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TRANSPORTATION LAWCode of Commerce

1. Keng Hua Paper vs CA

2. Magellan vs CA

3. Maersk vs CA

4. Assurance 202 S 564

5. Samar Mining vs Nordeutsscher Lloyd

6. US Lines vs 159 S 189

7. Caltex vs Sulpicio Lines

8. Fortune Express vs CA

G.R. No. 116863 February 12, 1998

KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs.COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC.,respondents.

PANGANIBAN, J.:

What is the nature of a bill of lading? When does a bill of lading become binding on a consignee? Will an alleged overshipment justify the consignee's refusal to receive the goods described in the bill of lading? When may interest be computed on unpaid demurrage charges?

Statement of the Case

These are the main questions raised in this petition assailing the Decision 1 of the Court of Appeals 2 promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the decision 3 dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of Manila, Branch 21. The dispositive portion of the said RTC decision reads:

WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause of action and right to relief. Accordingly, judgment is hereby rendered in favor of the Plaintiff and against Defendant, ordering the Defendant to pay plaintiff:

1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of the extrajudicial demand until fully paid;

2. A sum equivalent to ten (10%) percent of the total amount due as Attorney's fees and litigation expenses.

Send copy to respective counsel of the parties.

SO ORDERED. 4

The Facts

The factual antecedents of this case as found by the Court of Appeals are as follows:

Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed container, Container No. SEAU 67523, containing seventy-six bales of "unsorted waste paper" for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading (Exh. A) to cover the shipment was issued by the plaintiff.

On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to the defendant but the latter failed to discharge the shipment from the container during the "free time" period or grace period. The said shipment remained inside the plaintiff's container from the moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded from the container on November 22, 1983, or a total of four hundred eighty-one (481) days. During the 481-day period, demurrage charges accrued. Within the same period, letters demanding payment were sent by the plaintiff to the defendant who, however, refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on the defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and damages.

In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking Corporation, with partial shipment permitted; that under the letter of credit, the remaining balance of the shipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking defendant to accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining balance; that if defendant were to accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of action against the defendant because the latter did not hire the former to carry the merchandise; that the cause of action should be against the shipper which contracted the plaintiff's services and not against defendant; and that the defendant duly notified the plaintiff about the wrong shipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits).

As previously mentioned, the RTC found petitioner liable for demurrage; attorney's fees and expenses of litigation. The petitioner appealed to the Court of Appeals, arguing that the lower court erred in (1) awarding the sum of P67,340 in favor of the private respondent, (2) rejecting petitioner's contention that there was overshipment, (3) ruling that petitioner's recourse was against the shipper, and (4) computing legal interest from date of extrajudicial demand. 5

Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto. In a subsequent resolution, 6 it also denied the petitioner's motion for reconsideration.

Hence, this petition for review. 7

The Issues

In its memorandum, petitioner submits the following issues:

I. Whether or not petitioner had accepted the bill of lading;

II. Whether or not the award of the sum of P67,340.00 to private respondent was proper;

III. Whether or not petitioner was correct in not accepting the overshipment;

IV. Whether or not the award of legal interest from the

On Code of Commerce 1


date of private respondent's extrajudicial demand was proper; 8

In the main, the case revolves around the question of whether petitioner bound by the bill of lading. We shall, thus, discuss the above four issues as they intertwine with this main question.

The Court's Ruling

The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify the interest rate thereon.

Main Issue: Liability Under the Bill of Lading

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. 9 A "bill of lading delivered and accepted constitutes the contract of carriage even though not signed," 10 because the "(a)cceptance 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." 11 In a nutshell, 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. 12

In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courts found petitioner liable. The aforementioned section of the bill of lading reads:

17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by reason of the goods being or having been on board, or because of shipper's failure to procure consular or other proper permits, certificates or any papers that may be required at any port or place or shipper's failure to supply information or otherwise to comply with all laws, regulations and requirements of law in connection with the goods of from any other act or omission of the shipper or consignee: (Emphasis supplied.)

Petitioner contends, however, that it should not be bound by the bill of lading because it never gave its consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it argues that its subsequent actions belie the finding that it accepted the terms and conditions printed therein. 1 3 Petitioner cites as support the "Notice of Refused or On Hand Freight" it received on November 2, 1982 from private respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner adds that it sent a copy of the said notice to the shipper on December 23, 1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing "that its acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had imported (with full documentary support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of lading" and "could lay them vulnerable to legal sanctions for violation of customs and tariff as well as Central Bank laws." 14 Petitioner further argues that the demurrage "was a consequence of the shipper's mistake" of shipping more than what was bought. The discrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-a-vis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment. 15

Petitioner Bound bythe Bill of Lading

We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the arrival of the shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from any term or stipulation therein. It was only six months later, on January 24, 1983, that petitioner sent a letter to private respondent saying that it could not accept the shipment. Petitioner's inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioner's inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper's failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents were returned by the "banks" to the shipper. 18 The letter merely proved petitioner's refusal to pick up the cargo, not its rejection of the bill of lading.

Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent by private respondent to petitioner in November 1982, or four months after petitioner received the bill of lading. If the notice has any legal significance at all, it is to highlight petitioner's prolonged failure to object to the bill of lading. Contrary to petitioner's contention, the notice and the letter support — not belie — the findings of the two lower courts that the bill of lading was impliedly accepted by petitioner.

As aptly stated by Respondent Court of Appeals:

In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the bill of lading from the shipper. Hence, the terms and conditions as well as the various entries contained therein were brought to its knowledge. (Herein petitioner) accepted the bill of lading without interposing any objection as to its contents. This raises the presumption that (herein petitioner) agreed to the entries and stipulations imposed therein.

Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be exact, before notifying (herein private respondent) of the "wrong shipment". It was only on January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of notification (Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the duration of those six months (herein private respondent never knew the reason for (herein petitioner's) refusal to discharge the shipment.

After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading. If it did not intend to be bound, (herein petitioner) would not have waited for six months to lapse before finally bringing the matter to (herein private respondent's attention. The most logical reaction in such a case would be to immediately verify the matter with the other parties involved. In this case, however, (herein petitioner) unreasonably detained (herein private respondent's) vessel to the latter's prejudice. 19

Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said laws, without a clear demonstration that taking delivery of the shipment has become legally impossible, 20 cannot defeat the petitioner's contractual obligation and liability under the bill of lading.

In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time only in petitioner's memorandum before this Court. Clearly, we cannot now entertain an issue raised for the very first time on appeal, in deference to the well-settled doctrine that "(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal." 21

In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private respondent's vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to the former.

In The Apollon, 22 Justice Story made the following relevant comment on the nature of demurrage:



In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the circumstances attending the usual earnings and expenditures in common voyages? It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship's expenses, wear and tear, and common employment. 23

Amount of Demurrage Charges

Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of the complaint, private respondent made no demand for the sum of P67,340. Moreover, private respondent's loss and prevention manager, Loi Gillera, demanded P50,260; but its counsel, Sofronio Larcia, subsequently asked for a different amount of P37,800.

Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court. 24 Besides, such factual finding is supported by the extant evidence. 25 The apparent discrepancy was a result of the variance of the dates when the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus, while in his letter dated April 24, 1983, 26 private respondent's counsel demanded payment of only P37,800, the additional demurrage incurred petitioner due to its continued refusal to receive delivery of the cargo ballooned to P67,340 by November 22, 1983. The testimony of Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz:

Q Now, after you sent this letter, do you know what happened?

A Defendant continued to refuse to take delivery of the shipment and the shipment stayed at the port for a longer period.

Q So, what happened to the shipment?

A The shipment incurred additional demurrage charges which amounted to P67,340.00 as of November 22, 1983 or more than a year after — almost a year after the shipment arrived at the port.

Q So, what did you do?

A We requested our collection agency to pursue the collection of this amount. 27

Bill of Lading Separate fromOther Letter of Credit Arrangements

In a letter of credit, there are three distinct and independent contracts:

(1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. "Few things are more clearly settled in law than that the three contracts which make up the letter of credit arrangement are to be maintained in a state of perpetual separation." 28 A transaction involving the purchase of goods may also require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are not in the same locale or country, and the goods purchased have to be transported to the latter.

Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer

and the issuing bank. Any discrepancy between the amount of the goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, 29 neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-viz the commercial invoice and the letter of a credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract of transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents of the container. The contract of carriage was under the arrangement known as "Shipper's Load And Count," and shipper was solely responsible for the loading of the container while carrier was oblivious to the contents of the shipment. Petitioner's remedy in case of overshipment lies against the seller/shipper, not against the carrier.

Payment of Interest

Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, by summons, private respondent's complaint. Hence, interest may not be allowed to run from the date of private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, "there was no demand for interest." 30 We agree.

Jurisprudence teaches us:

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 31

The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total amount demanded cannot be deemed to have been established with reasonable certainty until the trial court rendered its judgment. Indeed, "(u)nliquidated damages or claims, it is said, are those which are not or cannot be known until definitely ascertained, assessed and determined by the courts after presentation of proof. " 32Consequently, the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial court's decision. And in accordance with Philippine National Bank 33 and Eastern Shipping, 34 the rate of twelve percent per annumshall be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction.

Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive portion of the trial court's decision. This falls short of the settled requirement that the text of the decision should state the reason for the award of attorney's fees, for without such justification, its award would be a "conclusion without a premise, its basis being improperly left to speculation and conjecture." 35

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent per annum shall be computed from September 28, 1990 until its full



payment before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and executory until full satisfaction. The award of attorney's fees is DELETED.

SO ORDERED.

G.R. No. 95529 August 22, 1991

MAGELLAN MANUFACTURING MARKETING CORPORATION, * petitioner, vs.COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, INC. respondents.

REGALADO, J.:p

Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent Court of Appeals in CA-G.R. CV No. 18781, 1 affirming in part the decision of the trial court, 2 the dispositive portion of which reads:

Premises considered, the decision appealed from is affirmed insofar as it dismisses the complaint. On the counter-claim, however, appellant is ordered to pay appellees the amount of P52,102.45 with legal interest from date of extra-judicial demand. The award of attorney's fees is deleted. 3

The facts as found by respondent appellate court are as follows:

On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of $23,220.00. As payment thereof, a letter of credit was issued to plaintiff MMMC by the buyer. Through its president, James Cu, MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw fans through the other appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of lading and that transhipment is not allowed under the letter of credit (Exh. B-1). On June 30, 1980, appellant MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented to Allied Bank. The bank then credited the amount of US$23,220.00 covered by the letter of credit to appellant's account. However, when appellant's president James Cu, went back to the bank later, he was informed that the payment was refused by the buyer allegedly because there was no on-board bill of lading, and there was a transhipment of goods. As a result of the refusal of the buyer to accept, upon appellant's request, the anahaw fans were shipped back to Manila by appellees, for which the latter demanded from appellant payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees for damages.

In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of 136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was delivered at the port of discharge on July 19, 1980, but was subsequently returned to Manila after the consignee refused to accept/pay the same. 4

Elaborating on the above findings of fact of respondent court and without being disputed by herein private respondents, petitioner additionally avers that:

When petitioner informed private respondents about what happened, the latter issued a certificate stating that its bill of lading it issued is an on board bill of lading and that there was no actual transhipment of the fans. According to private respondents when the goods are transferred from one vessel to another which both belong to the same owner which was what happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this certification to Choju Co., Ltd., but the said company still refused to accept the goods which arrived in Japan on July 19, 1980.

Private respondents billed petitioner in the amount of P16,342.21 for such shipment and P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of P51,271.02. In a letter dated March 20, 1981, private respondents gave petitioner the option of paying the sum of

P51,271.02 or to abandon the Anahaw fans to enable private respondents to sell them at public auction to cover the cost of shipment and demurrages. Petitioner opted to abandon the goods. However, in a letter dated June 22, 1981 private respondents demanded for payment of P298,150.93 from petitioner which represents the freight charges from Japan to Manila, demurrage incurred in Japan and Manila from October 22, 1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw fans on May 20, 1981.

On July 20, 1981 petitioner filed the complaint in this case praying that private respondents be ordered to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting to P174,150.00 and other damages like attorney's fees since private respondents are to blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In answer thereto the private respondents alleged that the bill of lading clearly shows that there will be a transhipment and that petitioner was well aware that MV (Pacific) Despatcher was only up to Hongkong where the subject cargo will be transferred to another vessel for Japan. Private respondents also filed a counterclaim praying that petitioner be ordered to pay freight charges from Japan to Manila and the demurrages in Japan and Manila amounting to P298,150.93.

The lower court decided the case in favor of private respondents. It dismissed the complaint on the ground that petitioner had given its consent to the contents of the bill of lading where it is clearly indicated that there will be transhipment. The lower court also said that petitioner is liable to pay to private respondent the freight charges from Japan to Manila and demurrages since it was the former which ordered the reshipment of the cargo from Japan to Manila.

On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a transhipment of the goods was affirmed but the finding that petitioner is liable for P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight charges and demurrages incurred in Japan but not for the demurrages incurred in Marta. According to the respondent (court) the petitioner can not be held liable for the demurrages incurred in Manila because Private respondents did not timely inform petitioner that the goods were already in Manila in addition to the fact that private respondent had given petitioner the option of abandoning the goods in exchange for the demurrages. 5

Petitioner, being dissatisfied with the decision of respondent court and the motion for reconsideration thereof having been denied, invokes the Court's review powers for the resolution of the issues as to whether or not respondent court erred (1) in affirming the decision of the trial court which dismissed petitioner's complaint; and (2) in holding petitioner liable to private respondents in the amount of P52,102.45. 6

I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the purchase price of the said export items because of violation of the terms and conditions of the letter of credit issued in favor of the former which specified the requirement for an on board bill of lading and the prohibition against transhipment of goods, inasmuch as the bill of lading issued by the latter bore the notation "received for shipment" and contained an entry indicating transhipment in Hongkong.

We find no fault on the part of private respondents. On the matter of transhipment, petitioner maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher, the feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered transhipment because both vessels belong to the same shipping company, the private respondent Orient Overseas Container Lines, Inc." 7 Petitioner emphatically goes on to say: "To be sure, there was no actual transhipment of the Anahaw fans. The private respondents have executed a certification to the effect that while the Anahaw fans were transferred from one vessel to another in Hong Kong, since the two vessels belong to one and the same company then there was no transhipment. 8

Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in another," 9 or "the transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the contract has been reached," 10 or "the transfer for further transportation from one ship or conveyance to another." 11 Clearly, either in its ordinary or its strictly legal acceptation, there is transhipment whether or not the same



person, firm or entity owns the vessels. In other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or conveyances or in the change of carriers, as the petitioner seems to suggest, but rather on the fact of actual physical transfer of cargo from one vessel to another.

That there was transhipment within this contemplation is the inescapable conclusion, as there unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space labeled "Transhipment," which can only mean that transhipment actually took place. 12 This fact is further bolstered by the certification 13 issued by private respondent F.E. Zuellig, Inc. dated July 19, 1980, although it carefully used the term "transfer" instead of transhipment. Nonetheless, no amount of semantic juggling can mask the fact that transhipment in truth occurred in this case.

Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans, then there is no occasion under which the petitioner can agree to the transhipment of the Anahaw fans because there is nothing like that to agree to" and "(i)f there is no actual transhipment but there appears to be a transhipment in the bill of lading, then there can be no possible reason for it but a mistake on the part of the private respondents. 14

Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private respondents, such a mistake militates against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the parties, as an exception to the parol evidence rule, and would therefore permit it to explain or present evidence to vary or contradict the terms of the written agreement, that is, the bill of lading involved herein.

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. 15 Being a contract, it is the law between the parties who are bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and public policy. 16A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not. 17

The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the shipment is presumed to have accepted it as correctly stating the contract and to have assented to its terms. In other words, 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. 18

In the light of the series of events that transpired in the case at bar, there can be no logical conclusion other than that the petitioner 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. As borne out by the records, James Cu himself, in his capacity as president of MMMC, personally received and signed the bill of lading. On practical considerations, there is no better way to signify consent than by voluntarry signing the document which embodies the agreement. As found by the Court of Appeals —

Contrary to appellant's allegation that it did not agree to the transhipment, it could be gleaned from the record that the appellant actually consented to the transhipment when it received the bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT" an entry "HONGKONG' (Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and the corresponding check in payment of

the freight (Exhibit D), implying that he consented to the transhipment (Decision, p. 6, Rollo). 19

Furthermore and particularly on the matter of whether or not there was transhipment, James Cu, in his testimony on crossexamination, categorically stated that he knew for a fact that the shipment was to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to a mother vessel, the MV Oriental Researcher in this wise:

Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transhipped at the port of Hongkong?

A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if they should not put a transhipment in Hongkong, that's why they even stated in the certification.

xxx xxx xxx

Q In layman's language, would you agree with me that transhipment is the transfer of a cargo from one vessel to the other?

A As a layman, yes.

Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M. V. Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher, (sic) you know that for a fact?

A Yes, sir. (Emphasis supplied.) 20

Under the parol evidence rule, 21 the terms of a contract are rendered conclusive upon the parties, and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a document, subject to well defined exceptions which do not obtain in this case. The parol evidence rule is based on the consideration that when the parties have reduced their agreement on a particular matter into writing, all their previous and contemporaneous agreements on the matter are merged therein. Accordingly, evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the operation of a valid instrument. 22 The mistake contemplated as an exception to the parol evidence rule is one which is a mistake of fact mutual to the parties. 23 Furthermore, the rules on evidence, as amended, require that in order that parol evidence may be admitted, said mistake must be put in issue by the pleadings, such that if not raised inceptively in the complaint or in the answer, as the case may be, a party can not later on be permitted to introduce parol evidence thereon. 24 Needless to say, the mistake adverted to by herein petitioner, and by its own admission, was supposedly committed by private respondents only and was raised by the former rather belatedly only in this instant petition. Clearly then, and for failure to comply even only with the procedural requirements thereon, we cannot admit evidence to prove or explain the alleged mistake in documentation imputed to private respondents by petitioner.

Petitioner further argues that assuming that there was transhipment, it cannot be deemed to have agreed thereto even if it signed the bill of lading containing such entry because it had made known to private respondents from the start that transhipment was prohibited under the letter of credit and that, therefore, it had no intention to allow transhipment of the subject cargo. In support of its stand, petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that "(i)f the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Phil., Inc. vs. Intermediate Appellate Court, et al. 25 that "where the literal interpretation of a contract is contrary to the evident intention of the parties, the latter shall prevail."

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently overlooks the first paragraph of the very article that he cites which provides that "(i)f the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control." In addition, Article 1371 of the same Code provides that "(i)n order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered."



The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any interpretation. The intention of the parties which is the carriage of the cargo under the terms specified thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract being conclusive upon the parties and judging from the contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there is no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill of lading and that it intended to be bound thereby.

Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse, however competent and safe the vessel into which the transfer is made, is a violation of the contract and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost even by a cause otherwise excepted.26 It is highly improbable to suppose that private respondents, having been engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have undertaken such transhipment without petitioner's consent and unnecessarily expose themselves to a possible liability. Verily, they could only have undertaken transhipment with the shipper's permission, as evidenced by the signature of James Cu.

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms of the letter of credit issued in favor of petitioner. On cross-examination, it was likewise established that petitioner, through its aforesaid president, was aware of this fact, thus:

Q If the container van, the loaded container van, was transported back to South Harbor on June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?

A I received on June 30, 1980. I received at the same time so then I gave the check.

xxx xxx xxx

Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?

A Yes, sir.

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading states: 'Received for shipment'only? .

A Yes, sir.

Q What did you say?

A I requested to issue me on board bill of lading.

Q When?

A In the same date of June 30.

Q What did they say?

A They said, they cannot.

xxx xxx xxx

Q Do you know the difference between a "received for shipment bill of lading" and "on board bill of lading"?

A Yes, sir.

Q What's the difference?

A Received for shipment, you can receive the cargo even you don't ship on board, that is placed in the warehouse; while on-board bill of lading means that is loaded on the vessel, the goods.

xxx xxx xxx

Q In other words, it was not yet on board the vessel?

A During that time, not yet.

xxx xxx xxx

Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel you can demand an on-board bill of lading not only a received for shipment bill of lading.?

A Yes sir.

Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of lading with an on-board bill of lading?

A Of course, instead they issue me a certification.

Q They give you a ... ?

A ... a certification that it was loaded on board on June 30.

xxx xxx xxx

Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there should be no transhipment and that it should also get an on board bill of lading.?

A Yes sir. 27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of lading over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction between an "on board" and a "received for shipment" bill of lading, as manifested by James Cu's testimony. It is only to be expected that those long engaged in the export industry should be familiar with business usages and customs.

In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the Anahaw fans were already on board MV Pacific Despatcher (which means that the bill of lading is an on- board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...." 28 What the petitioner would suggest is that said certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had the effect of converting the original "received for shipment only" bill of lading into an "on board" bill of lading as required by the buyer and was, therefore, by substantial compliance, not violative of the contract.

An on board bill of lading is one in which it is stated that the goods have been received on board the vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is stated that the goods have been received for shipment with or without specifying the vessel by which the goods are to be shipped. Received for shipment bills of lading are issued whenever conditions are not normal and there is insufficiency of shipping space.29 An on board bill of lading is issued when the goods have been actually placed aboard the ship with every reasonable expectation that the shipment is as good as on its way. 30 It is, therefore, understandable that a party to a maritime contract would require an on board bill of lading because of its apparent guaranty of certainty of shipping as well as the seaworthiness of the vessel which is to carry the goods.

It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of lading, as originally issued, into an on board bill of lading as required by the terms of the letter of credit issued in favor of petitioner. For one, the



certification was issued only on July 19, 1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have the effect of converting the received for shipment bill of lading into an on board of bill of lading, as petitioner would have us believe, such an effect may be achieved only as of the date of its issuance, that is, on July 19, 1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was presented by petitioner in compliance with the terms of the letter of credit and this default consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it would indubitably be stretching the concept of substantial compliance too far.

Neither can petitioner escape liability by adverting to the bill of lading as a contract of adhesion, thus warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against private respondents as allegedly being the parties who gave rise thereto. The bill of lading is clear on its face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and conditions are plainly worded and commonly understood by those in the business.

It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May 20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it more than ample time to find a carrier that could comply with the requirements of shipment under the letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al. 31 and reiterated in Servando, et al. vs. Philippine Steam Navigation Co., 32 plane tickets as well as bills of lading are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. The respondent court correctly observed in the present case that "when the appellant received the bill of lading, it was tantamount to appellant's adherence to the terms and conditions as embodied therein. 33

In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring that such violations may be overlooked, if not disregarded, so long as the cargo is delivered on time. Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of the petitioner's making for which it must bear the consequences. As finally averred by private respondents, and with which we agree, "... the questions of whether or not there was a violation of the terms and conditions of the letter of credit, or whether or not such violation was the cause or motive for the rejection by petitioner's Japanese buyer should not affect private respondents therein since they were not privies to the terms and conditions of petitioner's letter of credit and cannot therefore be held liable for any violation thereof by any of the parties thereto." 34

II. Petitioner contends that respondent court erred in holding it liable to private respondents for P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for freight, demurrage and other charges during the time that the goods were in Japan and for its reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the Court of Appeals limited petitioner's liability to P52,102.45 when it ruled:

As regards the amount of P51,271.02, which represents the freight charges for the return shipment to Manila and the demurrage charges in Japan, the same is supported by appellant's own letter request (Exh. 2) for the return of the shipment to Manila at its

(appellant's) expense, and hence, it should be held liable therefor. The amount of P831.43 was paid to the Manila International Port Terminal upon arrival of the shipment in Manila for appellant's account. It should properly be charged to said appellant. 35

However, respondent court modified the trial court's decision by excluding the award for P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981.

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. In a broad sense, every improper detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only when expressly stipulated in the contract. Using the term in its broader sense, damages in the nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only against one who is a party to the shipping contract. 36 Notice of arrival of vessels or conveyances, or of their placement for purposes of unloading is often a condition precedent to the right to collect demurrage charges.

Private respondents, admittedly, have adopted the common practice of requiring prior notice of arrival of the goods shipped before the shipper can be held liable for demurrage, as declared by Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as a witness for private respondents:

Q ... you will agree with me that before one could be charged with demurrage the shipper should be notified of the arrival of the shipment?

A Yes sir.

Q Without such notification, there is no way by which the shipper would know (of) such arrival?

A Yes.

Q And no charges of demurrage before the arrival of the cargo?

A Yes sir. 37

Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from October up to May 1980, arriv(al) in Manila, are concerned, We are of the view that appellant should not be made to shoulder the same, as it was not at fault nor was it responsible for said demurrage charges. Appellee's own witness (Mabazza) testified that while the goods arrived in Manila in October 1980, appellant was notified of said arrival only in March 1981. No explanation was given for the delay in notifying appellant. We agree with appellant that before it could be charged for demurrage charges it should have been notified of the arrival of the goods first. Without such notification it could not- be so charged because there was no way by which it would know that the goods had already arrived for it to take custody of them. Considering that it was only in March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be charged for demurrage from October 1980 to March 1981. ... 38

While being satisfied with the exclusion of demurrage charges in Manila for the period from October 22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award of P52,102.43 in favor of private respondents, consisting of P51,271.01 as freight and demurrage charges in Japan and P831.43 for charges paid at the Manila International Port Termninal.

Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow private respondents to sell the same at a public auction and to apply the proceeds thereof as payment for the shipping and demurrage charges, it was released from liability for the sum of P52,102.43 since such amount represents the shipping and demurrage charges from



which it is considered to have been released due to the abandonment of goods. It further argues that the shipping and demurrage charges from which it was released by the exercise of the option to abandon the goods in favor of private respondents could not have referred to the demurrage charges in Manila because respondent court ruled that the same were not chargeable to petitioner. Private respondents would rebut this contention by saying in their memorandum that the abandonment of goods by petitioner was too late and made in bad faith. 39

On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact that the shipment was made for its benefit or under its direction and, correspondingly, the carrier is entitled to collect charges for its shipping services. This is particularly true in this case where the reshipment of the goods was made at the instance of petitioner in its letter of August 29, 1980. 40

However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner of the arrival of its goods from Japan and that if it wished to take delivery of the cargo it would have to pay P51,271.02, but with the last paragraph thereof stating as follows:

Please can you advise within 15 days of receipt of this letter whether you intend to take delivery of this shipment, as alternatively we will have to take legal proceedings in order to have the cargo auctioned to recover the costs involved, as well as free the container which are (sic) urgently required for export cargoes.

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the shipping and demurrage charges in order to take delivery of the goods or of abandoning the same so that private respondents could sell them at public auction and thereafter apply the proceeds in payment of the shipping and other charges.

Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its decision to abandon to the goods in favor of private respondents with the specific instruction that any excess of the proceeds over the legal costs and charges be turned over to petitioner. Receipt of said letter was acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination. 42

Despite petitioner's exercise of the option to abandon the cargo, however, private respondents sent a demand letter on June 22, 1981 43 insisting that petitioner should pay the entire amount of P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they stated that they win not accept the abandonment of the goods and demanded that the outstanding account be settled. The testimony of said Edwin Mabazza definitely admits and bears this out. 45

Now, there is no dispute that private respondents expressly and on their own volition granted petitioner an option with respect to the satisfaction of freightage and demurrage charges. Having given such option, especially since it was accepted by petitioner, private respondents are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. Private respondents, in giving the option, and petitioner, in exercising that option, are concluded by their respective actions. To allow either of them to unilaterally back out on the offer and on the exercise of the option would be to countenance abuse of rights as an order of the day, doing violence to the long entrenched principle of mutuality of contracts.

It will be remembered that in overland transportation, an unreasonable delay in the delivery of transported goods is sufficient ground for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further, with much more reason can petitioner in the instant case properly abandon the goods, not only because of the unreasonable delay in its delivery but because of the option which was categorically granted to and exercised by it as a means of settling its liability for the cost and expenses of reshipment. And, said choice having been duly communicated , the same is binding upon the parties on legal and equitable considerations of estoppel.

WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the MODIFICATION that petitioner is likewise

absolved of any hability and the award of P52,102.45 with legal interest granted by respondent court on private respondents' counterclaim is SET ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to costs.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras and Padilla, JJ., concur.

Sarmiento, J., is on leave.

G.R. No. 94761 May 17, 1993

MAERSK LINE, petitioner, vs.COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of Ethegal Laboratories, respondents.

Bito, Lozada, Ortega & Castillo for petitioner.

Humberto A. Jambora for private respondent.

BIDIN, J.:

Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines through its general agent Compania General de Tabacos de Filipinas.

Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm engaged in the manutacture of pharmaceutical products.

On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly, Inc.'s) agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The capsules were placed in six (6) drums of 100,000 capsules each valued at US $1,668.71.

Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six (6) drums of 100,000 capsules each, were already shipped on board MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3, 1977.

For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then transported back Oakland, Califorilia. The goods finally arrived in the Philippines on June 10, 1977 or after two (2) months from the date specified in the memorandum. As a consequence, private respondent as consignee refused to take delivery of the goods on account of its failure to arrive on time.

Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an action before the court a quo for rescission of contract with damages against petitioner and Eli Lilly, Inc. as defendants.

Denying that it committed breach of contract, petitioner alleged in its that answer that the subject shipment was transported in accordance with the provisions of the covering bill of lading and that its liability under the law on transportation of good attaches only in case of loss, destruction or deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16).

Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its cross-claim, it alleged that the delay in the arrival of the the subject merchandise was due solely to the gross negligence of petitioner Maersk Line.

The issues having been joined, private respondent moved for the dismissal of the complaint against Eli Lilly, Inc.on the ground that the evidence on record shows that the delay in the delivery of the shipment was attributable solely to petitioner.



Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc. Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated December 3, 1979.

After trial held between respondent and petitioner, the court a quo rendered judgment dated January 8, 1982 in favor of respondent Castillo, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a breach in the performance of their obligation by the defendant Maersk Line consisting of their negligence to ship the 6 drums of empty Gelatin Capsules which under their own memorandum shipment would arrive in the Philippines on April 3, 1977 which under Art. 1170 of the New Civil Code, they stood liable for damages.

Considering that the only evidence presented by the defendant Maersk line thru its agent the Compania de Tabacos de Filipinas is the testimony of Rolando Ramirez who testified on Exhs. "1" to "5" which this Court believe (sic) did not change the findings of this Court in its decision rendered on September 4, 1980, this Court hereby renders judgment in favor of the plaintiff Efren Castillo as against the defendant Maersk Line thru its agent, the COMPANIA GENERAL DE TABACOS DE FILIPINAS and ordering:

(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY NINE THOUSAND PESOS, (P369,000.00) as unrealized profit;.

(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), as moral damages;

(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as exemplary damages;

(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY PESOS AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of credit line; and

(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as attorney's fees and to pay the costs of suit.

That the above sums due to the plaintiff will bear the legal rate of interest until they are fully paid from the time the case was filed.

SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).

On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications the lower court's decision as follows:

WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified, the judgment in this case should read as follows:

Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-appellee (1) compensatory damages of P11,680.97 at 6% annual interest from filing of the complaint until fully paid, (2) moral damages of P50,000.00, (3) exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses of P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the costs of suit.

SO ORDERED. (Rollo, p. 50)

In its Memorandum, petitioner submits the following "issues" for resolution of the court :

I

Whether or not the respondent Court of Appeals committed an error when it ruled that a defendant's cross-claim against a co-defendant survives or subsists even after the dismissal of the complaint against defendant-cross claimant.

II

Whether or not respondent Castillo is entitled to damages resulting from delay in the delivery of the shipment in the absence in the bill of lading of a stipulation on the period of delivery.

III

Whether or not the respondent appellate court erred in awarding actual, moral and exemplary damages and attorney's fees despite the absence of factual findings and/or legal bases in the text of the decision as support for such awards.

IV

Whether or not the respondent Court of Appeals committed an error when it rendered an ambiguous and unexplained award in the dispositive portion of the decision which is not supported by the body or the text of the decision. (Rollo, pp.94-95).

With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against co-defendant (petitioner herein) survives or subsists even after the dismissal of the complaint against defendant-cross-claimant (petitioner herein), we rule in the negative.

Apparently this issue was raised by reason of the declaration made by respondent court in its questioned decision, as follows:

Re the first assigned error: What should be rescinded in this case is not the "Memorandum of Shipment" but the contract between appellee and defendant Eli Lilly (embodied in three documents, namely: Exhs. A, A-1 and A-2) whereby the former agreed to buy and the latter to sell those six drums of gelatin capsules. It is by virtue of the cross-claim by appellant Eli Lilly against defendant Maersk Line for the latter's gross negligence in diverting the shipment thus causing the delay and damage to appellee that the trial court found appellant Maersk Line liable. . . .

xxx xxx xxx

Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause of action against it and appellant Eli Lilly because the shipment was delivered in good order and condition, and the bill of lading in question contains "stipulations, exceptions and conditions" Maersk Line's liability only to the "loss, destruction or deterioration," indeed, this issue of lack of cause of action has already been considered in our foregoing discussion on the second assigned error, and our resolution here is still that appellee has a cause of action against appellant Eli Lilly. Since the latter had filed a cross-claim against appellant Maersk Line, the trial court committed no error, therefore, in holding the latter appellant ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis supplied)

Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-claim filed its co-defendant Eli



Lilly, Inc. which cross-claim has been dismissed, the original complaint against it should likewise be dismissed. We disagree. It should be recalled that the complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier. Petitioner being an original party defendant upon whom the delayed shipment is imputed cannot claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit.

Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim of Eli Lilly, Inc. As borne out by the record, the trial court anchored its decision on petitioner's delay or negligence to deliver the six (6) drums of gelatin capsules within a reasonable time on the basis of which petitioner was held liable for damages under Article 1170 of the New Civil Code which provides that those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.

Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the delivery of the 600,000 empty gelatin capsules since it acted in good faith and there was no special contract under which the carrier undertook to deliver the shipment on or before a specific date (Rollo, p. 103).

On the other hand, private respondent claims that during the period before the specified date of arrival of the goods, he had made several commitments and contract of adhesion. Therefore, petitioner can be held liable for the damages suffered by private respondent for the cancellation of the contracts he entered into.

We have carefully reviewed the decisions of respondent court and the trial court and both of them show that, in finding petitioner liable for damages for the delay in the delivery of goods, reliance was made on the rule that contracts of adhesion are void. Added to this, the lower court stated that the exemption against liability for delay is against public policy and is thus, void. Besides, private respondent's action is anchored on Article 1170 of the New Civil Code and not under the law on Admiralty (AC-GR CV No. 10340, Rollo, p. 14).

The bill of lading covering the subject shipment among others, reads:

6. GENERAL

(1) The Carrier does not undertake that the goods shall arrive at the port of discharge or the place of delivery at any particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier shall in no circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If the Carrier should nevertheless be held legally liable for any such direct or indirect or consequential loss or damage caused by delay, such liability shall in no event exceed the freight paid for the transport covered by this Bill of Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)

It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a contract of adhesion. Generally, contracts of adhesion are considered void since almost all the provisions of these types of contracts are prepared and drafted only by one party, usually the carrier (Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the other party in such a contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit Corporation v. Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]).

Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v. Court of Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]). One who adheres to the contract is in reality free to reject it in its entirety; if he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court of Appeals, et al., 201 SCRA 102 [1991]).

In Magellan, (supra), we ruled:

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as

contract to transport and deliver the same a therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it is the law between the parties who are bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and public policy. A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not. (Emphasis supplied)

However, the aforequoted ruling applies only if such contracts will not create an absurd situation as in the case at bar. The questioned provision in the subject 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, and persons are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation to deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 [1952]), delivery of shipment or cargo should at least be made within a reasonable time.

In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver properly within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or charge, and the default in himself, and has no remedy over, then his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier is to be determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation of contracts.

An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41) shows that the subject shipment was estimated to arrive in Manila on April 3, 1977. While there was no special contract entered into by the parties indicating the date of arrival of the subject shipment, petitioner nevertheless, was very well aware of the specific date when the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to execute another contract for the purpose as it would be a mere superfluity.

In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2) months and seven (7) days falls was beyond the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it cannot be held liable for the delay finds no merit.

Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not valid since there are no factual findings or legal bases stated in the text of the trial court's decision to support the award thereof.



Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v. Macasaet. 189 SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently prove through an invoice (Exh. 'A-1'), certification from the issuer of the letter of credit (Exh.'A-2') and the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit line for the subject goods. Therefore, respondent court acted correctly in affirming the award of eleven thousand six hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of said credit line.

As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral damages may be awarded in "breaches of contract where the defendant acted fraudulently or in bad faith" (Pan American World Airways v. Intermediate Appellate Court, 186 SCRA 687 [1990]).

In the case before us, we that the only evidence presented by petitioner was the testimony of Mr. Rolando Ramirez, a claims manager of its agent Compania General de Tabacos de Filipinas, who merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and nothing else. Petitioner never even bothered to explain the course for the delay, i.e. more than two (2) months, in the delivery of subject shipment. Under the circumstances of the case, we hold that petitioner is liable for breach of contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral damages if therefore proper in this case.

In line with this pronouncement, we hold that exemplary damages may be awarded to the private respondent. In contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppresive or malevolent manner. There was gross negligence on the part of the petitioner in mishiping the subject goods destined for Manila but was inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct, hence, exemplary damages may be awarded to the aggrieved party (Radio Communication of the Phils., Inc. v. Court of Appeals, 195 SCRA 147 [1991]).

Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary damages are awarded (Artice 2208, New Civil Code). In the case at bar, we hold that private respondent is entitled to reasonable attorney`s fees since petitioner acted with gross negligence amounting to bad faith.

However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty (30) percent of the total damages awarded except item 3 regarding attorney`s fees and litigation expenses in favor of private respondent, to be unconsionable, the same should be deleted.

WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision, the appealed decision is is hereby AFFIRMED in all respects.

SO ORDERED.

Feliciano, Davide, Jr., Romero and Melo, JJ., concur.

G.R. No. L-27472 July 6, 1976THE AMERICAN INSURANCE COMPANY OF NEWARK, plaintiff-appellant, vs.MANILA PORT SERVICE: and/or MANILA RAILROAD COMPANY, defendants-appellees.Quasha, Asperilla, Zafra, Tayag & Ancheta for appellant.D.F. Macaranas, J. Mate Enage & S.V Pampolina, Jr. for appellees. AQUINO, J.:Ansor Corporation shipped on the SS Pioneer Mart from New York to San Miguel Brewery, Inc., 1112 Aviles Street, Manila, three drums of formaldehyde and one drum of cutting agent G-672 with a total invoice value of $446.50.The shipment was insured by the American Insurance Company of Newark. The vessel arrived at the port of Manila on May 13, 1960. The cargo was discharged and delivered in good order on May 19, 1960 to the arrastre operator, Manila Port Service, a

subsidiary of the Manila Railroad Company, now the Philippine National Railways.On May 31, 1960 the arrastre operator delivered to the consignee's customs broker the three drums of formaldehyde. The drum containing the cutting agent with an invoice value of $306.26 and an insured value of P691.06 was not delivered. The insurer paid to the consignee the insured value.On May 3, 1960 or ten days before the arrival of the carrying vessel the consignee's customs broker filed with the Manila Port Service a provisional claim for shortage or damage. The arrastre operator rejected the claim for being premature since the Pioneer Mart had not yet arrived at the port of Manila.On May 13, 1960, when the carrying vessel arrived, consignee's customs broker re-filed the provisional claim. It was accepted by the Manila Port Service. It was not specified in the provisional claim that the drum of cutting agent was missing. Aside from the names of the carrying vessel and the consignee, the provisional claim contained only the following cryptic details: "136 SMB Manila," Made in USA 4 drums. formaldehyde agent, Bad Order Short Landed.On June 17, 1960 the customs broker sent a tracer to the Manila Port Service complaining that the drum of cutting agent was missing and that it would hold the arrastre operator liable for the full value thereof. The consignee filed its formal claim with the arrastre operator on September 28, 1960.As the arrastre operator did not pay the claim, the insurer, as the consignee's subrogee, sued the arrastre operator and the Manila Railroad Company in the municipal court of Manila for the recovery of the sum of P691.06 plus interest and attorney's fees.The municipal court dismissed the complaint. The insurer appealed to, the Court of First Instance of Manila. After hearing, that court likewise dismissed the complaint on the ground that the consignee did not comply with the requirement that a claim for shortage or damage should be filed within fifteen days from the date of discharge of the last package from the carrying vessel, as stipulated in paragraph 15 of the management contract executed between the Manila Port Service and the Bureau of Customs.The insurer appealed to the Court of Appeals. That Court in its resolution of February 28, 1967 found that the case involves the legal issue of whether the consignee's provisional claim was a sufficient compliance with paragraph 15 of the management contract (CA-G.R. No. 31269-R).Appellant insurance company contends that the customs broker's provisional claim filed on May 13, 1960, the date of the carrying vessel's arrival and six days before the delivery of the cargo to the arrastre operator, was a substantial compliance with paragraph 15.That contention cannot be sustained. A provisional claim filed before the delivery of the cargo, in anticipation of any possible loss or damage while the cargo is in the arrastre operator's custody, was held to be premature and speculative (Manila Port Service vs. Fortune Insurance & Surety Co., Inc., L-29862, May 24, 1972, 45 SCRA 65 and cases cited therein).The fifteen-day requirement was designed to give the arrastre operator a reasonable opportunity to check the validity of the claim while the facts are fresh in the minds of the persons who took part in the transaction and while pertinent documents are still available (Manila Port Service vs. Fortune insurance & Surety Co., Inc., supra). That purpose would not be served if a premature provisional claim were to be entertained.The general rule prescribed in paragraph 15, that the claim for loss, damage, misdelivery or nondelivery should be presented to the arrastre contractor within fifteen days from the date of discharge of the last package from the carrying vessel, applies where before the expiration of the fifteen-day period the consignee or claimant has knowledge of such loss, damage, misdelivery or nondelivery.There is an exception to that rule based on pragmatic and equitable considerations. The rule does not apply if the consignee or claimant learns of the loss, damage, misdelivery or nondelivery after the expiration of the fifteen-day period from the discharge of the last package from the carrying vessel. In such a case the fifteen-day period should be reckoned from the date the consignee or claimant learns of the loss or damage or from the date when with the exercise of due diligence information regarding the loss or damage could have been obtained (New Zealand Insurance Co., Ltd. vs. Manila Port Service, L-22500, April 24, 1967, 19 SCRA 801; Manila Port Service vs. Fortune Insurance & Surety Co., Inc., supra).The reason for that exception is that before the claimant or consignee learns of the shortage or damage he is in no Position to make a claim since the goods are in the arrastre contractors custody. If paragraph 15 is applied literally to all situations, then the contractor may escape liability by simply withholding knowledge as to the loss or damage, until after the expiration of the fifteen-day period from the discharge of the last package from the carrying vessel (Yu Kimteng Construction Corporation vs. Manila Railroad Company,



L-17027, November 29, 1965, 15 SCRA 292; New Zealand Insurance Co., Ltd. vs. Manila Port Service supra).In this case appellant insurance company adduces the alternative contention that the "Notice of Missing or Unlocated Cargo which its broker filed actually with the Manila Port Service on June 17, 1960 should be regarded as a substantial compliance with paragraph 15.That contention is not meritorious because it can be assumed that the consignee, through its customs broker became aware of the nondelivery of the drum containing the cutting agent on May 31, 1960 when the three drums of formaldehyde were delivered to the broker by the arrastre operator. The consignee or its broker should have filed the claim for nondelivery within fifteen days from May 31, 1960 or on or before June 15, 1960.The filing of its claim on June 17, 1960 was obviously out of time. The filing of a claim within the fifteen-day period is a condition precedent to the filing of the court action (Villanueva vs. Barber Wilhelmsen Line, 110 Phil. 34).Failure to file the claim within the fifteen-day period relieves the arrastre operator of any liability for nondelivery of the cargo (Insurance Company of North America vs. Manila Port Service, L-26268, March 25, 1970, 32 SCRA 39).The consignee was bound by paragraph 15 of the management contract because the dorsal side of the delivery permit used by its broker in obtaining delivery of the cargo (Exh. C) contains the following.

Important NoticeThis permit is presented subject to all the terms and conditions of the Management Contract between the Bureau of Customs and Manila Port Service and amendments thereto or alterations thereof, particularly but not limited to Paragraph 15 thereof limiting the Company liability to P500.00 per package, unless the value of the goods is otherwise specified, declared or manifested and the corresponding arrastre charges have been paid, providing exemptions of restrictions from liability; and releasing the Company from liability unless suit is brought within one (1) year from the date of discharge of the goods, or from date when the claim for the value of the goods has been rejected, provided, such claim shall have been riled with the company within 15 days from date of discharge of the last package from carrying vessel.

Hence, the consignee and its subrogee appellant insurance company, through the customs broker, is deemed to have notice of the said management contract (Domestic Insurance Co. of the Phils. vs. Manila Port Service and M.R.R. Co., 114 Phil. 131, 134).WHEREFORE, the lower court's judgment dismissing the complaint is affirmed. No costs.SO ORDERED.Fernandez (Chairman), Barredo, Antonio and Martin, JJ., concur.Concepcion, Jr., J., is on leave.Martin, J., was designated to sit in the Second Division.

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

SAMAR MINING COMPANY, INC., plaintiff-appellee, vs.NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.:ñé+.£ªwph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila, finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of destination — Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL which had earlier been declared in default. Only the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation is plainly indicated on the face of the bill which contains the following phrase printed below the space provided for the port of discharge from ship", thus: têñ.£îhqwâ£

if goods are to be transshipped at port of discharge, show destination under the column for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of contents": têñ.£îhqwâ£

PORT OF DISCHARGE OF GOODS: DAVAO FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the goods from Manila to their port of destination-Davao. The word "transship" means: têñ.£îhqwâ£

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis supplied)

and in Section 11 of the same Bill, which provides: têñ.£îhqwâ£

Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or any part of the goods before or after loading at the original port of shipment, ... This carrier, in making arrangements for any transshipping or



forwarding vessels or means of transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and without any other responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good condition unto the custody of AMCYL at the port of discharge from ship — Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before Us, provides: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection with all transshipping or forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded that: têñ.£îhqwâ£

... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods were unloaded in Manila and in the matter of transshipment, appellee acted merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from liability for loss or damage to the goods while the same are not in the latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all

matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: têñ.£îhqwâ£

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that the transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency, 21This can be gleaned from the following provisions of the New Civil Code on the obligations of the agent: têñ.£îhqwâ£

Article 1884. The agent is bound by his acceptance to carry out the agency, and is



liable for the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the person appointed was notoriously incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.

No costs.

SO ORDERED.1äwphï1.ñët

Makasiar (Chairman), Guerrero, Abad Santos and Escolin, concur.

Aquino, J., concurs in the result.

Concepcion Jr., J., took no part.

SECOND DIVISIONG.R. No. L-73490 June 18, 1987UNITED STATES LINES, INC., petitioner , vs.COMMISSIONER OF CUSTOMS. respondent... PARAS, J.:This is a petition for review of the decision of the Court of Tax Appeals dated September 27, 1985, which affirmed the decision of respondent Commissioner of Customs dated April 5, 1984, imposing an administrative fine of P 10,000.00 against petitioner's vessel, MV "American Venture," for violation of Sec. 1005 of the Tariff and Customs Code as amended, in relation to Sec. 2521 of the same Code. .On October 15, 1976, the vessel "American Venture" arrived in Manila from Hongkong. Among the shipments on board were cargoes consigned by the same shipper and from the same loading port consisting of two (2) containers which were described in the respective bills of lading BL No. 38 and BL No. 39 as follows: ."Shipper's Load and Count" .1 Container (Part) Cont. 2020984 Seal 601-04725 38 cases 100% Cotton brushed denim broken twill .

1 Container Cont. 2101730 Seal 601-04707 40 Cases 100% Cotton Sulphur Dyed denim .Total: One Container Only "Shipper's Load and Count" .The aforestated information as furnished by the Shipper, was copied or entered into the vessel's Inward Foreign Manifest. Upon opening of the containers by the Bureau ofCustoms, it was discovered that a) Container No. USLU-2020984 contained 34 cases of cotton denim instead of 38 cases and b) Container No. USLU-2101730 contained 44 cases of cotton denim instead of 40 cases. The total number of cases in the two containers was the same, however, to wit, 78 cases. Having been informed of the differences herein petitioner had the Manifest amended with the consent of the customs authorities on November 3, 1976 to reflect the actual quantity of the cases in each of the containers. Subsequently, the Collector of Customs instituted proceedings against herein petitioner for alleged violation of Sec. 1005 in relation to Sec. 2521 of the Tariff and Customs Code. Not finding the explanation of the herein petitioner satisfactory, the Collector of Customs found petitioner guilty of violating said provisions of the Tariff and Customs Code and ordered it to pay a fine of P 10,000.00. Appeal was made by the petitioner to the Commissioner of Customs, who affirmed the said decision in toto. Upon a petition to review the decision of the Commissioner of Customs, the Court of Tax Appeals (CTA) affirmed the assailed decision. .In its petition for review before the Court of Tax Appeals, petitioner assails the Commissioner of Customs, in disregarding Customs Administrative Order (CAO) No. 8-75 particularly in not applying Sec. 1124 thereof and in not treating each container as the unit of cargo. Acting on these issues, the Court of Tax Appeals ruled that Customs Administrative Order No. 8-75 is irrelevant and contrary to Sec. 1005 of the Tariff and Customs Code, We quote the tax tribunal: .Customs Administrative Order (CAO) No. 8-75 simply defines the term "Shipper's Load and Count" without any further provisions or explicit explanation as to the scope of its applicability. While the concept may be relevant in determining responsibility in case of injury or damage to the cargo arising from loading, handling or movement of the cargo, the same cannot positively, or even impliedly, be viewed as an exception to the provisions of Sections 1005 and 2521 of the Tariff and Customs Code imposing a mandatory duty on vessels from foreign ports to have on board true and accurate manifests of their cargoes. Besides, Customs Administrative Order No. 8-75 is merely an administrative order and the same cannot certainly modify or amend a law or statute like the Tariff and Customs Code, and defeat the purpose of its enactment. (p. 39, Rollo) .Petitioner now seeks before Us the determination of the following issues: .

1. Whether or not CAO No. 8-75 is irrelevant and contrary to Sec. 1005 of the Tariff and Customs Code. .2. Whether or not a carrier of containerized cargo should be held liable for a fine under Sec. 2521 in relation to Sec. 1005 of the Tariff and Customs Code upon a clerical error imputable to the Shipper alone, and not discoverable by the carrier until after examination by Customs of the importation. .3. Whether or not appellant had violated Sec. 1005 of the Tariff and Customs Code notwithstanding that the total content of the two-container shipment in question (78 bales is exactly the same quantity (78 bales of the merchandise described in the bills of lading and the Inward Foreign Manifest. .

Sec. 1124 of Customs Administrative Order No. 8-75 reads as follows: .Shipper's 'Load and Count' a container packed with cargo by one shipper where the quantity, description and conditions of the cargo is the sole responsibility of the shipper. (emphasis supplied); .and quoted hereunder are the relevant provisions of the Tariff and Customs Code: .SEC. 1005. Every vessel from a foreign port must have on board a complete manifest of all her cargo. .

xxx xxx xxxEach manifest shall include the port of departure and the port of delivery with the marks, numbers, quantity and description of the packages and the names of the consignee thereof. .

xxx xxx xxxA cargo manifest shall in no case be changed or altered after entry of the vessel except by means of an amendment by the master, consignee or agent thereof, under oath, and attached to the original manifest: Provided, however, that after the invoice and/or entry covering an importation have been received and recorded in the office of the Appraiser, no amendment of the Manifest shall be allowed, except when it is obvious that a clerical error



or any other discrepancy has been committed in the preparation of the manifest without any fraudulent intent, discovery of which could not have been made until after examination of the importation has been completed. (Emphasis supplied)

SEC. 2521. Failure to Supply Requisite Manifests. - If any vessel or aircraft enters or departs from a port of entry without submitting the proper manifests to the customs authorities, or shall enter or depart conveying unmanifested cargo other than as stated in the next preceding section hereof, such vessel or aircraft shall be fined in a sum not less than ten thousand pesos (P10,000.00) but not exceeding thirty thousand P30,000.00 pesos. .The same fine shall be imposed upon any arriving or departing vessel or aircraft if the master or pilot in command shall fail to deliver or mail to the Commission on Audit a true copy of the manifest of the incoming or outgoing cargo, as required by law..It is petitioner's contention that Sec. 24 of Customs Administrative Order No. 8-75 was promulgated in line with the government policy of encouraging containerization which results in the laudable decongestion of ports of entry. Such arrangement has been sanctioned worldwide by international ports to cope up with the ever-increasing volume of cargoes of the shipping industry. Hence, the containerization system was devised to facilitate the expeditious and economical loading, carriage and unloading of cargoes. Under this system, the shipper loads his cargoes in a specially designed container, seals the container and delivers it to the carrier for transportation. The carrier does not participate in the counting of the merchandise for loading into the container, the actual loading thereof nor the sealing of the container. Having no actual knowledge of the kind, quantity or condition of the contents of the container, the carrier issues the corresponding bill of lading based on the declaration of the shipper. The bill of lading describes the cargo as a container simply and it states the contents of the container either as advised by the shipper or prefaced by the phrase "said to contain." Clearly then, the matter quantity, description and conditions of the cargo is the sole responsibility of the shipper. .The case at bar involves a situation intended precisely to be covered by Sec. 24 of CAO No. 8-75. An examination of said Customs Administrative Order in relacion to Sec. 1005 and Sec. 2521 shows that containerized cargoes on "Shipper's Load and Count" shipping arrangement are not required to be checked and inventoried by the carrier at the port of loading or before said Carrier enters the port of unloading in the Philippines since it is the shipper who has the sole responsibility for the quantity, description and condition of the cargoes shipped in container vans, each container van considered as a unit of transport. .Petitioner's vessel, the "American Venture" faithfully complied with the requirements of Sec. 1005 of the Tariff and Customs Code. Said vessel submitted a complete manifest of all her cargoes. However there was a slight error thru no fraudulent intent or negligence of the vessel. Said vessel relied on the information in the bill of lading submitted by the shipper in making the Manifest. There was no way for the vessel to discover until after the opening of the containers and the inventory of their contents, that the first container contained 34 cases and the second container contained 44 cases. Furthermore, noteworthy is the fact that Container No. 2020984 is described expressly in both the bill of lading and the vessel's manifest as a "Part" of the goods contained in the second Container No. 2101730, an important indication that the contents of Container No. 2020984 and Container No. 2101730 are parts of the same importation coming from one and the same shipper and destined to the same consignee and that in the examination of contents for Customs purposes, the number of cases should be the total in the 2 containers, to wit 78 cases. .Considering therefore, that the total number of cases of cotton denims as declared by the shipper in the manifest is 78 as borne on two containers, and considering the undisputed fact that the same total number of 78 cases of cotton denims were found by the Bureau of Customs on board petitioner's vessel, it is clear that the vessel's Manifest reflects a complete and substantially accurate statement of the cargoes contained therein in accordance with the requirement of Sec. 1005 in relation to Sec. 2521 of the Tariff and Customs Code. Accordingly, therefore, the imposition by respondent-appellee of a fine of P10,000.00 upon petitioner-appellant's vessel allegedly for the failure of the latter to have on board a complete manifest of all her cargoes is patently baseless, unfair, inconsiderate, and illegal. Besides the clerical error cannot be attributed to the shipper. Finally, there was no financial loss for the government. .WHEREFORE, finding the instant petition meritorious, the assailed decision of the Court of Tax Appeals imposing a fine of P 10,000.00 on petitioner's vessel, MV "American Venture" for alleged violation of Sec. 1005 in relation to Sec. 2521 of the Tariff and Customs Code, as amended, is hereby REVERSED and SET ASIDE. .

SO ORDERED. .Fernan C.J., Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

G.R. No. 131166 September 30, 1999

CALTEX (PHILIPPINES), INC., petitioner, vs.SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAÑEZAL, AND SOTERA E. CAÑEZAL, respondents.

PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel and a passenger ship?

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV Doña Paz, killing almost all the passengers and crew members of both ships, and thus resulting in one of the country's worst maritime disasters.

The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.'s passenger ship MV Doña Paz.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. 2 MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract betweenthem. 3

On December 20, 1987, at about 6:30 a.m., 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. 4 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.

At about 10:30 p.m. of December 20, 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.1âwphi1.nêt

The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls. 5Among 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 March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 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. 6

On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's wife and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for "Damages Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping



Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed against MV Doña Paz in the open sea setting MT Vector's highly flammable cargo ablaze.

On September 15, 1992, the trial court rendered decision dismissing, the third party complaint against petitioner. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

1. For the death of Sebastian E. Cañezal and his 11-year old daughter Corazon G. Cañezal, including loss of future earnings of said Sebastian, moral and exemplary damages, attorney's fees, in the total amount of P 1,241,287.44 and finally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against the 3rd party plaintiff.

IT IS SO ORDERED.

DONE IN MANILA, this 15th day of September 1992. ARSENIO M. GONONGJudge 7

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of Appeal modified the trial court's ruling and included petitioner Caltex as one of the those liable for damages. Thus:

WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby MODIFIED as follows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Cañezal and Corazon Cañezal:

1. Compensatory damages for the death of Sebastian E. Cañezal and Corazon Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E. Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P300,000.00);

4. Attorney's fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P50,000.00);

5. Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorney's fees and costs which the latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of combustible cargo aboard an unseaworthy vessel).

SO ORDERED. JORGE S. IMPERIAL Associate Justice

WE CONCUR:

RAMON U. MABUTAS, JR. PORTIA ALIÑO HERMACHUELOS

Associate Justice Associate Justice. 8

Hence, this petition.

We find the petition meritorious.

First: The charterer has no liability for damages under Philippine Maritime laws.

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. 9

Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter. 10

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. 11

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. 12

Under a demise or bareboat charter on the other hand, 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. 13

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter. Does a charter party agreement turn the common carrier into a private one? We need to answer this question in order to shed light on the responsibilities of the parties.

In this case, 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.

In Planters Products, Inc. vs. Court of Appeals, 14 we said:

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole portion of a vessel of one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or the 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.



Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment . . .

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. 16 MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals, 17 we ruled:

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

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

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as 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 anoccasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions.

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

Under the Carriage of Goods by Sea Act :

Sec. 3. (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;

xxx xxx xxx

Thus, the 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. 18

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. 19 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.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an unseaworthy vessel such as the MT Vector when Caltex:

1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license renewed;

2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;

3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.

Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these deficiencies.

1. The master of M/T Vector did not posses the required Chief Mate license to command and navigate the vessel;

2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only in bays and rivers when the subject collision occurred in the open sea;

3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;

4. The vessel did not have a Third Mate, a radio operator and lookout; and

5. The vessel had a defective main engine. 20

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code, which provide:

Art. 20. — Every person who contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.

Art. 2176. — Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

And what is negligence?

The Civil Code provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of 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.

In Southeastern College, Inc. vs. Court of Appeals, 21 we said that 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.

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." 22The 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. Hence, considering the nature of the obligation between Caltex and MT Vector, liability as found by the Court of Appeals is without basis.1âwphi1.nêt

The relationship between the parties in this case is governed by special laws. Because of the implied warranty of seaworthiness, 23 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, we cannot expect passengers 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.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could legally transport cargo that time of the year.

Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here under "VESSEL'S DOCUMENTS

1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7, 1987", Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during the hiring of MT Vector?

Apolinario Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid C.I. which will expire on December 7, 1987 but on the last week of November, I called the attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they will renew the same.

Q: What happened after that?

A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were going to send me a copy as soon as possible, sir. 24

xxx xxx xxx

Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our long business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates that the documents are in order. . . . 25

On cross examination —

Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection has expired on December 7. Did it occur to you not to let the vessel sail on that day because of the very approaching date of expiration?

Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were able to secure a renewal of the Certificate of Inspection and that they will in time submit us acopy. 26

Finally, on Mr. Ng's redirect examination:

Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in the coastwise license on December 7, 1987. What was your assurance for the record that this document was renewed by the MT Vector?

Atty. Sarenas: . . .

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three years; they were allowed to sail by the Coast Guard. That are some that make me believe that they in fact were able to secure the necessary renewal.

Q: If the Coast Guard clears a vessel to sail, what would that mean?

Atty. Sarenas: Objection.

Court: He already answered that in the cross examination to the effect that if it was allowed, referring to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast Guard, it means that it has Certificate of Inspection extended as assured to this witness by Restituto Abalos. That in no case MV Vector will be allowed to sail if the Certificate of inspection is, indeed, not to be extended. That was his repeated explanation to the cross-examination. So, there is no need to clarify the same in the re-direct examination.27

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.

As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling insofar as Vector is concerned.

WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS 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.1âwphi1.nêt

No costs in this instance.

SO ORDERED.



G.R. No. 119756 March 18, 1999

FORTUNE EXPRESS, INC., petitioner, vs.COURT OF APPEALS, PAULIE U.CAORONG, and minor childrenYASSER KING CAORONG, ROSE HEINNI and PRINCE ALEXANDER, all surnamed CAORONG, and represented by their mother PAULIE U. CAORONG, respondents.

MENDOZA, J.:

This is an appeal by petition for review on certiorari of the decision, dated July 29, 1994, of the Court of Appeals, which reversed the decision of the Regional Trial Court, Branch VI, Iligan City. The aforesaid decision of the trial court dismissed the complaint of public respondents against petitioner for damages for breach of contract of carriage filed on the ground that petitioner had not exercised the required degree of diligence in the operation of one of its buses. Atty. Talib Caorong, whose heirs are private respondents herein, was a passenger of the bus and was killed in the ambush involving said bus.

The facts of the instant case are as follows:

Petitioner is a bus company in northern Mindanao. Private respondent Paulie Caorong is the widow of Atty. Caorong, while private respondents Yasser King, Rose Heinni, and Prince Alexander are their minor children.

On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in Kauswagan, Lanao del Norte, resulting in the death of several passengers of the jeepney, including two Maranaos. Crisanto Generalao, a volunteer field agent of the Constabulary Regional Security Unit No. X, conducted an investigation of the accident. He found that the owner of the jeepney was a Maranao residing in Delabayan, Lanao del Norte and that certain Maranaos were planning to take revenge on the petitioner by burning some of its buses. Generalao rendered a report on his findings to Sgt. Reynaldo Bastasa of the Philippine Constabulary Regional Headquarters at Cagayan de Oro. Upon the instruction of Sgt. Bastasa, he went to see Diosdado Bravo, operations manager of petitioner, its main office in Cagayan de Oro City. Bravo assured him that the necessary precautions to insure the safety of lives and property would be taken. 1

At about 6:45 P.M. on November 22, 1989, three armed Maranaos who pretended to be passengers, seized a bus of petitioner at Linamon, Lanao del Norte while on its way to Iligan City. Among the passengers of the bus was Atty. Caorong. The leader of the Maranaos, identified as one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan, to stop the bus on the side of the highway. Mananggolo then shot Cabatuan on the arm, which caused him to slump on the steering wheel. The one of the companions of Mananggolo started pouring gasoline inside the bus, as the other held the passenger at bay with a handgun. Mananggolo then ordered the passenger to get off the bus. The passengers, including Atty. Caorong, stepped out of the bus and went behind the bushes in a field some distance from the highway. 2

However, Atty. Caorong returned to the bus to retrieve something from the overhead rack. at that time, one of the armed men was pouring gasoline on the head of the driver. Cabatuan, who had meantime regained consciousness, heard Atty. Caorong pleading with the armed men to spare the driver as he was innocent of any wrong doing and was only trying to make a living. The armed men were, however, adamant as they repeated the warning that they were going to burn the bus along with its driver. During this exchange between Atty. Caorong and the assailants, Cabatuan climbed out of the left window of the bus and crawled to the canal on the opposite side of the highway. He heard shots from inside the bus. Larry de la Cruz, one of the passengers, saw that Atty. Caorong was hit. Then the bus was set on fire. Some of the passengers were able to pull Atty. Caorong out of the burning bus and rush him to the Mercy Community Hospital in Iligan City, but he died while undergoing operation. 3

The private respondents brought this suit for breach of contract of carriage in the Regional Trial Court, Branch VI, Iligan City. In its decision, dated December 28, 1990, the trial court dismissed the complaint, holding as follows:

The fact that defendant, through Operations Manager Diosdado Bravo, was informed of the "rumors" that the Moslems intended to take revenge by burning five buses of defendant is established since the latter also utilized Crisanto Generalao as a witness. Yet despite this information, the plaintiffs charge, defendant did not take proper precautions. . . . Consequently, plaintiffs now fault the defendant for ignoring the report. Their position is that the defendant should have provided its buses with security guards. Does the law require common carriers to install security guards in its buses for the protection and safety of its passengers? Is the failure to post guards on omission of the duty to "exercise the diligence of a good father of the family" which could have prevented the killing of Atty. Caorong? To our mind, the diligence demanded by law does not include the posting of security guard in buses. It is an obligation that properly belongs to the State. Besides, will the presence of one or two security guards suffice to deter a determined assault of the lawless and thus prevent the injury complained of? Maybe so, but again, perhaps not. In other words, the presence of a security guard is not a guarantee that the killing of Atty. Caorong would have been definitely avoided.

xxx xxx xxx

Accordingly, the failure of defendant to accord faith and credit to the report of Mr. Generalao and the fact that it did not provide security to its buses cannot, in the light of the circumstances, be characterized as negligence.

Finally, the evidence clearly shows that the assalants did not have the least intention of the harming any of the passengers. They ordered all the passengers to alight and set fire on the bus only after all the passengers were out of danger. The death of Atty. Caorong was an unexpected and unforseen occurrense over which defendant had no control. Atty. Caorong performed an act of charity and heroism in coming to the succor of the driver even in the face of danger. He deserves the undying gratitude of the driver whose life he saved. No one should blame him for an act of extraordinary charity and altruism which cost his life. But neither should any blame be laid on the doorstep of defendant. His death was solely due to the willfull acts of the lawless which defendant could neither prevent nor to stop.

WHEREFORE, in view of the foregoing, the complaint is hereby dismissed. For lack of merit, the counter-claim is likewise dismissed. No costs. 4

On appeal, however, the Court of Appeals reversed. It held:

In the case at bench, how did defendant-appellee react to the tip or information that certain Maranao hotheads were planning to burn five of its buses out of revenge for the deaths of two Maranaos in an earlier collision involving appellee's bus? Except for the remarks of appellee's operations manager that "we will have our action . . . . and I'll be the one to settle it personally," nothing concrete whatsoever was taken by appellee or its employees to prevent the execution of the threat. Defendant-appellee never adopted even a single safety measure for the protection of its paying passengers. Were there available safeguards? Of course, there were: one was frisking passengers particularly those en route to the area where the threats were likely to be carried out such as where the earlier accident occurred or the place of influence of the victims or their locality. If frisking was resorted to, even



temporarily, . . . . appellee might be legally excused from liabilty. Frisking of passengers picked up along the route could have been implemented by the bus conductor; for those boarding at the bus terminal, frisking could have been conducted by him and perhaps by additional personnel of defendant-appellee. On hindsight, the handguns and especially the gallon of gasoline used by the felons all of which were brought inside the bus would have been discovered, thus preventing the burning of the bus and the fatal shooting of the victim.

Appellee's argument that there is no law requiring it to provide guards on its buses and that the safety of citizens is the duty of the government, is not well taken. To be sure, appellee is not expected to assign security guards on all its buses; if at all, it has the duty to post guards only on its buses plying predominantly Maranaos areas. As discussed in the next preceding paragraph, least appellee could have done in response to the report was to adopt a system of verification such as the frisking of passengers boarding at its buses. Nothing, and no repeat, nothing at all, was done by defendant-appellee to protect its innocent passengers from the danger arising from the "Maranao threats." It must be observed that frisking is not a novelty as a safety measure in our society. Sensitive places — in fact, nearly all important places — have applied this method of security enhancement. Gadgets and devices are avilable in the market for this purpose. It would not have weighed much against the budget of the bus company if such items were made available to its personnel to cope up with situations such as the "Maranaos threats."

In view of the constitutional right to personal privacy, our pronouncement in this decision should not be construed as an advocacy of mandatory frisking in all public conveyances. What we are saying is that given the circumstances obtaining in the case at bench that: (a) two Maranaos died because of a vehicular collision involving one of appellee's vehicles; (b) appellee received a written report from a member of the Regional Security Unit, Constabulary Security Group, that the tribal/ethnic group of the two deceased were planning to burn five buses of appellee out of revenge; and (c) appelle did nothing — absolutely nothing — for the safety of its passengers travelling in the area of influence of the victims, appellee has failed to exercise the degree of dilegence required of common carriers. Hence, appellee must be adjudge liable.

xxx xxx xxx

WHEREFORE the decision appealed from is hereby REVERSED and another rendered ordering defendant-appellee to pay plaintiffs-appellants the following:

1) P3,399,649.20 as death indemnity;

2) P50,000.00 and P500.00 per appearance as attorney's fee and

Costs against defendant-appellee. 5

Hence, this appeal. Petitioner contends:

(A) THAT PUBLIC RESPONDENT ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT DATED DECEMBER 28, 1990 DISMISSING THE COMPLAINT AS WELL AS THE COUNTERCLAIM, AND FINDING FOR PRIVATE RESPONDENTS BY ORDERING PETITIONER TO PAY THE GARGANTUAN SUM OF P3,449,649.20 PLUS P500.00 PER APPEARANCE AS ATTORNEY'S FEES, AS WELL AS DENYING PETITIONERS MOTION FRO RECONSIDERATION AND THE SUPPLEMENT TO SAID MOTION, WHILE HOLDING, AMONG OTHERS, THAT THE PETITIONER

BREACHED THE CONTRACT OF THE CARRIAGE BY ITS FAILURE TO EXCERCISE THE REQUIRED DEGREE OF DILIGENCE;

(B) THAT THE ACTS OF THE MARANAO OUTLAWS WERE SO GRAVE, IRRESISTABLE, VIOLENT, AND FORCEFULL, AS TO BE REGARDED ASCASO FORTUITO; AND

(C) THAT PUBLIC RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT PETITIONER COULD HAVE PROVIDED ADEQUATE SECURITY IN PREDOMINANTLY MUSLIM AREAS AS PART OF ITS DUTY TO OBSERVE EXTRA-ORDINARY DILIGENCE AS A COMMON CARRIER.

The instant has no merit.

First. Petitioner's Breach of the Contract of Carriage.

Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a passenger on account of wilfull acts of other passengers, if the employees of the common carrier could have prevented the act through the exercise of the diligence of a good father of a family. In the present case, it is clear that because of the negligence of petitioner's employees, the seizure of the bus by Mananggolo and his men was made possible.

Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were planning to take revenge on the petitioner by burning some of its buses and the assurance of petitioner's operation manager, Diosdado Bravo, that the necessary precautions would be taken, petitioner did nothing to protect the safety of its passengers.

Had petitioner and its employees been vigilant they would not have failed to see that the malefactors had a large quantity of gasoline with them. Under the circumstances, simple precautionary measures to protect the safety of passengers, such as frisking passengers and inspecting their baggages, preferably with non-intrusive gadgets such as metal detectors, before allowing them on board could have been employed without violating the passenger's constitutional rights. As this Court amended in Gacal v. Philippine Air Lines, Inc., 6 a common carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting their baggages.

From the foregoing, it is evident that petitioner's employees failed to prevent the attack on one of petitioner's buses because they did not exercise the diligence of a good father of a family. Hence, petitioner should be held liable for the death of Atty. Caorong.

Second. Seizure of Petitioner's Bus not a Case of Force Majeure

The petitioner contends that the seizure of its bus by the armed assailants was a fortuitous event for which it could not be held liable.

Art. 1174 of the Civil Code defines a fortuitous event as an occurence which could not be foreseen, is inevitable. InYobido v. Court of Appeals, 7 we held that to considered as force majeure, it is necessary that (1) the cause of the breach of the obligation must be independent of the human will; (2) the event must be either unforeseeable or unavoidable; (3) the occurence must be render it impossible for the debtor to fulfill the obligation in a normal manner; and (4) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The absence of any of the requisites mentioned above would prevent the obligor from being excused from liability.

Thus, in Vasquez v. Court of Appeals, 8 it was held that the common carrier was liable for its failure to take the necessary precautions against an approaching typhoon, of which it was warned, resulting in the loss of the lives of several passengers. The event was forseeable, and, thus, the second requisite mentioned above was not fulfilled. This ruling applies by analogy to the present case. Despite the report of PC agent Generalao that the Maranaos were going to attack its buses, petitioner took no steps to safeguard the lives and properties of its passengers. The seizure of the bus of the petitioner was foreseeable and, therefore, was not a fortuitous event which would exempt petitioner from liabilty.

Petitioner invokes the ruling in Pilapil v. Court of Appeals, 9 and De Guzman v. Court of Appeals, 10 in support of its contention that the seizure of its bus by the assailants



constitutes force majeure. In Pilapil v. Court of Appeals, 11 it was held that a common carrier is not liable for failing to install window grills on its buses to protect the passengers from injuries cause by rocks hurled at the bus by lawless elements. On the other hand, in De Guzman v. Court of Appeals, 12 it was ruled that a common carriers is not responsible for goods lost as a result of a robbery which is attended by grave or irresistable threat, violence, or force.

It is clear that the cases of Pilapil and De Guzman do not apply to the prensent case. Art. 1755 of the Civil Code provides that "a common carrier is bound to carry the passengers as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances." Thus, we held in Pilapil and De Guzman that the respondents therein were not negligent in failing to take special precautions against threats to the safety of passengers which could not be foreseen, such as tortious or criminal acts of third persons. In the present case, this factor of unforeseeability (the second requisite for an event to be considered force majeure) is lacking. As already stated, despite the report of PC agent Generalao that the Maranaos were planning to burn some of petitioner's buses and the assurance of petitioner's operation manager (Diosdado Bravo) that the necessary precautions would be taken, nothing was really done by petitioner to protect the safety of passengers.

Third. Deceased not Guilty of Contributory Negligence

The petitioner contends that Atty. Caorong was guilty of contributory negligence in returning to the bus to retrieve something. But Atty. Caorong did not act recklessly. It should be pointed out that the intended targets of the violence were petitioners and its employees, not its passengers. The assailant's motive was to retaliate for the loss of life of two Maranaos as a result of the collision between petitioner's bus and the jeepney in which the two Maranaos were riding. Mananggolo, the leader of the group which had hijacked the bus, ordered the passengers to get off the bus as they intended to burn it and its driver. The armed men actually allowed Atty. Caorong to retrieve something from the bus. What apparently angered them was his attempt to help the driver of the bus by pleading for his life. He was playing the role of the good Samaritan. Certainly, this act cannot considered an act of negligence, let alone recklessness.

Fourth. Petitioner Liable to Private Respaondents for Damages

We now consider the question of damages that the heirs of Atty. Caorong, private respondents herein, are entitled to recover from the petitioner.

Indemnity for Death. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof, provides for the payment of indemnity for the death of passengers caused by the breach of contract of carriage by a common carrier. Initially fixed in Art. 2206 at P3,000.00, the amount of the said indemnity for death has through the years been gradually increased in view of the declining value of the peso. It is presently fixed at P50,000.00. 13 Private respondents are entitled to this amount.

Actual Damages. Art. 2199 provides that "except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as has duly proved." The trial court found that the private respondents spent P30,000.00 for the wake and burial of Atty. Caorong. 14 Since petitioner does not question this finding of the trial court, it is liable to private respondent in the said amount as actual damages.

Moral Damages. Under Art. 2206, the "spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased." The trial court found that private respondent Paulie Caorong suffered pain from the death of her husband and worry on how to provide support for their minor children, private respondents Yasser King, Rose Heinni, and Prince Alexander. 15The petitioner likewise does not question this finding of the trial court. Thus, in accordance with recent decisions of this Court,16 we hold that the petitioner is liable to the private respondents in the amount of P100,000.00 as moral damages for the death of Atty. Caorong.

Exemplary Damages. Art. 2232 provides that "in contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent reckless manner." In the present case, the

petitioner acted in a wanton and reckless manner. Despite warning that the Maranaos were planning to take revenge against the petitioner by burning some of its buses, and contary to the assurance made by its operations manager that the necessary precautions would be take, the petitioner and its employees did nothing to protect the safety of passengers. Under the circumtances, we deem it reasonable to award private respondents exemplary damages in the amount of P100,000.00. 17

Attorney's Fees. Pursuant to Art. 2208, attorney's fees may be recovered when, as in the instant case, exemplary damages are awarded. In the recent case of Sulpicio Lines, Inc. v. Court of Appeals, 18 we held an award of P50,000.00 as attorney's fees to be reasonable. Hence, the private respondents are entitled to attorney's fees in that amount.

Compensation for Loss of Earning Capacity. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof, provides that in addition to the indemnity for death arising from the breach of contrtact of carriage by a common carrier, the "defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter." The formula established in decided cases for computing net earning capacity is as follows: 19

Gross Necessary

Net Earning = Life x Annual — Living

Capacity Expectancy Income Expenses

Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty (80) and the age of the deceased. 20 Since Atty. Caorong was 37 years old at that time of his death, 21 he had a life expectancy of 28 2/3 more years. 22 His projected gross annual income, computed based on his monthly salary of P11,385.00. 23 as a lawyer in the Department of Agrarian Reform at the time of his death, was P148,005.00. 24 Allowing for necessary living expenses of fifty percent (50%) 25 of his projected gross annual income, his total earning capacity amounts to P2,121,404.90. 26 Hence, the petitioner is liable to the private respondents in the said amount as a compensation for loss of earning capacity.

WHEREFORE, the decision, dated July 29, 1994, of the Court of Appeals is hereby AFFIRMED with the MODIFICATION that petitioner Fortune Express, Inc. is ordered to pay the following amounts to private respondents Paulie, Yasser King, Rose Heinni, and Prince Alexander Caorong:

1. death indemnity in the amount of fifty thousand pesos (P50,000.00);

2. actual damages in the amount of thirty thousand pesos (P30,000.00);

3. moral damages in the amount of one hundred thousand pesos (P100,000.00);

4. exemplary damages in the amount of one hundred thousand pesos (P100,000.00);

5. attorney's fees in the amount of fifty thousand pesos (P50,000.00);

6. compensation for loss of earning capacity in the amount of two million one hundred twenty-one thousand four hundred four pesos and ninety centavos (P2,121,404.90); and

7. cost of suits.

SO ORDERED.


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