cargo . . .”

4. Presumption of negligenceThe law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. It follows then that the presumption of negligence that attaches to common carriers, once the goods it is sports are lost, destroyed or deteriorated, applies to Coastwise Lighterage. This presumption, which is overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in the present case. As a common carrier, Coastwise Lighterage is liable for breach of the contract of carriage, having failed to overcome the presumption of negligence with the loss and destruction of goods it transported, by proof of its exercise of extraordinary diligence.

5. Article 609 of the Code of CommerceArticle 609 of the Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by the provisions of the Civil Code) provides that “captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract in accordance with this code, and prove the skill capacity and qualifications necessary to command and direct the vessel, as established by marine and navigation laws, ordinances or regulations, and must not be disqualified according to the same for the discharge of the duties of the position.”

6. Carrier remised in observance of duties; Unlicensed patron presumes lack of skill and lack of familiarity to usual and safe routes taken by seasoned and authorized onesFar from having rendered service with the greatest skill and outmost foresight, and being free from fault, the carrier was culpably remiss in the observance of its duties. For one, Jesus R. Constantino, the patron of the vessel “Coastwise 9″ admitted that he was not licensed. Clearly, Coastwise Lighterage’s embarking on a voyage with an unlicensed patron violates Article 609 of the Code of Commerce. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose navigational skills are questionable, at the helm of the vessel which eventually met the fateful accident. It may also logically, follow that a person without license to navigate, lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally authorized ones. Had the patron been licensed he could be presumed to have both the skill and the knowledge that would have prevented the vessel’s hitting the sunken derelict ship that lay on their way to Pier 18.

7. Article 2207 NCCArticle 2207 of the Civil Code provides that “If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loses arising out of the wrong or breach of contract complained of the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who violated the contract.”

8. Principle of subrogation explainedArticle 2207 NCC containing the equitable principle of subrogation has been applied in a long line of cases including Compania Maritima v. Insurance Company of North America; Firesman’s Fund Insurance Company v. Jamilla & Company, Inc., and Pan Malayan Insurance Corporation v. Court of Appeals, wherein the Court explained that “Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operated as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any private of contract or upon written assignment of, claim. It accrues simply upon payment of the insurance claim by the insurer.” Herein, Coastwise Lighterage was liable for breach of the contract of carriage it entered into with the Pag-asa Sales. However, for the damage sustained by the loss of the cargo which the carrier was transporting, it was not the carrier which paid the value thereof to Pag-asa Sales but the latter’s insurer, PhilGen. Upon payment by insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales, the consignee of the cargo of molasses totally damaged while being transported by Coastwise Lighterage, the former was, subrogated into all the rights which Pag-asa Sales may have had against the carrier, Coastwise Lighterage.

Smith Bell vs. CA (GR 56294, 20 May 1991)En Banc, Feliciano (J): 14 concur

Facts: On 3 May 1970, 3:50 a.m., on the approaches to the port of Manila near Caballo Island, a collision took place between the M/V “Don Carlos,” an inter-island vessel owned and operated by Carlos A. Go Thong and Company (”Go Thong”), and the M/S “Yotai Maru,” a merchant vessel of Japanese registry. The “Don Carlos” was then sailing south bound leaving the port of Manila for Cebu, while the “Yotai Maru” was approaching the port of Manila, coming in from Kobe, Japan. The bow of the “Don Carlos” rammed the portside (left side) of the “Yotai Maru” inflicting a 3 cm. gaping hole on her portside near Hatch 3, through which seawater rushed in and flooded that hatch and her bottom tanks, damaging all the cargo stowed therein. The consignees of the damaged cargo got paid by their insurance companies.

The insurance companies in turn, having been subrogated to the interests of the consignees of the damaged cargo, commenced actions against Go Thong for damages sustained by the various shipments in the then CFI of Manila. 2 cases were filed in the CFI of Manila. The first case, Civil Case 82567, was commenced or 13 March 1971 by Smith Bell and Company (Philippines), Inc. and Sumitomo Marine and Fire Insurance Company Ltd., against Go Thong, in Branch 3, which was presided over by Judge Bernardo P. Fernandez. The second case, Civil Case 82556, was

filed on 15 March 1971 by Smith Bell and Company (Philippines), Inc. and Tokyo Marine and Fire Insurance Company, Inc. against Go Thong in Branch 4, which was presided over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas. Civil Cases 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and evidence relating to the collision between the “Don Carlos” and the “Yotai Maru” the parties in both cases having agreed that the evidence on the collision presented in one case would be simply adopted in the other. In both cases, the Manila CFI held that the officers and crew of the “Don Carlos” had been negligent, that such negligence was the proximate cause of the collision and accordingly held Go Thong liable for damages to the insurance companies. Judge Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney’s fees; while Judge Cuevas awarded the insurance companies on two (2) claims US$68,640.00 or its equivalent in Philippine currency plus attorney’s fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney’s fees, respectively.

The decision of Judge Fernandez in Civil Case 82567 was appealed by Go Thong to the Court of Appeals (CA-GR 61320-R). The decision of Judge Cuevas in Civil Case 82556 was also appealed by Go Thong to the Court of Appeals (CA-GR 61206-R). Substantially identical assignments of errors were made by Go Thong in the 2 appealed cases before the Court of Appeals. In CA-GR 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8 August 1978 affirming the Decision of Judge Fernandez. Go Thong moved for reconsideration, without success.

Go Thong then went to the Supreme Court on Petition for Review, the Petition (GR L-48839; Carlos A. Go Thong and Company v. Smith Bell and Company [Philippines], Inc., et al.). In its Resolution dated 6 December 1978, the Supreme Court, denied the Petition for lack of merit. Go Thong filed a Motion for Reconsideration; the Motion was denied by the Supreme Court on 24 January 1979.

In CA-GR 61206-R, the Court of Appeals, on 26 November 1980, reversed the Cuevas Decision and held the officers of the “Yotai Maru” at fault in the collision with the “Don Carlos,” and dismissed the insurance companies’ complaint. Smith Bell & Co. and the Tokyo Marine & Fire Insurance Co. Inc. asked for reconsideration, to no avail. Hence, the petition for review on certiorari.

The Supreme Court reversed and set aside the Decision of the Court of Appeals dated 26 November 1980 in CA-GR 61206-R, and reinstated and affirmed the decision of the trial court dated 22 September 1975 in its entirety; with costs against Go Thong.

1. Minute resolutions; EffectThat the Supreme Court denied Go Thong’s Petition for Review in a minute Resolution did not in any way diminish the legal significance of the denial so decreed by the Court. The Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment shall be framed. It has long been settled that the Supreme Court has discretion to decide whether a “minute resolution” should be used in lieu of a full-blown decision in any particular case and that a minute Resolution of dismissal of a Petition for Review on Certiorari constitutes an adjudication on the merits of the controversy or subject matter of the Petition. It has been

stressed by the Court that the grant of due course to a Petition for Review is “not a matter of right, but of sound judicial discretion; and so there is no need to fully explain the Court’s denial. For one thing, the facts and law are already mentioned in the Court of Appeals’ opinion.” A minute Resolution denying a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees with or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed and set aside is correct.

2. Res Judicata; Substantial identity of the partiesThe parties in CA-GR. 61320-R involved Smith Bell and Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the present case involved Smith Bell and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other words, there was a common petitioner in the 2 cases, although the co-petitioner in one was an insurance company different from the insurance company co-petitioner in the other case. The co-petitioner in both cases, however, was an insurance company and that both petitioners in the 2 cases represented the same interest, i.e., the cargo owner’s interest as against the hull interest or the interest of the shipowner. More importantly, both cases had been brought against the same defendant, Go Thong, the owner of the vessel “Don Carlos.” In sum, CA-GR 61320-R and CA-GR 61206-R exhibited substantial identity of parties.

3. Res Judicata; Cause of action and judgments the sameAlthough the subject matters of the 2 suits were not identical, in the sense that the cargo which had been damaged in the one case and for which indemnity was sought, was not the very same cargo which had been damaged in the other case indemnity for which was also sought. The cause of action was, however, the same in the 2 cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been violated by the same casualty, the ramming of the “Yotai Maru” by the “Don Carlos.” The judgments in both cases were final judgments on the merits rendered by the 2 divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which has not been questioned.

4. Res Judicata; Absence of identity of subject matter does not preclude application of res judicataUnder the circumstances, the Court believes that the absence of identity of subject matter, there being substantial identity of parties and identity of cause of action, will not preclude the application of res judicata.

5. Res Judicata; Concepts of “bar by former judgment” and conclusiveness of judgment”; Tingson vs. CAIn Tingson v. Court of Appeals, the Court distinguished one from the other the 2 concepts embraced in the principle of res judicata, i.e., “bar by former judgment” and “conclusiveness of judgment:” There is no question that where as between the first case where the judgment is rendered and the second case where such judgment is invoked, there is identity of parties, subject-matter and cause of action, the judgment on the merits in the first case constitutes an absolute bar to the subsequent action not only as to every matter which was offered and received to sustain or defeat the claim or demand, but also as to any other admissible matter which might have been offered for that purpose and to all matters that could have been adjudged in that case. This is designated as ‘bar by former judgment.’ But where the second action between the same

parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In fine, the previous judgment is conclusive in the second case, only as those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the rule on ‘conclusiveness of judgment’ embodied in subdivision (c) of Section 49 of Rule 39 of the Revised Rules of Court.”

6. Res Judicata; Concepts of “bar by former judgment” and conclusiveness of judgment”; Lopez vs. ReyesIn Lopez v. Reyes, the Court elaborated further the distinction between bar by former judgment which bars the prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness of judgment which bars the relitigation of particular facts or issues in another litigation between the same parties on a different claim or cause of action. “The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand or cause of action. The second aspect is that it precludes the relitigation of a particular fact or issues in another action between the same parties on a different claim or cause of action. The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are commonly applied to all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions ‘necessarily involved in an issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no specific finding may have been made in reference thereto, and although such matters were directly referred to in the pleadings and were not actually or formally presented. Under this rule; if the record of the former trial shows that the judgment could not have been rendered without deciding the particular matter, it will be considered as having settled that matter as to all future actions between the parties, and if a judgment necessarily presupposes certain premises, they are as conclusive as the judgment itself. Reasons for the rule are that a judgment is an adjudication on all the matters which are essential to support it, and that every proposition assumed or decided by the court leading up to the final conclusion and upon which such conclusion is based is as effectually passed upon as the ultimate question which is finally solved.’”

7. Decision in CA-GR 61320-R conclusive as to negligence of Don CarlosHerein, the issue of which vessel (”Don Carlos” or “Yotai Maru”) had been negligent, or so negligent as to have proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted and litigated in CA-GR 61320-R; where it was found that “Don Carlos” to have been negligent. That Decision was affirmed by the Supreme Court in GR L-48839 in a Resolution dated 6 December 1978. The Reyes Decision thus became final and executory approximately 2 years before the Sison Decision was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the 2 vessels, had long been settled by the Suprme Court Court and could no longer be relitigated in CA-GR 61206-R. Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of the Supreme Court.

8. Compromise definedA compromise is an agreement between 2 or more persons who, in order to forestall or put an

end to a law suit, adjust their differences by mutual consent, an adjustment which everyone of them prefers to the hope of gaining more, balanced by the danger of losing more.

9. Compromise agreement not an admission that anything is due, not admissible in evidence against person making the offerBy virtue of the compromise agreement, the owner of the “Yotai Maru” paid a sum of money to the owner of the “Don Carlos.” Nowhere, however, in the compromise agreement did the owner of the “Yotai Maru” admit or concede that the “Yotai Maru” had been at fault in the collision. The familiar rule is that “an offer of compromise is not an admission that anything is due, and is not admissible in evidence against the person making the offer.” An offer to compromise does not, in legal contemplation, involve an admission on the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further controversy and saving the expenses of litigation. It is of the very nature of an offer of compromise that it is made tentatively, hypothetically and in contemplation of mutual concessions.

10. Basis of rule on compromisesThe above rule on compromises is anchored on public policy of the most insistent and basic kind; that the incidence of litigation should be reduced and its duration shortened to the maximum extent feasible.

11. Administrative proceedings before the Board of Marine Inquiry; Decision of PCG remains in effectHerein, the decision of the Office of the President upholding the belated reversal by the Ministry of National Defense of the PCG’S decision holding the “Don Carlos” solely liable for the collision, is so deeply flawed as not to warrant any further examination. Upon the other hand, the basic decision of the PCG holding the “Don Carlos” solely negligent in the collision remains in effect.

12. Rule 18 (a) of the International Rules of the RoadRule 18 (a) of the International Rules of the Road, which provides “(a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each shall alter her course to starboard, so that each may pass on the port side of the other. This Rule only applies to cases where vessels are meeting end on or nearly end on, in such a manner as to involve risk of collision, end does not apply to two vessels which must, if both keep on their respective course, pass clear of each other. The only cases to which it does apply are when each of two vessels is end on, or nearly end on, to the other; in other words, to cases in which, by day, each vessel sees the masts of the other in a line or nearly in a line with her own; and by night to cases in which each vessel is in such a position as to see both the sidelights of the other. It does not apply, by day, to cases in which a vessel sees another ahead crossing her own course; or, by night, to cases where the red light of one vessel is opposed to the red light of the other or where the green light of one vessel is opposed to the green light of the other or where a red light without a green light or a green light without a red light is seen ahead, or where both green and red lights are seen anywhere but ahead.”

13. Factors constituting negligence on part of “Don Carlos”; Rule 18 (a) of the

International Rules of the RoadThe first of the factors, which are constitutive of negligence on the part of the “Don Carlos,” was the failure of the “Don Carlos” to comply with the requirements of Rule 18 (a) of the International Rules of the Road (”Rules”). Herein, “Don Carlos” was overtaking another vessel, the “Don Francisco” and was then at the starboard (right side) of the aforesaid vessel at 3.40 a.m. It was in the process of overtaking “Don Francisco”’ that “Don Carlos” was finally brought into a situation where he was meeting end-on or nearly end -on ‘Yotai Maru’ thus involving risk of collision. For her part, the “Yotai Maru” did comply with its obligations under Rule 18 (a). As the “Yotai Maru” found herself on an “end-on” or a “nearly end-on” situation vis-a-vis the “Don Carlos,” and as the distance between them was rapidly shrinking, the “Yotai Maru” turned starboard (to its right) and at the same time gave the required signal consisting of one short horn blast. The “Don Carlos” turned to portside (to its left), instead of turning to starboard as demanded by Rule 18 (a). The “Don Carlos” also violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning “I am altering my course to port.” When the “Yotai Maru” saw that the “Don Carlos” was turning to port, the master of the “Yotai Maru” ordered the vessel turned “hard starboard” at 3:45 a.m. and stopped her engines; at about 3:46 a.m. the “Yotai Maru” went “full astern engine.” The collision occurred at exactly 3:50 a.m.

14. Factors constituting negligence on part of “Don Carlos”; Proper lookoutThe second circumstance constitutive of negligence on the part of the “Don Carlos” was its failure to have on board that might a “proper look-out” as required by Rule I (B). Under Rule 29 of the same set of Rules, all consequences arising from the failure of the “Don Carlos” to keep a “proper look-out” must be borne by the “Don Carlos.”

15. Proper look out definedA ”proper look-out” is one who has been trained as such and who is given no other duty save to act as a look-out and who is stationed where he can see and hear best and maintain good communication with the officer in charge of the vessel, and who must, of course, be vigilant.

16. Who is not a proper look outThe ‘look-out’ should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548, 571). He has only one duty, that which its name implies — to keep a ‘look-out’. So a deckhand who has other duties, is not a proper ‘look-out’ (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is not a sufficient ‘look-out’ (Larcen B. Myrtle, 44 Fed. 779) — Griffin on Collision, pages 277-278). Neither the captain nor the [helmsman] in the pilothouse can be considered to be a ‘look-out’ within the meaning of the maritime law. Nor should he be stationed in the bridge. He should be as near as practicable to the surface of the water so as to be able to see low-lying lights (Griffin on Collision, page 273). Herein, it is hardly probable that neither German or Leo Enriquez may qualify as ‘look-out’ in the real sense of the word. The failure of the “Don Carlos” to recognize in a timely manner the risk of collision with the “Yotai Maru” coming in from the opposite direction, was at least in part due to the failure of the “Don Carlos” to maintain a proper look-out.

14. Factors constituting negligence on part of “Don Carlos”; Second Mate in commandThe third factor constitutive of negligence on the part of the “Don Carlos” relates to the fact that Second Mate Benito German was, immediately before and during the collision, in command of

the “Don Carlos,” although its captain, Captain Rivera, was very much in the said vessel at the time. There was no explanation as to why the second mate was at the helm of the aforesaid vessel when Captain Rivera did not appear to be under any disability at the time. The fact that second mate German was allowed to be in command of ‘Don Carlos’ and not the chief or the sailing mate in the absence of Captain Rivera, gives rise to no other conclusion except that said vessel had no chief mate. Worst still aside from German’s being only a second mate, is his apparent lack of sufficient knowledge of the basic and generally established rules of navigation (e.g. necessity of look-out). There is, therefore, every reasonable ground to believe that his inability to grasp actual situation and the implication brought about by inadequacy of experience and technical know-how was mainly responsible and decidedly accounted for the collision of the vessels involved in the case.

15. No exclusive obligation upon one of the vessels to avoid the collisionBy imposing an exclusive obligation upon one of the vessels, the “Yotai Maru,” to avoid the collision, the Court of Appeals not only chose to overlook all the above facts constitutive of negligence on the part of the “Don Carlos;” it also in effect used the very negligence on the part of the “Don Carlos;” to absolve it from responsibility and to shift that responsibility exclusively onto the “Yotai Maru” the vessel which had observed carefully the mandate of Rule 18 (a).

16. Urrutia vs. Baco River Plantation not applicableMoreover, G. Urrutia and Company v. Baco River Plantation Company is simply inappropriate and inapplicable. For the collision in the Urrutia case was between a sailing vessel, on the one hand, and a power-driven vessel, on the other; the Rules, of course, imposed a special duty on the power-driven vessel to watch the movements of a sailing vessel, the latter being necessarily much slower and much less maneuverable than the power-driven one. Herein, both the “Don Carlos” and the “Yotai Maru” were power-driven and both were equipped with radar; the maximum speed of the “Yotai Maru” was thirteen (13) knots while that of the “Don Carlos” was eleven (11) knots. Moreover, as already noted, the “Yotai Maru” precisely took last minute measures to avert collision as it saw the “Don Carlos” turning to portside: the “Yotai Maru” turned “hard starboard” and stopped its engines and then put its engines “full astern.”

Maritime Agencies & Services vs. CA (GR 77638, 12 July 1990)Union Insurance Society of Canton, Ltd. vs. CA (GR 77674)First Division, Cruz (J): 4 concur

Facts: Transcontinental Fertilizer Company of London chartered from Hongkong the motor vessel named “Hongkong Island” for the shipment of 8073.35 MT (gross) bagged urea from Novorossisk, Odessa, USSR, to the Philippines, the parties signing for this purpose a Uniform General Charter dated 9 August 1979. Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee, 3,400.04 to be discharged in Manila and the remaining 2,000 MT in Cebu. The goods were insured by the consignee with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. Maritime Agencies & Services, Inc. was appointed as the charterer’s agent and Macondray Company, Inc. as the owner’s agent. The vessel arrived in Manila on 3 October 1979, and unloaded part of the consignee’s goods, then proceeded to Cebu on 19 October 1979, to discharge the rest of the cargo. On 31 October 1979, the consignee filed a formal claim against Maritime, copy furnished Macondray, for the amount

of P87,163.54, representing C & F value of the 1,383 shortlanded bags. On 12 January 1980, the consignee filed another formal claim, this time against Viva Customs Brokerage, for the amount of P36,030.23, representing the value of 574 bags of net unrecovered spillage. These claims having been rejected, the consignee then went to Union, which on demand paid the total indemnity of P113,123.86 pursuant to the insurance contract.

As subrogee of the consignee, Union then filed on 19 September 1980, a complaint for reimbursement of this amount, with legal interest and attorney’s fees, against Hongkong Island Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. On 20 April 1981, the complaint was amended to drop Viva and implead Macondray Company, Inc. as a new defendant. On 4 January 1984, after trial, the trial court rendered judgment, ordering (a) Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay Union the sum of P87,1 63.54 plus 12% interest from 20 April 1981 until the whole amount is fully paid, P1,000.00 as attorney’s fees and to pay ½ of the costs; and (b) Maritime Agencies & Services, Inc., to pay Union the sum of P36,030.23, plus 12% interest from 20 April 1981 until the whole amount is fully paid, P600.00 as attorney’s fees and to pay ½ of the costs.

Maritime Agencies & Services appealed the decision to the Court of Appeals, which rendered a decision on 28 November 1986, modifying the decision appeal from, finding the charterer Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime Agencies & Services, Inc. liable for the amount of P87,163.54 plus interest at 12% plus attorney’s fees of P1,000.00. Hongkong Island Cos. Ltd. represented by Macondray Co., Inc. were accordingly exempted from any liability. Maritime and Union filed separate motions for reconsideration which were both denied. Hence, the petitions.

These two cases were consolidated and given due course, the parties being required to submit simultaneous memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray Company, Inc., although they pointed out that they were not involved in the petitions. The Supreme Court set aside the decision of the appellate court, and reinstated that of the trial court as modified; and further holding that the parties shall bear their respective costs.

1. Factual Findings of the trial courtIn his decision dated 4 January 1984, Judge Artemon de Luna of the Regional Trial Court of Manila held that the Court, on the basis of the evidence, finds nothing to disprove the finding of the marine and cargo surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were “discharged ex-vessel” and there were shortlanded” “1,383 bags,” valued at P87,163.54. This sum should be the principal and primary liability and responsibility of the carrying vessel. Under the contract for the transportation of goods, the vessel’s responsibility commence upon the actual delivery to, and receipt by the carrier or its authorized agent, until its final discharge at the port of Manila.

2. Categories of chartersThere are three general categories of charters, to wit, the demise or “bareboat charter,” the time charter and the voyage charter.

3. Demise charterA demise involves the transfer of full possession and control of the vessel for the period covered by the contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while manning and supplying the ship as well.

4. Time charterA time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the right to direct the movements of the vessel during the chartering period, although the owner retains possession and control.

5. Voyage charterA voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the purpose of transport in goods for the charterer. The voyage charter is a contract of affreightment and is considered a private carriage.

6. Responsibility for cargo loss in case of a voyage charterA voyage charter being a private carriage, the parties may freely contract respecting liability for damage to the goods and other matters. The basic principle is that “the responsibility for cargo loss falls on the one who agreed to perform the duty involved” in accordance with the terms of most voyage charters. This is true in the present cases where the charterer was responsible for loading, stowage and discharging at the ports visited, while the owner was responsible for the care of the cargo during the voyage.

7. Paragraph 2 of the Uniform General CharterParagraph 2 of the Uniform General Charter reads “Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by the improper or negligent stowage of the goods or by personal want of due diligence on the part of the Owners or their Manager to make the vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied or by the personal act or default of the Owners or their Manager. And the Owners are responsible for no loss or damage or delay arising from any other cause whatsoever, even from the neglect or default of the Captain or crew or some other person employed by the Owners onboard or ashore for whose acts they would, but for this clause, be responsible, or from unseaworthiness of the vessel on loading or commencement of the voyage or at any time whatsoever. Damage caused by contact with or leakage, smell or evaporation from other goods or by the inflammable or explosive nature or insufficient package of other goods not to be considered as caused by improper or negligent stowage, even if in fact so caused.”

8. Clause 17 of the Additional Clauses to CharterpartyClause 17 of Additional Clauses to Charterparty provides that “The cargo shall be loaded, stowed and discharged free of expense to the vessel under the Master’s supervision. However, if required at loading and discharging ports the vessel is to give free use of winches and power to drive them gear, runners and ropes. Also slings, as on board. Shore winchmen are to be employed and they are to be for Charterers’ or Shippers’ or Receivers’ account as the case may be. Vessel is also to give free use of sufficient light, as on board, if required for night work. Time lost through breakdown of winches or derricks is not to count as laytime.”

9. Home Insurance vs. American Steamship Agencies; Stipulations exempting owner from liability in charter validIn Home Insurance Co. v. American Steamship Agencies, Inc., the trial court rejected similar stipulations as contrary to public policy and, applying the provisions of the Civil Code on common carriers and of the Code of Commerce on the duties of the ship captain, held the vessel liable in damages for loss of part of the cargo it was carrying. The Supreme Court reversed, therein, declaring that “the provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed valid.

10. Civil Code provisions on common carrier should not be applied if carrier is acting as private carrier, public not involvedThe Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party.

11. Ruling cannot benefit Hongkong due to shortlanded bags; Presumption of fault in damaged goods covered by clean bill of ladingThe present ruling cannot benefit Hongkong, because there was no showing in that case that the vessel was at fault. Herein, the trial court found that 1,383 bags were shortlanded, which could only mean that they were damaged or lost on board the vessel before unloading of the shipment. It is not denied that the entire cargo shipped by the charterer in Odessa was covered by a clean bill of lading. As the bags were in good order when received in the vessel, the presumption is that they were damaged or lost during the voyage as a result of their negligent improper stowage. For this the ship owner should be held liable.

12. Prescription of action; Filing of claim within 1 year, in accordance with COGSAThe period for filing the claim is one year, in accordance with the Carriage of Goods by Sea Act. This was adopted and embodied by our legislature in Commonwealth Act 65 which, as a special law, prevails over the general provisions of the Civil Code on prescription of actions.

13. Section 3(6) of Commonwealth Act 65Section 3(6) of that Act provides that “In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered; Provided, that if a notice of loss for damage; either apparent or concealed, is not given as provided for in this section, that fact shall not effect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.”

14. Application of the prescriptive period; Union Carbide vs. Manila RailroadThe period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila Railroad Co., where it was held “Under the facts of this case, we held that the one-year period

was correctly reckoned by the trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was barred by the statute of limitations.”

15. Application of prescriptive period; Present casesThe one-year period in the present cases should commence on 20 October 1979, when the last item was delivered to the consignee. Union’s complaint was filed against Hongkong on 19 September 1980, but tardily against Macondray on 20 April 1981. The consequence is that the action is considered prescribed as far as Macondray is concerned but not against its principal, which is what matters anyway.

16. Charterer liable for damaged goods during unloading; Agent, however, cannot be made liable for acts of disclosed principalAs regards the goods damaged or lost during unloading, the charterer is liable therefor, having assumed this activity under the charter party “free of expense to the vessel.” The difficulty is that Transcontinental has not been impleaded in these cases and so is beyond the Court’s jurisdiction. The liability imposable upon it cannot be borne by Maritime which, as a mere agent, is not answerable for injury caused by its principal. It is a well-settled principle that the agent shall be liable for the act or omission of the principal only if the latter is undisclosed.

17. Switzerland General Insurance vs. Ramirez not applicableThe ruling in the case of Switzerland General Insurance Co., Ltd. v. Ramirez is not applicable. In that case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel owner and the charterer did not stipulate in the Charterparty on their separate respective liabilities for the cargo. The loss/damage to the cargo was sustained while it was still on board or under the custody of the vessel. As the charterer was itself the carrier, it was made liable for the acts of the ship captain who was responsible for the cargo while under the custody of the vessel. As for the charterer’s agent, the evidence showed that it represented the vessel when it took charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name. Claims against the vessel for the losses/damages sustained by that cargo were also received and processed by it. As a result, the charterer’s agent was also considered a ship agent and so was held to be solidarily liable with its principal. The facts in the cases at bar are different. The charterer did not represent itself as a carrier and indeed assumed responsibility only for the unloading of the cargo, i.e, after the goods were already outside the custody of the vessel. In supervising the unloading of the cargo and issuing Daily Operations Report and Statement of Facts indicating and describing the day-to-day discharge of the cargo, Maritime acted in representation of the charterer and not of the vessel. It thus cannot be considered a ship agent. As a mere charterer’s agent, it cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo outside the custody of the vessel. Notably, Transcontinental was disclosed as the charterer’s principal and there is no question that Maritime acted within the scope of its authority.

18. Hongkong and Macondray impleaded in GR 77674; Issues not formally raised on appeal may be considered in the interest of justice

First of all, we note that they were formally impleaded as respondents in G.R No. 77674 and submitted their comment and later their memorandum, where they discussed at length their position vis-a-vis the claims of the other parties. Secondly, we reiterate the rule that even if issues are not formally and specifically raised on appeal, they may nevertheless be considered in the interest of justice for a proper decision of the case.

19. Unassigned error closely related to error properly assigned, or upon which a properly assigned error depends considered; Interest of justiceBesides, an unassigned error closely related to the error properly assigned, or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error. At any rate, the Court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. Issues, though not specifically raised in the pleadings in the appellate court, may, in the interest of justice, be properly considered by said court in deciding a case, if they are questions raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or the lower court ignored. While an assignment of error which is required by law or rule of court has been held essential to appellate review, and only those assigned will be considered, there are a number of cases which appear to accord to the appellate court a broad discretionary power to waive this lack of proper assignment of errors and consider errors not assigned.

20. Liability of Macondray can no longer enforced; and Maritime cannot be held liable for acts of known principalThe liability of Macondray can no longer be enforced because the claim against it has prescribed; and as for Maritime, it cannot be held liable for the acts of its known principal resulting in injury to Union.

21. When interest commenceThe interest must also be reduced to the legal rate of 6%, conformably to our ruling in Reformina v. Tomol and Article 2209 of the Civil Code, and should commence, not on 20 April 1981, but on 19 September 1980, date of the filing of the original complaint.

Ouano vs. CA (GR 95900, 23 July 1992)Second Division, Regalado (J): 3 concur

Facts: Julius C. Ouano is the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On 8 October 1980, Ouano leased the said vessel to Florentino Rafols Jr. under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the balance of P30,000.00 to be paid within 20 days after actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and should not sublet or sub-charter the same without the knowledge and written consent of the owner. On 11 October 1980, Rafols contracted with Market Developers, Inc. (MADE) through its group manager, Julian O. Chua, under an agreement denominated as a “Fixture Note” to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to Supreme Merchant Construction Supply, Inc.

(SMCSI) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of Ouano. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On 13 October 1980, Ouano wrote a letter to MADE through its manager, Chua, “to strongly request, if not demand to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes good his commitment” to petitioner. On 20 October 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the first installment of the freightage for the aforestated cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee, SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre cargo of Rafols, or even of Ouano himself who was then in General Santos City Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand made on Rafols, et. al. for a bond to secure payment of the freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCSI to its customers in October and November 1980.

On 6 January 1981, Ouano filed a complaint in the RTC of Cebu against MADE, as shipper; SMCSI, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney’s fees and expenses of litigation. On 10 March 1981, MADE filed its answer, while Ang and Chua filed theirs on 10 February 1982 and 31 May 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of summons. On 25 May 1985, the trial court rendered a decision in favor of Ouano, (1) ordering MADE, Chua, SMCSI, Ang (Chua Pek Giok) and Rafols, jointly and severally, to pay to Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on the latter’s vessel `M/V Don Julio Ouano’ included as part of the purchase price paid by SMCSI to MADE, plus legal interest from 6 January 1981 date of filing of the original complaint; (2) sentencing MADE, Chua and Rafols, jointly and solidarily, to pay Ouano P50,000.00 in concept, of moral and exemplary damages, and P5,000.00 attorney’s fees; and (3) sentencing SMCSI and Ang, jointly and severally, to pay Ouano P200,000.00 attorney’s fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by Ouano for travel to General Santos City to coordinate in serving an alias summons per sheriff’s return of service, with costs against Rafols, et.al.

On appeal, and on 30 August 1990, the Court of Appeals reversed the decision, and absolved MADE, et. al. from the complaint; but affirmed the decision with respect to Rafols. Ouano filed a motion for reconsideration which was denied by the Court of Appeals on 15 October 1990. Hence, the petition for review on certiorari.

The Supreme Court denied the petition and affirmed the assailed judgment of the Court of Appeals.

1. Contract binding upon contracting parties; Contract neither favor nor prejudice third personIt is a basic principle in civil law that, with certain exceptions not obtaining in the present case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. Herein, the charter contract was entered into only by and between Ouano and Rafols, and MADE and SMCSI were neither parties thereto nor were they aware of the provisions thereof.

2. Violation of charter party does not give rise to cause of action against sublessee or sub-charterer; Owner’s recourseThe violation of the prohibition in the contract against the sublease or sub-charter of the vessel without the vessel owner’s knowledge and written consent does not give rise to a cause of action against the supposed sublessee or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the contract, but the owner’s right of recourse is against the original charterer, either for rescission or fulfillment, with the payment of damages in either case.

3. Obligations of contracts limited to parties making themThe obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of agent by such person is necessary.

4. MADE and Chua not liable for damages for quasi-delict under Article 176 NCCMADE and Chua are not to be held liable for damages for a quasi-delict under Article 176 of the Civil Code for having failed to obtain his consent before entering into an agreement with Rafols. The obligation to obtain the written consent of Ouano before subleasing or sub-chartering the vessel was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith.

5. MADE and Chua not liable for damages for quasi-delict under Artice 1314 for inducing Rafols to violate charter partyMADE and Chua could not be held guilty of inducing Rafols to violate the original charter party. (1) There is no evidence on record to show that MADE and Chua had knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel. (2) At the time the fixture note was entered into between Rafols and MADE, a written authorization signed by the wife of Ouano in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments, was shown by the former to the latter. Although the said authorization may have been made by the wife, the same, however, can evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. (3) As stated in the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the latter using either the “M/V Don Julio Ouano or substitute vessel at his discretion.” Hence, the decision to use the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols.

6. Demand of second freight installment a ratification of the sub-charter contractHerein, Ouano is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols when he demanded the payment of the second freight installment as provided in the agreement and, later, received the same by virtue of the decision of the CFI of Cebu in Civil Case R-19845, an interpleader case filed by MADE.

7. Payment not indication of bad faith or malice; Article 1240 NCCThe act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice. Article 1240 of the Civil Code provides that “(p)ayment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.” Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols.

8. Leases involved in a sublease agreement; Rights and obligations of partiesIn a sublease arrangement, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The lessor is in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due and parable to the lessee-sublessor. Herein, MADE was under no obligation to pay Ouano since the freightage was payable to Rafols.

9. Article 1652 NCC, Sublessee subsidiary liable to lessor; No demand however was made against sublesseeAlthough it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. Herein, Ouano made no demand for payment from MADE. His letter dated 13 October 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio Ouano until Rafols had made good his obligations to him.

10. MADE could not withhold payment of freightIn the absence of any positive action on the part of Ouano, MADE could not withhold the payment of the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before 9 October 1980, hence on that date the first freight installment was already due and demandable. To further withhold the payment of said installment would constitute a breach of MADE’s obligation under the foregoing contract.

11. Rafols’ bouncing checks cannot be ascribable to MADEHerein, payments were actually made after 13 October 1980 by Rafols to Ouano, to wit: (a) two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for P32,000.00 issued on 9 November 1980. The fact that the said checks

bounced for insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which Ouano seeks to impute to MADE, SMCSI and their agents.

12. Kinds of charter partyA charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the owner and becomes the owner for the voyage. This second type is also known as a bareboat charter or otherwise referred to as a demise of the vessel. In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed, the charterer is substituted in his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the charterer. Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the present case, the general owner has no lien on the cargo for the hire of the vessel, in the absence of an express provision therefor.

13. Lien on unpaid freight available when owner retains possession of goodsEven on the assumption that Ouano had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or constitutes a waiver of, the lien. The lien of a carrier for the payment of freight charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession and dependent upon it.

14. Shipowner’s lien on freight not in the nature of hypothecationThe shipowner’s lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an unconditional delivery of the goods to the consignee.

15. Article 667 of Code of Commerce as modified by Article 2241 NCC; Period where lien subsistsUnder Article 667 of the Code of Commerce, the period during which the lien shall subsist is 20 days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for 30 days thereafter. During this period, the sale of the goods may be requested, even though there and other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration.

16. Overseas Factors vs. South Sea Shipping inapplicableThe case of Overseas Factors, Inc., et al. vs. South Sea Shipping Co., et al. is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. Herein, the cargo had already been unconditionally delivered to the consignee SMCI without protest.

Caltex vs. Sulpicio Lines (GR 131166, 30 September 1999)First Division, Pardo (J): 3 concur, 1 took no part

Facts: MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, which is engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. On the other hand, the MV Doña Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week. On 19 December 1987, motor tanker MT Vector left Limay, Bataan, enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by Caltex, by virtue of a charter contract between Vector Shipping and Caltex. The next day, the passenger ship MV Doña Paz left the port of Tacloban headed for Manila with a complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance, but possibly carrying an estimated 4,000 passengers. At about 10:30 p.m. of 20 December 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls. Among those who perished were public school teacher Sebastian Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested passengers but proved to be on board the vessel. On 22 March 1988, the board of marine inquiry after investigation found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz.

On 13 February 1989, Teresita and Sotera Cañezal, filed with the RTC Manila, a complaint for “Damages Arising from Breach of Contract of Carriage” against Sulpicio Lines, Inc. Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. On 15 September 1992, the trial court rendered decision dismissing the third party complaint against Caltex.

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc. (CA-GR CV 39626), on 15 April 1997, the Court of Appeal modified the trial court’s ruling and included petitioner Caltex as one of the those liable for damages. Hence the petition.

The Supreme Court granted the petition and set aside the decision of the Court of Appeals, insofar as it held Caltex liable under the third party complaint to reimburse/indemnify Sulpicio Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court affirmed the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and Corazon Cañezal damages as set forth therein. Third-party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to

reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys’ fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.

1. The respective rights and duties of a carrier depends on the nature of the contract of carriage

The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the one hand, or a charter party or similar contract on the other. In the case at bar, Caltex and Vector entered into a contract of affreightment, also known as a voyage charter.

2. Charter party and contract of affreightment defined

A charter party is 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 is one by which the owner of a ship or other vessel lets the whole or 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.

3. Kinds of contract of affreightment

A contract of affreightment may be either time charter, wherein the leased 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.

4. Charterer’s liability: Bareboat charter vs. Contract of affreightment

Under a demise or bareboat charter, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.

5. Categories of charter parties

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter.

6. Bareboat, but not voyage charter, transforms common carrier into private carrier

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment (Coastwise Lighterage Corp. vs. CA) 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 ship only, as in the case of a time-charter or voyage charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. (Planters Products vs. CA). In the case at bar, the charter party agreement did not convert the common carrier into a private carrier. The parties entered into a voyage charter, which retains the character of the vessel as a common carrier.

7. Common carrier defined

A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons who may choose to employ and to remunerate him. In the case at bar, MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code (Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers for passengers or goods or both, by land, water, or air for compensation, offering their services to the public).

8. Article 1732, Common carrier, construed

Article 1732 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 services on a 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. Article 1733 deliberately refrained from making such distinctions.

9. Responsibility of carrier before voyage; Seaworthiness

Under Section 3 of the Carriage of Goods by Sea Act, (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to (a) Make the ship seaworthy; (b) Properly man, equip, and supply the ship; among others. Carriers are deemed to warrant impliedly the seaworthiness of the ship. 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 the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.

10. Article 1173 of the New Civil Code

Article 1173 of the Civil Code provides that “the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply. If the law does not state the

diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.”

11. Negligence defined

Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand, or the omission to do something which ordinarily regulate the conduct of human affairs, would do (Southeastern College vs. CA).

12. Reason for the applicability of Section 3 COGSA, and Article 1755 NCC to carriers, not shipper and passengers; Ordinary diligence required of shippers

The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public duty. The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modern development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness. The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal requirements. The duty rests upon the common carrier simply for being engaged in “public service.” The Civil Code demands diligence which is required by the nature of the obligation and that which corresponds with the circumstances of the persons, the time and the place. Because of the implied warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in general is concerned. By the same token, passengers cannot be expected to inquire every time they board a common carrier, whether the carrier possesses the necessary papers or that all the carrier’s employees are qualified. Such a practice would be an absurdity in a business where time is always of the essence. Considering the nature of transportation business, passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its operation. In the case at bar, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

13. Caltex not liable for damages

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a higher degree of diligence. Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal basis to hold petitioner liable for damages.

Sabena Belgian World Airlines vs. CA (GR 104685, 14 March 1996)First Division: Vitug (J): 4 concur

Facts: On 21 August 1987, Ma. Paula San Agustin was a passenger on board flight SN 284 of Sabena Belgian World Airlines originating from Casablanca to Brussels, Belgium. She was issued Tag 77143 on 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. She stayed overnight in Brussels and her luggage was left on board Flight SN 284. When she arrived at Manila International Airport on 2 September 1987 and immediately submitted her Tag to facilitate the release of her luggage but the luggage was missing. She was advised to accomplish and submitted and filed on the same day. She followed up her claim on 14 September 1987 but the luggage remained to be missing. On 15 September 1987, she filed her formal complaint with the office of Ferge Massed, the airlines’s Local Manager, demanding immediate attention. On 30 September 1987, on the Occasion of San Agustin’s following up her luggage claim, she was furnished copies of the airlines’s telexes with and information that the Brussel’s Office of defendant found the luggage and that they have assured by the airline that it has notified its Manila Office 1987. But unfortunately San Agustin was informed that the luggage was lost for the second time.

At the time of the filling of the complaint, the luggage was its content has not been found. San Agustin demanded from the defendant the money value of the luggage and its contents amounting to $4,265.00 or its exchange value, but the airline refused to settle the claim. After trial, the trial court rendered judgment ordering Sabena Belgian World Airlines to pay Ma. Paula San Agustin (a) US$4,265.00 or its legal exchange in Philippine pesos; “(b) P30,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P10,000.00. attorney’s fees; and (e) (t)he cost of the suit.

Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate court, in its decision of 27 February 1992, affirmed in toto the trial court’s judgment. Hence, the petition for review.

The Supreme Court affirmed the appealed decision, with costs against Sabena Belgian World Airlines.

1. Fault or negligence; Rule in contracts and common carriersFault 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 not different in the case of common carriers in the carriage of good father of a family but that of “extraordinary” care in the vigilance over the goods.

2. Extraordinary diligence required on carriersArt. 1733 of the [Civil] Code provides that from the very nature of their business and by reason 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 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 transits.’ And Art. 1735 establishes the presumption that if the goods are lost, destroyed or deteriorate, common carrier 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.

3. Exceptions to extraordinary diligence requirementThe 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 excepted causes obtains in the case.

4. Tort doctrine not a defense in failure to observe extraordinary diligenceThe rules as to the extraordinary diligence required in carriers remain basically unchanged even when the contract is breached by tort (on the ground that Section 5(c), Article IX, of the General Conditions of Carriage, signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of 1955, generally observed by International carriers, stating among other things, that: “Passengers shall not include in his checked baggage, and the carrier may refuse to carry as checked baggage, Fragiles or perishable articles, money, jewelry, precious metals, negotiable papers, securities or other valuable”) although noncontradictory principles on quasi-delict may then be assimilated as also forming part of the governing law. The airline company is not thus entirely off track when it has likewise raised in its defense the tort doctrine cannot support its case.

5. Proximate cause definedProximate cause is that which, in natural and continues sequence, unbroken by any efficient intervening cause, produces injury and without which the result would not have occurred.

6. Proximate legal cause definedThe proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessors, the final event in the chain immediately affecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.

7. Loss of baggage twice shows gross negligenceIt remained undisputed that San Agustin’s luggage was lost while it was in the custody of Sabena Belgian World Airlines. It was supposed to arrive on the same flight that San Agustin took in returning to Manila on 2 September 1987. On 23 October 1987, she was advised that her luggage

had finally been found, with its contents intact; only to be told later that her luggage had been lost for the second time. Thus, Sabena Belgian World Airlines is ultimately guilty of “gross negligence” in the handling of San Agustin’s luggage, for the “loss of said baggage not only once by twice underscore the wanton negligence and lack of care ” on the part of the carrier.

8. Warsaw convention denies the carrier availment of provisions limiting liability if damage is caused by willful misconduct or defaultThe Warsaw Convention denies to the carrier availment “of the provisions which exclude or limit his liability if the damage is caused by his willful; misconduct or by such default on his part as, in accordance with the law of the court seized of the case, is considered to be equivalent to willful misconduct,” or “if the damage is (similarly) caused by any agent of the carrier acting within the scope of his employment.” The Hague Protocol amended the Warsaw Convention by removing the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely, and declaring the stated limits of liability not applicable “if it is proved that the damage resulted from an act or omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result.” The same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful misconduct. The Convention does not thus operate as an exclusive enumeration of the instances of an airline’s liability, or as an absolute limit of the extent of that liability. Slight reflection readily leads to the conclusion that it should be deemed a limit of liability only in those cases where the cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith, recklessness or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and the carrier’ or misconduct of its employees, or for some Particular or exceptional type of damage. (Alitalia vs. Intermediate Appellate Court)

9. Philippines is country of destination; No error in application of usual rules on extent of recoverable damages beyond the Warsaw limitationsThere is no error in the preponderant application to the case of the usual rules on the extent of recoverable damages beyond the Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the country of destination), the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the common carrier liable for all damages which can be reasonably attribute, although unforeseen, to the non-performance of the obligation, including moral and exemplary damages.

British Airways vs. CA (GR 121824, 29 January 1998)Third Division, Romero (J): 3 concur, 1 concur in result

Facts: On 16 April 1989, GOP Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a ticket from British Airways (BA) where the following itinerary was indicated (Manila [MNL], PR 310Y, 16 April, 1730H, Status OK; Hongkong [HKG] BA 20M, 16 April, 2100H, Status OK; Bombay [BOM], BA 19M, 23 April, 0840H, Status OK; Hongkong [HKG], PR 311 Y; Manila [MNL].” Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via Philippine Airlines (PAL), and

upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA. Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be transferred to the BA flight bound for Bombay.Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon inquiry from the BA representatives, he was told that the same might have been diverted to London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by accomplishing the “Property Irregularity Report.”

Back in the Philippines, specifically on 11 June 1990, Mahtani filed his complaint for damages and attorney’s fees against BA and Mr. Gumar before the trial court (Civil Case CEB-9076). After appropriate proceedings and trial, on 4 March 1993, the trial court rendered its decision in favor of Mahtani, ordering BA to pay Mahtani the sum of P7,000.00 for the value of the two (2) suit cases; US$400.00 representing the value of the contents of Mahtani’s luggage; P50,000.00 Pesos for moral and actual damages and 20% of the total amount imposed against BA for attorney’s fees and costs of the action. The Court dismissed BA’s third party complaint against PAL.

Dissatisfied, BA appealed to the Court of Appeals, which however, on 7 September 1995, affirmed the trial court’s findings in toto, with costs against BA. Hence, the appeal by certiorary.

The Supreme Court modified the decision of the Court of Appeals, reinstating the third-party complaint filed by British Airways dated 9 November 1990 against Philippine Airlines. No costs.

1. Nature of airline’s contract of carriageThe nature of an airline’s contract of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its destination and a contract to transport passengers to their destination. A business intended to serve the travelling public primarily, it is imbued with public interest, hence, the law governing common carriers imposes an exacting standard. Neglect or malfeasance by the carrier’s employees could predictably furnish bases for an action for damages.

2. Culpability of airline for lost damages; Claimant must prove existence of factual basis for damagesAs in a number of cases, the Court has assessed the airlines’ culpability in the form of damages for breach of contract involving misplaced luggage. In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant satisfactorily prove during the trial the existence of the factual basis of the damages and its causal connection to defendant’s acts.

3. Declaration of higher value needed to recover greater amount; Article 22 (1) of the Warsaw ConventionIn a contract of air carriage a declaration by the passenger of a higher value is needed to recover a greater amount. Article 22(2) of the Warsaw Convention provides that “In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor has made, at the time the package was handed over to the carrier, a special declaration of the value at delivery and has paid a supplementary sum if the case so

requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the actual value to the consignor at delivery.”

4. Carrier not liable for loss of baggage in amount in excess of limits specified in tariffAmerican jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff being binding on the passenger regardless of the passenger’s lack of knowledge thereof or assent thereto. This doctrine is recognized in this jurisdiction.

5. No blind reliance on adhesion contracts; Benefits of limited liability subject to waiverThe Court, however, has ruled against blind reliance on adhesion contracts where the facts and circumstances justify that they should be disregarded. Further, benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely objections during the trial when questions and answers regarding the actual claims and damages sustained by the passenger were asked. Herein, given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the misplacement of his luggage, without any objection.

6. Right to object actually a mere privilege that can be waived; Objection must be made at earliest opportunityIt is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the adverse party to be inadmissible for any reason, the latter has the right to object. However, such right is a mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity, lest silence when there is opportunity to speak may operate as a waiver of objections. Herein, BA has precisely failed in this regard.

7. Proper time to object; Abrenica vs. GondaIn the early case of Abrenica v. Gonda, that court ruled that “it has been repeatedly laid down as a rule of evidence that a protest or objection against the admission of any evidence must be made at the proper time, and that if not so made it will be understood to have been waived. The proper time to make a protest or objection is when, from the question addressed to the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or may be inferred.” Herein, to compound matters for BA, its counsel failed not only to interpose a timely objection but even conducted his own cross-examination as well.

8. Factual findings of trial court entitled to great respectNeedless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great respect. Herein, since the actual value of the luggage involved appreciation of evidence, a task within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a finding not reviewable by the Supreme Court.

9. Nature of third party complaint; Firestone Tire Rubber vs. TempengkoThe third-party complaint is a procedural device whereby a ‘third party’ who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of

the plaintiff’s claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff’s complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff’s claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts.

10. PAL a subcontractor or agent of BAThe contract of air transportation was exclusively between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former’s journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the “Conditions of Contracts” of the ticket 32 issued by BA to Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay (”4. carriage to be performed hereunder by several successive carriers is regarded as a single operation.”) It is undisputed that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA.

11. Agent responsible for any negligence in performance of its function, and liable for damages which principal may sufferIt is a well-settled rule that an agent is also responsible for any negligence in the performance of its function and is liable for damages which the principal may suffer by reason of its negligent act. Hence, the Court of Appeals erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.

12. Contractual relationship between BA and PAL, both members of the IATA, is one of agencyBoth BA and PAL are members of the International Air Transport Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of the tickets and other matters pertaining to their relationship. Therefore, herein, the contractual relationship between BA and PAL is one of agency, the former being the principal, since it was the one which issued the confirmed ticket, and the latter the agent.

13. BA is principal; Pronouncement consistent with Lufthansa vs. CAThe pronouncement that BA is the principal is consistent with the ruling in Lufthansa German Airlines v. Court of Appeals. In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda to a specific destination “bumped” him off. An action for damages was filed against Lufthansa which, however, denied any liability, contending that its responsibility towards its passenger is limited to the occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya: In rejecting Lufthansa’s argument, the court ruled that “In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed by various carriers. The

issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip aboard successive carriers concretely attest to this.”

14. Mahtani can sue BA alone, not PAL; PAL however not relieved from liabilitySince the present petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals, while not exactly in point, the case, however, illustrates the principle which governs the particular situation. In that case, the Court recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or omission in the performance of its duties.

15. Proceedings in third party complaint in accord with doctrine against multiplicity of suitsTo deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of ultimately determining who was primarily at fault as between them, is without legal basis. After all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving the same or similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that the purpose of a third-party complaint is precisely to avoid delay and circuity of action and to enable the controversy to be disposed of in one suit. It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the latter’s negligence was the proximate cause of Mahtani’s unfortunate experience, instead of totally absolving PAL from any liability.

JAPAN AIRLINES VS. ASUNCIONG.R. No. 161730. January 28, 2005Facts: On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan Airlines’ (JAL) bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, en employee of JAL endorsed their applications for shore pass and directed them to the Japanese immigration official. A shore pass is required of a foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours.During their interview, the Japanese immigration official noted that Michael appeared shorter than his height as indicated in his passport. Because of this inconsistency, respondents were denied shore pass entries and were detained at the Narita Airport Rest House where they were billeted overnight. A JAL employee was instructed that the respondents were to be “watched so as not to escape.” Respondents were charged US $400.00 each for their accommodation, security, service and meals.Subsequently, respondents filed a complaint for damages claiming that JAL did not fully apprise them of their travel requirements and that they were rudely and forcibly detained at the Narita Airport. The trial court rendered a decision favor of the respondents. On appeal, the CA affirmed in toto the decision of the trial court.Issue: Whether JAL is guilty of breach of contract.Held: The SC found that JAL did not breach its contract of carriage with respondents. It may be

true that JAL has the duty to inspect whether its passengers have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of respondents’ shore pass applications.

SHIP AGENT; LIABILITIESMACONDRAY & CO., INC. VS. PROVIDENT INSURANCE CORPORATION February, 2005

Facts: CANPOTEX SHIPPING SERVICES LIMITED INC., shipped on board the vessel M/V Trade carrier certain goods in favor of ATLAS FERTILIZER CORPORATION. Subject shipments were insured with Provident Insurance Corp. against all risks.When the shipment arrived, consignee discovered that the shipment sustained losses. Provident paid for said losses. Formal claims were then filed with Trade & Transport but MACONDRAY refused and failed to settle the same. MACONDRAY denies liability over the losses, it, having no absolute relation with Trade & Transport, the alleged operator of the vessel who transported the shipment; that accordingly, MACONDRAY is the local representative of the shipper; the charterer of M/V Trade Carrier and not party to this case; that it has no control over the acts of the captain and crew of the carrier and cannot be held responsible for any damage arising from the fault or negligence of said captain and crew; that upon arrival at the port, M/V Trade Carrier discharged the full amount of shipment as shown by the draft survey.Issue: Whether or not MACONDRAY & CO. INC., as an agent, is responsible for any loss sustained by any party from the vessel owned by Trade & Transport.Held: Although petitioner is not an agent of Trade & Transport, it can still be the ship agent of the vessel M/V Trade Carrier. A ship agent is the person entrusted with provisioning or representing the vessel in the port in which it may be found. Hence, whether acting as agent of the owner of the vessel or as agent of the charterer, petitioner will be considered as the ship agent and may be held liable as such, as long as the latter is the one that provisions or represents the vessel.The trial court found that petitioner was appointed as local agent of the vessel, which duty includes arrangement for the entrance and clearance of the vessel. Further, the CA found that the evidence shows that petitioner represented the vessel. The latter prepared the Notice of Readiness, the Statement of Facts, the Completion Notice, the Sailing Notice and Custom’s Clearance. Petitioner’s employees were present at the port of destination one day before the arrival of the vessel, where they stayed until it departed. They were also present during the actual discharging of the cargo. Moreover, Mr. de la Cruz, the representative of petitioner, also prepared for the needs of the vessel. These acts all point to the conclusion that it was the entity that represented the vessel at the port of destination and was the ship agent within the meaning

and context of Article 586 of the Code of Commerce.

EXTRAORDINARY DILIGENCE; PRESUMPTION OF FAULT OR NEGLIGENCE REBUTTABLE

REPUBLIC OF THE PHIL., represented by the DEPARTMENT OF HEALTH, NATIONAL TRUCKING AND FORWARDING CORPORATION (NTFC) and COOPERATIVE FOR AMERICAN RELIEF EVERYWHERE, INC. (CARE) VS. LORENZO SHIPPING CORPORATION (LSC)G.R. No. 153563. February 7, 2005

Facts: The Philippine government entered into a contract of carriage of goods with petitioner NTFC whereby the latter shipped bags of non-fat dried milk through respondent LSC. The consignee named in the bills of lading issued by the respondent was Abdurahma Jama, petitioner’s branch supervisor in Zamboanga City.On reaching the port of Zamboanga City, the respondent’s agent unloaded the goods and delivered the same to petitioner’s warehouse. Before each delivery, the delivery checkers of respondent’s agent requested Jama to surrender the original bills of lading, but the latter merely presented certified true copies thereof. Upon completion of each delivery, the delivery checkers asked Jama to sign the delivery receipts. However, at times when Jama had to attend to other business before a delivery was completed, he instructed his subordinates to sign the delivery receipts for him.Notwithstanding the precautions taken, petitioner NTFC allegedly did not receive the good and filed a formal claim for non-delivery of the goods shipped through respondent. Respondent explained that the cargo had already been delivered to Jama. The government through the DOH, CARE and NTFC as plaintiffs filed an action for breach of contract of carriage against respondent as defendant.Issue: Whether or not respondent is presumed at fault or negligent as common carrier for the loss or deterioration of the goods.Held: Article 1733 of the Civil Code demands that a common carrier observe extraordinary diligence over the goods transported by it. Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property or rights. This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. Hence, in case of loss of goods in transit, the common carrier is presumed under the law to have been at fault or negligent. However, the presumption of fault or negligence may be overturned by competent evidence showing that the common carrier has observed extraordinary diligence over the goods.The respondent has observed such extraordinary diligence in the delivery of the goods. Prior to releasing the goods to Jama, the delivery checkers required the surrender of the original bills of lading, and in their absence, the certified true copies showing that Jama was indeed the

consignee of the goods. In addition, they required Jama or his designated subordinates to sign the delivery receipts upon completion of each delivery.

PROMPT NOTICE OF CLAIM MUST BE MADE WITHIN THE PRESCRIBED PERIOD AS STATED IN THE BILL OF LADINGPROVIDENT INSURANCE CORP. (PIC) VS. COURT OF APPEALS and AZUCAR SHIPPING CORP. (ASC)G.R. No. 118030. January 15, 2004

Facts: The vessel MV Eduardo II received on board a shipment of plastic woven bags of fertilizer in good order and condition which was consigned to Atlas Fertilizer Corporation (AFC) and covered by a bill of lading. In the process of unloading at the port of destination, certain goods were found to have fallen overboard and some considered being unrecovered spillages. Petitioner PIC indemnified the consignee AFC for its damages and seeks reimbursement from respondent ASC for the value of the losses/damages to the cargo. Respondent ASC argued that the claim or demand by petitioner had been waived, abandoned, or otherwise extinguished for failure of the consignee to comply with the required claim for damages set forth in Stipulation No. 7 of the Bill of Lading.Issue: Whether or not failure to make the prompt notice of claim as required is fatal to the right of petitioner to claim indemnification for damages.Held: There can be no question about the validity and enforceability of Stipulation No. 7 in the Bill of Lading. The 24-hour requirement under said stipulation is, by agreement of the contracting parties, a sine qua non for accrual of the right of action to recover damages against the carrier.Considering that the prompt demand was necessary to foreclose the possibility of fraud or mistake in ascertaining the validity of claims, there was a need for the consignee or its agent to observe the conditions provided for in Stipulation No. 7. Hence, petitioner’s insistence that respondent carrier had knowledge of the damage because one of respondent’s officers supervised the unloading operations and signed a discharging receipt, cannot be construed as sufficient compliance with the said proviso. Moreover, a reading of the stipulation will readily show that upon the consignee or its agent rests the obligation to make the necessary claim within the prescribed period and not merely rely on the supposed knowledge of the damage by the carrier.

DEFINITION: COMMON CARRIER IN GENERAL

CALVO VS. UCPB GENERAL INSURANCE TERMINAL SERVICE, INC.G.R. No. 148496. March 19, 2002

Facts: A contract was entered into between Calvo and San Miguel Corporation (SMC) for the transfer of certain cargoes from the port area in Manila to the warehouse of SMC. The cargo was insured by UCPB General Insurance Co., Inc. When the shipment arrived and unloaded from the

vessel, Calvo withdrew the cargo from the arrastre operator and delivered the same to SMC’s warehouse. When it was inspected, it was found out that some of the goods were torn. UCPB, being the insurer, paid for the amount of the damages and as subrogee thereafter, filed a suit against Calvo.Petitioner, on the other hand, contends that it is a private carrier not required to observe such extraordinary diligence in the vigilance over the goods.As customs broker, she does not indiscriminately hold her services out to the public but only to selected parties.

Issue: Whether or not Calvo is a common carrier liable for the damages for failure to observe extraordinary diligence in the vigilance over the goods.

Held: The law makes no distinction between a carrier offering its services to the general community or solicits business only from a narrow segment of the general population. Note that the transportation of goods holds an integral part of Calvo’s business, it cannot indeed be doubted that it is a common carrier.

FILING OF NOTICE OF CLAIM; ONE-YEAR PRESCRIPTIVE PERIOD

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. VS. PHIL. FIRST INSURANCE CO., INC.G.R. No. 143133. June 5, 2002

Facts: On June 13, 1990, CMC Trading A.G. shipped on board the M/V Anangel Sky at Hamburg, Germany 242 coils of various Prime Cold Rolled Steel Sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky arrived at the port of Manila and within the subsequent days, discharged the subject cargo. Four coils were found to be in bad order, and the consignee declared the same as total loss.The respondent filed its Notice of Claim only on September 18, 1990. the complaint was filed by respondent on July 25, 1991. Petitioners, on the other hand, claim that pursuant to the Carriage of Goods by Sea Act (COGSA), respondent should have filed its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July 31, 1990 but respondent filed its Notice of Claim only on September 18, 1990.

Issue: Whether or not failure to file a Notice of Claim shall bar respondent from recovery.

Held: First, COGSA provides that the notice of claim need not be given if the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey. In this case, prior to unloading the cargo, an Inspection Report as to the condition of the goods was prepared and signed by representative of both parties.Second, a failure to file a Notice of Claim within three days will not bar recovery if it is

nonetheless filed within one year. The one-year prescriptive period also applies to the shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading. The cargo was discharged on July 31, 1990, while the Complaint was filed by respondent on July 25, 1991, within the one-year prescriptive period.

FGU INSURANCE CORP. VS. G.P. SARMIENTO TRUCKING CORP. (GPS)G.R. No. 141910. August 6, 2002

Facts: GPS is an exclusive contractor and hauler of Concepcion Industries, Inc. One day, it was to deliver certain goods of Concepcion Industries, Inc. aboard one of its trucks. On its way, the truck collided with an unidentified truck, resulting in damage to the cargoes.FGU, insurer of the shipment paid to Concepcion Industries, Inc. the amount of the damage and filed a suit against GPS. GPS filed a motion to dismiss for failure to prove that it was a common carrier.

Issue: Whether or not GPS falls under the category of a common carrier.

Held: Note that GPS is an exclusive contractor and hauler of Concepcion Industries, Inc. offering its service to no other individual or entity.A common carrier is one which offers its services whether to the public in general or to a limited clientele in particular but never on an exclusive basis. Therefore, GPS does not fit the category of a common carrier although it is not freed from its liability based on culpa contractual.

STIPULATION IN THE CHARTER PARTY EXEMPTING LIABILITY

HOME INSURANCE CO. VS. AMERICAN STEAMSHIP AGENCIES23 SCRA 24

Facts: A Peruvian firm shipped on board its vessel certain goods with San Miguel Brewery as its consignee and Home Insurance Co. (HIC) as its insurer. The cargo was found to have shortages when it arrived. HIC paid for said shortages and thereafter, demanded recovery of the amount from American Steamship Agencies (ASA). The trial court ordered ASA to reimburse HIC since according to the Code of Commerce, “the ship agent is civilly liable for damages in favor of third persons due to the conduct of the carrier’s captain and that the stipulation in the charter party exempting the owner of the ship from liability is against public policy.

Issue: Whether or not the stipulation in the charter party exempting the ship owner from liability for negligence of its agents is valid.

Held: The stipulation in the charter party exempting the ship owner from liability for negligence

of its agents is valid and not against public policy considering that the ship was totally chartered for the use of a single party, hence, the public at large is not involved and strict public policy governing common carriers cannot be applied.

FORTUITOUS EVENT: EXEMPTION FROM LIABILITY

FORTUNE EXPRESS, INC. VS. COURT OF APPEALS305 SCRA 14

Facts: A bus of Fortune Express, Inc. (FEI) figured in an accident with a jeepney which resulted in the death of several passengers including two Maranaos. It was found out that a Maranao owns said jeepney and certain Maranaos were planning to take revenge by burning some of FEI’s buses. The operations manager of FEI was advised to take precautionary measures but just the same, three armed Maranaos were able to seize a bus of FEI and set it on fire.

Issue: Whether the seizure of the bus was a fortuitous event which Fortune Express, Inc could not be held liable.

Held: A fortuitous event is an occurrence which could not be foreseen or which though foreseen, is inevitable. This factor of unforeseen-ability is lacking in this case for despite the report that the Maranaos were planning to burn FEI’s buses, nothing was really done by FEI to protect the safety of the passengers.

Mayer Steel Pipe Corp vs. CA [G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION (Mayer) and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT (Hongkong), Petitioners, v. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. (South Sea) and the CHARTER INSURANCE CORPORATION (Charter), Respondents.

Facts:

Mayer, by virtue of a contract, shipped to Hongkong steel pipes. Upon arrival, it was found out that some of the steel pipes were damaged. Because such steel pipes were insured with South Sea and Charter, they demanded from them the amount for such damage more than 2 years after the unloading of the goods. They denied paying for the repair of the pipes because allegedly such were due to factory defects. The TC found that the damage was not due to a factory defect thus ruled against the insurance companies. The CA set aside the decision of the TC and dismissed

the complaint on the ground of prescription; that t based from the Sea Act, the suit against the insurer must be filed within 1 year after the delivery of the goods or the date when they should be delivered.

Isuue: Whether the Sea Act applies to the insurers, and thus, they should not be held liable because the right to file an action against them had already prescribed.

Held: No. the Sea Act does not apply, thus the right of action against them did not prescribe. They are liable.

Under the Sea Act, only the carrier’s liability is extinguished if no suit is brought within 1 year. The insurer’s liability is not extinguished because the insurer’s liability is based on the contract of insurance. The Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee.

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The Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered.

Rizal Surety & Insurance vs. Macondray & Co, Inc (authorized agent of Barber Steamship Lines) G.R. No. L-24064 February 29, 1968

Facts:

A company in Manila, Edwardson Manufacturing, was the consignee of some machinery parts shipped on board a vessel owned by Macondray. However, such were not discharged in Manila.

Because the goods were insured by Rizal, they paid for their value. Rizal now seeks to recover from the common carrier the maximum amount recoverable as based on the bill of lading. The defendants invoked prescription based on the provisions of the Sea Act, that the action should have been filed within 1 yr after the delivery of the goods or the date when the goods should have been delivered in order for the carrier to be held liable in case of loss or damage. Rizal, however, contends that prescription does not apply when the goods had not been discharged from the vessel, as in this case.

Issue: Whether prescription applies, thus the liability of the common carrier (or its agent) is extinguished.

Held: Yes, prescription applies. Carrier’s liability is extinguished.

Whether or not the goods had been discharged is immaterial; the carrier would still be liable for non-delivery of the goods, because such would be due to its own omission. And because the corresponding bill of lading in this case stipulates that it is subject to the provisions of the Sea Act, particularly the provision as to the prescription, such shall be deemed to be incorporated therein. In this case, before the action was commenced, the period for filing the same had already expired.

Union Carbide Phil vs. Manila Railroad G.R. No. L-27798 June 15, 1977UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon Philippines, Inc.), vs.MANILA RAILROAD CO., substituted by the PHILIPPINE NATIONAL RAILWAYS, MANILA PORT SERVICE and AMERICAN STEAMSHIP AGENCIES, INC.

Facts:

One thousand bags of synthetic resins were delivered to Manila Port Service, customs arrastre, of which 25 bags were in bad condition before they even landed. When the shipment reached the consignee Union Carbide, aside from the 25 damaged bags which were then pilfered, some were also missing, while in the custody of the customs arrastre. So the consignee filed an admiralty case under the Sea Act against the carrier for the recovery of the amount for the 25 damaged bags and an arrastre case for the 25 pilfered bags and for the missing ones. The TC dismissed the complaint on the ground of prescription (1 yr) relying on the Sea Act.

Issue: WON the right to file the action already prescribed.

Held: Yes.

“Delivery” as contemplated in the Sea Act means delivery to the customs arrastre operator. In this case, the action was filed beyond the one year period within which a carrier can be held liable in case of loss or damage of the goods.

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In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the

goods should have been delivered:Provided, That if a notice of loss or damage, either apparent or concealed, is not given as

provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been

delivered.In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all

reasonable facilities to each other for inspecting and tallying the goods.

Ang vs. American Steamship G.R. No. L-25047 March 18, 1967

Facts:

A commercial bank, Yan Yue, agreed to sell separate a boat to Davao Merchandising and cases of hilano cop change to Teves. Both of them was not able to pay, thus the bill of ladings of both transactions were indorsed to Ang. The American Steamship, carrier’s agent, however,

misdelivered the goods to Davao Merchandising and Teves. Thus, Ang filed separate complaints against American Steamship for alleged misdelivery of goods belonging to him. American Steamship filed a motion to dismiss on the ground of prescription invoking the Carrier of Goods Sea Act.

Issue: WON the provision of the Carrier of Goods Sea Act as to prescription is applicable in this case.

Held: No, it is not applicable.

The one-year prescriptive period under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act does not apply to cases of misdelivery or conversion.

The provision of law involved in this case speaks of "loss or damage". What is to be resolved — in order to determine the applicability of the prescriptive period of one year to the case at bar — is whether or not there was 'loss' of the goods subject matter of the complaint.

******************************************The point that matters here is that the situation is either delivery or misdelivery, but not non-

delivery. Thus, the goods were either rightly delivered or misdelivered, but they were not lost. There being no loss or damage to the goods, the aforequoted provision of the Carriage of Goods

by Sea Act stating that "In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless it is brought within one year after delivery of the

goods or the date of when the goods should have been delivered," does not apply. The reason is not difficult to see. Said one-year period of limitation is designed to meet the exigencies of

maritime hazards. In a case where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in port to someone who claimed to be entitled thereto, the

situation is different, and the special need for the short period of limitation in case of loss or damage caused by maritime perils does not obtain.

American Insurance Company vs. Maritima G.R. No. L-24515 November 18, 1967

Facts:

A certain cargo was shipped in New York. Since the final port of call was in Manila, the carrier agreed to transship the cargo to Cebu, the final destination. When the cargo was unloaded, it was found out that some were missing. The insurance company paid for the loss, thus, it now seeks recovery of the amount it paid from the carrier. The carrier moved to dismiss the complaint on

the ground of prescription invoking in its favor the provisions of the Carrier of Goods Sea Act since the action was filed beyond the 1yr period stated therein. The insurance company contends that the 1 yr prescriptive period does not apply since the cargo was a transshipment cargo; that the discharge thereof in Manila terminated the obligation of Macondray as carrier; and that its obligation to transship the cargo to Cebu was merely that of a "forwarding agent" of the shipper.

Issue: WON the provision of the Carrier of Goods Sea Act with regard to the prescriptive period applies in this case although the shipment from Manila to Cebu was merely a through a forwarding agent and thus has no responsibility.

Held: Yes, the prescriptive period still applies.

The use of the term "forwarding agent of the shipper" is not decisive in the issue. The action is based on the contract of carriage up to the final port of destination, which was Cebu City, for which the corresponding freight had been prepaid.

The transshipment of the cargo from Manila to Cebu was not a separate transaction from that originally entered into by the carrier. It was part of the carrier’s obligation under the contract of carriage and the fact that the transshipment was made via an inter-island vessel did not operate to remove the transaction from the operation of the Carriage of Goods by Sea Act.

Maritima vs. Insurace Comp of N. America 12 SCRA 213

Facts:

Macleod contracted the services of Maritima by phone, subsequently confirmed by a written agreement, the shipment of hemp from Davao to Manila and its subsequent transshipment to Boston. Thus, Maritima sent 2 of its wharfs to Davao where the hemps were loaded free of charge in preparation for its loading onto a ship. While waiting for the ship, one of the wharfs sank. Because all the shipments were insured by the Insurance Comp of N. America, Macleod recovered from it the loss it suffered. By subrogation, the insurance company wanted to recover from Maritima the amount it paid. Maritima denies liability contending that there was no contract of carriage b/w them because, among others no bill of lading was issued in favor of Macleod.

Issue:

WON there was a contract of carriage between the shipper (Macleod) and the carrier (Maritima).

Held: Yes, there was a contract of carriage.

The bill of lading is not indispensable to contract of carriage provided that there is a meeting of the minds and from such meeting arise rights and obligations. Hence, there should be no limitations as to form. The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not merely with the formal execution of the bill of lading. Such issuance is not necessary to complete delivery and acceptance.

Saludo vs. CA 207 SCRA 498

Facts:

Crispina Saludo died in Illinois. Preparations were made by a funeral home for the shipment of the remains to the Phil. The shipment was booked with TWA for the first route, and with PAL for the second. Airway bills were issued. But somehow, the remains of Crispina were switched with another. Thus, there was delay in the delivery of the cargo. Saludo then instituted an action for damages alleging that the carriers failed to exercise extraordinary diligence over the cargo received by them for shipment. To support such assertion, Saludo invoked the dictum that a bill of lading is prima facie evidence of the receipt of the goods by the carrier Respondents, however, deny liability alleging that they did not receive the remains.

Issue:

WON TWA and PAL should be held liable.

Held:

No.

The airway bills issued was not an evidence of receipt of delivery to the airline but merely a confirmation of the booking.

A bill of lading, when properly executed and delivered to a shipper, is evidence that the carrier has received the goods described therein for shipment.

Alhough an airway bill estops the carrier from denying receipt of goods of the quantity and quality described in the bill, a further reading and a more faithful quotation of this authority would reveal that (a) bill of lading may contain constituent elements of estoppel and thus become something more than a contract between the shipper and the carrier. . . . However, as between the shipper and the carrier, when no goods have been delivered for shipment no recitals in the bill can estop the carrier from showing the true facts . . . Between the consignor of goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable

presumption that such goods were delivered for shipment. As between the consignor and a receiving carrier, the fact must outweigh the recital.

Keng Hua vs CA, RTC & Sea Land Service, Inc 286 SCRA 257

Facts:

Sea Land (carrier) received a sealed container for shipment to Keng Hua (consignee) in Manila. A bill of lading was issued. However, the contents remained inside the container for 6 moths, thus as per agreement in the bill of lading, demurrage charges accrued for the consignee’s failure to discharge the shipment. As a result, Sea Land demanded from Keng Hua the payment of the charges. Keng Hua refused alleging that the bill of lading is not binding. It admits receiving the bill of lading but contends that its refusal in accepting the shipment proves that terms and conditions printed therein.

Issue:

WON the bill of lading is binding to the consignee (Keng Hua).

Held:

Yes.

Keng Hua admits that it received the bill of lading. Having been afforded an opportunity to examine the said document, Keng Hua did not immediately object to or dissent from any term or stipulation therein. Hence, the terms and conditions as well as the various entries contained therein were brought to its knowledge. Keng Hua accepted the bill of lading without interposing any objection as to its contents. This raises the presumption that it agreed to the entries and stipulations imposed therein. The acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract.

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A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake

specific responsibilities and assume stipulated obligations. A "bill of lading delivered and accepted constitutes the contract of carriage even though not signed," because the "acceptance of

a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive

notice."

Telengtan Bros. (La Suerte Cigarette) vs. CA 286 SCRA 257

Va Reekum Paper – shipper; K-Line – carrier; Smith, Bell & Co – shipping agent La Suerte – consignee; Island Brokerage Co – consignee’s agent;

Facts:

Shipper contracted K-line for the shipment of container board liners. A bill of lading was issued. The shipment was loaded on two vessels of K-Line. But because the customs arrastre refused to act on the shipment due to a discrepancy in the bill of lading and the manifest, the consignee was not able to discharge the shipment. Thus demmurage charges accrued. Consignee paid all the demurrage charges but was not able to obtain all of the shipment. Thus, it demands refund contending that the bill of lading does not provide for the payment of container demurrage but only for a demurrage referring to damages for detention of vessels.

Issue:

WON the consignee should pay the demurrage charges.

Held:

Yes, because of its failure to remove the cargoes from the containers.

Whatever may be the interpretation of the consignee for the word “demurrage,” the fact is that the bill of lading provides for the payment of a demurrage for the detention of containers and other equipments for the so-called “free-time.” And because a bill of lading is both a receipt and a contract, its terms and conditions are conclusive on the parties, including the consignee.

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Here, the consignee should pay only from the time of the arrival of the shipment up to the time when the customs arrastre refused action. This is so because customs arrastre’s ground for

refusal was not due to the fault of the consignee but because of the fault of the carrier/shipping agent.

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,

demurrage is the claim for damages for failure to accept delivery.

Maersk Line vs. CA 222 SCRA 108

Facts:

Castillo ordered from Eli Lilly gelatin capsules. The shipment was boarded on a vessel owned by Maersk Line. However, due to a misshipment, there had been a delay of two months in the delivery. Thus, Castillo rejected the entire shipment and asked for damages, among others. Negligence was attributed to Maersk Line. But the carrier denied liability alleging that there was no special contract under which it undertook to deliver the shipment on or before a specified date. Trial court found Maersk Line liable relying on the character of the bill of lading as a contract of adhesion which is void.

Issue:

WON Maersk Line should be liable.

Held:

Yes, the two-month delay is not reasonable.

The provision of the bill of lading is a contract of adhesion. Nevertheless, such contract is not entirely prohibited. One who adheres to the contract is in reality free to reject it in its entirety.

In this case, the questioned provision in the bill of lading has the effect of practically leaving the date of arrival of the subject shipment on the sole determination and will of the carrier. While it is true that common carriers are not obligated by law to carry and to deliver merchandise…unless such common carriers previously assume the obligation to deliver at a given date or time, delivery of shipment or cargo should at least be made within a reasonable time.

Magellan Manufacturing (MMMC) vs. CA & OOLC 201 SCRA 102

Facts:

MMMC entered into a contract with Co in Japan for the export of anahaw fans. MMMC then contracted with OOLC to ship the anahaw fans, specifying that the letter of credit issued to them by Co needed an on-board bill of lading and that transshipment is not allowed. The buyer, however, refused to accept. Thus, the shipment was brought back to Manila by OOLC. OOLC then demanded payment of such transport from MMMC. MMMC however, wants to acquire

from OOLC, whatever amount they failed to obtain from the buyer Co, alleging that it is OOLC’s fault why the buyer refused the acceptance of the shipment. OOLC however alleges that the bill of lading clearly states that there will be a transshipment and that petitioner consented to such agreement. Thus, in effect, the buyer’s refusal due to a transshipment was due to MMMC.

Issue:

WON OOLC should be held liable.

Held:

No.

MMMC had full knowledge of, and actually consented to, the terms and conditions of the bill of lading thereby making the same conclusive as to it, and it cannot now be heard to deny having assented thereto.

The acceptance of the bill without dissent raises the presumption that all the terms therein were brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of its contents and acceptance under such circumstances makes it a binding contract.

Everett Steamship Corp vs. CA & Hernandez Trading 297 SCRA 496

Facts:

Hernandez Trading imported spare parts marked as MARCO from its supplier. The parts were shipped through Everett Steamship Corp. Upon arrival in Manila, it was discovered that the shipment was missing. Everett offered to pay only 100,000 Yen invoking the bill of lading limiting its liability.

Issue:

WON the limitation provided in the bill of lading is valid.

Held:

Yes.

A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law. It is required that the stipulation limiting the common carrier's liability for loss must be reasonable and just under the circumstances, and has been freely and fairly agreed upon.

It was found that the stipulation in the bill of lading was reasonable and just under the circumstances. The shipper/supplier had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations.

PhilAm Gen vs. Sweet Lines 212 SCRA 194

Facts:

A foreign common carrier took on board cargoes for shipment to Manila and later on for transshipment to Davao. The consignee, Tagum, insured the cargoes with PhilAm Gen. Upon discharge, it was found out that there was shortages in the cargo, while some were damaged. After trial, the TC ordered Sweet Lines, among others, liable to PhilAm Gen & Tagum. CA however reversed the decision, on the ground that the action of Phil Am Gen & Tagum

prescribed relying on the stipulations of the bill of lading as to the shortened periods in the institution of an action in case of damage, loss, etc. on the cargo. PhilAm Gen & Tagum asserts that such stipulation is void, being a contract of adhesion.

Issue:

WON the stipulation as to the shortened period is valid.

Held:

Yes.

In this jurisdiction, this time limitation is actually a condition precedent to the accrual of a right of action against a carrier for damages caused to the merchandise. The shipper or the consignee must allege and prove the fulfillment of the condition and if he omits such allegations and proof, no right of action against the carrier can accrue in his favor.

These are reasonable conditions precedent, they are not limitations of action. Being conditions precedent, their performance must precede a suit for enforcement and the vesting of the right to file spit does not take place until the happening of these conditions.

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In this case, the action was filed way beyond the stipulated period of filing in the bill of lading.

The validity of a contractual limitation of time for filing the suit itself against a carrier shorter than the statutory period therefor has generally been upheld as such stipulation merely affects the

shipper's remedy and does not affect the liability of the carrier. In the absence of any statutory limitation and subject only to the requirement on the reasonableness of the stipulated limitation period, the parties to a contract of carriage may fix by agreement a shorter time for the bringing of suit on a claim for the loss of or damage to the shipment than that provided by the statute of limitations. Such limitation is not contrary to public policy for it does not in any way defeat the

complete vestiture of the right to recover, but merely requires the assertion of that right by action at an earlier period than would be necessary to defeat it through the operation of the ordinary

statute of limitations.

Batch 3 Equitable Leasing vs. SuyomFacts:A Fuso Road tractor driven by Tutor rammed into the house cum of Tamayo which resulted in the death of Tamayo’s son and Oledan’s daughter. Failure to claim from a criminal case finding

Tutor guilty of reckless imprudence, respondents filed a civil case based on quasi delict against Equitable Leasing Corp, the registered owner of the tractor, among others. Equitable contends that it should not be held liable for such damages which arose from the negligence of the driver Fuso Road. That such tractor was already sold to the owner of Fuso Road at the time of the accident. Thus, not having employed driver Tutor, it could not have controlled or supervised him.Issue: WON Equitable should be held liable for damages in an action based on quasi delict for the negligent acts of a driver who was not its employee.Held: Yes, Equitable should be held liable because it was the registered owner at the time of the accident.The Court has consistently ruled that, 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 contemplation of law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered as merely its agent. The same principle applies even if the registered owner of any vehicle does not use it for public service.- - - - - - - - - - - - - - - - -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 therefor can be fixed on a definite individual, the registered owner. BA Finance Corp vs. CA G.R. No. 98275 November 13, 1992 Facts:Amare, the driver of an Isuzu truck was involved in an accident which caused the death of three persons. Amare was found guilty beyond reasonable doubt of reckless imprudence. BA Finance was found liable for damages since the truck was registered in its name. BA Finance contends that it should not be held liable since it was not Amare’s employer at the time of the accident. It also contends that the Isuzu truck was in the possession of Rock Component Phil, by virtue of a lease agreement. Hence, BA Finance wants to prove who the actual/real owner is at the time of the accident, and in accordance with such proof, evade liability and lay the same on the person actually owning the vehicle.Issues:1 WON BA Finance should be held liable.2 WON BA Finance can escape liability by proving the actual/real owner of the truck.Held:1 Yes, BA Finance is liable.The registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers or third persons caused by the operation of said vehicle, even though the same had been transferred to a third person. Under the same principle the registered

owner of any vehicle, even if not used for a public service, should primarily be responsible to the public or to the third persons for injuries caused the latter while the vehicle is being driven on the highways or streets.2 No, the law does not allow him. The law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. This may appear harsh but nevertheless, a registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle.While the registered owner is primarily responsible for the damage caused, he has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused. Duavit vs. CA, Sarmiento & Catuar G.R. No. 82318 May 18, 1989 Facts:Private respondents were on board a jeep when they met an accident with another jeep driven by Sabiniano. This accident caused injuries to private respondents, thus they filed a case for damages against driver Salbiniano and owner of the jeep Duavit. Duavit admits ownership of the jeep but contends that he should not be held liable since Salbiniano is not his employee and that the jeep was taken by Salbiniano without his (Duavit) consent.Issue: Whether or not the owner of a private vehicle which figured in an accident can be held liable as an employer when the said vehicle was neither driven by an employee of the owner nor taken with his consent. Held: No, an owner of a vehicle cannot be held liable for an accident involving the said vehicle if the same was driven without his consent or knowledge and by a person not employed by him. To hold the petitioner liable for the accident caused by the negligence of Sabiniano who was neither his driver nor employee would be absurd as it would be like holding liable the owner of a stolen vehicle for an accident caused by the person who stole such vehicle. Lim & Gunnaban vs. CA & GonzalesFacts:Gonzales purchased an Isuzu passenger jeepney from Vallarta. Vallarta remained as the holder of a certificate of public convenience and the registered owner of the jeepney. Subsequently, the jeepney collided with a ten-wheeler truck owned by Lim, driven by Gunnaban which resulted in the death of 1 passenger and injuries to all others. Failure to arrive to a settlement with Lim for the repair of the jeepney, Gonzales brought an action for damages against Lim & Gunnaban. Lim denied liability asserting that Vallarte, and not Gonzales, is the real party in interest being the registered owner of the jeepney. He further asserts that an operator of the vehicle continues to be

its operator as he remains the operator of record; and that 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.Issue: WON Gonzales, an operator under the kabit system (considering that he is not the registered owner of the jeepney), may sue for damages against Lim. Or, WON Gonzales is a real party in interest.Held: Yes, Gonzales may sue.The evil sought to be prevented in enjoining the kabit system* does not exist. 1 Neither of the parties to the pernicious kabit system is being held liable for damages. 2 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 Gonzales and the registered owner of the jeepney were in stoppels for leading the public to believe that the jeepney belonged to the registered owner. 3 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. Thus, 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.- - - - - - - - - - - - - - - - -N.B. 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, thekabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil Code. It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force if the public at large is not deceived, much less involved. Baliwag Transit Incs (BTI) vs CA & Martinez G.R. No. L-57493 January 7, 1987 Facts:

Martinez, claiming to be an employee of two bus lines operating under different grants of franchise but were issued only one ID Number: “Baliwag Transit” owned and operated by the late Tuazon and “Baliwag Transit Inc” (BTI) owned by de Tengco, (Martinez) filed a petition with the Social Security Commission to compel BTI to remit his premium contributions to SSS. BTI denied ever employing Martinez, and alleges that he was in fact employed by Tuason who operated a separate and distinct bus line from BTI. The Social Security Commission granted Martinez’s petition. On appeal, the CA reversed the decision of the commission, finding that Tuason was operating under the kabit system; that while Tuason was the owner and operator, his buses were not registered with the Public Service Commission in his own name; and thus ordered BTI to remit Martinez’ premiums to SSS.Issue: WON the issuance by SSS of one ID Number to the two bus lines necessarily indicates that one of them is operating under the kabit system.Held: No.The “Kabit System” has been defined by the Supreme Court as an arrangement “whereby a person who has been granted a certificate of convenience allows another person who owns motor vehicles to operate under such franchise for a fee.” The determining factor, therefore, is the possession of a franchise to operate which negates the existence of the “Kabit System” and not the issuance of one SSS ID Number for both bus lines from which the existence of said system was inferred. Thus, it is evident that both bus lines operated under their own franchises but opted to retain the firm name “Baliwag Transit” with slight modification, by the inclusion of the word “Inc.” in the case of herein petitioner, obviously to take advantage of the goodwill such firm name enjoys with the riding public. Conversely, the conclusion of the Court of Appeals that the late Pascual Tuazon, during the time material to this case operated his buses under the “Kabit System” on the ground that while he was actually the owner and operator, his buses were not registered with the Public Service Commission (now the Bureau of Land Transportation) in his own name, is not supported by the records. Philtranco & Manilhig vs. CA & Heirs of Acuesta G.R. No. 120553 June 17, 1997 Facts:Acuesta was riding his easy rider bicycle. One of the buses of Philtranco driven by Manilhig, on the other hand, was being pushed by some persons in order to start its engine. Subsequently, the engine started which occurred at the time when Acuesta was directly in front of the bus. Acuesta was run over by the bus. Trial court rendered a decision ordering Philtranco & Manilhig to be jointly and severally liable to the Heirs of Acuesta. CA affirmed, holding that Philtranco has a solidary liability with Manilhig under Art 2194 of the Civil Code.Issue: WON Philtranco’s liability is solidary (jointly & severally) with Manilhig. Or, WON Art 2194 is applicable.

Held: Yes.It had been consistently held that the liability of the registered owner of a public service vehicle, like petitioner Philtranco, for damages arising from the tortious acts of the driver is primary, direct, and joint and several orsolidary with the driver. As to solidarity, Article 2194 expressly provides: Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary. Since the employer’s liability is primary, direct and solidary, its only recourse if the judgment for damages is satisfied by it is to recover what it has paid from its employee who committed the fault or negligence which gave rise to the action based on quasi-delict. Article 2181 of the Civil Code provides: Art. 2181. Whoever pays for the damage caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim. Tamayo vs. Aquino et al & Rayos G.R. Nos. L-12634 and L-12720 May 29, 1959 Facts:Epifania Gonzales (wife of Aquino) boarded a truck owned by Tamayo, holder of a certificate of public convenience to operate. Allegedly, while Epifania was making a trip aboard the truck, it bumped against a culvert on the side of the road, causing her death. Aquino et al filed an action for damages against Tamayo. Tamayo answered alleging that the truck is owned by Rayos, so he filed a 3rd party complaint against him (Rayos). The CFI ruled that Tamayo is the registered owner, under a public convenience certificate but such truck was sold to Rayos one month after the accident, but he (Tamayo) did not inform the Public Service Commission of the sale. CFI held Tamayo and Rayos jointly and severally liable to Aquino. CA affirmed, holding that, both the registered owner (Tamayo) and the actual owner and operator (Rayos) should be considered as joint tortfeasors and should be made liable in accordance with Article 2194 of the Civil Code (solidary).Issue: WON Art 2194 (solidary liability) is applicable; and, if NOT, how should Tamayo (holder of the cert. of public convenience) participate with Rayos (transferee/operator) in the damages recoverable.Held: No, Art 2194 is not applicable.The action instituted in this case is one for breach of contract, for failure of the defendant to carry safety the deceased for her destination. The liability for which he is made responsible, i.e., for the death of the passenger, may not be considered as arising from a quasi-delict. As the registered owner Tamayo and his transferee Rayos may not be held guilty of tort or a quasi-delict; their responsibility is NOT SOLIDARY.

As Tamayo is the registered owner of the truck, his responsibility to the public or to any passenger riding in the vehicle or truck must be direct. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured. But as the transferee, who operated the vehicle when the passenger died, is the one directly responsible for the accident and death he should in turn be made responsible to the registered owner for what the latter may have been adjudged to pay. In operating the truck without transfer thereof having been approved by the Public Service Commission, the transferee acted merely as agent of the registered

Batch 4

Sabena Belgian Airlines vs. CAFacts:Mrs. Fule purchased three round trip tickets for herself and two children from Sabena; the route: Manila-Brussels-Barcelona-Madrid. During the trip, they encountered inconveniences, such as, walking under the drizzle after disembarking; delayed connecting flight to Barcelona; and a missing luggage, among others. They allegedly incurred medical and hotel expenses. Thus, Mrs. Fule made a letter-complaint to Sabena office. The Madrid Office offered to pay about half of what she was asking, that the rest would be paid by the Manila Office. A certain Yancha made her sign a document in French language which she did not understand. It turned out that the document was a quitclaim. The trial court awarded them actual, moral and exemplary damages, among others. CA modified the decision by reducing the amount of moral and exemplary damages.Issue: WON Sabena is liable to the Fules for damages arising from breach of contract of carriage.Held:Yes.In the imposition of moral damages, the defendant’s act must be wrongful or wanton or done in bad faith. Here, there is no finding that the carrier’s delay in delivering Mrs. Fule’s luggage was wrongful or due to bad faith. While there is failure on the part of the carrier in protecting Mrs. Fule et al from the rain, its neglect was not so gross as to amount to bad faith or wantoness. What is involved in this case is simple negligence, considering that the rain through which Mrs. Fule et al had to walk was a slight drizzle.Nonetheless, there is still bad faith in making Mrs. Fule sign a quitclaim without informing her of its contents.- - - - - - - - - - - - - - - - - - - - - -“[W]ith respect to moral damages, the rule is that the same are recoverable in a damage suit predicated upon a breach of contract of carriage only where (1) the mishap results in the death a of passenger and (2) it is proved that the carrier was guilty of fraud and bad faith, even if death does not result.” (Ibid, at p. 13) As the appellate court found the petitioner guilty of bad faith in letting the respondent sign a quitclaim without her knowledge or understanding and contrary to

what she was planning to do, the reduced award of moral and exemplary damages is proper and legal.

Lopez vs Pan American World Airways (Pan Am)Facts:Senator Lopez et al made reservations for 1st class accommodations in a flight of Pan Am from Tokyo to San Francisco. The reservations were confirmed in a phone call. Tickets were also issued. However, Lopez et al were not accommodated in the first class for the reason that there was no accommodation for them. They instead took the tourist passengers without prejudice to any claim against Pan Am. Subsequently, a suit for damages was filed against Pan Am. Pan Am answered admitting its breach of the contract of carriage but however denied the allegation of bad faith. It contends that the failure to provide 1st class accommodations was made in honest mistake: That the accommodation was mistakenly cancelled, and expecting that there would be subsequent cancellation of bookings, they withheld the information regarding the cancellation from Lopez et al.Issue: WON Pan Am should be held liable for damages to Lopez et al.Held:Yes.The actuation of Pan Am may have been prompted by nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as passengers in its flight and foreclosing on their chances to seek the services of other airlines that may have been able to afford them first class accommodations. All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through some motive of interest or ill-will. “Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is malice nevertheless.”There being a clear admission in defendant’s evidence of facts amounting to a bad faith on its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the evidence adduced by plaintiffs to establish defendant’s bad faith.Among others, Lopez et al can be awarded moral damages (where the defendant acted fraudulently or in bad faith) and exemplary damages (where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner). Zulueta vs. Pan AmFacts:Mr. Zulueta and his wife and child boarded a flight of Pan Am from Wake Island to the Phil. Mr. Zulueta, however, had to relieve himself and thus looked for a secluded place in the beach. As a result, he was delayed in boarding for some 20 or 30 minutes. While Mr. Zulueta was reaching the ramp, the captain of the plane demonstrated an intemperate and arrogant tone thereby impelling Mr. Zulueta to answer back. Thus, Mr. Zulueta was off-loaded. The airport manager of then sent Mr. Zulueta a letter stating that his stay in Wake Island would be for a minimum of one week during which he would be charged $13.30 per day.Issue: WON Pan Am should be held liable.Held:

Yes. Mr. Zulueta was off-loaded to retaliate and punish him for the embarrassment and loss of face thus suffered by defendant’s agent.The Zuluetas had a contract of carriage with the defendant, as a common carrier, pursuant to which the latter was bound, for a substantial monetary consideration paid by the former, not merely to transport them to Manila, but, also, to do so with “extraordinary diligence” or “utmost diligence.” The responsibility of the common carrier, under said contract, as regards the passenger’s safety, is of such a nature, affecting as it does public interest, that it “cannot be dispensed with” or even “lessenedby stipulation, by the posting of notices, by statements on tickets, or otherwise.” In the present case, the defendant did not only fail to comply with its obligation to transport Mr. Zulueta to Manila, but, also, acted in a manner calculated to humiliate him, to chastise him, to make him suffer, to cause to him the greatest possible inconvenience. ——————————————————— With regard to DAMAGESIt is obvious, however, that in off-loading plaintiff at Wake Island, under the circumstances, defendant’s agents had acted with malice aforethought and evident bad faith. If “gross negligence” warrants the award of exemplary damages, with more reason is its imposition justified when the act performed is deliberate, malicious and tainted with bad faith.The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or correction for public good. Defendant having breached its contracts in bad faith, the court, as stated earlier, may award exemplary damages in addition to moral damages PAL vs. MianoFacts:Miano took one of the flights of PAL (Mabuhay Class) bound to Germany. He allegedly checked in a brown suit case. Upon arrival in Germany, his luggage was missing. It was only after 11 days when he was bale to obtain such. Allegedly, he incurred expenses as a result of the delay. Thus, he wrote a demand letter to PAL. Having failed to recover, he instituted a claim for damages. The CFI rendered a decision ordering PAL to pay moral and exemplary damages, among others, to Miano.Issue: WON the award of moral & exemplary damages is proper.Held:No.Petitioner’s actuation was not attended by bad faith.In breach of contract of carriage by air, moral damages are awarded only if the defendant acted fraudulently or in bad faith. The established facts evince that petitioner’s late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In fact, it immediately coordinated with its Central Baggage Services to trace private respondent’s suitcase and succeeded in finding it.The award of exemplary damages is also not proper. The prerequisite for the award of exemplary damages in cases of contract or quasi-contract is that the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. The undisputed facts do not so warrant the characterization of the action of petitioner.

Sulpicio Lines vs. CAFacts:Tito and his daughter Jennifer boarded a vessel owned by Sulpicio Lines in Manila, with them were several pieces of luggage. Despite the fact that Storm Signal No. 2 was announced (subsequently raised to No. 3), the vessel proceeded its transport to Tacloban. Subsequently, while traversing, the vessel capsized and Tito and Jennifer, along with other passengers were thrown in the sea. Tito survived, but Jennifer did not. Trial Court awarded actual, damages for death, moral and exemplary damages.Issue: WON the award of the damages is proper.Held:Actual – Not proper. There was no evidence showing the basis for the award. There is no showing that the value of the contents of the lost pieces of baggage was based on the bill of lading or was previously declared by Tito before he boarded the ship.Damages for Death – Proper. Deaths caused by a crime as quasi delict are entitled to actual and compensatory damages without the need of proof of the said damages.Moral Damages – Proper. in breach of contract of carriage, moral damages may be recovered when it results in the death of a passenger.Exemplary Damages – Proper. A common carrier is obliged to transport its passengers to their destinations with the utmost diligence of a very cautious person.The trial court found that petitioner failed to exercise the extraordinary diligence required of a common carrier, which resulted in the sinking. Thus, the sinking of the vessel was due to gross negligence. Trans World Airlines (TWA) vs. CAFacts:Vinluan, a practicing lawyer in Manila had to travel to several cities in Europe and US. While in Paris, he went to the office of TWA to confirm his reservation for first class accommodation. It was confirmed twice. During the time of the flight, he was told that there was no 1st class seat available. Hence, he was downgraded to economy. He protested but he was arrogantly treated by a TWA employee. And while waiting for his flight, he saw white Caucasians who arrived much later than him, in first class seats.Issue: WON Vinluan is entitled to damages.Held:Yes.1 The discrimination is obvious and the humiliation to which private respondent was subjected is undeniable. Consequently, the award of moral and exemplary damages by the respondent court is in order. 2 Inattention and lack of care for the interest of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to the award of moral damages. More so in this case where instead of courteously informing private respondent of his being downgraded under the circumstances, he was angrily rebuffed by an employee of petitioner. Phil Rabbit Bus Lines vs. Esguerra

Facts:Esguerra boarded abus owned by Phil Rabbit Bus Lines from Manila to Pampanga. While in Bulacan, the bus and a truck sideswiped each other. The left forearm of Esguerra was hit. The left arm was amputated. The trial court awarded Esguerra moral damages, among others.Issue: WON the award of moral damages is proper.Held:No.Moral damages are not recoverable in actions for damages predicated on a breach of the contract of transportation, as in the instant case. The exceptions are (1) where the mishap results in the death of a passenger, and (2) where it is proved that the carrier was guilty of fraud or bad faith, even if death does not result.The Court of Appeals found that the two vehicles sideswiped each other at the middle of the road. In other words. both vehicles were in their respective lanes and that they did not invade the lane of the other. It cannot be said therefore that there was fraud or bad faith on the part of the carrier’s driver. This being the case, no moral damages are recoverable. People of the Phil vs. MoreFacts:The More brothers were found guilty of murder for the killing of Valentino who sustained 18 stab wounds. They were ordered to pay by the trial court damages for funeral services and other expenses, loss of income for 5 years, and moral damages.Issue: WON the award of damages is proper.Held:The award of moral damages should be reduced. The award is not meant to enrich the heirs of the victim but only to compensate them for injuries sustained to their feelings.The award of actual damages must be reduced as well. Only the costs of the tomb, coffin, embalming and funeral services were properly receipted. Thus, the alleged expenses for food and drinks consumed during the wake must be disallowed for not having been competently proved. The Court can only give credit to expenses which have been duly substantiated. The award of lost earning capacity must be increased. The victim’s lost earnings are to be computed according to the formula adopted by the Court in several decided cases, to wit: net earning capacity (“X”) equals life expectancy multiplied by gross annual income less living expenses.There must also be an award for civil indemnity for death without need of evidence or proof of damages. United Airlines vs. CAFacts:Respondent Aniceto Fontanilla purchased from petitioner United Airlines, through the Philippine Travel Bureau in Manila three (3) “Visit the U.S.A.” tickets for himself, his wife and his minor son. The Fontanillas proceeded to the US as planned; they used the 1st coupon. Fontanilla then bought two (2) additional coupons each for himself, his wife and his son from petitioner at its office in Washington Dulles Airport. After paying the penalty for rewriting their tickets, the Fontanillas were issued tickets with corresponding boarding passes with the words “CHECK-IN

REQUIRED,” for a United Airlines flight. However, the Fontanillas were not able to board said flight because allegedly, they did not have assigned seat numbers.Issue:Whether or not the Fontanillas were able to prove with adequate evidence his allegations of breach of contract in bad faith.Held: No.Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling passengers concerned to an award of moral damages. When an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to except that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it took the risk of having to deprive some passengers of their seats in case all of them would show up for check in. For the indignity and inconvenience of being refused a confirmed seat on the last minute, said passenger is entitled to moral damages.However, the Court’s ruling in said case should be read in consonance with existing laws, particularly, Economic Regulations No. 7, as amended, of the Civil Aeronautics Board which provides that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful act of non-accommodation.———————————————————————What law is applicable, the Philippine Law or the US Law?he Philippine Law. The appellate court, however, erred in applying the laws of the United States as, in the case at bar, Philippine law is the applicable law. Although, the contract of carriage was to be performed in the United States, the tickets were purchased through petitioner’s agent in Manila. It is true that the tickets were “rewritten” in Washington, D.C. however, such fact did not change the nature of the original contract of carriage entered into by the parties in Manila. Sps Zalamea vs. CA & TWAFacts:Sps Zalamea and their daughter purchased 3 airline tickets from TWA from its Manila agent for a flight to New York to LA. Two tickets were purchased at a discounted rate of 75% while one was purchased in its full value. All three tickets were confirmed and reconfirmed. However, of the appointed date, they were placed on the wait-list because the number of passengers who had checked in before them had already taken all of the seats. Those having full fare tickets were given priority among those in the wait-list. Thus, Cesar Zalamea was able to board such flight because he was holding the full fare ticket. Trial court awarded the Zalameas moral damages, among others, based on breach of contract of carriage. The CA, however, reversed this, holding that moral damages are recoverable in a damage suit predicated upon a breach of contract of carriage only where there is fraud or bad faith. Since it is a matter of record that overbooking of flights is a common and accepted practice of airlines in the United States, no fraud nor bad faith could be imputed on respondent TransWorld Airlines.Issue: Whether or not said policies (that overbooking of flights is a common and accepted practice in the US, thus does not amount to bad faith) were incorporated or deemed written on petitioners’ contracts of carriage.Held:No.

TWA failed to show that there are provisions to that effect. The failure of respondent TWA to so inform them when it could easily have done so thereby enabling respondent to hold on to them as passengers up to the last minute amounts to bad faith. Evidently, respondent TWA placed its self-interest over the rights of petitioners under their contracts of carriage. Such conscious disregard of petitioners’ rights makes respondent TWA liable for moral damages

Batch 2Tabacalera Insurance vs. North Front ShippingFacts:Sacks of grains were loaded on board a vessel owned by North Front Shipping (common carrier); the consignee: Republic Floor Mills. The vessel was inspected by representatives of the shipper prior to the transport and was found fitting to carry the cargo; it was also issued a Permit to Sail. The goods were successfully delivered but it was not immediately unloaded by the consignee. There were a shortage of 23.666 metric tons and some of the merchandise was already moldy and deteriorating. Hence, the consignee rejected all the cargo and demanded payment of damages from the common carrier. Upon refusal, the insurance companies (petitioners) were obliged to pay. Petitioners now allege that there was negligence on the part of the carrier. The trial court ruled that only ordinary diligence was required since the charter-party agreement converted North Front Shipping into a private carrier. Issues:WON North Front Shipping is a common carrier. If indeed, did it fail to exercise the required diligence and thus should be held liable? Held: North Front Shipping is a common carrier. Thus, it has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo.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. 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 usex x xHaving 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.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. 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, the destruction, loss or deterioration of the cargo cannot be attributed solely to the carrier. The consignee Republic Flour Mills Corporation is guilty of contributory negligence. It was seasonably notified of the arrival of the barge but did not immediately start the unloading operations. Philippine Home Assurance Corp (PHAC) vs. CA Facts:Eeastern Shipping Lines Inc. (ESLI) loaded on board a vessel (SS Easter Explorer) several shipment for carriage to several consignees. While the vessel was off Okinawa, Japan, a small fire was detected on the acetylene cylinder located in the accommodation area near the engine room. This resulted in a flash of flame throughout the accommodation area. The vessel was abandoned. All the cargoes of ESLI were delivered to their respective consignees but with corresponding additional freight and salvage charges. All the charges were paid by PHAC. Thus, PHAC now seeks recovery from ESLI alleging that they were negligent. ESLI argues, among others, that the fire was a fortuitous event. Issue:WON the fire was a fortuitous event.WON ESLI should be held liable for the additional charges. Held: No, the fire cannot be considered as a fortuitous event. Thus, it is presumed that ESLI was negligent and should be held liable to PHAC. In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means.It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. There is strong evidence indicating that the acetylene cylinder caught fire because of the fault and negligence of respondent ESLI, its captain and its crew:(1) The acetylene cylinder which was fully loaded should not have been stored in the accommodation area near the engine room where the heat generated therefrom could cause the acetylene cylinder to explode by reason of spontaneous combustion;(2) Respondent ESLI should have known that by storing the acetylene cylinder in the accommodation area supposed to be reserved for passengers, it unnecessarily exposed its passengers to grave danger and injury.(3) The fact that the acetylene cylinder was checked, tested and examined and subsequently certified as having complied with the safety measures and standards by qualified experts before it was loaded in the vessel only shows to a great extent that negligence was present in the handling of the acetylene cylinder after it was loaded and while it was on board the ship.

PAL vs. CAFacts:Spouses Miranda, residents of Surigao City, went to the US on a regular flight of PAL. On return to the Philippines, the spouses boarded a flight by PAL with 5 pieces of baggage. Upon arrival at Manila, they were told by a PAL personnel that their baggage were ofloaded at Honolulu due to weight limitations. Because of this, they missed their connecting flight to Cebu, as well as the subsequent connecting flight to Surigao. While in Cebu, their flight to Surigao was also cancelled due to mechanical problems. Moreover, the Mirandas were compelled to haggle for hotel accommodations. Allegedly, they incurred additional expenses, mental anguish, etc.Issue:WON PAL should be held liable to the Mirandas for an award of moral damages.Held: YES.The Court has time and again ruled, and it cannot be over-emphasized, that a contract of air carriage generates a relation attended with a public duty and any discourteous conduct on the part of a carriers employee toward a passenger gives the latter an action for damages and, more so, where there is bad faith. While it may be true that there was no direct evidence on record of blatant rudeness on the part of PAL employees towards the Mirandas, the fact that private respondents were practically compelled to haggle for accommodations, a situation unbefitting persons of their stature, is rather demeaning and it partakes of discourtesy magnified by PALs condescending attitude. Moreover, it cannot be denied that the PAL employees herein concerned were definitely less than candid, to put it mildly, when they withheld information from private respondents that they could actually be accommodated in a hotel of their choice. It is now firmly settled that moral damages are recoverable in suits predicated on breach of a contract of carriage where it is proved that the carrier was guilty of fraud or bad faith. Inattention to and lack of care for the interests of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to an award of moral damages. What the law considers as bad faith which may furnish the ground for an award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of deceit. Such unprofessional and prescribed conduct is attributable to petitioner airline in the case at bar and the adverse doctrinal rule is accordingly applicable to it. Baliwag Transit vs. CAFacts:Leticia Garcia and her son boarded a bus owned by Baliwag bound for Cabanatuan City. While in Nueva Ecija, the passengers saw a cargo truck at the shoulder of the national highway, and a kerosene lamp appeared to serve as a warning light. But the driver of the bus was driving at fast speed, failed to notice the truck and the kerosene lamp, and when he was able to step on the

break, it was too late. The bus rammed into the cargo truck causing the death of the bus driver and the helper of the cargo truck driver; and injuries to Leticia and her son and to some other passengers.Issue:WON Baliwag Transit should be held liable.Held: YES.As a common carrier, Baliwag breached its contract of carriage when it failed to deliver its passengers, Leticia and Allan Garcia to their destination safe and sound. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard for all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. The records are bereft of any proof to show that Baliwag exercised extraordinary diligence. On the contrary, the evidence demonstrates its driver’s recklessness. Leticia Garcia testified that the bus was running at a very high speed despite the drizzle and the darkness of the highway. The passengers pleaded for its driver to slow down, but their plea was ignored. Leticia also revealed that the driver was smelling of liquor. She could smell him as she was seated right behind the driver. Another passenger, Felix Cruz testified that immediately before the collision, the bus driver was conversing with a co-employee. All these prove the bus driver’s wanton disregard for the physical safety of his passengers, which make Baliwag as a common carrier liable for damages under Article 1759 of the Civil Code.

Ludo & Luym Corp. vs. I.V. Binamira Facts:Delta Photo Supply Company of New York shipped on board the M/S “FERNSIDE” at New York, U.S.A., 6 cases of films and/or photographic supplies consigned to the order of I. V. Binamira. A Bill of Lading was issued where the carrier and the consignee have stipulated to limit the responsibility of the carrier for the loss or damage that may be caused to the goods before they are actually delivered. The films were discharged at the port of Cebu by the stevedoring company hired by petitioner as agent of the carrier. The cargo was received by the Visayan Cebu Terminal Company, Inc., the arrastre operator appointed by the Bureau of Customs. During the discharge, the cargo was inspected by both the stevedoring company and the arrastre operator, and the films were found to be in good condition. But after it was delivered

to respondent after 3 days, the same was examined by a surveyor and found out that some films and supplies were missing.Issue:WON the carrier is responsible for the loss though the films were lost after the shipment was discharged from the ship and placed in the possession and custody of the customs arrastre.Held: NO.It is true that, as a rule, a common carrier is responsible for the loss, destruction or deterioration of the goods it assumes to carry from one place to another unless the same is due to any to any of the causes mentioned in Article 1734 on the new Civil Code. But this shall only apply when the loss, destruction or deterioration takes place while the goods are in the possession of the carrier, and not after it has lost control of them.The parties may agree to limit the liability of the carrier considering that the goods have still to go through the inspection of the customs authorities before they are actually turned over to the consignee. This is a situation where we may say that the carrier losses control of the goods because of a custom regulation and it is unfair that it be made responsible for what may happen during the interregnum. And this is precisely what was done by the parties herein. In the bill of lading that was issued covering the shipment in question, both the carrier and the consignee have stipulated to limit the responsibility of the carrier for the loss or damage that may be caused to the goods before they are actually delivered. American President Lines vs. KlepperFacts:Klepper shipped his goods on board a lift van owned American Pres. Lines his at Yokohama, Japan. While the lift van was being unloaded, it fell on the pier and its contents spilled and scattered. Petitioner contends that its liability should not exceed $500.00 invoking in its favor the bill of lading. The CA, however, refused this ar gument and reasoned that the bill of lading was not signed nor agreed upon by the parties.Issue: WON the liability of the American Pres. Lines should not esceed %500.00.Held: YES.Article 1753 of the civil code provides that the la w of the country to which the goods are to be transported shall govern the liability of the common carrier in case of loss, destruction or deterioration. This means the law of the Philippines, or the Civil Code. Under Article 1766, “In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws,” and in the Civil Code there are provisions that govern said rights and obligations (Arts. 1736, 1737, 1738). Therefore, although Section 4 (5) of the Carriage of Goods by Sea Act states that the carrier shall not be liable in an amount exceeding $500.00 per package unless the value of the goods had been declared by the shipper and inserted in the bill of lading, said section is merely suppletory to the provisions of the Civil Code.In accepting the bill of lading, the shipper, consignee and owner of the goods agree to be bound by all its stipulations, exceptions and conditions, whether written, printed or stamped on the front or backx x x

Servando vs. Philippine Steam Navigation Co. Facts: Appelles Servando and Bico loaded on board respondent’s vessel certain cargoes to be transported from Manila to Pulupandan, Negros Occidental. Upon arrival of the vessel at Pulupandan, the cargoes were discharged, complete and in good order, unto the warehouse of the Bureau of Customs. Said warehouse, however, was burned by a fire with unknown orgin destroying the cargoes. Before the fire, Bico was able to discharge some of her cargoes. Issue: WON the common carrier should be held responsible for the damage. Held: NO. 1. In the Bill of Lading, there was a stipulation wherein the parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to the shipment. The inserted provision was not contrary to law, morals or public policy. ‘Such provision has been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation’.2. The burning of the customs warehouse was an extraordinary event which happened independently of the will of the appellant. The latter could not have foreseen the event. Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the obligor is exempt from liability for non-performance.3. There is nothing in the record to show that appellant carrier, incurred in delay in the performance of its obligation. It appears that appellant had not only notified appellees of the arrival of their shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the burning of the warehouse.4. Nor can the appellant or its employees be charged with negligence. The storage of the goods in the Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with their knowledge and consent. Since the warehouse belonged to and was maintained by the government, it would be unfair to impute negligence to the appellant, the latter having no control whatsoever over the same.

Samar Mining Company (appellee )vs. Lloyd and C.F. Charp Company, Inc. (appellants) Facts: Samar Mining Corp made an importation of goods from Germany to Manila, and a transshipment of the same goods from Manila to Davao evidenced by a bill of lading issued to Samar Mining. Upon arrival of the vessel at the port of Manila the importation was unloaded and delivered in good order and condition to the warehouse of AMCYL, which acted as appellant’s substitute in storing the goods awaiting transshipment. The goods were never delivered, nor received, by the consignee at the port of destination – Davao. Issue: WON the appellants as carrier are responsible for non-delivery to the port of destination. Held: NO. Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In this case, two undertakings appeared embodied and/or provided for in the Bill of Lading in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila; the second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. At the hiatus between these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant’s possession also changes, from possession in its own name as carrier, into possession in the name of consignee as the latter’s agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case. But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that the transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency.————————————-“Transship” means: to transfer for further transportation from one ship or conveyance to another The rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws.

Ganzon vs. CA Facts: Tumambing contracted the services of Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan to Manila on board its lighter. Tumambing delivered the scrap iron to Niza, the captain of the lighter. The loading begun on the same day of the delivery. When about half of the scrap was loaded, the Mayor demanded from Tumambing P5,000.00; upon resistance, Tumambing was injured by a gunshot from the Mayor. After sometime, the loading of the scrap iron resumed. The Acting Mayor with three policemen, however, ordered Niza and his crew to drop the scrap iron to the water. He then issued a receipt stating the the Municipality of Mariveles had taken custody of the scrap iron. Issue: WON the carrier should be held liable. Held: YES. 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. 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. Besides, 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.

PhilAm Gen vs. PKS ShippingFacts: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). During the transport, the barge where the bags of cement were loaded, sank. Upon demand of payment by DUMC, Philamgen immediately paid them. Hence, it sought reimbursement from PKS Shipping but the latter refused.Issue:(1) Whether PKS Shipping is a common carrier or a private carrier; and(2) WON PKS Shipping exercised the required diligence over the goods they carry. Or, WON PKS Shipping is liable.Held:(1) PKS Shipping is a common carrier. 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. Neither can the concept of a common carrier change merely because individual contracts are executed or entered into with patrons of the carrier. (2) PKS Shipping is not liable. 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. As such, under Art. 1733, NCC, common carriers are exempt from liability for loss, destruction, or deterioration of the goods due to any of the following causes, among others:(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity x x x Baritua vs. MercaderFacts:The late Dominador Mercader, a businessman engaged in the buy and sell of dry goods in Laoang, N. Samar, boarded the bus of herein petitioner JB Line bounded from Manila to N. Samar. However, while said bus was traversing the Beily Bridge in N. Samar, the bus fell into the river, as a result, D. Mercader died. Petitioner alleges, among others, that there is no statement in the complaint of Mercader that he was issued any passenger-freight ticket.Issue: WON a contract of carriage existed between petitioners and Mercader. Or, WON petitioners are liable for the death of Mercader.Held:A contract of carriage exists, thus, petitioners are liable.Petitioners failed to transport D. Mercader to his destination, because the bus fell into a river while traversing the Bugko Bailey Bridge. Although he survived the fall, he later died of asphyxia secondary to drowning.

The Court agreed with the findings of both the RTC and the CA that fateful morning. It must be noted that a common carrier, by the nature of its business and for reasons of public policy, is bound to carry passengers safely as far as human care and foresight can provide. It is supposed to do so by using the utmost diligence of very cautious persons, with due regard for all the circumstances. In case of death or injuries to passengers, it is presumed to have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. United Airlines, Inc vs. CAFacts:Respondent Aniceto Fontanilla purchased from petitioner United Airlines, through the Philippine Travel Bureau in Manila three (3) “Visit the U.S.A.” tickets for himself, his wife and his minor son Mychal. The Fontanillas proceeded to the US as planned; they used the 1st coupon. Fontanilla then bought two (2) additional coupons each for himself, his wife and his son from petitioner at its office in Washington Dulles Airport. After paying the penalty for rewriting their tickets, the Fontanillas were issued tickets with corresponding boarding passes with the words “CHECK-IN REQUIRED,” for United Airlines Flight No. 1108. However, the Fontanillas were not able to board said flight but instead were able to board United Airlines Flight No. 803.Issue:(1) Whether or not private respondents were able to prove with adequate evidence his allegations of breach of contract in bad faith; and(2) What law is applicable, the Philippine Law or the US Law?Held:(1) No. Aniceto Fontanilla’s assertion that upon arrival at the airport at 9:45 a.m., he immediately proceeded to the check-in counter, and that Linda Allen punched in something into the computer is specious and not supported by the evidence on record. In support of their allegations, private respondents submitted a copy of the boarding pass. Explicitly printed on the boarding pass are the words “Check-In Required.” Curiously, the said pass did not indicate any seat number. If indeed the Fontanillas checked in at the designated time as they claimed, why then were they not assigned seat numbers?(2) The Philippine Law. The appellate court, however, erred in applying the laws of the United States as, in the case at bar, Philippine law is the applicable law. Although, the contract of carriage was to be performed in the United States, the tickets were purchased through petitioner’s agent in Manila. It is true that the tickets were “rewritten” in Washington, D.C. however, such fact did not change the nature of the original contract of carriage entered into by the parties in Manila. PhilAm vs. CA Facts:Coca-Cola Bottlers loaded on board MV Asilda, a vessel owned by respondent FELMAN, 7,500 cases of 1-litter Coca-Cola softdrinks bottle to be transported from Zamboanga City to Cebu City. The shipment was insured by petitioner PHILAMGEN. The vessel left Zamboanga in a fine weather but the same sank in the waters of Zamboanga del Norte. Coca-Cola Bottlers filed a

claim for damages against FELMAN which it denied, thus, filed an insurance claim with PHILAMGEN. PHILAMGEN now seeks recourse against FELMAN.Issue: WON FELMAN is liable for loss of the cargo due to its failure to observe the extraordinary diligence required by Art. 1733, NCC.Held: YES.Under Art 1733 of the Civil Code, “(c)ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case …” In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.The sinking of the vessel was due to its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Nocum vs. Laguna Tayabas Bus Company Facts:Herminio L. Nocum was a passenger in appellant’s Bus No. 120 then making a trip within the barrio of Dita, Municipality of Bay, Laguna, was injured as a consequence of the explosion of firecrackers, contained in a box, loaded in said bus and declared to its conductor as containing clothes and miscellaneous items by a co-passenger. The injuries suffered by Nocum were not due to mechanical defects but to the explosion of firecrackers.Issue: WON the bus company was negligent, hence liable for the injuries suffered by Nocum.Held:No. The Bus Company has succeeded in rebutting the presumption of negligence by showing that it has exercised extraordinary diligence for the safety of its passengers, “according to the circumstances of the (each) case.”Article 1733 qualifies the extraordinary diligence required of common carriers for the safety of the passengers transported by them to be “according to all the circumstances of each case.”In this case, the circumstance that must be considered in measuring a common carrier’s duty towards its passengers is the reliance that should be reposed on the sense of responsibility of all the passengers in regard to their common safety. It is to be presumed that a passenger will not take with him anything dangerous to the lives and limbs of his co-passengers, not to speak of his own. Not to be lightly considered must be the right to privacy to which each passenger is entitled. He cannot be subjected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to indicate the contrary, as in the case at bar. (Hence, the bus

company’s failure to confiscate the baggage cannot be considered as a negligent act, but in accord to the circumstance of the case.) N.B.Thus, in other jurisdictions, and squarely applicable in the instant case: There is need for evidence of circumstances indicating cause or causes for apprehension that the passenger’s baggage is dangerous and that it is failure of the common carrier’s employee to act in the face of such evidence that constitutes the cornerstone of the common carrier’s liability in cases similar to the present one. Elite Shirt Factory vs. Hon. CornejoFacts:Elite Shirt Factory (shipper) delivered to Compania Maritima (common carrier) several cartons of merchandise for shipment to several consignees. While such cargo was stored in the bodega owned by Compania Maritima, a fire broke. Elite Shirt, allegedly damaged, filed with the City Court of Manila a complaint against Compania Maritima for reimbursement. The latter filed an answer impleading Phil. Steam Navigation as third party defendant, on the ground that the fire started from the section occupied by such.Judge Cornejo of the city court favoured shipper Elite for the recovery of damages from common carrier Compania Maritima, but thereafter denied the judgment of execution and set aside its previous decision; the ground: Judge had no jurisdiction, but rather the CFI within its exclusive admiralty and maritime jurisdiction.Elite Shirt Factory contends that the liability of the carrier, Compañia Maritima, from the time the shipment was deposited in its warehouse, was no longer as a common carrier but as a depository, hence, it is the City Court which has jurisdiction.Issue:Does the exclusive jurisdiction conferred on a Court of First instance over admiralty and maritime cases include the suit where the shipper files a claim against the carrier, the goods having been landed, stored in its bodega but subsequently burned, no delivery having been made to the consignee as a result?Held: YES, the instant case is included in the exclusive jurisdiction of the CFI.THE REASON: the warehouse in which the cargo was deposited at the time it was burned was owned by the carrier, Compañia Maritima, itself. The cargo was burned before Compania Maritima could deliver it to the consignees.When, as in this case, the proceeding in effect is one for a breach of a contract of shipment, the jurisdiction of the court of first instance under the specific provision of the Judiciary Act is undeniable.N.B.Hence, if the bodega was owned NOT by Compania Maritima, it is the City Court which will have jurisdiction and not the CFI.City court will have jurisdiction when: the common carrier is liable as DEPOSITORY;CFI will have jurisdiction when: the carrier is liable as a common carrier, as in the instant case.

Medina vs. CresenciaFacts:A passenger jeepney driven by Brigido Avorque smashed into a Meralco post resulting in the death of Vicente Medina, one of its passengers. Guillermo Cresencia is the registered owner of the jeepney as well as the registered operator. On the other hand, Rosario Avorque, after the jeepney having been repeatedly sold from one buyer after another, is its current absolute owner as well as the employer of driver Brigido.Issue:(1) Who should be held liable for the death of Medina – the registered owner or the absolute owner?(2) WON Rosario Avorque has a subsidiary liability under the RPC for damages arising from her driver’s criminal act.Held:(1) The registered owner.The requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee x x x As the sale of the jeepney was admittedly without the approval of the Public Service Commission, Guillermo Cresencia, who is the registered owner and operator thereof, continued to be liable to the Commission and the public for the consequences incident to its operation.(2) No, she has no subsidiary liability. Medina’s action for damages is independent of the criminal case filed against Brigido Avorque, and based, not on the employer’s subsidiary liability under the Revised Penal Code, but on a breach of the carrier’s contractual obligation to carry his passengers safely to their destination (culpa contractual). And it is also for this reason that there is no need of first proving the insolvency of the driver Brigido Avorque before damages can be recovered from the carrier, for in culpa contractual, the liability of the carrier is not merely subsidiary or secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code). Cangco vs. Manila Railroad Facts:Jose Cangco was an employee of the Manila Railroad Co. As an employee of the company, he used a pass, supplied by the company, which entitled him to ride upon the company’s train free of charge. One day, while Cangco stepped off the car, one or both of his feet came in contact

with a sack of watermelons with the result that his feet slipped from under him and he fell violently on the platform. His arm was badly crashed and lacerated.Issue:Whether the liability of Manila Railroad constitutes culpa aquiliana or culpa contractual.Held:The liability constitutes culpa contractual (Contract of Carriage).The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to provide safe means of entering and leaving its trains (civil code, article 1258). That duty, being contractual, was direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendant’s servants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - -N.B.Contributory Negligence on the part of Cangco: None. Our conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty of contributory negligence.Culpa Contractual and Culpa Aquiliana Distinguished: (read from full text)1. culpa aquiliana , as the source of an obligation, and culpa contractual as a mere incident to the performance of a contract2. those which arise from contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris , whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the contractual relation. 3. the liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special relations of authority or superiority existing between the person called upon to repair the damage and the one who, by his act or omission, was the cause of it. On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents, when such acts or omissions cause damages which amount to the breach of a contact, is not based upon a mere presumption of the master’s negligence in their selection or control, and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract. Test in determining Contributory Negligence of plaintiff: Thompson’s work on negligence—- The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be used by the prudent man generally, but the care which a man of ordinary prudence would use under similar circumstances, to avoid injury.” PAL vs. CAFacts:

Private respondent Jesus Samson was a regular co-pilot of PAL. During one of his flights from Manila to Legazpi with Captain Delfin Bustamante, they made a crash landing at Daet where Samson suffered physical injuries in the head. Samson alleges that the accident was due to the gross negligence of PAL in allowing Bustamante who was suffering from a long standing tumor of the Nasopharynx but was also allowed by the Civil Aeronautics Administration to fly as a co-pilot; and that because of the tumor Bustamante has a slow reaction and poor judgment.Issue:WON PAL was negligent as a common carrier in allowing Bustamante to fly as a First Officer the day of the accident. Or, WON the same carrier is liable for the accident even if Bustamante was not sick.Held: YES and YES.For having allowed Bustamante to fly as a First Officer on January 8, 1951, defendant is guilty of gross negligence and therefore should be made liable for the resulting accident.(Even) assuming that the pilot was not sick or that the tumor did not affect the pilot in managing the plane, the evidence shows that overshooting of the runway and crash-landing at the mangrove was caused by the pilot for which acts the defendant must answer for damages caused thereby. And for the negligence of defendant’s employee, it is liable. At least, the law presumes the employer negligent imposing upon it the burden of proving that it exercised the diligence of a good father of a family in the supervision of its employees.As defined in Art. 1732, NCC, petitioner is a common carrier. The law is clear in requiring a common carrier to exercise the highest degree of care in the discharge of its duty and business of carriage and transportation under Art. 1733, 1755 and 1756, NCC.The duty to exercise the utmost diligence on the part of common carriers is for the safety of passengers as well as for the members of the crew or the complement operating the carrier, the airplane in the case at bar. And this must be so for any omission, lapse or neglect thereof will certainly result to the damage, prejudice, nay injuries and even death to all aboard the plane, passengers and crew members alike.

Sarkies Tours Phil vs. IAC

Facts:The Dizons purchased 6 round trip tickets from Sarkies for a tour to Corregidor form Manila, and back. They were given two tickets both with the name SARKIES appearing therein. The word “Edisco” was however handwritten on the white ticket. The white tickets were collected on board by Julian Mendoza, while the blue tickets were collected upon boarding the Sarkies bus. The MV Edisco owned and operated by Mendoza was not registered nor was it licensed to operate as a watercraft. On return to Manila, the weather was the same as when they left. After about thirty minutes of cruising, the boat leaned towards the starboard; the boat capsized. As a result, Merceditas, the daughter of the spouses Dizon, among others, died. The Dizons filed a complaint for damages against Sarkies. Sarkies, as an answer, included a cross-claim against Mendoza.

Issue: WON, under the Civil Code, Sarkies should have a right of action against Mendoza.Held: Yes.Considering that actual negligence for the drowning of Merceditas was the responsibility of Mendoza, it is but fair that Sarkies should have a right of action against Mendoza for reimbursement. Although Article 2181 of the Civil Code is not technically invocable, its principle should be applied in favor of Sarkies. The provision of the Civil Code on common carriers is based on Anglo-American Law.In Grand Trunk R. Co. vs Latham, 63 Me. 177, the following was said:“Where a railroad company had been compelled to pay a judgment for damages for injuries sustained by a passenger as a result of the maltreatment and misconduct of the conductor…the Court (held) that the servant was liable to his master for all loss and damage sustained by it.”

BOHOL LAND TRANSPORTATION CO. vs.NAZARIO S. JUREIDINI G.R. No. 31244 September 23, 1929

FACTS: This is a petition filed by the Bohol Land Transportation Co. praying for the review and reversal of an order issued by the Public Service Commission on November 23, 1928, admitting the application of respondent Nazario S. Jureidini, granting him a certificate of public necessity and convenience to operate regularly fourteen trucks in the Province of Bohol where the petitioner and appellant is a common carrier, and cancelling the authority given to the Bohol Land Transportation Co. in its certificate of public convenience and utility, to make special trips.

ISSUE:Whether or not tha acts of the PSC are valid.

HELD: No.

x x x

x x x [W]e are of opinion and so hold: (1) That before giving a certificate of public necessity and convenience to a transportation company or common land carrier, there being another in existence with the proper certificate, the latter must be given an opportunity to improve its service, should it be deficient or adequate; (2) that before a total or partial revocation of a certificate of public necessity and convenience, the party thereby affected must be notified and heared; (3) that the mere possession of a public mail contract is not a sufficient indication of the convenience and necessity of a new transportation line, and hence, will not sustain the issuance of a certificate of public necessity and convenience.

LITA ENTERPRISES, INC., vs.INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA. [G.R. No. L-64693 April 27, 1984]

FACTS:

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.

About a year later one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case. Petitioner Lita Enterprises, Inc. was adjudged liable for damages by the CFI.

This decision having become final, a writ of execution was issued. Two of the vehicles of respondent spouses were levied upon and sold at public auction.

Thereafter, Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Mrs. de Galvez and the Sheriff of Manila for reconveyance of motor vehicles with damages.

ISSUE: Whether or not petitioner has a cause of action against defendants.

HELD: No.Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system", whereby a person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking.

Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification

or by prescription. As this Court said in Eugenio v. Perdido, "the mere lapse of time cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case.

KILUSANG MAYO UNO LABOR CENTER vs.HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES G.R. No. 115381 December 23, 1994

FACTS : Then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year.

This range was later increased by LTFRB thru a Memorandum Circular No. 92-009 providing, among others, that "The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range."

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares, which the LTFRB dismissed for lack of merit.

ISSUE: Whether or not the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal.

HELD:Yes.

x x x

Under section 16(c) of the Public Service Act, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. x x x However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.

BATANGAS CATV, INC. vs. THE COURT OF APPEALS, THE BATANGAS CITY SANGGUNIANG PANLUNGSOD and BATANGAS CITY MAYOR [G.R. No. 138810. September 29, 2004]

FACTS: On July 28, 1986, respondent Sangguniang Panlungsod enacted Resolution No. 210 granting petitioner a permit to construct, install, and operate a CATV system in Batangas City. Section 8 of the Resolution provides that petitioner is authorized to charge its subscribers the maximum rates specified therein, “provided, however, that any increase of rates shall be subject to the approval of the Sangguniang Panlungsod.

Sometime in November 1993, petitioner increased its subscriber rates from P88.00 to P180.00 per month. As a result, respondent Mayor wrote petitioner a letter threatening to cancel its permit unless it secures the approval of respondent Sangguniang Panlungsod, pursuant to Resolution No. 210.

Petitioner then filed with the RTC, Branch 7, Batangas City, a petition for injunction alleging that respondent Sangguniang Panlungsod has no authority to regulate the subscriber rates charged by CATV operators because under Executive Order No. 205, the National Telecommunications Commission (NTC) has the sole authority to regulate the CATV operation in the Philippines.

ISSUE : may a local government unit (LGU) regulate the subscriber rates charged by CATV operators within its territorial jurisdiction?

HELD: No.

x x x

The logical conclusion, therefore, is that in light of the above laws and E.O. No. 436, the NTC exercises regulatory power over CATV operators to the exclusion of other bodies.

x x x

Like any other enterprise, CATV operation maybe regulated by LGUs under the general welfare clause. This is primarily because the CATV system commits the indiscretion of crossing public properties. (It uses public properties in order to reach subscribers.) The physical realities of constructing CATV system – the use of public streets, rights of ways, the founding of structures, and the parceling of large regions – allow an LGU a certain degree of regulation over CATV operators.

x x x

But, while we recognize the LGUs’ power under the general welfare clause, we cannot sustain Resolution No. 210. We are convinced that respondents strayed from the well recognized limits of its power. The flaws in Resolution No. 210 are: (1) it violates the mandate of existing laws and (2) it violates the State’s deregulation policy over the CATV industry.

LGUs must recognize that technical matters concerning CATV operation are within the exclusive regulatory power of the NTC.

COGEO-CUBAO OPERATORS AND DRIVERS ASSOCIATION vs. THE COURT OF APPEALS, LUNGSOD SILANGAN TRANSPORT SERVICES, CORP., INC.G.R. No. 100727 March 18, 1992

FACTS:It appears that a certificate of public convenience to operate a jeepney service was ordered to be issued in favor of Lungsod Silangan to ply the Cogeo-Cubao route sometime in 1983 on the justification that public necessity and convenience will best be served, and in the absence of existing authorized operators on the lined apply for . . . On the other hand, defendant-Association was registered as a non-stock, non-profit organization with the Securities and Exchange Commission on October 30, 1985 . . . with the main purpose of representing plaintiff-appellee for whatever contract and/or agreement it will have regarding the ownership of units, and the like, of the members of the Association . . .

Perturbed by plaintiffs' Board Resolution No. 9 . . . adopting a Bandera' System under which a member of the cooperative is permitted to queue for passenger at the disputed pathway in exchange for the ticket worth twenty pesos, the proceeds of which shall be utilized for Christmas programs of the drivers and other benefits, and on the strength of defendants' registration as a collective body with the Securities and Exchange Commission, defendants-appellants, led by Romeo Oliva decided to form a human barricade on November 11, 1985 and assumed the dispatching of passenger jeepneys . . . This development as initiated by defendants-appellants gave rise to the suit for damages.

Defendant-Association's Answer contained vehement denials to the insinuation of take over and at the same time raised as a defense the circumstance that the organization was formed not to compete with plaintiff-cooperative. It, however, admitted that it is not authorized to transport passengers . . .

ISSUE : Whether or not the petitioner usurped the property right of the respondent.

HELD: Yes.

x x x

Under the Public Service Law, a certificate of public convenience is an authorization issued by the Public Service Commission for the operation of public services for which no franchise is required by law. In the instant case, a certificate of public convenience was issued to respondent corporation on January 24, 1983 to operate a public utility jeepney service on the Cogeo-Cubao route. x x x

A certification of public convenience is included in the term "property" in the broad sense of the term. Under the Public Service Law, a certificate of public convenience can be sold by the holder thereof because it has considerable material value and is considered as valuable asset (Raymundo v. Luneta Motor Co., et al., 58 Phil. 889). Although there is no doubt that it is private property, it is affected with a public interest and must be submitted to the control of the government for the common good (Pangasinan Transportation Co. v. PSC, 70 Phil 221). Hence, insofar as the interest of the State is involved, a certificate of public convenience does not confer upon the holder any proprietary right or interest or franchise in the route covered thereby and in the public highways (Lugue v. Villegas, L-22545, Nov . 28, 1969, 30 SCRA 409). However, with respect to other persons and other public utilities, a certificate of public convenience as property, which represents the right and authority to operate its facilities for public service, cannot be taken or interfered with without due process of law. Appropriate

actions may be maintained in courts by the holder of the certificate against those who have not been authorized to operate in competition with the former and those who invade the rights which the former has pursuant to the authority granted by the Public Service Commission (A.L. Ammen Transportation Co. v. Golingco. 43 Phil. 280).

In the case at bar, the trial court found that petitioner association forcibly took over the operation of the jeepney service in the Cogeo-Cubao route without any authorization from the Public Service Commission and in violation of the right of respondent corporation to operate its services in the said route under its certificate of public convenience.

COMMISSIONER OF CUSTOMS vs.THE COURT OF APPEALSG.R. Nos. 111202-05 January 31, 2006

FACTS:The whole controversy revolves around a vessel and its cargo. On January 7, 1989, the vessel M/V "Star Ace," coming from Singapore laden with cargo, entered the Port of San Fernando, La Union (SFLU) for needed repairs. The vessel and the cargo had an appraised value, at that time, of more or less Two Hundred Million Pesos (P200,000,000). When the Bureau of Customs later became suspicious that the vessel’s real purpose in docking was to smuggle its cargo into the country, seizure proceedings were instituted under S.I. Nos. 02-89 and 03-89 and, subsequently, two Warrants of Seizure and Detention were issued for the vessel and its cargo.

Respondent Cesar S. Urbino, Sr., does not own the vessel or any of its cargo but claimed a preferred maritime lien under a Salvage Agreement dated June 8, 1989. To protect his claim, Urbino initially filed two motions in the seizure and detention cases: a Motion to Dismiss and a Motion to Lift Warrant of Seizure and Detention. Apparently not content with his administrative remedies, Urbino sought relief with the regular courts by filing a case for Prohibition, Mandamus and Damages before the RTC of SFLU, seeking to restrain the District Collector of Customs from interfering with his salvage operation. The RTC of SFLU dismissed the case for lack of jurisdiction because of the pending seizure and detention cases. Urbino then elevated the matter to the CA. The Commissioner of Customs, in response, filed a Motion to Suspend Proceedings, advising the CA that it intends to question the jurisdiction of the CA before this Court. The motion was denied. Hence, in this petition the Commissioner of Customs assails the Resolution "F" recited above and seeks to prohibit the CA from continuing to hear the case.

ISSUE: Whether Urbino's claim is a preferred lien in this case.

HELD: No.

x x x

First of all, the Court finds the decision of the RTC of Manila, in so far as it relates to the vessel M/V "Star Ace," to be void as jurisdiction was never acquired over the vessel. In filing the case, Urbino had impleaded the vessel as a defendant to enforce his alleged maritime lien. This meant that he brought an action in rem under the Code of Commerce under which the vessel may be attached and sold.

However, the basic operative fact for the institution and perfection of proceedings in rem is the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings. This means that to acquire jurisdiction over the vessel, as a defendant, the trial court must have obtained either actual or constructive possession over it. Neither was accomplished by the RTC of Manila.

In his comment to the petition, Urbino plainly stated that "petitioner has actual[sic] physical custody not only of the goods and/or cargo but the subject vessel, M/V Star Ace, as well." This is clearly an admission that the RTC of Manila did not have jurisdiction over the res. While Urbino contends that the Commissioner of Custom’s custody was illegal, such fact, even if true, does not deprive the Commissioner of Customs of jurisdiction thereon. This is a question that ought to be resolved in the seizure and forfeiture cases, which are now pending with the CTA, and not by the regular courts as a collateral matter to enforce his lien. By simply filing a case in rem against the vessel, despite its being in the custody of customs officials, Urbino has circumvented the rule that regular trial courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted in the Bureau of Customs, on his mere assertion that the administrative proceedings were a nullity.

On the other hand, the Bureau of Customs had acquired jurisdiction over the res ahead and to the exclusion of the RTC of Manila. The forfeiture proceedings conducted by the Bureau of Customs are in the nature of proceedings in rem and jurisdiction was obtained from the moment the vessel entered the SFLU port. Moreover, there is no question that forfeiture proceedings were instituted and the vessel was seized even before the filing of the RTC of Manila case.

The Court is aware that Urbino seeks to enforce a maritime lien and, because of its nature, it is equivalent to an attachment from the time of its existence. Nevertheless, despite his lien’s constructive attachment, Urbino still cannot claim an advantage as his lien only came about after the warrant of seizure and detention was issued and implemented. The Salvage Agreement, upon which Urbino based his lien, was entered into on June 8, 1989. The warrants of seizure and detention, on the other hand, were issued on January 19 and 20, 1989. And to remove further doubts that the forfeiture case takes precedence over the RTC of Manila case, it should be noted that forfeiture retroacts to the date of the commission of the offense, in this case the day the vessel entered the country. A maritime lien, in contrast, relates back to the period when it first attached, in this case the earliest retroactive date can only be the date of the Salvage Agreement. Thus, when the vessel and its cargo are ordered forfeited, the effect will retroact to the moment the vessel entered Philippine waters.

Accordingly, the RTC of Manila decision never attained finality as to the defendant vessel, inasmuch as no jurisdiction was acquired over it, and the decision cannot be binding and the writ of execution issued in connection therewith is null and void.

MARIKINA AUTO LINE TRANSPORT CORPORATION and FREDDIE L. SUELTO vs. PEOPLE OF THE PHILIPPINES and ERLINDA V. VALDELLON[G.R. No. 152040 March 31, 2006]

FACTS:Erlinda V. Valdellon is the owner of a two-door commercial apartment located at No. 31 Kamias Road, Quezon City. The Marikina Auto Line Transport Corporation (MALTC) is the owner-operator of a

passenger bus with Plate Number NCV-849. Suelto, its employee, was assigned as the regular driver of the bus.

At around 2:00 p.m. on October 3, 1992, Suelto was driving the aforementioned passenger bus along Kamias Road, Kamuning, Quezon City, going towards Epifanio de los Santos Avenue (EDSA). The bus suddenly swerved to the right and struck the terrace of the commercial apartment owned by Valdellon located along Kamuning Road. Valdellon demanded payment of P148,440.00 to cover the cost of the damage to the terrace. The bus company and Suelto offered a P30,000.00 settlement which Valdellon refused.

Valdellon filed a criminal complaint for reckless imprudence resulting in damage to property against Suelto. Valdellon also filed a separate civil complaint against Suelto and the bus company for damages. Suelto maintained that, in an emergency case, he was not, in law, negligent. Both the trial court and the CA ruled in against herein petitioners.

ISSUE: Whether or not the sudden emergency rule applies in the case at bar.

HELD: No.

x x x

It was the burden of petitioners herein to prove petitioner Suelto’s defense that he acted on an emergency, that is, he had to swerve the bus to the right to avoid colliding with a passenger jeep coming from EDSA that had overtaken another vehicle and intruded into the lane of the bus. The sudden emergency rule was enunciated by this Court in Gan v. Court of Appeals,23 thus:

[O]ne who suddenly finds himself in a place of danger, and is required to act without time to consider the best means that may be adopted to avoid the impending danger, is not guilty of negligence if he fails to adopt what subsequently and upon reflection may appear to have been a better method unless the emergency in which he finds himself is brought about by his own negligence.

Under Section 37 of Republic Act No. 4136, as amended, otherwise known as the Land Transportation and Traffic Code, motorists are mandated to drive and operate vehicles on the right side of the road or highway:

SEC. 37. Driving on right side of highway. – Unless a different course of action is required in the interest of the safety and the security of life, person or property, or because of unreasonable difficulty of operation in compliance herewith, every person operating a motor vehicle or an animal-drawn vehicle on a highway shall pass to the right when meeting persons or vehicles coming toward him, and to the left when overtaking persons or vehicles going the same direction, and when turning to the left in going from one highway to another, every vehicle shall be conducted to the right of the center of the intersection of the highway.

Section 35 of the law provides, thus:

Sec. 35. Restriction as to speed.—(a) Any person driving a motor vehicle on a highway shall drive the

same at a careful and prudent speed, not greater nor less than is reasonable and proper, having due regard for the traffic, the width of the highway, and of any other condition then and there existing; and no person shall drive any motor vehicle upon a highway at such a speed as to endanger the life, limb and property of any person, nor at a speed greater than will permit him to bring the vehicle to a stop within the assured clear distance ahead.

In relation thereto, Article 2185 of the New Civil Code provides that "unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent, if at the time of mishap, he was violating any traffic regulation." By his own admission, petitioner Suelto violated the Land Transportation and Traffic Code when he suddenly swerved the bus to the right, thereby causing damage to the property of private respondent.

However, the trial court correctly rejected petitioner Suelto’s defense, in light of his contradictory testimony vis-à-vis his Counter-Affidavit submitted during the preliminary investigation:

It is clear from the photographs submitted by the prosecution (Exhs. C, D, G, H & I) that the commercial apartment of Dr. Valdellon sustained heavy damage caused by the bus being driven by Suelto. "It seems highly improbable that the said damages were not caused by a strong impact. And, it is quite reasonable to conclude that, at the time of the impact, the bus was traveling at a high speed when Suelto tried to avoid the passenger jeepney." Such a conclusion finds support in the decision of the Supreme Court in People vs. Ison, 173 SCRA 118, where the Court stated that "physical evidence is of the highest order. It speaks more eloquently than a hundred witnesses." The pictures submitted do not lie, having been taken immediately after the incident. The damages could not have been caused except by a speeding bus. Had the accused not been speeding, he could have easily reduced his speed and come to a full stop when he noticed the jeep. Were he more prudent in driving, he could have avoided the incident or even if he could not avoid the incident, the damages would have been less severe.

In addition to this, the accused has made conflicting statements in his counter-affidavit and his testimony in court. In the former, he stated that the reason why he swerved to the right was because he wanted to avoid the passenger jeepney in front of him that made a sudden stop. But, in his testimony in court, he said that it was to avoid a passenger jeepney coming from EDSA that was overtaking by occupying his lane. Such glaring inconsistencies on material points render the testimony of the witness doubtful and shatter his credibility. Furthermore, the variance between testimony and prior statements renders the witness unreliable. Such inconsistency results in the loss in the credibility of the witness and his testimony as to his prudence and diligence.

As already maintained and concluded, the severe damages sustained could not have resulted had the accused acted as a reasonable and prudent man would. The accused was not diligent as he claims to be. What is more probable is that the accused had to swerve to the right and hit the commercial apartment of the plaintiff because he could not make a full stop as he was driving too fast in a usually crowded street.

Moreover, if the claim of petitioners were true, they should have filed a third-party complaint against the driver of the offending passenger jeepney and the owner/operator thereof.

Petitioner Suelto’s reliance on the sudden emergency rule to escape conviction for the crime charged and his civil liabilities based thereon is, thus, futile.

ADOLFO L. SANTOS vs. ABRAHAM SIBUG and COURT OF APPEALS G.R. No. L-26815 May 26, 19810

FACTS: Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad was a duly authorized passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos was the owner of a passenger jeep, but he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience. In other words, SANTOS became what is known in ordinary parlance as a kabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private document presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement.

On the ACCIDENT DATE, private respondent Abraham Sibug was bumped by a passenger jeepney operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas with the Court of First Instance of Manila, Branch XVII, and after trial sentenced VIDAD and Gragas, jointly and severally, to indemnify SIBUG.

On April 10, 1964, the Sheriff of Manila levied on a motor vehicle registered in the name of VIDAD.

SANTOS thereafter filed a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience.

ISSUE:Whether petitioner Santos may prevent the levying of his vehicle.

HELD:No.

x x x

In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record at the time of the accident. It is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle.] > This ruling is based on the principle that the operator of record is considered the operator of the vehicle in contemplation of law as regards the public and third persons even if the vehicle involved in the accident had been sold to another where such sale had not been approved by the then Public Service Commission. [ For the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to

VIDAD. This is one way of curbing the pernicious kabit system that facilitates the commission of fraud against the travelling public.

PHILIPPINE CHARTER INSURANCE CORPORATION vs. UNKNOWN OWNER OF THE VESSEL M/V “NATIONAL HONOR,” NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL CONTAINER SERVICES, INC.[G.R. No. 161833. July 8, 2005]

FACTS:Petitioner Philippine Charter Insurance Corporation (PCIC) is the insurer of a shipment on board the vessel M/V “National Honor,” represented in the Philippines by its agent, National Shipping Corporation of the Philippines (NSCP).

The M/V “National Honor” arrived at the Manila International Container Terminal (MICT). 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. 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, 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. They inspected the hatches, checked the cargo and found it in apparent good condition. Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each end of Crate No. 1. No sling cable was fastened on the mid-portion of the crate. In Dauz’s experience, this was a normal procedure. As the crate was being hoisted from the vessel’s hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from the vessel’s twin deck, sending all its contents crashing down hard, resulting in extensive damage to the shipment.

PCIC paid the damage, and as subrogee, filed a case against M/V National Honor, NSCP and ICTSI. Both RTC and CA dismissed the complaint.

ISSUE: Whether or not the presumption of negligence is applicable in the instant case.

HELD: No.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. he 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.”

The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance, by the person entitled to receive them.] >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. 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.

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. 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.

“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. On the other hand, inferior means of poor quality, mediocre, or second rate. A thing may be of inferior quality but not necessarily defective. In other words, “defectiveness” is not synonymous with “inferiority.”

CARGOLIFT SHIPPING, INC. vs. L. ACUARIO MARKETING CORP. and SKYLAND BROKERAGE, INCG.R. No. 146426. June 27, 2006

FACTS:Respondent L. Acuario Marketing Corp., ("Acuario") and respondent Skyland Brokerage, Inc., ("Skyland") entered into a time charter agreement whereby Acuario leased to Skyland its L. Acuario II barge for use by the latter in transporting electrical posts from Manila to Limay, Bataan. At the same time, Skyland also entered into a separate contract with petitioner Cargolift, for the latter’s tugboats to tow the aforesaid barge.

After the whole operation was concluded, the barge was brought to Acuario’s shipyard where it was allegedly discovered by that the barge was listing due to a leak in its hull. It was informed by the skipper of the tugboat that the damage was sustained in Bataan. It was learned later the due to strong winds and large waves, the barge repeatedly hit its hull on the wall, thus prompting the barge patron to alert the tugboat captain of the M/T Count to tow the barge farther out to sea. However, the tugboat failed to pull the barge to a safer distance due to engine malfunction, thereby causing the barge to sustain a hole in its hull.

Acuario spent the total sum of P97,021.20 for the repairs, and, pursuant to the contract, sought reimbursement from Skyland, failing which, it filed a suit before the RTC which was granted. On appeal, it was affirmed by the CA. Skyland, in turn, filed a third-party complaint against petitioner alleging that it was responsible for the damage sustained by the barge.

ISSUE: Whether or not petitioner should be held liable.

HELD:Yes.Thus, in the performance of its contractual obligation to Skyland, petitioner was required to observe the due diligence of a good father of the family. This much was held in the old but still relevant case of Baer Senior & Co.’s Successors v. La Compania Maritima where the Court explained that a tug and its owners must observe ordinary diligence in the performance of its obligation under a contract of towage. The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands.

In the case at bar, the exercise of ordinary prudence by petitioner means ensuring that its tugboat is free of mechanical problems. While adverse weather has always been a real threat to maritime commerce, the least that petitioner could have done was to ensure that the M/T Count or any of its other tugboats would be able to secure the barge at all times during the engagement. This is especially true when considered with the fact that Acuario’s barge was wholly dependent upon petitioner’s tugboat for propulsion. The barge was not equipped with any engine and needed a tugboat for maneuvering.

Needless to say, if petitioner only subjected the M/T Count to a more rigid check-up or inspection, the engine malfunction could have been discovered or avoided. The M/T Count was exclusively controlled by petitioner and the latter had the duty to see to it that the tugboat was in good running condition. There is simply no basis for petitioner’s assertion that Skyland contractually assumed the risk of any engine trouble that the tugboat may encounter. Skyland merely procured petitioner’s towing service but in no way assumed any such risk.

POLIAND INDUSTRIAL LIMITED vs. NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE PHILIPPINES [G.R. No. 143866. August 22, 2005]

FACTS: Poliand is an assignee of the of the rights of Asian Hardwood over the outstanding obligation of National Development Corporation (NDC), the latter being the owner of Galleon which previously secured credit accommodations from Asian Hardwood for its expenses on provisions, oil, repair, among others.

Galleon also obtained loans from Japanese lenders to finance acquisition of vessels which was guaranteed by DBP in consideration of a promise by Galleon to secure a first mortgage on the vessels. DBP later transferred ownership of the vessel to NDC.

A collection suit was filed after repeated demands of Poliand for the satisfaction of the obligation from Galleon, NDC and DBP went unheeded.

ISSUE: Whether POLIAND has a maritime lien enforceable against NDC or DBP or both.

HELD: Yes, Poliand has a maritime lien which is more superior than DBP’s mortgage lien.

“Before POLIAND’s claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521, which reads:

SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel.

Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its authorized person and prior to the recording of the ship mortgage. Under the law, it must be established that the credit was extended to the vessel itself.

The trial court found that GALLEON’s advances obtained from Asian Hardwood were used to cover for the payment of bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking of the GALLEON vessels. These expenses clearly fall under Section 21, P.D. No. 1521.

The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crew’s salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have a status superior to DBP’s preferred mortgage lien.

As stated in Section 21, P.D. No. 1521, a maritime lien may consist in “other necessaries spent for the vessel.” The ship modification cost may properly be classified under this broad category because it was a necessary expenses for the vessel’s navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for

necessaries under Section 21, P.D. No. 1521."

However, Only NDC is liable on the maritime lien

x x x [O]nly NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem.[65] The expression “action in rem” is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon which the proceedings are based.[66] Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien subsists.

JG SUMMIT HOLDINGS, INC., vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS G.R. No. 124293. November 20, 2000

FACTS:National Investment and Development Corporation (NIDC) and Kawasaki Heavy Industries entered into a Joint Venture Agreement in a shipyard business named PHILSECO, with a shareholding of 60-40 respectively. NIDC’s interest was later transferred to the National Government.

Pursuant to President Aquino’s Proclamation No.5, which established the Committee on Privatization (COP) and Asset Privatization Trust (APT), and allowed for the disposition of the government’s non-performing assets, the latter allowed Kawasaki Heavy Industries to choose a company to which it has stockholdings, to top the winning bid of JG Summit Holdings over PHILSECO. JG Summit protested alleging that such act would effectively increase Kawasaki’s interest in PHILSECO—a shipyard is a public utility--and thus violative of the Constitution.

ISSUE: Whether or not respondents’ act is valid.

HELD: No.A shipyard such as PHILSECO being a public utility as provided by law, the following provision of the Article XII of the Constitution applies:

“Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association shall be citizens of the Philippines.”

x x x

Notably, paragraph 1.4 of the JVA accorded the parties the right of first refusal “under the same terms.” This phrase implies that when either party exercises the right of first refusal under paragraph 1.4, they can only do so to the extent allowed them by paragraphs 1.2 and 1.3 of the JVA or under the proportion of 60%-40% of the shares of stock. Thus, should the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock of SNS or PHILSECO. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization.

C. B. WILLIAMS vs. TEODORO R. YANGCOG.R. No. L-8325. March 10, 1914

FACTS: The steamer Subic, owned by the defendant, collided with the lunch Euclid owned by the plaintiff, in the Bay of Manila at an early hour on the morning of January 9, 1911, and the Euclid sank five minutes thereafter. This action was brought to recover the value of the Euclid.

The court below held from the evidence submitted that the Euclid was worth at a fair valuation P10,000; that both vessels were responsible for the collision; and that the loss should be divided equally between the respective owners, P5,000 to be paid the plaintiff by the defendant, and P5,000 to be borne by the plaintiff himself. From this judgment both defendant and plaintiff appealed.

ISSUE: Whether or not plaintiff should not be held liable on account of doctrine of last clear chance—the defendant having the last opportunity to avoid the collision.

HELD: No. In cases of a disaster arising from the mutual negligence of two parties, the party who has a last clear opportunity of avoiding the accident, notwithstanding the negligence of his opponent, is considered wholly responsible for it under the common-law rule of liability as applied in the courts of common law of the United States. But this rule (which is not recognized in the courts of admiralty in the United States, wherein the loss is divided in cases of mutual and concurring negligence, as also where the error of one vessel has exposed her to danger of collision which was consummated by he further rule, that where the previous application by the further rule, that where the previous act of negligence of one vessel has created a position of danger, the other vessel is not necessarily liable for the mere failure to recognize the perilous situation; and it is only when in fact it does discover it in time to avoid the casualty by the use of ordinary care, that it becomes liable for the failure to make use of this last clear opportunity to avoid the accident. (See cases cited in Notes, 7 Cyc., pp. 311, 312, 313.) So, under the English rule which conforms very nearly to the common-law rule as applied in the American courts, it has been held that the fault of the first vessel in failing to exhibit proper lights or to take the proper side of the channel will relieve from liability one who negligently runs into such vessels before he sees it; although it will not be a defense to one who, having timely warning of the danger of collision, fails to use proper care to avoid it. (Pollock on Torts, 374.). In the case at bar, the most that can be said in

support of plaintiff's contention is that there was negligence on the part of the officers on defendant's vessel in failing to recognize the perilous situation created by the negligence of those in charge of plaintiff's launch, and that had they recognized it in time, they might have avoided the accident. But since it does not appear from the evidence that they did, in fact, discover the perilous situation of the launch in time to avoid the accident by the exercise of ordinary care, it is very clear that under the above set out limitation to the rule, the plaintiff cannot escape the legal consequences of the contributory negligence of his launch, even were we to hold that the doctrine is applicable in the jurisdiction, upon which point we expressly reserve our decision at this time.

MONARCH INSURANCE CO., INC vs. COURT OF APPEALS and ABOITIZ SHIPPING CORPORATIONG.R. No. 92735. June 8, 2000

FACTS: Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the shippers and were consequently subrogated to their rights, interests and actions against Aboitiz, the cargo carrier. Because Aboitiz refused to compensate Monarch, it filed two complaints against Aboitiz which were consolidated and jointly tried.

Aboitiz rejected responsibility for the claims on the ground that the sinking of its cargo vessel was due to force majeure or an act of God. Aboitiz was subsequently declared as in default and allowed Monarch and Tabacalera to present evidence ex-parte.

ISSUE: Whether or not the doctrine of limited liability applies in the instant case.

HELD: Yes.The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the sinking of its vessel in the face of the foregoing expert testimony constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the ship captain and crew of the M/V P. Aboitiz. [This is in accordance with the rule that in cases involving the limited liability of shipowners, the initial burden of proof of negligence or unseaworthiness rests on the claimants. However, once the vessel owner or any party asserts the right to limit its liability, the burden of proof as to lack of privity or knowledge on its part with respect to the matter of negligence or unseaworthiness is shifted to it. This burden, Aboitiz had unfortunately failed to discharge.] That Aboitiz failed to discharge the burden of proving that the unseaworthiness of its vessel was not due to its fault and/or negligence should not however mean that the limited liability rule will not be applied to the present cases. The peculiar circumstances here demand that there should be no strict adherence to procedural rules on evidence lest the just claims of shippers/insurers be frustrated. The rule on limited liability should be applied in accordance with the latest ruling in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.,] promulgated on January 21, 1993, that claimants be treated as "creditors in an insolvent corporation whose assets are not enough to satisfy the totality of claims against it."

ABOITIZ SHIPPING CORPORATION vs. NEW INDIA ASSURANCE COMPANY, LTD G..R. No. 156978 May 2, 2006

FACTS: Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to General Textile, Inc., in Manila and insured by respondent New India Assurance Company, Ltd. While in Hong Kong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.

Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to travel to its destination. But while at sea, the vessel received a report of a typhoon moving within its general path. To avoid the typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon when its hull leaked. On October 31, 1980, the vessel sank, but the captain and his crew were saved.

Both the trial and the appellate courts found that the sinking was not due to the typhoon but to its unseaworthiness.

ISSUE: Whether the limited liability doctrine, which limits respondent’s award of damages to its pro-rata share in the insurance proceeds, applies in this case.

HELD: No. x x x An exception to the limited liability doctrine is when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the captain. In which case, the shipowner shall be liable to the full-extent of the damage.

x x x

In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine. Differently put, to limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence presented and the circumstances obtaining in this case, we find that petitioner failed to discharge this burden. It initially attributed the sinking to the typhoon and relied on the BMI findings that it was not at fault. However, both the trial and the appellate courts, in this case, found that the sinking was not due to the typhoon but to its unseaworthiness. Evidence on record showed that the weather was moderate when the vessel sank. These factual findings of the Court of Appeals, affirming those of the trial court are not to be disturbed on appeal, but must be accorded great weight. These findings are conclusive not only on the parties but on this Court as well.